Energy Finance Report

Jerry Muys

Jerry Muys is a partner and environmental litigator in the Environment & Natural Resources Group of our Washington, D.C. office. He is the co-leader of the firm’s Climate-Related Business & Technology Group. He has represented clients in the energy, automotive and consumer products sectors before EPA and state agencies and in litigated proceedings for over 30 years. More recently, he has advised clients on regulatory considerations and due diligence requirements relating to the funding, siting, permitting and construction of renewable energy and water infrastructure projects, and on legal issues and business strategies relating to energy efficiency and “green products.” Mr. Muys currently focuses on emerging technologies and business planning in the areas of resource allocation and reuse.

Before entering private practice, Mr. Muys was a trial attorney with the Land & Natural Resources Division of the U.S. Department of Justice, where he litigated cases on behalf of the Environmental Protection Agency. Before joining the DOJ, Mr. Muys served in EPA’s Office of Enforcement, where he worked primarily on water and hazardous waste management issues. He has co-authored articles and taught courses on legal trends in the areas of water and renewable energy infrastructure development.

Email: jmuys@sandw.com

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Recent Posts

Advanced Approaches to Stormwater Runoff Management Through Green Infrastructure

Posted by Jerry Muys on 8/4/17 11:24 AM

Green infrastructure refers to, among other things, the utilization of sustainable forestry and agriculture as elements of a cost-effective compliance strategy for meeting the National Pollutant Discharge Elimination System (“NPDES”) permitting requirements, as authorized by the Clean Air Act (“CWA”), and its state counterparts. Natural systems and processes such as constructed wetlands and phytoremediation have long been used as tools for meeting NPDES discharge standards; however, the advent of the Environmental Protection Agency’s (“EPA’s”) more rigorous “Phase II” stormwater management requirements has spurred renewed interest in such systems among a new and more expansive set of permittees.

Stormwater discharges first became subject to NPDES permitting requirements as a result of the 1987 amendments to the CWA. “Phase I” of the program began in 1990, and applied only to large and medium municipal separate storm sewer systems and 11 industrial categories, including construction sites disturbing five acres of land or more.  In March 2003, Phase II of the program began, applying to a much broader set of municipal sewers and construction sites including those disturbing as little as one acre of land.  Phase II also expanded certain exemptions that were originally available under Phase I.

EPA has authorized the NPDES stormwater program to 46 states, with EPA largely relegated to an oversight capacity. Because states with delegated programs may impose stormwater management requirements more stringent than those promulgated by EPA, a number of states, led by California, have established Phase II requirements significantly more rigorous than EPA’s rules. 

For example, California requires Phase II stormwater permits for wide-ranging categories of facilities that meet certain broad criteria, including industrial facilities that fall within almost every conceivable Standard Industrial Classification (“SIC”) code. Requirements typically include the preparation of a Storm Water Pollution Prevention Plan, the implementation of best management practices (including technology-driven environmental cleanup obligations), and training, sampling and reporting obligations.

Most states have elected to impose the Phase II requirements through issuance of general permits that apply to categories of facilities rather than to specific facilities and employ benchmark compliance targets rather than definitive cleanup standards. However, it appears that a number of states have begun moving toward the establishment of specific numeric action levels governing the extent of response measures required in the event of permit exceedances, and some have even begun to incorporate Total Maximum Daily Loads (“TMDLs”) into their permit obligations.  

A decision to include green infrastructure as part of a stormwater discharge compliance program should not be made without first conferring with regulators and conducting a preliminary desktop evaluation to determine whether the permitted facility is well-suited for such an approach. If the answer is in the affirmative, the next step is to prepare a working document identifying the essential project scope and associated deliverables.  This should include, as determined necessary, the performance of an initial pilot study to establish proof of concept and the conduct of a “pre-design” study to evaluate the range of costs and feasibility of the project.

Subject to the outcome of the initial pilot study and the pre-design study, the next step is the preparation of a “pre-development agreement” setting forth in more detail the project work scope and cost projections, including calculations that would allow the project sponsor to quantify the likely avoided operating and/or regulatory costs resulting from incorporating green infrastructure components into the project. Upon completion of the work scope and cost projections, a legally-binding “master development agreement” should be negotiated among interested parties, addressing the financing, design, construction, and operation and maintenance requirements of the proposed project.

At critical junctures during the preparation of the various project documents referenced above, the project sponsor will need to consult with counsel if only for the limited purposes of performing the legal aspects of any necessary project due diligence and regulatory analysis. Finally, it is prudent to involve counsel in any negotiations with relevant government agencies and other stakeholders leading up to the preparation of a binding legal document, particularly in light of the fact that the project will almost certainly diverge from the standard regulatory approaches employed by the regulators.

