Author: energylawprof

Conference Announcement: Sustainability Conference of American Legal Educators, May 8, Tempe, Arizona

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Troy Rule, Faculty Director of the Program on Law and Sustainability at Arizona State University’s Sandra Day O’Connor College of Law asks me to pass on the following conference announcement:

Screen Shot 2014-12-24 at 12.11.56 PMThe Law and Sustainability Program at the Sandra Day O’Connor College of Law is pleased to announce its First Annual Sustainability Conference of American Legal Educators (SCALE) Conference to be held on May 8, 2015 at the Sandra Day O’Connor College of Law in Armstrong Hall on the Arizona State University Campus in Tempe, Arizona.

This new conference will be an annual, national event for legal academics researching in sustainability-related areas. The conference will offer a unique forum for panels and presentations falling within one or more broad subject matter areas pertaining to sustainability, including but not limited to:

  • Climate Change Law
  • Energy Law
  • Water Law
  • Environmental Law
  • Natural Resources Law
  • Land Use and Zoning Law
  • Agricultural and Food Law
  • Disaster Law

The conference’s inaugural keynote speaker will be Professor Daniel Esty, Director of the Yale Center for Environmental Law & Policy at Yale Law School.

Presenters who are interested will also have an opportunity to join in an organized hike of a nearby mountain on the morning of Saturday, May 9, 2015.

For information on how to submit panel or presentation proposals, please click here.

TransCanada’s Other Pipeline Problem: Can Provinces Impose Conditions on Energy East?

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  • Guest blogger Martin Olszynski is back to discuss Ontario and Quebec’s recent pushback against TransCanada’s Energy East project, a proposed pipeline that would carry over one million barrels a day of oil from Alberta to Canada’s east coast. In the U.S., states generally have authority to approve pipelines, but in Canada the federal government has authority over interprovincial pipelines, so Prof. Olszynski considers to what extent provinces like Ontario and Quebec may influence a pipeline that will pass through their territory. This is a crucial issue because as TransCanada keeps waiting for U.S. approval of its Keystone XL project, companies are pursuing other pipeline projects designed to take crude oil to the west coast through British Columbia, or to the east coast through Quebec and Ontario. As Prof. Olszynski discusses, those provinces are pushing back.

By Martin Olszynski

On November 18th, on the heels of a unanimous vote of non-confidence by Quebec’s legislature in Canada’s national energy regulator (the National Energy Board or NEB), that province’s Environment Minister sent a letter to TransCanada (the company behind Keystone XL) outlining seven conditions that the company must meet before the province accepts the Quebec portion of the company’s proposed Energy East pipeline.

Most of the conditions are similar to those stipulated by British Columbia with respect to Enbridge’s Northern Gateway pipeline (e.g. world class emergency and spill response plans, adequate consultation with First Nations) with three notable differences. First, while Quebec insists that the project generate economic benefits for all Quebecers, unlike British Columbia it is not asking for its “fair share” (whatever that meant). Second, because Energy East involves the repurposing of an existing natural gas pipeline, Quebec insists that there be no impact on its natural gas supply. Finally, and the focus of this post, Quebec insists on a full environmental assessment of the Quebec portion of the pipeline and the upstream greenhouse gas emissions from production outside the province – essentially the analysis conducted on Keystone XL and something that the NEB has consistently refused to assess in its other pipeline reviews. The following week, Ontario joined Quebec in imposing these conditions (see here for the MOU between those two provinces). Premier Kathleen Wynne acknowledged that “Alberta needs to move its resources across the country,” but that two provinces “have to protect people in Ontario and Quebec.”

In this post, I consider whether this state of affairs is consistent with the current approach to the regulation of interprovincial pipelines in Canada. Readers should note, however, that following a visit from the Premier of Alberta, the Premiers of Ontario and Quebec have since backpedalled and are no longer demanding an assessment of the pipeline’s upstream greenhouse gas emissions (as was carried out with respect to Keytsone XL), although they are still insisting on their own environmental assessment.

Not All Conditions Are Created Equal

As noted by my University of Calgary Faculty of Law colleague Professor Nigel Bankes in the context of the Northern Gateway pipeline, the “general proposition is that a province will not be permitted to use its legislative authority or even its proprietary authority…to frustrate a work or undertaking which federal authorities…consider to be in the national interest.” The question thus becomes what kind of conditions might amount to frustration? Fortunately, we have a recent decision of the NEB, in the context of Kinder Morgan’s equally contentious Trans Mountain pipeline application, which sheds some useful light on this issue.

Briefly, Kinder Morgan has applied to the NEB for a certificate of public convenience and necessity (section 52 of the National Energy Board Act RSC 1985 c. N-7) for the expansion of an existing pipeline from Alberta to British Columbia. This past summer, the company indicated that its preferred corridor had been revised and that its preferred routing was now through Burnaby Mountain, which is located in the municipality of Burnaby, British Columbia, and which happens to be a conservation area. Consequently, the NEB determined that additional geotechnical, engineering and environmental studies needed to be completed before it could make its section 52 determination. Although section 73 of the NEB Act gave the company the power of entry required to carry out these studies, Kinder Morgan sought Burnaby’s consent to enter upon the relevant lands to do the work, which included borehole drilling and some site preparation (e.g. the removal of some trees and brush). Burnaby refused to give its consent. In fact, its mayor has long staked out a position of opposition to the pipeline.

After a month of failed correspondence, Kinder Morgan began its work on Burnaby Mountain. Several days into that work, its employees were issued an Order to Cease Bylaw Contravention and a bylaw notice for violations of the Burnaby Parks Regulation Byalw 1979 (Parks Bylaw, which prohibits damage to parks) and the Burnaby Street and Traffic Bylaw 1961 (Traffic Bylaw, which amongst other things prohibits excavation work without consent). Subsequently, Kinder Morgan filed a motion, including a notice of constitutional question, seeking an order from the NEB directing the City of Burnaby to permit temporary access to the required lands.

The NEB granted the order, on both “paramountcy” and “interjurisdictional immunity” grounds. Briefly, federal paramountcy is a Canadian constitutional doctrine that sets out the circumstances when a provincial or municipal law will be rendered inoperative in the face of a conflicting federal law. After summarizing the relevant jurisprudence (at p 11), the NEB concluded that there was a “clear conflict” between the Parks Bylaw and Traffic Bylaw on the one hand, and paragraph 73(a) of the NEB Act on the other. With respect to the Parks Bylaw, for example:

…Section 5 [contains] a clear prohibition against cutting any tree, clearing vegetation or boring into the ground, regardless of whether minimal tree clearing is necessary where the trees would create a safety risk for the drilling work that must occur. While the Board accepts that the Parks Bylaw has an environmental purpose, the application of the bylaws and the presence of Burnaby employees in the work safety zone had the effect of frustrating the federal purpose of the NEB Act to obtain necessary information for the Board to make a recommendation under section 52… (at p 12)

The NEB made the same finding with respect to the Traffic Bylaw: dual compliance was impossible, such that the doctrine of paramountcy applied and the bylaws were inoperable to the extent that they prevented Kinder Morgan from carrying out the necessary work. The NEB made clear, however, that this did not mean that “a pipeline company can generally ignore provincial law or municipal bylaws. The opposite is true. Federally regulated pipelines are required, through operation of law and the imposition of conditions by the Board, to comply with a broad range of provincial laws and municipal bylaws” (at p 13).

With respect to interjurisdictional immunity (IJI), which the NEB considered in the alternative, after acknowledging that its usage “has fallen out of favor to some degree,” the NEB observed that “it is still an accepted doctrine for dealing with clashes between validly-enacted provincial and federal laws” (at p 13). The effect of the doctrine is to “read down” valid provincial laws where their application would have the effect of impairing a core competence of Parliament or a vital part of a federal undertaking. Impairment is key: provincial laws may affect a core competence of Parliament or a federal undertaking (to varying degrees), but this is not sufficient. Applying this test to the facts before it,

The Board finds that the Impugned Bylaws impair a core competence of Parliament… the routing of the interprovincial pipeline is within the core of a federal power over interprovincial pipelines. Actions taken by Burnaby with respect to enforcing the Impugned Bylaws impair the ability of the Board to consider the Project and make a recommendation regarding on the appropriate routing of the Project. The Board requires detailed information from surveys and examinations in order to make a recommendation to Governor in Council and to complete an environmental assessment. Similar to the location of aerodromes being essential to the federal government’s power over aeronautics, detailed technical information about pipeline routing is essential to the Board.

Thus, when considering Quebec’s (and Ontario’s) conditions, the following principles ought to be kept in mind. Generally speaking, provincial laws apply to federal undertakings such as pipelines. Such laws will only be vulnerable to the extent that they conflict with or frustrate the purpose of the NEB Act (federal paramountcy), or impair a core competence of Parliament of vital part of the federal undertaking (IJI). Another point worth keeping in mind is specific to environmental laws. In both Canada and the United States, environmental laws are primarily procedural, not substantive, in nature. At their core they merely confer decision-making authority (e.g. to authorize activity that would otherwise be a contravention of the law), although they do seek to improve that decision-making by imposing certain “guideposts,” such as conducting environmental assessment (see A. Dan Tarlock, “Is There a There There in Environmental Law?” (2004) 19 J Land Use & Envtl L 213). This suggests that it will be very difficult, if not impossible, to conclude whether environmental laws frustrate a federal law or impair a federal undertaking until an actual decision has been made.

