Climate Change Insights

Mexican House Adopts Climate Change Law

Jon D. Sohn — Fri, 13 Apr 2012 12:37:53 -0500

This week the Mexican House of Representatives passed the groundbreaking “General Law on Climate Change” Mexico’s emissions are the 11^th highest on an annual basis and has a growing economic and carbon footprint in the hemisphere.

Key provisions in the bill include:

Codification of Mexico’s international commitment pledged under the UN Framework Convention on Climate Change to reduce national emissions 30% below business-as-usual emissions by 2020, and 50% below 2000 levels by 2050. International climate finance is a pre-condition to meeting this target and Mexico has been well engaged in the establishment of the UN Green Fund in climate negotiations.

Enabling environment for a domestic emissions trading market.

Appointment of a high-level commission, a climate fund and a mandatory emissions reporting to be governed by a national emissions registry.

Directs the Ministry of Finance and other ministries related to energy to develop incentives by 2020 that increase use of renewable energy.

Establishes goals for increasing electricity generation from clean energy, including target of 35% of electricity generation to come from renewable sources by 2024.

The bill now moves to the Senate and then for signature into law by the President. If the bill becomes law, it will create additional pressure on the United States and Canada to develop coherent national climate mitigation strategies, but could also be a step towards the three countries developing a regional approach to the challenge.

California Land Use Legislation for 2012 that Could Benefit Renewable Energy Projects

Brian Fish — Thu, 12 Apr 2012 12:27:51 -0500

As California’s public policy makers continue to demand greater and greater use of renewable energy resources, solar energy is still hot and wind energy is still cool. With all the attention given to renewable energy, one might think that California law would make it easy to develop renewable energy projects. One would be wrong.

Like any other development project, a sponsor of something other than a rooftop solar installation faces a multitude of permitting challenges. While the path to a successful project is still fraught with risk, recent legislation is intended to ease the process for some types of projects. The following briefly examines a few of the legislative initiatives that could help renewable energy developers bring their projects to market.

Senate Bill 618

The California Williamson Act is a long standing law that uses contractual deed restrictions and favorable property tax treatments to preserve agricultural lands for agricultural use. As utility scale solar projects require significant amounts of land, conflicts have developed between the Williamson Act’s limitations and the state’s renewable energy goals. In fact, uncertainty abounds as to whether state law allows development of a solar energy project on a property otherwise encumbered with a Williamson Act contract.

Senate Bill 618 attempts to balance the competing goals of agricultural preservation and renewable energy development. Generally speaking, Williamson Act contracts restrict a property’s use for a rolling 10 year period. Under existing law, it is often difficult and costly to cancel a Williamson Act contract early because of the findings a city or county must make and the state mandated cancellation fee. Senate Bill 618 establishes a new process for cancellations if the land owner substitutes a solar use easement on that owner’s property for the Williamson Act contract.

While clearly a step in the right direction, meaningful costs and uncertainty will still exist under the new law. For example, both the State Department of Conservation and the State Department of Food and Agricultural (the agencies charged with protecting agricultural resources) are given considerable discretion over the new cancellation process. As a result, only Williamson Act lands that clearly have little to no agricultural value will gain much certainty. Further, while the Williamson Act cancellation fee is reduced by Senate Bill 618 from 13.5% to 6.25% of the land’s fair market value, the legislation contemplates other costs such as security for eventually returning a property back to agricultural use. Nonetheless, for the right project on the right property, solar energy developers should keep Senate Bill 618 in mind.

Senate Bill 226

Buried in legislation addressing a range of amendments to the California Environmental Quality Act (CEQA), State Senator Simitian’s bill includes benefits for some types of solar energy projects. The first element exempts certain rooftop and parking lot solar installations from CEQA. To qualify, a developer must locate the solar energy system on the roof of an existing building or a parking lot that has been in continuous use for vehicle parking for at least 2 years. Subject to certain restrictions, some of which protect existing trees and others that exclude projects that trigger the need for state and federal permits due to impacts to sensitive resources, the exemption also applies to other required project equipment that is both on the same parcel and that occupies less than 500 square feet.

A second component of SB 226 recognizes that technological challenges and changing economics have doomed some proposals to build utility scale solar thermal projects. The new legislation gives the California Energy Commission (CEC) temporary authority to approve certain photovoltaic (PV) projects that would otherwise be subject to a local agency approval process. Specifically, the legislation potentially applies to solar thermal projects previously certified by the CEC that now wish to transition to PV. In evaluating the request for the amended certification, the CEC must conduct supplemental environmental analysis, provide an opportunity for public comment and hold at least one public hearing. While the exemption only applies to a limited number of projects and projects must file the amendment request prior to June 30, 2012, the benefits of bypassing the local agency permitting process are potentially huge.

Senate Bill 267

State Senator Rubio authored SB 267, a bill that should ease the permitting process for larger renewable energy projects. Generally, industrial type projects over 40 acres that trigger CEQA must obtain a water supply assessment that includes a detailed analysis of the available supply and anticipated demand for water in the project’s service area. Even though most PV and wind projects require very little water, existing law still requires the developers to assume the time, cost and uncertainty of securing a water supply assessment. The legislation exempts PV or wind energy projects that require no more than 75 acre-feet of water per year from the water supply assessment requirement. The bill went into effect immediately and the exemption expires on January 1, 2017.

Comer v. Murphy Oil USA, Inc. Dismissed by Mississippi Federal Court

Kristin Landis — Tue, 03 Apr 2012 09:58:37 -0500

On March 20, 2012, a federal district court judge in Mississippi dismissed for the second time Comer v. Murphy Oil USA, Inc., a lawsuit by various Mississippi property owners against numerous oil, coal, and chemical companies seeking tort liability for climate change. The decision, though not unexpected, certainly strikes a blow to persons wanting to hold greenhouse gas (GHG) emitters liable for the alleged harm they are causing to the environment.

Procedural History

The suit was originally filed in 2005 (Comer I) and was subsequently refiled in 2011 after a lengthy and convoluted procedural history (Comer II). The crux of the Comer plaintiffs’ claims is that the defendants’ GHG emissions contributed to global warming, which fueled Hurricane Katrina and ultimately led to damage to the plaintiffs’ property. The plaintiffs assert state law public and private nuisance, trespass, and negligence causes of action against the defendants.

The district court dismissed Comer I in 2007 on grounds that the plaintiffs lacked standing and their claims presented nonjusticiable political questions. The plaintiffs appealed to the Fifth Circuit, which reversed the district court in part in 2009. The reversal was vacated when the Fifth Circuit agreed to rehear the appeal en banc. Before the rehearing, however, the appellate court lost its quorum and appellate rules required its dismissal. Because the Fifth Circuit’s opinion had already been vacated, the 2007 district court dismissal was reinstated. When the Supreme Court denied the plaintiffs’ request for a writ of mandamus, they filed Comer II in 2011.

The Second Dismissal

The same court that dismissed Comer I dismissed Comer II on procedural grounds, finding that the refiled lawsuit is barred by the doctrines of res judicata and collateral estoppel. The court concluded that Comer II raises essentially the same claims as Comer I,and the plaintiffs are not entitled to another bite at the apple.

Although the court could have relied solely on these procedural grounds to dismiss Comer II, “out of an abundance of caution” the court revisited whether the plaintiffs have standing and whether the political question doctrine bars their claims. With regard to standing, the court affirmed its 2007 decision in Comer I that the plaintiffs could not allege injuries that are fairly traceable to the defendants’ specific GHG emissions. The court also affirmed its 2007 decision that the plaintiffs’ claims are barred by the political question doctrine.

The court further agreed with the defendants’ arguments that the plaintiffs’ claims are preempted by the Clean Air Act (CAA). The court’s determination was based upon the Supreme Court’s 2007 decision in Massachusetts v. EPA (holding that EPA has the authority to regulate GHGs) and its 2011 decision in Connecticut v. AEP (holding that federal nuisance claims relating to GHG emissions are displaced by the CAA). Comer is the first case to hold state law claims preempted by the CAA.

Additionally, the court agreed with the defendants that the Mississippi Savings statute does not save the plaintiffs’ claims from Mississippi’s three year statute of limitations and that the plaintiffs cannot demonstrate that the defendants’ emissions are the proximate cause of their injuries.

Significance of Decision

As it stands, the district court’s dismissal continues to make it more difficult for future plaintiffs to hold GHG emitters liable in tort for alleged harm caused by climate change, at least in Mississippi. It is unlikely, however, that the district court will have the final say. The plaintiffs are likely to appeal to the Fifth Circuit, which in the past has been more open to the plaintiffs’ claims than the district court. The Fifth Circuit’s 2009 vacated opinion held that the plaintiffs had standing to bring their nuisance, trespass, and negligence claims and that those same claims did not present nonjusticiable political questions.

Although the Fifth Circuit held for the plaintiffs in 2009, there is no guarantee that it will do so again, even if it reverses the district court on res judicata and collateral estoppel. Significantly, at the time of the Fifth Circuit’s decision in Comer I, the EPA was not regulating GHGs to the extent it is today and the Supreme Court had not yet decided Connecticut v. AEP. Based on these developments, the Fifth Circuit could very well find that the CAA preempts the plaintiffs’ state law claims.

In addition, Native Village of Kivalina v. Exxonmobil Corp., which involves similar challenges with respect to standing, the political question doctrine, and preemption, is currently pending before the Ninth Circuit. A decision against the plaintiffs in Kivalina could potentially influence the Fifth Circuit in Comer. A decision in Kivalina is expected this year.

Commission's Energy Roadmap 2050 - What Direction for EU's Climate Change Policy?

