Note that the legislation includes the use of both renewable energy certificates (”RECs”) and energy efficiency certificates (”EECs“) to meet obligations under a national renewable portfolio standard. As consensus on controlling GHGs more broadly proves elusive, could sector-specific environmental instruments be the emerging trend for North America? Should it be? Will Canada follow suit?

Meanwhile in Canada, the EcoLogo program completed its consultation in August on a new draft of the certification standard Renewable Low Impact Electricity, CCD-03. The new draft includes standards for both RECs (an unbundled product, sold separately from “null electricity”) and “green electricity”. The certification standard is due to be approved imminently after a lengthy review process. This development could be seen as a step towards a voluntary RECs market in Canada based on a more standardized product, as well as a compliance-based system, if Canada follows the lead of its principal trading partner. See: http://www.ecologo.org/en/criteria/subpage.asp?page_id=212

More to follow.

Highlights of the legislation include (1) a greenhouse gas (GHG) cap and trade program, (2) a combined efficiency and renewable electricity standard, (3) incentives for carbon capture and storage, and (4) measures with potential trade implications, as well as a wide variety of other provisions.

The GHG cap and trade program would be implemented through a new Title VII under the existing Clean Air Act (CAA). National GHG emission reduction targets would be:

- 3% below 2005 levels in 2012;

- 20% below 2005 levels in 2020;

- 42% below 2005 levels in 2030; and

- 83% below 2005 levels in 2050.

The cap on regulated sources would be the same for each milestone, other than 2020 where it would be set at 17% below 2005 levels. Covered sources in 2012 would include electricity generators, liquid fuel refiners and importers, and fluorinated gas manufacturers; in 2014, industrial sources with GHG emissions of 25,000 or more metric tons of carbon dioxide equivalent per year (similar to the thresholds generally applicable in the recently proposed EPA GHG reporting rule); and in 2016, local distribution companies that deliver natural gas.

Some allowances would be allocated while others would be auctioned. A two year rolling compliance year would allow covered entities to borrow emission reductions from one year ahead. Up to 15% of covered entity obligations could be met with allowances of vintages 2 to 5 years into the future, along within an 8% premium for doing so (in allowances). Banking of allowances would be unlimited.

The EPA Administrator is directed to establish an offsets program by regulation that would ensure offsets are verifiable, additional and permanent. Use of offsets would be limited to 2 billion tons per year across the system. The limit will be split evenly between domestic and international offsets, with authority for the EPA Administrator to increase the limit on international offsets by 1.5 billion tons if domestic supply is deemed insufficient. As of 2017, covered entitites would be required to use 5 tons of offset credits for every 4 tons of emissions offset. An Offsets Integrity Advisory Board would be established.

Additional GHG performance standards would be provided for certain stationary sources under a new Title VIII. GHG emissions would not be regulated simultaneously by other Titles of the CAA, such as those addressing criteria pollutants, hazardous air pollutants, new source review, or operating permits.

Oversight of the cap and trade system would be carried out by FERC in the cash market for allowances and offsets. The derivatives market would be regulated by an agency or agencies selected by the President. Fair compensation and terms of exchange are to be provided for allowances issued prior to the start of the federal program by California, the northeastern and mid-Atlantic Regional Greenhouse Gas Initiative, and the multi state and province Western Climate Initiative.

Retail electricity suppliers, defined as those who sell more than 4 million megawatt hours of electricity to consumers (other than for resale purposes), would be responsible to meet a percentage of their load through electricity generated from renewables and electricity savings, starting at 6% in 2012 and rising to 20% in 2020. Up to a quarter of the 20% standard could be met with beyond business-as-usual electricity savings, while any Governor could apply to FERC to increase that figure to 8%. The requirement would be reduced in proportion to any of the supplier’s electricity sales generated from certain existing hydro, new nuclear, or fossil fuel sources that use carbon capture and storage (CCS). Additional credit would be available for distributed generation with an off-ramp available through compliance payments at $25 per credit (equivalent to one megawatt hour) or 2.5 cents per kilowatt hour.

The EPA Administrator is directed to establish an incentive for carbon capture and storage in the form of additional allowances to be distributed based on the number of tons of carbon sequestered. A greater incentive would be provided for earlier and larger CCS initiatives. The EPA Administrator is also to establish an approach for the certification and permitting of sites where CCS will occur, including certification under the Safe Drinking Water Act.

Finally, a rebate program would be established for domestic producers facing increased compliance costs under the legislation, with eligibility based on their sector’s GHG emissions intensity and exposure to international trade. In addition, as of 2022 and for every four years thereafter, the President must consider whether to slap carbon allowance requirements on imports where it is determined, according to specified criteria, that non-U.S. producers are not facing similar GHG reduction standards. These carbon border adjustment measures have been questioned, for example, by Canada’s Environment Minister.

