Futures

According to the Environmental Markets Newsletter, the Chicago Climate Exchange has begun trading in futures that will require, for contracts expiring in 2013 and later, the delivery of greenhouse gas emission allowances that would be usable for compliance with a mandatory U.S. greenhouse gas cap-and-trade program. (If there is no program by then, then other allowances may be delivered.) These contracts allow companies to hedge today against a future cap-and-trade program.

-Morgan

ABA Survey

The American Bar Association is conducting a very brief survey of lawyer attitudes towards the recession. I will be interested in the results if for no other reason than to see how long lawyers as a group think a legal recession will last. If the "wisdom of crowds" research holds true, this collective prediction may be worth reading.

-Morgan

California's Price Tag

The LA Times reports today on a study by two UC Berkeley researchers that puts the annual costs to California from climate change at $300 million to $3.9 billion. About $2.5 trillion of real estate assets in California are subject to threats associated with global warming.

-Morgan

Cap and Trade News

http://www.bloomberg.com/apps/news?pid=20601072&sid=aa8POBVmixHg

California's blueprint to address global warming won't include details of an emissions-trading program as regulators try to build consensus on how best to organize the market-based system.
The California Air Resources Board will begin a rule-writing process after next month's approval of the so-called scoping plan and is seeking outside help from experts to recommend ways to build a cap-and-trade system, said Mary Nichols, chairwoman of the rule- making panel. Under state law, the program must be ready to begin by 2012.

Draft Cap and Trade Legislation

The House Energy and Commerce Committee has released draft cap-and-trade legislation. On the key issue of whether allowances will be allocated by the government or auctioned, the draft legislation incorporates a range of possible alternatives, from mostly allocated to all auctioned. Under the latter scenario, 17.5 percent of the auction proceeds would be used to reduce the federal deficit with the rest distributed to consumers, energy efficiency and greenhouse gas reduction measures, and 0.5 percent for "management" -- federal agency management of the program.

-Morgan

Big Picture Facts

The legal literature on climate change tends to focus on particular issues, and only rarely reads the big picture facts that drive the issue.  A recent article in The New Yorker by Elizabeth Kolbert reported these key facts:

"This year, the world is expected to burn through some thirty-one billion barrels of oil, six billion tons of coal, and a hundred trillion cubic feet of natural gas.  The combustion of these fossil fuels will produce, in aggregate, some four hundred quadrillion B.T.U.s of energy.  It will also yield around thirty billion tons of carbon dioxide.  Next year, global consumption of fossil fuels is expected to grow by about two percent, meaning that emissions will rise by more than half a billion tons, and the following year consumption is expected to grow by another two percent.  

"When carbon dioxide is released into the air, about a third ends up, in relatively short order, in the oceans. . . . A quarter is absorbed by terrestrial ecosystems . . . and the rest remains in the atmosphere. . . ." 

-Morgan 

ARB Scoping Plan

The California Air Resources Board has released its draft scoping plan.

Report Documents Current Effects of Global Warming

An interesting report from the University of Maryland's Joint Global Change Research Institute documents the current effects of climate change in the U.S. This report is of interest because (1) it identifies effects that are specific enough that they might be the subject of litigation, and (2) it is authoritative, and therefore will likely be cited as a foundation for an expert opinion. Some of the effects that the report identifies are:

• Increased risk of crop failures


• Reduced productivity of livestock and dairy animals


• Increasing forest fires, insect outbreaks and tree mortality


• Changes in precipitation and drought patterns

Los Angeles GHG Credit Program Announced

GHG credit markets are taking on a local flavor.

At its February 1, 2008 meeting, the South Coast Air Quality Management District governing board approved a workplan for implementing a voluntary GHG emission reduction credit program, known as SoCal Climate Solutions Exchange Program.

An overview of the Program and workplan are available here: www.aqmd.gov/hb/2008/February/08023Aa.html

One likely use of the GHG credits would be in conjunction with the mitigation requirements imposed by CEQA.  Concerns are already being raised about the compatibility of this Program with the cap-and-trade system being developed by the California Air Resources Board.

District staff intend to develop the contours of this Program, including protocols for measuring emission reductions, over the coming months with the goal of presenting the final plan to the District governing board for approval in September 2008.

- Brett

Fees for GHG Emissions

The Bay Area Air Quality Management District has proposed a fee for emissions of GHGs from all facilities with stationary sources in its jurisdiction. The proposed fee has been cited in the press as in essence a carbon tax, but it is not. It is a cost-recovery fee to fund the Air District's GHG programs, principally developing an inventory of GHG emissions. The amount of the fee -- $0.042 per ton of CO2 equivalent -- is so low that it is not likely to have a significant effect on GHG emissions. The largest emitter of CO2 in the Bay Area will, according to the Contra Costa Times, pay less than $200,000 per year. Nevertheless, the fee is significant because it will be the first such fee imposed on CO2 emissions in California. More are sure to come.

