Climate Change Policy Faces Domestic and International Challenges

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Obama has said he thinks opting out of the Kyoto Protocol was a mistake he hopes to rectify by keeping the U.S. actively involved in the development and implementation of future climate change treaties. But critics say Obama could have played a much more significant leadership role in Copenhagen than his 11th hour arrival permitted.

"I don't know that the U.S. was prepared or in a position to be a leader at the conference," says Lawrence Demase, a partner at Reed Smith who was a delegate during the second week of the Copenhagen talks. "Obama came in at the last second and pulled a core together, which suggests he could have been more of a leader."

Follow the Leader

Because the U.S. is one of the globe's greatest GHG emitters, its role in continuing climate talks is critical. If the U.S. doesn't reach consensus on a climate bill of its own, other countries may begin to resent the leadership Obama showed at the end of Copenhagen, says Madeleine Tan, a partner at Kaye Scholer.

"It appears one thing will happen, and then the winds of politics blow and it doesn't happen," says William Stewart, a member of Cozen O'Connor and author of "Climate of Uncertainty," a 2009 book about climate change policy. "But a majority of people, and a supermajority of policymakers and a supermajority of scientists think something should be done."

For those advocates of climate change controls, a ray of hope remains. At press time an unlikely tripartisan coalition of senators was reportedly in the final stages of patching together a bill meshing the converging goals of two disparate groups of senators--those who believe the nation must move forward now on greenhouse gas controls, and those who fear dependence on foreign oil threatens U.S. security. Both environmental groups and various business sectors were furiously lobbying for their respective interests.

"Sen. Graham talks about saving America from foreign threats by making us energy independent," says Gerard Waldron, who recently rejoined Covington & Burling as a partner after serving as a Congressional aide on energy and climate change. "Even in this political winter, if people see this as an issue important for U.S. national security, they will work on it."

As a result, some experts think it is possible that such legislation--a hybrid energy independence/climate change bill--will be able to garner 60 votes, be reconciled with the House bill's much stronger carbon control elements, and become law this year.

Congressional opposition quickly escalated. Sen. Lisa Murkowski, R-Alaska, introduced a "resolution of disapproval," a rarely used procedure that can block federal agency rules from taking effect. While there was scant chance President Obama would sign such a resolution, it garnered many supporters. Then in February, eight Senate Democrats sent Jackson a letter saying EPA's planned regulation of stationary sources would jeopardize the economic recovery by tying up plant construction and expansion in the CAA's complex and litigious permitting process. And four lawsuits filed in the D.C. Circuit challenged the endangerment finding and EPA's authority to regulate GHGs, while several petitioners asked the EPA to reopen its assessment of GHG hazards in light of Climategate.

In the face of this growing storm, Jackson on Feb. 22 replied to the senators' letter and delayed any regulation of stationary source CO2 emissions for a year, while sticking to the March 31 deadline for GHG standards for motor vehicles. Rather than triggering an obligation for stationary sources to obtain clean air permits starting in 2010, Jackson said the EPA would start phasing them in beginning in 2011.

In September 2007, Cuomo's office subpoenaed five major national energy companies for information on how they analyze climate change risk and disclose those risks to investors. That led to a milestone agreement with Xcel Energy in August 2008. Similar agreements with Dynegy Inc. and AES Corp. followed. They were the first-ever binding and enforceable agreements requiring a major energy company to disclose such risks to investors and a bellwether of what was to come, which Cuomo recognized even then.

"This landmark agreement sets a new industrywide precedent that will force companies to disclose the true financial risks that climate change poses to their investors," Cuomo said in a statement announcing the Xcel settlement. "Coal-fired power plants can significantly contribute to
global warming and investors have the right to know all the associated risks."

Existing Foundation

LaCroix finds it critical that, rather than issuing new guidelines or modifying old ones, the SEC has opted to provide guidance on existing SEC filing guidelines--specifically, two provisions it has long used to regulate public company disclosures on environmental liabilities and management discussion and analysis.

Smoking Gun

The change came in September 2009 from the 2nd Circuit, which vacated a district court's dismissal on political question grounds of Connecticut v. AEP, the case seeking injunctive relief. Judge Peter Hall's opinion applied a quote from a landmark water pollution case to the climate change arena. "It may happen," Hall wrote, "that new federal laws and new federal regulations may in time pre-empt the field of federal common law nuisance. But until that comes to pass, federal courts will be empowered to appraise the equities of the suits alleging creation of a public nuisance by greenhouse gases."

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