Condition 2: Comprehensive EA including Upstream Greenhouse Gas Emissions

In its letter to TransCanada, Quebec states that an EA of the Quebec portion of the pipeline is required pursuant to para 2(j) of the Regulation respecting environmental impact assessment and review, ch. Q-2, r. 23 (“the construction…of more than 2 km of oil pipeline in a new right-of-way”). Seemingly unsure of itself, however, it also suggests that it is in TransCanada’s “interest to respect the will of Quebecers” (my translation) – not that it must. The desired result was a comprehensive assessment of those portions of the project situated in Quebec, which until last week included a marine terminal and storage facility at Cacouna, before Quebec’s EA agency, le Bureau d’audiences publiques sur l’environnement (BAPE). As of last week, however, TransCanada announced that the marine terminal plans are on hold in light of the continuing deterioration of the St. Lawrence Beluga whale population, presumably leaving just the pipeline to be assessed for the time being.

The results of this assessment will “serve to inform Quebec’s decision and in this way its position before the NEB” (my translation). The letter does not state which “decision” it is referring to, but the answer would seem to lie in sections 31.1 and 31.5 of Quebec’s Environmental Quality Act CQLR c Q-2:

31.1. No person may undertake any construction, work, activity or operation…in the cases provided for by regulation of the Government without following the environmental impact assessment and review procedure and obtaining an authorization certificate from the Government.

31.5. Where the environmental impact assessment statement is considered satisfactory by the Minister, it is submitted together with the application for authorization to the Government. The latter may issue or refuse a certificate of authorization for the realization of the project with or without amendments, and on such conditions as it may determine…

Viewed this way, it does not seem unreasonable to suggest that “Quebec’s government has had enough and has taken control of the process in the province,” and that “the proceedings before the [NEB], replete with 30,000 pages of unilingual English text, are now very secondary.” Does such a situation conflict with, or frustrate the purposes of, the NEB Act?

I don’t think it does. Environmental assessment has long been understood in Canada as “simply descriptive of a process of decision-making” (Friends of the Oldman River Society v. Canada (Minister of Transport [1992] 1 S.C.R. 3). There is no conflict between the requirements of the NEB Act and the CEQ; Trans Canada can comply with both. Doing so may seem duplicative but that is a matter of policy, not constitutional imperative. And even as a matter of policy this argument is weak in light of recent changes to the federal environmental assessment regime (including restrictive standing rules and a restricted definition of environmental effects) and the decision by the NEB to exclude upstream greenhouse gas emissions from its own review.

Nor does such a condition impair a core competence of Parliament or a vital part of a federal undertaking, for as old as is the understanding of environmental assessment as process so too is the recognition that jurisdiction with respect to the environment is shared between the federal and provincial governments. And while not determinative, it’s worth noting that the current chair of the NEB would seem to agree that there is room for both levels of government here, having recently suggested that the NEB’s primary environmental concern is to ensure the proper construction and operation of pipelines, and that it is up to the provinces and the company to look after broader issues around climate change.

That being said, what Quebec can actually do with the results of its environmental assessment is another matter entirely. The short answer is probably not very much. It might be able to secure some modifications to the project (e.g. that certain standards or ‘best practices’ be applied during construction and operation), but if the NEB makes a positive recommendation to the federal Cabinet then outright refusal of a certificate of authorization would seem off the table (or would be rendered inapplicable). One might reasonably then ask: why go through all the trouble in the first place? The answer is rooted in the procedural nature of environmental law referred to above. With respect to environmental assessment specifically, while the process is certainly intended to improve governmental decision-making, it is also intended to enable political accountability through the full disclosure of the tradeoffs being made (see e.g. Bradley C. Karkkainen, “Toward a Smarter NEPA: Monitoring and Managing Government’s Environmental Performance” (2002) 102(4) Columbia Law Review 903 at 912; Ted Schrecker, “The Canadian Environmental Assessment Act: Tremulous Step Forward, or Retreat into Smoke and Mirrors?” (1991) 5 CELR 192). Indeed, it is the potential for political accountability that at least partially drives better decision-making.

This dynamic provides a reasonable explanation for why Alberta and Saskatchewan appeared so uncomfortable with the mere idea that upstream greenhouse gas emissions be assessed, which initially prompted Ontario’s Energy Minister to ask what they were so afraid of. And while an upstream assessment of Energy East’s greenhouse gases appears to be off the table for now, time will tell whether that position is deemed consistent with the expressed will of the Quebec legislature. In the meantime, the result is that not a single Canadian jurisdiction – neither Alberta, the federal government (through the NEB), nor any of the other provinces – is assessing the upstream greenhouse gas emissions associated with the various pipeline projects currently being proposed.

An earlier version of this post originally appeared on ABlawg, the University of Calgary Faculty of Law’s Blog.

Conference Announcement: St. Gallen International Energy Forum

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Alexander Goebel, head of organization of the St. Gallen International Energy Forum, asks me to pass on the following conference announcement:

After a one year intermission, the St. Gallen International Energy Forum will return on November 27th and 28th 2014. We will welcome more than 15 speakers – from practice, academia and the EU institutions – from both sides of the Atlantic. They will present on up-to-date topics, including inter alia: the EU internal energy market, shale gas as well as energy dispute resolution.

Date: 27th (evening) and 28th (full day) of November 2014

Location: St.Gallen, Switzerland

Programme: http://www.sg-ief.ch/programme/

Flyer: http://www.sg-ief.ch/flyer

Registration: Registration is possible on our website: http://www.sg-ief.ch/conference-registration/

Chairs: Prof. Dr. Dr. h.c. Carl Baudenbacher & Dr. Dirk Buschle

Please refer to our flyer at www.sg-ief.ch/flyer for a full list of our speakers and the topics covered.

If you have any questions, do not hesitate to contact us at contact@sg-ief.ch.

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The Energy Paradigm Has Shifted

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I am very pleased to welcome guest-blogger Joe Tomain, who is Professor and Dean Emeritus at University of Cincinnati College of Law. Joe is also co-author, with regular guest-blogger Alexandra Klass and three other scholars, of a new energy law and policy text.

By Joe Tomain

On June 2 of this year, the Obama administration announced its Clean Power Plan (CPP).[1] This announcement is a game changer and it shifts the energy paradigm. Those phrases are often overused, however, in this instance they are fully apposite for two reasons.

First, the federal government has linked energy and the environment in ways in which they have not been linked in the past. This bringing together of energy and the environment is an essential move towards an effective energy transition for reasons that I will develop below. The second reason that this is a game changing move is because for too long the word in the street has been that the federal government will not take the lead in climate change efforts. The Clean Power Plan refutes that tightly held belief.

In one sense, the promulgation of the CPP is not surprising. Indeed, over 40 years of energy policy studies indicates that a transition away from a fossil fuel economy is a desirable policy preference.[2] Early studies, such as Limits to Growth[3] in 1974 and Amory Lovins’ Soft Energy Paths[4] in 1977 were critical of the dominant model of energy policy that relied on large-scale, capital-intensive, centralized energy projects particularly those wedded to fossil fuels and nuclear power. Those studies were wary of continued reliance on dwindling oil and natural gas resources.

The next wave of energy studies was born out of necessity and reaction to the energy crises of the 1970s. The distorted natural gas market, the bollixed wage and price controls on oil, the Arab Oil Embargo followed by the Iranian Embargo, and the collapse of the nuclear power industry all in a few years, put energy in the news in ways that it had not been before. Not only was energy a matter of industry and economic concern, consumers were frustrated by waiting and gas lines and were frustrated with rising energy bills. Studies by the Harvard Business School, the Ford Foundation, and Resources for the Future urged the United States to wean itself from reliance on Middle East oil precisely because of the threat of further economic dislocations.[5] To be sure, the studies also touted resource and energy conservation but did not put forward an aggressive plan for renewable resources or for energy efficiency.

Then a funny thing happened on the way to the next energy crisis – energy was out of the news for the last decades of the 20th century even though our dependence on foreign oil continued to increase through 2006. In the beginning of the 21st century, however, energy policy studies began to ramp up again. Bipartisan think tanks and nongovernmental organizations began publishing energy policy studies that continued warnings about dependence on foreign oil.[6] This new wave of studies, however, added a particular dimension to the energy policy discussion – the environment. A precursor for these studies was the UN report Our Common Future[7]that popularized the idea of sustainability for natural resources as well as for energy in order to improve the plight of everyone on the planet.

On the domestic front, the new energy policy studies concentrated on the environmental impacts of our traditional fossil fuel energy policy and began to highlight the challenges presented by climate change. In short, the policy community began to adopt a fairly wide consensus on the need for a transition to clean energy resources particularly renewable resources and energy efficiency.