The comprehensive legislative draft includes many other measures. For transportation, for example, financial assistance is authorized for the regional deployment and integration of grid-connected vehicles, including the incremental cost of the purchase of plug-ins and spending on electric charging stations. Financial support is also authorized for car companies to retool plants to produce evehicles and for workers to be retrained as green collar workers. Among the other measures, new efficiency standards are established for buildings, industrial activities, appliances and lighting, funds are authorized for international forestry projects, and provisions are made to spur new transmission lines and investment in smart grid technologies.

For more detail, please contact Andrew MacSkimming, andrew@cleantechnologyadvisor.com

On May 5, 2009, Secretary of Energy Dr. Steven Chu announced $786.5 million for advanced biofuels research and development and commercial scale biorefinery demonstration projects. According to the U.S. Department of Energy, the goal is to create “third generation biofuels” such as “green gasoline, diesel and jet fuels”. $480 million of this sum will go to integrated biorefineres capable of producing advanced biofuels, bioproducts and combined heat and power, “thus enabling private financing of commercial-scale replications”.

Other ARRA announcements by Secretary Chu include (1) the signing of an MoU with the Housing and Urban Development Secretary that would govern the injection of, for example, the $5 billion given under ARRA to the federal Weatherization Assistance Program (May 6, 2009), (2) an additional $93 million for wind projects in the United States (April 29, 2009), (3) a further $100 million for improvements to the National Renewable Energy Laboratory (April 29, 2009), and (4) $41.9 million for fuel cell technology (April 15, 2009). President Obama has announced the goal that the United States produce 12% of it’s electricity from renewable sources by 2012.

U.S. Vice President Joe Biden unveiled more than $3.3 billion in smart grid technology development grants and an additional $615 million for smart grid storage, monitoring and technology viability (April 15, 2009). Vice President Biden referred to the importance of accommodating renewable energy on the grid in the context of his announcement, as well as enabling the grid to handle the expected uptake of plug-in and other advanced vehicles in the years ahead.

On May 1, 2009 Secretary of the Interior Ken Salazar announced $41 million to advance the development and transmission of renewable energy on public lands in the United States. Monies will be invested in reducing the backlog of pending applications for wind and solar projects on Bureau of Land Management lands. Additional resources will also be provided for regional planning and the siting of renewable energy projects and related transmission lines. Earlier in April, Secretary Salazar announced $1 billion in spending on water infrastructure, including water supply projects, repair of aging water infrastructure, drought relief, water reuse and water recycling (April 15, 2009).

More announcements of ARRA spending on clean technologies are expected in the coming days. In Canada, the federal government also rolled out comparable announcements in it’s Budget 2009.

For more information, please contact Andrew MacSkimming, andrew@cleantechnologyadvisor.com

The Rule represents the first step in potential regulation by the EPA of GHG emissions under the existing U.S. Clean Air Act (CAA) or possibly other legislation. The U.S. Supreme Court held in Massachussets v. EPA that GHGs meet the definition of “air pollutants” under the CAA. According to the EPA, the Rule is designed to capture source categories that could, in fact, be covered under the CAA. In addition to the draft reporting rule, the EPA Administrator has published a proposed endangerment finding for GHGs under the CAA.

GHG reporting methodologies have been identified for the following categories: electricity generation, transportation, industrial, “upstream suppliers”, agriculture and “other”.

“Transportation” under the Rule includes vehicle and engine manufacturers, while “industrial” reporters will include emitters in the metals, minerals, chemicals and oil and gas sectors. “Upstream suppliers” are comprised of petroleum refiners, gas processors, natural gas distribution companies, coal mines, importers, and suppliers of industrial GHGs. Note that some upstream suppliers such as petroleum refineries will also be reporting their direct emissions. The agricultural category is focused on manure management while “other” includes ethanol, landfills, wastewater treatment and food processing plants.

Reporting will be done at the facility-level with certain exceptions, for example, for importers of fuel and vehicle and engine manufacturers. The reporting threshold will generally be 25,000 metric tons of carbon dioxide equivalent per year, or capacity-based thresholds where appropriate and feasible. The EPA proposes direct measurement of emissions for certain facilities, such as those already covered by the CAA’s Acid Rain Program, and facility specific measurement methodologies for others. New vehicles and engines would report carbon dioxide, methane, nitrous oxides, and HFCs on a grams per mile basis.