Nicolas Croquet — Wed, 25 Jan 2012 17:19:00 -0500

On 15 December 2011, the European Commission published its “Energy Roadmap 2050” in the form of a Communication to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions.(1) The Roadmap should be read in light of the fourth meeting of the Advisory Group on Energy Roadmap 2050 whose minutes were published on DG ENER’s website on 16 January 2012.(2)

In the Roadmap, the Commission confirms EU’s 2050 commitment to reduce greenhouse gas emissions by 80 to 95% compared to 1990 levels.(3) It also outlines five decarbonisation scenarios: (i) a high level of energy efficiency; (ii) diversification in the supply technologies; (iii) a high share of renewable energy sources in gross final consumption of energy; (iv) delayed Carbon Capture and Storage (‘CCS’); and (v) a low level of nuclear energy.(4)

In all decarbonisation scenarios, the Commission calls for “very significant energy savings”. More concretely, the Roadmap aims at a 32 to 41% energy efficiency increase by 2050 based on 2005-2006 levels.(5) This demanding energy efficiency target for 2050 can be contrasted with the pessimistic observations which Philip Lowe (Director-General for Energy at the European Commission) formulated at the Roundtable on “The Future of the European Energy Policy, Energy Efficiency and European Energy Independence” that took place on 14 September 2011 at the European Economic and Social Committee in Brussels.(6) Philip Lowe argued on that occasion that, although the EU was well on its way in achieving the 2020 greenhouse gas reduction target and renewable energy targets, it was still stagnating with respect to its 2020 20% energy efficiency objective. Philip Lowe underlined that Member States were very much opposed to the idea of having binding targets formally imposed upon them in the field of energy efficiency: they would instead mark a strong preference for indicative targets.(7) Philip Lowe also pointed out that only 4% of small companies and 20% of large corporations established in the Union would already have a policy on energy efficiency.

The Commission also calls for the share of renewable energy to reach 55% of the Union’s gross final consumption of energy by 2050.(8) As regards renewable electricity more specifically, the Commission, in two of its decarbonisation scenarios, calls for a share of 60-65% and of 97% of renewable energy sources in the gross final consumption of electricity to be reached by 2050.(9) The Roadmap insists on the essential role of renewable heating and cooling in the Union’s move towards decarbonisation: the Commission urges for energy consumption to be directed at “low carbon and locally produced energy sources (including heat pumps and storage heaters) and renewable energy (e.g., solar heating, geothermal, biogas, biomass)”.(10) In the transport sector, the Commission points to a mixture of alternative fuels as a necessary substitute for oil, biofuels remaining the most viable alternative to oil for aircrafts, long-distance road transport, and railways (when they cannot turn to electricity). The biofuels relied upon ought to be sustainable: they must help diminish demand for food production land and improve the level of net greenhouse gas savings.(11)

Stimulation of local production of renewable energy presupposes the emergence of smarter distribution grids with a view to accommodating variable generation from multiple sources of distribution (e.g., solar photovoltaic) and a growing demand for renewable energy.(12)

The Commission, in its Roadmap, is realistic about the fact that public support schemes, in particular in the form of energy subsidies, will still be needed after 2020 in order to further stimulate green technologies. These support schemes ought to be specific in their scope, foreseeable and proportionate. They should be suppressed once the underlying “market failures are resolved” and the maturation of these technologies arrived at.(13)

As regards the future of CCS, the Roadmap suggests that it is contingent on its acceptance by the public and on the adequacy of carbon prices. CCS, if deployed by 2020 and widely used by 2030, is expected to have a significant impact on the decarbonisation of many heavy industrial infrastructures. The combination of CCS and of biomass could result in “carbon negative values”.(14)

The Roadmap’s proposed energy system presupposes the achievement of a “fully integrated market” for 2014,(15) the definition of “2030 milestones” for the promotion of renewable energy sources, more consistency with a common approach to international energy policy, and a substantial increase in energy efficiency (amongst other factors).(16)

Philip Lowe at the fourth meeting of the Advisory Group on Energy Roadmap 2050 and the Commission as a whole through its Roadmap have announced that their next priority would be the elaboration of a 2030 energy policy framework.(17)

[1] European Commission, “Energy Roadmap 2050”, COM(2011) 885/2, available at: http://ec.europa.eu/energy/energy2020/roadmap/doc/com_2011_8852_en.pdf

[2] Minutes of the fourth meeting of the Advisory Group on Energy Roadmap 2050, Brussels, 12 December 2011: http://ec.europa.eu/energy/energy2020/roadmap/doc/energy_roadmap2050_advisory_group_minutes_2011_12_12.pdf

[3] Energy Roadmap 2050, p. 2.

[4] Energy Roadmap 2050, p. 4.

[5] Energy Roadmap 2050, p. 7.

[6] http://www.eesc.europa.eu/resources/docs/group-i-internal-september-2011-en.pdf

[7] This position is somewhat reflected in the Commission’s Proposal for a Directive on Energy Efficiency formally issued in June 2011. This generic Directive, if adopted by the European Parliament and the Council, would refrain from imposing binding national targets in the implementation of EU’s 2020 20% energy efficiency target. Instead, Member States would have to fix in advance indicative national energy efficiency targets in the form of absolute levels of primary energy consumption (i.e., gross inland consumption) in 2020. The Commission would have to determine by 30 June 2014 whether the EU is capable of reaching its 20% energy efficiency target. If not, the Commission may want to propose another EU legislative act that would make national energy efficiency targets formally binding upon Member States: Proposal for a Directive of the European Parliament and of the Council on energy efficiency and repealing Directives 2004/8/EC and 2006/32/EC, COM(2011) 370 final, Brussels, 22 June 2011 (Article 3).

[8] Energy Roadmap 2050, p. 7.

[9] Energy Roadmap 2050, p. 6-7.

[10] Energy Roadmap 2050, p. 11.

[11] Energy Roadmap 2050, p. 11.

[12] Energy Roadmap 2050, p. 15.

[13] Energy Roadmap 2050, p. 17.

[14] Energy Roadmap 2050, p. 12.

[15] In order to help foster an EU integrated energy market, the European Economic and Social Committee (an advisory and interinstitutional body of the EU in charge of representing employers, employees and civil society more generally) has been in favour of instituting a “European Energy Community” so as to promote a “joint approach to energy production, transmission and consumption”. This would start with the establishment of “regional energy blocks” where Member States and operators would have the opportunity to align their strategic positions concerning network development and energy mix. See Press Release of 18 January 2012, CES/12/2:

http://europa.eu/rapid/pressReleasesAction.do?reference=CES/12/2&format=HTML&aged=0&language=EN&guiLanguage=en

[16] Energy Roadmap 2050, pp. 19-20.

[17] Energy Roadmap 2050, p. 20.

McKenna Long & Aldridge Launches "Politics, Law & Policy" Blog

Climate Law Blogger — Mon, 09 Jan 2012 15:28:58 -0500

The team here at Climate Change Insights wants to welcome a phenomenal group of commentators to the McKenna Long & Aldridge blogosphere. Earlier this week, MLA launched its newest blog, “Politics, Law and Policy,” authored by a bipartisan group of attorneys and public policy advisors in the firm’s nationally-recognized government affairs practice. The blog will serve as an important resource for those seeking analysis and resources on the impact of federal and state politics and public policies on a wide range of issues and debates, including health care, energy, infrastructure, taxes, transportation, cybersecurity, and campaign and election compliance.

Led by Eric Tanenblatt, head of MLA’s National Government Affairs practice, the MLA Politics, Law and Policy blog follows law and public policy developments and political campaigns at the state and national levels. It features legal, political and policy insights from attorneys and professionals who have held public office and served as their advisors, including governors, mayors, ambassadors, attorneys general, congressional members, and senior administration officials.

Contributors to the Politics, Law and Policy blog from MLA’s Government Affairs practice include Speaker Emeritus Mark Burkhalter (R-GA); Cindy Gillespie, co-chair of the firm’s Health Insurance Exchange team and former special counselor to Massachusetts Governor Mitt Romney; and Governor Howard Dean (D-VT), former chair of the Democratic National Committee. Other contributors include: former U.S. Ambassador to Canada Gordon Giffin; former Georgia Attorney General Thurbert Baker; former Washington, DC Mayor Anthony Williams; and former assistant to President Clinton, Keith Mason to name a few.

We invite our readers to visit the blog and subscribe to updates at http://www.politicsandlawblog.com. The Politics, Law and Policy blog can be found on Twitter at http://www.twitter.com/politics_law.

Will California LCFS ruling affect other state and regional climate initiatives?

Andrew Shaw — Thu, 05 Jan 2012 07:39:50 -0500

On December 29, U.S. District Judge Lawrence O’Neil issued a preliminary injunction against California’s Air Resources Board’s (“CARB”) low carbon fuel standard (“LCFS”). The lawsuit, brought by the ethanol, oil and trucking industries, alleged that California’s LCFS violates the Commerce Clause of the U.S. Constitution and is preempted by federal law. Judge O’Neil held that California’s LCFS violates the Commerce Clause of the U.S. Constitution, because the regulation impermissibly attempts to regulate interstate commerce. The ruling, however, dismissed the plaintiffs’ claim that federal law preempted California’s LCFS. An important question will be the influence that this recent decision will have on other state and regional climate initiatives.

A little bit of background is necessary to understand the issues and potential ramifications associated with the lawsuit over California’s LCFS. In 2009, CARB finalized the LCFS, which would require a 10% reduction in the carbon intensity (“CI”) of the state’s transportation fuels by 2020. The rule defines CI as the amount of lifecycle GHG emissions, per unit of energy of fuel delivered. The rule assessed different CI values for various types of ethanol, including assigning lower CI values to California corn-derived ethanol than to Midwest corn-derived ethanol. In addition, the rule created a CI distinction with regard to conventional and unconventional crude oil, including fuels derived from the Canadian oil sands. CARB does allow for a producer to obtain a customized CI value if it can demonstrate that its energy use data “deviates substantially from that of the pathways” represented in this initial rule.