The Clean Power Plan is of a piece with the trend to a cleaner future. More specifically, by linking energy and the environment, the CPP is breaking a barrier that has long existed between the disciplines of energy law and policy and environmental law and policy. It is a bit of an historic anomaly that the discipline of energy law was born in the mid-1970s in response to the crises noted above. The curiosity is that environmental law, particularly with the passage of the National Environmental Policy Act and associated environmental laws, was created as a discipline at the dawn of the 1970s. So, then, even though these two disciplines were developed close in time, they not only acted independently of each other they relied a separate set of assumptions, vocabularies, and metrics.[8]

Even though, energy law became known as a discipline in the 1970s, it had its predecessors. The most immediate predecessor was public utilities regulation. Energy law also incorporated elements of oil and gas laws and natural resources laws. By examining that welter of law, one can see that state common law and statutory law focused on the exploration and extraction of the natural resources used to produce energy. Federal laws, then, focused on the transportation, transmission, and distribution of those resources and of the electricity produced from them. In short, energy law was about exploration, production, and transportation and was grounded in the core assumption that the more energy that was produced and consumed, then the greater and more robust the economy would be.

Environmental laws were not chiefly concerned about extraction and production of resources as such. Instead, environmental laws addressed resource protection and conservation. Additionally, environmental laws focused on ecology and the human and natural environments in order to create more healthy ecosystems. Consequently, the metrics for energy law dealt energy prices, economic productivity, and the like. Environmental metrics measured the cleanliness of the water we drink, in the air we breathe, and the number of species we preserve.

At a superficial level, given the fact that energy and environmental systems are complex, the fact that they are independent regulation makes some sense. However, the physical reality is that throughout the fuel cycle from exploration to distribution to consumption, environmental consequences follow each step of that cycle. Energy and environmental laws and regulations, then, are physically linked to each other and, therefore, should be coordinated. Until the CPP, they have not been so treated.

Thus, the first significance of the Clean Power Plan is to have these two disciplines begin to address each other and to find a common language. Linking energy and the environment is a necessary step toward a clean energy future.

The second significant development of the CPP is that the federal government is now assuming a leadership role as long urged. Several of the policy studies mentioned above, as well as more recent ones, emphasize the need for federal leadership if energy and climate change are to be addressed in any meaningful way. [9] In part, the call for federal leadership resides in the fact that the US consumes 25% of the world’s energy resources and emits about 25% of the world’s greenhouse gases. If any international progress is to be made on the climate front, then the United States must play a leadership role.

On the domestic side, federal leadership is desirable for any number of reasons including the fact that while state energy initiatives are valuable in and of themselves, interstate coordination can advance a clean energy transition. On the electric side, for example, transmission line siting, a coordinated market for renewable energy credits, effective cost allocation for the development of the smart grid, and a rationalized set of renewable portfolio standards could benefit from national leadership. On the natural gas side, uniform disclosure rules for fracking chemicals, national water standards, and the like may help alleviate many of the concerns surrounding hydraulic fracturing. Further, the matter of energy subsidies, for both fossil and clean fuels, should be addressed responsibly and uniformly and national leadership in this arena should yield beneficial official results.

Thus, the Obama administration’s CPP is an important as well as necessary step in moving away from a fossil fuel economy to a clean energy future precisely because it begins to merge energy and the environment and puts federal leadership in play.

 

[1] Carbon Pollution Emission Guideline for Existing Stationary Sources: Electric Utility Generating Units, Fed. Reg. June 18, 2014) available at http://www2.epa.gov/carbon-pollution-standards/clean-power-plan-proposed-rule.

[2] Joseph P. Tomain, Ending Dirty Energy Policy: Prelude to Climate Change chs. 3 and 4 (2011).

[3] Donella Meadows et al., The Limits to Growth: A Report for the Club of Rome=s Project on the Predicament of Mankind ch. IV (1974).

[4] Amory B. Lovins, Soft Energy Paths: Toward a Durable Peace (1977).

[5] Robert Stobaugh & Daniel Yergin (eds.), Energy Future: Report of the Energy Project at the Harvard Business School (1979); Ford Foundation, Energy: The Next Twenty Years (1979); and, Sam H. Schur, et al., Energy in America’s Future: The Choices Before Us(1979) (Resources for the Future study).

[6] See e.g. Energy Future Coalition, Challenge and Opportunity: Charting a New Energy Future (2003) available at http://energyfuturecoalition.org/Resources; National Commission on Energy Policy, Ending the Energy Stalemate: A Bipartisan Strategy to Meet America’s Energy Challenges (2004) available at http://belfercenter.ksg.harvard.edu/publication/4000/ending_the_energy_stalemate.html; and,Natural Resources Defense Council, A Responsible Energy Plan for America (2005).

[7] World Commission on Environment and Development, Our Common Future (1987).

[8] Amy J. Wildermuth, The Next Step: The Integration of Energy Law and Environmental Law, 31 Utah Envt’l L. Rev. 369 (2011); Alexandra B.  Klass, Climate Change and the Convergence of Environmental and Energy Law, 24 Ford. Envt’l L. Rev. 180 (2013); Joseph P. Tomain, The Politics of Clean Energy: Moving Beyond the Beltway, 2 San Diego J. Climate & Energy L. 299 (2011-12).

[9] See e.g. Challenge and Opportunity, supra note 6; A Responsible Energy Plan for America, supra note 6; Ending the Energy Statelmate, supra note 6; Institute for  21st Century Energy, Energy Works for US: Solutions for Securing America’s Future 3 (2013) (Energy Works) available at http://www.energyxxi.org/energy-works-for-us;  William Norhdaus, Climate Casino (2013).

 

The Shale “Revolution” Is About Gas *Prices* & Oil *Production*

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I’d like to make a quick point about the “shale revolution,” which may be old news to those immersed in North American energy policy but might be helpful to those just starting to think about the wider implications of increased North American production of oil and gas.

Increased production of oil & gas from shale formations using hydraulic fracturing and horizontal directional drilling is often referred to as North America’s shale revolution because of the way it has transformed oil & gas production, reserves, production, and pricing. But the “revolutionary” part of these changes mostly boils down to two big changes: 1) natural gas prices, which were rising, are now falling, and 2) oil production, which was falling, is now rising.

Increased production of natural gas has had a dramatic effect on natural gas prices because natural gas is hard to transport. If you can’t send natural gas by an existing pipeline to an existing market, your next best option may be to cool it into a liquid at −162 °C, load the liquid onto a giant, insulated, quarter-billion dollar vessel and ship it across the ocean, where it can be regasified and burned. This is an expensive process, so when natural gas production rises, prices fall quickly because there is little use for the excess gas in the markets it can reach. Prices will keep falling until 1) gas is so cheap that energy users reliant on alternatives like coal and heating oil switch to gas, 2) gas is so cheap that it can be profitably liquefied and sent overseas, or 3) gas is so cheap that it’s no longer worthwhile to keep expanding production. In the United States, there has been a bit of all three: 1) utilities and manufacturers have started to use more gas, 2) companies are planning several projects to export liquefied natural gas to Asia and Europe, and 3) there has been a bit of a slowdown in investment in new shale gas production. But natural gas prices can fall pretty far before any of these stabilizing factors kick in.

In contrast, despite all the recent controversies about oil pipelines and rail transport, oil is still relatively cheap to transport because you can send it by train or boat. And there is an integrated, worldwide market in oil so world oil prices tend to move in tandem. This means that increased production in the U.S. has little effect on U.S. oil prices. But a stable price means that oil producers can keep ramping up production at every possible opportunity and keep earning large profits. That’s why the shale revolution in oil has been about production levels, not prices. And it’s also why incomes have risen much faster in states with shale oil than states with shale gas.

So that’s why I say the shale revolution is mostly about 1) gas prices, not gas production, and 2) oil production, not oil prices. The following four charts show oil & gas production and prices from 1997-2013. They show that the shale revolution in the US has turned around rising natural gas prices and falling oil production. You can also see a more gradual increase in natural gas production. Finally, you can see that U.S. oil prices show little impact from all that increased production.

 

 

With increased challenges to crude transportation and growing liquefied natural gas markets, gas and oil markets may become somewhat more similar over time. But for now they are very different. So when you talk about the shale “revolution,” keep in mind whether you are discussing oil or gas and prices or production. It will help you make sense of many of the developments in energy markets and policy and will help you sort out some of the talking points from those arguing that the shale “revolution” changes everything and those arguing it changes nothing.

 

 

New Fourth Edition of Energy, Economics and the Environment Textbook

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I am very pleased to welcome guest bloggers Jim Rossi (Vanderbilt) and Emily Hammond (George Washington) to Energy Law Prof Blog to announce the Fourth Edition of their Energy, Economics and the Environment textbook (Foundation Press 2015), which is authored by Joel Eisen, Emily Hammond, Jim Rossi, David Spence, Jacqueline Weaver & Hannah Wiseman.

