Archive: April 2014

1
EPA Survives Challenge to Cross Border Air Pollution Rule
2
Upcoming Event: Investing in Renewable Energy 2.0
3
New Turns in Germany’s Energy Turnaround
4
Energy Tax Incentives Prominent in Senate Finance Committee’s Extenders Package

EPA Survives Challenge to Cross Border Air Pollution Rule

Yesterday the U.S. Supreme Court upheld the U.S. Environmental Protection Agency’s (“EPA”) regulation of cross border air pollution.  In a 6-2 ruling,[1] the Supreme Court reversed the D.C. Circuit, holding that EPA’s cross border air pollution rule (the “Transport Rule”)[2] did not violate the Clean Air Act (“CAA”) by establishing a new federal scheme for regulating upwind emissions that drift over state lines.  The decision likely will impact those power plants in “upwind states” that contribute to cross border air pollution by imposing more stringent air emissions limits for those facilities.  However, the decision may also spur an increase in development of renewable energy and lower emission natural gas fired plants.

The Transport Rule establishes good neighbor obligations among 28 states for three primary pollutants: NOX, SO2, and ozone, and EPA has established National Ambient Air Quality Standards (“NAAQS”) for each of these pollutants.[3]  Any state whose ambient air quality exceeds the NAAQS is considered in “non-attainment.”  The CAA requires that upwind states, whose emissions cause or contribute to exceedances of NAAQS standards in downwind states, control their emissions to the extent required to avoid such contribution.  The Transport Rule is made up of two basic components: it quantifies each state’s emissions reduction levels under the good neighbor provision and imposes Federal Implementation Plans (“FIPs”) to implement those reductions at the state level.

EPA calculated the necessary emissions reductions in a two stage approach.  The first stage screens from its requirements all upwind states that contribute less than 1% of any downwind state’s nonattainment.[4]  The second stage applies a multi-factor assessment to set reductions in those upwind states on a cost-per-ton reduction basis (which relied on the costs to install pollution reduction technology) that was distributed across all power plants in the upwind states.[5]  Finally, the Transport Rule proposed to achieve cost-per-ton reductions over multiple years, beginning in 2012 and relying on a maximum budget for each pollutant that a state’s power plants may collectively emit through 2014.[6]  Since EPA found that many State Implementation Plans (“SIPs”) did not properly provide for these emissions budgets, EPA invalidated those SIPs and instead required those states to comply with new state-specific FIPs.  It did so without giving the states an opportunity to correct their SIPs based upon EPA’s objections, and (at least according to some) without giving the states guidance on how to address those objections.

The Supreme Court reviewed the D.C. Circuit Court’s conclusion that the Transport Rule exceeded EPA’s statutory authority to impose more stringent air quality requirements through the good neighbor provisions of the CAA.  First, the D.C. Circuit Court determined that the Transport Rule exceeded CAA authority because the good neighbor provision could impose emissions reductions on upwind states that could go beyond those states’ significant contribution to downwind air pollution in other states.  Second, the D.C. Circuit concluded that the Transport Rule failed to provide states with the first opportunity to implement the good neighbor reductions through their own SIPs.  Instead, EPA quantified the states’ good neighbor reductions and simultaneously set forth EPA-designed FIPs to implement those obligations at the state level without first providing the states an opportunity to correct their SIPs.

The Supreme Court overturned the D.C. Circuit Court decision, concluding that EPA reasonably interpreted the good neighbor provision and that the CAA did not required EPA to give states  a grace period to file revised SIPs.

It is still uncertain how the Supreme Court’s decision will ultimately affect the implementation of and reductions required under the Transport Rule.  Significant issues lie ahead for EPA related to regulatory impacts and the legal implications for the Transport Rule.  For example, since EPA is already several years behind the start date for the rule—January 1, 2012—the agency will likely have to issue new regulations to modify implementation dates.  Likewise, EPA may need to adjust the Transport Rule to address revisions and updates to air quality standards for ozone and particulate matter.  And finally, EPA may face further litigation that was stayed since the D.C. Circuit decision, or litigation related to technical revisions to the Transport Rule during the stay.[7]

Despite these issues, the Supreme Court decision presents two significant implications. First, by agreeing that EPA may foreclose a state’s ability to determine how emission reductions are to be achieved and allocated among sources, the decision may have changed the fundamental federal/state regulatory relationship under the CAA.  Second, the decision demonstrates the broad deference to EPA on substantive and technical issues, and reaffirms the Court’s view that when reasonable minds differ on technical issues, EPA’s interpretation will prevail as long as it is rational and supported by the record. Both points support EPA’s continuing efforts to impose greater regulation on the fossil fuel industry, which may accelerate the adoption of new pollution control technologies or the replacement of fossil fuel energy production with alternatives that do not emit, or emit less of, these criteria pollutants.

For additional information on the decision underlying the Supreme Court’s decision, see:


[1] Justice Alito did not participate.  Justices Scalia and Thomas joined in dissent.

[2] Federal Implementation Plans: Interstate Transport of Fine Particulate Matter and Ozone and Correction of SIP Approvals, 76 Fed. Reg. 48,208 (Aug. 8, 2011).

[3] For additional details on the regulated pollutants, see 76 Fed. Reg. 48,208.

[4] EME Homer City Generation LP v. EPA, 696 F.3d 7, 11 (D.C. Cir. Aug. 21, 2012).

[5] Id. at 11-12.

[6] Id. at 12.

[7] Utility Air Regulatory Group v. EPA, D.C. Cir., No. 12-1346, 9/27/12; Wisconsin Public Service Corp. v. EPA, D.C. Cir., No. 12-1163, 4/6/12.