There are several states currently using green infrastructure as the means to comply with stormwater discharge requirements. For example, pilot projects in the Anacostia River Watershed in Maryland have utilized infiltration and bio-retention best management practices to manage urban runoff.  In Seattle, Washington, streets have been redesigned to include more trees and shrubs, reflecting natural draining patterns.  In Portland, Oregon, stormwater curb extensions were added to residential streets, allowing stormwater to flow into the bioswales to be filtered.  Lastly, Chicago, Illinois has been using several low impact development practices, such as rain gardens, wetland rehabilitation, permeable alleys, and rooftop gardens.

Jerry Muys is a partner and Leigh Ratino is a law clerk with Boston-based law firm Sullivan & Worcester LLP.

Topics: Green Infrastructure, Stormwater Runoff Management, National Pollutant Discharge Elimination System, Clean Water Act

Considerations for Participants in the Expanding Market for Compensatory Mitigation Credits

Posted by Jerry Muys on 8/1/17 12:36 PM

In a recent blog post, we described the basic statutory and regulatory framework supporting the increasing popularity of mitigation banking.  In this update, we offer some additional observations for property owners and other sponsors who may wish to develop a mitigation bank, and identify some of the risks associated with that undertaking.

As described in our previous post, a mitigation bank is a wetland, stream or other aquatic or habitat resource area that has been restored, established, enhanced (or in certain circumstances) preserved for the purpose of providing compensation for unavoidable impacts to aquatic resources resulting from development.  The person or entity that establishes a mitigation bank and undertakes the restoration activities is sometimes referred to as a “mitigation banker” or “bank sponsor.”  Bank sponsors can generate “compensatory mitigation credits,” which can be sold to developers whose permits under Section 404 of the Clean Water Act (and similar federal and state regulatory authorities) impose mitigation obligations.  We have outlined below the basic steps that a sponsor seeking to establish a mitigation bank would need to follow to generate marketable credits. 

The first step in the process of establishing a mitigation bank is to identify and, if necessary, purchase a suitable project site.  Candidate properties should be limited to those that offer the greatest likelihood that they can be restored or enhanced at a cost that corresponds favorably with the likely value of the credits to be generated.  Factors relevant in assessing the ecological suitability of a potential project site include the soil characteristics of the site, landscape features of the surrounding watershed or habitat area, and reasonably foreseeable effects the project might have on the surrounding ecosystems.

In addition, because regulatory obligations generally require that the mitigation occur within the same watershed or habitat area in which the ecological damage occurred, a prospective sponsor should also consider the amount and nature of development taking place and expected to take place within the subject watershed or habitat area.  This assessment can assist the sponsor in selecting the optimal project site and restoration plan.

Once the sponsor decides to move forward with a restoration project at a particular location, a prospectus and mitigation plan must be submitted to a regulatory body known as the “Interagency Review Team” (“IRT”); this is a group of federal, tribal, state, and local regulatory and resource agency representatives who historically have been headed by the local district engineer for the Army Corps of Engineers.  These initial submissions serve to document the key aspects of the proposed project, and also provide the primary source of information for the public during the public comment period (which begins within 30 days of the IRT’s receipt of the prospectus and continues for an additional 30 days).

The prospectus should provide a summary of information concerning the proposed bank, as well as more specific information pertaining to its establishment and operation, long-term management strategies, and the bank’s proposed service area.  The prospectus should also address the technical feasibility of the restoration project.

The mitigation plan must provide a description of the nature of the project to be undertaken (i.e., restoration, establishment, enhancement, or preservation), documentation of the needs of the local watershed or habitat area, and a description of the factors considered during the site selection process.  The mitigation plan should also identify the number of compensatory mitigation credits to be issued by the bank upon completion of the project.

Following regulatory review of the prospectus, a draft banking instrument must be prepared that conforms with the terms of the prospectus.  It should describe the physical and legal characteristics of the mitigation bank as well as the protocols pursuant to which the bank will be established and operated.  In addition, the banking instrument identifies the number of credits to be issued in connection with the mitigation bank, provides a description of the protocols governing management of the bank, and includes a long-term operation and maintenance plan for the site.

The draft banking instrument is subject to review by the appropriate regulatory authorities (depending on whether the project is a watershed or habitat restoration).  The review process typically includes some evaluation of the economic viability of the proposed project.  Upon completion of the review process, the draft banking instrument is subject to a 30-day comment period, following which the sponsor may be required to make additional revisions to the document.  

Once the sponsor has addressed any remaining concerns regarding the terms of the draft banking instrument, it may submit the final version of the instrument, together with supporting documentation detailing any changes from the draft, to the regulatory authorities for approval.  Only after this documentation has been submitted and approved may the sponsor begin selling credits into the mitigation banking market.

Although the potential financial and ecological benefits of establishing a mitigation bank are well-documented, there is some uncertainty associated with the endeavor.  Like any major construction project, there is always the risk of substantial cost overruns due to delays in the regulatory review process or other unforeseen circumstances.  There can also be uncertainty resulting from variability over time in the market value of the compensatory mitigation credits to be generated. 

