Carbon Emissions

Looking Forward and Looking Back - Some Climate Change Response Perspectives and Predictions

December 2, 2010 07:44
by J. Wylie Donald
Another year done, another time to look back and to look forward. In the climate change space, the increasing tempo of regulation was halted, but that does not mean that there were not significant events. We catalog a few with accompanying predictions of the future:Without a doubt the big legal action this year will be the United States Supreme Court's decision in Connecticut v. American Electric Power, where States and public interest organizations seek to vindicate their ability to sue on a "carbon dioxide as public nuisance" theory. One should expect the Ninth Circuit to hold off an any decision in Kivalina v. ExxonMobil until after the Supremes render their decision. And climate change plaintiffs will husband their resources until the lay of the legal landscape is clear before filing any new suits. Our crystal ball, however, also hints that clarity may not be forthcoming. Justice Sotomayor has recused herself - there may be effectively no decision if the Court comes out 4-4. Hand-in-hand with climate change liability lawsuits goes climate change liability insurance coverage. That too is being litigated at an ultimate appellate venue. In Steadfast Insurance Co. v. The AES Corp., the Virginia Supreme Court will consider whether for the purposes of the duty to defend, an occurrence is alleged in Kivalina. Although Virginia is not the most popular of coverage litigation venues, that Steadfast is the first climate change coverage case ensures that the decision will be significant.While these are heady times for courts and litigators, those ready for the legislative "fix" for climate change will not find succor in 2011. Cap-and-trade advocates became quieter and quieter in the days leading up to the November 2010 mid-term elections. We win no points for our prescience when we predict that there will be no new federal legislation regulating carbon dioxide emissions in the coming year. Quieter even than domestic cap-and-trade supporters are those in favor of some international regime. COP 16 in Cancun achieved very little. It established a $100 billion Green Climate Fund, without any provisions to fund it. It did not extend the Kyoto Protocol, which expires in 2012. And China and the United States (the two largest greenhouse gas emitters) are still not part of any global climate change plan. COP 17 takes place in Durban, South Africa at the end of next year. With an American presidential race beginning, it is hard to imagine the Administration will butt heads with its Republican adversaries on anything contentious or innovative proposed at Durban. Even if legislation is going nowhere, that does not mean the administrative agencies will be quiet. The FTC Green Guides have proposed revisions to address carbon neutrality and renewable energy claims. Expect the proposals to be acted on in 2011. The SEC's guidance on climate change disclosure surfaced in February 2010. The guidance specifically requires analysis of domestic and international regulation. In light of the shift in the climate-change-regulation pendulum, it will be interesting to see if any reporting company states that it expects less restrictions, rather than more restrictions. And of course USEPA's greenhouse gas reporting rules required the first set of data to be turned in at the end of 2010, which undoubtedly will initiate further regulatory rules. Private parties will go where the money is, which will continue to be in heavily subsidized renewable programs. Will the Republican Congress recognize the market dislocations engendered by these subsidies and cut them? Or will different influences like jobs or constituents continue to make their presence felt? If the December enactment of the Tax Relief Act (which provided an extension of the 30% tax grant for renewable projects) is any guide, if a project can be supported with a tax subsidy, rather than a government payment, it will continue. And what can we say about the weather? 2010 was an above average hurricane year, but fortunately for the United States, damage was minimal. The hurricane experts at Colorado State University predict an equally busy year for 2011. Pay up those premiums. Best for the New Year!

