Climate Change Report : Climate Change Lawyer & Attorney : K&L Gates Law Firm : Global Climate Law, Carbon Emissions

First, legislation will be necessary to mandate U.S. emissions reductions targets that stem from the Copenhagen conference. Second, the U.S. Environmental Protection Agency (“EPA”) recently released a finding that carbon dioxide and other GHGs threaten public health, permitting the agency to regulate fossil fuel emissions under the Clean Air Act (“CAA”). The timing of the announcement intentionally coincided with the start of the U.N. climate summit, not only to strengthen President Obama’s negotiating hand when he joins talks in Copenhagen, but also to add pressure on Congress to pass climate change legislation.

The EPA findings do not on their own impose new emission reduction requirements, but they allow the agency to move forward with regulations in the absence of congressional action. The Obama Administration and Democratic congressional leadership prefer legislative action to regulatory action because Congress has more flexibility than the EPA in establishing ways to gradually reduce emissions, including providing financial incentives and a setting up a cap-and-trade system. By contrast, the EPA is limited to technology-based approaches – many of which are not currently affordable or proven reliable in reducing emissions or capturing and storing carbon dioxide. Thus, EPA’s finding is seen by many as a political maneuver to force Congress to act swiftly.

Indeed, Congress is experiencing growing pressure to pass legislation to mitigate the risks of global warming – sooner rather than later.

The Maritime Industry Is a Target
The U.S. House of Representatives passed comprehensive legislation (“H.R. 2454”) in June that would mandate a reduction in GHG emissions – marking the first time that a chamber of Congress has voted for a bill to mitigate global warming – and the U.S. maritime industry has been targeted by its provisions.

According to the EPA, transportation sources are responsible for approximately 27 percent of the total U.S. GHG emissions – the largest single category of sources in the United States. Of this amount, about 19 percent comes from heavy-duty trucks and another three percent from vessels. These figures do not include GHGs emitted outside of U.S. ports. The International Maritime Organization (“IMO”) estimates international maritime shipping accounts for 2.7 percent of global anthropogenic GHG emissions, and when combined with domestic shipping, vessel emissions represent 3.3 percent of all GHGs emitted globally, with carbon dioxide being the most prevalent of the GHGs.

H.R. 2454 would amend the CAA to give the EPA sweeping new authority to regulate GHGs, including changes that would impact mobile sources, including marine vessels. These new mandates on marine fuel and engines would be in addition to the major changes proposed by EPA and the IMO last year to reduce vessel emission of sulfur and nitrogen oxides.

The timetable for climate change legislation in the Senate has stalled due to negotiations over health care overhaul legislation and several procedural hurdles. For example, a climate change bill sponsored by Senate Environment and Public Works Committee Chairwoman Barbara Boxer (D-CA) was passed by the committee in November, but only after Boxer used an unprecedented procedural tactic to report the legislation in the absence of Republican participation in its consideration. At this point, that bill is no longer the primary legislative vehicle that the Senate is considering.

Senate Majority Leader Harry Reid (D-NV) has stated most recently that a climate change bill will reach the Senate floor in the spring. Senators John Kerry (D-MA), Lindsey Graham (R-SC), and Joseph Lieberman (I-CT) have been working for weeks to come up with a proposal that could win the 60 votes needed to pass the Senate. Senators Maria Cantwell (D-WA) and Susan Collins (R-ME) introduced a bill on December 11th that would set a price on carbon dioxide emissions from fossil fuels and return the revenue to customers. Additional proposals are likely to be introduced over the next few months. Senator Reid is expected to combine provisions of the various proposals into the version that will be debated on the Senate floor. The House provisions affecting the maritime industry are being considered as senators draft climate change legislation and many of them may ultimately end up in any final bill signed by the President.

