Memorandum submitted by Professor Richard
Macrory
Submission from Richard Macrory, Hon, QC, Professor
of Environmental Law, Faculty of Law, University College London
and Director, UCL Carbon Capture Legal Programme.
1. I am director of the UCL Carbon Capture
Legal Programme which aims to provide authoritative and independent
analysis of legal developments relevant to the regulation of carbon
capture and storage. Its freely accessible resource site (http://www.ucl.ac.uk/cclp/)
is designed to provide a comprehensive collection of legal and
policy material relevant to CCS, with a particular emphasis on
Australia, Europe, and the United States, the jurisdictions to
date that have seen the most development in this area. The views
expressed here are personal.
CO2 PERFORMANCE
EMISSIONS STANDARDS
2. As far I am aware, the only CO2
performance emission standards currently in existence are those
found a small number of States in the USA. The appendix provides
a summary of the provisions and the industries to which they apply.
There are currently two models underlying the design of emission
performance standards for CO2—one based on equivalent
emissions form combined-cycle gas turbine plants with the figure
of 1,100 lbs CO2/MWh being adopted; the other is based
on the percentage of CO2 emissions captured and sequestered.
3. California led the way with legislation
passed in September 2006 (Senate Bill (SB) 1368) with more detailed
regulations made in the following year. The legislation did not
specify an emission standard in numerical terms as such, but required
that the performance level must be no higher that the emissions
rate of a combine-cycle gas turbine plant. The California Public
Utilities Commission subsequently determined this to be 1,100
lbs CO2/MWh based on a review of emissions from combined-cycle
gas turbine plants. The standard reflects the emission levels
of older existing plants compared to the emission limits of around
800 lbs CO2/MWh that can be reached by new natural
gas combined cycle plant (Rubin (2009)). Meeting the standard
for a new efficient coal fired plant would require a CO2
emission reduction of between 30 and 40% (ibid).
The main motivation behind the California legislation
appears have been the view of both the legislature and the California
Public Utilities Commission that greenhouse gas controls would
inevitably tighten up in the future and that emission performance
standards were needed now to protect the ratepayer from higher
costs at a later date. According to Simpson and Hausauser (2009)
"Both the California Legislature and the California Public
Utilities Commission (CPUC) concluded that if utilities or other
load-serving entities were allowed to enter into new long-term
commitments with high-greenhouse gas (GHG) emitting power plants,
California ratepayers would be exposed to high costs of retrofits
(or the need to purchase expensive offsets) under future emission
control regulations. California ratepayers would also be exposed
to potential supply disruptions when these high-emitting facilities
are taken off line for retrofits, or retired early, in order to
comply with future regulations".
The State of Washington modelled its 2007 legislation
largely on the Californian law, and contains a performance standard
of the lower of 1) 1,100 pounds of GHG per MWh; or 2) the average
available GHG emissions output as determined and updated by the
Washington Department of Community, Trade & Economic Development
which is obliged to carry out a survey every five years of new
combined cycle gas turbines available and offered for sale in
the US.
Oregon's 2007 legislation also follows the Californian
model applying a performance standard of 1,100 lbs CO2/MWh
to baseload power stations. New Mexico's 2007 legislation adopts
the same standard for CO2 but with additional financial
incentives in the form of text credits for certain plants.
4. Montana's 2007 legislation adopts a different
approach to defining an emission performance standard which is
more explicitly aimed at carbon capture and storage. Applying
essentially to coal fired generating stations to be constructed
after 1 January 2007, it requires that the facility must capture
and sequester 50% of the carbon dioxide produced. In terms of
actual emissions this appears to be slightly tighter than the
Californian approach. The 2009 legislation of Illinois is also
focussed on carbon capture and storage standards, and requires
state utilities and electricity suppliers to obtain 5% of their
power from the proposed Taylorville clean coal facility with a
goal of 25% of electricity for CCS coal-fuelled power stations
by 2025. A clean coal facility is defined as one that sequesters
50% of CO2 emissions if commencing operations before
2016, 70% for those commencing operations between 2016-17, and
90% for post 2017 plants.
