Read more articles from the April 2016    Energy Update newsletter >

The United States and China Commit to Signing the Paris Agreement

UN Secretary General Ban Ki-moon is hosting a Paris Agreement signing ceremony at the UN headquarters in New York on April 22, 2016. It is anticipated that up to 130 countries will sign the agreement that day. If 130 countries do sign the agreement on April 22, 2016, it will represent the highest number of countries that have signed an international treaty in a single day (in 1994, 119 countries signed the Law of the Sea Treaty in a single day).

Critically for the prospects of the Paris Agreement coming into effect, the United States and China issued a joint presidential statement on March 31, 2016, confirming that both countries will sign the agreement at the April 22, 2016 signing ceremony. The United States and China were two of 195 countries that approved the agreement at the Paris summit (also known as COP21) on December 12, 2015. The agreement will not become binding unless and until it is adopted by 55 countries that, in the aggregate, account for at least 55 percent of greenhouse gas emissions. The ratification process formally begins in April 2017, one year after the April 22, 2016 signing ceremony. China and the United States are the largest and second largest emitters of greenhouse gases.

For the United States, the agreement is not a treaty, and therefore will not have to be ratified by the US Senate. The pertinent provisions of the agreement will become effective within the existing United Nations Framework Convention on Climate Change, a treaty which was ratified by the Senate in 1992.

Once in effect, the United States and other participating countries will be required to establish greenhouse gas reduction commitments and to submit new commitments every five years. The goal, as announced at COP21, is to ensure that the ongoing warming of the planet stays “well below” 2 degrees Celsius above pre-industrial global temperatures, and to “pursue efforts” to limit the temperature increase to 1.5 degrees Celsius.

The agreement does not specify the methods of emission-reduction that countries must implement – this is left up to each participating country.

The US Supreme Court Stays Implementation of the Clean Power Plan

Assuming the Paris Agreement goes into effect, the ability of the United States to meet its obligations might pivot on how the US Environmental Protection Agency’s (“EPA”) Clean Power Plan fairs in the courts. The Clean Power Plan, President Obama’s signature initiative to control greenhouse gas emissions under the US Clean Air Act, established standards to limit the emission of carbon dioxide pollution from existing power plants. The plan promulgated interim and final statewide goals for carbon-dioxide emission reductions. Under the plan, states would be required to submit implementation plans by 2018 and show carbon dioxide emission reductions by 2022.

The Clean Power Plan suffered a setback, although potentially only a temporary one, when on February 9, 2016 the US Supreme Court voted five to four to stay its implementation pending the resolution of challenges to the plan in the D.C. Circuit Court of Appeals. At least five separate stay applications had been lodged by dozens of states and various affected industry groups prior to the Supreme Court’s issuance of the stay.

As a practical matter, the issuance of the stay will preclude the EPA from taking actions to enforce or implement the plan pending resolution of the challenge. Most likely, power plants will now refrain from making expensive investments in carbon-emission control efforts until the legality of the plan is decided in court. The D.C. Circuit has scheduled oral arguments for June 2, 2016, and a decision would most likely come in the Fall of 2016 or later.

A writ of certiorari petition could follow the D.C. Circuit ruling, placing the ultimate fate of the Clean Power Plan back in the US Supreme Court. In considering this scenario, it is potentially significant that the five-judge majority that voted in favor of the stay included the late Justice Antonin Scalia. Justice Scalia died on February 13, 2016, four days after issuance of the stay. If a new Justice is not seated when the Clean Power Plan comes before the Supreme Court, and the remaining eight justices split the vote four-four, whatever the D.C. Circuit rules will be automatically upheld.

If a new Justice is seated, then he or she might break a tie between the four conservative Justices and four liberal Justices. Merrick Garland, President Obama’s nominee to fill Justice Scalia’s seat, has in past rulings evinced an inclination to defer to federal agencies, including the EPA. For instance, in April 2014 he was part of the D.C. Circuit majority that upheld the EPA’s Mercury and Air Toxics Standards rule that limited mercury emissions from power plants.

The Clean Power Plan is the first initiative to limit heat-trapping gas emissions from existing power plants. Notably, the stay will not affect the EPA’s regulations that limit carbon emissions from new or modified fossil fuel-fired power plants.

Other Federal Developments 

The fate of the Clean Power Plan is likely the most significant factor that will impact both US efforts to comply with the Paris Agreement and the United States’ future energy-generation mix – what percentage of energy generation will be fired by coal and oil, and what percentage will be fired by natural gas or nuclear fuel, or will otherwise be derived from renewable sources such as wind and solar. That said, there are other Federal initiatives that will likely impact these issues. As of this update, many of the initiatives tend to favor natural gas, nuclear and renewables over coal and oil. 

