Federal Court Strikes Down Minnesota’s Limits on Coal Power Imports: A Critical Moment for State Regulation of Imported Fuel & Electricity

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State of North Dakota, et al., v. Beverly Heydinger, et al., Case No. 11-cv-3232, (D. Minn., Apr. 18, 2014).

On April 18, the U.S. District Court for the District of Minnesota struck down the State of Minnesota’s restrictions on importing electricity from coal power plants in other states. The court held that these restrictions improperly regulated electric generators and utilities outside the state. The decision sets a precedent that could threaten state regulations of imported fuel and electricity, such as the numerous renewable power standards and California’s low carbon fuel standard. These regulations have been a flashpoint for conflicts between in-state and out-of-state interests, including Canadian energy producers who believe that the standards discriminate against them.

Minnesota adopted the restriction on electricity imports in its 2007 Next Generation Energy Act, which placed a moratorium on construction of new coal power plants within the state. The point of the moratorium was to limit greenhouse gas emissions from coal burning, which contributes to climate change. Without the import restriction, Minnesota’s moratorium might have little effect: companies looking to build a new coal plant could simply build in neighboring states, exporting electricity to Minnesota and increasing greenhouse gas emissions. So Minnesota declared that “no person shall . . . import or commit to import from outside the state power from” new coal plants or “enter into a new long-term power purchase agreement that would increase statewide power sector carbon dioxide emissions.” Minn. Stat. § 216H.03, subd. 3. New coal plants could only avoid this ban if they paid to reduce emissions elsewhere or qualified for an exception.

North Dakota and utilities with coal power plants brought a lawsuit alleging that Minnesota’s restrictions unconstitutionally regulated outside of Minnesota’s territory, and the court agreed. The U.S. Constitution’s Commerce Clause gives the federal government the authority to regulate interstate commerce and implies that states cannot “discriminate against or unduly burden interstate commerce” without congressional authorization. This rule is called the “dormant commerce clause” because it applies when congress has not authorized state regulation. One aspect of this rule is that states cannot adopt a regulation that “has the practical effect of controlling conduct beyond the boundaries of the state.”

The court held that the import restriction necessarily regulated out-of-state conduct because electricity on the grid “does not recognize state boundaries.” Electricity is not like a package that is shipped from a seller to a buyer. Instead, the interstate electric grid creates a pool of power. Electric generators contribute electricity and consumers withdraw electricity. It is as though one group was emptying buckets of water into a lake and another group was filling buckets of water from a lake. Companies may talk about purchasing electricity “from” a specific utility, but that is an accounting convention, not a description of a physical process—the electricity purchased comes from an undifferentiated pool. Thus, when a North Dakota utility sells to a North Dakota customer some of the electricity might be diverted into Minnesota, violating Minnesota’s import restriction. So Minnesota’s law regulates out-of-state conduct, and the court held that it violated the U.S. Constitution and enjoined any enforcement.

The decision raises two potential problems for state regulation of imported electricity and fuel. First, more than half of the fifty states have renewable power standards that apply to imported electricity. Under the court’s decision these standards would be invalid unless they exempted incidental imports from out-of-state utilities serving out-of-state customers. The Harvard Environmental Law Program’s Policy Initiative’s Energy Fellow Ari Peskoe has suggested some ways that states could try to insulate their regulations from a similar challenge.

Second, the court suggested that there may be strict limits on a state’s ability to regulate imported fuel and electricity through renewable portfolio standards or low carbon fuel standards. The usual rule under the dormant commerce clause is that states “may not attach restrictions to exports or imports to control commerce in other states” or otherwise “project” their regulation into other states. But the entire point of state restrictions on imported fuel and electricity is to affect out-of-state greenhouse emissions. States want to regulate imported fuel and electricity because they are concerned that out-of-state energy producers are contributing to climate change—they don’t want to import oil from places where it takes a lot of greenhouse gas emissions to produce oil and they don’t want to import electricity from states that are producing it using a lot of greenhouse gas emissions. And that concern makes sense: even if those greenhouse gas emissions take place in other states or countries, they’re just as bad for the entire world’s climate. As a result, the U.S. Court of Appeals for the Ninth Circuit recently suggested that the dormant commerce clause’s prohibition on extraterritorial regulation is only meant for extraterritorial price-regulation, so it doesn’t threaten California’s low carbon fuel standard or, presumably, state renewable power standards.