Judge O’Neil’s ruling held that California’s LCFS violates the Commerce Clause. First, the ruling found that the LCFS facially discriminated against out-of-state ethanol by penalizing Midwest producers for larger lifecycle GHG emissions. Judge O’Neil also agreed with the plaintiffs’ argument that the LCFS is attempting to control commerce wholly outside the state’s border. Finally, Judge O’Neil ruled that CARB failed to demonstrate that reducing climate change could be achieved through other non-discriminatory means. According to Judge O’Neil, there are other non-discriminatory means to reducing GHG emissions from the transportation sector, including adopting a tax on fossil fuels.

If upheld by the Ninth Circuit, Judge O’Neil’s ruling could potentially signal a blow to other state and regional climate initiatives. Several Northeastern states are working on developing a clean fuel standard based in part on California’s LCFS and with the goal of reducing the CI value of transportation fuels by 10% over the next decade. Oregon and Washington State are also considering adopting a LCFS based on California’s model. Judge O’Neil’s ruling could influence these fledgling fuel standard efforts by encouraging states to eliminate CI distinctions between different types of ethanol and conventional and unconventional crude.

It will also be important to monitor the effect of this ruling on other state climate initiatives. In one notable case, North Dakota, electric cooperatives and coal producers are suing Minnesota over its Next Generation Act. Minnesota’s legislation committed the state to reducing GHG emissions 30% by 2023 and 80% by 2050. Specifically, the legislation prohibited utilities from purchasing power from new plants unless the GHG emissions associated with that power are fully offset. The lawsuit contends that Minnesota’s law violates the Commerce Clause by discriminating against North Dakota’s coal interests. North Dakota is home to one of the world’s largest reserves of lignite coal, which provides a majority of the fuel used in Minnesota’s coal-fired power plants. The state’s power plants also export significant amounts of electricity to Minnesota. The plaintiffs are also arguing that exemptions provided in the law for four specific projects favor Minnesota businesses at the expense of North Dakota business interests. Undoubtedly, the plaintiffs will point to Judge O’Neil’s ruling in urging the court to block Minnesota’s Next Generation Act.

Judge O’Neil’s ruling could also spur a proliferation of lawsuits challenging other state climate regulations.

Watch What Happens: Top 5 U.S. Climate & Energy Questions in 2012

Jon D. Sohn — Fri, 30 Dec 2011 10:20:39 -0500

President Obama came into his first term in office focused on 3 key energy and climate issues: 1) cap & trade legislation, 2) offshore oil production and 3) scaled-up support for nuclear energy. 2011 saw all those issues depart as centerpieces of U.S. policy direction. 2012 will bring a set of high stakes questions that will set the direction.

1) Presidential Politics and the Environmental Protection Agency (EPA): Backwards or Forwards?
In the absence of Congressional action, the EPA has moved forward aggressively on climate and energy issues. In the coming year new rules regulating carbon dioxide under the Clean Air Act are anticipated. In addition, the EPA has a number of petitions, rulemakings, compliance actions and studies in its pipeline that will impact the future of shale gas development in the United States. As the November Presidential election inches closer, the already sensitive positioning on how far and fast the EPA should go will only increase leaving the pace of both Clean Air Act and shale gas regulatory issues in an uncertain space.

2) Keystone XL: What to Do?
The Keystone XL pipeline that would bring additional oil sands fuel to U.S. refineries from Canada has gained increasing national attention. The Obama Administration has tried to avoid making a decision on the Presidential Permit for the project until after 2012. However, the recent Congressional payroll tax-cut extension included provisions that seemingly require a final decision by the President in February of 2012. Whether the US need for secure sources of oil delivered in a manner balanced with environmental concerns can be accommodated in a politically charged year remains to be seen.

3) California Cap & Trade: Ready or Not?
While the term “cap and trade” has become “so 2010” in Washington, D.C. , California has moved ahead. After citizens voted down Proposition 23 that would have stopped AB32, Governor Jerry Brown’s administration has moved aggressively on enacting the climate provisions within the legislation. Implementation of the legislation in earnest was delayed a year to the beginning of 2013 to ensure the government and private sector are fully prepared. 2012 will be a crucial year for finalizing the market mechanisms, regulatory capacity, and carbon offset mechanisms are in place to reduce greenhouse gas emissions. Success or failure in the California market will influence how federal policy might address climate change in the coming years.

4) Solar Drama for Obama?
The collapse of Solyndra and the subsequent loss of U.S. taxpayer dollars through Department of Energy loan guarantees has provided political fodder for those who seek to limit the scope of the President’s green jobs agenda. Furthermore the end of 2011 sees the expiration of a key federal incentive for renewable energy development, called the 1603 cash grant program. The program allows solar developers to monetize tax equity, thereby lowering the cost of debt and construction costs for the sector. The U.S. solar industry grew by 140 percent year over year in the third quarter of 2011. In addition a growing trade war with China over solar manufacturing standards is emerging. Market analysts will be closely watching how the U.S. sector can overcome these challenges in 2012.

5) Showdown in the Friendly Skies?
The aviation industry accounts for just over 2% of all global greenhouse gas emissions and that figure will increase to at least 3% by 2050. In December, European Court of Justice (ECJ) ruled that emissions taxes on the sector pursuant to the European Union Emissions Trading Scheme are legal despite the protests of the U.S., Canada and China. Airlines will be charged for carbon emissions created by flights to and from 27 EU countries starting January 1. Secretary of State Hillary Clinton has pledged “appropriate action” to ward off these taxes and the issue could spill into the arcane International Civil Aviation Organization (ICAO). 2012 will see increased legal and political wrangling over this issue.

Corporate Social Responsibility - an effective tool for promoting climate change?

Nicolas Croquet — Tue, 22 Nov 2011 07:40:59 -0500

On 25 October 2011, the European Commission (‘Commission’) adopted a Communication addressed to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions.

The Communication is titled "A renewed EU strategy 2011-14 for Corporate Social Responsibility" ('2011 CSR Communication.) The nature of this EU instrument makes it in essence legally non-binding. This does not mean that the Communication should be disregarded by Member States or the business community, as it does set the seeds for a new policy direction in the field of Corporate Social Responsibility (‘CSR’). The Commission has perceived the concept of CSR along with the concept of “corporate governance” as central to furthering the internal market.[1]

In 2001, the Commission already defined CSR as “a concept whereby companies decide voluntarily to contribute to a better society and cleaner environment”.[2] The corollary of CSR was that “companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis”.[3] Building on earlier CSR instruments at the EU and international levels, the Commission in its 2011 CSR Communication proposed a new approach to CSR which emphasizes companies’ need to set up a process for reflecting ethical, human rights, environmental, social and consumer considerations into their day-to-day business operations and corporate strategy. The new Communication insists that CSR capture human rights, employment practices, the fight against bribery as well as environmental questions (e.g., resource efficiency, biodiversity, pollution prevention and climate change). The bulk of the new approach centers around: (i) the importance attached to the integration of a “core business strategy” into any business model; (ii) the emphasis on “creating shared value”; and (iii) the express insertion of “human rights and ethical considerations” into the conceptual definition of CSR [4] (even though the scope of CSR at the EU level already covered human rights pursuant to the Commission’s 2001 Green Paper).[5]

The Commission, in its 2011 CSR Communication, also strives for greater corporate disclosure of environmental information, in particular that pertaining to climate change, with a view to better involving stakeholders and unfolding “material sustainability risks”. The latter transparency concern will lead the Commission to issue a legislative proposal [6] whose objective would be to provide a generic regulatory framework for the corporate disclosure of social and environmental information across all sectors.[7] The Commission had already initiated a Public Consultation on Disclosure of Non-Financial Information by Companies on 22 November 2010, a procedure which was closed on 28 January 2011. This consultation procedure involved not just Member States’ representatives but also private stakeholders such as social partners from national and international unions, professional federations and academics.[8] On the question of whether institutional investors ought to be bound by non-financial disclosure requirements,[9] most stakeholders involved responded that these investors “should disclose information on environmental, social and other aspects and explain how these considerations influence their investment decisions” subject to a proportionate and size-based approach.[10] Most of the stakeholders were also of the view that qualified external auditors should audit corporate disclosure of environmental information, a requirement which should also be tempered by a sized-based approach (e.g., exemption for SMEs).[11]

The 2011 CSR Communication is overall discreet on the relation between CSR and climate change, which could arguably be explained for two main reasons.

