Insights

The Climate Report, Winter 2016

The Climate Report, Winter 2016

In This Issue

U.S. Regulatory Developments

The Department of the Interior has imposed a moratorium on most new coal leases involving federal lands while DOI's Bureau of Land Management conducts a "Programmatic Environmental Impact Statement" focused on the greenhouse gas emissions and economics of the leasing program. Separately, the Bureau has proposed rules limiting the venting, flaring, and leaking of methane during oil and natural gas production on federal lands. The Environmental Protection Agency has proposed substantive and technical revisions to the federal greenhouse gas reporting rule, slated to take effect for reporting year 2017. 

Climate Change Issues for Management

On December 12, 2015, the United States joined 194 other countries in finalizing the "Paris Agreement," a United Nations-sponsored framework for reducing global greenhouse gas emissions to address climate change. Among the Agreement's primary goals is limiting the increase of the global average temperature to below 2ºC over pre-industrial levels, as well as to "pursue efforts" to limit the increase to only 1.5ºC above pre-industrial levels. To accomplish these goals, each country will submit an emissions pledge, known as an Intended Nationally Determined Contribution, it intends to achieve. The Agreement leaves unanswered many questions regarding implementation, particularly in the U.S.

Renewable Energy and Carbon Markets

From their emergence in the market in the latter half of 2013 until mid-2015, North American power "yieldcos" played a major role in the sustained growth of renewable power mergers and acquisitions activity. That role was stymied somewhat by a significant decline in value of many of the publicly traded yieldco vehicles, which negatively affected those yieldcos' access to the currency that drove their acquisitions across the prior 24 months. As a result, for much of 2016, yieldcos will likely go missing to a large extent as a primary driver of the renewable energy M&A market. While the fundamentals of most yieldcos remain very sound, it is unclear who will drive renewable power transactions for the foreseeable medium-term future.

Climate Change Litigation

Legal challenges to EPA's Clean Power Plan, which is designed to significantly reduce greenhouse gas emissions from fossil fuel power plants, remain very active. In January 2016, the U.S. Court of Appeals for the D.C. Circuit granted challengers' request for expedited judicial review but denied their motion to stay implementation of the rule pending the outcome of that review. However, in February 2016, the U.S. Supreme Court stayed the rule pending the conclusion of litigation in both the D.C. Circuit and Supreme Court. The Tenth Circuit affirmed the judgment of a federal district court that upheld a Colorado law requiring utilities selling electricity in the state to obtain specified minimum levels of power from renewable sources.

Climate Change Regulation Beyond the U.S.

While the Paris Agreement makes only passing explicit reference to "renewable energy," achievement of its greenhouse gas reduction goals will necessarily require substantial investments in renewable energy. Such investments are expected to be particularly significant in Africa and other developing regions, where the Agreement stresses the need for access to sustainable energy. Similarly, while the Agreement does not expressly adopt or require emissions trading or carbon pricing, it authorizes the use of "internationally transferred mitigation outcomes" as a means of achieving a nation's emissions pledge. This should stimulate greater international linkage among regional carbon markets.

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