LEGALITY OF
NATIONAL EMISSION
PERFORMANCE STANDARDS
UNDER EU LAW
5. The 2003 EU Emissions Trading Directive
(2003/87/EC) amended the 1996 Directive on Integrated Pollution
and Prevention Control (IPPC) (96/61/EC) by providing that where
greenhouse gas emissions from a plant subject to IPPC permit requirement
fell within the EU Emissions Trading Scheme, "the permit
shall not include an emission limit value for direct emissions
of that gas unless it is necessary to ensure that no significant
local pollution is caused." The European Commission legal
services argued that this meant that a national CO2
emissions performance standard for a plant subject to the ETS
scheme would be illegal under Community law.
6. In January of this year, Derrick Wyatt
QC and I were commissioned by WWF to write a legal opinion analysing
the meaning of the amendment and whether the Commission was correct
in its view. In particular we were aware that both the IPPC Directive
and the ETS Directive had been made under the environmental provisions
of the Treaty, and that Art 193 of the Treaty permits Member States
to impose stricter standards in relation to such measures. One
of the issues was whether a provision in a Directive could exclude
the operation of this Treaty provision. In the event it was not
necessary to rely upon Art 193, and we concluded that Member States
still possessed the freedom to impose nation emission standards
under non-IPPC laws, and that the European Court of Justice would
uphold this view if it came before them. But we felt that the
position should be made absolutely clear in any subsequent revision
or replacement of the IPPC Directive.
7. The legal opinion was made public to
the European Parliament during its debates this year on the Industrial
Emissions Directive, which will replace the IPPC Directive, and
as a result agreed an amendment to the Industrial Emissions Directive
giving Member States the residual discretion to impose national
emission standards.
8. In June this year, during the co-decision
procedure, agreement has been reached between Member States and
MEP on the Directive leading to its 2nd Reading in Parliament
in July, and likely agreement by Council (ENDS Report 425 June
2010 p 55). Article 9 of the agreed text provides again that "Where
emissions of a greenhouse gas from an installation are specified
in Annex I to Directive 2003/87/EC in relation to an activity
carried out in that installation, the permit shall not include
an emission limit value for direct emissions of that gas, unless
necessary to ensure that no significant local pollution is caused".
But then the Preamble provides that, " (10) In accordance
with Article 193 of the Treaty on the Functioning of the European
Union (TFEU), nothing in this Directive prevents Member States
from maintaining or introducing more stringent protective measures,
for example greenhouse gas emission requirements, provided that
such measures are compatible with the Treaties and the Commission
has been notified".
9. It is clear then national greenhouse
emission standards are legal, provided they are not discriminatory
and are notified to the Commission. Case-law of the European Court
of Justice indicates that the level of standards adopted by Member
States under the stricter standards provisions is left to their
discretion and not subject to an overarching Community principle
of proportionality—see Case C-6/03 Deponiezweckverband Eiterkopfe
ECR 2005 I-2753
IMPACT OF
NATIONAL EMISSION
PERFORMANCE STANDARDS
10. Emissions trading schemes, such as that
for SO2 in the United States, have generally allowed for local
emissions standards to prevent local pollution or unfair burdens
being carried by some localities. Indeed the European ETS Scheme
allowed for national emissions standards to deal with "significant
local pollution", though in the case of greenhouse gases
it is difficult to envisage the circumstances in which this might
apply.
11. It is perhaps rather less easy to predict
the impact of national emissions standards on an emissions trading
scheme operating throughout the European Union. If only one or
two countries introduce such standards, and industries requiring
to comply with such standards are still permitted to hold and
trade in any allocated allowances, then the immediate effect on
overall greenhouse reduction targets is likely to be neutral.
Industries subject to standards will have surplus allowances to
sell on the market allowing industries in countries without such
standards to emit up to the limits of the allowances purchased.
The addition of extra allowances on the market may well depress
the price, reducing the economic incentive for investment in abatement
as an alternative route for meeting obligations.
12. The main purpose of introducing national
emission performance standards is to quicken the pace of investment
in abatement technology on the assumption that the ETS scheme
cannot itself deliver the correct price signals within the time-scales
required by policy-makers dealing with climate change, or with
the consistency required by industry for long-scale large investment.