Some of the risks inherent in restoration projects can be addressed through a thoughtful and comprehensive due diligence effort at the outset.  For example, because the existence of conflicting property rights (for example, preexisting easements) can pose an obstacle to the timely and cost-effective completion of a restoration project, a thorough title search should be performed during the early stages of the project.  In addition, because of the variability in the value of the compensatory mitigation credits to be generated by the project, early consideration of possible hedging strategies might be prudent.

Jerry Muys is a partner, Patrick Mulpeter is a summer associate, and Leigh Ratino is a law clerk with Boston-based law firm Sullivan & Worcester LLP.

Topics: Compensatory Mitigation, Mitigation Banking, Compensatory Mitigation Credits

Water Infrastructure: The Current State of Funding and Considerations for Private Investors

Posted by Jerry Muys on 7/6/17 11:00 AM

Almost a decade ago, EPA estimated the needed investment in our domestic water and wastewater infrastructure at approximately $105 billion; today it is estimated at over $600 billion. There is no indication thus far that the new administration is committed to reversing the rapid decay of our water infrastructure, or addressing the massive backlog of needed improvements.

In the face of diminishing government resources, water utilities over the past decade or so have aggressively moved to develop independent revenue streams to shore up their bottom lines. Most successful among these efforts have been the investments by wastewater facilities in new technologies which use sewage sludge bio-solids as a feedstock for the generation of electricity. This development is particularly noteworthy in light of the fact that the water utility sector is among the highest consumers of electricity, accounting for approximately 4% of energy use in the U.S. and as high as 20% in some states, such as California.

Although new technologies hold substantial potential benefits for water utilities both in terms of financial returns and in achieving sustainability goals, they increasingly cannot be undertaken without an initial infusion of private investment. However, this need for private capital has run headlong into long-standing negative public perceptions regarding the “privatization” of water assets. This dynamic became abundantly apparent when the new administration recently floated the idea of selling the Washington Aqueduct as a means of funding other infrastructure projects.

With the new administration’s infrastructure initiative likely to focus on transportation, water utilities almost certainly will confront continuing funding shortfalls as they encounter increasing regulatory compliance and operational challenges. In the face of this enormous and growing demand for capital, why haven’t private investors been willing to move beyond their historical antipathy toward the public water sector and provide the funding necessary to keep it afloat? As one might imagine, the answer to that question is multi-faceted.

Investments in the water sector, no matter how much they might be in demand, historically have not offered the types of returns that are routinely generated by other types of “cleantech” investments. The cumbersome and disparate structure of the water sector, with its multitude of small, municipally-owned systems, is ill-equipped to efficiently and effectively employ large infusions of new capital and to generate returns commensurate with that investment. For those private financiers who are up to the challenge of investing in the water infrastructure sector, we have offered below some considerations that you should enter into your calculus.

Typically the initial step in formulating a water infrastructure investment strategy is to establish a list of potential target jurisdictions, presumably limited to states and cities with legal, political, and economic frameworks favorable to private investment in infrastructure. For example, before deciding to include any particular municipality on your list, take a look at the 30 or so states that have enacted legislation to authorize or facilitate public-private partnerships. You should also look at the history of privatization efforts in your target jurisdictions, including the degree of support for such efforts from local political leaders, water facility managers, labor unions, citizens groups and the general public.

The candidate list can then be winnowed down to conform to the investment strategy that you have adopted. For example, your business model might include a standardized project type such as a 10-200 million gallons per day wastewater treatment plant upgrade with biogas-driven combined heat and power at a defined equity investment range such as $20-100M. Within those constraints, priority locations can then be assessed and selected.

Following the selection of an initial target, the investment team can then begin the process of developing a specific plan to further define the elements of the project and identify the preferred technology and financing model. As part of this process, the development team should also find and reach out to potential stakeholders, such as local governmental representatives and community groups, to seek their input on the conceptual framework for the transaction.

Emerging from this process should be a conceptual plan that addresses the threshold ownership and structural issues (e.g. concession agreements v. equity interests). It may also include a pre-negotiated contractual and financing model to support the project.

Finally, upon completion of the conceptual plan, it is customary to initiate a local political and public education campaign to publicize the benefits of the project and to hopefully generate broad-based community support for the project in advance of any necessary governmental approvals. If the hoped-for support does not come to fruition, most prudent investors will reassess and perhaps re-focus their efforts on another municipality.

Jerry Muys is a partner, Leigh Ratino is a law clerk, and Paul Tetenbaum is a summer intern with Boston-based law firm Sullivan & Worcester LLP.

Topics: Private Investment, Water Sector, Water Infrastructure, Wastewater Infrastructure, Water Utilities

Biofuel Mandates Escape Current EPA Scrutiny

Posted by Jerry Muys on 6/21/17 2:16 PM

The Renewable Fuel Standard (RFS) is a regulatory program administered by EPA that requires petroleum-based transportation fuel sold in the U.S. to contain a minimum volume of various categories of biofuels. The program’s mandates are subject to a statutory waiver provision that may be exercised by EPA in the event that market conditions present an obstacle to meeting the minimum volumes. With the new administration’s continuing scrutiny of EPA’s numerous regulatory programs, there has been a great deal of uncertainty regarding the likely fate of the RFS Program.

