A Green New Deal?A Green New Deal?The Stimulus Bill, Climate Change, and The Stimulus Bill, Climate Change, and

Opportunities for Renewable Energy Opportunities for Renewable Energy and Other Green Technologiesand Other Green Technologies

Scott D. DeatherageScott D. DeatheragePartner, Thompson & Knight LLPPartner, Thompson & Knight LLP

scott.deatherage@tklaw.comscott.deatherage@tklaw.com

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President Obama on President Obama on New Approach to EnergyNew Approach to Energy

[T]he possibilities of renewable energy are limitless. [T]he possibilities of renewable energy are limitless. We’ve heard promises about it in every State of the We’ve heard promises about it in every State of the Union for the last three decades. But each and every Union for the last three decades. But each and every year, we become more, not less, addicted to oil year, we become more, not less, addicted to oil ── a a 19th19th--century fossil fuel.century fossil fuel.

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Climate Change Regulation TimelineClimate Change Regulation Timeline

1992UNFCCC

1997Kyoto Protocol

2005EUETS

2007--Mass v. EPA--Lieberman-WarnerVoted Outof Sen.Comm.--GreenhouseGas ReportingLegislation--MidwesternGreenhouse Gas Reduction Accord

2008US Pres.Election

2009-2010--US Climate Change Legislation--Post-KyotoClimate ChangeTreaty

2006 --California Bill--WesternClimate Initiative

2003RegionalGreenhouseGasInitiative

2009US GHGReportingRegulation

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What to Expect This YearWhat to Expect This YearNationwide Renewable Energy Portfolio Standard BillNationwide Renewable Energy Portfolio Standard Bill►► Requiring 10% by 2012 and 25% by 2025 of electricity to come Requiring 10% by 2012 and 25% by 2025 of electricity to come

from renewable energy sourcesfrom renewable energy sourcesClimate Change BillClimate Change Bill►► Cap and trade program to limit greenhouse gas emissionsCap and trade program to limit greenhouse gas emissions►► EPA issued proposed greenhouse gas emission reporting rule EPA issued proposed greenhouse gas emission reporting rule

to be finalized by June 2009to be finalized by June 2009If Congress does not act, Obama Administration may do so If Congress does not act, Obama Administration may do so under the Clean Air Act after U.S. Supreme Court decision in under the Clean Air Act after U.S. Supreme Court decision in Massachusetts v. EPA Massachusetts v. EPA ►► EPA to allow California and other states to set limits on EPA to allow California and other states to set limits on

greenhouse gas emissions from vehiclesgreenhouse gas emissions from vehicles►► May lead to EPA rules on greenhouse gas emissions under May lead to EPA rules on greenhouse gas emissions under

Clean Air ActClean Air Act

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What Will This Mean?What Will This Mean?

CarbonCarbon--Constrained EconomyConstrained Economy

►► Greenhouse gas emissions will be limited and every Greenhouse gas emissions will be limited and every stage of industrial and commercial activity will be stage of industrial and commercial activity will be evaluated for modification to reduce these emissions or evaluated for modification to reduce these emissions or reduce energy usereduce energy use

Second Industrial RevolutionSecond Industrial Revolution

►► Biggest change since the industrial revolutionBiggest change since the industrial revolution

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Understanding the Business Between Understanding the Business Between Incentivized Activity and Climate ChangeIncentivized Activity and Climate Change

Carbon Capture and Storage

Carbon Capture and Storage

Energy Efficiency

Energy Efficiency

Alternative Transportation

Fuels

Alternative Transportation

Fuels

Renewable Energy

Renewable Energy

Carbon CreditsCarbon Credits

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Potential Future Carbon MarketPotential Future Carbon MarketUS market predicted to rise quickly to $150 to US market predicted to rise quickly to $150 to $300 billion$300 billion

Global market by 2020 predicted by some to rise to $2 to Global market by 2020 predicted by some to rise to $2 to $3 trillion$3 trillion

No one knows what actually size may beNo one knows what actually size may be

Probability it will be very largeProbability it will be very large

Thus, individuals and firms that understand this and act on Thus, individuals and firms that understand this and act on accordingly may find tremendous business opportunitiesaccordingly may find tremendous business opportunities

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““Stimulus Bill” or the American Recovery and Stimulus Bill” or the American Recovery and Reinvestment Act of 2009 (ARRA)Reinvestment Act of 2009 (ARRA)

Four Main AreasFour Main Areas

►► Renewable Energy:Renewable Energy: wind, solar, biomass, geothermal, wind, solar, biomass, geothermal, etc.etc.

►► Energy Efficiency:Energy Efficiency: Use less electricity, fossil fuels, etc.Use less electricity, fossil fuels, etc.

