Hunton & Williams Renewable Energy Quarterly, September 2009

Renewable Energy Quarterly
compliance costs and foils the kind of long-term planning
and investment conducive to the development of new,
climate-friendly technologies, products and processes.
The situation is similar with respect to the offsets program
established by the bill, but with far greater implications,
as offsets arguably represent the only substantial cost
containment mechanism in the entire bill. Despite providing
a substantial amount of detail, the bill leaves some critical
components of the offsets program to the EPA and the
Department of Agriculture. For example, the bill does not
provide a list of eligible offset project types, instead requiring
the EPA and USDA to develop lists within one year of
enactment.
Once those are developed, the EPA and USDA would then
need to develop and finalize project methodologies — complex,
technical procedural requirements for an emission
reduction project to be eligible to receive offset credits. The
need to complete this process in two years raises concerns
over when offset projects could begin generating offset credits,
especially given that developing new offset projects could
take years once the rules are finalized.
Under the bill, the EPA and USDA
would be expected to issue two billion
offset credits each year.
This tight timeframe becomes of even greater concern
given the number of offset credits the EPA and USDA would
need to issue each year to maximize the bill’s cost containment
features. Existing offset programs such as the Clean
Development Mechanism and various voluntary carbon market
programs have never come close to issuing two billion
credits over their entire multiyear lifetimes. Under the bill, the
EPA and USDA would be expected to issue two billion offset
credits each year. How many of those two billion would be
available before the first compliance deadline in 2013 is an
unanswered question.
Compensatory allowances and the offsets program are
just two examples of key features that will depend heavily
on agency rulemaking processes that historically have
been anything but expeditious. Legal challenges to agency
rulemaking, which figured prominently in the rulemakings
following the Clean Air Act Amendments of 1990, could add
further delay to the full implementation of many of the bill’s
most important provisions.
Equally, if not more, significant than the timing of agency
rulemakings is the extraordinary discretion the bill grants to
the EPA and other agencies to alter components of the capand-trade
system.
Under the offsets provisions, for example, the EPA and
USDA are required to revise key features of the program
every five years as part of a periodic review. This authority
is purportedly to ensure the environmental integrity and efficient
operation of the cap-and-trade system. While these are
important goals, the unchecked nature of this authority could
frustrate project developers and covered entities seeking to
participate in the carbon market. Most emission reduction
projects take a year or more to develop and then can operate
for a decade or longer.
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