Under the RFS program, biofuel must be blended into transportation fuel in increasing amounts each year, capping out at 36 billion gallons by 2022. Compliance with the blending obligations are imposed on petroleum importers and refiners, known as “obligated parties.” The annual amounts of the various categories of biofuels that must be blended are referred to as Renewable Volume Obligations (RVOs). Obligated parties can comply with the RFS program by either blending the requisite volume of renewable fuel into their transportation fuel or purchasing credits designated as Renewable Identification Numbers (RINs) to meet the RVO.

Although the Clean Air Act sets forth annual volumetric targets for certain biofuels, EPA is required to establish enforceable RVOs through a formal rule-making process. Separate quotas and blending requirements are determined for cellulosic biofuels, biomass-based diesel, advanced biofuels, and total renewable fuels. Refiners and importers must either blend the requisite amount of each of the four categories of biofuels, or acquire the necessary amount of RINs for each of the categories. Parties that purchase or sell RINs are required to enter the transaction information into the EPA Moderated Transaction System.

Initial uncertainty over the fate of the program began in 2015, when EPA exercised its statutory waiver authority for the first time and set an RVO lower than the benchmarks established by Congress. Litigation ensued, and many in the biofuel industry argued that EPA had abused its waiver authority by setting an RVO lower than the statutory minimums. As of the current date, the litigation remains unresolved.

In November of 2016, EPA set an RVO of 19.28 billion gallons of total biofuel for 2017; this was an increase from the 18.11 billion gallon figure adopted for 2016, but still below the statutory standard of 24 billion gallons. However, renewed uncertainty arose in January of 2017, when President Trump ordered a temporary freeze and review of thirty EPA regulations that had been issued between the time of the U.S. election and his inauguration, including the 2017-18 RVOs.  

To the industry’s relief, the regulatory freeze expired without the new administration making changes to the 2017-18 RVOs, and immediately thereafter RIN prices spiked for a period of time. However, overall RIN prices have dropped 19 percent since President Trump’s election, reflecting continued uncertainty about the future of the program.

Though the new administration did not revise the current RVOs, it is entertaining a policy initiative by Carl Icahn (an investor in the petroleum sector who also serves as a special adviser to President Trump) to shift responsibility for meeting RVO requirements away from refiners and importers to blenders and others in the chain of commerce. A ruling by EPA on the Icahn initiative may be several months away. The public comment period on the Icahn-backed measure ended February 22.

Despite uncertainties regarding the future of biofuel mandates in the U.S. and elsewhere, advancements within the industry continue to occur. The liquid biofuels industry now employs more than 1.7 million people globally, and recent technological developments have expanded the range of biofuel applications.

It has been reported that Cool Planet Energy Systems developed a technology that converts farm waste, wood chips, and nut shells into liquid jet fuel. The company has secured investments from three major oil companies, in addition to a $91 million grant from the Department of Agriculture, and is continuing to refine its process with the hopes that it will become a viable supplement or replacement for traditional jet fuel.

The U.S. Navy has also taken an active interest for a number of years in utilizing greater quantities of biofuel in order to reduce its dependency on fossil fuels. During the Obama Administration, the Navy conducted several training exercises in which a large number of the ships and planes participated using a fuel blend that was 10% biofuel. Those efforts appear to be continuing.

More significantly, on June 19, Exxon Mobil Corp. and Synthetic Genomics Inc. announced a possible breakthrough in biofuel technologies. Their scientists reportedly discovered a way to double the fatty lipids in algae, bringing them a step closer to being able to use algae as a biofuel feedstock, a potentially more sustainable alternative to the feedstocks currently utilized.

Jerry Muys is a partner and Leigh Ratino is a law clerk with Boston-based law firm Sullivan & Worcester LLP.

Topics: Biofuels, Renewable Fuel Standard, Cellulosic biofuel, Biomass-based diesel, Renewable Volume Obligation, Advanced biofuel, Renewable Fuel, Renewable Identification Number

Monetizing Vacant Land Through Mitigation Banking

Posted by Jerry Muys on 6/13/17 3:14 PM

A mitigation bank is a wetland, stream, or other habitat area that has been restored, established, enhanced, or (in certain circumstances) preserved for the purpose of providing compensation for unavoidable impacts to such natural resources. When a corporation or other entity undertakes these activities, it can generate “compensatory mitigation credits” (“CMCs”), which in recent years have significantly increased in value. Corporations and other owners of brownfield or dormant/underutilized properties are increasingly using these lands to create mitigation banks in order to generate CMCs that can be sold into the mitigation market.

