2010 OFII General Counsel Conference Washington, D.C.

Granta Y. Nakayama, P.C. David R. HillKirkland & Ellis LLP Sidley Austin LLPgranta.nakayama@kirkland.com drhill@sidley.com

October 19, 2010

Recent Developments inU.S. Energy and Climate Policy

2010 OFII General Counsel Conference Washington, D.C.

U.S. Legal and Policy Developments

• Brief Background on Current EIA Supply/Demand Projections

• U.S. Congress Action Concerning Greenhouse Gases and Energy Issues

• EPA – GHG-Related Regulations and Source-Specific Controls

• DOE – Efficiency Standards and Enforcement; Loan Guarantee Program

• EPA – Enforcement Trends and Targets

• Litigation – GHG Nuisance Cases; Section 526 Litigation

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2010 OFII General Counsel Conference Washington, D.C.

World Energy Consumption OutlookIncreases 35% from 2007-2035; Non-OECD accounts for 86% of the increase

(in quadrillion Btu; Source: EIA International Energy Outlook, 2010)

3

0

200

400

600

800

2007 2015 2020 2025 2030 2035

Non-OECDOECD

495543

590639

687739

50%

62%

50% 38%

2010 OFII General Counsel Conference Washington, D.C.

Energy supply will grow from all sources(World primary energy consumption, in quadrillion Btu

Source: EIA International Energy Outlook, 2010)

4

0

50

100

150

200

250

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Liquids (including biofuels)

Renewables (excluding biofuels)

Natural gas

Coal

Nuclear

History Projections

35%

27%

23%

10%

5%

30%

28%

22%

14%

6%

Share of world total

2010 OFII General Counsel Conference Washington, D.C.

Energy-related CO2 emissions will grow 43% 2007-2035 (assuming no policy changes)

(Energy CO2 emissions, in billions of metric tons;Source: EIA International Energy Outlook, 2010)

5

0

5

10

15

20

25

30

35

40

45

2007 2015 2020 2025 2030 2035

Non-OECDOECD

30 3234

36

3942

53%

67%

47% 33%

2010 OFII General Counsel Conference Washington, D.C.

Congressional Action to Address GHGs

• Prospects have steadily diminished, mid-2009 to the present• American Clean Energy and Security Act (Waxman-Markey)

– Passed U.S. House June 26, 2009

• American Clean Energy Leadership Act (Bingaman)– Passed Senate Energy & Natural Resources Committee July 16, 2009

• Clean Energy Jobs and American Power Act (Boxer-Kerry)– Introduced September 30, 2009

• Kerry-Graham-Lieberman bill– Graham abandoned process April 2010; bill never acted on

• Attempts at targeted bills (utility only, RPS only) as well as bills going in the other direction (e.g., Rockefeller bill to slow or stop EPA action)

• Also, bills to address Gulf of Mexico oil spill, hydraulic fracturing, etc.

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2010 OFII General Counsel Conference Washington, D.C.

EPA Regulatory Program for Greenhouse Gases

• Endangerment Determination

• Johnson Memorandum

• Motor Vehicle Emissions Rule

• PSD Tailoring Rule – Stationary Sources

• GHG Reporting Rule

• Renewable Fuels Standard

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2010 OFII General Counsel Conference Washington, D.C.

U.S. Department of Energy Efficiency Standards and Enforcement Efforts

• Significant New DOE Enforcement Effort – Major Public Focus of the General Counsel and of the Department’s Overall Efficiency Effort

• New Efficiency Standards, and More on the Horizon

• Changes in Test Procedures – GHG Pricing, Life Cycle Analysis

• Changes in the Energy Star Program – Certification, Standards

• Also, Federal Trade Commission Revision of its “Green Guides”

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2010 OFII General Counsel Conference Washington, D.C.

U.S. Department of Energy Loan Guarantee Program and Possible Changes

• Energy Policy Act of 2005, Title XVII Loan Guarantee Program– Authority to issue tens of billions in loan guarantees– Stimulus Act provided $6 billion to pay credit subsidy costs; Congress

subsequently rescinded $3.5 billion to pay for other programs– A few significant loan guarantees closed to date– Many complications – EPAct, FCRA, NEPA, OMB– One utility recently rejected terms of potential loan guarantee for nuclear plant

• Efforts underway to significantly change program or create new federal green energy financing mechanism (e.g., CEDA)

• Issues with existing and new programs include – program’s primary objective, scope of authority and projects, Federal Credit Reform Act, annual appropriations cycle, effect on private sector markets

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2010 OFII General Counsel Conference Washington, D.C.

Big Expectations for Enforcement

• Bigger EPA budget (> 35% increase FY10)

• Comparisons to prior annual results

• Negative enforcement press – – “EPA Enforcement-Related Penalties Plummeted in Fiscal 2009”

NY Times, January 5, 2010 (“EPA during the first year of the . . . administration saw deep declines in the amount of penalties . . .”

• Result »»» need to show results

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2010 OFII General Counsel Conference Washington, D.C.

EPA Enforcement – Continued (?) Increases

0

2

4

6

8

10

12

14

2003 2004 2005 2006 2007 2008 2009

$ (B

illio

ns)

Injunctive Relief ($)

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2010 OFII General Counsel Conference Washington, D.C.

Larger Cases - Environmental Outcomes

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2010 OFII General Counsel Conference Washington, D.C.

EPA Enforcement Targets (FY 2011 to 2013)• “Energy Extraction Sector” – New Initiative

– EPA justification: “urgent need to . . . develop “clean energy” sources . . . . new techniques for oil and gas extraction and coal mining, pose a risk of pollution of air, surface waters and ground waters”

• Coal-Fired Utility, Cement, Glass, and Acid Sectors

• Air Toxics – “wide range of industrial and commercial facilities”

• FY 2011-2015 EPA Strategic Plan – Sept. 30, 2010– “Enforcement supports reductions in greenhouse gases (GHG) through

enforcement settlements that encourage GHG emission reductions.

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2010 OFII General Counsel Conference Washington, D.C.

Enforcement – EPA’s Evolving View

Many paths toward compliance

Goal is the environmental result

Compliance Assistance

Administrative Enforcement

Civil/Judicial Enforcement

Criminal Enforcement

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2010 OFII General Counsel Conference Washington, D.C.

GHG-Related Litigation

• Courts can be, and are, used to press policy objectives• Nuisance cases focusing on GHG emissions

– State of Connecticut v. American Electric Power Co.– Comer v. Murphy Oil USA– Native Village of Kivalina v. Exxon Mobil Corp.

• Case challenging Defense Department’s purchase of fuel derived in part from Canadian oil sands– Sierra Club and Southern Alliance for Clean Energy v. U.S.

Defense Energy Support Center

• Cases directed at forcing, or stopping, GHG regulations

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