By Jim Rossi and Emily Hammond

In the early 1990s, the late Fred Bosselman asked why a practice field as significant as energy law does not have a good casebook.  Along with Jim Rossi and Jacqueline Weaver, he provided an answer:  The first edition of Energy, Economics and the Environment was published by Foundation Press in 2000.  David Spence and Joel Eisen joined the casebook for its second and third editions; Emily Hammond and Hannah Wiseman are joining the fourth edition, which Foundation Press will publish in Spring 2015.  (For those teaching energy courses in the 2014-15 academic year, the authors are also offering the chapters in manuscript format).

As co-authors, we are unified in a commitment to energy law as an exciting and distinct legal practice area and field of study.  The governance, environmental, and national security implications of energy law are far-reaching, and—to us—part of what makes it an appealing and provocative field. Indeed, developments since the book’s third edition have significantly impacted the landscape. Consider just a few:

  • The United States has become an energy production powerhouse—from the major rise in natural gas production enabled by hydraulic fracturing to being poised to surpass Saudi Arabia as the largest oil producer in the world.  Laws designed for a different time must adapt to this new reality.
  • Federal agencies have been tackling today’s most pressing challenges involving the intersection of energy production and environmental laws—in particular, climate change—using old statutory frameworks.  As the recent Supreme Court decision Utility Air Regulatory Group v. EPA makes clear, numerous issues surrounding this approach have yet to be resolved.
  • Renewable energy technologies have seen sustained growth, especially in the electric power sector.  But neither large-scale wind projects nor distributed solar panels will displace fossil fuel-fired generation without continued governmental support, the provision of which has sparked considerable debate.
  • The U.S. electric power grid is facing major challenges, as limited transmission capacity in many parts of the country strains the aging grid, and new technologies such as microgrids, distributed solar, and demand response challenge the business model of monopoly distribution utilities.

If nothing else, these examples reveal energy law’s dynamism.  Yet its ever-evolving range of issues can seem overwhelming and incohesive.  To give readers tools for confronting these wide-ranging challenges, our fourth edition offers a renewed focus on the unifying characteristics of energy law.  Chapter 1 (early draft available here) provides a framework for organizing and understanding energy law by introducing four recurring and cross-cutting themes:  1) ownership; 2) monopoly vs. competition; 3) externalities and risk concepts; and 4) public governance.  These four themes have defined energy law since the area developed in the early twentieth century—and they play out in every energy resource arena:

  • Ownership. The twin concepts of property and ownership are fundamental to American law.  Deeply held notions of what it means to “own” something both provide explanatory power for much of energy law and raise challenges to innovation in energy technology, law, and policy.  Furthermore, the choice whether energy resources are privately or publicly owned holds consequences for their management and regulation.  Cutting-edge energy issues, such as hydraulic fracturing and renewable power project development, often reflect strong views about ownership regimes.
  • Monopoly vs. Competition. Many energy resources are price regulated for obvious consumer protection purposes, but price regulation also goes hand-in-hand with government endorsement of a monopoly franchise for energy resources.  Much of energy law’s history involves government bodies interacting with the private sectors to form regulatory commitments to attract investment and promote innovation in energy resources.  Once major investments are made in energy infrastructure, careful attention must be paid to who bears the risks of these investments and the incentives this creates for new market entrants and innovation.
  • Externalities and Risk Concepts. Perhaps more than any other issue, increased attention to the externalities produced by energy resources has challenged energy law to expand its scope.  This theme is particularly salient in the face of global climate change, but it persists for localized environmental harms as well. In addition, the concepts of uncertainty as well as risk assessment, perception, and management inform and even dictate modern approaches to energy law and policy.
  • Public Governance. Finally, who should govern energy resource production, delivery, and use? Is federal regulation necessary and when?  Do the land use implications of many energy issues, and the localized nature of the impacts of electricity generation and fuel extraction, mean that state and local governments will always play a major role? How should international challenges be met? The reality is that energy project developers and regulators are often forced to navigate what one of us and his coauthor have called “shared regulatory space” – situations where two or more agencies share jurisdiction over the same issue.  Modern energy lawyers cannot effectively address most major problems in the industry today without understanding a multitude of governance schemes—and without knowing how to argue for changes in the balance of those schemes.

Although the particular issues that modern energy lawyers focus on today differ from those that may have been important to energy lawyers thirty years ago, we believe that there is a durability to these themes:  They will inform the future of energy law too, even as the particular energy resources and issues that hold the attention of lawyers inevitably change.  With Chapter 1’s theme-based framework in place, we provide a way to organize and understand the many topics presented in the remainder of the book.

Like previous editions, this casebook is intended to be used in an Energy Law survey course, but the materials in the book are rich enough that they can also be adapted to a course or seminar covering renewable energy, oil & gas, electricity regulation, and advanced topics in environmental and climate change law.  Previous editions of the casebook have been used at more than 60 law schools, and we intend the new edition of the casebook to provide a pedagogical window that readily can be adapted to a variety of courses and teaching styles as issues in energy continue to change.  Further, we respond to the changing face of legal education by incorporating extended problems, case studies, and other practice-oriented materials throughout the book.

We encourage anyone who is interested in reviewing or using chapters from the new edition prior to its publication to contact one of us. Our Table of Contents includes:

Chapter 1:       Introduction to Recurring Themes in Energy Law

Chapter 2:       Public Utility Principles and an Overview of the Electric Power Industry

Chapter 3:       Coal Production

Chapter 4:       Oil and Gas Production

Chapter 5:       Regulating Externalities from Fossil Fuel Power Generation

Chapter 6:       Hydroelectric Power

Chapter 7:       Nuclear Power

Chapter 8:       Utility Ratemaking Basics and Case Study

Chapter 9:       Open Access in Oil and Gas Markets

Chapter 10:     Electric Power Markets

Chapter 11:     Renewable Power

Chapter 12:     Renewable Project Development Case Studies

Chapter 13:     Conservation and Efficiency

Chapter 14:     International Energy Markets

Chapter 15:     Energy Use in Transportation

 

U.S. Supreme Court Narrows Greenhouse Gas Rules: What It Means for the U.S. Climate Agenda

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Today, in Utility Air Regulatory Group v. Environmental Protection Agency (EPA), the U.S. Supreme Court struck down a portion of the United States’ first regulations for greenhouse gas emissions from industrial sources. The Court held that the Environmental Protection Agency (EPA) may not apply its “Prevention of Significant Deterioration” (PSD) program to new industrial sources on the basis of their greenhouse gas emissions. Instead, EPA can only regulate greenhouse gas emissions from new sources that are already subject to the PSD program because they emit other pollutants.

This is the first Supreme Court decision on EPA’s authority to regulate greenhouse gases from industrial sources, so it has important implications for EPA’s future climate agenda—including its recently proposed rule for the electricity sector. And the varied opinions offered by the Supreme Court justices offer hints about how courts will approach the inevitable legal challenges to those regulations.

EPA’s PSD program has two basic requirements:

1) You need a permit before you build a new major industrial source of air pollution.

2) And to get a PSD permit, you must show that you are using the “best available control technology” for the air pollutants that you emit.

In this case, the Supreme Court held:

1) EPA may not require new sources to get a PSD permit simply because they will emit large amounts of greenhouse gases. The Court held that it would be unreasonable for greenhouse gases to trigger the permit requirement, because the PSD permit program is only meant to apply to the thousands of industrial sources that emit conventional pollutants, not the millions of sources that emit significant amounts of greenhouse gases.

2) But if a source needs a PSD permit anyway, because it emits other pollutants, then EPA may require it to adopt the “best available control technology” for greenhouse gases, along with other air pollutants.

I will not say anything more about the complexities of the decision, because I described them extensively in a previous post, which read the tea-leaves of oral argument in the case, and suggested the Supreme Court would reach exactly this compromise. So you can read that post both for a description of the statutory interpretation question and an explanation of the reasoning that the court eventually followed.

The most pressing question raised by the case today may be its implications for the United States’ future climate agenda, including EPA’s recently proposed rule for existing power plants. There are three important implications, and each could spell trouble for EPA’s climate agenda.

First, the Court suggested that one reason for rejecting EPA’s rule is that “it would bring about an enormous and transformative expansion in EPA’s regulatory authority without clear congressional authorization” because millions of sources would be subject to a greenhouse gas permit requirement. EPA, it is true, had suggested it would only regulate a reasonable number of them, but the court was not willing to leave that decision in the agency’s hands.  The court noted: “When an agency claims to discover in a long-extant statute an unheralded power to regulate a significant portion of the American economy, we typically greet its announcement with a measure of skepticism.”

This passage will trouble EPA. In the agency’s recent proposal to cap greenhouse gas emissions from state power sectors, which the agency calls the “Clean Power Plan,” the agency is using a long-ignored statutory provision, Clean Air Act §111(d), to overhaul the nation’s electricity sector. As noted in a previous post, §111(d) has rarely been used, and it is so obscure that when Congress passed the Clean Air Act amendments in 1990, no one even noticed that the House and Senate had passed two different versions. Talk about unheralded.