Mitigation banking originated under Section 404 of the Clean Water Act and similar state statutes intended to protect wetlands and streams. Developers of projects which involve the discharge of dredged or fill materials into wetlands, streams, or other waters of the United States are required to obtain a permit from the U.S. Army Corps of Engineers (Corps) or an approved state, and must avoid and minimize negative environmental impacts to the extent feasible. When negative impacts are unavoidable, compensatory mitigation is required to offset the impacts on aquatic resources. The Corps or an approved state authority determines the necessary quantity and method of compensatory mitigation, which can be performed by the permittee, a third party under contract to the permittee, or through the purchase of CMCs from a mitigation bank.

Mitigation banking is completed off-site, meaning it is performed within the same watershed as the site of the impacts but not at the same location. Banks are regulated by Interagency Review Teams (IRTs), which are chaired by the district engineer or a designated representative and include federal, tribal, state, and/or resource agency representatives. The person or entity that establishes a mitigation bank and undertakes the restoration activities is sometimes referred to as a “mitigation banker” or “bank sponsor.”

In order to generate CMCs, the mitigation banker must first negotiate a written agreement with the IRT that provides for the long-term funding and management of the bank, as well as the design, construction, monitoring, ecological success, and long-term protection of the bank site. The agreement also identifies the number of credits available for sale and requires the use of ecological assessment techniques to certify that those credits provide the required ecological functions. See EPA Mitigation Banking Factsheet.

Federal policy favors the use of mitigation banks and CMCs to offset the negative environmental impacts of development for a number of reasons. Since mitigation banking is performed prior to development, there is less uncertainty about whether environmental impacts will be effectively offset. In addition, mitigation banking allows for the use of scientific expertise and financial resources that are not always available when mitigation is performed directly by the developer. Mitigation banking also tends to be more cost-effective and to allow for shorter permit processing times.

In 2008, the Corps and EPA adopted regulations that made mitigation banking the preferred method for both wetland restoration and compensation for wetland losses. Due to the success of mitigation banking, the concept was expanded to offset losses of endangered species and associated habitat; known as “conservation banks,” they are under the jurisdiction of the U.S. Fish and Wildlife Service and the National Marine Fisheries Service. Today, there are more than 1,200 mitigation banks in the U.S., and the market value of all CMCs exceeds $100 billion.

Jerry Muys is a partner and Leigh Ratino is a law clerk with Boston-based law firm Sullivan & Worcester LLP.

Topics: Compensatory Mitigation, Mitigation Banking, Compensatory Mitigation Credits, Wetlands

Converting Environmental Liabilities to Assets: Repurposing Inactive and Abandoned Mine and Mineral Processing Sites

Posted by Jerry Muys on 6/6/17 2:36 PM

Under the Brownfields Law of 2002, EPA and other federal agencies have established a variety of programs focused on promoting and funding the repurposing of abandoned mine lands (AMLs), broadly defined as lands, waters, and watersheds in close proximity to where extraction, beneficiation, or processing of ores and minerals has occurred. Among the most promising of these initiatives is EPA’s Re-Powering America Program, pursuant to which EPA has prioritized the development of renewable energy projects on brownfield properties such as AMLs.  

The Department of Energy’s National Renewable Energy Laboratory (NREL) has significantly contributed to the success of the Re-Powering America Program. As part of its initial characterization of sites on EPA’s brownfields inventory, NREL collects data sufficient to determine the renewable energy potential of each site. To date, NREL has screened over 80,000 sites for their development potential as solar, wind, biomass, and geothermal facilities.

Hard-rock mine sites, in particular, offer a number of distinct opportunities for renewable energy development. For example, they tend to be large in size, and thus can provide sufficient capacity for the installation of a large-scale wind farm or solar array in one location and are often near existing infrastructure, including roads and utilities. In addition, hard-rock mine sites can serve as excellent locations for wind farms because they are often situated in mountainous areas that receive consistent wind flow. 

Development of inactive coal properties can be more challenging, due in part to the remediation and procedural requirements of the Surface Mining Control and Reclamation Act. However, the Act also offers a potential funding source for site redevelopment under its AML Reclamation Fund, a benefit not available with respect to the hard-rock mine sites.

In addition to the foregoing, there is an array of emerging technologies that can enable value extraction and new reclamation approaches based on engineered natural systems or “green infrastructure.” For example, energy recovery from wastewater at mine sites can be a cost-effective option due to the often remote locations of such sites. In addition, residuals from wastewater treatment can be used as a soil amendment to add organic matter and nutrients to the soil to create a fertile soil profile with a reestablished microbial community, invertebrates, and plants. This approach can be used to help meet Clean Water Act stormwater discharge requirements as well as regulatory limitations on direct discharge to surface waters.

The use of green infrastructure can create a revenue generating ecosystem that will help offset the cost of mine remediation. At mine sites with substantial vacant land, sustainable forestry can be used to help manage stormwater as well as generate carbon credits recognized to varying degrees under both the California and Regional Greenhouse Gas Initiative frameworks. Furthermore, engineered wetlands can help address acid mine drainage and other contaminated flows from abandoned mines and potentially serve as a secondary revenue source through the generation of water quality trading credits under the Clean Water Act.