The Minnesota court, however, rejected the Ninth Circuit’s reasoning, noting that the Supreme Court and several appellate courts have held that states may not project their regulation into neighboring states, even when the regulation was not about prices. This conflicting reasoning comes at an important moment for state regulation of imported fuel and electricity. There is still no legal consensus on the validity of these regulations, which are being challenged in several lawsuits around the country. Statepowerproject.org, a website created by the Harvard Environmental Law Program’s Policy Initiative, is tracking these lawsuits.

Second, there is no consensus on whether these state import restrictions are a wise way to make climate policy. Although states have good reason to be concerned about the fossil-fuel industry in their trading partners, other states and countries worry that these import regulations are aimed at burdening out-of-state industry. Canada doesn’t think California should tell it how to produce oil, and is concerned that California’s regulation has been rigged to harm it. Quebec believes that state renewable portfolio standards discriminate by refusing to credit its hydropower exports as renewable. And states like North Dakota have the same concerns about Minnesota’s regulation. These conflicting interests may create conflicting regulations and state-to-state trade wars that would splinter interstate energy markets. In a forthcoming article in Fordham Law Review, titled “Importing Energy, Exporting Regulation,” I argue that the federal government should address this problem by supervising state regulation of imported energy, exempting non-discriminatory regulations from dormant commerce clause review.

No one yet knows how this legal and policy debate will be resolved. The Minnesota decision frames the legal debate through its searching dormant commerce clause review and clarifies the stakes by striking down a closely watched state electricity regulation. The one certainty is that the debate will continue.

Oral Argument Hints that Supreme Court May Trim Back U.S. Industrial Source Greenhouse Gas Regulations

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Today the Supreme Court heard oral argument in Utility Air Regulatory Group v. Environmental Protection Agency (EPA), in which petitioners challenged the EPA’s “Prevention of Significant Deterioration” (“PSD”) regulations for stationary industrial sources of greenhouse gases. These regulations, finalized in 2010, require sources that emit over 100,000 tons of greenhouse gases to obtain a PSD permit and adopt the “best available control technology” for every pollutant that they emit, including greenhouse gases.

The oral argument provided few surprises: it was as complex as expected in this case of arcane statutory interpretation. As described below, the argument did hint, however, that the Supreme Court might adopt a compromise position, holding that 1) industrial sources cannot be required to obtain a PSD permit purely on the basis of their greenhouse gas emissions, but 2) can be required to adopt best available control technology for their greenhouse gas emissions if they need a PSD permit anyway due to their emissions of other pollutants. This ruling would likely have little impact on EPA’s broader agenda on greenhouse gas emissions.

The argument follows from the Supreme Court’s landmark decision in Massachusetts v. EPA, a 2007 case in which the Supreme Court held that greenhouse gases were a pollutant under the general terminology of the U.S. Clean Air Act. Relying on this decision, EPA has adopted greenhouse gas standards for new cars and trucks. It has also proposed greenhouse gas standards for new coal and natural gas power plants. And it is due to propose standards for existing coal and gas plants at some point this summer. This case, however, concerns a separate set of standards, adopted under the Clean Air Act’s catch-all for industrial sources, the Prevention of Significant Deterioration requirement that requires state and local permitting agencies to ensure that new major sources adopt the “Best Available Control Technology.” Petitioners today made clear that they are not challenging EPA’s rules for cars, or its proposed rules for individual source categories such as power plants. Instead, they challenge only EPA’s PSD catch-all.

EPA’s argument is simple: the Clean Air Act requires PSD regulation for sources of “any air pollutant” and Massachusetts v. EPA said that a greenhouse gas is a pollutant. Furthermore, the Clean Air Act language for PSD is the same as the language EPA used for the car rules and the power plant rules that petitioners are not disputing.

