Our neighboring county just revised their zoning ordinance forbidding auxiliary structures higher than 15 feet. The revision permits structures up to 150 feet. The need: windmills.

What if we got one? What about insurance? My first step was to consider the risks and losses I would need to protect against: property loss (it falls down), liability (it falls down on somebody) and business interruption. (I can no longer export power).

As it turns out, only the third is of any real interest, but in so being it impacts the other two. If you pull out your homeowners' policy, it will likely cover Other Structures. For example, my policy provides: "We [the insurer] cover other structures on the residence premises set apart from the dwelling by a clear space or connected to the dwelling by only a fence, utility line or similar connection." Windmills fit the definition of Other Structure --- so absent a windmill exclusion I've got coverage. And there is no windmill exclusion.

But wait, what about this exclusion for commercial activity? Specifically, under my property coverage I am not covered for "Business" property except as provided by a Special Limits provision. As for liability, I have no coverage for liability "arising out of business activities or business property of any insured." There is an exception for "incidental business", which is defined to be self-employment or other employment that generates a gross annual income of less than $5,000 in value. What is the import of this?

The windmill is a viable improvement for a homeowner because of its ability to provide electricity virtually for free once it is installed. It becomes even more viable when the homeowner is being credited by the utility for that electricty. And utilities want these arrangements. Many states have passed laws requiring utilities to enhance their renewable energy portfolios. To accomplish this, utilities are contracting with homeowners to take whatever excess electricity is generated. With the advent of "net metering" small generators, even a single windmill, can be linked to the grid and the owner credited for whatever small or large amount contributed.

Questions arise: would the windmill constitute business property? Would a "net metering" arrangement constitute a business or an incidental business? If only an incidental business, can I still have property coverage for the windmill.  If the windmill is uncovered business property, but falls on my covered home, will I have coverage? Right answers (from a policyholder's perspective) may be more difficult to obtain after a loss has occurred. These are contracts after all and the parties (and ultimately a court) will look to the written word to make a determination. While ambiguities will be construed in favor of the policyholder and the reasonable expectations of the insured should be honored, sometimes the coverage just is not there, even though the insured intended otherwise. This may be the case when, for example, obtaining coverage is as simple as having listed the windmill on an appropriate schedule, or changing the limit on what constitutes an incidental business.

The lesson learned is larger than windmill coverage. A change to one's activities can affect one's coverage. The windmill was covered property and I was protected from liability - until (potentially) I decided to hook it into the grid. Losing coverage would have come as a shock.

Two important climate change law developments collided this month in unexpected ways that impact whether the U.S. Environmental Protection Agency can and will regulate greenhouse gas emissions (GHGs) pursuant to the federal Clean Air Act and, legal observers say, the resulting unintended consequence compels the conclusion that the Congress needs to act now to adopt a legislative fix.

First, in a Federal Register notice published on July 30, 2008 (but released informally on July 11, 2008), the EPA issued its Advance Notice of Proposed Rulemaking (ANPR) that responds to the U.S. Supreme Court’s April 3, 2007 decision in the Massachusetts v. EPA, in which the Court held that the EPA has the authority under the Clean Air Act (the “Act”) to regulate GHGs emitted from new automobiles.  Setting aside a lot of well-publicized political debates and other issues surrounding the remarkable ANPR and its contents, it is fair to say that, among other conclusions, EPA indicated that it believed that market-based incentives, including cap-and-trade programs, were important policy options available to it under the Act.

Second, in a seemingly-unrelated case, North Carolina v. EPA, the United States Court of Appeals for the District of Columbia Circuit (“DC Circuit”) issued an opinion on July 11, 2008, the same day as the ANPR’s release, declaring invalid due to “fatal flaws” the Clean Air Interstate Rule (“CAIR”).  One key provision under attack by the State of North Carolina in the case was its concern that CAIR allowed an upwind state, Alabama, to avoid its statutory responsibility to for assuring air quality within its borders, pursuant to Title I of the Act, when the Act arguably requires each state to create a state implementation plan (a “SIP”) for each air pollutant depending on whether the area meets the national ambient air quality standard (“NAAQS”).