Second, the Court expressed some skepticism about controlling greenhouse gas emissions through energy efficiency, which is an important part of EPA’s climate agenda. Carbon dioxide, the most common greenhouse gas, is the inevitable result of burning fossil fuels. Clean combustion of clean fossil fuels emits carbon dioxide and water. And once carbon dioxide is emitted, it is hard to pull out of the air. So most attempts to limit carbon dioxide emissions are really attempts to limit fossil fuel combustion. The only other option is carbon capture and storage, which is usually too costly to be feasible. EPA’s Clean Power Plan and its guidance on what is the “best available control technology” under the PSD program both rely on encouraging energy efficiency.

But the Supreme Court was not willing to endorse this approach. First, it stated that it didn’t need to decide whether energy efficiency could be the “best available control technology” because EPA also said states could consider carbon capture and storage. Second, it said that even if EPA could mandate energy efficiency at new sources, it could not redesign the source, require it to consume less electricity, or otherwise micromanage industrial source proposals. In doing so, the Supreme Court handed industry arguments to use against regulators in permit proceedings.

A third important takeaway from the case is that Justice Scalia, the conservative justice that authored the Supreme Court’s opinion, was able to convince Justice Kennedy to join his opinion limiting EPA’s authority to regulate greenhouse gases. Justice Kennedy is generally considered the Court’s swing vote and he was a deciding vote on the Court’s 5-4 decision in Massachusetts v. EPA, which required EPA to consider the climate consequences of greenhouse gases from cars and trucks.

Justice Kennedy has seemed very supportive of EPA’s efforts to regulate greenhouse gases. At oral argument, he admonished industry’s lawyers that he would continue to follow “both the result and the reasoning” of Massachusetts v. EPA—and the reasoning of Massachusetts v. EPA stressed the possible benefits of greenhouse gas regulation. Until now, EPA may have been justified in believing that the Court’s swing justice would sympathize with the challenges they face in adapting the Clean Air Act to address global warming and give them the benefit of the doubt. But today’s decision shows that Justice Kennedy’s sympathy only goes so far: he is quite willing to strike down overly broad climate regulations. That may have much longer-term implications for EPA’s climate agenda—only the coming years will tell.

 

 

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

Greenpeace v. Canada: Symbolic Blow to the Nuclear Industry, Game-changer for Everyone Else?

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  • Please welcome guest blogger, Martin Olszynski,  who is an Assistant Professor at the University of Calgary’s Faculty of Law. Martin has written extensively on environmental assessment, so I am delighted to publish his thoughts on the Federal Court of Canada’s recent decision in Greenpeace v. Canada, which may have important implications for several high-profile energy projects that are currently under consideration in Canada, as well as environmental assessment law in general.

By Martin Olszynski

In a rather lengthy (431 paragraphs) decision, the Federal Court of Canada agreed with Greenpeace and other environmental groups that portions of the Joint Review Panel report for the Darlington New Nuclear project proposed by Ontario Power Generation were inadequate. See Greenpeace Canada v. Canada (Attorney General), 2014 FC 463 (CanLII). Justice Russell held that the environmental assessment conducted by the Panel failed to comply with the Canadian Environmental Assessment Act, SC 1992 c 37 (essentially Canada’s version of the United States National Environmental Policy Act). Specifically and as further discussed below, there were gaps in the treatment of hazardous substances emissions and spent nuclear fuel, and a failure to consider the effects of a severe “common cause” accident such as the combined earthquake and tsunami that caused the Fukushima nuclear disaster.

As noted by the media, while the decision is of limited effect on a project already indefinitely postponed by the provincial government, “it is a symbolic blow to an industry coping with the public and political fallout from Japan’s 2011 Fukushima meltdown.” As further discussed below, the decision is also likely to have implications for environmental assessment in Canada generally and several other projects currently making their way through either the regulatory process or the courts, including three projects in Western Canada that have received international attention: Taseko’s New Prosperity mine, Enbridge’s Northern Gateway pipeline and Kinder Morgan’s Trans Mountain pipeline.

Background

In the fall of 2006 and under direction from the Ontario Minister of Energy, Ontario Power Generation applied to the Canadian Nuclear Safety Commission for a site preparation license for several new reactors at its existing Darlington nuclear plant in Bowmanville, Ontario. Application for this license, as well as for authorizations under the federal Fisheries Act RSC 1985 c F-14 and the Navigable Waters Protection Act RSC 1985 c N-22 (now the Navigation Protection Act), triggered the application of the-then CEAA (since replaced with the Canadian Environmental Assessment Act, 2012 SC 2012 c 19). The project was referred to a “joint review panel” in 2008 and a three-member panel was appointed in 2009. Following 284 information requests and seventeen days of hearings in the spring of 2011, the panel submitted its final report to the federal Minister of the Environment in August of that same year, concluding that the project was not likely to result in significant adverse environmental effects. Greenpeace and the other applicants challenged the adequacy of the environmental assessment and panel report shortly thereafter.

Justice Russell summarized the applicants’ argument as follows:

 [127] As identified in the Report, the [joint review panel] itself found that key information about the proposed Project was absent from the [environmental assessment] documentation. For example, the Panel found that no specific nuclear reactor technology, site design layout, cooling water option, used nuclear fuel storage option, or radioactive waste management option has been selected. Thus, at the present time, federal decision-makers still do not know: (a) the particulars of the specific project to be implemented at the Darlington site; (b) the full range of site-specific or cumulative environmental effects; or (c) whether there are feasible mitigation measures over the project’s full lifecycle. These and other fundamental gaps are attributable to the fact that what the [joint review panel] had before it was not a “project”, but merely a plan for future planning, assessment, and decision-making.

 (See paras 218 – 220 for the full list of alleged gaps and deficiencies)

The reason that so many project components remained unspecified was that Ontario Power Generation, with the panel’s blessing, had prepared its environmental impact statement based on a “plant parameter envelope” or “bounding scenario” approach. As described by Ontario, “this approach involves identifying the salient design elements of the Project and, for each of those elements, applying the ‘limiting value’ (the value with the greatest potential to result in an adverse environmental effect) based on the design options being considered” (at para 5). The respondents argued that such an approach was consistent with the requirement, pursuant to section 11 of the CEAA, to conduct the assessment as early as practicable in the planning process and before irrevocable decisions are made (at para 66), and further that it was supported by the case law (at para 72).

Decision

After a thorough review of the statutory regime and associated jurisprudence, Justice Russell concluded that there was nothing that precluded the adoption of the plant parameter envelope approach per se (at para 181). However, he did find inadequacies with the panel’s treatment of three specific issues (at para 228):

  • The failure of the Panel to insist on a bounding scenario analysis for hazardous substance emissions, in particular liquid effluent and stormwater runoff to the surface water environment, and for the sources, types and quantities of non-radioactive wastes to be generated by the project;
  • The Panel’s treatment of the issue of radioactive waste management; and
  • The Panel’s conclusion that an analysis of the effects of a severe common cause accident at the facility was not required at this stage, but should be carried out prior to construction.

In assessing these matters, Justice Russell accepted the applicants’ argument – unchallenged by the respondents and somewhat unique to the Canadian legislation and the broader Parliamentary context within which it operates – that the environmental assessment process under CEAA is fundamentally different from future licensing or regulatory processes (at para 230), and that there is therefore a limit as to the extent to which the consideration of environmental effects and their mitigation can be left to those later processes (Justice Russell described this as a matter of improper delegation):

[232] Under the CEAA, the ultimate decision-maker for projects referred to review panels is the Governor in Council (in practical terms, the federal Cabinet), which decides whether the responsible authorities will be permitted to take steps to enable the project to move forward. Parliament chose to allocate this decision to elected officials who are accountable to Parliament itself and, ultimately, to the electorate…

[235] The most important role for a review panel is to provide an evidentiary basis for decisions that must be taken by Cabinet and responsible authorities. The jurisprudence establishes that gathering, disclosing, and holding hearings to assemble and assess this evidentiary foundation is an independent duty of a review panel, and failure to discharge it undermines the ability of the Cabinet and responsible authorities to discharge their own duties under the Act [citing Pembina Institute for Appropriate Development v Canada (Attorney General), 2008 FC 302 (CanLII) at paras 72 – 74]…

[237] In short, Parliament has designed a decision-making process under the CEAA that is, when it functions properly, both evidence-based and democratically accountable. The CNSC [Canadian Nuclear Safety Commission], in considering future licensing decisions, will be in a fundamentally different position from the Panel that has conducted the EA. The CNSC will be the final authority making the decision, not merely an expert panel. Although the CNSC approaches this role with considerable expertise, it does not have the same democratic legitimacy and responsibility as the federal Cabinet.

(Emphasis added)

With respect to the respondent’s plant perimeter envelope approach, which the panel acknowledged was a departure from typical EA practices, this meant that it “was incumbent on the Panel to ensure the methodology was fully carried out” (at para 247), bearing in mind also the challenges that such an approach poses for public participation: “The less specific the information provided… the more difficult it may be for interested parties to challenge assumptions, test the scientific evidence, identify gaps in the analysis, and ensure their interests are fully considered” (at paras 247, 249).