Upcoming Event: Investing in Renewable Energy 2.0

On May 15, 2014, K&L Gates will host its annual event on investment in renewable energy in its Frankfurt office. The event is co-sponsored by Grontmij and Alexa Capital.

The program will address recent developments that shape the environment of investment in renewable energy, focusing on investment in the UK while also covering German and European trends.

As in previous years, the program will combine legal and commercial perspectives, and presents speakers with professional backgrounds in project development, M&A, finance and law, all widely experienced in the renewable energy sector.

This year, program and speakers include:

  • The Development of the Yield Co: implications for investing in renewables and energy

Gerard Reid, Partner, Alexa Capital

  • UK Energy Market Reform: what it means for investors

Anthony Fine, Partner, K&L Gates, London

Paul Tetlow, Partner, K&L Gates, London

  • UK Power Grids: opportunities and solutions for renewable energy industry

Vijay Shinde, Head of UK Grid Services, Grontmij, Newcastle

  • Power Purchase Agreements (PPAs): the growing need and what it means for renewable investors

Dr. Felix Grolman, CEO, Grundgrün Energie GmbH

  • The Future of Offshore Wind

Ian Nolan, Chief Investment Officer, Green Investment Bank 

  • Yield Cos: strategies to lower the cost of capital

Mark Henderson, Partner, Greencoat Capital

Nick Boyle, CEO, Lightsource 

  • Development Companies: entering and operating in the UK

Thomas Kercher, CEO, PFALZSOLAR GmbH

Oliver Christof & Constantin Windisch-Graetz, Christof AG

  • Renewable Energy 2.0: what it means for all of us

Anthony Fine, K&L Gates (Chair)

Vijay Shinde, Grontmij

Gerard Reid, Alexa Capital

Felix Groelman, Grundgrün Energie GmbH

Mark Henderson, Greencoat Capital

Nick Boyle, Lightsource

For more information: click here.

For registration: click here.

New Turns in Germany’s Energy Turnaround

In March 2014, the German government presented the details of its plans for changes in the country’s renewable energy support scheme. The planned legislation (the “Draft”), which passed the cabinet on 8 April 2014, seeks to curb the increase of energy costs and to promote a stronger market integration of renewable energy production.

Under the Renewable Energies Act (“EEG”), renewable energy producers are entitled to fixed feed-in tariffs and to priority feed-in into the grids. The spread between the market price and the feed-in tariff is levied to electricity consumers by a renewable energy surcharge (“EEG Surcharge”) whereby energy-intensive industries benefit from a reduction.

Under the EEG support scheme, renewable energy sources have experienced a boom in Germany, now serving as a source for about 25 % of the country’s electricity consumption – four times as much as a decade ago. In turn, the system has increasingly been put under political pressure as energy costs (especially for households) continue to increase. In addition, the support scheme is held to produce a paradox effect: whereas consumer prices increase due to the EEG Surcharge that levies the feed-in tariffs, wholesale electricity prices plunge because the rapidly growing renewables are flooding the market. The effect of this price development is tangible: Germany’s second largest utility, RWE AG from Essen, whose core business is electricity delivery, has announced a net loss for the year 2013 of 2.8 billion Euros. It was RWE’s first loss-making year since the end of the Second World War. Read More

Energy Tax Incentives Prominent in Senate Finance Committee’s Extenders Package

The Senate Finance Committee approved its long-awaited tax extenders package on April 3, 2014. The Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act, which the Committee approved by voice vote, would extend dozens of temporary tax incentives that expired at the end of last year or are set to expire at the end of this year. Moreover, the package includes numerous energy tax incentives that lapsed at the end of last year.

The EXPIRE Act would extend the following energy tax provisions:

  • * Production tax credit and investment tax credit with respect to facilities producing electricity from certain renewable sources (e.g., wind) (Sections 45 and 48)
  • * Deduction for energy efficient commercial building property (Section 179D)
  • * Credit for residential energy efficient property (Section 25C)
  • Alternative fuel refueling property credit (Section 30C)
  • Credit for electric motorcycles and three-wheeled vehicles (Section 30D)
  • Second generation biofuel producer credit (Section 40)
  • Special depreciation allowance for second generation biofuel plant property (Section 168(l))
  • Tax credits for biodiesel and renewable diesel (Section 40A)
  • Credit for the production of Indian coal (Section 45(e)(10))
  • Credit for energy efficient new homes (Section 45L)
  • Alternative fuel and alternative fuel mixture credit (Sections 6426 and 6427(e))
  • Credit for new qualified fuel cell motor vehicles (Section 30B) (expires in 2014)

* Provision was not included in Senator Ron Wyden’s (D-OR) “Chairman’s mark” but was added to the package before the Committee’s mark-up.

That said, the EXPIRE Act is, for the most part, a “clean” extenders package, meaning that the proposal mostly changes termination dates and includes few changes to underlying policy. As a result, certain modifications sought by the renewable energy industry were not included. For example, the proposal would not expand Master Limited Partnerships (MLPs) along the lines of Senator Chris Coons’ Master Limited Partnerships Parity Act (S. 795). Additionally, the EXPIRE Act would not impose a “commence construction” requirement (as opposed to a “placed in service” requirement) with respect to solar projects under the investment tax credit under Section 48. Finally, it would not extend the credit for energy efficient appliances under Section 45M.

K&L Gates hosted Chairman Wyden for a breakfast meeting on April 8. Wyden stated that he is working with Senate leadership on a strategy that would bring the EXPIRE Act to the Senate floor. Some staff indicate that floor action could occur as early as the next congressional work period, during the weeks of April 28 or May 5. Meanwhile, the House Ways and Means Committee may also consider energy tax incentives soon as part of its planned series of hearings on tax extenders.

We will provide more updates as this debate unfolds over the coming months.

Copyright © 2019, K&L Gates LLP. All Rights Reserved.