But there’s a catch. The Clean Air Act requires a PSD permit from any new source that emits over 250 tons of “any air pollutant.” That threshold makes sense for pollutants like lead and sulfur dioxide, but far too many sources emit that level of greenhouse gases, so EPA raised the level to 100,000 tons to avoid regulating hundreds of thousands of sources, which EPA acknowledges would be absurd.

Petitioners’ argue that, rather that re-write the statutory thresholds, EPA should not have included greenhouse gases in its PSD program. They say “any air pollutant” can mean different things in different parts of the act. It may be hard to imagine that Congress used the same word to mean different things in different places, but it’s even harder to imagine that Congress used the word “250” to mean “100,000.”

That left three arguments at play in today’s arguments:

1) The government defended its entire regulation: sources that emit over 100,000 tons of greenhouse gases need a PSD permit, and a PSD permit requires the “best available control technology” for greenhouse gases.

2) Industry argued the opposite: emitting greenhouse gases cannot trigger a need for a PSD permit, and even if an industrial source needs a PSD permit because it emits other pollutants, it should not have to adopt “best available control technology” for greenhouse gases. That is, greenhouse gases are not included in the PSD program at all.

3) The Justices spent most of their time pressing both sides why they should not adopt some version of a compromise suggested by one petitioner and a dissenting circuit court judge: emitting greenhouse gases cannot trigger a PSD permit, but if a source needs a permit, it must adopt the best available control technology for greenhouse gases.

This compromise would not rely on altering the 250-ton threshold set by the statute. Justice Kennedy, the swing-vote, noted that the government had not cited any case that would allow that type of statutory re-write. At the same time, the compromise would force the biggest industrial facilities, which need a PSD permit anyway, to adopt best available control technology for greenhouse gases. Professor Jody Freeman, President Obama’s Counselor for Energy and Climate Change, recently suggested that perhaps EPA should have adopted this approach from the beginning to avoid the risk of Supreme Court reversal.

Both petitioners and the government tried to suggest that this fallback was inadequate. This was difficult for the petitioners, given that one of the petitioners had proposed that fallback. And Justice Kennedy, the presumed swing vote, emphasized that he was looking for an argument that followed “both the result and the reasoning” of Massachusetts v. EPA, which stressed the possible benefits of greenhouse gas regulation.

But the government also had a difficult time explaining why it could not accept the proposed compromise. Nearly all sources that emit 100,000 tons of greenhouse gases emit over 250 tons of some other pollutant, so they would require a PSD permit in any case. (And, under the compromise, this would mean they must adopt best available control technology for greenhouse gases.) The only sources that would be excluded, under the compromise, would be the few sources that emit threshold levels of greenhouse gases, but not any other pollutant. EPA estimated that its regulation would cover 86% of greenhouse gases emitted by facilities over the statutory threshold, whereas the compromise would cover 83%. Justices Ginsburg, Roberts, Breyer, and Sotomayor all mentioned this distinction, suggesting that there was very little difference between the government’s position and the proposed compromise.

On the other hand, Chief Justice Roberts, another potential swing-vote, noted that this compromise might require two definitions of “pollutant” within the statutory section on PSD: one definition for the kind of pollutant that triggers the need for a permit, and another definition for the kind of pollutant that must be controlled with the best available technology. Even if it is okay to have one definition for cars and another for PSD, it is somewhat troubling to have inconsistent definitions within the PSD program itself.

The government added a final wrinkle to the compromise suggestions. Justice Sotomayor, who seemed friendly to the government, asked the government if it must lose, how it would like to lose. (See pages 67-72 of the oral argument transcript.) In answer, Solicitor General Donald Verrilli, suggested that “pollutant” should still include all greenhouse gases except carbon dioxide, which is the most common greenhouse gas, and the reason that EPA changed the threshold. This is a particularly complex suggestion, and has already earned a critique from RFF’s Nathan Richardson.

In sum, oral argument suggests that there is some appetite for a compromise among the Supreme Court’s swing votes, and even among some of the government’s supporters. But, as usual, there are too many factors at play for a firm prediction.

________________

Two disclaimers:

1) Before entering my academic career in 2011, I represented some of the petitioners in their challenge to EPA’s regulations.