Applying this standard to hazardous substance emissions and on-sitechemical inventories, Justice Russell concluded that the environmental assessment came up short. He noted Environment Canada’s submissions to the panel that, notwithstanding several information requests to Ontario Power Generation, the remaining gaps prevented the department from assessing effects with respect to effluent and storm water management (at paras 257 – 259). The panel itself noted that “[Ontario Power Generation] did not undertake a detailed assessment of the effects of liquid effluent and storm water runoff to the surface water environment” but that it “committed to managing liquid effluent releases in compliance with applicable regulatory requirements and to applying best management practices for storm water” and on this basis concluded that the project was not likely to result in significant adverse environmental effects (at paras 264, 265).

In a passage that is sure to interest administrative law scholars and practitioners (and discussed further below), Justice Russell held that while such a conclusion may be reasonable, it did not comply with CEAA:

[272] To repeat what is stated above, because of its unique role in the statutory scheme, a review panel is required to do more than consider the evidence and reach a reasonable conclusion. It must provide sufficient analysis and justification to allow the s. 37 decision-makers to do the same, based on a broader range of scientific and public policy considerations. One could say that the element of “justification, transparency and intelligibility within the decision-making process” (Dunsmuir, above, at para 47; Khosa, above, at para 59) takes on a heightened importance in this context.

[273] In this case, there are references to commitments by [Ontario Power Generation] to comply with unspecified legal and regulatory requirements or applicable quality standards, and to apply good management practices. There are references to instruments that may or may not contain relevant standards or thresholds based on the information before the Court (e.g. the Ontario Stormwater Management Planning and Design Manual (March 2003)). And there are references to thresholds or standards in statutory instruments (e.g. Fisheries Act, Canadian Environmental Protection Act) without specific information about how these are relevant to or will bound or control the Project’s effects…

[275] In essence, the Panel takes a short-cut by skipping over the assessment of effects, and proceeding directly to consider mitigation, which relates to their significance or their likelihood. This is contrary to the approach the Panel says it has adopted (see EA Report at p. 39), and makes it questionable whether the Panel has considered the Project’s effects at all in this regard.

(Emphasis added)

This is not to suggest that future regulatory processes “have no role to play in managing and mitigating a project’s environmental effects” (at para 241). For Justice Russell, a conceptual distinction can be made between two kinds of situations where a panel, despite some uncertainty, might conclude that significant adverse environmental effects are unlikely (at para 280):

(a)  Reliance upon an established standard or practice and the likelihood that the relevant regulatory structures will ensure compliance with it; or

(b)  Confidence in the ability of regulatory structures to manage the effects of the Project over time.

The latter approach is problematic in that it “may short-circuit the two-stage process whereby an expert body evaluates the evidence regarding a project’s likely effects, and political decision-makers evaluate whether that level of impact is acceptable in light of policy considerations, including “society’s chosen level of protection against risk” (at para 281, referring to the Government of Canada’s policy on the application of the precautionary principle and adopted by the Darlington panel).

Turning next to the issue of spent nuclear fuel, there does not appear to have been any real dispute between the parties that the panel’s treatment of this issue was cursory. Rather, the respondents’ position was that this was something that Canada had mandated the Nuclear Waste Management Organization (NWMO) to study. Justice Russell disagreed:

[297] In my view, the record confirms that the issue of the long-term management and disposal of the spent nuclear fuel to be generated by the Project has not received adequate consideration. The separate federal approvals process for any potential NWMO facility, which has not yet begun…will presumably ensure that such a facility is not constructed if it does not ensure safety and environmental protection. But a decision about the creation of that waste is an aspect of the Project that should be placed before the s. 37 decision-makers with the benefit of a proper record regarding how it will be managed over the long-term, and what is known and not known in that regard. (emphasis added)

According to Justice Russell, the management and storage of spent nuclear fuel was not a “separate issue” (at para 312). Rather, the environmental assessment “is the only occasion…on which political decision-makers at the federal level will be asked to decide whether that waste should be generated in the first place” (ibid). Nor was there anything in the Terms of Reference that suggested that this issue was not to be addressed (at para 313).

Finally, with respect to a severe “common cause” accident (e.g. as a result of both an earthquake and flooding), the problem was not that Ontario Power Generation failed to assess the risks of accidents associated with its new build (at para 327) but rather that it failed to assess these risks in conjunction with the existing Darlington plant. The panel itself recognized this gap and recommended an evaluation of “the cumulative effect of a common-cause severe accident involving all of the nuclear reactors in the site study area” prior to construction (Recommendation # 63). For Justice Russell, however, that was insufficient:

[334] In my view, the one conclusion that is not supported by the language of the statute is the Panel’s conclusion that the analysis had to be conducted, but could be deferred until later. Rather, in my view, it had to be conducted as part of the EA so that it could be considered by those with political decision-making power in relation to the Project.

In light of these three deficiencies, and as was the case in Pembina Institute cited above, the Court remitted the Report to the panel for further consideration, pending which the relevant government agencies have no jurisdiction to approve the project.

Discussion

Justice Russell’s thorough treatment of the federal environmental assessment regime means that the decision is likely to have implications going forward. This is so because, notwithstanding the fact that Greenpeace dealt with the prior CEAA regime and CEAA 2012 is in many ways different, the provisions dealing with a panel’s duties and political decision-making are effectively unchanged. These implications, as well as Justice Russell’s somewhat unprecedented but in my view correct approach to judicial review in this context, are further discussed below.

Failure to Assess Environmental Effects “Short-Circuits” the CEAA Regime

Perhaps the most important take-away message from Greenpeace is that, generally speaking, Panels must do the work of actually assessing potential environmental effects and their mitigation. This is a necessary consequence of CEAA’s two-step decision-making process, which Justice Russell describes as “evidence-based and democratically accountable.” Democratic accountability is hindered where the evidence with respect to potential adverse environmental effects is missing, inadequate or postponed to some future regulatory proceeding. This finding, supported by prior jurisprudence and the 2008 Pembina Institute decision in particular, is likely to cause problems for both Taseko’s proposed New Prosperity mine and Enbridge’s proposed Northern Gateway pipeline.

I have previously written about Taseko’s New Prosperity project here and here. Briefly, the second federal panel that reviewed Taseko’s revised project concluded – like the first one – that the project is likely to result in significant adverse environmental effects. In the first of my posts, I suggested that this result was at least partially its own undoing, and its refusal to provide sufficient information to the panel in particular. Like Ontario Power Generation, Taseko was of the view that such “details” could be dealt with at the regulatory phase (see e.g. its final written submissions to the panel at p 8 – 11), an approach that the New Prosperity panel ultimately rejected (see New Prosperity Report at p 22). In its December 2013 application for judicial review, Taseko argues, inter alia, that the panel erred in law when it did so. Greenpeace suggests that this aspect of Taseko’s challenge is unlikely to succeed.

Greenpeace also lends support to the recent letter to the Prime Minister, signed by 300 scientists, which urges him to reject the Northern Gateway Joint Review Panel report. Amongst five major flaws, the signatories to the letter allege inappropriate reliance on yet-to-be-developed mitigation measures:

…Northern Gateway omitted specified mitigation plans for numerous environmental damages or accidents. This omission produced fundamental uncertainties about the environmental impacts of Northern Gateway’s proposal (associated with the behaviour of bitumen in saltwater, adequate dispersion modeling, etc…). The panel recognized these fundamental uncertainties, but sought to remedy them by demanding the future submission of plans… Since these uncertainties are primarily a product of omitted mitigation plans, such plans should have been required and evaluated before the [panel] report was issued.

Whether or not the foregoing is an accurate characterization of the JRP’s conclusions and recommendations (a quick glance of the National Energy Board’s 209 conditions does suggest that these scientists are likely onto something), the letter’s characterization of the environmental assessment process as one intended to offer “guidance, both to concerned Canadians in forming their opinions on the project and to the federal government in its official decision” (at page 3) could have been written by Justice Russell himself.

What is Separate?

A related aspect of Greenpeace worth discussing is the Court’s approach to the management of spent nuclear fuel. As noted above, Justice Russell concluded that this was not a separate issue, and that the “creation of nuclear waste” was “an aspect of the Project that should be placed before [Cabinet]” (at para 297).

Such dicta could prove useful to those, such as the City of Vancouver in the context of the National Energy Board’s Trans Mountain pipeline application, arguing that the environmental assessments for major pipelines (including Northern Gateway) should assess the climate change implications of the increased oil production enabled by the construction of such pipelines (in its application, Trans Mountain states that the pipeline is in response to requests for increased capacity “in support of growing oil production”). Although the matter is not free from doubt, the statutory language on this front certainly is broad (see CEAA, 2012 para 5(1)(a): “…a change that may be caused…”). It also seems plain that panels cannot arbitrarily decide to exclude certain environmental effects, nor is deference to government policy or other initiatives appropriate (e.g. the NWMO in Greenpeace, or the Province of Alberta’s intensity-based regulatory approach to greenhouse gas emissions in Pembina Institute).