On the renewables front, in December 2015 Congress extended the production tax credit and the investment tax credit that incentivize the development and production of wind and solar energy. One initial estimate by Bloomberg New Energy Finance suggested that the net result of the extensions could be to spur on $73 billion in new investments and to provide access to renewable energy to more than eight million additional households.

In March 2016, the US Department of the Interior’s (“DOI”) Bureau of Ocean Energy Management announced that Trident Winds LLC is qualified to develop its proposed 800-megawatt wind farm, and that going forward DOI would ascertain whether other companies were interested in the subject lease area. The Trident proposal calls for 100 floating turbines. If DOI determines other companies are interested, it will initiate a competitive bidding process. The lease area is located approximately 33 nautical miles northwest of Morro Bay, California. The project, if followed through to completion, would be the first offshore wind project in California. The DOI has also awarded 11 wind energy leases in federal waters off the Atlantic Coast. The first wind farm in federal water, located off the coast of Rhode Island, is expected to be completed in 2017.

Also in March 2016, the US Bureau of Indian Affairs released a final Environmental Impact Statement (“EIS”) for a proposed 100-megawatt solar energy plant. The plan, proposed by the Moapa Band of the Paiutes, would be located on the tribe’s reservation near Las Vegas, Nevada. The EIS addressed the consequences of the project’s construction and operation on soil, water resources, air quality and wildlife in the vicinity of the reservation. The tribe would lease the land to First Solar. It is anticipated that construction would take 12 to 15 months, and First Solar would operate the plant for 30 years with a possible 10-year renewal.

Just as there are Federal initiatives that tend to incentivize and green light renewable projects, other Federal developments would appear to hamper more greenhouse-gas intensive energy production, in particular energy derived from coal. For example, in January 2016 the Secretary of the DOI announced a three-year moratorium on coal leases on federal land while it reviews the federal coal program. The review will include an evaluation of the royalties it charges and the program’s impact on global warming. Given that approximately 40 percent of United States coal is mined on federal land, this development will likely put upward pressure on the cost of coal just as the price of natural gas, a chief competitor, remains at historically low levels.

With respect to methane regulations, new Federal initiatives will likely increase costs for extracting both oil and natural gas. Methane is a potent greenhouse gas; it remains in the atmosphere for a shorter time than carbon dioxide, but traps a proportionately greater amount of heat. In March 2016, the US EPA announced it would develop rules to reduce methane emissions from existing oil and gas infrastructure. As a first step, the EPA will issue a formal Information Collection Request to enable it to gather information regarding the hundreds of thousands of existing sources, including information relating to reduction technologies and their costs and feasibility. The Obama administration intends to reduce methane emissions from the oil and has sector by 40 to 45 percent from 2012 levels by 2025. The US EPA’s new methane initiative is mirrored by similar Canadian initiatives. 

State Developments

Apart from Federal initiatives, States continue to propose and implement measures that affect the economic prospects of various energy sources, including passing laws that limit or eliminate their utilities from obtaining electricity from coal-fired power sources and that expand their Renewable Portfolio Standards, or RPSs. For instance, in March 2016 Governor Kate Brown of Oregon signed a law that, starting in 2030, bars coal-fired generation plants from contributing electricity to the State’s two major utilities. Under the law, the phase out of coal-fired power would be complete by 2035. The law also increases the scope of the State’s RPSs. The RPSs had directed State utilities to obtain at least 25 percent of their electricity from renewable sources by 2025; the law increases this percentage to 50 percent by 2040.

The Oregon law could lead to intra-State litigation, pitting states such as Oregon that wish to eliminate coal-fired power from their energy mix against states such as Kentucky that are more reliant upon and committed to coal mining and coal-fired energy production. Opponents of efforts to regulate or eliminate obtaining power from coal-fired plants, including those in other States, argue that such efforts violate the Commerce Clause of the US Constitution preventing a State from unduly regulating commerce with a sister State.

Both proponents and opponents of the Oregon law are following a dispute between Minnesota and North Dakota that is currently being contested in the Eighth Circuit Court of Appeals. Minnesota in effect bars new coal-fired plants from supplying electricity to its utilities; the Minnesota law mandates that new power plants that produce 50 or more megawatts of electricity and increase carbon dioxide emissions are barred from supplying the State electricity. Much of Minnesota’s power has traditionally been generated in coal-rich North Dakota. Minnesota lost round one; a US District Judge ruled that Minnesota’s law directly regulated commerce with North Dakota in violation of the Commerce Clause. Minnesota has appealed to the Eighth Circuit.