In general, data collection would begin January 1, 2010 with the first report due to EPA March 31, 2011. Facilities already reporting on a quarterly basis in comparable circumstances such as the Acid Rain Program would continue to do so.

According to the EPA, the Rule will be used to “collect accurate and comprehensive emissions data to inform future policy decisions”. The Rule will position the administration to quickly regulate GHGs, with or without the passage of any new legislation by Congress. As set out by FY08 omnibus appropriations legislation, the reporting rule must be finalized by June 26, 2009.

For more information, please contact Andrew MacSkimming, andrew@cleantechnologyadvisor.com

The Draft’s greenhouse gas (GHG) emission reduction targets are as follows:

- 3% below 2005 levels in 2012;

- 20% below 2005 levels in 2020;

- 42% below 2005 levels in 2030; and

- 83% below 2005 levels in 2050.

A proposed cap and trade system will cover about 85% of U.S. GHG emissions from industry and other sources. Entities that emit less than 25,000 tons per year of carbon dioxide equivalent are not covered. A two year rolling compliance year will allow covered entities to borrow emission reductions from one year ahead. In limited circumstances, borrowing will be permitted up to 5 years. Banking of allowances is unlimited. The Draft does not provide for the allocation of allowances, a matter left to committee.

Use of offsets across the cap and trade system will be limited to 2 billion tons per year. The limit on offsets will be split evenly between international and domestic offsets. Covered entities will be required to use 5 tons of offset credits for every 4 tons of emissions offset.

Oversight of the cap and trade system will be carried out by FERC in the cash market for allowances and offsets. The derivatives market will be regulated by an agency or agencies selected by the President.

Sector specific highlights include:

- a requirement for retail electricity suppliers to meet a percentage of their load with electricity generated from renewable sources, starting with 6% in 2012 and rising to 25% in 2025;

- performance standards for new coal-fired power plants and incentives for wide-spread commercial deployment of carbon capture and storage;

- provisions to facilitate the adoption of smart grid technologies and direction to FERC to amend the regional planning process to facilitate construction of new transmission lines;

- a low carbon fuel standard to promote advanced biofuels and other clean fuels;

- authorization of grants or loan guarantees for cities, states or private companies to engage in large-scale demonstration of electric vehicles;

- authorization of financial support for car companies to retool plants to produce evehicles; and

- new energy efficiency standards along with new incentives, including new requirements for gas and electricity distribution companies to achieve certain levels of customer energy savings.

The Draft also directs the President to work with California to better harmonize U.S. corporate average fuel economy standards, EPA emission standards, and the California GHG standards for motor vehicles. The President is directed to impose trade sanctions on imports in certain circumstances in the form of a “border adjustment” program, where U.S. producers would be disadvantaged by GHG rules.

The Draft also exempts GHGs from the U.S. Clean Air Act (CAA). The U.S. Supreme Court ruled in Massachusetts v. EPA that GHGs fall within the CAA’s definition of “air pollutant”. Thus, some have speculated that the Draft, which is slightly more stringent than executive branch proposals, is a play to soften resistance to GHG regulation by the EPA under the existing CAA. While that remains to be seen, GHG regulation by the administration is not dependent on the passage of new legislation by Congress.

The administration has taken two preliminary steps to regulating GHGs under the CAA: the publication of a proposed GHG reporting rule and the making of a proposed endangerment finding by the EPA Administrator under the CAA for GHGs.

For more information, please contact Andrew MacSkimming, andrew@cleantechnologyadvisor.com

1. $1billion over five years for a Green Infrastructure Fund, including “infrastructure that supports a focus on the creation of sustainable energy… such as modern energy transmission lines” (”[f]unding will be allocated based on merit to… projects on a costs shared basis”);
2. $1 billion over five years for a Clean Energy Fund “that supports clean energy research development and demonstration projects, including carbon capture and storage” (with $150 million for research and $850 for development and demonstration projects over five years);
3. A commitment to consult on accelerated capital cost allowance for assets relevant to carbon capture and storage;
4. An additional $300 million over two years to the ecoENERGY Retrofit program to support an estimated 200,000 additional home retrofits;
5. $351 million to Atomic Energy of Canada Limited in 2009-2010 for its operations, including the development of the Advanced CANDU Reactor, and to maintain safe and reliable operations at the Chalk River Laboratories;
6. Increasing funding by $80 million over the next two years to manage and assess federal contaminated sites, facilitating remediation work totaling $165 million over two years; and
7. Streamlining the environmental assessment approach to facilitate approval of infrastructure projects, including $37.6 million to accelerate the Mackenzie Gas Project.