Historically, a significant obstacle to the redevelopment of AML has been the lack of funding available to characterize and remediate these sites. This gap in funding can be reduced by incorporating renewable energy and/or green infrastructure into the mine remediation plan. The installation of a solar array during or following mine reclamation can provide an energy source to power the remediation effort or create a revenue stream to offset the cost of remediation. A similar approach can be utilized through the use of green infrastructure.

In its proposed 2018 budget, the Trump administration has requested $28.0 billion for the Department of Energy “to make key investments to support its missions in nuclear security, basic scientific research, energy innovation and security, and environmental cleanup." Of this total, $6.5 billion is designated specifically for environmental management to address “high-risk contamination facilities that are not in the current project inventory.” However, within this proposed budget, the EPA would receive $5.655 billion in funding, a 30% decrease from the enacted 2017 budget. This reduction in EPA funding may have adverse effects on the Re-Powering America program.

Jerry Muys is a partner and Paul Tetenbaum is a summer intern with Boston-based law firm Sullivan & Worcester LLP.

Topics: Environmental Liabilities, Renewable Energy Development, Green Infrastructure, Abandoned Mine Land, Repurposing Mine Land

Dialogue on Carbon Pricing and the World Bank Spring Meetings with Citizens Climate Lobby at S&W

Posted by Jerry Muys on 4/27/16 3:08 PM

Co-authors Morgan M. Gerard and Emma Spath

On April 14, S&W hosted a stakeholder dialogue sponsored by the Citizens Climate Lobby (CCL), Partnership for Change and the Nobel Peace Prize Forum as a part of the ancillary discussions surrounding the spring International Monetary Fund (IMF)/World Bank meetings. The dialogue focused on carbon pricing—a principal focus of many global leaders after the success in Paris this past December at the United Nations Framework Convention on Climate Change (UNFCCC) Twenty-First Conference of the Parties (COP 21).  Last week, the Carbon Pricing Panel released a Vision Statement with signatures by Prime Minister of Canada Justin Trudeau, President of Chile Michelle Bachelet, Prime Minister of the Federal Republic of Ethiopia Hailemariam Dessalegn, President of France François Hollande, and Chancellor of the Federal Republic of Germany Angela Merkel.

Carbon Pricing and Emissions Regulation-- An Overview

Placing a price on carbon emissions is viewed by many policy-makers as the most efficient method of addressing climate change; however, this strategy is rife with challenges. First, the international community would need to agree on a universal price per tonne of carbon emitted in order to prevent nations from choosing a “race to the bottom” strategy in which some countries would seek to get ahead by not implementing the carbon price or implementing a low pricing scheme. Next, each nation would need to develop a scheme for carbon pricing and enforcement mechanisms. 

The agreement reached at COP 21 lays the groundwork for global action to limit warming well below 2 degrees Celsius. Multinational organizations have been at the forefront of advocating carbon pricing among the various mechanisms that may be useful in lower greenhouse gas emissions.  The World Bank and IMF have long supported a carbon-pricing regime either in the form of a carbon tax or a cap-and-trade system, and have committed to get the pricing right.

As of 2016, some form of carbon pricing arrangement covers 12 percent of all carbon emissions. The goal articulated by Carbon Pricing Panel is to increase that percentage to 25 percent of carbon emissions by 2020, and to double that percentage to 50 percent within a decade.

Currently, carbon pricing has not been widely embraced in the United States; however, China and the United States are the two countries with the largest volume of emissions covered by carbon pricing instruments. Both the east and west coasts have robust state-based trading schemes, such as the Regional Greenhouse Gas Initiative (RGGI), which includes Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont, and the California/Ontario Western Climate Initiative.

Congress came close to adopting a greenhouse gas cap-and-trade system in 2010 with the Waxman bill; however, the legislature ultimately balked at passing the bill and discussions involving climate change on Capitol Hill have been somewhat toxic ever since. Thus, any type of binding international agreement on a price for carbon will be difficult to adopt given the aggressive opposition towards President Obama’s Clean Power Plan (CPP). The CPP is a carbon reduction scheme where each state is assigned an emissions target capable of achieving reductions through a series of building blocks: 1) retiring coal plants; 2) improving the efficiency of natural gas plants; 3) building more renewable energy. The CPP also envisions a trading scheme, and states may be able to capitalize on the lessons learned from the existing RGGI and the California/Ontario Western Climate Initiative.

The CPP is also currently facing attack by Congressional Republicans and an omnibus litigation brought by twenty-seven states and an amalgam of private actors. The Supreme Court recently granted a delay for implementation of the CPP, creating some uncertainty in the ultimate strategy for lowering carbon emissions domestically. However, a number of corporations doing business in the United States are supportive of the CPP and have joined the litigation as amici curiae. These include Mars Incorporated, Ikea North America Services, LLC, Blue Cross and Blue Shield of Massachusetts, Adobe Systems, Inc., Google, Inc., Microsoft, Inc., and Amazon, Inc.