Insurance | Climate Change | Supreme Court | Legislation | Carbon Emissions


November 30, 2010 07:34
by J. Wylie Donald
There are a variety of metrics one could use to test the world's interest in the discussions being held by climate change policymakers gathering in Cancun this week. I will use a very personal one. As the Conference of the Parties came together in Copenhagen last year (COP 15), I was often on the phone with news organizations seeking perspective on the Kyoto Protocol, clean development mechanisms, carbon taxes, cap-and-trade and anything else that might be relevant to discussions of climate change and the world's response to it. This year in the run up to COP 16 not a single journalist has called, or even emailed. Taking a less parochial view, if you go to the United Nations Framework Convention on Climate Change "Essential Background" webpage, you will learn right in the middle of the page that Somalia is the 193rd party to the Kyoto Protocol, a fact that I feel confident in concluding will have absolutely no impact on any climate change response anywhere (even in Somalia), but which the UNFCCC functionaries conclude is essential background.So I join in the cynics that conclude little will come out of Cancun. Some are calling for a completely new attitude to climate talks. Yesterday's Wall Street Journal for example stakes out four new positions in an article styled: How to Change the Global Energy Conversation. Briefly, the authors posit that the approach that has been tried for two decades, and failed for two decades, has it all wrong. Rather than trying to raise the cost of fossil fuels, governments would be focusing on lowering the cost of renewable energy by spurring innovation. They point out that the U.S. military's support of chip technology innovation in the 50s drove those prices down 50-fold over the course of a decade. While those clean technologies are developing, greenhouse gases should be reined in through the easy fixes, such as replacing old inefficient diesel generators throughout the less developed world and focusing on capturing methane emissions from landfills. And while we are involved in less-developed countries, we should jettison the idea that there needs to be a massive transfer of wealth from rich states to poor states to help stave off the negative effects of climate change. Instead, let's recognize that a flood or earthquake or hurricane is devastating regardless of the cause and focus on building more disaster resilient infrastructure. More importantly, wealthier societies are better able to handle disasters and thus the ultimate goal must be to increase the wealth of poorer countries and to do that poorer countries need cheap energy, which brings us back to the innovation goal. Last, the authors reject universal consensus and point out that 80% of all emissions, 85% of GDP, 80% of world trade and 2/3 of the world's population are in the G-20 nations. Those nations should get together and pick their strategy.I have written before (and no doubt will write again) that what business needs is guidance. Whether it is a conference of 193 parties, or a group of 20, there needs to be a roadmap on where climate change policy is going, so business can plan. I have not seen the analysis that calculates the economic loss caused by climate change policy paralysis. Undoubtedly it is huge. What national policymakers need to figure out at and after Cancun is whether the Kyoto process can work. If not, it is time to do something else.

Carbon Dioxide | Carbon Emissions | Climate Change

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

October 21, 2010 06:23
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

EPA proposes backstop rules to help GHG Tailoring Rule Rollout

August 18, 2010 09:53
As the U.S. Environmental Protection Agency continues to roll out the details for the so-called greenhouse gas (GHG) tailoring rule, Step 1 of which is set to take effect on Jan. 2, 2011, EPA last week announced two expedited rulemakings designed to plug regulatory gaps that could impair the GHG Tailoring Rule’s implementation. EPA announced last week that 13 states have non-compliant state implementation plans (or SIPs) in that they do not clearly identify GHGs as pollutants subject to the Prevention of Significant Deterioration (PSD) program permitting.  As a result, large existing sources in those states that might be increasing their GHG emissions by more than 75,000 tons per year (the GHG Tailoring Rule first step threshold) cannot obtain a PSD permit that covers GHGs as required by the GHG Tailoring Rule. EPA is therefore proposing to launch a “SIP Call” to those 13 states and any other state that determines its own program is inadequate to cover GHGs.  Separately, recognizing that some states may not act quickly enough to allow for compliance by the January 2, 2011 implementation of the GHG Tailoring Rule, EPA announced that, for the first time since the Clean Air Act was enacted, the EPA plans to issue its own Federal Implementation Plan (or “FIP”) for GHGs to allow for the EPA to issue its own federal PSD permit to sources above the thresholds that are located in states not yet compliant with the rules. These gap-filling regulatory developments are aimed at facilitating GHG Tailoring Rule compliance by the biggest sources of GHG emissions. It covers large industrial facilities such as power plants, cement kilns and oil refineries that are responsible for 70% of the GHGs from stationary sources. Beginning January 2nd, the GHG Tailoring Rule permitting requirements will apply for large facilities already permitted as major sources under the Clean Air Act for non-GHG pollutants, such as sulphur dioxide and nitrogen oxides. These facilities will have to account for GHGs in their applications if they increase GHG emissions by at least 75,000 tons of carbon dioxide equivalent a year.  Subsequent regulatory triggers apply in the future under the GHG Tailoring Rule. Effective July 1, 2011, the GHG Tailoring Rule will extend to all new facilities with GHG emissions of at least 100,000 tons a year and modifications at existing facilities that increase GHG emissions by at least 75,000 tons a year. EPA said last week in a statement that the results of these new expedited rulemakings would be temporary measures in place until states revise their SIPs and assume responsibility for GHG permitting. EPA is expediting its rulemaking process to ensure the rules are finalized before the January 2nd start. A public hearing has been scheduled on its proposals for August 25th and EPA will accept written public comments over the next 30 days.

