Changing Climate

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When you ask environmental lobbyists and lawyers what's afoot in Washington these days, the phrase that keeps recurring is "sea change." The Obama administration has made clear from Day One that it intends to curb carbon emissions, rewrite or ditch Bush-era pollution rules and reinvigorate environmental enforcement. At the same time, the stimulus bill demonstrated that President Obama believes investing in green energy will rekindle the economy.

"Pay attention to what's going on in Washington," advises John Sweeney, a member at Womble Carlyle Sandridge & Rice and chair of the Defense Research Institute's Climate Change Litigation Task Force. "They're talking about a sea change in how we do business. They're literally talking about moving to what I would call a carbon-constrained economy as opposed to an economy in which carbon is unconstrained. At the same time, there'll be very aggressive, across the board environmental enforcement of both new legislation and new regulations."

So while most of corporate America is preoccupied with the economic crisis, Sweeney says in-house counsel need to speak up about environmental policy now.

"Don't kid yourself," he adds. "What's going on in Washington is going to profoundly change American business."

On the following pages, InsideCounsel examines some of the key changes environmental law experts expect.

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Carbon Caps
GCs have a brief window to help shape massive new climate change policy.

The most expansive new regulatory regime in a generation is on the way, and in-house counsel had better be ready.

The Obama administration has made it clear that capping carbon emissions will be a top priority, but developing a system to regulate emissions and create a market for the exchange of carbon credits will be an incredibly complex process. The only regulatory system that compares in scope, experts say, is the tax code.

"Carbon dioxide regulation is unlike anything we've ever done in this country," says Peter Glaser, a partner at Troutman Sanders. "Everything emits carbon dioxide. Something like 80 percent of the fuel we use in the country emits carbon dioxide. It's ubiquitous. Every sector of the economy will be affected."

Given the stakes, in-house counsel can't afford to take a wait-and-see approach. They must at least be conversant on the issues, because legislation and regulation is being shaped now that will affect their companies for decades to come.

"In-house counsel need to get educated on the subject and intensively monitor what's happening on Capitol Hill," Glaser says. "In a carbon-constrained world there will be winners and losers, risks and opportunities, but it's such a big issue that people have a hard time getting their arms around it."

Legislative Outlook

It is widely assumed that the focal point of any comprehensive carbon emissions policy will be a cap and trade market. Emission allowances are capped at a baseline, and then diminish over time. Companies that come in under the cap have credits to sell. Companies that exceed the limit must buy allowances on the market. The market is simple in concept, but there are innumerable variables to consider.

"Establishing a cap and trade market is mind-bogglingly complex," says Craig Gannett, a partner at Davis Wright Tremaine. "You have to figure out who has to participate, how they are to manage reductions, how they are to engage in the trading process, and how all that is to be measured and documented." Not to mention determining the repercussions for those that fail to meet the new requirements.

This complexity makes for bloated and unwieldy legislation. The only cap and trade legislation to make it to the floor so far--the 2007 Lieberman-Warner-Boxer bill--was so long and complicated it effectively collapsed under its own weight. Legislators are determined to craft a more viable, streamlined bill with their next effort, but that will take time.

One of the first questions lawmakers must address is whether a cap and trade bill would focus initially on segregated parts of the economy. The utility sector, no stranger to regulation, already has a cap and trade system for acid rain emissions, so it is a logical starting point.

"I think it's very unlikely Congress will pass a cap and trade bill this year," Gannett says. "Next year, maybe. More likely to be passed this year is legislation on a renewable portfolio standard that would require utilities to include a certain percentage of renewables in their portfolio of generation assets. That's relatively simple in that it's regulating a fixed set of entities that are accustomed to being regulated."

A phased roll-out would allow time to work out any kinks in the system, but it would also make for more gradual emissions reduction. The commonly stated goal--and Obama-Biden campaign pledge--is to reduce emissions by 80 percent by 2050. But whether that means equal incremental reductions every year, or an accelerating reduction curve that banks on technological gains, remains to be seen.

