EPA GHG Endangerment Proposal: "A Game Changer"

One day after the U.S. EPA's historic proposed endangerment finding involving greenhouse gases, the sentiment across the country is that the Obama Administration's action has changed the political landscape.

U.S. Rep. Edward Markey, chairman of a U.S. House Energy Committee subcommittee that will begin hearings next week on legislation calling for a GHG cap-and-trade system and a long-time supporter of GHG reductions, characterized the decision as "a game changer," The Wall Street Journal reported today.  "It's now no longer a choice between doing nothing.  It is now a choice between regulation and legislation."

Consequently, a few things are clearer today:

• The U.S. is going to have a GHG emissions reduction scheme either through legislation or regulation.
• Congress is likely to take a more flexible (including, most importantly establishing a cap-and-trade system) approach to reducing GHG emissions; this is largely linked to the fact that the multiple stakeholder groups will have greater influence over elected representatives and senators than the "unelected" regulators in the EPA.
  
• No industry sector will want to be left out of the political discussions; expect increased lobbying of politicians as well as more TV and radio ads by stakeholder groups aiming to frame the overall issue; from past experience industry is well aware that it is easier to have "a seat at the table" during the legislative process as contrasted to the regulatory process.
• Left-wing and right-wing talkers, bloggers and other "self-anointed experts" will attempt to rally their own bases; whether this will add anything to the overall debate is questionable at best; what it will do is give the talkers another issue to ruminate over for the foreseeable future and a good way to increase ratings.  
• The U.S. has increased its global credibility in terms of addressing climate change; but the U.S. is so far behind the European Union that even with an enormous effort this year, the U.S. is unlikely to take the global leadership role away from the Europeans (a role, incidentally, that the Europeans greatly cherish).

To paraphrase former U.K. Prime Minister Winston Churchill, this is not the beginning of the end...rather it is the end of the beginning.

U.S. EPA Issues Proposed Finding That GHGs Pose Threat to Public Health

After years of inaction by the U.S. federal government to address climate change, the tables have suddenly turned. Earlier today the U.S. Environmental Protection Agency issued a "proposed finding" that greenhouse gases (GHGs) contribute to air pollution that may endanger public health or welfare.

The proposed finding now enters a 60 day public comment period, which is the next step in the required deliberation process that EPA must take before issuing a final finding.

EPA Administrator Lisa P. Jackson said, "This finding confirms that greenhouse gas pollution is a serious problem now and for future generations. Fortunately, it follows President Obama's call for a low carbon economy and strong leadership in Congress on clean energy and climate legislation."

Addressing the seriousness of the challenge of climate change, Ms. Jackson said, "In both magnitude and probability, climate change is an enormous problem. The greenhouse gases that are responsible for it endanger public health and welfare within the meaning of the Clean Air Act."

The announcement came two years after the U.S. Supreme Court in Massachusetts v. EPA ordered the agency to determine whether GHGs should be regulated under the Clean Air Act.

Former Bush administration EPA general counsel Roger Martella said, "The proposed endangerment finding marks the official beginning of an era of controlling carbon in the U.S. This means that EPA's mission of environmental protection will burst outside those bounds and place it on the stage as one of the most influential regulators of both energy use and the greater economy in the upcoming year," according to The Washington Post ("EPA Proposes Regulating Greenhouse Gas Emissions," April 17, 2009).

The proposed finding involves six gases:

• Carbon dioxide
• Methane
• Nitrous oxide
• Hydrofluorocarbons
• Perfluorocarbons
• Sulfur hexafluoride
• The proposed finding does not include any proposed regulations; that step would be undertaken only after a "final" finding of endangerment and hearing from stakeholders.
  

The proposed finding does not include proposed regulations. They would be proposed and adopted only after the endangerment finding becomes final.

Meanwhile, legislation -- the American Clean Energy and Security Act of 2009 -- authored by U.S. House Energy Committee Chair Henry Waxman (D-CA) and aimed at establishing a GHG cap-and-trade system, will be considered by the House in the next few weeks.

So which approach is better? Legislative or regulatory? It depends on your position in the overall debate.

