Insights

Climate Report Spring 2015

Climate Report Spring 2015

In This Issue

U.S. Regulatory Developments

The U.S. Court of Appeals for the D.C. Circuit heard oral argument in two cases challenging U.S. EPA's authority to adopt greenhouse gas regulations for existing coal-fired power plants, known as the Clean Power Plan. The Federal Energy Regulatory Commission reaffirmed its position that climate change impacts will not be considered in pipeline certificate proceedings until FERC finds a reliable method for estimating such effects, and it issued a Policy Statement describing when natural gas pipelines may recover environmentally driven modernization costs. California Governor Jerry Brown has directed state agencies to adopt measures to reduce California's greenhouse gas emissions to 40 percent of 1990 levels by 2030.

Climate Change Issues for Management

The activist investor group Ceres has requested that the Securities and Exchange Commission push oil companies to devote more attention in their public filings to the viability of proposed capital projects, including stranded asset risks, in the event of lower market demand for petroleum products. A coalition of CEOs from 43 companies with operations in more than 150 countries and territories published an open letter to world leaders expressing their hope that the UN's Climate Change Conference of the Parties this December in Paris will produce a strong agreement that will ensure the continued transition to "a low-carbon, sustainable future" and minimize the rise in global temperatures.

Renewable Energy and Carbon Markets

The Delaware Court of Chancery recently held that a master limited partnership overpaid its parent corporation by $171 million for certain "dropdown" assets because the Conflicts Committee of its general partner failed to form a subjective belief that the dropdown was in the best interests of the master limited partnership. The decision demonstrates that ritualistic, nonsubstantive dropdowns to master limited partnerships (and, by analogy, "Yieldcos") can pose a danger if not handled carefully and may provide a road map to activists intent on second-guessing business decisions via derivative litigation.

Climate Change Litigation

The D.C. Circuit heard argument in a case challenging EPA's authority to regulate injection wells used to geologically sequester compressed carbon dioxide produced by fossil fuel combustion. A West Virginia federal district court held that coal companies have standing to challenge the sufficiency of EPA's compliance with a Clean Air Act provision requiring EPA to evaluate the effect of some greenhouse gas regulations on employment and plant closures. A Massachusetts trial court dismissed a suit by a Harvard University student group seeking to force the divestment of Harvard endowment funds from fossil fuel companies, holding that students do not have standing to challenge how their university invests its charitable funds.

Climate Change Regulation Beyond the U.S.

Australia has completed its first carbon abatement auction, a reverse auction under which the country's Clean Energy Regulator uses funds from the country's Emissions Reduction Fund to finance greenhouse gas emissions reduction projects proposed by bidders. The process acquired approximately 47.3 million tons of emissions reductions at an average cost of AUD 13.95 per ton. The French Minister for the Environment recently reaffirmed the government's continued unwillingness to permit shale gas extraction and suggested that energy companies instead focus on investment in renewable energy technologies.

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