Proposals Pose New Challenges
The proposals currently being considered by Congress present unprecedented and unique challenges for the maritime industry because (a) unlike other regulated sources of GHGs, the maritime industry is not exclusively located within U.S. boundaries; (b) most fuel used by the maritime industry is not purchased from U.S. sources; (c) vessels may only spend a fraction of a voyage in the United States; and (4) vessels can move from port to port and between and among areas with differing levels of compliance with air quality standards.

Below is a summary of key proposals that are being considered by lawmakers that will impact the maritime industry if they are enacted in climate change legislation.

GHG Emissions Standards
Climate change legislation may direct the EPA to set emissions standards for new marine vessels and new engines used in marine vessels.

For example, H.R. 2454 would base these new limits on “the greatest degree of emissions reduction achievable through the application of technology which the Administrator determines will be available for the model year to which such standards apply, giving appropriate consideration to cost, energy, and safety factors associated with the application of such technology.”

The concept of including technology-forcing standards as a means of achieving reductions of pollutants is not new in the environmental arena. Such standards exist under both the CAA and the Clean Water Act, but compliance with future technological performance standards that are set well beyond contemporaneously achievable levels can be costly, burdensome, or even infeasible, if not designed appropriately.

Controlling GHG emissions from marine vessels is further complicated by the fact that foreign trade has grown dramatically in recent decades, a significant portion of GHG emissions from ocean-going vessels (“OGVs”) occurs in international waters, many OGVs are not registered in the United States, and many vessel owners or operators do not purchase their fuel from U.S. producers. The maritime industry has therefore advocated an international approach to GHG reductions as more suitable for this community. The IMO is currently undertaking an analysis of GHG reduction measures for OGVs.

Restricting GHG emissions from OGVs via U.S. climate change legislation, as opposed to international treaties, also raises concerns about the economic and diplomatic impact of such domestic measures on free trade and global competition and demands careful integration with international efforts.

Cap-and-Trade Program
Climate change legislation may grant the EPA Administrator the discretion to establish a cap-and-trade program for mobile sources, including marine vessels.

A cap-and-trade program would begin by creating a limit or “cap” on the total amount of GHG emissions that will be allowed, usually expressed in tons per year. The emissions allowed by the cap would be divided into permits or credits that give the owner the right to emit certain amounts of GHGs. Over time, the overall size of the cap would be reduced as is the amount of GHGs that may be emitted from each source. In the meantime, if the owner of the right to emit certain GHGs can remain under his or her limit, he or she can sell, bank, or trade the excess GHG credits within or across classes or categories of regulated mobile sources. A source that is unable to stay within its cap can purchase excess credits from others, thus creating a market-based approach to regulating GHGs. These markets currently exist under the CAA for sulfur dioxide and certain other regulated pollutants. The concept behind a cap-and-trade program is fairly simple, but the particulars are complex and raise several important design questions: 

• At what level should the emissions cap be set?
• To which vessels would it apply? 
• How will GHG emissions be measured? Will each source have to develop and install monitoring devices on every source of a GHG?
• Would emission allowances be auctioned or allocated? (Distribution of emissions allowances is among the most controversial components in a cap-and-trade debate because of their ability to transfer billions of dollars of wealth across different sectors.)
• Would the compliance costs of such a program be unduly burdensome to the inherently mobile maritime industry? 
• How would the revenue raised by auctioning allowances be spent? Will it be returned to sources regulated under the cap to help defray the cost of compliance? Will it be used for research, development, and deployment of energy-efficient shipping equipment? Will it be used for unrelated purposes such as providing tax cuts for some? 
• How would a cap-and-trade program in the United States fit with international efforts? Would it create conflict or synergies?

Energy Performance Certification
Climate change legislation may also authorize the EPA to establish a program for shippers and carriers of goods, such as the “SmartWay Transport Program” established in H.R. 2454, that includes certifying the energy and GHG performance of participating freight carriers, including marine participants.

Under such a program, EPA would be required to publish a comprehensive energy and GHG performance index of freight modes and individual freight companies to provide shippers with the information they need to deliver their goods more efficiently. While advocates of the proposed program would encourage this certification as a way to promote energy efficiency, others contend that establishing transportation efficiency standards is sufficient.