First, the relation between the two had already been tackled in more detail in the “Energy Efficiency Plan 2011” Communication in which the Commission implicitly drew a direct link between CSR and one of the three principal pillars of the EU climate change policy.[12] Here, the Commission encouraged recourse by large companies to an energy management system such as that embodied in the EN 16001 standard, and invited the industry and energy-intensive sectors to enter into voluntary agreements for the implementation of energy efficiency processes and systems. Such agreements would be premised on concrete targets, clear methodologies and effective monitoring schemes.[13] The Energy Efficiency Plan 2011 especially targeted energy performance or ‘ecodesign’ measures as the way forward towards promoting “innovation in energy efficient European technologies”.[14]

Second, the 2011 CSR Communication is drafted, to some extent, on the basis of the renvoi technique: it encourages all large EU-based companies to ensure that, by 2014, they attend to the UN Global Compact, the OECD Guidelines for Multinational Enterprises or the ISO 26000 Guidance Standard on Social Responsibility when fashioning their CSR position. The 2011 OECD Guidelines do contain some language on climate change compliance strategy. They invite multinational enterprises to set up a “sound environmental management” system premised on three layers of good corporate governance: (i) effective and efficient gathering/assessment of information on the environmental impacts of business activities; (ii) setting out measurable objectives and, if applicable, targets for improved resource utilization and environmental performance; and (iii) periodic monitoring of progress towards completing these environmental objectives/targets. At a more substantive level, the OECD Guidelines encourage multinational companies to aim for higher standards of environmental performance, amongst others, through the development of strategies on biodiversity or resource efficiency or for GHG emissions reduction. The OECD through its 2011 Guidelines interprets the expression “sound environmental management” in the most extensive way: it covers “activities aimed at controlling both direct and indirect environmental impacts of enterprise activities over the long-term, and involving both pollution control and resource management elements”.[15]

There is scope for substantial improvement as regards companies’ adhesion to CSR codes of conduct and Member States’ adoption of CSR incentivizing programs. The Commission has indicated that the number of EU companies officially endorsing the ten UN global Compact CSR principles had increased from 600 (2006) to 1900 (2011). It has also reported that only 15 out of the 27 EU Member States had put in place some form of CSR policy framework.[16]

[1] Green Paper «The EU corporate governance framework », COM(2011) 164 final, Brussels, 5.4.2011.

[2] Green Paper “Promoting a European framework for Corporate Social Responsibility”, COM(2001) 366 final, Brussels, 18.7.2001, available at:

http://eur-lex.europa.eu/LexUriServ/site/en/com/2001/com2001_0366en01.pdf

[3] Ibid.

[4]http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/11/730

[5] Supra, fn. 3 p. 13.

[6] The Commission is expected to present its legislative proposal in 2012 according to the Meeting Report of the Commission’s Expert Group on Disclosure of Non-Financial information by EU Companies (12 September 2011), available at: http://ec.europa.eu/internal_market/accounting/docs/news/20110912-egdnfi-report_en.pdf

[7] This policy track falls under what the Commission referred to as the “Social entrepreneurship” lever for stimulating and reinforcing EU citizens’ confidence in the internal market: see Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions “Single Market Act” COM(2011) 206 final, Brussels, 13.4.2011, available at:

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0206:FIN:EN:PDF

[8]http://ec.europa.eu/internal_market/consultations/docs/2010/non-financial_reporting/overview_en.pdf

[9] EU company law currently comprises miscellaneous rules requiring the corporate disclosure of non-financial information, in particular Articles 46(1)(b) and Article 46a of the Fourth Council Directive 78/660/EEC of 25 July1978 based on Article 54(3)(g) of the Treaty on the annual accounts of certain types of companies, 1978OJ L 222/11. Article 46(1)(b) of Directive 78/660/EEC provides that “To the extent necessary for an understanding of the company’s development, performance or position, the analysis [the balanced and comprehensive analysis of the company’s business development and performance that need be part of the annual report] shall include both financial and, where appropriate, non-financial key performance indicators relevant to the particular business, including information relating to environmental and employee matters”. Additionally, Article 46a of Directive 78/660/EEC requires publicly listed companies to enclose in their annual accounts, amongst other information, a corporate governance statement mentioning any pertinent information regarding those corporate governance practices they follow beyond national law requirements. The text of the Directive is available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:1978L0660:20090716:EN:PDF

[10]http://ec.europa.eu/internal_market/consultations/docs/2010/non-financial_reporting/summary_report_en.pdf

[11] Ibid.

[12] Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions “Energy Efficiency Plan 2011” COM(2011) 109 final, Brussels, 8.3.2011, available at:

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0109:FIN:EN:PDF

[13] Ibid. p. 10.

[14] Ibid.

[15]http://www.oecd.org/dataoecd/43/29/48004323.pdf

[16] Supra, fn. 1 pp. 4-5.

Would a CES Raise Electricity Prices?

Andrew Shaw — Thu, 27 Oct 2011 09:32:09 -0500

At the request of House Science and Technology Committee Chair Ralph Hall (R-TX), the Energy Information Administration (“EIA”) released a study this week on the potential impacts of a clean energy standard (“CES”). In January’s State of the Union address, President Obama called for Congress to pass legislation creating a CES, which would require that utilities generate 80% of their electricity from “clean” sources by 2035. “Clean” sources would include not only renewables but also nuclear, natural gas and coal-fired power plants employing carbon capture and sequestration technology.

The EIA report analyzed a potential CES based on several assumptions provided by Representative Hall. Under these assumptions, he report found that a CES would increase electricity bills $115 annually by 2025 and $211 by 2035. Additionally, a CES would reduce the gross domestic product by $127 billion from 2025 to 2035.

Undoubtedly, the report will be used by critics of a CES to argue that the costs of such a standard outweigh any environmental or health benefits. It should be noted that EIA’s report is based on a number of assumptions requested by Representative Hall that could contribute to the cost projections described above. Arguably most importantly, the report assumes that CES credits earned in one year cannot be banked, or used, in subsequent years, and that utilities would be prohibited from selling excess credits to other utilities. Advocates for allowing utilities to bank credits contend that it would reduce compliance costs by allowing utilities to save money by storing up credits during the early years when the clean energy generation requirements are still low. Additionally, credit trading could provide flexibility for utilities to comply with a CES.

While President Obama’s proposal didn’t specify as to whether credit banking and trading would be permitted, previous CES proposals from the last Congress did allow for credit banking and trading in some form. Notably, these proposals came from two Republican Senators – Lindsay Graham (SC) and Richard Lugar (IN). Moreover, the Senate Energy and Natural Resources Committee passed legislation in 2009 that would have established a renewable energy standard with support of both the Chairman Jeff Bingaman (D-NM) and the Ranking Member Lisa Murkowski (R-AK). Under this legislation, utilities would have been permitted to bank and trade credits for renewable energy generation. Thus, Representative Hall’s assumption that trading of CES credits would be prohibited is dubious given previous bipartisan support for this concept in the debate over both a clean and renewable energy standard.

Senator Jeff Bingaman has requested another EIA analysis of a CES. This analysis is expected to be released next month and could be based on the assumption that utilities would be permitted to bank and trade CES credits. If this assumption is included in EIA’s analysis, then this analysis could provide a better outlook of the cost implications of a CES.

EU-sponsored conference on "Prevention and Insurance of Natural Catastrophes": a call for increasing public-private partnership

Nicolas Croquet — Wed, 26 Oct 2011 10:21:45 -0500

Co-authored by Nora Wouters and Nicolas Croquet

The European Commission organized on 18 October 2011 a conference in Brussels titled “Prevention and Insurance of Natural Catastrophes”. The conference gathered EU officials, a member of the World Bank, representatives of think tanks and of insurance associations, and finally academics. The conference centered around four themes, namely the general framework for approaching the prevention and insurability of natural catastrophes, ‘insurance availability’, ‘public-private interaction’, and finally ‘natural catastrophes and insurance value chain’. Focus here will be on the third theme. In particular, emphasis will be put on the way in which the EU does and can contribute to promoting and fostering public-private partnership (‘PPP’) in the prevention and insurability of natural catastrophes.

This conference has been a good opportunity to unfold the problems raised by insufficient coordination between the EU institutions and the Member States regarding risk identification and risk assessment, prevention policy as well as civilian intervention and public authorities’ intervention in the treatment of natural catastrophes. There is a spectrum between free market-oriented insurance schemes (e.g., UK and Germany) and solidarity-oriented insurance schemes (e.g., Switzerland and France). There is room for improving the trade-off between these two poles. The conference speakers pointed to an array of ways in which public authorities and insurance companies can join their efforts in developing a comprehensive prevention and insurance policy in the face of such devastating natural catastrophes as tsunamis and earthquakes whilst allowing insurance companies to distinguish themselves on the basis of free market rules. The State can provide tax incentives or direct grants to incentivize the insurance sector in covering large scale natural disasters. It can also act as a re-insurer or as a major shareholder in private insurance companies specialized in natural catastrophes. It can furthermore conclude partnership agreements with insurance companies whereby it agrees to provide a solvency guarantee vis-à-vis their creditors. A common EU-wide framework for the profession of experts in claim evaluation and settlement would also be highly advisable given their crucial role in processing reimbursement claims in the event of natural catastrophes. The EU institutions, Member States’ public authorities and the private insurance sector all need to be able to use reliable statistical data when assessing risk probability associated with natural catastrophes, hence the appropriateness of Commissioner Barnier’s initiative on “statistical mapping”, which would reflect the best statistical practices on risk coverage.

As a matter of general consideration, Emanuela Bellan (Head of Unit, Crisis Management Unit of the Secretariat General, European Commission) conveyed to us that EU’s intervention is the result of a balancing between subsidiarity and solidarity. In the phase preceding a natural disaster, the EU stresses prevention and preparedness whereas in the period postdating a disaster, the EU addresses possible responses and recoveries. EU’s action is always coordinated between its institutions and Member States, in cooperation with relevant partners such as international organizations, NGOS and third countries. She referred to the following as useful tools available at the EU level: the Council conclusions dated 8 and 9 November 2010 on innovative solutions for financing disaster prevention[1], the Cohesion policy funds available to support project[2]; and the Solidarity fund.[3]

Gabriel Bernadino (Chairperson, EIOPA) stressed the fact that data are important in order to increase risk awareness and protect consumers. Based on the EC Joint Research Center’s Report of 18 October 2011, it appears that risks are heterogeneous among EU Member States: national catastrophic insurance markets would not seem to be coping with the same risk in all EU Member States. A dedicated insurance market would be developed for some perils but not for all (e.g., storm). There would be mixed results on how ex-post government intervention is going to influence penetration rates.[4]

Reinhard Mechler (International Institute for Applied Systems Analysis) referred to the Economic Instrument Adaptation Study of DG CLIMA, which calls for more insurance and economic instruments.[5] Insurance companies have a role to play in the development of risk finance instruments. If the risk is priced correctly, more insurance contracts will be taken out, and incentives to avoid risk will be stimulated. The importance of PPPs is highlighted as a joint task for risk reduction in this respect as well as the availability of accurate risk data. A functional insurance market has to account for effectiveness (financial adaptation and incentive adaptation), solidarity, and applicability.