Assessing the climate change effects of increased oil production would not amount to “a trial of modern society’s reliance on hydrocarbons,” as the National Energy Board’s outgoing chief recently stated in an interview with the Financial Post, and which he described as a policy question belonging “to the world of policy-making and politics, in which we are not involved at all.” With respect to its obligations under CEAA, 2012 at least (recognizing that the Board is dealing with a dual mandate here, the other coming from s 52 of the National Energy Board Act RSC 1985 c N-7 and which does actually require it to reach a conclusion with respect to the public interest), it would be the exact opposite. Although complex, it would entail an evidence-based analysis of whether Trans Mountain or Northern Gateway may contribute to an increase in oil production and, if so, the greenhouse gas emissions associated with that. Importantly, the final Environmental Impact Statement for Keystone XL determined that this was not likely to be the case for that particular pipeline.

A Green Shade of Reasonableness Review?

In the final part of this post, I want to briefly discuss Justice Russell’s approach to reasonableness review. For convenience, the relevant passage is as follows:

[272] To repeat what is stated above, because of its unique role in the statutory scheme, a review panel is required to do more than consider the evidence and reach a reasonable conclusion. It must provide sufficient analysis and justification to allow the s. 37 decision-makers to do the same, based on a broader range of scientific and public policy considerations. One could say that the element of “justification, transparency and intelligibility within the decision-making process” (Dunsmuir, above, at para 47 [this case sets out a doctrine of deference to administrative agencies somewhat similar to Chevron]; Canada (Citizenship and Immigration) v. Khosa, 2009 SCC 12 (CanLII) at para 59) takes on a heightened importance in this context. (emphasis added)

In my view, this is precisely the kind of analysis that Justice Binnie had in mind when he stated, at para. 59 of Kosa, that “[r]easonableness is a single standard that takes its colour from the context.” In the environmental assessment context, judicial review is not available on the merits of government-decision making – as Justice Russell observed that is a matter of democratic accountability. In this context, judicial review should function in the service of democratic accountability by ensuring the integrity of the decision-making process, a process that government predictably and – where it has been adequate – justifiably relies on to gain support for its political decisions. In the context of Northern Gateway, for example, the Prime Minister and then Minister of Natural Resources Joe Oliver were reported as saying that they will “make a decision only after considering the recommendations of the ‘fact-based’ and ‘scientific’ review panel.” Mr. Oliver also released a statement where he described the panel report as “a rigorous, open and comprehensive science-based assessment.” In this context, the role of a reviewing court should be to ensure that the environmental assessments do in fact meet these standards, failing which there can be no democratic accountability.

An earlier version of this post appeared at ABlawg, the University of Calgary Faculty of Law blog.

FERC’s Demand Response Strategy Hits a Snag: D.C. Circuit Vacates Order 745 in Electric Power Supply Association v. FERC

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  • I am delighted to welcome guest blogger Sharon Jacobs. Sharon was my colleague at Harvard Law School and will be an Associate Professor at Colorado Law beginning this summer.  Sharon’s scholarship focuses on administrative, energy and environmental law and she has a forthcoming article on federalism and demand response programs, so she is the perfect person to discuss the D.C. Circuit’s recent decision in Electric Power Supply Association v. FERC, which invalidated a federal order designed to encourage demand response. -James Coleman

By Sharon B. Jacobs

It is a poorly kept secret that D.C. Circuit judges do not exactly clamor to be assigned Federal Energy Regulatory Commission (FERC) cases. The notable exception is now-Senior Judge Stephen Williams, who loves them. His grasp of the intricacies of energy regulation is unparalleled on any court in the country. It is unfortunate, therefore, that Judge Williams was not assigned to the D.C. Circuit panel that recently handed down Electric Power Supply Association v. FERC. In a 2-1 opinion authored by Judge Janice Rogers Brown and joined by Judge Laurence Silberman, the panel vacated FERC’s final rule on compensation for demand response resources in wholesale energy markets. Judge Harry Edwards offered a well-reasoned and ultimately more persuasive dissent.

Demand response is the reduction of electricity use in response to a price signal. In other words, customers are paid not to consume energy. Demand response has been called the sale of “negawatts,” although the phrase is an imperfect description of the actual transaction. Where demand response bids are accepted, market administrators need not purchase as much generation (supply) to meet aggregate demand. Because the cost of electricity goes up as demand increases, especially at times of peak consumption, demand response can lead to significant savings.

Electricity markets are divided into two spheres: retail (sales to end-use customers) and wholesale (sales for resale). For the most part, states regulate the former, while FERC controls the latter. FERC’s demand response strategy affects both markets. In an earlier order, FERC allowed aggregating companies to bid retail customers’ demand response commitments directly into wholesale markets. In the rule challenged in this case, Order 745, FERC sought to further eliminate barriers to demand response participation in wholesale markets by requiring market administrators to pay demand resources the “locational marginal price” or “LMP” for each megawatt not consumed. The locational marginal price is the same price that generators receive when they bid their megawatts of power into wholesale markets. It reflects the value of energy at a specific location at the time of delivery. PJM, the market administrator for the mid-Atlantic region, explains that the LMP fluctuates like taxi fares—lighter electricity traffic yields a lower, steadier fare, whereas congestion on the wires causes the fare to rise. FERC included a caveat in its rule: demand response resources would only receive the LMP when their participation in wholesale markets would be cost effective, as determined by a specified “net benefits” test.

The bulk of the opinion concerned a threshold question: whether FERC acted within the scope of its jurisdiction under the Federal Power Act when it established compensation and other rules for retail demand response resources participating in wholesale markets. Under the Act, FERC has clear jurisdiction over rates for wholesale sales of electric energy in interstate commerce as well as rules, regulations and practices affecting those rates. FERC argued that it could set wholesale rates and other rules for demand response in wholesale markets because they were practices “directly affecting” wholesale sales. The panel majority disagreed, instead characterizing what FERC did as indirect regulation of the retail market for electricity.

There were three major problems with the opinion.  First, the majority found the Federal Power Act’s jurisdictional provisions much clearer than they are in fact.  It applied the normally deferential Chevron test, under which the court will defer to the agency’s reasonable interpretation of an ambiguous statutory provision it is authorized to administer, to FERC’s jurisdictional claims. Though some have argued that allowing the agency to determine the scope of its own jurisdiction when statutory language is ambiguous is analogous to permitting the fox to guard the henhouse, the Supreme Court recently affirmed the propriety of this practice in City of Arlington v. FCC. The Federal Power Act’s grants of jurisdiction did not anticipate demand response and the statute’s application to the phenomenon, as the dissent recognized, is unclear. In other words, the statutory provisions at issue, as applied to demand response, are ambiguous. Thus, the court should have deferred to FERC’s reasonable interpretation of those provisions at Chevron step two.

Second, Judge Brown found that the Federal Power Act foreclosed FERC’s reading because the Commission’s interpretation “has no limiting principle.” In an argument reminiscent of Justice Scalia’s warning in his Massachusetts v. EPA dissent that Frisbees and flatulence could be regulated under EPA’s capacious definition of “air pollutant,” Judge Brown warned that FERC’s interpretation of its “affecting” jurisdiction would authorize it to regulate “steel, fuel, and labor markets.” As the dissent pointed out, however, the limiting principle could not be clearer. Under the D.C. Circuit’s own holding in CAISO v. FERC, FERC may only regulate practices that “directly affect” wholesale rates or are “closely related” to those rates, “not all those remote things beyond the rate structure that might in some sense indirectly or ultimately do so.” As Judge Edwards pointed out in his dissent, this language clearly precludes regulation of “steel, fuel, and labor markets.”

Third, to the extent that the true motivation for the decision was general unease about federal encroachment on traditional areas of state regulatory power, the decision overlooked a key aspect of FERC’s demand response rules that mitigate any unwanted impact on state authority. An earlier FERC order, Order 719, offered state and local regulatory authorities an “opt-out”: those who did not want their retail customers participating in wholesale markets for demand response could prohibit them from doing so via legislation or regulation. Order 745’s pricing scheme was layered on top of this jurisdictional compromise. In Judge Edwards’s words, “[t]his is hardly the stuff of grand agency overreach.”

The most controversial part of Order 745, and the real reason the rule was the subject of such concerted opposition, got the least airtime in the opinion. In what was billed as an alternate holding in Part IV (but felt more like dicta), the panel found that Order 745’s locational marginal pricing scheme was arbitrary and capricious. In under two pages of text, the opinion declined to “delve now into the dispute among experts” yet asserted that the Commission had not “adequately explained how their system results in just compensation.” “If FERC thinks its jurisdictional struggles are its only concern with Order 745,” the opinion cautioned, “it is mistaken.” In a much more nuanced discussion of the Commission’s choice and the deference due to FERC “in light of the highly technical regulatory landscape that is its purview,” Judge Edwards concluded that the Commission provided a “thorough explanation” for selecting the locational marginal price as the appropriate level of compensation. In a nutshell, FERC’s argument was that the compensation level was necessary to overcome barriers to participation by demand response resources in wholesale markets and that it accurately reflected the value demand response provided to those markets.

