Friday, July 15, 2011
This week, American Electric Power Co., Inc., announced that it would terminate its contract with the Department of Energy for the carbon capture and storage project at its Mountaineer Plant, a coal-fired power plant in West Virginia. AEP explained that "[d]ue to the current uncertain status of U.S. climate policy and the continued weak economy, AEP has made the business decision to place the project on hold until such time that economic and policy conditions create a viable path forward."
Will there be a "viable path forward" for carbon capture and storage (CCS)? The resources that states and the federal government already have sunk into CCS suggest that there may be. These efforts generally have focused on identifying the ideal locations for geological carbon sequestration; researching its risks; developing regulatory options (Texas, for example, has made progress on this front, and the EPA has published a final rule for carbon dioxide geologic sequestration wells); and launching projects to demonstrate the feasibility of the technology--including projects like AEP's Mountaineer Plant.
Marie Bradshaw Durrant and Professor Arnold Reitze have a useful article in Environmental Law Reporter that discusses western states' approaches to CCS, including state funding for research and pilot projects and state policies to research and/or encourage CCS. One interesting effort noted in the article is the Colorado Legislature's empowerment of "Colorado's Utilities Commission to include CCS and related technology in their permitting of power producing facilities." This type of legislation might erase the types of concerns raised by AEP in terminating its project, including AEP's belief--as reported by the New York Times--that "state regulators would [not] let the company recover its costs [of CCS] by charging customers." Bradshaw Durrant and Reitze also explain that Colorado has attempted to encourage the construction of Integrated Gasification Combined Cycle plants "to demonstrate the feasibility of this clean coal technology with the use of western coal and with carbon dioxide capture and sequestration," and the Colorado Legislature has enabled various state agencies and offices to help proposed IGCC plants obtain federal and state funding. Colorado is just one example out of many described in Bradshaw Durrant and Reitze's article, and they provide more description of CCS and its future in a second article on state and regional CCS controls. For a 2009 overview of CCS projects, state regulatory frameworks, and potential risks, see Donna Attanasio's "Surveying the Risks of Carbon Dioxide"; also see Professor Michael Gerrard's 2008 summary of legal issues associated with CCS, and Philip Marston and Patricia Moore's longer 2008 article on the "The Evolving Legal and Regulatory Framework for Carbon Capture and Storage."
Beyond legislation that enables cost recovery for power plant projects and potential financial support for CCS development, successful CCS will require careful consideration of property rights and liability; Professors Elizabeth Wilson and Alexandra Klass have written thoughtful articles in this area, as have Professors David Adelman and Ian Duncan. Will Reisinger and others, in turn, have proposed a legislative framework for CCS property rights and liability.
If we assume that AEP's exit from the CCS world is just a small glitch in a larger project moving forward--one that will involve complicated new legal questions and require innovative local, state, regional, and federal approaches--is this larger project a good idea? The World Resources Institute believes that CCS is an essential component of a portfolio for "stabilizing climate-forcing emissions," but Professor Patrick Parenteau has concerns about CCS--pointing out, for example, that CCS encourages continued coal use and may "divert badly needed investments" from other climate solutions, such as energy efficiency and renewables.
Thursday, July 14, 2011
Tuesday, July 12, 2011
Do you realize that the Cross-State Air Pollution Rule finalized by the Environmental Protection Agency last week represents the end of the famed Acid Rain Program? It's a good thing because the Acid Rain Program had outlived its usefulness by several years and its allowance market had collapsed.
Legislated into existence by the Clean Air Act Amendments of 1990, the Acid Rain Program (ARP) was a major experiment with cap-and-trade regulation. It began in 1995, and its first few years were quite a success. With the ability to bank allowances for future years when they might be quite valuable, the power plants included in the program reduced their pollution by more than they had to. In the first five years of the program, EPA’s annual caps allowed them to emit a total of 38 million tons of sulfur dioxide, but the power plants actually only emitted 26 million tons. So when the program was expanded to include smaller power generators in 2000, the big utilities were sitting pretty with about 12 million ton of allowances in the bank (for a blow-by-blow of overallocation in this and other cap-and-trade programs see my article, The Overallocation Problem In Cap-And-Trade: Moving Toward Stringency, 34 COLUM. J. OF ENVTL. LAW 396 (2009).