On President Obama’s inauguration day, Environment Minister Jim Prentice addressed the Canadian Council of Chief Executives, revealing much common ground on the energy and environmental challenges facing North America. At the same time, on some issues there were differences of emphasis, meaning that both countries may have to fine tune their plans, as freedom from overseas oil and a 21^st Century grid can only be achieved on a North American basis.

Both governments have signaled their willingness to embrace cap-and-trade for greenhouse gases (GHGs); new fuel economy standards; renewable fuel mandates; low carbon fuel standards; renewable or low carbon electricity mandates; and a gas pipeline extending from Alaska through Canada to the U.S.

For the incoming U.S. administration, a review of President Obama’s inauguration speech, the new White House website, and testimony before Congress by (now) Energy Secretary Dr. Steven Chu, reveal much emphasis on renewed investment in the grid, including smart grid technologies.

New transmission lines are seen as crucial to connecting customers to renewable energy sources, while digital smart grid technologies are needed for the effective real time management of intermittent renewable energy sources; the realization of major efficiency gains from the grid itself; and the implementation of advanced demand management programs. In fact, President Obama referred to investment in new transmission and “digital lines” in his inauguration speech, as well as wind, solar and other energy sources. All of North America will need a revamped grid to facilitate trade in clean electricity including Canadian hydro; to manage the growth of diverse, distributed energy sources and net metering; and to accommodate growing demand driven by the proliferation of consumer electronic devices and the advent of plug-in hybrids. For North America, it seems all roads lead to the grid.

For the Canadian government, the oil sands are naturally recognized as a priority. The oil sands, along with biofuels and the growing electrification of transport, will play an indispensable role in winning both countries’ freedom from overseas oil. Therefore critics in both countries must drop facile rhetoric regarding “dirty oil”. In order to meet the objectives of energy security and deep greenhouse gas reductions, both countries should jointly invest in the oil sands as a strategic resource with a view to effecting widespread and cost-effective deployment of: carbon capture and storage; non-emitting energy sources such as nuclear and (eventually) deep drill or enhanced geothermal energy; and highly water-efficient and water-free processes, rapidly becoming an urgent issue in its own right.

To ensure Canada’s federal budget next week is regarded as a success at home and in the U.S., priorities should include: (1) investment in the grid, including new transmission and distribution resources generally, and widespread deployment of smart grid technologies in particular; (2) technologies and infrastructure to transform the oil sands sector in an ambitious but achievable time frame in terms of both GHGs and water impacts (and to advance the near zero emissions coal agenda); and (3) investment in clean energy technologies comparable to the investment proposed by President Obama of $150 billion (U.S.) for 10 years, to be co-invested with the private sector, taking into account the relative size of Canada’s economy and other stimulus proposals which include clean energy, as they emerge.

On January 1, 2009, the Regional Greenhouse Gas Initiative (RGGI) became the first regulatory cap-and-trade program in North America for carbon dioxide. RGGI’s second carbon allowance auction held in December 2008 appears to have been a modest success. Total demand from bidders was 3.5 times greater than allowances supplied, according to RGGI. More than 31.5 million carbon allowances were sold at $3.38 per ton, raising $106.5 million for energy efficiency and clean energy programs in the 10 Northeastern and Mid-Atlantic member states. The third auction will take place on March 18, 2009.

The second RGGI carbon auction contrasted to the first, held September 5, 2008, where allowances may have been oversold by 16% according to Carbon Biz, on account of 2008 emissions being lower than expected due to factors such as the economic downturn. The excess supply at the first auction raised fears that RGGI would repeat the failures of the first phase of the European Union Emissions Trading System (2005-2007), where member states grossly oversupplied EUAs to regulated industry under national allocation plans. Needless to say, cap-and-trade will not produce real reductions if allowances are over-allocated, resulting in limited scarcity or even an artificial surplus.

While the second auction was an improvement, a carbon price of $3.38 per ton is not only significantly below prices seen in forward trading for various compliance markets, it is below prices obtained in many quality over-the-counter trades for voluntary emission reductions (VERs), raising the question of how much carbon-related innovation RGGI will really spur.

Carbon offsets play a very limited role in RGGI (normally, approved offsets originating within the 10 member states may be used for only 3.3% of compliance obligations), but offsets from cap-and-trade systems in other jurisdictions and from the Kyoto Protocol’s Clean Development Mechanism may play a role, if certain price trigger events occur.

While systems such as RGGI may ultimately be replaced by federal programs, their methodological, technical and legal work, as well as their experience, can be used by national regimes in order to get up and running quickly, and will therefore have enduring value. RGGI seeks to reduce carbon dioxide emissions from fossil fuel power plants by 10% below 2009 levels as of 2018.