2) I have omitted some details of the regulations and the petitioners’ arguments to avoid belaboring an already complex argument.

 

 

 

Keystone XL Final Supplemental Environmental Impact Statement: GHG Analysis & Next Steps

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The Final Supplemental Environmental Impact Statement & Next Steps

On January 31, the United States State Department issued its Final Supplemental Environmental Impact Statement (EIS) on the Keystone XL pipeline, which is designed to transport oil sands bitumen from Hardisty, Alberta to Steele City, Nebraska.  The environmental impact statement was issued to comply with the National Environmental Policy Act, 42 U.S.C. 4321 et seq., which requires agencies to consider the environmental impact of major federal actions.

As noted in a previous post on Ablawg, President Obama raised the stakes for this environmental impact statement in June when he stated that he would only approve the pipeline if it would “not significantly exacerbate the problem of carbon pollution.”  As described below, the final EIS suggests that Keystone XL meets this standard, but does not entirely rule out a contrary decision.

Now President Obama must decide whether the pipeline is in the “national interest” under Executive Order 13337, which governs cross-border pipelines.  But first there will be 105 days of comment periods for federal agencies and the public.  A further wildcard is that the State Department’s Inspector General is imminently expected to issue a report on whether the independent contractors that performed the environmental impact assessment on Keystone XL had a conflict of interest.

The President’s decision on the pipeline is delegated to Secretary of State John Kerry.  If other US federal agencies object to his decision, then the President will have to decide himself whether to overrule Secretary Kerry’s decision.  If the pipeline is approved, environmental groups will challenge this decision in U.S. court.

State Department’s Analysis of the Greenhouse Gas Impact of Keystone XL

The State Department concludes that Keystone XL, like “any one crude transport project . . . is unlikely to significantly impact the rate of extraction in the oil sands” and thus unlikely to increase greenhouse gas emissions.  State Department, Final Supplemental Environmental Impact Statement at ES-16.  And it goes further, stating that even if “new east-west and cross-border pipelines were both completely constrained, oil sands crude could reach U.S. and Canadian refineries by rail.”  State Department, Final Supplemental Environmental Impact Statement at ES-12.  As a result, the State Department estimates that rejecting the pipeline would actually lead to higher greenhouse gas emissions than approving it, due to the higher energy requirements of shipping crude by rail—“28 to 42 percent” higher.   State Department, Final Supplemental Environmental Impact Statement at ES-34 &Table ES-6.

The State Department’s estimate that rejecting the pipeline would mean 28 to 42 percent higher emissions due to rail is a significant increase from its earlier assessment that rejecting the pipeline would increase emissions by “about eight percent.”  State Department, Draft Supplemental Environmental Impact Statement 5.1-26.  That being said, the State Department’s conclusion that the pipeline is “unlikely to significantly impact” oil sands extraction is a slight retreat from its Draft report, which concluded there would be “no substantive change in global GHG emissions.”  State Department, Draft Supplemental Environmental Impact Statement 4.15-107.  And the State Department also acknowledged that, if global oil prices fell significantly (West Texas Intermediate under $75 a barrel), then rejecting the pipeline could decrease greenhouse gas emissions because “higher transportation costs could have a substantial impact on oil sands production levels.”  State Department, Final Supplemental Environmental Impact Statement at ES-34 &Table ES-12.

Moving forward, a crucial question will be if other U.S. federal agencies support the State Department’s analysis.  When the State Department released its draft environmental impact statement, the U.S. Environmental Protection Agency critiqued its treatment of crude-by-rail.  It requested “a more careful review of . . . rail transport options,” because it thought that, if the pipeline was not approved, high crude-by-rail costs might slow oil sands production and thus, greenhouse gas emissions.  U.S. EPA Keystone XL Project Comment Letter (Apr. 22, 2013).  In response, the State Department expanded its climate change, oil market, and rail transport analysis.  State Department, Final Supplemental Environmental Impact Statement at ES-34 &Table ES-1.  It remains to be seen whether agencies like the Environmental Protection Agency will be satisfied with the expanded analysis or remain skeptical of the State Department’s mostly unaltered conclusions.