But in the end, many of the big power plants probably didn’t make as much money selling their banked allowances as they thought they would. In the early 2000s, there was some demand for allowances because all those smaller generators weren’t allocated quite enough allowances to cover their emissions. A power plant selling in the early 2000s could have made about $150 per allowance. If they were really smart (or lucky), they sold allowances in the mid-2000s. In these years, the Bush Administration was implementing the Clean Air Interstate Rule (CAIR), which allowed the use of ARP allowances and made them more valuable. From 2005 to 2007, allowances traded for an average of more than $600. (For price information see EPA's auction results.)
Then, in July 2008, the DC Circuit struck down CAIR in North Carolina v. EPA, and in November, President Obama was elected. The power plants and other market actors realized that the ARP allowance party was ending, and the value of allowances plummeted. In 2009, allowances sold for $62; in 2010, they sold for $36, and earlier this year, they were selling for $2. Talk about a burst bubble, or a market collapse… that’s what the end of the Acid Rain Program looked like.
In great contrast to CAIR, the new Cross-State Air Pollution Rule does not allow the carryover of ARP allowances. Given that there were still more than twelve million tons-worth of banked allowances in 2009, this is a very good thing for the new rule’s stringency and for the environment. Although the size of the bank had decreased in the early and mid-2000s to about 6 million allowances, it grew again in the late 2000s as the program operated under the outdated and overly-lenient caps that had been set by Congress in 1990.
Kudos to the Obama EPA for putting the Acid Rain Program and its overallocated allowances to rest!
Monday, July 11, 2011
Australian Prime Minister Julia Gillard came out swinging during her recent announcement of a carbon tax plan for Australia, stating that "[n]o longer will the nations biggest polluters be able to pollute our atmosphere for free...Two decades of denial and delay will come to an end. Polluters will have to pay."
The tax will start at $24.60 U.S. per metric ton, and would rise by 2.5 percent a year until 2015. A carbon trading scheme would then begin operation. The goal of the plan is to reduce carbon emissions in Australia by 5 percent of 2000 levels by 2020 and by 80 percent of 2000 levels by 2050. The plan would also include a $10.7 billion U.S. investment over five years into renewable and other clean energy projects.
In a rare move, Gillard announced the carbon tax plan on national television and also plans to take a two-week tour of Australia in an attempt to sway the populous. Though the plan is likely to get through parliament, public opposition has been fierce, with some polls showing 60 percent opposition to a carbon tax. Australian climate scientists even received death threats earlier this year. To assuage public angst, the plan includes tax cuts and payments to low- and middle-income families for any cost-of-living increases associated with the tax.
This is an important move for Australia, since it is among the world's top per-capita polluters. But it will also provide an important testing ground for the efficacy and functionality of a carbon tax/trade system other than the current one in operation in the E.U. A welcome outcome for those hoping to harness a tax/trade system to combat climate change would be a relatively well-functioning system that does not spell doom and despair for the economy of Australia. Of course, the opposite is also a risk - unforeseen problems with the system or consequences of its operation would provide ammunition to those hoping to stifle any efforts at curbing carbon emissions.
We will have to wait a while to see how this Australian "trial-run" plays out. But at the least this is a step in the right direction by another major economic power with a carbon addiction. The more momentum that snowball gets rolling downhill, the more likelihood it will still be frozen when it gets to the bottom.
- Blake Hudson
* Oil gushed from an Exxon Mobil pipeline into the Yellowstone River in Montana, and Montana Governor Brian Schweitzer withdrew from the EPA's oil spill command center, arguing that Exxon had held "secret meetings" and had failed to disclose certain documents (L.A. Times and Wall Street Journal). The EPA filed an administrative order for removal actions.
* The New York Times suggested that the political will to continue granting large tax credits for corn ethanol may be waning, as evidenced by recent compromises among senators and statements by Republican presidential candidates.
* The Department of the Interior announced the new Secretarial Commission on Indian Trust Administration and Reform.
* Vermont Attorney General Bill Sorrell announced that Vermont would not charge Entergy officials with perjury. Entergy staff have conceded that they made incorrect statements to Vermont officials about underground pipes that carry radioactive materials at the Vermont Yankee nuclear power plant. In January 2010, a tritium leak occurred at the plant. (Brattleboro Reformer)
* The EPA finalized the Cross-State Air Pollution Rule, as Professor Osofsky describes in her July 8 post.
* A U.S. Forest Service official indicated that the Service will not pursue a broad policy against hydraulic fracturing for natural gas on Forest Service lands despite its efforts to ban certain fracturing and horizontal drilling in George Washington National Forest. (Wall Street Journal)
* And finally, a late tidbit from June 30: France banned hydraulic fracturing for natural gas. (Scientific American)