CAIR required upwind states to revise their SIPs to control emissions of nitrogen oxides (“NO_x”) and sulfur dioxides (“SO₂”).  As an implementation option, CAIR authorized an interstate trading programs for each air pollutant and, in the absence of approved SIPs, allows upwind sources to use the trading program rather than achieve site-specific emissions reductions.  CAIR also revised the EPA’s Acid Raid Program regulations governing the SO₂ cap-and-trade program and implements the CAIR NO_x ozone-season trading program.  CAIR features emissions budgets by allocating the regional budget among states according to each state’s proportion of oil-, gas-, and coal-fired electric generating facilities.

The DC Circuit rejected EPA’s cap-and-trading programs because CAIR did not require actual elimination of emissions from sources that contribute significantly and interfere with maintenance in downwind nonattainment areas.  It said that CAIR is not achieving the Act’s mandate of prohibiting emissions moving from one state to another, leaving EPA “with no statutory authority for its action.”

Turning back to the ANPR, the EPA is considering the possible use of cap-and-trade programs to regulate GHGs and achieve region-wide reductions in emissions.  One method of regulation, the EPA explained, would be to set a NAAQS for carbon dioxide and use the cap-and-trade program to implement compliance options for achieving allocated regional emissions budgets. 

The DC Circuit’s decision in North Carolina v. EPA, however, significantly restricts EPA’s options for climate change regulation and, most notably calls into question whether EPA even has the authority under the Act to establish a cap-and-trade program for carbon dioxide.

During a recent teleconference presentation of the American Bar Association, lawyers involved in the North Carolina v. EPA case and the ANPR agreed that this month’s legal developments raise serious new concerns and they suggested that Congress should act quickly and simply to legislatively fix the uncertainty left in the DC Circuit’s wake.

By Grace Kurdian, McCarter & English, New York City

How far we've moved from the days when an auction simply conjured images of art trades at venerable art houses. Yesterday, the Regional Greenhouse Gas Initiative ("RGGI") released the bid preparation process (notice, qualification documents and background information concerning the auction process) for the first regional, mandatory, market-based carbon emissions auction to be held in the nation. The first RGGI auction of carbon dioxide allowances will be held on September 25, 2008. A second auction is planned for December of 2008. The auctions will be conducted using an electronic, internet-based platform through which bidders will submit their bids in a uniform-price, sealed-bid (single round) auction.

RGGI, a non-profit corporation to emerge from a cooperative started in 2003 and eventually entered into by 10 Northeast and Mid-Atlantic States (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Jersey, New Hampshire, New York, Rhode Island, and Vermont, referred to as the "participating states"), is a regional mandatory, market-based cap-and-trade program that was initially intended to cover carbon dioxide emissions from power plants in the region. RGGI stems from the participating states' commitment to cap/stabilize and then to reduce the amount of carbon dioxide emissions that power plants in the region emit.

The RGGI goal is achieved through complementary, interconnected carbon dioxide Budget Trading Programs implemented by each participating state. The "allowances" are issued by the participating states, and each "allowance" represents the right to emit one ton of carbon dioxide. At the end of each compliance period, each regulated entity is required to prove compliance with each participating state's carbon dioxide Budget Trading Program.

It is anticipated that RGGI may be extended in the future to include other sources of greenhouse gas emissions (beyond power plants), and to cover greenhouse gases other than carbon dioxide. However, at this stage, the scope of RGGI is limited to carbon dioxide emissions from power plants.

Through the assistance of various working groups, the cooperative has: produced a Memorandum of Understanding, drafted a detailed Model Rule, provided for each participating state to follow the statutory or regulatory process required by each respective State to determine whether allowances would be allocated or auctioned and to determine the legal authority for conducting an auction of such allowances, engaged in design studies to determine the parameters of the allowance auction, created an allowance tracking system, and designed the allowance auction process. The funds collected from the auction will, in turn, be invested in energy efficiency and renewable energy projects throughout RGGI's participating states and also be used to assist particularly low-income consumers as to fuel assistance programs. (As an example of the public policy issues at play here, Connecticut changed its draft auction rules for RGGI just this week to require that funds raised be returned to ratepayers if the auction price for emissions allowances exceeds $5 per allowance.)

