US Initiates Response to its "Sputnik Moment"

As 2010 drew to a close, the US Government increased its rhetoric and action in support of its clean technology industry.  On November 29, the Obama Administration's Secretary of Energy, Dr. Steven Chu, led the charge with the following speech at a National Press Club luncheon:



Dr. Chu likened recent cleantech advances by China and other countries to a "Sputnik moment" for the United States and personalized his plea by pointing out that he had "benefited from the investments [the US] placed on science education and research in order to catch up with the Soviet Union in the the space race." He called on his country to apply the same amount of focus, ingenuity and resources to clean energy so they could lead in creating the clean energy technology and clean energy economies that will be central to the 21st century. However, he acknowledged that the US had to get moving or risk being left behind.  Perhaps a message that too few Canadian politicians are willing to make.

The Administration followed up this clarion call to action with an early mid-December Christmas present to its renewable energy industry. After a pitched battle of legislative priorities following the US mid-terms, Republican legislators were sufficiently satisfied with the Administration's compromise on tax legislation (i.e. extension of Bush era tax rates) that they worked with the President to pass the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the Bill). The Bill extends several expiring renewable energy and fuel tax incentives and includes some new incentives that could provide significant benefits to renewable energy projects. The highlights are as follows: 

Section 1603 Grant

The Bill extends the grant program created by Section 1603 of the American Recovery and Reinvestment Act for one year, now applying to projects that begin construction in 2011 and are placed in service before the applicable credit termination date:

• January 1, 2013 - large wind; 
• January 1, 2014 - biomass, waste, marine and other enumerated facilities; and 
• January 1, 2017 - solar, geothermal, fuel cells, microturbines, CHP and small wind.

Section 1603 provides for a cash grant of up to 30% of project costs for qualifying renewable energy projects. The grant has proven to be extremely popular, with $5.5 billion paid with respect to $l8.5 billion of renewable projects through November 8, 2010. According to the Solar Energy Industry Association, the grant program has contributed to the installation of approximately 1,000 MW of solar-electric capacity in 2010 which is enough power for about 200,000 homes.

Bonus Depreciation

The Bill extends and temporarily increases bonus depreciation for investment in "qualified property":

•  For property acquired and placed in service after September 8, 2010 and before January 1, 2010, the Bill provides for a 100% first-year deduction.
• For property placed in service in 2012, the Bill provides for a 50% first-year deduction. 

To qualify for bonus depreciation, property generally must have a recovery period of 20 years or less.

Fuels Credits

The Bill also provided a variety of incentives for alternative fuels including: 

• Ethanol: Extension of the Volumetric Ethanol Excise Tax Credit (VEETC) through 2011 at the current rate of $0.45/gallon US and the existing tariffs on imported ethanol. The Bill also extends through 2011 the $0.10/gallon producer tax credit for small ethanol producers producing no greater than 60 million gallons per year; applicable to the first 15 million gallons of production. 
• Biodiesel and Renewable Diesel. An extension through 2011 of the $1.00 per gallon tax credits for the sale or use of biodiesel, renewable diesel, and biodiesel mixtures. There is also an  extension through 2011 of the $0.10 per gallon small agri-biodiesel producer credit. 
• Alt Fuel and Alt Fuel Mixtures: Extension through 2011 of the $0.50/gallon production tax credit for alternative liquid fuels derived from biomass, compressed or liquefied biogas, national gas and propane but excluding "black liquor", which is liquid fuel derived from a pulp or paper manufacturing processes. 
• Alternative Fuel Vehicle Refueling Property: Extension of the 30% investment tax credit for alternative vehicle refueling property for one year, through 2011.

A comprehensive tax review of the Bill was completed by KPMG and can be viewed here.

The Sputnik Catalyst

Despite a continued commitment to promoting US leadership in clean technology development, the Administration was faced with a barrage of reports at year's end, led by this competitive analysis from Ernst & Young, that recognized China as "the clear global renewables leader."

Ontario Moving Forward with Combined Heat and Power

The Ontario Power Authority (OPA) has recently provided updates on its progress towards integrating 1,000 megawatts (MW) of Combined Heat and Power (CHP) into Ontario's electricity system. During its management teleconference and webcast on December 3, 2010, the OPA indicated it was on track to introduce draft rules on a feed-in tariff (FIT) program for CHP projects under 20 MW. It has followed that up by publishing this update on its website.