Carbon Emissions | Climate Change | Greenhouse Gases

Climate Change Disclosure at the SEC - A Move for Consistency

January 31, 2010 16:00
by J. Wylie Donald
It has been our view for a number of years that climate change disclosures are not for every publicly traded company. What is for each of those companies, however, is the need to take a close look at the risks and opportunities posed by climate change and to assess their importance for the company's specific circumstances. The Securities & Exchange Commission has now reached a similar conclusion. In a press release this past Wednesday, the SEC announced its decision (3-2 on partisan lines) to provide interpretive guidance on existing SEC disclosure requirements applicable to legal and business developments relating to climate change. As stated in the press release,, the Commission's interpretive releases "are intended to provide clarity and enhance consistency for public companies and their investors." As further stated by Commissioner Schapiro, the application of this guidance to climate change is not an opinion on "whether the world's climate is changing, at what pace it might be changing, or due to what causes." The SEC expressly was not "weighing in" on those topics. Nonetheless, some who are familiar with the SEC's inner workings were surprised and acknowledged that it is a big deal for the SEC to take such a step in confirming its interpretation of the applicable disclosure regulations as they relate to global warming risks. Environmentalists and leading state pension fund investors have long argued that the SEC should issue such guidance and formally requested such action in a peition filed with the SEC in 2007. The guidance identifies various areas where disclosure might be required: 1. Legislation and regulation that may impact a business. (e.g., the effect a carbon tax may have on revenue) 2. International agreements that may impact a business. (e.g., the lapse of the Kyoto Protocol may change the need for carbon credits) 3. Regulation and business trends that may have indirect consquences on a business (e.g., refrigerator manufacturers may need to assess energy efficiency as a business trend) 4. Physical impacts of climate change. (e.g., a shipping company may need to evaluate the effect of a melting icecap and the opening of the Northwest Passage) After reading this list, some will certainly conclude that the guidance offers nothing new. Each of these subjects falls within one of the disclosure requirements already on the books for many years. For example, Item 303 of Regulation S-K requires the disclosure in management's discussion and analysis of circumstances materially affecting one's business. If rising sea levels can be determined to pose a material risk to casino operators on the Atlantic seaboard, then disclosure is required. In similar fashion, brethren in Nevada may need to discuss the impact of perpetual drought in the American southwest. Whether these outcomes are the result of climate change is not relevant to the disclosure obligation. Whether they are material is. Likewise, Item 101 would capture disclosure of legislation and regulation material to one's operations. If a carbon tax or cap-and-trade program has a material impact on one's bottom line, one does not need the new guidance to make disclosure. On the other hand corporate disclosures to date are uneven. The Carbon Disclosure Project,, has been soliciting disclosure from the world's publicly-traded companies for several years. A review of those reports is striking in the variation of both the scope and detail of the disclosures. As a result of the guidance, however, one can now expect disclosing institutions to be reviewing the disclosures of their peers, in order to assess more precisely what needs to be said. The SEC's decision was not the first regulatory pronouncement on climate change disclosure. Last year the National Association of Insurance Commissioners promulgated rules for their regulated community (insurance companies). We do not expect the SEC's guidance to be the last word either. Regulated entities will do well to pay close attention.

Carbon Emissions | Climate Change | Legislation


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