Perhaps the thorniest question is whether carbon allowances will be allocated or auctioned. In a cap and trade system, you need an allowance for every ton of carbon you emit. The key question is whether companies will have to buy all their allowances, or if the government will give them an allocation corresponding to their cap. Lieberman-Warner-Boxer proposed a hybrid approach, with allocations early, phasing into auctions later on.

"It's a huge issue," Glaser says. "If you have to go out and buy allowances, you have a major new cost hit. On the other hand, for the government it means a lot of new revenue to subsidize alternative energy."

Other significant issues include determining whether there will be a cost cap for allowances--a measure that would afford some cost certainty, but at the expense of effectiveness--and whether carbon offsets will be considered.

Offsets may prove particularly vexing because they introduce the concept of "additionality." In other words, would the offset activity have happened anyway, even if the offset had not been sold? And because offsets are frequently cross-border, auditing is an issue as well.

"There's some concern that planting trees in Brazil might not be as verifiable, and thus more prone to fraud," Glaser says.

Multiple Markets

After a law is passed, focus shifts to the federal agencies, primarily EPA. The notice and comment process for regulations governing the program will be as complicated as the legislation process. Then comes litigation.

"Undoubtedly, scores of entities will sue," Gannett says. "Judges will be asked to stay the regulations until one legal issue or another is resolved. I think it could take five years just to get the domestic market sorted out."

But that's just one market. Other carbon markets are evolving, both internationally under the Kyoto Protocol and domestically on a state or regional basis.

The Kyoto Protocol features a cap and trade market for industrialized nations--the so-called Annex I countries. Although the market had a rocky start in 2005 with an excess of allowances issued and a resulting price collapse, it has since found its feet. By 2007 the market was valued at $60 billion. Kyoto also allows for offset trading with non-Annex I countries in the developing world.

In the U.S., state and regional carbon-market efforts spun up because of the clear lack of federal action under the Bush administration. The Regional Greenhouse Gas Initiative, a coalition of 10 Northeastern states, has instituted a cap and trade system for electric generators and began auctioning allowances in the fall of 2008. The Western Climate Initiative, a group of seven western states and four Canadian provinces, has similar ambitions.

"I think ultimately [the regional carbon markets will] get rolled up into the federal program," Gannett says. "But for now they're marching down a path that will have them up and running first."

In addition to these mandatory markets, various carbon registries and voluntary markets, such as the Chicago Climate Exchange (CCX), have also emerged.

"I was renting a car the other day, and if I wanted to pay an additional $1.85, the company would match that, and it would offset the greenhouse gas emissions from my car trip," Glaser says, speculating that "somebody made a reduction that got certified, and that becomes marketable to a company like Enterprise Rent-A-Car." (In fact, Enterprise's carbon-offset program is funded by TerraPass, which transitioned from the CCX to other offsets markets in 2007.)


Puzzle Pieces

Each existing carbon market, whether mandatory or elective, has something to offer a new U.S. system, but none is considered a prototype. A regional effort that affects the utilities on a single grid, for example, can offer insight on the operation of a spot market for emissions trading. But it is not nearly as comprehensive as a system that would regulate emissions from the entire economy.

However, there is growing interest in making carbon allowances fungible, so that markets can interconnect and allow companies to globally manage an issue that is fundamentally global.

"There are no boundaries. Reductions here in Brazil can have an impact in Iceland or in Russia," says Vladimir Abreu, a partner at Tozzini Freire in S?o Paulo. "Projects that generate carbon credits in Brazil or anywhere else in the world would be entitled to be traded in the American market, as is the case in the European market. If it does happen, it will represent a huge incentive to invest in sustainable development."

Despite the Obama administration's clear climate change agenda, the U.S. is unlikely to sign onto a Kyoto-type international treaty because the Senate almost certainly could not muster the two-thirds vote required for ratification. There is some speculation that the administration is pursuing agreements that would not require ratification, but by definition they would not be binding and thus probably less effective.