Kristalina Georgieva (Commissioner in charge of International Cooperation, Humanitarian Aid and Crisis Response) claimed that Europe is the continent most vulnerable to natural disasters due to its high concentration of population on a small territorial surface. For the Commissioner, the role of the insurance sector in respect of natural disasters is important for three main reasons: (i) its expertise in risk analysis; (ii) its role as a new pillar for financing reconstruction after a natural crisis (public budgets alone cannot handle major disasters, as shown in the case of Japan); and (iii) its market-based instruments sending the right signals to businesses and individuals with a view to promoting risk awareness. The Commissioner here urged for more research-oriented investments in Europe and, generally speaking, more cooperation mechanisms between public authorities and the insurance sector.

Professor Pierre Picard (Ecole Polytechnique, Palaiseau) stressed the large variety of national disaster regimes prevailing in Europe. Whilst countries like Germany and the UK mainly rely on private market natural disaster insurance schemes (i.e., schemes based on actuarial risked-based premiums), other countries like France and Switzerland place more emphasis on solidarity mechanisms (i.e., regulated insurance pricing characterized by a flat rate). He compared the flood insurance system in the US (NFIP) with the one in France. In both jurisdictions, he noted the important role of local authorities (perceived as essential actors in the prevention of natural disasters). Additionally, both jurisdictions would rely on a solvency guarantee provided by the Government. Professor Picard argued that the trade-off between solidarity and free market could be ameliorated, amongst other methods, by having Governments prioritize subsidies, by allowing for tax cuts on property insurance in the low risk areas and by strengthening local authorities’ involvement. He expressed his preference for direct grants as a way of best targeting solidarity. He concluded by saying that providing insurers with incentives was crucial, which could be achieved through tranches of private reinsurance or catastrophe bonds or through Government solvent guarantee for exceptional events.

Eugene N. Gurenko(World Bank) observed that Southern Europe (in particular Greece, Italy, Portugal and Spain) was most vulnerable to earthquakes of a magnitude equal or superior to 3.0. Earthquakes are the worst natural disasters in terms of economic losses and number of victims. According to Eugene Gurenko, there are three main ways of improving efficiency in the delivery of catastrophe insurance coverage: (i) effective consumer education; (ii) review and harmonize Government’s post-disaster assistance policies across the EU; and (iii) catastrophe insurance product standardization across the EU, e.g. same terms and conditions.

Michel Barnier (Commissioner in charge of the Internal Market and Services) identified three poles in the PPP, namely prevention, education and reliability of statistical tools. Prevention is an important pole and has to involve local authorities, civil society and insurance companies. The European Structural Funds ought to be available to regions ready to subsidize prevention initiatives. Education regarding risk culture is another important pole: there needs to be a ‘financial education’. Michel Barnier clarified that response to risks provoked by natural disasters could not just emanate from the State. As for statistical tools, in order to produce good legislation, it is important to be able to rely on solid statistics. The Commissioner described EU’s possible added value in the form of a “Force Européenne de Protection Civile” (European Civil Protection Body) that would convene Member States’ and NGOs’ experts with a view to identifying different types of catastrophes (e.g., earthquakes and tsunami, nuclear and industrial accidents, and terrorism) and to making communitarian the national intervention units.[6] The latter, if made truly European, would become less expensive to operate and be in a position to react more efficiently in the face of a natural catastrophe. He described three possible prospects for the Internal Market Directorate to address the question of the relation between the insurance sector and natural catastrophes. First, the profession of expert in claim evaluation and settlement need be recognized at the EU level, thereby making the adoption of a common professional framework necessary. Second, there need be an information obligation (at the pre-contractual level) governing non-life insurance policies such as natural disaster insurance schemes, especially given that insurance contracts get increasingly sophisticated and technical. Third, he underlined the impact of the ‘Solvency II’ Framework Directive[7] upon the insurance sector, which would be supplemented by an ‘Omnibus II’ Directive.[8] Commissioner Barnier also announced that a public consultation procedure would be launched on the basis of a Green Book. It would seek stakeholders’ comments on the role of insurance in natural catastrophes.

As a word of conclusion, it may be worth briefly elaborating upon Michel Barnier’s letter of 1 June 2011 addressed to the European Insurance Industry. In this letter, the Commissioner wrote that the EU insurance law regime before Solvency II was not risk-based and needed to be adapted to the insurers’ current management practices.[9] Solvency II, once transposed into all EU Member States’ national laws, would compel insurance companies to maintain a capital that is in reasonable proportion with the nature of their business risks. In that respect, the Directive introduces a distinction between Minimum Capital Requirement (‘MCR’) and Minimum Solvency Requirement (‘MSR’). Whilst the MCR is calculated on the basis of absolute floors as tempered by a number of variables, the MSR is calculated by reference to a risk-based approach that builds upon a full or a partial internal model (to be approved by the supervisory authorities).[10] The MCR will have to be between 25% and 45% the amount of the MSR.[11] The level of supervisory intervention over insurance companies will vary depending on whether the capital falls below the MCR or the MSR, although in both cases the insurance company has to inform the supervisory authority about its financial situation.[12] If the company’s capital went below the MSR level, the supervisory authority would have to approve a recovery plan submitted by the insurance company. In the event the company’s capital went below the MCR, the level of supervisory intervention would be higher: the supervisory authority would have to approve a short-term realistic finance scheme, and have the power to freeze the company’s assets and even to withdraw its authorization if its finance scheme were ‘manifestly inadequate’.[13] Member States have until 31 October 2012 to transpose this framework Directive, which is expected to ameliorate consumer protection, reinforce EU insurance companies’ international competitiveness and update the insurance supervision legal framework.[14] This Directive should make the insurance sector more apt to address risks of large scale natural catastrophes.

[1] http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/jha/117557.pdf

[2] http://ec.europa.eu/regional_policy/thefunds/cohesion/index_en.cfm

[3] http://europa.eu/legislation_summaries/regional_policy/provisions_and_instruments/g24217_en.htm

[4] Penetration rate X = Insurance Losses (IL)
Total Losses (TL)

[5] http://www.climate-chameleon.de/htm/documents/Vortrag_Ingmar_Juergens_11-04-04.pdf

[6] More information on this project can be found at: http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+OQ+O-2010-0070+0+DOC+XML+V0//FR

[7]Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II), 2009 OJ L 335/1, available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:335:0001:0155:EN:PDF The Solvency II Directive is designed to make the insurance industry more competitive by making Pillar I capital requirements for insurers even more risk-based, and by modernizing Pillar II requirements for qualitative risk management and Pillar III requirements for reporting by insurers.

[8] The Commission adopted a Proposal for an ‘Omnibus II’ Directive on 19 January 2011. This Proposal is meant to reinforce public supervision over the insurance sector, amongst others, through the creation of a European System of Financial Supervisors (i.e., a group of national supervision bodies that would work in cooperation with the existing European Supervisory Authorities). More information on the likely impact of Omnibus II can be found at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2011:218:0082:0086:EN:PDF

[9] http://ec.europa.eu/internal_market/insurance/docs/solvency/barnier_june_2011_en.pdf

[10]Articles 112 and 129 ofDirective 2009/138/EC.

[11]Articles 129(3) ofDirective 2009/138/EC.

[12]Article 138 ofDirective 2009/138/EC.

[13]Article 139 ofDirective 2009/138/EC.

[14] http://www.europarl.europa.eu/oeil/FindByProcnum.do?lang=en&procnum=COD/2007/0143

AES Corp v. Steadfast

Christina Carroll — Fri, 16 Sep 2011 20:59:26 -0500

In a major victory for insurers, the Virginia Supreme Court held that insurance companies do not have to defend utility companies accused of intentional wrongdoing in connection with climate change liability lawsuits. In AES Corp. v. Steadfast Insurance Co.,[1] the court concluded that the underlying climate change claims in the Kivalina lawsuit did not constitute an “occurrence” under AES’ commercial general liability (CGL) policies. Because the court decided the case on the occurrence issue, the court did not reach the issue of whether the pollution exclusion might apply.

[1] Virginia Supreme Court Case No. 100764.

The decision in AES has important implications for both insurers and companies with potential exposure to climate change-related tort claims. Although policyholders and their counsel are likely to now press coverage issues in more favorable jurisdictions, the decision nonetheless stands as a significant step towards resolving the question of whether such claims are covered under CGL policies. For more about the likely progress of climate change litigation, see also "Is Past Prologue To Climate Change Liability?" Law360 (May 31, 2011).

Proceedings Below

Appellant AES Corporation is a defendant in Native Village of Kivalina v. ExxonMobil Corp., one of the first climate change nuisance cases brought in federal court. The Kivalina plaintiffs, an Inupiat village located off the coast of Alaska, allege that greenhouse gas emissions from AES and other oil, energy, and utility companies have contributed to climate change which, in turn, has eroded the village’s coastline and rendered it uninhabitable. The complaint alleges that AES intentionally emits millions of tons of carbon dioxide and thereby “intentionally or negligently” created a nuisance, global warming. Kivalina further asserts that AES “knew or should have known” that its activities would result in the environmental harm to Kivalina.