Assuming that the performance standard does encourage such investment,
then its main impact on the emissions trading scheme is likely
to be felt when the overall caps are calculated for the next trading
period. Emission performance standards can drive technological
innovation and in fields such as NOx reduction for power plants,
they have led to dramatic reductions in costs. (Taylor et al 2003,
Yeh et al 2005). The actual operational experience and availability
of abatement technology, albeit in one or two countries, is likely
to encourage a tightening of overall caps, leading to an overall
reduction of greenhouse gases. But it follows that the integrating
the timing of the introduction and implementation of a national
emission performance standard in relation to the next trading
periods under the EU ETS Scheme may be significant.
13. It is also important to ensure that
the design and application of an emission performance standard
does not have a perverse or unintended effect. For example, if
an emission standard applied only to coal-fired power stations
within the United Kingdom, and generators still retained the option
of choosing the type of power station they invested in, there
might well be a greater investment in gas fired powered stations
if that were a less expensive or troublesome option. If the emission
standard for coal-fired stations was essentially the same as the
rate of emissions reached by combined cycle gas powered stations
(the approach currently adopted under the Californian model),
then presumably from a purely climate change perspective a move
to gas at the expense of coal is neutral in policy terms. But
if an additional policy objective is security and/or diversity
of supply, then it is clearly important that the introduction
of an emission performance standard does not have unintended consequences.
In the absence of portfolio requirements obliging suppliers to
purchase certain proportions of electricity from coal-fired stations,
then the introduction of selected performance standards might
well give rise to significant shifts. For a start it is therefore
probably important that the performance standard for greenhouse
gases applies equally to generating stations or other processes
whatever the source of power.
Richard Macrory
September 2010
REFERENCESE Rubin
(2009) A Performance Standards Approach to Reducing CO2
Emissions from Electric Power Plants Pew Center on Global Climate
Change, Washington DC.
C Simpson and B Hausauer (2009) Emission Performance
Standards in Selected States Regulatory Assistance Project , November
2009, Washington DC.
M Taylor, E Rubin, and D Hounshell Effect of Government
Actions on Technological Innovation for SO2 Control Environmental
Science and Technology 37 5427-4534
S Yeh, E Rubin, M Taylor and D Hounshell (2005) Technology
Innovations and Exeprience Curves for Nitrogen Dioxide Control
Technologies Journal of Air and Waste Management Association 55-1827-1838.
I am grateful to Richard Foulsham of the UCL Carbon
Capture and Legal Programme for his assistance in preparing the
Table in the Appendix and sourcing US material.
APPENDIX
SUMMARY OF CO2 EMISSION PERFORMANCE
STANDARD CURRENTLY IN FORCE
| In force
| Plant type | Regulated entity
| Mechanism | Level
| CCS Specified |
California
SB1368 | Y
| Baseload | Utilities subject to Commission approval
| Approval of power purchase agreement (PPA)
| 1100 lbs/CO2/MWh | Not compulsory but does count as not emitted
|
Illinois
SB1987 | Y |
Coal only | EPS: The Taylorville facility and any facility that achieves the standard
Portfolio: Utilities subject to Commission approval.
| EPS: Ability to take advantage of preferential PPA if they meet the EPS. Portfolio: Imposed on all utilities
| Prior to 2016, those that capture 50% of emissions.
| Yes, as the law is targeted at a CCS station—Taylorville.
|
Montana
HB25 | Y | Coal only
| Utilities subject to Commission approval |
Approval of PPA and investments. | Capture 50% of emissions
| Yes—required to meet the standard |
Washington
SB6001 | Y |
Baseload | Utilities | Approval of PPA and investments.
| 1100 lbs/CO2/MWh | Not compulsory but does count as not emitted
|
Oregon
HB3283
SB101 | Y
| Baseload & non baseload | Utilities
| Approval of PPA | Baseload: 1100 lbs/CO2/MWh
Non baseload gas 675 lbs/CO2/MWh
| There appears to be an exemption but it is not explicit
|
New Mexico
SB0994 | Y |
Coal only | Private investor |
Tax credit | 1100 lbs/CO2/MWh
| Not compulsory but does count as not emitted
|
| |
| | | |
|
| 