Most experts predict a patchwork of international markets, with the anticipated U.S. carbon market being a large piece of the global puzzle.

And the time for U.S. companies to make their voices heard is before that puzzle is put together.

"In-house counsel need to make their views heard, either through trade associations or through direct feedback to their federal and state legislators," Gannett says. "The next 12 to 24 months is when the system will be constructed. The longer affected parties sit on the sidelines, the less impact they will have on the shape and structure of this new regulatory regime."

This much is clear: It's a question of when, not if. So companies intent on going to Washington should come with a constructive agenda. "There's a lot of pent-up desire [in Washington] to get something done on this issue," Glaser says. "You can't come with an attitude of 'No.' You have to come with an attitude of 'Yes, if...'"

Air Attacks
Mercury and other toxic emissions emerge as priority targets in the new administration's war on pollution.

When it comes to air pollutants, there's no doubt carbon dioxide is the 800-pound gorilla in the room. For the past several years, the potentially devastating impact of carbon-generated climate change has dominated the national debate and superseded worries about the health impact of other air-born toxins in the public mind. That dovetailed with the Bush administration's laissez faire attitude toward environmental controls, resulting in a period of watered down regulation and relaxed enforcement of federal Clean Air Act standards covering mercury, ozone and other pollutants that endanger human health.

President Obama seems determined to change all that. One of his first official acts was to drop a Supreme Court appeal of a D.C. Circuit decision rejecting Bush administration rules that would have allowed power plants to purchase mercury emissions credits instead of actually reducing emissions. Lisa Jackson, new administrator of the Environmental Protection Agency (EPA), said the agency would draft new regulations, widely expected to limit mercury output from every plant, to replace the regional trading program the appeals court threw out.

The fact that the administration immediately put the media spotlight on the mercury pollution issue signals a new era.

"For the past eight years, the types of [air pollution] cases the USEPA took were not [major] cases that deserved a lot of press," says Steven Murawski, a partner at Baker & McKenzie. "Now I think there will be a lot more press, and it will be a lot more expansive than just talking about climate change."

EPA watchers think the new mercury rules will be just the first of several Bush-era air pollution approaches the Obama administration will dump in favor of tighter controls. Fine particulate matter (PM 2.5), sulfur dioxide (SO2) and nitrogen oxides (NOx) are all likely targets. In fact, the National Resources Defense Council and Earthjustice, the legal arm of the Sierra Club, submitted a 35-page petition to the EPA Jan.14 calling for review of dozens of emissions regulations.

"We pointed out that virtually every one of their standards on air toxins is illegal based on precedents from the D.C. Circuit and every one of them has to be redone, which is a huge task," says James Pew, an attorney for Earthjustice.

Steven Shimberg, of counsel at DLA Piper, warns that as the federal government tightens pollution standards the states must meet, the scope of affected businesses will expand. For example, states are struggling to meet EPA attainment standards for ground level ozone that were tightened last year.

"Because the problem is so large, state plans [for attaining federal standards] tend to make the regulated community larger and larger, bringing more companies in to spread the pain," Shimberg says. "It's not just the large industrial plants that will have to cope."

Left in Limbo

One major regulatory issue affecting a wide swath of industries--from utilities to cement plants to brewers--is clarification of New Source Review (NSR) standards, which for three decades have spawned confusion and litigation. Essentially, NSR requires that old plants undergoing major modification meet the higher emissions standards required of new sources of pollution. The Bush EPA proposed several changes to the NSR rules, some still pending and others struck down by the D.C. Circuit. Among the proposed changes now in limbo is one that attempted to clarify a key point of contention: A series of relatively small modifications to a plant can be aggregated to constitute a "major" modification that triggers NSR, but over how many years can that aggregation extend?

"The Obama administration will have the difficult task of trying to sort through [the pending NSR rules] in light of the D.C. Circuit opinions and hopefully bring some clarity so industry understands what the rules are," says Dennis Arfmann, partner at Hogan & Hartson.