Ontario's energy industry has been aware of the value of CHP for some time, but the desire to incorporate this technology into existing infrastructure has only recently picked up some serious steam. The OPA previously procured and developed CHP projects such as Markham District Energy, Durham College District Energy and the London Cogeneration Project. Since it is currently managing contracts that represent more than 450 MW of CHP-based technology procured through past initiatives, this leaves approximately 500 MW for additional projects.

To better understand how to develop and integrate these projects, the province's Electricity Distributors Association (EDA) coordinated a fact-finding tour to Denmark in the summer of 2009 for a number of its members. A video of the EDA excursion can be viewed here.

The EDA's choice of Denmark was an inspired one because of the leadership demonstrated by Danish cities such as Copenhagen which use CHP to supply 97% of the city with heating. The Copenhagen district heating system is one of the world's largest, oldest and most successful. It was set up in 1984 to capture waste heat from garbage incineration and CHP plants - normally released into the sea – and channel it back through pipes into residents' homes.  The system has cut household bills by 1,400 EUR annually, and saved Copenhagen the equivalent of 203,000 tons of oil every year thereby reducing CO2 emissions by 665,000 tons.

The current push by the OPA to develop CHP emerged from a Ministerial directive on November 23, 2010.  It instructed the OPA to continue to individually negotiate CHP contracts for projects over 20 MW, while implementing the FIT program for anything under 20 MW while limited to "cost-effective projects located in areas of the province where they can be accommodated in the local distribution system and where there are local benefits."

Interested parties can visit the OPA CHP update page to sign up for updates or get more information from the OPA.

Manitoba Follows BC Lead in Consulting Public on Cap-and-Trade Scheme

In a previous post, I noted that British Columbia's Ministry of Environment announced a 45-day public consultation period on its proposed regulations for large greenhouse gas (GHG) emitters. As that province recently concluded its consultation period, another province embarked on one of its own.  The Government of Manitoba is seeking public input on using a cap-and-trade system as its primary mechanism to reduce its GHG emissions.  It will offer a slightly extended comment period of approximately three months once it has finally concluded on March 15, 2011.

As with BC, Manitoba is expected to integrate its system into the Western Climate Initiative (WCI), which is scheduled to commence with the first phase of a trading system among Ontario, Quebec, California and a number of other U.S. states by January 1, 2012. A cap-and-trade system will permit these governments to issue allowances to entities that emit GHGs and then if those entities reduce emissions below their limits, the entities will be able to sell or bank surplus allowances for future use. If successful, the system would impose a broader cap on GHGs three years later.

The WCI’s objective is to reduce GHG emissions in the region by 15% below 2005 levels by 2020. However, some members have more ambitious targets than the WCI as a whole. For instance, Manitoba has a stated goal of reducing net emissions in the province to below 1990 levels by 2012. In 2008, Manitboa’s estimated GHG emissions was 21.9 megatonnes (Mt) (measured in carbon dioxide equivalent units or CO2e). This was approximately 3% of Canada’s 734 Mt of total emissions.

According to the Government, Manitoba’s GHG emissions profile is unique in Canada. Unlike other  provinces - where GHG emissions originate from a small number of large emitters - the majority of Manitoba’s GHG emissions are from many smaller emitters across a wide range of sectors.

Interested parties can pose questions about submitting a response to:

Manitoba Conservation
Climate Change Branch
Climate Change and Environmental Protection Division
1200 -155 Carlton Street, Winnipeg, MB R3C 3H8
Telephone: 204-945-3268 (in Winnipeg)
Toll free: 1 - 866-460-3118

COP16: Dispatches From the Front Lines

I have recently had the good fortune of receiving some insight from friends and colleagues participating as observers at the United Nations Climate Change Conference (UNFCCC) taking place in Cancun, Mexico, from 29 November to 10 December 2010. It encompasses the sixteenth Conference of the Parties (COP) and the sixth Conference of the Parties serving as the Meeting of the Parties to the Kyoto Protocol (CMP), as well as the thirty-third sessions of both the Subsidiary Body for Implementation (SBI) and the Subsidiary Body for Scientific and Technological Advice (SBSTA), and the fifteenth session of the Ad Hoc Working Group on Further Commitments for Annex I Parties under the Kyoto Protocol (AWG-KP) and thirteenth session of the Ad Hoc Working Group on Long-term Cooperative Action under the Convention (AWG-LCA). 

I have attempted to compile and summarize their thoughts as best I can. I hope you will find them as helpful as I have to better understand the current status of the negotiations as they move into their second week.