After being sued, AES asked its insurer, Steadfast Insurance Company, to defend. Steadfast refused and thereafter filed a declaratory judgment action in Virginia (where AES is headquartered). Steadfast denied coverage based on three grounds: (1) the Kivalina complaint did not allege “property damage” caused by an “occurrence” under its policies; (2) the alleged injuries arose before Steadfast’s coverage incepted; and (3) the GHG emissions alleged in Kivalina were “pollutants” excluded from coverage by virtue of the policies’ pollution exclusion.

For the occurrence argument, the at-issue policies defined “occurrence” as “an accident, including continuous, repeated exposure to substantially the same general harmful condition.” The trial court granted summary judgment for Steadfast, holding that the insurer had no duty to defend AES because the Kivalina complaint did not allege an “occurrence” within the meaning of the CGL policies issued to AES by Steadfast.

Proceedings on Appeal

AES appealed to the Virginia Supreme Court, which heard oral argument on April 19, 2011. AES argued that because the complaint alleged that AES “[i]ntentionally or negligently” created a nuisance, the damage alleged by plaintiffs in Kivalina constitutes an “accident” and thus an “occurrence.” AES further argued that because the complaint alleges that AES “knew or should have known” that generation of electricity would result in the environmental harm suffered by Kivalina, the complaint alleges, at least in the alternative, that the consequences of AES’s intentional carbon dioxide emissions were unintended. The court disagreed.

The court held that an allegation of negligence does not equal an occurrence. Whether or not AES’s intentional act constitutes negligence, the natural and probable consequence of that intentional act is not an accident under Virginia law. Thus, the Virginia Supreme Court held that the underlying Kivalina complaint did not allege an “occurrence,” such that Steadfast has no duty to defend AES under the CGL policies.

Interestingly, in their concurrence, Senior Justices Lawrence Koontz and Harry Carrico cautioned against reading the majority’s holding too broadly. The concurrence emphasized that the insurer is relieved of its duty to defend only where it is certain that no liability could arise from the contract of insurance. The concurrence warned that the mere fact that the alleged harm resulting from AES’s emissions was foreseeable did not excuse Steadfast from its duty to defend. Rather, the concurrence focused upon whether AES was negligent as to the relevant intentional act or in terms of the forseeability of the consequences. In the Kivalina complaint, plaintiffs alleged that the release of greenhouse gases was an intentional act and did not allege that act was done negligently. Rather, in the concurrence’s view, the complaint alleged that AES was only “negligent” in the sense that it knew or should have known that its actions would cause injury. The concurrence agreed, therefore, that the injury to Kivalina alleged in the complaint did not arise from an accident and was not an occurrence under the CGL policies.

Randy Evans, a partner who specializes in climate change litigation insurance, noted that “this is just another step in the long path for climate change litigation and insurance. Eventually, the market will respond after the courts and various legislative and administrative entities have clarified whether allocated risk can be established and transferred in a quantifiable way.”

Implications for Companies and Insurers with Potential Climate Change-Related Tort Exposure:

1. Notwithstanding the favorable outcome for the insurer, the AES decision may not be dispositive in coverage cases filed in less favorable jurisdictions for insurers or in cases where the allegations pled and/or the language of the relevant insuring agreements differs from those at issue in AES. Company Executives and Risk Managers are advised to seek specific advice from their brokers and counsel regarding whether their individual policies afford coverage.

2. As additional climate change cases are filed, either under state tort law or based on other legal theories that may emerge, new insurance coverage cases may follow in other jurisdictions involving different legal standards.

3. Climate change litigation (both liability and related coverage litigation) is likely to continue to evolve as claimants and interest groups respond and adapt to court rulings like AES.

4. Companies relying on the availability of insurance proceeds to defray costs associated with climate litigation may have to consider the implications on reporting obligations.

Rhetoric increases over alleged EPA regulatory "train wreck" but will reliability really be imperiled?

Andrew Shaw — Fri, 16 Sep 2011 18:02:42 -0500

As part of their fall jobs agenda, House Republicans are targeting a number of controversial EPA regulations, including the utility MACT and cross-state air pollution (“CSAP”) rules. Opponents of these and other rules argue that they will result in a regulatory “train wreck,” which could threaten the reliability of domestic electricity grid. Next week, the House is expected to consider H.R. 2401, the Transparency in Regulatory Analysis of Impacts on the Nation Act, which would require an analysis of the cumulative economic impacts of EPA’s air, waste, water and climate change rules. In addition, two House Committees held hearings this week regarding the potential impacts of these rules. The House Energy and Power Subcommittee held a hearing with commissioners from the Federal Energy Regulatory Commission (“FERC”) on the potential reliability and costs implications of the utility MACT, CSAP and other proposed EPA regulatory actions. A House Science Committee also heard testimony from EPA, utilities and state regulators regarding the CSAP rule.

The testimony of the FERC Commissioners at the hearing reflects the broad disagreement over the effects of EPA’s regulations. FERC Chair Jon Wellinghoff stated that “with sufficient information and time, the electric industry can plan to meet both its reliability and environmental obligations.” FERC Commissioner Phillip Moeller, however, contended that he is concerned about reliability given EPA time-lines for new regulations.

At a House Science Committee hearing, Trip Doggett, the President of the Electric Reliability Council of Texas, alleged that the loss of 1,200 megawatts would have resulted in rolling blackouts during this summer’s heat wave. This hearing came days after Luminant threatened to close two of its coal-fired power plants due to the CSAP rule. The 1,200 megawatts is approximately equal to the capacity of Luminant’s two coal-fired power plants. At the hearing, Associate Administrator Gina McCarthy defended the CSAP rule, arguing that Luminent could reduce emissions by using scrubbers. McCarthy also contended that EPA has engaged in extensive outreach to Luminant to explore compliance options that would allow for its facilities to remain open while it installed pollution-control equipment.

The fiery and partisan rhetoric over utility MACT and CSAP rules has obscured a non-partisan analysis of the rules by the Congressional Research Service (“CRS”), which was released last month. CRS found that the utility MACT, CSAP and other air rules will affect utilities but concluded that the impacts will be less severe than those claimed by opponents. The report found that new EPA air rules would mostly affect older, less efficient coal-fired units. These plants, however, are already being retired or replaced by more efficiency combined cycle natural gas plants. According to the report, many of the newer coal-fired plants already comply with the new air rules or could make modest investments to obtain compliance.

The CRS report concludes that fears related to reliability are overstated. Currently, there is a significant amount of excess generation due to the recession and increasing number of natural gas combined cycle plants being brought on-line. The report cites an analysis by FBR Capital Markets, which found that even the retirement of 45 gigawatts (GW) of electricity from coal-fired power plants would have a minimal effect on electricity reserve margins. This FBR Capital Markets analysis reported that “summer reserve margins are currently 26% across the U.S. and are likely only to decline by 2014 in a draconian scenario in which 45 GW of generation is retired.” Moreover, the “draconian scenario” is premised on the fact that 45 GW would be retired, an estimate that appears above current projections under EPA’s new air rules.

An important caveat, however, is that the rules will affect various parts of the country differently. The reserve margins in states like Texas are narrower, and the threats to reliability could be more pronounced in areas that rely more on older coal-fired power plants.

Despite the partisan acrimony recently over these rules, the impacts, while real, appear to be more modest than opponents would allege. One potential positive outcome of the House Energy and Power Subcommittee is that FERC Commissioners appeared to agree on the importance of a “safety valve” in a final utility MACT rule. In public comments on the utility MACT rule, Midwest ISO proposed the “safety valve” option, which would provide a retiring generator will an “extension for the time needed to implement reliability solutions to replace the subject resource.” Common-sense solutions such as this one can address reliability concerns while helping to achieve significant health and environmental benefits.

U.S. Solar Spin, China Moves Ahead

Jon D. Sohn — Thu, 15 Sep 2011 13:16:43 -0500

Congressional oversight and press coverage of DoE’s failed $500 million loan guarantee to Solyndra, a now bankrupt U.S. solar manufacturer, is everywhere. These loans were provided pursuant to Section 1705 of the 2005 Energy Policy Act authorizing DoE to provide credit subsidies to emerging technologies including solar, nuclear and carbon capture & storage for coal. There is a significant amount of political finger pointing in Washington to explain why Solyndra went bankrupt and who is to blame for leaving U.S. taxpayers potentially on the hook.

With President Obama’s green jobs push, it is easy to see why Solyndra is such a hot political button. There are also reports of campaign contributions linked to both the decision to approve by solar interests and zealous scrutiny by some critics in Congress linked to fossil fuel interests.

So here are some facts to help maneuver one through the spin:

The 2005 Energy Policy Act was passed in a bipartisan fashion by Congress and signed into law by President George W. Bush.

Solyndra submitted its initial application to the Department of Energy in 2006 and due diligence crossed both the Bush and Obama Administrations resulting in a 2009 loan being issued.

The Department of Energy was not alone in their positive assessment of Solyndra. For instance, in 2010 the Wall Street Journal published a review entitled, “The Next Big Thing: Top 50 Venture Backed Companies.” Solyndra was ranked #5.

The total sum of the current DoE solar loan portfolio is $15.585 billion. Solyndra's loan guarantee accounts for $535 million or approximately 3.4% of the total portfolio.

Beyond the facts and spin, however, Solyndra failed primarily due to an inability to compete with cheaper solar panels made by Chinese manufacturers. According to Bloomberg New Energy Finance, the China Development Bank has provided at least $30 billion in government-backed credit to Chinese solar companies, thus increasing the scale of manufacturing and radically bringing down the cost of production. The direct result for China is a dominant share of the global marketplace in solar. Congress and the Administration should develop bipartisan strategies to compete and win the global solar marketplace once the Solyndra finger pointing is done.