In the meantime, industries planning expansion or modernization projects are in limbo because the president--on Inauguration Day--ordered an immediate freeze on pending NSR rules and other environmental regulations that had not become effective pending a review by his appointees.

"This is important because it affects the certainty of projects right now [from companies that] were looking at the rules and expecting that the regulatory process is over," Murawski says. "The administration can take many different actions that have a direct impact on whether those rules go forward or are withdrawn or look completely different."

Shimberg, who was an administrator for the EPA's Office of Enforcement and Compliance Assurance from 2001 to 2005, says NSR will be a major focus of a revitalized air pollution enforcement effort. He points out that when Carol Browner--now Obama's energy and climate czar--headed the EPA during the Clinton administration, she launched a series of NSR enforcement actions. The Bush administration took a much less aggressive approach.

"Guess what, the old sheriff is back in town," Shimberg says. "A lot of the people involved in putting together the original enforcement program are back. I would advise people to be on the lookout for a much more rigorous enforcement program."

Indeed, in a Feb. 4 press release announcing a NSR action against Kansas-based Westar Energy, the DOJ outlined damage that coal-fired power plant emissions can cause. It concluded, "To combat these adverse effects, the EPA and the Justice Department are pursuing a national initiative, targeting electric utilities whose coal-fired power plants violate the law."

Arfmann contends that for U.S. industry, the timing couldn't be worse.

"There will be a whole slew of new enforcement actions, all of which are hitting industry at the wrong time because of the issues we are facing in the economy," he says.


Cost-benefit Caveat

Arfmann's point raises the question of how much leeway the new administration may give industry in light of soaring unemployment and its commitment to saving jobs.

"The challenge for the administration is that if it is going to impose strict regulations, there has to be a reality check on whether there is a way to do it [without forcing companies to close plants]," Murawksi says.

Shimberg says the recession won't affect what enforcement actions the EPA brings, but it may affect the outcome for companies found in violation of air pollution standards. For example, the government might give a company more time to install a scrubber. "That is where issues of economic consideration come into play," he says.

But others think the Obama administration may pleasantly surprise business--and disappoint the environmental community--with a pragmatic approach to regulation and enforcement of air quality and other pollution rules.

Jerome Maynard, a member at Dykema, expects aggressive action to modify or reverse Bush-era pollution policies--but with a caveat. He points out that Obama has appointed Harvard Law School Professor Cass Sunstein to head the Office of Information and Regulatory Affairs, the gatekeeper for proposed government rules, including environmental rules. Sunstein is known as an adamant proponent of tying regulation to cost-benefit analysis.

"While many environmentalists argue cost should not be a factor, this [appointment of Sunstein] is a clear signal that there will be a role for cost-benefit analysis [in air pollution regulation]," Maynard says.

Water Wars
Pending litigation and new legislation will shape the Obama administration's policies on water pollution.

Just a day after President Obama's inauguration, the director of the White House Office of Management and Budget released a memo drawing a line between the new administration and the previous president's environmental policies.

"You may consider the appropriateness of not defending a legally doubtful rule in the face of a judicial challenge," wrote Peter Orszag, clarifying Chief of Staff Rahm Emanuel's memo from the day before, which allowed federal agencies to withdraw new, unpublished policy rules and delay the enactment of impending rules.

Neither memo specifically mentioned water pollution regulations, but the Obama administration's swift steps to abandon Bush-era practices and policies could have a big impact on water issues facing in-house counsel. Obama and his revamped Environmental Protection Agency (EPA) will probably affect the outcome of several water-related lawsuits already winding their way through the federal court system.

"Revisiting the EPA's prior positions could wreak a lot of havoc," says Timothy Bishop, a partner at Mayer Brown. "It could risk the ire of the Supreme Court. There's going to be a period of intense interest on all sides for what they're going to do."

