By Mary Ellen Ternes
In the last issue, we discussed EPA’s “tailoring” rule which would raise the “major stationary source” air pollutant emission threshold under the CAA’s Prevention of Significant Deterioration Program of 250 tons per year and the Title V Program of 100 tons per year to 25,000 tons per year, as well as EPA’s final mandatory greenhouse gas reporting, which became effective on December 29, 2009. Since that update, on December 15, 2009, EPA promulgated its final endangerment rule, “Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act.” This final rule became effective on January 14, 2010, and has been challenged in court. Currently, EPA is expected to promulgate its final rules regulating and controlling greenhouse gas emissions from light duty vehicles, as well as its final “tailoring rule,” in March 2010. Although subject to legal challenge, EPA’s rules promulgated thus far are currently final and effective and will remain so unless successfully challenged directly in court, or unless Congress adopts legislation preempting EPA’s regulatory authority to address greenhouse gases under the Clean Air Act.
GHG BACT
To implement the CAA PSD Program for GHG, EPA needs to provide guidance regarding what constitutes Best Available Control Technology or BACT for GHG. To evaluate options for GHG BACT, EPA established a diverse Climate Change Workgroup within the Clean Air Act Advisory Committee’s Permits, New Source Review, and Toxics Subcommittee. On February 3, 2010, the CAAC CC Workgroup released its Interim Phase I Report, evaluating BACT in the context of delegated state agencies’ implementation of BACT for GHGs as they would for other criteria pollutants. The focus of Phase I included defining the source, criteria for determining feasible control technologies, criteria for eliminating technologies, and needs of States and stakeholder. Phase I conclusions included a recommendation that EPA expand its RACT/BACT/LAER clearinghouse (RBLC) of technologies to include GHG control technologies, and produce guidance regarding use of energy efficiency, emissions factors, fugitive emissions controls for all types of GHG.
With this first phase complete, the CC Workgroup will turn to Phase II, addressing work group member proposals for applying PSD to GHG, including: the scope of applicability of PSD and BACT to GHG sources, the appropriateness of using presumptive BACT standards for some or all of GHG sources, whether it is permissible or appropriate to use average or trading either as a BACT mechanism or as a compliance flexibility option, the potential to credit towards BACT compliance appropriate reductions in carbon intensity, increased energy efficiency or demand reductions within a facility or a larger range of sources, how BACT reviews should be conducted and permit conditions established to encourage the development and propose the use of innovative control technologies for GHGs and evaluating energy efficiency processes and practices as part of the top-down BACT determination process.
Update on GHG litigation
In the last issue, we summarized the September 2009 case, Connecticut v. American Electric Power Co., 2009 U.S. App. LEXIS 20873 (2d Cir. September 21, 2009). Since that update, on October 16, 2009, the U.S. Court of Appeals for the Fifth Circuit issued its decision in Comer v. Murphy Oil USA, 2009 U.S. App. LEXIS 22774 (5th Cir. October 16, 2009). With this case, the Fifth Circuit reversed a lower court’s dismissal of plaintiff claims that corporations operating energy, fossil fuel, and chemical industries caused the emission of greenhouse gases that ultimately resulted in additional property damage from Hurricane Katrina, asserting claims of public and private nuisance, trespass, negligence, unjust enrichment, fraudulent misrepresentation, and civil conspiracy. In reversing, the Fifth Circuit rejected the lower court’s reliance on similar defenses, including the political question defense. In this case, the plaintiffs consist of property owners and they are seeking only damages. A similar case, Native Village of Kivalina v. ExxonMobil Corp., Case No. C 08-1138 SBA (Northern District of California, Oakland Division) (September 30, 2009) (order granting defendants’ motion to dismiss for lack of subject mater jurisdiction), was appealed to the Ninth Circuit in November, 2009. These cases expose other significant emission sources of greenhouse gases to similar litigation risk. This effect of this recent case law may be mitigated by actions that the courts determine displace federal common law, potentially including Congressional adoption of greenhouse gas legislation and, or, EPA’s final adoption of the light duty vehicle emission regulations which, without legislative intervention, will trigger application of other Clean Air Act provisions to greenhouse gas emissions.
Update on international negotiations
The 15th meeting of the United Nations Framework Convention on Climate Change (UNFCCC) Council of the Parties in Copenhagen failed to result in the final agreement originally contemplated, though “The Copenhagen Accord” initiated by President Obama did serve as a basis for recording consensus reached at COP15. However, international negotiations continue, with the participation of the United States. The next meeting is in Mexico City, November 2010.
Securities and Exchange Commission issues guidance explaining how public companies must disclose business risks arising from climate change
On February 2, 2010, the SEC issued interpretive guidance explaining how public companies must disclose impacts of climate change related issues to shareholder. The categories of disclosures discussed by the SEC include impacts to business from: (1) Legislation and regulation including direct and indirect changes to profit or loss dynamics from cap-and-trade; (2) international accords; (3) indirect consequences of regulation or business trends, such as decreased demands for goods that produce significant greenhouse gas emissions, or increased demand for services related to carbon based energy sources, month others; and (4) physical impacts of climate change, including “severity of weather (e.g., floods or hurricanes), sea levels, the arability of farmland, and water availability and quality, which have the potential to affect a registrant’s operations and results.”
Proposed 2011 budget eliminates fossil fuel tax incentives
The Office of Management and Budget has proposed for Fiscal Year 2011 to eliminate broad categories of financial incentives that preferentially benefit oil, natural gas, and coal production. The proposed budget justifies these changes on the need to eliminate market distortions and strengthen incentives for investments in clean, renewable and more energy efficient technologies in order to foster the development of a clean energy economy, and reduce U.S. dependence on fossil fuels that contribute to climate change.
For coal, targeted eliminations include: (1) Expensing of exploration and development costs, (2) domestic manufacturing deduction for hard mineral fossil fuels, (3) percent depletion for hard mineral fossil fuels, and (4) royalty taxation.
For oil and gas, targeted eliminations include: (1) Repeal enhanced oil recovery credit, (2) repeal credit for oil and gas produced from marginal wells, (3) repeal expensing of intangible drilling costs, (4) repeal deduction for tertiary injectants, (5) repeal exception to passive loss limitations for working interests in oil and natural gas properties, (6) repeal percentage depletion for oil and natural gas wells, (7) repeal domestic manufacturing tax deduction for oil and natural gas companies, (8) increase geological and geophysical amortization period for independent products to 7 years, and (9) oil and gas research and development program.