Energy Finance Report

Confluence of Emissions Regulations Favor Renewable Energy Investment (Part 1)

Posted by Van Hilderbrand on 5/23/16 3:39 PM

New_Source_Clean_Power_Plan.jpgGOP Presidential Candidate Donald Trump made several sweeping promises while on the campaign trail vowing to reopen shuttered mines and bring coal back to its dominance of a decade ago. These promises, however, are dated as the coal industry continues to face multiple hurdles: (1) greater availability of affordable natural gas and renewable resources; (2) stricter emissions standards for fossil-fuel fired electricity generating sources; and as a result, (3) reluctance in the investor community to finance new coal projects.  What candidates on both sides of the political spectrum could say is that, although the mines will close, the country remains dedicated to training displaced miners to work in a new renewable energy future.

Affordable natural gas is not a new topic, so it won’t be discussed here. Instead, this post provides an overview and the status of several major recent regulations by the Environmental Protection Agency (EPA) that target reductions in emissions from the oil, natural gas, and coal industries, and how these regulations will drive increased investment in cleaner and renewable energy.  These regulatory actions are being driven, in large part, by increased bilateral and multilateral engagement and cooperation on climate change by the United States.  Two recent examples include the Paris Agreement, an international accord addressing greenhouse gases emissions mitigation, adaptation and finance, negotiated in December 2015 at the 21st Conference of the Parties of the United Nations Framework Convention on Climate Change (COP21), and the United States-Canada Joint Statement on Climate, Energy, and Arctic Leadership.

The regulations that will be discussed here are EPA’s rules regulating emissions from existing and new stationary electricity generating units. Tomorrow, EPA’s regulations regarding emissions of mercury and air toxics, and emissions of methane and other volatile organic compounds will be discussed in a separate post. 

Clean Power Plan, Existing Stationary Sources

Existing_Stationary_Source_Rule.jpgFirst and most prominent are EPA’s final rules addressing Existing Stationary Sources and New Stationary Sources. Both have been challenged in the U.S. Court of Appeals for the District of Columbia Circuit.  

EPA’s final rule, Existing Sources, Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units (80 Fed. Reg. 64,662), was published in the Federal Register on October 23, 2015 and was challenged the same day. More commonly known as the Clean Power Plan (the CPP), the CPP sets emissions rates goals and mass equivalents for each state.  Some of the major points of the CPP are: 

  • The emissions goals, which are required to be met by 2022, consider the current energy generation composition of each state and although the CPP sets the standards to be met, it allows the states great flexibility to implement target solutions;
  • Tools are provided to assist states in implementing market-based approaches;
  • The CPP provides incentives for early deployment of renewable energy and energy-efficiency measures that benefit low-income communities;
  • The CPP offers an alternative Federal Implementation Plan (or FIP) if a state chooses not to develop its own implementation strategy; and
  • Execution of the CPP is expected to drive a carbon emissions reduction of 32 percent from 2005 levels by 2030.

In January of this year, a group of 29 states and state agencies filed for an immediate stay of the CPP pending review by the U.S. Court of Appeals for the District of Columbia Circuit.  In early February, the U.S. Supreme Court, in a 5-4 decision, overturned the lower court and granted the petition to stay the CPP until a legal challenge against it could proceed on the merits.  That legal challenge, brought by several states, state agencies, and industry, is State of West Virginia v. EPA (Consolidated Case No. 15-1363).  

The litigation has moved quickly and the briefing period has closed. Oral arguments were set for June 2-3 before a three-judge panel; however, on May 16, the Court of Appeals announced that oral arguments were postponed until September 27 and will now be heard en banc, meaning the arguments will be heard by the full court, not just a three-judge panel.  This was an unusual step for the Court to take.  The Court usually holds an en banc hearing when it feels that doing so is necessary to secure or maintain uniformity of the Court’s decisions or the matter involves a question of exceptional importance.  Both of these could be true and may have driven the Court’s decision.  Chief Judge Merrick Garland, President Obama’s Supreme Court nominee, and Judge Cornelia Pillard have recused themselves from this case, so the arguments will be heard by nine judges.  