The laundry list of ongoing water-related disputes include a Jan. 7 ruling from the 6th Circuit that the EPA must require National Pollution Discharge Elimination System (NPDES) permits for all aerially sprayed pesticides that drift into water. It overruled a November 2007 EPA rule that said no permit was needed when chemicals were sprayed within their officially approved use.

Additionally, nine states are challenging the Water Transfer Rule, an EPA policy that took effect June 2008 in the U.S. District Court for the Southern District of New York. The rule allows water to be moved from one location to another without any permit, as long as nothing is added to the water during the transfer, Although the rule affects water utility districts more than industry, if the Obama administration decides to withdraw it, the impact would seep into the corporate world. Water bottling processes or flood drainage from company parking lots, for example, might need new permits. "[The rule] ignores the fact that the depositing water body might be dirtier than the one receiving it," says Ed Walsh, a partner at Reed Smith. "That will probably be withdrawn."


Preservation Restoration

Beyond making decisions on whether to try to uphold Bush-era policies in the courts, the new administration is expected to push Congress to pass a revamped and stronger Clean Water Act (CWA).

In 2001, Bishop argued a case before the Supreme Court that struck down the old standard of what waters are covered under the CWA in Solid Waste Agency of Northern Cook County (SWANCC) v. U.S. Army Corps of Engineers. At the time, the CWA's jurisdiction included any body of water where migratory birds could land. SWANCC shrunk the jurisdiction to waters involved in commerce. A few years later, the Supreme Court delivered a fragmented decision in Rapanos v. United States that complicated and obscured the act's jurisdiction to the point of ineffectiveness. The court gave five separate--and divergent--opinions, leaving everyone unclear about which waters are protected under the CWA.

"[After SWANCC,] it looked like the court was going to go off on a clear direction," Bishop says. "Then in Rapanos they divided and didn't give a clear direction. So there's a lot of uncertainty there."

A Congressional investigation in December 2008 reported that 500 clean water enforcement cases had been dropped following the 2006 Rapanos decision. That represents almost half of the EPA's yearly water enforcement docket.

"One of our nation's premier comprehensive environmental laws, protecting the health of our nation's waters, is fundamentally broken," says Joan Mulhern, senior legislative counsel at Earthjustice, the legal arm of the Sierra Club.

So in-house counsel can expect Congress to pass the Clean Water Restoration Act, likely removing "navigable waters"--the phrase from the CWA on which SWANCC was based. The bill has already been introduced, and Obama has publicly stated his support.

If the bill passes, Walsh says the permitting process for clean water issues will become more stringent--and expensive--than it has been for most of the last decade, but it would not be a dramatic change in environmental policy.

"Could it make it more difficult--some hoop jumping? Of course," Walsh says. "But these changes are just going back to the way things were 10 years ago. Folks are not going to be overawed, and the expenses are not going to be as huge as some other [types of environmental] initiatives."

Fill Fight

A limited number of industries will feel most of the effects from shifting water regulations. Agricultural, manufacturing, industrial and mining operations deal most frequently with the problem of water pollution. And for environmentalists, lobbying the Obama administration to restrict mountaintop coal mining is a top priority.

Just before leaving office, President Bush approved a controversial rule making it easier for coal companies to dump rock and dirt into streams and valleys. Environmentalists were already fighting a 2001 EPA rule expanding the definition of "fill material"--material that raises the bottom level or literally fills up a body of water--to allow any sort of waste except garbage. The rule was designed with mining in mind, but it applies to other industries as well.

A group of environmentalists argued this rule conflicts with the CWA's more strict pollution standards. Their case, Coeur Alaska Inc. v. Southeast Alaska Conservation Council was argued before the Supreme Court Jan. 12. The decision could revert "fill material" back to its less broad definition.

During the election campaign, Obama expressed his disapproval of mountaintop mining. More recently, however, it has not appeared to be a priority for the administration.

"I have not heard anything from Obama or his environmental appointees specifically about this fill definition," Mulhern says. "But they certainly heard from us."