Prior to this ruling, FERC had been successfully pursuing a policy of what I call, in a forthcoming article, “bypassing federalism”:  working a de facto rather than a de jure reallocation of regulatory power by extending its influence through the expansion of wholesale markets. In the context of demand response, that strategy was undermined by the Commission’s aggressive posture on pricing in Order 745. It was the idea that demand response resources would be paid the LMP for their “negawatts,” thereby competing directly with generation in wholesale markets, that triggered the groundswell of opposition from generation resources. The decision will not go into effect until seven days after the disposition of any motion for rehearing, and FERC is still considering its options as well as the decision’s impact on its rules and related programs. The panel’s decision may yet be reversed by the D.C. Circuit en banc or by the Supreme Court. But, as a policy matter, the Commission might have avoided a direct confrontation over its demand response rules by moving more deliberately on the pricing question.  As I have written elsewhere, for agencies whose regulatory schemes face concerted opposition, discretion is sometimes the better part of valor.

EPA’s New Power Sector Climate Rules: A Brewing Political and Legal Storm

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Today, the United States Environmental Protection Agency (EPA) proposed requiring all fifty states to adopt greenhouse gas controls for their existing power plants. And EPA went further, proposing that, together, states would have to cut U.S. power sector emissions to 30% of 2005 levels by 2030.  (You can see a chart of how much each state would have to cut here.)

These rules face strong political and legal opposition and will not go into action until 2020 at earliest. Their ultimate fate will depend on whether President Obama’s administration stands behind them, whether the public elects a new President that supports them, and whether the courts agree that EPA has authority to cap state greenhouse gas emissions. Their immediate impact is twofold: 1) it tells other countries that there’s a chance the U.S. could commit to strong greenhouse gas rules at 2015 negotiations in Paris; and 2) it sets the stage for an epic political and legal struggle over energy policy in the United States.

What happened?

EPA acted under Clean Air Act § 111(d). (The text of § 111(d) is at the bottom of this post.) This provision allows EPA to “establish a procedure” for each state to adopt “standards of performance” for existing sources of air pollutants that would have otherwise slipped through the cracks of the Clean Air Act because they 1) are not new sources, subject to new source performance standards, and 2) are not regulated under other existing source regulations in the Clean Air Act.

This section of the Clean Air Act has rarely been used: it’s designed for sources that somehow escaped the Act’s relatively comprehensive coverage. So there are few precedents for EPA to follow, and the courts that review EPA’s rule will not have past cases to go by. There are several ongoing legal disputes about the extent of EPA’s authority to adopt greenhouse gas rules under § 111(d), summarized below, and EPA is pushing for maximum authority to reduce greenhouse gas emissions across the power sector.

Can EPA Issue Greenhouse Gas Rules for Power Plants?

Some question if the Clean Air Act requires greenhouse gas controls at all for existing power plants. The published U.S. Code says § 111(d) doesn’t apply to sources that EPA already regulates under the “hazardous air pollutants” section of the Clean Air Act, § 112. And EPA already regulates power plants under § 112. So how can EPA regulate power plants under § 111(d)?

Bizarrely, the U.S. Code does not reflect the actual text of the law signed by President George H.W. Bush in 1990, and the signed law, not the Code, controls. The signed law actually included two different § 111(d) that were passed by the U.S. House and Senate, respectively, and never reconciled. (#bicameralism) The House text made it into the U.S. Code, but the Senate version is different: it only says that § 111(d) doesn’t apply to pollutants that are regulated under § 112. Although power plants are regulated under § 112, greenhouse gases aren’t, so this version would allow EPA’s greenhouse gas rules.

In 2013, William Haun, writing for the Federalist Society, suggested that the Senate and House versions should be reconciled by applying the plain text of both exclusions, which would negate EPA’s standards. Kate Konschnik, Policy Director of the Harvard Environmental Law Program, has countered with several reasons to think that Congress intended to adopt the narrower Senate exclusion, and arguing that, at a minimum, EPA should be given deference on which text to apply. EPA issued a legal memorandum with its proposed power rule, echoing Konschnik’s arguments, and noting that a 2011 Supreme Court decision also suggested that EPA can regulate greenhouse gases under § 111(d). (See memo at pp. 20-27).

Can EPA Cap State Power Emissions?

The biggest battle over EPA’s power sector rule will be over its scope.

Remember: section 111(d) lets EPA set a “procedure” for states to set “standards of performance for any existing source” that would be subject to standards of performance for new sources. So EPA is proposing § 111(d) standards to accompany the new source performance standards it has proposed for new coal and natural gas plants.

But EPA isn’t suggesting source-by-source standards of performance for existing coal and natural gas plants. Instead it’s proposing to cap all greenhouse gas emissions from each state’s power sector. How can the agency propose this?

Under previous EPA regulations, § 111(d) standards must mandate the “best system of emission reduction” for each source. You might think that meant making each coal plant cleaner, but EPA says it also means taking steps to replace coal with other power sources: 1) using natural gas plants instead, 2) using low carbon sources like hydro, nuclear, wind, and solar, and 3) lowering electricity demand through energy efficiency. In other words, the best system of emission reduction for a coal plant is simple: don’t turn it on.

EPA recognizes that state-by-state caps are a departure from its usual approach, but it offers several reasons that they might make sense here. First, it notes that a state cap “achieves greater emission reductions at a lower cost”—if EPA limited itself to the coal plants themselves it could only get small greenhouse gas reductions (4-6%) unless it was willing to demand prohibitively expensive carbon capture. Second, a state cap “takes better advantage of the wide range of measures that states, cities, towns and utilities are already using to” cut greenhouse gas emissions, such as renewable power standards and cap-and-trade systems. Third, EPA says statewide caps “reflect the integrated nature of the electricity system and the diversity of electricity generation technology.”

There’s a lot of political rhetoric right now about “power grabs” but over the next months you will see others develop careful arguments that EPA has overstepped its authority by transforming a “procedure” for state “source” standards into state greenhouse gas caps. Even before the rule came out, Nathan Richardson, at Resources for the Future, suggested that it might be illegal to apply a single cap to separate coal & gas source categories—much less use one cap for the entire electric sector. On the other hand, Kate Konschnik and Ari Peskoe of Harvard’s Environmental Law Program have defended the broader approach taken by EPA. If EPA’s rules ever go into effect, those arguments will have to be resolved in court.

Is EPA’s Proposed 30% Cut Reasonable?

EPA also says it decided to include all power sector emissions because states, industry, and interest groups all asked for compliance flexibility. And a state cap is flexible because it allows states to choose any low-carbon path that they like: natural gas or energy efficiency, nuclear or wind.

But calling EPA’s statewide caps “compliance flexibility” takes enough chutzpah to make you smile when you’re reading a 645-page proposed rule. Some states are, of course, delighted by EPA’s caps, which validate their pre-existing attempts to lower their greenhouse gas emissions. But the point of EPA’s state-wide caps is to force more greenhouse gas emissions: if EPA limited itself to coal plants, it could only cut emissions by 4-6% without shutting them all down. Many states requesting “compliance flexibility” were hoping to use alternate methods to make that 4-6% cut. Instead, EPA is requiring a 30% cut on average.

It’s as though you asked for an extension on a ten-page paper and your teacher said, “Sure—and since you have more time, make it twenty pages.” So EPA will have to convince the courts not only that it can sweep all power sector emissions into one rule, but also that it can use that wider scope to justify more dramatic reductions.

Will this Administration and Future Administrations Stand Behind This Rule?

This rule will not require states to cut greenhouse gas emissions until 2020, long after President Obama leaves office in 2016. And the proposed rules would run through 2030, by which time there may have been four more presidencies. So the future of EPA’s proposal will not turn on any particular politician; it will depend on the political and legal sustainability of the rules.

And EPA’s existing carbon rules have long been subject to political winds. In 2010, EPA promised to issue today’s proposal by July 2011, and finalize it by May 2012. Then, in the run-up to the 2012 election, it delayed these rules indefinitely. Now the rules are on again, and EPA says it will finalize this rule in June 2015, and will expect state implementing plans from 2016 to 2018, after President Obama has left office. Whether that schedule will stick remains to be seen.

 

 

(d) Standards of performance for existing sources; remaining useful life of source

(1) The Administrator shall prescribe regulations which shall establish a procedure similar to that provided by section 7410 of this title under which each State shall submit to the Administrator a plan which

(A) establishes standards of performance for any existing source for any air pollutant

(i) for which air quality criteria have not been issued or which is not included on a list published under section 7408 (a) of this title or emitted from a source category which is regulated under section 7412 of this title but

(ii) to which a standard of performance under this section would apply if such existing source were a new source, and

(B) provides for the implementation and enforcement of such standards of performance. Regulations of the Administrator under this paragraph shall permit the State in applying a standard of performance to any particular source under a plan submitted under this paragraph to take into consideration, among other factors, the remaining useful life of the existing source to which such standard applies.

(2) The Administrator shall have the same authority—

(A) to prescribe a plan for a State in cases where the State fails to submit a satisfactory plan as he would have under section 7410 (c) of this title in the case of failure to submit an implementation plan, and

(B) to enforce the provisions of such plan in cases where the State fails to enforce them as he would have under sections 7413 and 7414 of this title with respect to an implementation plan.

In promulgating a standard of performance under a plan prescribed under this paragraph, the Administrator shall take into consideration, among other factors, remaining useful lives of the sources in the category of sources to which such standard applies.

 

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