►► Carbon Capture and Storage:Carbon Capture and Storage: capture CO2 primarily and capture CO2 primarily and store or sequester underground (where it originated)store or sequester underground (where it originated)

►► Alternative Transportation Fuels:Alternative Transportation Fuels: ethanol, biodiesel, ethanol, biodiesel, natural gas, hydrogen, electricity, etc.natural gas, hydrogen, electricity, etc.

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Magnitude of EnergyMagnitude of Energy--Related IncentivesRelated IncentivesAppropriations for projects is about $35 billionAppropriations for projects is about $35 billionOther funds may be obligated from other sourcesOther funds may be obligated from other sourcesTax incentives are not included in this number Tax incentives are not included in this number Loan Guaranty program equals $6 billion in government Loan Guaranty program equals $6 billion in government funds but is designed for a tenfunds but is designed for a ten--fold private multiplier and fold private multiplier and this would equal $60 billion in total loansthis would equal $60 billion in total loansClean Renewable Energy Bonds and Energy Conservation Clean Renewable Energy Bonds and Energy Conservation Bonds equal $4 billionBonds equal $4 billionBeyond the DOE, the Treasury Department has the Beyond the DOE, the Treasury Department has the authority to approve grants in lieu of tax credits, and no authority to approve grants in lieu of tax credits, and no limit is place on this programlimit is place on this program

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Tax IncentivesTax IncentivesExtends deadlines for § 45 Production Tax Credits Extends deadlines for § 45 Production Tax Credits (PTC)(PTC)

►► Wind projects extended through Dec. 31, 2012Wind projects extended through Dec. 31, 2012

►► Biomass, geothermal, landfill gas, wasteBiomass, geothermal, landfill gas, waste--toto--energy, energy, hydropower, and marine renewables projects extended hydropower, and marine renewables projects extended through Dec. 31, 2013through Dec. 31, 2013

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Tax IncentivesTax IncentivesProject investors in projects previously qualifying for § Project investors in projects previously qualifying for § 45 PTCs may elect to take § 48 Investment Tax Credits 45 PTCs may elect to take § 48 Investment Tax Credits (ITCs)(ITCs)

►► Current law allows § 45 PTC to be taken over a 5 or 10 year Current law allows § 45 PTC to be taken over a 5 or 10 year period (10 years for wind)period (10 years for wind)

►► Current law allows § 48 ITC to be taken in the year the project Current law allows § 48 ITC to be taken in the year the project is is placed in service (30% credit for solar, fuel cell, small wind placed in service (30% credit for solar, fuel cell, small wind property; 10% credit for other qualifying technologies)property; 10% credit for other qualifying technologies)

►► ARRA provides that technologies previously qualifying for the ARRA provides that technologies previously qualifying for the PTC (including wind, biomass, geothermal, landfill gas, wastePTC (including wind, biomass, geothermal, landfill gas, waste--toto--energy, hydropower, and marine facilities) may now claim a energy, hydropower, and marine facilities) may now claim a credit equivalent to the 30% ITCcredit equivalent to the 30% ITC

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ARRA Allows the Treasury Dept. to ARRA Allows the Treasury Dept. to Issue a Grant in Lieu of Tax CreditsIssue a Grant in Lieu of Tax Credits

Treasury will provide grants in lieu of § 48 ITCsTreasury will provide grants in lieu of § 48 ITCsProjects eligible for § 45 PTCs can be converted to Projects eligible for § 45 PTCs can be converted to ITCs to qualify for grant programITCs to qualify for grant program►► Construction must begin prior to 12/31/2010Construction must begin prior to 12/31/2010►► Projects must be placed in service before:Projects must be placed in service before:

2013 for wind (30% credit)2013 for wind (30% credit)2014 for biomass, geothermal, landfill gas, waste2014 for biomass, geothermal, landfill gas, waste--to energy, to energy, hydropower & marine renewables (30% credit)hydropower & marine renewables (30% credit)2017 for fuel cell, solar, small wind (30% credit) 2017 for fuel cell, solar, small wind (30% credit) 2017 for geothermal, microturbine, combined heat & power 2017 for geothermal, microturbine, combined heat & power and geothermal heat pump property (10% credit)and geothermal heat pump property (10% credit)

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Broadening of Opportunity Broadening of Opportunity for Public Financingfor Public Financing

ARRA eliminates a limitation on § 48 tax credits that ARRA eliminates a limitation on § 48 tax credits that they be reduced if the property is financed with tax they be reduced if the property is financed with tax exempt bonds or other public moneyexempt bonds or other public money

This increases the ability to use public money to fund This increases the ability to use public money to fund qualifying projects and still obtain relevant tax qualifying projects and still obtain relevant tax creditscredits