Ballast Battle

On the other hand, Obama and Chief of Staff Emanuel have repeatedly mentioned the importance of cleaning up the Great Lakes. The president has promised to invest $5 billion in cleaning up the lakes, on top of $20 billion that Bush called for but never fully funded.

At the top of the Great Lakes agenda is the task of eliminating invasive species, such as the zebra mussel, that often enter the lakes through boats dumping ballast water. Increased scrutiny of how ballast water is treated before being dumped could increase costs for companies with maritime operations.

Curtailing mercury air emissions that drift into the water--especially into the Great Lakes--has also received recent attention from the new administration. The Solicitor General dropped a Supreme Court appeal in February that attempted to preserve an EPA rule many considered too easy on power plant mercury emissions. Some experts expect more restrictions on how much mercury can enter the water, possibly using the law initially intended to protect water sources to reinforce stricter controls on air pollution.

"The EPA is coming to the realization that given the safety factors, no mercury should end up in water ever, which is hard, seeing as a lot of it comes from the air," says Robin Craig, a Florida State University professor specializing in water law.

All in all, Craig says the federal government's attitude has shifted, making water protection and cleanliness a higher priority than it has been for years.

"It's a water agenda unlike any I've seen in any recent Congress. There are a lot of bills introduced just since this new Congress came back in January," she says. "It's clearly a priority not just of the executive branch but of Congress as well."

Bishop suggests that business leaders take a proactive role in helping shape the expected legislation. Don't let environmentalist groups have the only pipeline to government, he says, and try to search for a compromise. Despite the harder line Obama has taken, Bishop is hopeful the president will be willing to listen to business' needs.

"We just have to find a middle ground that allows industry to continue while protecting the environment," Bishop says. "It seems perfectly in keeping with Obama's general approach to things."

Re-Energized
The stimulus and expected energy legislation promise to put renewable energy companies back on track.

Ask around the renewable energy sector about how business is going now and the story you get is almost invariably split into the bad news and the good news. Before last fall, it was all good news.

"For the last several years, the renewable energy industry has been going gangbusters," says Mary Anne Sullivan, co-chair of Hogan & Hartson's climate change practice and former general counsel of the Department of Energy. The intersection of An Inconvenient Truth-fueled public interest in climate change and rising gas prices had the country in a fervor to reduce dependence on fossil fuels. And with both presidential candidates spotlighting renewable energy in their campaigns, it appeared for most of 2008 that the industry was a few policies away from becoming part of the U.S. energy establishment.

Then came the economic downturn, which put the brakes on renewable energy companies. Once unstoppable, they now face the same layoffs and shutdowns that are sweeping through nearly every other U.S. industry.

"You used to not be able to order any significant solar or wind equipment for that year because it was already backlogged into the next year, and you're seeing that change now," says Nicholas Eisenberger, managing principal of green marketing consultant GreenOrder. "The dynamic has shifted."

But while the renewable field has challenges ahead, its long-term outlook remains undeniably bright. If there was any doubt about the new administration's commitment to alternative energy, the stimulus bill President Obama signed in February made it clear. The budget, along with expected legislation on energy policy and carbon constraints, will further position renewables at the center of a new U.S. energy paradigm.

"In many ways, this is the best of times," says Leon Steinberg, CEO of National Wind, a wind energy company that partners with communities and landowners for shared ownership in wind generation facilities.


Saved by the Stimulus

Helping to avert a worst-of-times crisis is the stimulus bill, which devotes more than $70 billion in money, grants and tax incentives to renewable energy and energy efficiency measures.

"Suffice to say, there is enormous interest in the stimulus package because of how bad things are in the renewable energy markets generally right now," says James Wickett, a partner at Hogan & Hartson. "There are many companies that see this package as their lifeline when they're running out of options elsewhere."

The package addresses a key problem for renewables: Their once-valuable tax credits have become much less valuable as the so-called tax appetite has declined. Many of the renewables, armed with tax credits but still-modest profits, have premised their businesses on becoming tax equity partners with financial institutions. But with most investment banks facing sharply reduced profits and thus less tax liability, there is not much demand for the tax credits today.