Environmental_Regulation_CPP.jpgPractically speaking, the postponement speeds up the Court of Appeals’ final decision and the timing of a Petition for Writ of Certiorari to the U.S. Supreme Court, which is likely from whichever side does not prevail. This is because after a three-judge panel renders a decision, the parties can request an en banc review.  There is no guarantee such a hearing would have been granted, but this latest move eliminates the intermediate three-judge panel step.

Much will be learned from oral arguments in September regarding the positions of the judges. Many legal professionals believed that the Court of Appeals’ original three-judge panel was a favorable bench for EPA and the CPP.  This has obviously changed with the announcement of a hearing en banc.  It is difficult today to predict how each judge will vote, but it is instructive to note that of the nine judges that will hear the case, five were appointed by Democratic Presidents. 

Given the three-month delay, the decision will most likely not be handed down until after the November election. No matter how the Court of Appeals rules, the decision will certainly be appealed to the U.S. Supreme Court. 

Under the current eight-justice Supreme Court composition, a 4-4 decision would be likely, which has the affect of affirming the decision of the lower court. Although an EPA victory in the Court of Appeals and a subsequent 4-4 decisions at the U.S. Supreme Court would be seen as a win for the agency, such an outcome wouldn’t create the kind of national precedent in support of greenhouse gas regulations that the agency wants.  That said, with a hearing from the full panel of judges, the decision would carry more weight. 

The postponement, however, also means that the case most likely won’t be heard by the U.S. Supreme Court until 2017, when conceivably a justice has been appointed to fill the seat left vacant by the death of Justice Antonin Scalia.  The current Obama Administration nominee, Chief Judge Merrick Garland, is widely viewed as voting for EPA and the CPP, but his appointment is being held up by the Republican-majority Senate.

Future posts on the Energy Finance Report will provide updates as to the status of the Existing Stationary Sources final rule, so please check back.  

Carbon Pollution Standards for New, Modified, and Reconstructed Power Plants

Clean_Power_Plan_Workers.jpgOn the same day the Existing Stationary Sources final rule was published, October 23, 2015, EPA’s final rule, Standards of Performance for Greenhouse Gases From New, Modified, and Reconstructed Stationary Sources: Electric Utility Generating Units (80 Fed. Reg. 64,510), was also published in the Federal Register.

This New Stationary Sources rule has not received the same level of attention as the Existing Stationary Source rule because very few new coal plants are in the construction pipeline due to the abovementioned availability of affordable natural gas and reluctance in the investor community to finance new coal projects. In general, the New Stationary Source rule provides that:   

  • If any new coal plants are constructed, emissions are limited to 1,400 pounds of carbon dioxide per MWh of electricity produced, which would require the use of carbon capture and storage technology; and
  • The hundreds of new natural gas power plants in the pipeline would be required to meet the emissions standard of no more than 1,000 pounds of carbon dioxide per MWh. According to the rule, plants can achieve these emissions reductions through efficient generation technology like combine cycle combustion turbines.

Similar to the CPP, the New Stationary Sources rule has been challenged. The litigation, State of North Dakota v. EPA (Consolidated Case No. 15-1381), has not moved as quickly, but final briefing has been scheduled to conclude in November 2016.  Oral argument will be set thereafter.   

In the administrative process, EPA denied several petitions for reconsideration of the New Stationary Sources rule on April 29. These petitions, filed by energy companies, trade and advocacy groups, and the State of Wisconsin, were filed, in part, to exhaust administrative remedies and to gain an additional avenue for appeal.  In general, the petitioners challenged the rule on the basis that carbon capture and sequestration technology, which EPA relied on as a foundation to issue the rule, has not been adequately demonstrated on a commercial scale.  Further, the petitioners argued that the agency had not responded appropriately to comments in the rulemaking process and used incorrect or inaccurate information in setting the standards.