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Investment Tax Credit for Advanced Investment Tax Credit for Advanced Energy ManufacturingEnergy Manufacturing

Investment Tax Credit for Investments in Advanced Energy Investment Tax Credit for Investments in Advanced Energy Manufacturing Equipment, 30% of investment, includes Manufacturing Equipment, 30% of investment, includes manufacturing facilities and related equipment for:manufacturing facilities and related equipment for:►► SolarSolar►► WindWind►► GeothermalGeothermal►► Fuel CellsFuel Cells►► MicroturbinesMicroturbines►► Electric/hybrid Cars, Batteries & EquipmentElectric/hybrid Cars, Batteries & Equipment►► Renewable Grids / Smart GridsRenewable Grids / Smart Grids►► Carbon Capture & SequestrationCarbon Capture & Sequestration►► Renewable Fuels Refining or BlendingRenewable Fuels Refining or Blending►► Energy Conservation TechnologiesEnergy Conservation Technologies

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Loan GuaranteesLoan GuaranteesRenewable energy loan guarantees of $6 billion in appropriated Renewable energy loan guarantees of $6 billion in appropriated funds should support at least $60 billion in loans “Rapid funds should support at least $60 billion in loans “Rapid Deployment” loan guarantees for renewable energy power Deployment” loan guarantees for renewable energy power generation using current commercial technology, including:generation using current commercial technology, including:

Renewable energy systems that generate electricity or thermal Renewable energy systems that generate electricity or thermal energy, and facilities that manufacture related components; andenergy, and facilities that manufacture related components; and

Demonstration or pilot projects using leadingDemonstration or pilot projects using leading--edge biofuel edge biofuel technology that is likely to become commercialized and reduce technology that is likely to become commercialized and reduce lifelife--cycle greenhouse gas emissionscycle greenhouse gas emissions

Transmission projects also coveredTransmission projects also covered

Loan guarantees for biofuel projects limited to $500 millionLoan guarantees for biofuel projects limited to $500 million

Construction must commence by Sept. 30, 2011Construction must commence by Sept. 30, 2011

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Electric TransmissionElectric TransmissionFunding for transmission modernization and smart Funding for transmission modernization and smart gridgrid

►► $4.5 billion to DOE for expenses necessary for electricity $4.5 billion to DOE for expenses necessary for electricity delivery and energy reliability activities:delivery and energy reliability activities:

Grid modernization, security and reliability Grid modernization, security and reliability

Energy storage R&D and demonstrationEnergy storage R&D and demonstration

Energy efficiency measurementEnergy efficiency measurement

Diversifying sources of ancillary servicesDiversifying sources of ancillary services

Advancing use of wideAdvancing use of wide--area smart gridsarea smart grids

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Fossil Energy FundsFossil Energy FundsGrants for fossil energy R&DGrants for fossil energy R&D

►► $3.4 billion for the Fossil Energy Research and $3.4 billion for the Fossil Energy Research and Development program, including:Development program, including:

$800 million for selections under DOE’s clean coal round III $800 million for selections under DOE’s clean coal round III (which includes petroleum coke fuel input);(which includes petroleum coke fuel input);

$1.52 billion in competitive solicitation for a range of $1.52 billion in competitive solicitation for a range of industrial carbon capture and energy efficiency industrial carbon capture and energy efficiency improvement projects, including a small allocation for improvement projects, including a small allocation for innovative concepts for beneficial CO2 reuse.innovative concepts for beneficial CO2 reuse.

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Examples of Federal Funding of Examples of Federal Funding of State and Local ProgramsState and Local Programs

ARRA flows $11.3 billion dollars through state and ARRA flows $11.3 billion dollars through state and local governments for renewable energy and local governments for renewable energy and energy efficiencyenergy efficiency

Weatherization program to provide $5 billion to Weatherization program to provide $5 billion to states for lowstates for low--income familiesincome families

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Examples of Federal ProgramsExamples of Federal ProgramsFederal buildings energy efficiency = $4.5 billonFederal buildings energy efficiency = $4.5 billon

Department of DefenseDepartment of Defense

►► $4.24 billion in funding to improve, repair and modernize $4.24 billion in funding to improve, repair and modernize DOD facilities, renovate Army barracks, and invest in the DOD facilities, renovate Army barracks, and invest in the energy efficiency of DOD facilitiesenergy efficiency of DOD facilities

►► $120 million for energy conservation projects, energy $120 million for energy conservation projects, energy upgrades, and construction of alternative energy upgrades, and construction of alternative energy projects, such as wind and solar, at military installations projects, such as wind and solar, at military installations in the United Statesin the United States