"That's important to the solar industry because our ability to build projects depends largely on our ability to leverage the existence of a 30 percent investment tax credit (ITC) available to solar projects," says Martha Duggan, vice president of regulatory affairs at SunEdison, the largest solar energy services provider in North America.

To directly address the tax appetite problem through the stimulus bill, the industry fought to create a program under which developers can apply to effectively convert the value of the tax credit to cash. The bill also extends the production tax credit (PTC) for three additional years, which will allow the industry to stabilize and the tax credits to see renewed value. In addition, renewables can now convert the long-term PTC to an ITC with more immediate benefits. And the 30 percent ITC, previously reserved for solar and clean energy companies, now extends to all renewable energy developers, allowing more companies to see up-front tax benefits.

Fizzled Financing

The stimulus package also addresses lack of financing, the other major problem born of the economic downturn. Although National Wind has seen more interest than ever before, "the credit markets are a real problem for us," Steinberg says. "We had four project closings that were scheduled for the fourth quarter of 2008, all of which were delayed because of financing reasons." SunEdison has seen similar credit issues with the big box retailers with which it partners.

So the bill creates a $6 billion loan guarantee program for established commercial renewable energy generation as well as transmission projects. (A previous loan guarantee program was only open to advanced technologies not yet commercialized in the U.S.) Sullivan predicts it could yield as much as $80 billion in financing for established renewable energy technologies. On top of that, the bill provides $1.6 billion in Clean Energy Renewable Bonds to state and local governments, public providers and electric cooperatives for renewable projects.

Also important is money the stimulus will funnel to the states. "The states are actually where the action has been in terms of developing markets for renewable energy, and solar in particular," Duggan says.

These and other provisions of the stimulus bill addressing renewable energy have re-energized a struggling industry.

"This is going to represent tens of millions of dollars of new renewable projects rolling out through the country over the next 18 months. ... Like the president said, we don't know what's going to work and if everything's going to work," Sullivan says. "But speaking as somebody who's been an energy regulatory lawyer for 30 years, I have never seen anything approaching this level of involvement of the government in promoting new energy development."


Grid Gains

All the renewable energy development in the world would do little good without a way of transporting it from generator to consumer. Renewable energy advocates hold up the nation's outdated electric grid as the biggest constraint to renewable energy growth--especially since wind farms tend to be remotely located. The wind industry has made clear the need for higher transmission capacity as well as a "smart grid" to heighten efficiency through digital technology, and lawmakers and the public are taking note.

"It's our 15 minutes of fame," jokes Nina Plaushin, director of federal and legislative affairs for ITC Holdings Corp., the largest independent electricity transmission company in the U.S.

The stimulus addresses the transmission issue, albeit in a short-term way. "Some of the other [energy] provisions in the stimulus bill are probably much more likely to have an immediate impact," Plaushin says. "Whereas to see the kind of jumpstart that we're talking about in transmission, you'd have to see larger regulatory reforms."

In particular, the industry hopes to see broader and more comprehensive planning and siting processes.

"The existing regulatory/legal paradigm really grew up around a time when generators strung transmission lines to connect to their customers," says Dan Oginsky, general counsel of ITC. Now, massive projects span states, municipalities and service territories, multiplying the legal and regulatory hurdles. "Very important projects get lost in regulatory land," Oginsky says.

The forthcoming energy bill should address many of those concerns, and will also set forth longer-term energy policy.

"It's hard to predict exactly what will be going in that bill, but certainly there will be a lot of attention paid to renewable energy," Eisenberger says. He notes that Secretary of Energy Steven Chu is passionate about climate change and "his personality is such that once he digs his teeth into something, he doesn't let go."

One piece that failed to make it into the final stimulus package but almost definitely will appear in an energy bill is a federal renewable portfolio standard requirement, which would mandate that a certain percentage of the nation's energy come from renewables. Obama's suggested targets are 10 percent by 2012 and 25 percent by 2025. Also on the horizon is cap and trade legislation to limit carbon emissions, of which conventional utilities are the largest contributors. Both prospects would significantly heighten demand for renewable energy.