As in Copenhagen, the critical divisive issue in the Cancun negotiations is whether or not there will be a second commitment period under the Kyoto Protocol.  A decision in Cancun would set the foundation for a new international agreement at COP17 in Durban, South Africa.  Most developing countries are very concerned about "form" - i.e. that commitments are enshrined in a second commitment period under the Kyoto Protocol - whereas most non-EU Annex I countries are emphasizing "substance" - i.e. if there are significant mitigation commitments by all major economies post-2012, it should not matter that these are not made under the Kyoto Protocol.  The EU negotiating bloc is open to a second commitment period under Kyoto, but is urging flexibility and trying to broker a compromise between the Annex I and developing country blocs.

Currently, there are two negotiation tracks - the AWG-KP and the AWG-LCA. The Chair of the AWG-LCA released an unofficial text on Saturday which has become the basis of the UNFCCC negotiations from now on. It is available here: http://unfccc.int/resource/docs/2010/awglca13/eng/crp02.pdf  In addition to their political aversion to Kyoto, many Annex I countries are frustrated about the inefficiencies and duplication of negotiation efforts that result from a two-track process.

In the COP/MOP (Meeting of the Parties to the Kyoto Protocol) plenary Saturday evening, the UMBRELLA GROUP negotiating bloc advocated for a single, comprehensive agreement instead of a second commitment period under the Kyoto Protocol.  (The UMBRELLA GROUP generally includes most non-EU industrialized countries, including Canada, United States, Australia, Russia, Japan, New Zealand, Iceland, Norway, and Ukraine.)

In contrast, the G77 & CHINA negotiating bloc (which includes most developing nations) was very firm that a second commitment period under Kyoto is essential to any agreement.  The LDC (Least Developed Counties) and AOSIS (Alliance of Small Island States) blocs supported the G77's strong stance on a second Kyoto commitment period.  Most individual developing countries that made statements in addition to their respective negotiating blocs emphasized the importance of the continuation of Kyoto.  India, in particular, spoke very strongly in favour of Kyoto and the fact that it rests on industrial countries' historical responsibility for emissions, as opposed to the UMBRELLA group's desire for commitments from "all major economies".

The UNFCCC process requires consensus for decision-making, and it is doubtful at this point that any compromise will be reached between the pro- and anti-Kyoto states.  Realistically, the developing countries will not be able to force the UMBRELLA group - especially Japan, Canada and Russia - to accept a second commitment period under Kyoto.  In the opinion of one observer, G77/LDC/AOSIS efforts would be better spent at this point negotiating a single, comprehensive agreement including ambitious mitigation targets and the aspects of Kyoto - such as emphasis on historical responsibility - that they are so concerned about maintaining.  It is possible that they are engaging in "positional" negotiation tactics and maintaining their strong pro-Kyoto position in order to extract maximum concessions in an alternative agreement.  However, there may be too much domestic political pressure for many countries to abandon their Kyoto positions.  A non-Kyoto agreement may be considered a political "loss", regardless of the substance of the agreement.

On a more positive note, however, there is still a lot of momentum and commitment by government and observer participants at COP16 on action against climate change.  The scientific imperatives are ever stronger, and everyone recognizes that immediate action is necessary.  It is predicted that Bolivia and Venezuela will soften their positions and allow an agreement on REDD+ to be finalized, although Saudi Arabia may condition their agreement on the inclusion of CCS under the CDM.

In addition, efforts have been made since Copenhagen to create obligations and initiatives that are independent of the UNFCCC process. The EU ETS caps have been set for 2020 regardless of whether there is a successor to the Kyoto Protocol, and voluntary and regional emissions trading initiatives are gaining strength across the globe.  International action on climate change is fragmenting, but it is still progressing.  Party negotiators are aware that the relevance and credibility of the UNFCCC process is at stake, which may be the greatest motivation towards compromise and an agreement in Cancun.

Ontario Seeks Comment on its Long-Term Energy Plan

The Government of Ontario's Ministry of Energy released its Long-Term Energy Plan (LTEP) on November 23, 2010. It provides the government's proposal for meeting the province's energy needs over the next 20 years. Much of the policy and initiatives contained in the LTEP are affirmations of previous announcements; however, there is some additional clarification and guidance provided.