Low Carbon Fuel Standard
Climate change legislation could establish a new low carbon fuel standard (“LCFS”) that requires the reduction of the lifecycle emissions intensity of transportation fuels used in vessels.

An LCFS was included in a climate change discussion draft that was circulated by House Energy and Commerce Committee Chairman Henry Waxman (D-CA) before he introduced H.R. 2454. Under that program, refiners, blenders, and other fuel providers would be required to ensure that the annual average lifecycle emissions from fuel sold in the United States are no greater than they were in a previous or “baseline” year. Over time, the percentage by which carbon emissions must be reduced below the amount emitted during the baseline year would increase.

The draft would have given the EPA Administrator discretion to include fuel used in OGVs in the LCFS. Given the amount of GHGs emitted by OGVs, the Administrator may ultimately decide to include such fuels in the baseline. OGVs have historically used bunker fuel but are required to transition from bunker fuel to lighter, cleaner fuels over the next decade under new requirements adopted by the IMO last year in amendments to MARPOL Annex VI. EPA has proposed even lower sulfur standards in a pending rulemaking that would establish an Emissions Control Area around the United States. An LCFS could result in the imposition of further requirements on the fuel used in OGVs.

Additionally, most GHGs are emitted as a result of fuel combustion; however, approximately 20 percent of GHGs accounted for in the lifecycle analysis of fuels can come from source-specific emissions, which may have an effect on preferred sources. For example, crude oil extraction from Nigerian or Canadian oil sands produces greater GHG emissions than crude oil extracted from Venezuela or Saudi Arabia. If importers begin shifting crude oil purchases to sources with fewer GHG emissions, trading patterns and the resulting voyage patterns could be affected.

The Role of the States
The climate change debate has once again raised the issue of whether federal legislation should preempt efforts by state and local governments to curb GHG emis¬sions and presents unique challenges for the maritime industry.

While the international approach to regulating maritime GHGs has uniformity and consistency as its hallmark, U.S. legislation often allows states to set their own standards. H.R. 2454 would preempt states from implementing their own cap-and-trade programs from years 2012 through 2017 and then retains states’ authority to do so after 2017.

While some stakeholders support allowing states to set more stringent GHG standards than what might be permitted under federal cap-and-trade legislation, such a patchwork could also significantly undermine the development of markets for trading. Opponents contend that separate state approaches would raise compliance costs and translate into a number of potentially conflicting reduction requirements.

Citizen Suits for Injury from Air Pollution
Climate change legislation could significantly expand the grounds upon which “citizen suits” may be brought.

Chairman Waxman’s initial discussion draft would have permitted any citizen who has “suffered, or reasonably expects to suffer, a harm” to bring a suit against any person who is believed to be responsible for a violation of an emission standard or limitation to which the harm can be attributed. “Any person” would have included the EPA, as well as vessel owners and operators. The term “harm” included “any effect of air pollution (including climate change), currently occurring or at risk of occurring, and the incremental exacerbation of any such effect or risk that is associated with a small incremental emission of any air pollutant . . . whether or not the risk is widely shared.” Under the draft, an “effect” or “risk” associated with any air pollutant “shall be considered attributable to the violation or failure to act at issue if the violation or failure to act slows the pace of implementation of this Act or compliance with this Act or results in any emissions of GHG or other air pollutant at a higher level than would have been emitted in the absence of the violation or failure to act.”

Authorizing suits addressing climate change represents a significant expansion of judicial claims and relaxes the historical requirement that a plaintiff must show actual injury and causation before being permitted to sue.

Going Forward
In response to increasing pressure to act swiftly to reduce domestic GHG emissions, members of Congress plan to spend the coming months crafting and negotiating climate change legislation. No matter the pace at which the legislation is considered, the maritime industry is now clearly one of the targets of congressional efforts to reduce GHG emissions, and now is the time for industry to weigh in to shape the debate.