All posts tagged 'Carbon Offsets'

Cap and Trade - California Leads the Way

November 1, 2011 23:39
by J. Wylie Donald

Subchapter 10 Climate Change, Article 5, Sections 95800 to 96023, Title 17,

California Code of Regulations, to read as follows:

Article 5: CALIFORNIA CAP ON GREENHOUSE GAS EMISSIONS AND

MARKET-BASED COMPLIANCE MECHANISMS

Note: All text is new.

"All text is new."  And so it is and so begins a new chapter in California's odyssey into the regulation of greenhouse gas emissions, which began over 5 years ago with the passage of AB 32, the Global Warming Solutions Act of 2006.  Under that law, greenhouse gas rules - including market controls - adopted by the California Air Resources Board are required to take effect by January 1, 2012.  Thus, market control regulations - a cap and trade program - were adopted unanimously by the CARB on October 20 and submitted to the Office of Administrative Law by last Friday, October 28.

Cap and trade has two parts.  What does the cap look like? The CARB's implementing resolution explains that the regulation

"Establishes a declining aggregated emissions cap on included sectors. The cap starts at 162.8 million allowances in 2013, which is equal to the emissions forecast for that year. The cap declines approximately 2 percent per year in the initial period (2013–2014). In 2015, the cap increases to 394.5 million allowances to account for the expansion in program scope to include fuel suppliers. The cap declines at approximately 3 percent per year between 2015 and 2020. The 2020 cap is set at 334.2 million allowances[.]"

An "allowance" is a "limited tradable authorization to emit up to one metric ton of carbon dioxide equivalent."  Cal. Code Regs. tit. 17 § 95802(a)(8).  Initially large industrial facilities will receive a free allocation, with auctioned allowances to come.  Electric utilities will receive their allowances for free, with ratepayers to receive the benefit of the value of those allowances.

Trade is what one does if one does not have the right number of allowances.  Allowances can be bought and sold in the present, or  banked for future needs (such as to guard against shortages and price swings), or even retired.

Let there be no mistake.  This is not a small program.  The regulations run on for 260 pages with 43 pages of definitions.  They cover 350 businesses operating 600 facilities.  By 2013 electric utilities and certain large industrial facilities will be obligated to comply.  Distributors of transportation, natural gas and other fuels will see themselves subject to regulation in 2015.  California's goal is to return to 1990 levels of greenhouse gas emissions by 2020.  The cap and trade program "sets a statewide limit on sources responsible for 85 percent of California’s greenhouse gas emissions, and establishes a price signal needed to drive long-term investment in cleaner fuels and more efficient use of energy."

The program is comprehensive.  Besides specifying the calculation of allowances and describing the operation of allocation and auction schemes, the program also sets forth in detail the use of offsets ("a GHG emission reduction or GHG removal enhancement that is real, additional, quantifiable, permanent, verifiable, and enforceable" Cal. Code Regs. tit. 17 § 95970).  Perhaps most interesting because it suggests a self-replicating paradigm in the minds of the California authorities, is the set of provisions recognizing "compliance instruments from external GHG emission trading systems."  Cal. Code Regs. tit. 17 §§ 95940-43.  In other words, if a cap and trade program is implemented elsewhere, California can take notice and give credit.  And since that will enhance business activity with California, other jurisdictions (such as those in the Western Climate Initiative and in Canada) have an incentive to replicate California's model.

Will any of this work?  CARB will not learn by happenstance.  Its implementing resolution requires annual updates, which will measure, among other things the effectiveness of the cap-and-trade program, its stimulation of investment and innovation in clean technology, shifts in transportation fuel use and supply, the working of offset protocols, carbon capture and sequestration technology, and, last but not least "federal greenhouse gas activities, including federal equivalency for a State program."  Our last post concerned a House bill that forbade American air carriers from participating in the the EU Emissions Trading System (Europe's cap and trade program). We wonder what the response in Washington will be to these efforts by the world's eighth largest economy?  We suspect they will tread gingerly and note that California voters had a chance to rein in AB 32 last November but rejected a ballot initiative (Proposition 23) that would have done just that. 

Carbon Emissions | Regulation

Revisions to the Green Guides: Part III - Insurance Coverage for the Claim

October 24, 2010 19:10
by J. Wylie Donald

If you have been following along with the last two posts, you are now aware of the several ways one can trip up as one attempts to use "green" climate change attributes (specifically, claims regarding renewable energy, carbon offsets or carbon neutrality) to win customers or sell products. And the universe is bigger than simply climate change. The Green Guides promulgated by the Federal Trade Commission, address general environmental benefit claims; biodegrable, recyclable, compostable, refillable and recycled content claims; "ozone-friendly" claims; and claims about source reduction. See 16 C.F.R. § 260.7. There are numerous perils and you would like to think that a misstep in this area would not be without succor. And you would be right (in some circumstances).

Included in the general liability policies with which we are all familiar, is coverage for Advertising Injury. As its name implies, it can be a source of coverage for a marketing misstep. Typical insuring language provides that the insurer "will pay those sums that the insured becomes legally obligated to pay as damages because of 'personal and advertising injury' to which this insurance applies." ISO CG 00 01 12 07. These policies often also require the insurer to defend the insured against claims asserting advertising injury.

 

Advertising injury coverage is not triggered by the commonly known "occurrence." Instead, the operative event is an "offense" committed by the insured. These offenses are specifically enumerated in the definition of "personal and advertising injury." Pertinent here is the following offense set forth in the definition: "oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services."

It is easy to understand "oral or written publication," but is a misleading advertisement that does not even mention a competitor's name, a slander, a libel or a disparagement? In a case of first impression in California in 2007, a court of appeals panel found that it could be. Tosoh Set v. Hartford Fire Ins. Co., slip op. (Cal. Ct. App., April 30, 2007) Click here

. The court found that the "duty to defend was triggered by an allegation that [the insured] falsely claimed it alone had developed the detailed specifications and tolerances required for certain replacement component parts used in semiconductor manufacturing equipment, a statement that disparaged its competitors' products and services by implying they were measurably inferior." It does not require much ingenuity to imagine a claim that a certain item "made with renewable energy" constitutes disparagement of other manufacturers' products that are not so made. Likewise, a claim that a service was carbon neutral, might disparage services that were not. So coverage seems possible.

Climate Change | Renewable Energy

Revisions to the Green Guides: Part II - Carbon Offset Claims

October 21, 2010 09:23
by J. Wylie Donald

We wrote last about the Federal Trade Commission's proposed revisions to the Green Guides (Proposed Revisions to the Green Guides (Oct. 6, 2010 ) click here) and the Guides' proposed new guidance on renewable energy. Today we will address how the Guides intend to treat marketing claims regarding carbon offsets.

Carbon Emissions | Climate Change | Renewable Energy


McCARTER & ENGLISH CLIMATE CHANGE AND RENEWABLE ENERGY PRACTICE GROUP

The business case for the development of renewable energy projects, from biodiesel and ethanol to wind, solar, and distributed generation, is more compelling than ever as tax and regulatory incentives combine to attract investments. Emerging issues in environmental law and increasingly recognized principles of corporate social responsibility are encouraging public companies to voluntarily reduce greenhouse gas emissions, install clean energy alternatives, and invest overseas in projects under the Kyoto Protocol to respond to climate change concerns.

Click here for more information and a list of our group members.
© McCarter & English, LLP. All Rights Reserved. disclaimer
navbottom image