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Environmental News Massachusetts and Maine Issue Draft Regulations to Implement Cap-and-Trade Program under RGGI Apart from the pre-proposal draft regulations published in New York last December, the Massachusetts and Maine draft regulations are among the first regulatory cap-and-trade proposals to be published for comment in any of the RGGI member states, bringing them closer towards the implementation of the first mandatory GHG control regime in the United States. RGGI is an effort among Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont to develop a regional carbon dioxide cap-and trade program that first stabilizes and then reduces carbon dioxide emissions from fossil-fuel-fired power plants, with the goal of reducing the 2018 annual emissions budget to 10 percent less than the initial 2009 emissions budget. The RGGI members have agreed to a Memorandum of Understanding (MOU) and agreed upon a model rule to implement the cap-and-tradeprogram. The Massachusetts and Maine proposed regulations follow the model rule with some variation. The Massachusetts draft regulations, issued under existing legislation authorizing the Massachusetts Department of Environmental Protection (MassDEP) to regulate air emissions, will regulate carbon dioxide emissions from fossil-fuelfired power plants with a capacity of 25 megawatts or more effective January 1, 2009. For units in operation prior to January 1, 2005, only those where fossil fuel compromises more than 50 percent of total heat input will be subject to the rules, whereas for units starting operation on or after January 1, 2005, all units using fossil fuels for more than 5 percent of total heat input will be subject to the rules. MassDEP reports that there are 32 sources classified as fossil-fuel-fired units that would be regulated under these rules. Massachuetts did not adopt the optional provision in the model rule that would exempt units that sell less than 10 percent of their net generating capacity. To stabilize and then reduce carbon dioxide emissions, the Massachusetts proposed regulations adopt the state carbon dioxide budget provided in the MOU, establishing a cap through 2014 and then cutting carbon dioxide emissions by 2.5 percent per year. Massachusetts proposes to allocate its carbon dioxide allowances by auctioning 100 percent of them in a regional or statewide auction. This provision is likely to cause debate, as auctioning all the allowances may be viewed by some as likely to increase energy costs. Massachusetts responded to such concerns by indicating that it intends to use the auction proceeds, an estimated $25 million to $125 million per year, to fund energy efficiency, peak demand reduction, and other cost-cutting efforts. Massachusetts proposes to adopt offset provisions based on the model rule, providing carbon dioxide allowances to projects that represent carbon dioxide equivalent emission reductions or carbon sequestration that are real, additional, verifiable, enforceable, and permanent. Consistent with the model rule, Massachusetts’ proposed regulations would impose a cap on the number of offset allowances used by a power plant, allowing an affected power plant to cover only up to 3.3 percent of its reported emissions with offset allowances. Thus, a significant portion of the required carbon dioxide emission reductions must occur at the power plants and cannot be offset through other projects. However, only projects located in a RGGI participating state or in a state that has a cooperative agreement with Massachusetts will be eligible for offset credit. The draft regulations require that non-RGGI governmental authorities complete cooperative agreements with all RGGI participating states in order to be eligible as offset allowances in Massachusetts. The draft regulations also prevent smaller projects outside the RGGI region from being eligible for offset credit by requiring that projects outside of RGGI states exceed a minimum threshold of 20,000 tons of annual reduction carbon dioxide. The proposed regulations list five types of approved offset projects: (1) landfill methane capture and destruction; (2) reduction in emissions of sulfur hexafluoride; (3) sequestration of carbon due to afforestation; (4) reduction or avoidance of carbon dioxide emissions from natural gas, oil, or propane end-use combustion due to end-use energy efficiency; and (5) avoided methane emissions from agricultural manure management operations. The proposed regulations do contain price triggers if the costs of allowances are higher than expected. If the 12- month average price of a carbon dioxide allowance equals or exceeds $7.00 (in 2005 dollars), affected units will be allowed to increase their use of offsets from 3.3 percent to 5 percent of their compliance obligation. If the 12-month average price of a carbon dioxide allowance equals or exceeds $10.00 (in 2005 dollars), affected units will be allowed to expand their use of carbon dioxide offset credits to 10 percent of their compliance obligation. Maine’s proposed regulation generally parallels Massachusetts’ proposal with several limited exceptions. 6