Eighty percent of success is showing up: Or “How a pro se farmer won a default against the United States in his suit to invalidate the permit for half of Keystone XL (& why it probably won’t last)”

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On April 25, Michael Bishop, a farmer acting pro se, filed a lawsuit in the U.S. District Court for the Eastern District of Texas to revoke TransCanada’s permit to construct the southern half of the Keystone XL project.  This part of the project, known as the “Gulf Coast Project” or “Phase III”, travels from Cushing, Oklahoma to the Gulf Coast.  Bishop sued the Army Corps of Engineers and its Commanding General, Thomas Bostick, because the Army Corps issued the permit to TransCanada.  The complaint that Bishop filed asked the court to order the Army Corps to revoke Keystone’s permit. Bishop then served this complaint on the Army Corps of Engineers, its officers, and the Attorney General of the United States.

Now, you might not like the chances of a pro se farmer aligned against the U.S. Attorney General, the Army Corps of Engineers, and TransCanada.  But as Sheriff Bell would say: “even in the contest between man and steer the issue is not certain.”  And, as it turns out, no one showed up to contest the lawsuit.  Even though the permit at issue belonged to TransCanada, it is not a defendant.  It was up to the government, and the government did not show up.  As a result, on Wednesday, the clerk entered a default against the Army Corps and its officers.
Mr. Bishop had won, and national news stories trumpeted his victory–e.g. Bloomberg “Texas Farmer Wins Entry of Default in Keystone Lawsuit“.  He told Bloomberg, “Tomorrow I’m going to ask the judge for everything I had in my original petition. I’m going to ask him to revoke the permit and effectively shut this pipeline down until they comply with the law.”
The victory will likely prove short-lived, however. On Thursday, the U.S. Attorney’s office for the Eastern District of Texas filed an emergency motion to vacate the clerk’s entry of default.  Although acknowledging that the AG, Army Corps, and officers had been served, the government pointed out that the U.S. Attorney’s office had not been served, a requirement under Federal Rule of Civil Procedure 4(i).  As a result, the government also suggested that the complaint itself should be dismissed “due to failure of service.”
In the end, it seems unlikely that a lawsuit of this importance will end in a default.  But it’s an important reminder of three things: 1) the variety of legal venues and strategies available to environmental plaintiffs looking to slow the flow of oil, 2) the difficulty of keeping track of the myriad resulting lawsuits, and 3) the importance of showing up.

Cross posted on ABlawg: The University of Calgary Faculty of Law Blog.

Smooth It Out Now (or We Need Analog Climate Policy Analysis)

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In my first year after university, I had five roommates who were extremely smart basketball fans.  I’m your typical Minnesotan hockey player, so I had a lot to learn about basketball.  I often asked my roommates questions like: Is Scott Pollard a good center? Are the Hornets hard to beat?  Does zone defense work?  They made fun of me, noting that all my questions reduced to: is X good or bad?
At the time, I thought: “Fine-grained knowledge can come later, right now I need the basics, and good versus bad is important info.”  But over the years I’ve grown to appreciate how digital thinking–i.e. 0 versus 1, on versus off, good versus bad–can lead conversations astray.
Climate policy thinking is in need of more analog thinking.  That is, we need to be more careful to note the continuous gradations between total climate policy failure and climate policy success.  Analog climate policy thinking would give us a 1) clearer picture of current climate policies and likely future policies, and 2) let us design more effective climate regulations going forward.  Let me give two examples.
1. Current and Future Climate Policies: A Continuous Spectrum
 