-Morgan

CEQA Significance Determinations

CEQA significance determinations have been the focus of much of the early climate change litigation in Calfiornia. The California Air Pollution Control Officers Association has a new white paper on how to determine whether greenhouse gas emissions from a project are significant under CEQA, how to measure GHG emissions, and how to mitigate GHG effects. The white paper is written as a guide for local agencies, but it may also interest project proponents. The white paper is available at http://www.capcoa.org/.

-Morgan

Fiat or Collaboration?

We were recently contacted by PENNumbra, www.pennumbra.com, the University of Pennsylvania Law Review's online supplement about a debate it is featuring on the process of making environmental law -- should we continue the current regulatory process, in which regulated entities are subject to environmental requirements that are imposed by fiat and that usually cannot be negotiated, or should we adopt a collaborative process, in which regulated entities negotiate the requirements that will apply to their businesses? You can check out the debate between Professors Eric W. Orts, of Penn's Wharton School, and Cary Coglianese, of Penn's Law School here: http://www.pennumbra.com/debates/debate.php?did=13 Professor Orts's skepticism of the independence of political and other governmental actors in a world in which "lobbyists and campaign financiers . . . play large and often decisive roles in th[e public policymaking] process" leads him to conclude that "in many situations, it makes better sense to trust less in the traditional centralized process of environmental lawmaking and to consider . . . the alternative of engaging in collaborative environmental law." Professor Coglianese responds that, by making agreement the primary aim of policymaking, collaborative environmental law actually conveys a willingness to give in to interested parties in pursuit of the "holy grail" of consensus.

This debate is an interesting academic accompaniment to the current process of developing GHG regulations in California, in which the Air Board is conducting an unprecedented number of public workshops soliciting every type of public input regarding the development of regulations to implement California's Global Warming Solutions Act. In this case, the State is attempting to get as much buy-in as possible for regulations which will inevitably run into significant political
opposition. The State's top-down process is not in fact "collaborative" but the State is trying to give the process the trappings of a collaborative approach. It remains to be seen how much goodwill that process will generate.

-Morgan

Climate Change Effects

In November, the California Air Resources Board staff held a workshop on the development of ARB's scoping plan under AB 32. One of the slides from that presentation describes the likely effects of climate change on California by the years 2070 to 2099. Even assuming the best case (meeting the Governor's target of an 80 percent reduction in emissions, presumably worldwide), California sea levels will rise 6 to 14 inches and there will be a 30-60 percent loss of the Sierra snow pack. With no reduction in emissions, sea levels will rise 2 to 3 feet, and there will be a 90 percent loss of the Sierra snow pack. You can see the slides for yourself here (they are posted on the ARB's scoping plan website).

-Morgan

Proposed Reporting Regulations

The proposed reporting regulations make interesting reading. You can review the ARB staff's Initial Statement of Reasons and draft regulations here.

Interestingly, the ARB staff estimates a fairly low cost of compliance for the reporting obligations that the new regulations will impose -- on the order of $3,000 to $300,000 per facility, with the higher costs imposed on the larger more complicated facilities (see pages 82-85 of the PDF). The economic impact of AB 32 will not result from reporting GHG emissions, but from reducing them.

- Morgan

Will the IPCC and the Nobel Committee decide the next US Presidential election?

Today, two related news stories broke that could decide the next US Presidential election.

First, greenhouse gases, which were not expected to cross the critical 450 ppm threshold for another decade, in fact are already at 455. The Intergovernmental Panel on Climate Change (IPCC) will report next month that earth passed the 450 threshold in mid-2005, according to Tim Flannery, an award-winning climate scientist who has reportedly seen the report's underlying data. Dr. Flannery was quoted by Reuters and the Christian Science Monitor as saying, "What the report establishes is that the amount of greenhouse gas in the atmosphere is already above the threshold that could potentially cause dangerous climate change." See http://www.csmonitor.com/2007/1011/p11s01-wogi.html for the Monitor's story.

Second, the Norwegian Nobel Committee announced that the Nobel Peace Prize for 2007 has been awarded jointly to the IPCC and Al Gore "for their efforts to build up and disseminate greater knowledge about man-made climate change, and to lay the foundations for the measures that are needed to counteract such change." See http://nobelpeaceprize.org/. The Committee went on to say:

"Al Gore has for a long time been one of the world's leading environmentalist politicians. He became aware at an early stage of the climatic challenges the world is facing. His strong commitment, reflected in political activity, lectures, films and books, has strengthened the struggle against climate change. He is probably the single individual who has done most to create greater worldwide understanding of the measures that need to be adopted.

