Unless you were off the grid yesterday you’re probably aware President Obama released his Administration’s new Climate Action Plan (CAP) as part of a high profile speech. Here is our write-up about yesterday’s speech explaining the various executive actions being undertaken should be viewed as a coordinated political strategy to pursue additional future legislative action on climate.
One of the more substantively interesting parts of the CAP release with legal implications, however, was a subsequent Presidential memo directing EPA to propose GHG standards for existing fossil fuel power plants (find the memo here). Among other things, the memo directs EPA to propose the rule in a manner that allows “the use of market-based instruments, performance standards, and other regulatory flexibilities.” This sounds like innocuous common sense, but it certainly isn’t. What this new market-based directive signifies is the White House is potentially pushing EPA to take an unprecedented step of liberally interpreting its authorities to regulate GHGs under Section 111(d) of the Clean Air Act - specifically it could drive EPA to establish flexible national compliance guidelines that would then allow states to implement the rule and allow compliance to include reductions achieved well beyond the four corners of a regulated power plant. Such market-based compliance options could include such things as system-wide integration of renewable energy, end-use efficiency, and even the remote possibility of some form of emissions trading schemes.
Regardless, here are some initial thoughts on the CAP and how it might affect market opportunities in the shorter term:
Regulating GHGs from New and Existing Power Plants. The President has instructed EPA to (1) Re-propose a GHG standard for new power plants by Sept 20, 2013, (2) propose regulations to address carbon pollution from existing power plants no later than June 1, 2014 and finalize such proposals by June 1, 2015, and (3) require states to submit implementation plans no later than June 30, 2016. Given the Presidential memo’s (discssed above) directive that EPA work with states and stakeholders to devise regulations that include market-based flexibilities, we are likely to see additional emphasis and action on state-based clean energy programs, demand-side management, and distributed generation ratemaking. Each of these areas have been underway for years, but by tying them to federal GHG compliance would substantially alter the market and regualtory dynamics for projects and investments in clean energy and energy efficiency in some parts of the country – which in turn will push clean energy programs that are working well as well as a state’s potential role in financing assistance (e.g. green bank financing, risk mitigation and credit enhancements).
Deploying more Renewable Energy on Public Lands; Increasing Energy Efficiency. The President is targeting an additional 10GW of renewables on public lands by 2020 (so now its 20GW total). There is also a new target for installing 100 MW of clean energy capacity in federally subsidized housing stock by 2020. The CAP also seeks to set new standards for appliance efficiency and energy use in federal buildings, and the Department of Agriculture’s Rural Utilities Service will provide up to $250 million for rural efficiency investments. These initiatives are obviously important for utility-scale renewable energy developers. The 100 MW in DG deployment and push for energy efficiency, however, could be an accelerant of innovative third party energy efficiency financing models and increase interest in programs for Property-Assessed Clean Energy (PACE) financing and Qualified Energy Conservation Bond and New Market Tax Credit utilization. But there are also open-ended questions of risk and integration posed by these new ambitious targets. Since 2009, the Department of Interior has approved 25 utility-scale solar facilities, 9 wind farms, and 11 geothermal plants. DOI is now being tasked with permitting an additional 10 GW! The logistical challenge of fulfilling this commitment may come down to how fast (and how well) regional energy market stakeholders can accomplish the transmission planning goals of FERC Order No. 1000.
International Climate Agreements & Climate Finance. Embedded in the CAP is a discussion of how the Administration is working toward a new, binding post-2020 agreement among UNFCCC nations by 2015 in Paris. These efforts really are the heart of President Obama’s climate effort between now and when he leaves office. While it would require a separate post to discuss all the things the US is doing, several “trade” and “climate finance” issues referred to in the CAP that are tied to international negotiations bear mentioning. The President’s CAP sets the US on a path to work with nations through the World Trade Organization and international trade negotiations to liberalize trade in environmental goods and services. In English that means the US will be seeking agreement on revised tariffs on low carbon goods and services, which could ultimately benefit clean technology investments and manufacturing. If new trade standards are achieved, it could for example overcome many of the existing dilemmas related to Chinese solar imports. This action commitment could also signify a larger point about the 2015 UNFCCC agreement. In advance of Paris, and on the heels of the recent agreement between China and the US on HFC reductions, both nations may be working to conclude a clean energy and climate-related bilateral investment treaty of some kind. Such an agreement could have major ramifications not only for policy discussions but also for clean energy pricing. Finally, the US is engaged in multiple fora on the development of climate finance mechanisms, including development of the Business Model Framework for the Green Climate Fund (GCF Board meetings are going on this week in Songdo, South Korea by the way). In advance or as part of that dialogue, yesterday’s CAP stands for the proposition that the Administration is increasing its focus on international clean energy project financing support through the Overseas Private Investment Corporation. Such increased focus could greatly facilitate a number of projects that include U.S. investors.