When you talk climate policy you’re usually talking about unilateral national, state, provincial, or local regulations, because there’s no enforceable international greenhouse gas treaty.  At the same time, greenhouse gas emissions are global, so one of the primary goals of these domestic regulations is to encourage other countries to adopt stricter climate regulations.
When I present research on domestic climate regulations around the world, I almost always get a very digital question: “How can you encourage other countries to act?  Good countries will help out voluntarily, and you’ll never convince the bad actors.”  When I present to an audience of U.S. generalists, they generally mention China as an example of a bad actor, and when I present outside the U.S. (or to U.S. environmentalists) they usually mention the U.S. as a bad actor.  Almost everyone mentions Europe as a good actor.
This question makes clear that the good actor/bad actor frame is actively confusing the questioner.   Even if we could say that some countries are doing better than others, every country is constantly striking a balance between climate and economic goals, and each could regulate incrementally more or less.  Europe has a cap & trade system, it’s true; but it doesn’t cover all emissions, and its permit price to emit a ton of carbon has fallen below 5 EUR.  (That’s less than half Alberta’s 15 CAD carbon price, although Alberta’s regulation applies to far fewer emissions.)  And on the flip side, China has adopted numerous policies that will slow its rising greenhouse gas emissions, including massive deployment of renewable energy.  (Here’s a useful Congressional Research Service summary from 2011: http://bit.ly/1dIi1Je).  Even Saudi Arabia is planning a gigantic expansion of clean energy. (http://bit.ly/1dIi1Je).  Digital thinking is giving academics an inaccurate view of the world.
2. Climate Policy Mechanisms: Encouraging More Action in a Continuous Climate Policy World
 
Digital on/off thinking has infected our climate policy design as well.  Again, one of the most important goals for unilateral climate regulations is encouraging action elsewhere.  And one of the most promising ways to do that is with matching commitments: adopting climate regulations that automatically grow more strict when other countries strengthen their own climate regulations.  As I explain in this paper, http://bit.ly/uniclimreg (see pp. 15-21), these matching policies would encourage other countries to act by rewarding them with increased environmental benefits.

But the limited attempts at using matching commitments so far have been fatally flawed by on/off thinking.  For instance, the EU has said it will increase its greenhouse gas reductions from 20% to 30% if developed nations adopt “comparable” reductions through a “global agreement.”  And Australia has a similar scheme.  But these matching commitments provide no incentive to the actual policymakers around the world who are struggling with decisions to marginally tighten or loosen greenhouse gas regulation almost every day, because no individual regulator can secure a global agreement.  These on/off commitments should be replaced with matching commitments that target climate regulations that foreign regulators can actually deliver, and smoothly ratchet up in response to stricter commitments.  Perhaps the EU could commit to match a specific percentage of reductions in the US, Canada, or Australia.  And these commitments could even target regulators in important states or provinces like California and Alberta that are calibrating the strictness of their climate policies.

Analog thinking also reveals the problems with the current global treaty paradigm. No country can credibly commit to years of “good” climate regulation in a single treaty.  Climate policy is too complex and covers too many politically-charged areas.  Often even countries that have “model” policies, like Australia’s ill-fated carbon tax, have found loopholes with major climate impacts, such as coal exports.  (See also, British Columbia’s tax and its proposed LNG exports.)  And even on their own terms emissions pledges will always be fragile in a democracy, as has been repeatedly shown in Australia, Canada, and Japan.
This same problem will likely hamper more modest plans for climate clubs.  I share the general interest in the recent climate pact between California, Oregon, Washington, and British Columbia.  But remember the Western Climate Initiative: it was formed by Arizona, California, New Mexico, Oregon, and Washington in 2007 . . . and then abandoned by Arizona, New Mexico, Oregon, and Washington in 2011.  Fool me twice, shame on me:  analog climate thinking says we cannot be surprised when other states and countries do not live up to their climate commitments.  We need to find ways to continuously encourage them to adopt somewhat stricter regulation, whether or not they are living up to the terms of these commitments.  We need to focus more on analog matching commitments and less on promises to be good.
_____________________
And yes, I’m still working on my analog basketball analysis.  But my former roommates still make fun of me.  After watching this recent clip (starting at 1:30), one told me I was simply ahead of my time: http://watch.thecomedynetwork.ca/the-daily-show-with-jon-stewart/full-episodes/the-daily-show-with-jon-stewart—october-29-2013/#clip1033595. (U.S. version: http://huff.to/18Tm0xu.)