"The Obama administration in particular but also the Congress are putting an emphasis on renewable energy projects--that's going to drive it," says John McAleese, a partner at Morgan, Lewis & Bockius. "Couple that with increased regulation on greenhouse gas emissions, and over the next few years we're going to see a drastic increase in renewable projects."

The In-house Investment
Obama adviser sees opportunity for legal departments to shape changing environmental policy.

Howard Learner, president and executive director of the Environmental Law & Policy Center, served as one of President Obama's environmental advisers during the 2008 campaign. While his official role ended Nov. 4, Learner remains involved in a variety of ways with the administration's federal clean energy and environmental policy. He talked to InsideCounsel about the implications of those policies.

Q: How is the U.S. role in the green movement changing?

A: For the past 50 years, we've essentially relied on coal plants and nuclear plants to supply the overwhelming share of electricity to our homes and businesses. The U.S. has been behind Europe, Japan and some other Asian countries in terms of wind and solar power development. As President Obama has recognized, the time has come for the U.S. to move aggressively forward to capture both the economic and the environmental advantages of new clean energy technologies and be a world leader in the growing green economy. The policies to get us there will drive innovation. For example, the economic stimulus bill provides many billions of dollars for energy efficiency.

Q: Why is it crucial to act immediately?

A: The Intergovernmental Panel on Climate Change, which won the Nobel Peace Prize with Al Gore [in 2007], has made it very clear that strong corrective action is necessary now. When it comes to solving our global warming problems, we can't treat this like a TiVo--hit the pause button and come back five years later when the economy's doing much better. We need to step up now to reverse the course of climate change.

There seems to be an assumption that it will be too costly to solve our global warming problems and that we can't afford that when the economy is in treacherous times. The fact of the matter is energy efficiency, which is the best, the fastest and the cheapest solution to our global warming problems, can help businesses save money. It's exactly the time for investing in smart, energy-efficiency improvements that can improve bottom-line profits.

Q: What role can in-house counsel play in addressing these changes?

A: The best in-house counsel focus not just on today's problems but on anticipating legal and policy trends of tomorrow that will have an impact on the corporate business. They are anticipating the likelihood of a carbon cap and auction program to be adopted by the U.S. We will likely be living and working in a carbon-constrained economy in which pollution is increasingly monetized and costly. So smart in-house counsel are becoming internal advocates to take action and invest today in ways that can be helpful to their company downstream.

Q: What will be the impact of a cap and auction program?

A: It will monetize carbon dioxide pollution. There will be a clear economic signal for companies that emit large amounts of pollution to find cost-effective ways to reduce that pollution. The markets may well expand for companies in the business of energy efficiency or clean energy technologies. Everybody tends to focus on potential losers. There's also a pretty robust set of winners.

Q: How can in-house counsel help shape these new policies?

A: Savvy in-house counsel are finding ways to engage in the public policy-making process--both to help shape positive policy solutions for the broader public and to advance their own company's economic interests. In some cases that's defensive, such as general counsel for the more polluting industries that face economic costs of reducing carbon dioxide pollution. In other cases, it's an offensive opportunity. For companies in the business of conducting energy efficiency audits and retrofits, policies that encourage efficiency are good for business.

Q: Where do you think environmental
litigation is heading?

A: There will probably be more litigation brought by polluting businesses against the government. People tend to view environmental litigation as being brought by environmental organizations against industry or against the government, and there was a fair amount of that during the Bush administration. However, when a more pro-environmental administration comes into office, as the Obama administration is likely to be, you oftentimes see the shoe on the other foot, and businesses bring more lawsuits.

Senior Editor

Mary Swanton

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Assistant Editor

Christopher Danzig

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Associate Editor

Melissa Maleske

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Associate Editor

Lauren Williamson

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