Legislative: More flexible, greater stakeholder influence

U.S. Senator Barbara Boxer, chair of the Senate Environment and Public Works Committee, favors the legislative approach. "The best and most flexible way to deal with this serious problem is to enact a market-based cap-and-trade system which will help us to make the transition to clean energy and will bring us innovation and strong economic growth," according to the BNA Daily Environment Report ("EPA Issues Proposes Rules Finding Greenhouse Gases Endanger Health, Welfare," April 17, 2009).

Administrator Jackson has also voiced a preference for legislation.

Business will also prefer this approach now that it is clear that the U.S. will take action on reducing GHGs.  The reason is that the chances of the various industrial sectors having their views taken into account is much greater in the legislative process where they can seek to influence politicians than in the regulatory process where their influence will be considerably less.  This is made all the more important bearing in mind that while Congress is likely to establish a cap-and-trade system, the EPA is likely to mandate what measures industry must take and skip the cap-and-trade system.  For business this is a key issue since they always prefer more flexibility to less flexibility.  

Regulatory: More control by EPA, probably a less flexible reduction system

If it becomes impossible for Congress to enact GHG-related legislation, then the regulatory approach can be undertaken through the authority of the Obama administration acting on its own. If this approach is taken, the likelihood for robust involvement from the various stakeholders, perhaps most importantly those who prefer a very "conservative" approach will be lessened.

More specifically, while EPA must take account of the various stakeholders' positions in the final analysis the agency will do pretty much what it so desires.

This approach, however, is likely to be susceptible to legal challenge but not before the endangerment ruling is finalized.

Cuba's Fertile Oil Reserves

In the wake of the Obama Administration's relaxing of some travel rules regarding Cuba, a growing matter of interest is whether American oil companies will seek more access to Cuban waters (where the oil is located).

In early April, a Cuban official said, "We are open" to possibly doing business with American interests, and noted that oil firms from China and Russia, among others, are negotiating with Cuba about oil concessions, according to Bloomberg.  

Additionally, The Wall Street Journal blog Environmental Capital ("Mambo Kings: What Does Cuba Opening Mean for Energy Firms?" April 14, 2009), reports, "The list of oil companies looking at Cuban waters is actually a little longer -- one consortium planning to drill exploration wells this summer includes Spanish, Brazilian, Norwegian, and Indian companies."

But the American companies are not there yet.  Surely this cannot make sense, with Cuba and the U.S. being a mere 100 miles (or so) apart?

The triumph of foreign policy animosities (even ones that are well past their "sell-buy" date) over economic reality never ceases to amaze.

More Oil Discovered Off Brazilian Coast

Petrobas, the Brazilian state-owned oil company, has announced another major oil find in the deep Santos Basin waters. 

The new site is located about 250 miles east of the state of Sao Paulo at a depth of about 10,000 feet.

A consortium of Petrobas (45% owner), BG Group (30%), and Repsol (25%) were involved in the newest oil discovery.  

Not surprisingly, Petrobas's common shares are trading at 19 times 2009 earnings, according to today's Wall Street Journal ("Petrobas's Preferred Play").

Brazil's position as a major transportation fuel (oil and biofuels) producer seems set to expand, thus making the country's economy an even larger player in the world. 

EU Supports U.S. Congressional Climate Change Bill

From the "is this helpful or the kiss of death" file comes word from Brussels that Stavros Dimas, EU Environment Commissioner, is delighted with the Waxman-Markey climate change bill that has been introduced in the U.S. House of Representatives.

The legislation, Mr. Dimas has said, is "really encouraging," according to the BNA International Environment Reporter. Mr. Dimas, who is a strong supporter of the EU emissions trading scheme, went on to say, "I am sure [the U.S.] will come up with even more ambitious [GHG reduction] targets. Let's see how the debate will evolve."

While congressmen and women generally like to have wide support for their proposals, attracting the enthusiastic support of a key EU official may not be what they had in mind.

No offense to Mr. Dimas, but this is sure to become a "talking point" for right-wing U.S. commentators.

The Precautionary Principle Comes to America?