China’s Energy Future: Coal, Gas, & A Gargantuan Climate Policy Challenge

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With about a fifth of the world’s population, China plays a crucial role in the world’s energy and climate futures.  Right now, the developed world comprises an outsized portion of global energy use and greenhouse gas emissions compared to its population, (http://bit.ly/1bDyIIp), but per capita energy use in developing countries like China will gradually converge with levels in the developed world because of 1) catch-up growth in the developing world, 2) climate and efficiency regulations in the developed world, and 3) movement of heavy industry from the developed world to the developing world.  So one way of thinking about global energy futures is that Chinese policy may some day be of comparable importance to the policies of North and South America, Western Europe, and Australia combined.   (Or maybe “US policy is to China’s policy as Turkey’s policy is to US policy.”)

china-pop-map.jpg

Map of the world divided into five regions, each with the same population as China.

So China’s climate policy is crucial.  And it is currently in flux.  Many years of rapid growth in coal-fired power have produced acute particulate matter air pollution problems in China:  a recent study estimated that this air pollution reduced the life expectancy in northern China by 5.5 years.  http://bit.ly/19aFY91.  As a result, China has been seeking to develop alternative power sources such as natural gas and renewable power.  Some hope that this will help slow China’s rapidly rising greenhouse gas emissions.  Citi Research recently put out a report with the hopeful title, “The Unimaginable: Peak Coal in China” (http://citi.us/1cpecdP), and Bloomberg New Energy Finance published one titled “The Future of China’s Power Sector: From Centralized and Coal-Powered to Distributed and Renewable?”  Two recent analyses, however, show why China’s energy policy remains a daunting challenge.
The first analysis, from Armond Cohen and Kexin Liu at the Clean Air Task Force, http://bit.ly/16tPtlf, offers a bracing reality check by simply digging into the Bloomberg and Citi studies.  What they find is that China’s coal-fired plants will be a climate challenge for decades to come.  As a result of the recent boom China now has 750 GW of coal-fired capacity, and even as construction slows, it is due to add 343-450 GW of new coal-fired plants by 2030.  By comparison, the U.S., which until 2008 was the world’s biggest emitter of greenhouse gases, has only 300 GW of coal-fired capacity.  So, China will soon have 3.5-4 times the coal-fired capacity of the United States.  And unlike, the United States where most coal plants are aging, Chinese plants will still be in their prime, and may continue to operate for decades.
The second analysis, published in Nature Climate Change, analyzes China’s plans to produce synthetic natural gas (SNG) from coal at over 40 massive plants.  http://bit.ly/1a675Ru.  Burning SNG instead of coal would lower particulate matter pollution in China’s cities, but SNG takes large amounts of energy to produce, which means that, all things considered, it leads to even more greenhouse gas emissions than coal.  (SNG has roughly seven-times the greenhouse gas impact of regular natural gas, and 136-182% the impact of coal-fired plants.)  Thus, if coal is replaced with SNG, it will just make the world’s climate problems worse.
The Clean Air Task Force analysis suggests that carbon capture & storage may be the only viable option to control greenhouse gas emissions from China’s burgeoning coal plants.  And the SNG paper suggests that shale gas might be a viable alternative to SNG within China.  Both potential solutions have detractors.  What is clear, however, is that Chinese energy policy will be a crucial and daunting challenge for decades to come.

Obama Climate Speech Sets New Standard for Keystone Pipeline

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On June 25, President Obama unveiled a Climate Action Plan in a speech at Georgetown University (see here). This plan highlighted upcoming U.S. greenhouse gas standards for fossil-fuel power plants, directing the U.S. Environmental Protection Agency to issue new proposals for both new and existing power plants.  But the speech is making the most news for an unexpected reference to the Keystone XL pipeline, which is designed to transport oil sands bitumen from Hardisty, Alberta to Steele City, Nebraska.

The surprising reference to Keystone XL came in the middle of the President’s speech when he said:

I do want to be clear:  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 (Remarks by the President on Climate Change).

Under Executive Order 13337 the President approves a cross-border pipeline when it is in the “national interest.” So President Obama’s words seemed to prescribe a new standard for the pipeline:  even if the pipeline would provide benefits in terms of oil prices or energy security, it would only be approved if it would not “significantly exacerbate” greenhouse gas emissions.