Blocking the Keystone XL Pipeline Won't Help Climate Change

Andrew Shaw — Wed, 24 Aug 2011 10:55:53 -0500

Beginning this past weekend, environmentalists descended onto Washington, D.C. for a two-week protest designed to pressure President Obama to deny a Presidential Permit for the Keystone XL pipeline project. TransCanada is seeking to construct this pipeline, which would transport up to 700,000 barrels per day (bpd) of crude oil from Alberta to delivery points in Oklahoma and Texas, where the product will be refined. The State Department is expected to decide by the end of the year as to whether to grant TransCanada a Presidential Permit for the Keystone XL project.

Environmentalists protesting in front of the White House are arguing that the Administration should deny the Presidential Permit due in part to the lifecycle greenhouse gas (GHG) emissions associated with the oil sands. One of the organizers of the protest, James Hansen, argued that it would be “game over” for the earth’s climate if the Administration approves a Presidential Permit for the Keystone XL pipeline.

Research, however, contradicts Hansen and others’ claims regarding the impact of Keystone XL on climate change. A Department of Energy commissioned study released earlier this year found that global levels of GHG emissions will not be significantly affected one way or the other by the construction of the Keystone XL project. The study also concluded that oil sands production will not be affected by whether Keystone XL is built or not.

Additionally, IHS Cambridge Energy Research Associates released last year a study that found that lifecycle GHG emissions associated with the oil sands are on par with conventional crude imported from Nigeria, Venezuela and some domestically-produced oil. Consequently, the displacement of heavy crude from Venezuela and other importers with Canadian crude in Gulf refineries is unlikely to result in any material change in net GHG emissions. This study reached this conclusion after conducting a meta-analysis of thirteen publically-available studies on the lifecycle emissions associated with the oil sands.

Restrictions that limit access to domestic markets for Canadian oil sands will likely result in Canadian producers shipping crude oil to Asia for refinement. This scenario raises the risk of emissions leakage because shipping Canadian crude to Asia would likely increase lifecycle GHG emissions associated with the oil sands. The emissions associated with shipping crude derived from oil sands to Asia would also likely be substantially higher than comparable emissions associated with transporting the crude oil from Alberta to the Gulf Coast region. Refining Canadian crude in Asia could also have other negative environmental consequences because China and other Asian countries have less transparent and vigorous environmental regulations of the refinery sector than those in the United States.

This analysis of GHG emissions says nothing of the significant energy security and economic benefits associated with Keystone XL project. As noted by the DOE study, increased oil sands imports to the U.S., coupled with reduced domestic demand, “could essentially eliminate Middle East imports longer term.” The project is also projected to create over 20,000 jobs, along with providing states and municipalities with much needed tax revenue.

Responsibly addressing climate change, while also sustainably developing energy resources to meet the needs of our global economy, is one the great challenges of our time. Blocking the Keystone XL project, however, will not have a discernable effect on reducing global GHG levels.

DOE-Commissioned Study Highlights Role that U.S. Can Play in Helping Other Countries Responsibly Develop Shale Resources

Andrew Shaw — Mon, 25 Jul 2011 14:15:00 -0500

Last week, Rice University’s James Baker’s Institute for Public Policy released a Department of Energy-commissioned study entitled “Shale Gas and U.S. National Security.” Consistent with other recent studies, the report concluded the new U.S. domestic shale development offers significant benefits, including reduced liquefied natural gas (LNG) imports and lower natural gas prices.

The report also found that new U.S. shale development can limit Iran and Russia’s share of the global natural gas market, and therefore, reduce these countries’ ability to use their resources as a political tool. According to the report, U.S. production is already affecting global markets; LNG supplies previously intended for the U.S. are now being diverted to Europe and Asia. This development is lowering natural gas prices for Europe, while also providing these countries with an alternative to Russian pipeline supplies. The report argues that these developments represent a “major paradigm shift” and can allow for Europe to more aggressively influence Russia’s foreign policy.

The study’s “reference case” assumes, however, that all known global shale gas resources can be developed with existing commercial technologies and open tendering practices. As noted by the study, one potential impediment globally to development is water scarcity. For instance, the study argues that water scarcity could make production in Western China cost prohibitive. With its increasing demand for natural gas, China’s reliance on supply from Russia will likely be heightened, particularly if shale development in China is limited.

As the report notes, there is fortunately a role for the U.S. to play in helping countries develop technologies to manage water impacts of shale development. Last year, the State Department launched the Global Shale Gas Initiative to help countries responsibly develop their shale resources. The initial meeting last August included 50 delegates from 20 countries, including China, Poland, India and Chile. The meeting also included U.S. producers and service companies, and representatives from 13 federal agencies, including EPA, Department of Energy and the Bureau of Land Management. This initiative can help provide these countries with information on practices to reduce the overall environmental footprint of development, particularly focusing on technologies to recycle and reuse water.

This initial meeting was an important first step, but it’s important that the State Department continue to devote time and resources into the Global Shale Gas Initiative. Federal agencies are reassessing their priorities as they prepare for significant budget cuts. Helping other countries responsibly develop their shale resources, which can reduce the influence on countries like Russia and Iran, should be an important priority, and the State Department should remain committed to programs like the Global Shale Gas Initiative that can help achieve this goal.

Guest Blogger: AEP's Decision Reveals Legal, Political, and Economic Realities Associated with Implementing Carbon Capture and Sequestration (CCS) Technology

John S. Wyckoff, MS, CPG — Tue, 19 Jul 2011 15:33:07 -0500

By John S. Wyckoff, CPG
Senior Regulatory Scientist, Technology Sciences Group, Inc. Washington, DC[1]

In less than four weeks after the Supreme Court ruled in favor of American Electric Power Company and four other power companies (see SCOTUS Holds That Plaintiffs Cannot Maintain Federal Common Law Nuisance Claims Against GHG-Emitting Utilities,) American Electric Power (AEP) announced on July 14, 2011 that it terminated its cooperative agreement regarding its Mountaineer Carbon Dioxide Capture and Storage Demonstration project with the U.S. Department of Energy due to the uncertain status of the U.S. climate policy and the continued weak economy. As part of its announcement AEP stated that it is impossible to gain regulatory approval to recover its share of costs for validating and deploying the technology without federal requirements to reduce greenhouse gas emissions already in place. (see AEP Announcement).

Cost Recovery Not Approved

A review of AEP’s announcement and its 2011 First Quarter 10-Q filed on March 31, 2011 (see 10-Q, March 31, 2011) provides insight into the company’s decision-making and in particular AEP’s ability (or lack there-of) to recover a portion of its costs from its rate base. The 10-Q indicates that in May 2010 Appalachian Power Company (APCo) and Wheeling Power Company (WPCo) (subsidiaries of AEP) submitted a base rate filing and requested rate base treatment of the Product Validation Facility (PVF) as part of its development of the Mountaineer Carbon Capture and Storage Project. In March 2011, the West Virginia Public Service Commission (WVPSC) denied the request for rate base treatment of the PVF largely due to its experimental operation. The March 2011 base rate order provided that should APCo construct a commercial scale carbon capture and sequestration (CCS) facility, only the West Virginia portion of the PVF costs, based on load sharing among certain AEP operating companies, may be considered used and useful plant in service and included in future rate base. As a result, APCo recorded a pretax write-off of $41 million ($26 million net of tax) in the first quarter of 2011. As of March 31, 2011, APCo recorded a noncurrent regulatory asset of $19 million related to the PVF.

Status of Project and Work Completed

During 2010, American Electric Power Service Company (AEPSC) on behalf of APCo began the project definition stage for the potential construction of a new commercial scale CCS facility under consideration at its Mountaineer Plant. AEPSC applied for and was selected to receive funding from the U.S. Department of Energy (DOE) for the project in the amount of 50% of allowable costs incurred for the CCS facility up to a maximum of $334 million. A Front-End Engineering and Design (FEED) study, scheduled for completion during the third quarter of 2011, was supposed to refine the total cost estimate for the CCS facility and the results from the FEED study were to be evaluated by Company before it sought any regulatory approvals to build the CCS facility. As of March 31, 2011, APCo had incurred $25 million in total costs and had received $7 million of DOE eligible funding resulting in a net $18 million balance.

Other Carbon Capture and Sequestrations Projects Funded by DOE

The Mountaineer project was one of three Carbon Capture and Sequestration (CCS) Projects that the DOE announced on December 4, 2009 that it had selected to support with $979 million in funds from American Recovery and Reinvestment Act. The other two projects were:

1) Southern Company Services, Inc. (Birmingham, AL) Project Title: Southern Company Carbon Capture and Sequestration Demonstration

2) Summit Texas Clean Energy, LLC (Bainbridge Island, WA) Project Title: Texas Clean Energy Project (TCEP) (see DOE Announcement of CCS Projects).

In light of the legal, political (See MLA's A Challenging Legislative Environment - Democratic and Republican Staff Directors Provide Legislative Outlook for Energy Policy,) regulatory uncertainty covering climate change, and now AEP’s decision to place its CCS project on-hold, it is not clear what will happened to the two other CCS projects. In addition, the resurgence of nature gas (lower natural gas pricing (see EIA Daily Natural Gas Futures Contract) due to increased production from shale-gas may hasten the conversion of coal burning plants to natural gas -- further complicating the future of CCS and other clean-coal initiatives.

[1] TSG is a subsidiary owned by the law firm McKenna Long & Aldridge LLP. TSG provides environmental technical consulting advice to MLA, other law firms, and clients (see www.TSGUSA.com).

A Challenging Legislative Environment - Democratic and Republican Staff Directors Provide Legislative Outlook for Energy Policy

Andrew Shaw — Tue, 12 Jul 2011 12:07:03 -0500

In a Politico sponsored event this morning, the Republican and Democratic Staff Directors for the Senate Energy and Natural Resources (SENR) Committee both called this current Congress “the most difficult legislative environment” since either one of them has worked on Capitol Hill. This sentiment is common on the Hill with a divided Congress and deep ideological and partisan divides.

