Insights

The Climate Report, Fall 2015

The Climate Report, Fall 2015

In This Issue

Initially...     

EPA's Clean Power Plan Takes Effect …
Much Hijinks Ensue

On October 23, 2015, the Clean Power Plan, EPA's regulatory effort to reduce greenhouse gas emissions from the U.S. power industry by 32 percent from 2005 levels, was officially published in the Federal Register. As expected, this triggered a deluge of judicial challenges from business and governmental foes, along with pledges of support for the plan from environmental groups, alternative energy providers, and like-minded state governments. Four of the challenges included requests that the U.S. Court of Appeals for the D.C. Circuit stay implementation of the new rule until judicial review is complete. In Congress, resolutions seeking to invalidate the plan under the Congressional Review Act were introduced in both the Senate and the House.

U.S. Regulatory Developments 

California has substantially increased both its Renewable Portfolio Standard and state energy efficiency standards. A federal district court has dismissed most legal arguments asserted against California's Low Carbon Fuel Standard by out-of-state fuel producers, leaving only the issue of whether the Standard's ethanol provisions have the purpose or effect of discriminating against interstate commerce. EPA's Clean Power Plan for electric utility greenhouse gas emissions includes renewable energy incentives, but the nature and strength of those incentives depend upon how each particular state chooses to implement the CPP. EPA has proposed "new source performance standards" for methane emissions from the oil and gas industry.

Climate Change Issues for Management

A letter from a group of 12 U.S. Senators challenged the CEOs of the 108 companies comprising the Board of Directors of the U.S. Chamber of Commerce to support EPA's Clean Power Plan. In response, the Chamber reiterated its support for measures that reduce greenhouse gas emissions without placing the U.S. at a disadvantage compared to other major emitters and without damaging the U.S. economy, such as incentives for renewable and alternative energy development. The Science Based Targets initiative, an effort led by the World Wildlife Fund, is challenging the world's largest companies to commit to "science-based" greenhouse gas emission reductions.

Renewable Energy and Carbon Markets

States are expected to adopt a range of approaches to meeting the Clean Power Plan's emission reduction requirements, including regional emission trading schemes, coal plant retirements, and coal-to-natural gas conversions. Others may refuse to implement the CPP, which could lead to imposition of a federal implementation plan in those states if legal challenges to the CPP fail. Dramatic share price declines across the "yieldco" sector in recent months have led to questions about their viability for financing renewable energy projects. As a result, some companies may look to third-party sales, move projects to warehouse funds, or if proposed changes are made to the Internal Revenue Code, use master limited partnerships instead of yieldcos.  

Climate Change Litigation

With the Fifth Circuit's transfer of a suit filed by Texas and others, the U.S. Court of Appeals for the D.C. Circuit will decide all legal challenges to EPA's requirement that states amend their Clean Air Act implementation plans to eliminate permit exemptions or affirmative defenses for "startup, shutdown, or malfunction" emissions. After the D.C. Circuit denied a petition by 15 states and a coal company to stay implementation of the Clean Power Plan, because the rule had not yet been published in the Federal Register, the parties refiled their petition on October 23, 2015, the same day the rule was published. Kansas and Nebraska are challenging EPA's adoption of a new vehicle emissions model to be used in crafting state implementation plans.  

Climate Change Regulation Beyond the U.S.

The European Union has created a market stability reserve for the EU's greenhouse gas emissions trading scheme. Members of the United Nations' Framework Convention on Climate Change are working to consolidate all binding and nonbinding emission reduction targets into a single agreement to be adopted in Paris in December 2015. The U.N. has launched a Regional Collaboration Centre in Bangkok to support emission offset programs under the Kyoto Protocol's Clean Development Mechanism. Japan has created a new council for renewable energy policy development, including common energy-mix targets for the power sector. Australia's federal government has enhanced its support for renewable energy, particularly wind and solar.  

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