This new standard places significant pressure on the U.S. State Department, which is responsible for assessing the environmental impact of the project under the National Environmental Policy Act, 42 USC 4321 et seq.  In March 2013, the State Department issued a draft environmental impact statement for the pipeline, which addressed the concern that approving the pipeline would cause increased development of the Canadian oil sands, which would, in turn, lead to more greenhouse gas emissions.  The State Department rejected this analysis, concluding that the pipeline would cause “no substantive change in global GHG emissions.”  (See State Department, Draft Supplemental Environmental Impact Statement 4.15-107).  This is because rejecting the pipeline would merely “force more crude oil to be transported via other modes of transportation, such as rail.”  (See State Department, Draft Supplemental Environmental Impact Statement 1.4-1).  Thus, in the State Department’s view, the oil sands would be developed with or without the pipeline.

Pipeline opponents have attacked this conclusion, arguing that other transportation options would be more expensive, so stopping the pipeline would slow oil sands production.  For example, the National Resources Defense Council along with other environmental groups formally asked the State Department to submit a new draft environmental impact statement because of subsequent analysis that, they claimed, showed “there are high cost and technical and logistical barriers to rail transport.”  (See Natural Resource Defense Council et al., Request for Supplemental Environmental Impact Statement for the TransCanada Keystone XL Pipeline Based on Significant New Information (June 24, 2013)). The U.S. Environmental Protection Agency itself laid the groundwork for this critique, telling the State Department that it “recommend[s] that the Final EIS provide a more careful review of the … rail transport options,” and suggesting that “recognizing the potential for much higher per barrel rail shipment costs” could affect “the level and pace of oil sands crude production.”  (See U.S. EPA Keystone XL Project Comment Letter (Apr. 22, 2013)).

Ultimately, President Obama’s words suggest that the Keystone XL pipeline will only be approved if the State Department largely stands by its analysis that the pipeline will not significantly increase global emissions.  This raises the stakes for the State Department’s final environmental impact statement, which does not have a firm due date, but will be released after the State Department reviews the hundreds of thousands of comments that were submitted on its draft impact statement.  (See Update, New Keystone XL Pipeline Application).

Cross-posted at ABlawg, the University of Calgary’s Law Blog: http://bit.ly/18h6pdG

Competing views on Lac-Mégantic explosion and the pipeline debate

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An interesting divide has emerged in analysis of the effect of the Lac-Mégantic train disaster on the continuing debate over crude oil pipelines.

Early Saturday morning, a train carrying carrying crude oil from the Bakken oil shale in North Dakota derailed and exploded in the town of Lac-Mégantic, Quebec. (http://bit.ly/172FTU2)

Andrew Leach, at the University of Alberta, suggested that this will hurt the prospect of pipeline approvals–such as the Keystone XL pipeline that is currently being reviewed by the U.S. State Department–because it “highlights the hazards of transporting crude oil.”  (http://bit.ly/1a9ueVl)  Many media stories–and particularly headlines–have followed this theme.

On the other hand, Tim Worstall at Forbes represents another camp, which argues that the danger of transporting crude by rail makes pipelines look safer by comparison, because pipelines “tend not to go through the centre of towns.”  (http://onforb.es/1a9v9oN)

This debate is further complicated by the analysis that the U.S. State Department presented in its draft environmental impact statement on TransCanada’s proposed Keystone XL pipeline.  The State Department said that rejecting the pipeline would simply force “more crude oil to be transported via other modes of transportation, such as rail,” so approving the pipeline would not significantly increase greenhouse gas emissions from crude production.  (http://1.usa.gov/1aXcQpD)

Pipeline proponents, accepting this argument, may now argue that rejecting the pipeline will shift crude oil into more dangerous modes of transport, such as rail.  In contrast, pipeline opponents will say that focusing on the danger of rail shipments should mean new restrictions on these shipments.  As a result, they will reject the State Department’s premise:  they believe that if Keystone XL is stopped, other modes of transport can be stopped as well, significantly impacting crude production.

Thus, proponents are assuming that crude oil production will continue, and looking for the safest and most efficient mode of transport, while opponents are betting that it can be significantly slowed through a multi-pronged regulatory clamp down on transport.

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