Court Ruling Gives Green Light to EPA GHG Regulations -- Positive for Natural Gas, Renewables, and Efficient Vehicles

By Mark Fulton, Michael B. Gerrard

On June 26, 2012, a panel from the US Court of Appeals for the District of Columbia Circuit unanimously upheld the US Environmental Protection Agency’s (EPA) landmark greenhouse gas (GHG) regulations, keeping intact the EPA’s authority to regulate carbon emissions from vehicle tailpipes and stationary sources.

• The case is of great importance as it effectively clears the way for the EPA to proceed with its proposed rules to regulate CO2 emissions from both new power plants and from other new stationary sources, in addition to pressing ahead with new vehicle emission standards.

• For vehicles, the EPA released the ‘Tailpipe Rule’ in April 2010 requiring automakers to improve fleet-wide fuel economy and reduce fleet-wide GHG emissions for the model years 2012-2016. It required fuel economy to improve by approximately 5 per cent per year. EPA and Department of Transportation (DOT), in cooperation with the California Air Resources Board (CARB), then developed a new CAFE standard for light vehicles to supersede the current fleet average 35.5 miles per gallon (mpg) standard by 2016.

• For existing power plants, at present, the EPA has indicated that it does not plan to regulate GHGs emissions from established facilities, allowing states to continue to manage the permitting process under BACT.

• For future plants, EPA has proposed a New Source Performance Standard (NSPS) which is based on the Best System of Emissions Reduction (BSER) and set equal to an efficient gas fired plant. It includes a proposal for a two-phased limit for future coal plants with a higher limit at first and a lower limit in the future based future availability of CCS. It also provides a transition period for planned coal plants that have already received permits and begin construction by spring 2013.

• For investors in energy markets, the EPA’s proposed GHG regulation provides reasonably high degrees of Transparency and Certainty as to its specific rules and their economic impact with respect to new plants and vehicles, although for existing plants, the outlook is not so clear.

• When it comes to Longevity, the outcomes of the November elections are highly relevant, as are potential further court challenges.

• DBCCA believes key winners at a sector level will be: Natural gas, renewable energy, efficient vehicles, and, if proven, carbon capture and storage (CCS).

• It is noteworthy that no US court has found against climate science.

Published by DB Climate Change Advisors.

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