The precautionary principle, a well accepted legal concept in the European Union as well as other places around the world, may become a topic of considerable discussion in America as the result of proposed federal legislation aimed at restricting the use of bisphenol A (BPA), which is used in beverage and food containers.
The precatuionary principle and the federal legislatsion were discussed this morning on National Public Radio's Morning Edition ( "Is 'Better Safe Than Sorry' Reason Enough for Law?" April 15, 2009).

EPA "GHG" Endangerment Finding Imminent?

As early as tomorrow, the U.S. EPA will issue an "endangerment" finding relating to greenhouse gas emissions, BNA's Daily Environment Report ("White House Clears EPA Proposed Finding on Danger of Greenhouse Gas Emission," April 15, 2009) said today. According to the report, on Monday the White House Office of Managment and Budget approved the proposed endangerment finding.

Major Peruvian Exploration Project Suspended by Nation's Top Court

The Supreme Court of Peru has ruled that all natural resources exploration in the Cordillera Escalera nature reserve, located in the northeast corner of the country, be suspended until an environmental "master plan" is undertaken by San Martin province regional authorities.

The ruling surprised many observers according to an article in the Financial Times ("Peruvians Try to Maintain Flow of 'Water Bank,'" April 14, 2009).

Jaime Bustamente, a lawyer for the town of Tarapoto, which is located near the nature reserve, said, "Never in Peru have we seen a decision like this. It's an important precedent. The tribunal said you can't favour the immediate exploitation of natural resources, particularly water, over the life of future generations."

The nature reserve includes areas where mineral concessions have been granted by the federal government to Talisman, a Canadian firm, Brazil's Petrobras, and Spain's Repsol, the FT reported.

American Utilities' Green Power Sales Surge in 2008

Green power sales by American utilities continued to surge in 2008 despite the economic travails in other sectors of the economy.

Last year, the sale of green power increased by 20% over 2007, according to a new report by the National Renewable Energy Laboratory (NREL).  Most of the green energy produced in the U.S. comes from wind power.  

Ranked by sales of renewable energy, the top utilities are:

• Austin Energy: 82.6 megawatts
• Portland General Electric: 77.9 megawatts
• PacifiCorp: 56.3 megawatts
• Xcel Energy: 41.3 megawatts
• Sacramento Municipal Utility District: 37.1 megawatts

Ranked by green power sales as a percentage of total retail electricity sales:

• Edmond Electric: 6.4% of load
• Austin Electric: 6.0%
• River Falls Municipal Utilities: 5.8%
• City of Palo Alto Utilities: 5.7%
• Portland General Electric: 3.9%

New U.S. Market for Energy Efficiency Credits?

The U.S. government and several states are considering establishing energy efficiency markets.

In this type of market, utilities would be directed to achieve a certain percentage of energy savings.  Credits would be issued when energy savings were achieved (e.g., by a utility company's customers).  If a utility did not achieve its target, then it could buy the credits to offset its lack of energy savings.  Once established, the credits could be sold on a secondary market.  

Today's Wall Street Journal (U.S. Plays Catch-Up in Efficiency Credits, April 13, 2009), reports that, "The nascent market for efficiency gains could explode if a federal program is created, but it is unclear whether Congress will act."

Currently, the state of Connecticut has such a program and several other states are considering similar ones.  

EPA Opens Comment Period for GHG Reporting Proposal

An EPA proposal for the first comprehensive U.S. national system for reporting greenhouse gas (GHG) emissions is now open for comment.

The Proposed Mandatory Greenhouse Gas Reporting Rule would cover about 13,000 facilities that account for nearly 85 to 90% of the nation's GHG emissions.  Some of the sectors covered by the system would include electricity generation, cement production, and iron and steel production.  All of these sectors are already covered now by the fully functioning European Union Emissions Trading Scheme.

Lisa Jackson, EPA administrator, said, "Our efforts to confront climate change must be guided by the best possible information.  Through this new reporting, we will have comprehensive and accurate data about the production of greenhouse gases."

The rule is being proposed under the authority of the Clean Air Act.

For those wanting to comment about the proposed rule, click here.  The 60 day comment period began April 10.