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EPA FundsEPA Funds$211 million announced by EPA for state, local, $211 million announced by EPA for state, local, and tribal governments and nonprofits to and tribal governments and nonprofits to implement clean diesel projects that reduce implement clean diesel projects that reduce particulate and nitrogen oxide emissions particulate and nitrogen oxide emissions $100 million for Brownfield sites (could be already $100 million for Brownfield sites (could be already spent)spent)$200 million underground storage tank cleanups$200 million underground storage tank cleanups$600 million Superfund Cleanups$600 million Superfund Cleanups$4 billion Clean Water Act Revolving Fund$4 billion Clean Water Act Revolving Fund$2 billionand$2 billionand Drinking Water Revolving FundDrinking Water Revolving Fund

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Opportunities for Oil and Gas Companies for Carbon Opportunities for Oil and Gas Companies for Carbon Credit ProjectsCredit Projects

One of the Largest Number of One of the Largest Number of Carbon Credits Issued Carbon Credits Issued under the Kyoto Protocol under the Kyoto Protocol Rang Dong Offshore Oil Field, Rang Dong Offshore Oil Field, VietnamVietnamFlared natural gas captured and Flared natural gas captured and piped to shore for usepiped to shore for useUN CDM Executive Board UN CDM Executive Board recently granted 4.43 million recently granted 4.43 million Certified Emission Reductions Certified Emission Reductions (carbon credits) in CO2e(carbon credits) in CO2eValue on European Climate Value on European Climate ExchangeExchange----approximately 15 approximately 15 euros per CEReuros per CER€€ 66 million or US $66 million or US $ 103 million103 million

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Carbon Capture and StorageCarbon Capture and StorageAlliance Bernstein ReportAlliance Bernstein Report►► One of the activities that will be One of the activities that will be

required to meet global CO2 reduction required to meet global CO2 reduction goals.goals.

►► Injection of CO2 of 7 billion cf by 2015, Injection of CO2 of 7 billion cf by 2015, 70 bcf by 2020, and 500 bcf by 2030; 70 bcf by 2020, and 500 bcf by 2030; and 60 gigatonnes of CO2 by 2030.and 60 gigatonnes of CO2 by 2030.

►► Injected for enhanced oil and gas Injected for enhanced oil and gas recovery (could increase yield by 11 recovery (could increase yield by 11 million bbl/day).million bbl/day).

►► Injected for coalInjected for coal--bed methane recovery bed methane recovery (increase yield of gas by 3,000 trillion (increase yield of gas by 3,000 trillion cubic feet).cubic feet).

Enhanced oil and gas recovery would Enhanced oil and gas recovery would offset significant portion of cost of offset significant portion of cost of capturing CO2.capturing CO2.An enormous number of carbon An enormous number of carbon credits could be generated for use or credits could be generated for use or sale if a CDM method is adopted.sale if a CDM method is adopted.

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GHG Reduction Projects That May Generate GHG Reduction Projects That May Generate Carbon CreditsCarbon Credits

Fuel switching, e.g., coal to Fuel switching, e.g., coal to natural gas, or biomass for natural gas, or biomass for fossil fuels;fossil fuels;Capture and flaring or other use Capture and flaring or other use of coalof coal--bed methane;bed methane;Biofuels from waste oils (no Biofuels from waste oils (no approval yet for a biofuel from approval yet for a biofuel from agricultural crops);agricultural crops);Projects related to biofuel Projects related to biofuel production (e.g., burning of production (e.g., burning of bagasse to produce electricity);bagasse to produce electricity);Landfill gas to produce Landfill gas to produce electricity or to put in natural electricity or to put in natural gas pipeline;gas pipeline;

Energy efficiency, such as Energy efficiency, such as replacing boilers at refinery;replacing boilers at refinery;Renewable EnergyRenewable Energy——wind, wind, solar energy, geothermal, solar energy, geothermal, and hydropower;and hydropower;Cogeneration;Cogeneration;Capture of CO2 from LNG, Capture of CO2 from LNG, gas processing plants, coalgas processing plants, coal--fired power plants and fired power plants and injection for enhanced oil injection for enhanced oil and gas recovery, enhanced and gas recovery, enhanced natural gas recovery from natural gas recovery from deep coal seams, or into deep coal seams, or into deep saline aquifers.deep saline aquifers.

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Scott D. DeatheragePartner

1722 Routh Street

Suite 1500

Dallas, Texas 75201

214-969-1206

Scott.Deatherage@tklaw.com

Blog Sites:

"The New Carbon Cycle"

http://lawandenvironment.typepad.com/newcarboncycle/

and

"Law and the Environment"

http://lawandenvironment.typepad.com/