"By awarding the Nobel Peace Prize for 2007 to the IPCC and Al Gore, the Norwegian Nobel Committee is seeking to contribute to a sharper focus on the processes and decisions that appear to be necessary to protect the world’s future climate, and thereby to reduce the threat to the security of mankind. Action is necessary now, before climate change moves beyond man’s control."

The Peace Prize is awarded by an Oslo-based committee of five, coincidentally the same number of (Washington-D.C.-based) people who decided the 2000 US Presidential election against Mr. Gore.

-Brian

Everything you know about carbon markets and taxes is wrong.

Here's a thesis that's getting some attention:  the growing focus on de-carbon-izing the atmosphere is distracting the world from its only hope of averting climate change disaster.  That hope, according to Alan Carlin, a Senior Economist at USEPA, is solar radiation management, or SRM.  Essentially a form of global climate engineering, SRM involves the introduction of particulate matter into the stratosphere to block incoming radiation and, thereby, turn down the planet's thermostat.  As proof of the approach's efficacy, Mr. Carlin cites evidence that volcanic eruptions have caused measureable, sustained reductions in average world temperature.

Mr. Carlin's article, which appeared in the September/October 2007 issue of The Enviromental Forum (a publication of the Environmental Law Institute), can be found here:  http://carlineconomics.googlepages.com/CarlinEnvForum.pdf.

Federal Judge Affirms State Regulation of Greenhouse Gas Emissions from Motor Vehicles

Chalk up another victory to the states in their ongoing battle with the federal government over regulation of GHG emissions from motor vehicles. On Wednesday, District Court Judge William Sessions determined that the GHG regulations first enacted by California and later adopted by Vermont are not preempted by federal law.

In a massive, 240-page opinion following trial, the Court roundly rejected the automobile industry's challenges under various preemption theories. In particular, the Court held that: (1) California's regulations were not expressly preempted by either Section 209(b) of the federal Clean Air Act or the fuel economy standards of the Environmental Policy and Conservation Act; (2) federal law does not "occupy the field" of regulation of carbon dioxide emissions from motor vehicles; (3) the regulations do not sufficiently "conflict" with federal laws to warrant preemption; and (4) the regulations do not intrude upon or conflict with national foreign policy.

Conflict preemption was the primary focus of both the trial and the opinion. At trial, the automobile industry attempted to prove that the state regulations stood as an obstacle to EPCA's objectives and purposes by demonstrating that the regulations were technologically and economically infeasible. The Court was not persuaded: "In light of the the public statements of industry representatives, history of compliance with previous technological challenges, and the state of the record, the Court remains unconvinced automakers cannot meet the challenges of Vermont and California's GHG regulations."

The opinion can be found here: http://www.vtd.uscourts.gov/Cases/05cv302.html

____________________________
Brett S. Henrikson, Esq.
Barg Coffin Lewis & Trapp, LLP
One Market
Steuart Tower, Suite 2700
San Francisco, CA 94105
tel: 415.228.5400
fax: 415.228.5450
email: bh2@bcltlaw.com

Air District Regulations and Preemption

On August 20, 2007, the Ninth Circuit held that South Coast Air Quality Management District requirements that California government agencies purchase low-emission vehicles for their fleets are not preempted by the federal Clean Air Act. The decision is based on California's right, under the "market participant doctrine," to choose the type of vehicles that the state will purchase for its own use. The Ninth Circuit did not reach the issue whether the same type of rules, as applied to private fleets, would be preempted, but instead remanded the case to the district court for a determination whether the "fleet rules" would be preempted. Although the decision's impact is limited, it is nevertheless an important precedent in the continuing tug of war between the federal government and California over emissions limitations.

-Morgan

Climate Change and Land Use

Land use promises to be one of the hottest areas of controversy in the development of climate change policy. We have already seen efforts by California AG Jerry Brown to require local governments to incorporate climate change evaluations into the CEQA review process. Here's a blog entry describing an ABA discussion on the topic. The court decisions thus far have all focused on challenges brought after a project has already been approved. We're still waiting for the first decision to address a challenge brought pre-approval.

Morgan

Falling Prices For Emissions Credits

One of the interesting phenomena of this early stage of the development of carbon trading markets is the long-term price trend. On the European market, there are forecasts that carbon offsets for the 2007-2012 period will fall to 8 Euros per ton from about 21 Euros per ton today. See article here. On the Chicago Climate Exchange, prices have fallen from over $4.50 last year to under $3.50 this year. While falling prices may be bad for the carbon trading markets, on a global level they are encouraging. These prices apparently reflect the ease with which industries are finding low cost methods of reducing and/or offsetting CO2 emissions. This price signal, together with the large flow of investment dollars into "green" climate change projects (see BBC article), will likely encourage further and more vigorous government action to reduce GHG emissions. As mandatory reductions take hold in California and elsewhere in the U.S., it will be interesting to watch the price signal, whether rising or falling, and to see whether and how government reacts to it.