REGULATORY: Environmental: The President's Climate Action Plan - Mixed Messages for the Energy Sector

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On June 25, 2013 President Obama released his Climate Action Plan.[1] He identified three overarching goals – (1) Cut domestic carbon emissions, (2) Support climate adaptation efforts, and (3) Demonstrate international climate leadership. The Plan is long on ambitious goals and short on details, but clearly will impact businesses in the energy sector.

Natural Gas – Lots to Like, But …

Natural gas is a clear favorite under the Plan, at least for the foreseeable future. In his speech, the President reiterated that "[w]e should strengthen our position as the top natural gas producer because, in the medium term at least, it not only can provide safe, cheap power, but it can also help reduce our carbon emissions." However, the Plan also includes provisions that would ramp up regulation of natural gas operations:

  • Creating methane emission reduction strategies, including programs or rules for pipeline upgrades, and less venting and flaring
  • Instituting international best practices for unconventional natural gas development

Moreover, nothing in the Plan indicated any change to the Administration's intentions to move forward on additional natural gas regulation, including emissions standards for pipeline compressors and water management for production sites.

Coal – Almost Nothing to Cheer About

The central pillar of the plan to cut carbon emissions is a directive to the U.S. Environmental Protection Agency (EPA) to set emission standards for greenhouse gases generated by power plants.[2] In a companion memorandum to EPA, the Plan sets deadlines for these standards:

  • September 20, 2013 – Re-proposal of the New Source Performance Standard (NSPS) for new plants, with a Final Rule issued at a later date (must be prior to June 2014)[3]
  • June 2014 – Proposal of NSPS for existing plants
  • June 2015 – Final NSPS for existing plants
  • June 2016 – Deadline for states to submit State Implementation Plans for implementing the standards

Like the Plan, the Memorandum is not particularly detailed. While it outlines several considerations to be followed in the standard-setting process, including engagement with States and other stakeholders, cost control, allowing market-based approaches, energy efficiency, and a vague direction to ensure "continued reliance on a range of energy sources and technologies," neither the Plan nor the Memorandum provides any of the substance the business sector had hoped to see. Litigation over most aspects of these rules is virtually certain, adding additional uncertainty for businesses seeking to plan for these rules.

The Plan's international leadership goal also impacts coal. Specifically, it calls for eliminating U.S. foreign aid for fossil fuel facilities, and ending public financing of overseas coal-fired power projects.[4] Thus, investors and businesses can expect the Administration to exert pressure on the World Bank and other lending institutions to follow suit.

Renewables – More Money

No real surprises here – the Plan articulates several objectives in support of renewable energy. As he said in his speech, the President's Plan "direct[s] the Interior Department to green light enough private, renewable energy capacity on public lands to power more than 6 million homes by 2020." Overall, the Plan aims to double renewable electricity generation by 2020, by expediting permitting of clean energy generation projects and transmission infrastructure projects. Other objectives include investing in advanced biofuels and other transportation technologies, as well as federal financing for energy efficiency investments.

Oil – Brief Surprise, But Not Much to Talk About

In a surprise move, the President's speech mentioned the Keystone XL Pipeline project. "Allowing the Keystone pipeline to be built requires a finding that doing so would be in our nation's interest. And our national interest will be served only if this project does not significantly exacerbate the problem of carbon pollution." Predictably, the vague statement has both sides of the Keystone debate declaring victory. The Plan also calls for the end of tax incentives that benefit oil production.

Energy Efficiency – An Early Mover?

Provisions centered on energy efficiency run throughout most aspects of the Plan. Achieving an ambitious target of 3 billion metric tons in efficiency gains by 2030, coupled with few technological barriers to implementation, reasonably ensures that energy efficiency programs and standards will be early priorities. For the energy sector, likely targets include industrial motors, commercial refrigeration units, and other utility fixtures.

A Handful of Other Objectives

An assortment of other objectives rounds out the Plan with respect to the energy sector.

  • Fuels - Directing EPA to develop post-2018 fuel economy standards for heavy-duty vehicles
  • Insurance - Developing best practices for insuring against climate risks
  • Land-Use - Integrating climate adaptation into land and water conservation decisions
  • Trade - Prompting WTO negotiations on free trade in clean energy technologies (solar, wind, hydro, and geothermal) and other environmental goods, based on a list developed in 2011 by the Asia-Pacific Economic Cooperation (APEC) countries.[5]

Looking Forward

In the few days since the Plan's issuance, debate, and discussion has already flourished. For businesses in the energy sector, the Plan offers much to consider.

[1] Executive Office of the President, The President's Climate Action Plan (June 2013).
[2] Memorandum for the Administrator of the Environmental Protection Agency (June 25, 2013).
[3] A final rule for new plants is the trigger for regulating existing plants.
[4] A limited exception applies where no other economically feasible alternative exists or the project includes carbon capture technology.
[5] The 2011 APEC list of environmental goods includes a range of products, including parts for clean energy generation (biomass, wind, landfill gas), sludge driers, and other waste water treatment equipment, solar cells, emissions monitoring technologies, and analytical equipment.