Yet, the SENR Committee historically has worked well together on a bipartisan basis. For instance, Chairman Jeff Bingaman (D-NM) and Ranking Member Lisa Murkowski (R-AK) worked together last year to pass through committee the American Clean Energy Leadership Act, which would have established a renewable energy standard, authorized additional offshore development and created a Clean Energy Deployment Administration (CEDA). The full Senate, however, never considered this bill.

As discussed at today’s breakfast, Chairman Bingaman and Ranking Member Murkowski are again working together on attempting to pass bipartisan legislation. The SENR Committee will hold a markup on Thursday where it could consider a number of bills related to energy efficiency, alternative vehicles, and small modular nuclear reactors. Additionally, Bingaman and Murkowski have worked to address concerns regarding legislation that would establish a CEDA. As noted by Democratic Staff Director Bob Simon, this legislation can spur clean energy development and create jobs by providing needed capital to some clean energy projects.

There are, however, some issues that the committee will likely be unable to find consensus on this year. At the breakfast, Simon indicated that committee Democrats and Republicans are unlikely to find a compromise on a clean energy standard (CES). Republicans are arguing that any standard should also preempt EPA’s GHG rules. Nonetheless, Simon stated that Senator Bingaman will likely float a CES bill later this year, and the Committee could hold hearings.

Despite the impasse on a CES, the Committee will likely act on a number of bills at Thursday’s hearing. It is unclear, however, whether the Senate can find time in its schedule to take up these measures. Even if these bills were to pass the Senate, the ideological opposition by many House Republicans to any enhanced role for the government in energy markets would make it difficult for these measures to pass. As the Staff Directors stated, a challenging legislative environment indeed.

Flying Green: Jobs for Europe, Lawsuits for the United States

Jon D. Sohn — Thu, 07 Jul 2011 13:48:51 -0500

Based on research by the United Nations Intergovernmental Panel on Climate Change, the aviation industry accounts for just over 2% of all global greenhouse gas emissions and that figure will increase to at least 3% by 2050. In an increasingly carbon and fuel constrained world, some aviation firms and governments are seeing a competitive advantage in going green while unfortunately the U.S. is lagging behind.

2011 results demonstrate that Airbus is pulling ahead of Boeing in new plane orders and the underlying reason is a more thoughtful private sector and government strategy for clean energy coming out of Europe. The 2011 Paris Air Show was the best ever for Airbus, earning firm orders for 418 aircraft worth about $44 billion at list prices, compared to only 47 planes valued at $7.5 billion for Boeing according to one industry figure.

Glen Hurowitz at the Center for International Policy writes in a recent Grist column that “the results are due almost entirely to Airbus’ new hyper-efficient 320neo model, which is a whopping 15 percent more fuel efficient than Boeing’s options, meeting buyers’ demands at a time of high fuel prices and growing concern over greenhouse gas emissions.” This translates into approximately 1 million American jobs lost to European competition because of new orders for more efficient Airbus planes.

A mixture of a price on carbon in Europe, coupled with a strong corporate culture to increase efficiency create this Airbus advantage. On the legal side of the equation, the European Union’s Emissions Trading System (EU ETS) will begin to regulate carbon emissions for airlines landing within EU borders starting in 2012 with a view to cutting airline emissions over time. Meanwhile, Congress has completely dismissed the concept of cap-and-trade regulation for the foreseeable future. Additionally, the Air Transport Association of America is fighting the applicability of these pending costs when U.S. Airlines land in the EU. In addition to the trade association efforts, the Obama Administration will likely consider options to fight the applicability of the EU ETS laws on U.S. airlines, citing potential violations of international law as noted in the New York Times.

Beyond these legalities however, there is clear global demand for more efficient modes of transportation that are otherwise equal to their competitors in terms of cost and comfort. Airbus has an ecological vision out to 2050 that their CEO regularly touts irrespective of what the law requires. But certainly that vision recognizes the growing number of countries that are regulating carbon through a variety of policies and measures.

Ultimately it is a better use of time and energy for Congress and the Obama Administration to adopt “equivalent measures” to the EU ETS that encourage innovation and scaled-up efficiency. A litigious approach aimed at thwarting the inevitable global trend towards increased efficiency in the airline industry will cost a lot of time, money and U.S. jobs.

New York Times vs. the Wall Street Journal on Shale Gas

Andrew Shaw — Wed, 29 Jun 2011 15:19:16 -0500

On Sunday, the New York Times and the Wall Street Journal published pieces that provided starkly different portraits of the natural gas industry. The NYT's article, the first of a two-part series, suggested that projected shale reserves might be inflated, which could in turn lead to an Enron-esqe bust. Journalist Ian Urbina cites emails from industry analysts, Energy Information Administration (EIA) staff and geologists to support his contention that extracting shale gas may be more costly and difficult than claimed by the industry. The WSJ editorial, on the other hand, contended that the shale gas boom is creating jobs and enhancing energy security. The article suggests that sustainability concerns related to new development are unfounded and are being pushed by environmentalists and EPA Administrator Lisa Jackson's "anti-fossil fuel" agenda.

The NYT's article finds that natural gas producers are overstating the amount of recoverable reserves in order to spur investment in new projects. Evidence from a variety of credible sources, including not only EIA but also IHS CERA and MIT, among others, conflict with the NYT's allegations. Certainly a degree of uncertainty pervades any projection of future production, but data on current production demonstrates the meteoric rise in development over the past several years. For instance, shale gas currently constitutes 25% of total domestic natural gas supplies compared to 1% in 2000. Moreover, production in the Barnett Shale has doubled over the last four years, even as the number of wells has decreased by 60%. Additionally, the author relies on data from the Barnett, Haynesville and Fayetteville shales in arguing that “many wells are not performing as the industry expected.” Highlighting production in these three shales to fit the author’s conclusion while not mentioning significant production in the Marcellus Shale raises concern. This oversight is particularly disconcerting in the context of recent reports that some wells in Susquehanna County are producing at record levels for the Marcellus Shale. The NYT’s article is correct in identifying low natural gas prices as a risk for producers and investors. Prices are, however, at historic lows spurred in part by both a glut from new development and decreased demand from the economic downturn.

The WSJ editorial is correct in touting the economic, energy security and environmental promise of shale gas. Given the scale of new production, particularly in areas unaccustomed to oil and gas development, the natural gas industry faces questions regarding the environmental and health concerns associated with hydraulic fracturing and other aspects of drilling. The WSJ editorial, however, downplays the need for the industry to actively engage with the public, regulators and environmental groups regarding concerns with new development.

The good news is that many in the industry are working to address these concerns. A first step is gaining the public's trust, which can be achieved in part by disclosing more information related to the process. Some in the industry worked with Texas legislators and environmental organizations in passing a bill that will require the disclosure of chemicals used in hydraulic fracturing. Similar measures in other states can help to mitigate some of the public’s concern related to new development.

Credibly addressing environmental and health concerns is essential to guard against states adopting knee-jerk reactions to the prospect of new development, such as costly moratoriums. Shale gas is an important strategic asset that can create jobs, enhance energy security and reduce emissions of both CO₂ and other air pollutants if done correctly.

Rio Plus 20: Can International Environmental Law Evolve?

Jon D. Sohn — Wed, 29 Jun 2011 07:44:03 -0500

Yesterday, I attended a luncheon at the National Press Club and listened to a reasoned yet passionate speech from Sha Zukang, Secretary General of the United Nations Conference on Sustainable Development - Rio+20 to be held next summer. The original Rio Summit provided the foundations for modern international law including Agenda 21, the Rio Declaration on Environment and Development, the Statement of Forest Principles, the United Nations Framework Convention on Climate Change and the United Nations Convention on Biological Diversity. For all the promise of these lofty agreements, progress on the most pressing sustainability issues we face such as climate change and loss of biodiversity have made little tangible progress in the past two decades. Today’s global economic and political challenges only make things more daunting heading into 2012.

Rio+20, will focus on two broad themes:

Building a "Green Economy" in the context of sustainable development and poverty eradication, and
Developing a "Institutional Framework" for sustainable development

Secretary General Zukang emphasized that in order to reinvigorate international environmental law, Member States to the United Nations should spend minimal time squabbling on “if and how” to renegotiate legal frameworks agreed upon in 1992, and put focus on creating real action. Action needs to be at scale and come with a specific, set of tangible goals to invest in:

“natural capital” such as agriculture, fisheries, forests and water and
clean energy and energy efficiency. These goals should be backed by clear commitments to creating enabling conditions (e.g., policies and laws) and providing finance.

The Secretary General, a seasoned veteran in the processes of the UN, is spot on in his analysis. There is little time to waste and the next year will prove a challenge for international law experts to find a pathway from broad arrangements to mechanisms that create specific, measurable outcomes.

Two key challenges to flag are the following:

How will the UN address the issue of “common but differentiated responsibilities” as emphasized in the Rio Declaration and Climate Convention? This means that there are different thresholds of commitment expected of different nations depending on their level of development. Clearly that gap and its legal rationale remains in some respects, but it is certainly a point of contention for some industrialized countries who face steeper competition in 2011 than in 1992 from the likes of China, India and Brazil.
Is the UN capable of empowering subnational governments to act on issues of global sustainability? Over the past 20 years, in some geographies, cities and states as opposed to national governments have played an increasing role in positive sustainability results. There is no better evidence of this than the patchwork of city and state climate change laws in the United States while Congress has blocked federal action. In light of this, such actions should be empowered further not ignored.