The Auction Notice released Thursday sets forth the process that potential bidders must follow to qualify and participate in the RGGI carbon dioxide allowance auction. The documents necessary for participating in the auction are available on the RGGI website at http://www.rggi.org/trading_auctions.htm. To participate in the auction, one must open a general account in the RGGI carbon dioxide allowance tracking system ("RGGI COATS"); submit a Carbon Dioxide Allowance Auction Qualification Application, become qualified by each of the states participating in the first auction; submit an Intent to Bid; and provide financial security approved by each of the states participating in the first auction. A detailed timeline is set forth in the Notice. Questions as to the auction process may be posted online through July 30, 2008. Completed Carbon Dioxide Allowance Auction Qualification Applications and Intent to Bid documents are due by August 8, 2008. By September 10, 2008, applicants will receive information concerning their qualification status. The final auction participation status will be sent to qualified applicants by September 22, 2008, and the first auction will be held later that week, on September 25, 2008.

The auctions to be held in 2008 are intended to provide emitters (regulated power producers) an opportunity to get a sense of the market price and plan for the first RGGI compliance period, which begins on January 1, 2009. The allowances purchased during the 2008 auctions may be used to demonstrate compliance in any of the ten participating states. During the September 25, 2008 auction, over 12,560,000 carbon dioxide allowances will be available for purchase from states including Connecticut, Maine, Maryland, Massachusetts, Rhode Island, and Vermont. The allowances purchased through the auction may be used by any regulated facility to meet their compliance requirements in any of the RGGI states, even in those RGGI states that are not offering allowances to be used in the first auction.

In short, the first and second RGGI auctions will provide an opportunity for those who have been ahead of the curve, attuned to the developments in the area of climate change, to collect allowances and develop their emissions reduction strategies and budgets even before the January 1, 2009 compliance period trigger forces all regulated power plants to face the upcoming regional compliance requirements.

Our neighboring county just revised their zoning ordinance forbidding auxiliary structures higher than 15 feet. The revision permits structures up to 150 feet. The need: windmills.

What if we got one? What about insurance? My first step was to consider the risks and losses I would need to protect against: property loss (it falls down), liability (it falls down on somebody) and business interruption. (I can no longer export power).

As it turns out, only the third is of any real interest, but in so being it impacts the other two. If you pull out your homeowners' policy, it will likely cover Other Structures. For example, my policy provides: "We [the insurer] cover other structures on the residence premises set apart from the dwelling by a clear space or connected to the dwelling by only a fence, utility line or similar connection." Windmills fit the definition of Other Structure --- so absent a windmill exclusion I've got coverage. And there is no windmill exclusion.

But wait, what about this exclusion for commercial activity? Specifically, under my property coverage I am not covered for "Business" property except as provided by a Special Limits provision. As for liability, I have no coverage for liability "arising out of business activities or business property of any insured." There is an exception for "incidental business", which is defined to be self-employment or other employment that generates a gross annual income of less than $5,000 in value. What is the import of this?

The windmill is a viable improvement for a homeowner because of its ability to provide electricity virtually for free once it is installed. It becomes even more viable when the homeowner is being credited by the utility for that electricty. And utilities want these arrangements. Many states have passed laws requiring utilities to enhance their renewable energy portfolios. To accomplish this, utilities are contracting with homeowners to take whatever excess electricity is generated. With the advent of "net metering" small generators, even a single windmill, can be linked to the grid and the owner credited for whatever small or large amount contributed.