Moreover, many private companies have unilaterally begun to incorporate carbon pricing into their internal strategies. Microsoft is leading the way, and industry leaders have observed that the company’s carbon pricing strategy is both changing internal behaviors and saving the company more than $10 million annually. Additionally, many traditional fossil fuel companies are incorporating carbon pricing considerations into their business plans. For example, ExxonMobil is assuming a cost of $60 per metric ton by 2030, BP currently uses $40 per metric ton, and Royal Dutch Shell uses a price of $40 per ton.

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The Citizens Climate Lobby (CCL) is an organization that promotes dialogue among stakeholders with the goal of raising climate change awareness focused on carbon pricing. CCL lobbies for the creation of a “Carbon Fee and Dividend” in which greenhouse gas emitters would pay a fee to emit, with the proceeds returned to households or a trust fund in the form of “dividends.” The insights on climate policy that resulted from the dialogue can be found here.

Topics: COP21, carbon tax, carbon pricing, citizens climate lobby, world Bank

Hydropower Technologies Evolve In The Face of Increasing Water Scarcity

Posted by Jerry Muys on 10/20/15 7:15 AM

Water rushing through gatesParticularly in the West, hydropower long has provided a significant portion of the energy required to meet the needs of a growing population. Increasingly, however, the circumstances that led to the dominant role played by hydropower generation in providing nearly boundless energy supplies in many parts of the country are changing. Factors that were not known about or anticipated in the decades when much of our existing hydropower infrastructure was constructed are creating challenges both to the long-term reliability and continued cost-effectiveness of traditional hydropower. Climate change and other factors are predicted to alter both the timing and pattern of precipitation and associated runoff that largely determines the availability and amount of hydropower.

The magnitude of the contribution that hydropower historically has made to our Nation’s energy abundance can be seen in the statistics maintained the U.S. Bureau of Reclamation, which has shared jurisdiction over federal hydropower generation. The Bureau is the Nation’s second largest producer of hydroelectric power, with roughly 58 power plants and 194 generating units in operation accounting for an installed capacity of more than 14 million kilowatts.

However, the large-scale dams that historically have supplied enormous amounts of hydroelectric power, particularly in the Colorado River Basin and the Pacific Rim states, are no longer being built. Although they continue to operate, and some have been retrofitted with more efficient turbines resulting in marginal increases in output, our traditional reliance on hydroelectric generation no longer is sustainable. Water supply availability increasingly is being limited by the effects of climate change and other factors, while increased water demand for energy production, agricultural production, and municipal development continues unabated.

Efforts to secure the future sustainability of our energy and water resources are leading to dramatic changes in how we address what has come to be known as the “water/energy nexus.” These changes range from the adoption of alternative cooling technologies for thermoelectric power plants to greater emphasis on energy efficiency and increased use of non-traditional energy and water resources.

The impacts of climate change and other factors on the availability of traditional water supplies have posed some unique challenges with respect to the continued use of hydropower for energy generation. Reservoirs, particularly large ones, are increasingly susceptible to evaporation due to warming, with the result that less water is available for all uses, including hydropower.

The implications of reduced water levels in many of the reservoirs on which we rely for the generation of hydropower has spurred, at least in part, an entirely new technological approach to hydropower generation which is largely immune to the increasing variability of reservoir water levels. The trailblazer of this new approach has been a Portland, Oregon-based startup, Lucid Energy. Several years ago, Lucid conceived an alternative, highly sustainable model of hydropower generation that is in the process of being adopted in communities across the country. The system pioneered by Lucid involves the installation of small turbines in water distribution systems (i.e., pipes) which generate energy when the turbines spin in the flowing water.

The power generated by the turbines either can be used to off-set a utility’s own power demands, or be sold into the grid as a separate source of revenue for the utility. Portland’s local water utility was the first to install the new technology into its water distribution system, but a number of other cities, including San Antonio and Riverside California, quickly followed suit.

In addition to addressing challenges to our domestic hydropower industry posed by climate change and other factors, the Lucid technology also would seem to offer a promising model for power generation in developing countries, many areas of which often do not have access to an established electricity grid.

Topics: Hydroelectric, Water Energy Nexus, Water, Energy Security, Energy Policy, Energy Efficiency, Energy Management

Senate Energy Bill Includes Funding For Smart Energy and Water Efficiency Pilot Projects

Posted by Jerry Muys on 7/29/15 10:08 AM

In an era conscious of water scarcity, the water-energy nexus made the agenda of the Senate Energy and Natural Resources Committee, which is considering broad based, bi-partisan legislation, the “Energy Policy Modernization Act of 2015.” The nexus between water and energy refers generally to the fact that the provision of water and wastewater services tends to be highly energy intensive, while most types of power generation tend to be highly water intensive.