The LTEP proposes a diverse supply mix including an increase in the target for wind, solar and bio-energy from 10% by 2030 to about 13% by 2018. It maintains the province's commitment to eliminating coal plants by 2014. A draft supply mix directive to the Ontario Power Authority (OPA) has been posted to the Environmental Registry (EBR Registry Number - 011-170) where it will remain for a 45-day comment period. Interested parties have until January 7, 2011 to submit comments or ask questions.

Following the closing of the comment period, the Ministry of Energy will issue a formal supply mix directive to the OPA, which will form the basis for a new Integrated Power System Plan (IPSP). During a recent public OPA Management teleconference on December 3, senior OPA executives indicated the step after that would be public hearings with the ultimate objective of publishing the IPSP in August 2011.

CCLN Calls for Federal Direction on Climate Policy

Background - Climate Change Lawyers Network

What do you get when you mix three lawyers just starting out their careers, a few adult pops and a lack of federal climate policy?  Well, in the Fall of 2008, the answer turned out to be the Climate Change Lawyers Network (CCLN) based in Toronto. Together with the visionary Laura Zizzo, a founding partner of Zizzo Allan Climate Law, and the passionate Sheila Ritson-Bennett, a former counsel at the Ministry of Natural Resources, I enthusiastically agreed that we should find a way to corral more lawyers in more watering holes to talk more often about climate policy.

At the time, we were primarily focused in providing a platform for junior lawyers to meet each other and receive guidance from experts in climate law and policy. Since those halcyon early days, when CCLN members actually believed a Canadian federal government might take its responsibility in international climate negotiations seriously, the network has expanded to include law students and taken on a more activist role in the Canadian climate policy community.  To wit, CCLN members worked with Islands First in building the capacity of Small Island States to respond to developments during COP15 in Copenhagen, provided the Ontario Securities Commission with a significant submission on carbon disclosure rates among Canadian public issuers and, in this letter, the Honourable Roy McMurtry wrote in support of international climate law action and endorsed the CCLN's efforts.

While my early involvement in the CCLN has recently been cut back in order to focus more energy on building my emerging legal practice, I know the current executive is doing an amazing job of educating the profession and thinking critically about one of the world's most pressing issues - the Canadian response to climate change. The network recently met to hammer out a statement reflecting the desire to see Canada take a more constructive role in developing an effective and predictable policy framework.

COP 16 Statement

The CCLN's most recent contribution to the climate policy debate in Canada has been to issue the following request to the Federal Government:

As trusted advisors, we commit to incorporating climate change considerations into our everyday work and lives. We take responsibility for helping our clients understand the risks and opportunities associated with climate change. We believe that every profession, community and nation must make a deliberate contribution to finding climate solutions.

COP 16 is an opportunity for Canada to regain international credibility as a consensus builder. The first step is to get back to the negotiating table in a meaningful way.

Our national circumstances require action on climate change.

• Many of Canada’s communities, particularly those in northern or remote areas, are extremely vulnerable to the effects of a changing climate, such as changing water levels and melting permafrost.
• Our timber stocks and prime agricultural land are under serious threat from avariety of climate change effects, including pest habitat expansions, changing water levels and more frequent and intense storms.
• International criticism and mistrust caused by our failure to abide by Canada’s Kyoto commitment are reducing our influence abroad.
• Canada is missing opportunities to become a leader in the inevitable shift to a low-carbon economy.
• The Canadian economy is dependent on trade with the rest of the world. The CCLN has concerns about trade consequences if Canada continues to block progress on reducing greenhouse gases internationally. 

Canada has an opportunity to use its natural and human capital to find political and technological solutions that work for Canadians and the world.

We ask that the Canadian Federal Government: 

• Provide certainty to businesses and the public by committing to honour existing emission reduction commitments;
• Fund and mandate a comprehensive national greenhouse gas inventory to allow for appropriate and efficient policy creation;
• Allocate meaningful funds to help northern and other vulnerable communities toplan for and adapt to climate change;
• Support provincial Greenhouse gas reduction measures and show leadership by integrating them into an effective national system;
• Accept international consensus and agree to 1990 as the baseline year; and
• Enable and facilitate Canadian participation in the Kyoto Protocol Flexibility Mechanisms.

For people interested in getting in touch with the CCLN, you are encouraged to reach out to the following fine folks:

Laura Zizzo
Co-Chair, Climate Change Lawyers Network
laura@zizzoclimate.com
416-817-5140

or

info@climatechangelawyers.ca

In Cancun (November 30-December 10, 2010)
Travis Allan
Outreach and Education Officer
travis@zizzoclimate.com
416-417-1195