The denial was formally published in the Federal Register and triggered a 60-day period for filing a petition for judicial review with the U.S. Court of Appeals for the District of Columbia Circuit. It is very likely that any appeals of the agency’s denial of the petitions for reconsideration will be consolidated with the existing litigation, State of North Dakota v. EPA.

Future posts on the Energy Finance Report will provide updates as to the status of the New Stationary Sources final rule, so please check back.  

Conclusion

With the time left in office for the Obama Administration, EPA is moving toward finalizing additional climate change and air pollution rules that reduce emissions from power plants, refineries, and the transportation sector. Operating, maintenance, and financing costs will undoubtedly increase for the oil and natural gas industries as companies come into compliance with these new emissions-reductions rules and regulations. There is a significant opportunity for zero-emission sources such as wind, hydro, and solar to step in and fill the gap left when the utility energy sector retires existing fossil-fuel sources and begins planning for future energy needs.

Topics: Renewable Energy, clean power plan, Environmental Protection Agency, EPA, renewable energy investment, new stationary source rule, existing stationary source rule

U.S. EPA Earns Early Victory in Opponents' Challenge to Clean Power Plan

Posted by Jeffrey Karp on 1/22/16 5:47 PM

Co-authors Van Hilderbrand and Morgan M. Gerard

On January 21, the United States Environmental Protection Agency (U.S. EPA) won an initial victory as the D.C. Circuit refused to grant opponents a stay of the Clean Power Plan (CPP or Rule).

Clean_Power_Plan_Legal_Challenge.jpgThe Rule, promulgated pursuant to section 111(d) of the Clean Air Act (CAA), limits carbon dioxide emissions from existing fossil fuel fired electric generating plants (generating units).  The CPP’s goal is to cut emissions by 32 percent from 2005 levels by 2030, and each state is provided an emissions reduction target. Qualifying state emissions reductions under the Rule generally prompt the retirement of coal plants and the greater adoption of natural gas and renewable resources.  States must submit their implementation plans (SIP) in 2016 demonstrating that they will achieve the requisite emissions reduction by 2022, or request a two-year extension. However, if a state fails to submit an adequate implementation plan by the 2016 due date or request an extension for plan development until 2018, U.S. EPA will assign a federal implementation plan (FIP) that will enable that state to meet its emissions reduction target.

The timing of SIP submittal is a critical element in achieving the Rule’s objective of curbing emissions.  Thus, if the challengers had obtained a stay of the Rule’s effective date, the Agency’s ability to demand compliance by states with the SIP submittal date may have been jeopardized.

Hours after the regulation was published in the Federal Register, 27 states filed more than 15 separate cases against the U.S. EPA that were consolidated before the U.S. Court of Appeals for the District of Columbia Circuit. Eighteen other states, including New York and California, have joined in the consolidated lawsuits in support of the CPP. Although the final disposition of the Plan is still uncertain, the Rule remains in effect unless and until it is set aside by a court.

The opening maneuver of the Rule’s opponents was to request a stay with the goal of halting SIP submittal and U.S. EPA’s authority to enforce deadlines until the court ruled on the merits. The Agency and its allies prevailed in this initial squirmish, as the court found the Rule’s challengers “did not meet the stringent standard to grant a stay pending court review.” The result of the Court’s ruling is that all states must begin preparing to meet the CPP’s requirements or risk EPA’s imposition of a FIP.

Topics: Carbon Emissions, CPP, Clean Power, clean power plan, Environmental Protection Agency, EPA, State of West Virginia v. EPA, EPA Victory, West Virginia, Stay of the Rule, Climate change, Clean Air Act, Section 111(d), Global Warming, Greenhouse Gas Emissions, Stay

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