Water pipesA provision in the bill that has received surprisingly little attention in the industry press would require the Department of Energy to establish a “smart energy and water efficiency pilot program” that would award grants to a limited number of utilities, municipalities, water districts, Indian tribes and Alaska Native villages, and other authorities that provide water, wastewater, or water reuse services. The grants would fund pilot projects that “demonstrate unique, advanced, or innovative technology-based solutions” to the so-called water/energy nexus -- the policy challenge posed by fact that conventional energy production tends to be highly water consumptive, while the provision of water-related services tends to require large amounts of energy.

Although the eligibility language of the bill is somewhat imprecise, it appears that the grants would be limited to technologies that (1) increase the energy efficiency of water, wastewater and water reuse systems; (2) otherwise improve such systems to help communities make measurable progress in conserving water, saving energy, and reducing costs; (3) support the implementation of innovative and unique processes and the installation of established advanced automated systems that provide real-time data on energy and water; or (4) improve energy-water conservation and quality and predictive maintenance through technologies that utilize internet connected technologies, including sensors, intelligent gateways, and security embedded in hardware.

Grants would be awarded based on: (1) energy and cost savings; (2) the uniqueness, commercial viability, and reliability of the technology; (3) the degree to which the project integrates next-generation sensors software, analytics, and management tools; (4) the anticipated cost-effectiveness of the pilot project through measurable energy efficiency savings, water savings or reuse, and infrastructure costs averted; (5) whether the technology can be deployed in a variety of geographic regions and in a wide range of applications; (6) whether the technology has been successfully deployed elsewhere; (7) whether the technology was sourced from a manufacturer based in the United States; and (8) whether the project will be completed in 5 years or less.

The bill would authorize the appropriation of $15,000,000 to fund the program. Grant recipients would be selected not later than 300 days of enactment of the legislation.

The Energy Finance Report is closely monitoring the progress of the Energy Policy Modernization Act of 2015, which has so far been quiet on renewable energy generally. As waste heat, particularly in water based heating systems, is anticipated to be next big horizon for energy efficiency, the Senate Finance Committee’s grant may be a step in the right direction for the water/energy efficiency industry.

Topics: Water Energy Nexus, Utilities, Water, EPMA, Energy Policy, Energy Management

Water Energy/Nexus Series: Energy Project Due Diligence in an Era of Water Scarcity

Posted by Jerry Muys on 6/24/15 6:12 AM

As part of our series on the water/energy nexus, this post discusses the need to include a water supply availability assessment as part of energy project due diligence and facility siting reviews. The post identifies the principal considerations that come into play when conducting water security due diligence.

It is widely understood that water plays a critical role in fossil-fuel based energy production. However, most renewable energy-based production also requires water for some aspect of its operations. Even solar energy production requires some water, principally to keep the panels clean and cool.

Drought s-487921873In addition, due to the intermittent nature of wind and solar power, most energy production of the renewable variety requires a water-intensive conventional power back-up system. In light of the foregoing, water will remain essential to the generation of power for the foreseeable future.

Until recent years, before the effects of climate change began to fundamentally alter the regional distribution of precipitation and thus stream flow, average precipitation and stream flow was remarkably predictable. Although the volume of water in a given water system tended to fluctuate based on seasonal variations and sometimes other considerations, average annual flows typically varied very little.

However, the consistency of precipitation patterns over extended periods no longer is the case in many regions. Although evidenced most dramatically in California in terms of reduced rates of precipitation and reduced stream flows, average annual flows are decreasing throughout western North America. This development is of potentially great import to energy project developers and financiers contemplating new projects, particularly those highly dependent on predictable water supplies.

Although project developers and financiers often focus on the implications of climate change on future water supplies, the reality is that many parts of the country are having difficulty meeting even existing demands on water resources. As water scarcity becomes an increasing concern, new policies, limitations, and restrictions will be imposed, and developers and financiers will need to understand how these policies will affect the risks and potential opportunities of potential energy projects.

The adequacy of water supplies to satisfy the short- and long-term needs of a prospective energy project would seem to be a reasonably straightforward inquiry, particularly when there is unencumbered access to a large, free-flowing river or stream or a significant, freshwater impoundment. But physical availability must be distinguished from legal availability and, particularly in the western states, the two can be very different. Federal regulatory programs can implicitly override pre-existing water rights claims for purposes as varied as encouraging hydroelectric projects, preserving habitat for endangered species, and minimizing environmental impacts associated with the construction of drinking water reservoirs.

Water availability assessments are an increasingly critical component of energy project development due diligence, and must be forward-looking to be fully effective. A proposed project may have in place the requisite water rights and governmental permits necessary to begin operations, but still not be completely protected from adverse impacts in the event that a new upstream water use is proposed or a new regulatory program is put in place.

Topics: Water Energy Nexus, Water, Energy Management

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The Energy Finance Report analyzes developments in energy finance as well as provides updates and perspectives on market trends and policies.

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