Questions arise: would the windmill constitute business property? Would a "net metering" arrangement constitute a business or an incidental business? If only an incidental business, can I still have property coverage for the windmill.  If the windmill is uncovered business property, but falls on my covered home, will I have coverage? Right answers (from a policyholder's perspective) may be more difficult to obtain after a loss has occurred. These are contracts after all and the parties (and ultimately a court) will look to the written word to make a determination. While ambiguities will be construed in favor of the policyholder and the reasonable expectations of the insured should be honored, sometimes the coverage just is not there, even though the insured intended otherwise. This may be the case when, for example, obtaining coverage is as simple as having listed the windmill on an appropriate schedule, or changing the limit on what constitutes an incidental business.

The lesson learned is larger than windmill coverage. A change to one's activities can affect one's coverage. The windmill was covered property and I was protected from liability - until (potentially) I decided to hook it into the grid. Losing coverage would have come as a shock.

A Georgia Court Monday reversed that state’s issuance of an air permit to the developer of a 1,200 MW coal fired power plant, citing the permit’s failure to require carbon dioxide emission limitations under the Clean Air Act (“CAA”). An administrative law judge’s decision to issue the permit was reversed and remanded for further proceedings.

At issue in the case is a proposal for a conventional coal burning steam electric power plant that would be a major air pollution source, emitting 8-9 million tons of carbon dioxide per year, along with sulfur oxides, nitrogen oxides, particular matter, sulfuric acid mist, and hazardous air pollutants, including mercury.

The ruling is significant because it is believed to be the first application of the U.S. Supreme Court’s April, 2007 decision in Massachusetts v. EPA, which involved greenhouse gas emissions from new automobile exhaust, to major stationary sources of emissions from power plants. In the Mass. v. EPA case, the Court said that “EPA can avoid regulating GHGs only if it determines that GHGs do not contribute to climate change or if it provides some reasonable explanation as to why it cannot or will not exercise its discretion to determine whether they do.” 127 S. Ct. at 1462.  EPA recently signaled its intention to delay such action. [See June 28, 2008 blog posting on that issue.]

Fulton County Superior Court Judge Thelma Moore’s ruling rejected the argument of the project’s developer, Longleaf Energy Associates, LLC (a joint venture of Dynegy and LS Power), that carbon dioxide is not an “air pollutant subject to regulation” under the CAA.  If it is such an air pollutant, the CAA requires a best available control technology (“BACT”) emission limit in places, such as the Early County, GA site, which are “attainment” zones.

In setting the stage for her ruling, Judge Moore noted that “it is undisputed that no BACT analysis was done. There was no effort to identify, evaluate, or apply available technologies that would control [carbon dioxide] emissions, and the permit contains no [carbon dioxide] emissions.” 

“The argument had been advanced before the permit issued here that [carbon dioxide] was not an “air pollutant” under the Act, but that argument was rejected by the U.S. Supreme Court in Mass. v. EPA,” 127 S.Ct. 1438 (2007), Judge Moore wrote. “There is no question that [carbon dioxide] is subject to regulation under the Act.”

Longleaf argued in the case that carbon dioxide is not regulated under the CAA because the EPA has not yet promulgated a national ambient air quality standard for carbon dioxide, has not listed it as a regulated pollutant under any section of the CAA, and has not established any other regulations for carbon dioxide.  Judge Moore rejected that argument, however, holding that since carbon dioxide is “otherwise subject to regulation under the Act,” a Prevention of Significant Deterioration (PSD) permit cannot issue for Longleaf without carbon dioxide emission limitations based on a BACT analysis.

The Georgia Court also found that the permit-issuing administrative law judge should have considered the integrated gasification combined cycle (IGCC) technology as a possible BACT alternative technology to the conventional coal burning technology proposed by Longleaf.  

The case represents yet another setback for conventional coal-fired power generation technology. Last year, a Texas-based major energy company agreed to scuttle plans to build eight of 11 coal fired power plants as part of an agreement with environmental groups that cleared the way for a private equity merger transaction.  More recently, a proponent of coal-fired generation in Kansas ran into serious difficulties in that state.

Developments in the states continue to show that, while the EPA has yet to issue a regulatory response to the Mass. v. EPA landmark Supreme Court ruling, its legal rationale, which was limited to new automobile exhaust, is now being applied in state permitting and court decisions to major stationary sources, such as power plants.