Unlike Massachusetts, Maine’s regulation will only become effective January 1, 2009 if the other states whose electrical utilities are administered by the same regional transmission organization as Maine have implemented similar cap-and-trade programs and the combined carbon dioxide emissions budget from those states is at least 35 million tons per year. Maine’s regulation also exempts plants that supply no more than 10 percent of their electricity to a transmission and distribution utility annually as permitted by the model rule, unlike the Massachusetts regulation. Western Climate Initiative Issues Statement of Regional Goal On August 22, 2007, the six states and two Canadian provinces that make up the Western Climate Initiative (WCI) issued a GHG Reduction Goal statement in which they agreed to collectively cut greenhouse gas emissions to 15 percent below 2005 levels by 2020. The WCI consists of Arizona, California, New Mexico, Oregon, Utah, Washington, British Columbia, and Manitoba, and was created in February 2007 to implement a joint strategy to reduce greenhouse gas emissions. WCI partners were directed to develop a regional target for reducing greenhouse gases, to develop a market-based program to reach the target, and to participate in a multi-state registry to track and manage greenhouse gas emissions in their region. This regional goal is an aggregation of the goals all eight WCI partners established individually, but it does not replace the individual goals. By August 2008, the WCI will complete the design of a market-based mechanism to achieve this reduction goal. In addition to setting the regional GHG reduction goal, the statement sets forth standards for new entrants into the WCI, suggested emission reduction activities, and reporting requirements to the other WCI partners on their “climate action plan” and GHG emission inventories every two years. For more information on greenhouse gas regulation contact Vinson & Elkins lawyers Larry Nettles at 713.758.4586 or Jessica Held at 202.639.6636. Court Allows Natural Resource Trustees Prospective Recovery of Assessment Costs as Incurred on Hanford Nuclear Reservation A federal district court in Washington State recently shook the landscape of Natural Resource Damages (NRD) litigation by issuing a declaratory order allowing trustees to recover assessment costs upon a showing of liability of one responsible party. In so ruling, the decision in Confederated Tribes & Bands of the Yakama Nation v. United States, No. CY-02-3105.LRS, 2007 WL 2570437 (E.D. Wash. Sept. 4, 2007), became the first to grant natural resource trustees prospective relief under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). Since CERCLA’s inception, the enormous up-front costs of performing injury assessments to prove damages — often in the millions of dollars — have in part kept the number of NRD cases few and far between. The district court in Confederated Tribes opens the door to prospective recovery of assessment costs by differentiating “costs” from “damages” under CERCLA, thereby placing assessment costs outside the strict limitations statute of CERCLA. According to the court, “costs” reimburse a party for certain expenses incurred (i.e., reimbursement for a damage assessment), whereas “damages” are intended to compensate for the actual injury or loss revealed by an assessment. By so differentiating, the court ruled that natural resource trustees can recover assessment costs already incurred, as well as additional costs, so long as “reasonable” to the court. The implications of this recent decision remain unclear. Although Confederated Tribes certainly marks a victory for NRD trustees, proof of liability will continue to be a significant hurdle in this controversial area of law. Nonetheless, by allowing natural resource trustees to recover their assessment costs independently from their claims for damages, the Confederated Tribes decision potentially reduces a major impediment to NRD litigation. If later courts expound upon this decision by shifting the significant costs of performing cost damage assessment to defending parties at a pre-liability stage, or if courts mandate that adverse parties share costs at the outset of litigation, the NRD landscape could be dramatically altered. If you have any questions regarding the potential implications of this federal district court decision, please 7
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Environmental News - Vinson & Elkins LLP

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