July 2008 EPA s Advance Notice of Proposed Climate

July 2008 EPA's Advance Notice of Proposed Climate Change Regulations: Transportation & Energy Update Reed D. Rubinstein Greenberg Traurig, LLP Washington, D. C GREENBERG TRAURIG, LLP ▪ ATTORNEYS AT LAW ▪ WWW. GTLAW. COM © 2008, Greenberg Traurig, LLP. Attorneys at Law. All rights reserved.

Background ■ Mass v. EPA – US Supreme Court. ØStates/NGOs petition courts to order EPA to regulate greenhouse gases such as CO 2 (GHGs). EPA declines. Lower court rules for EPA. States appeal. (Note political driver). Ø 5 -4 decision, key holding: GHGs are “pollutants” under the Clean Air Act (CAA). ØAction: Remand to EPA for “endangerment” determination. If so, then, as a practical matter, EPA must regulate all sources of GHGs. July 2008 [▪ 1 ]

Next Steps ■ EPA staff was prepared to make endangerment finding in 2007, but management and the White House strongly opposed same. ■ Congress passed EISA mandating increased fuel economy and alternative fuels – thus, EPA decided instead in December 2007 to issue the Advance Notice of Proposed Rulemaking. ØEndangerment finding has enormous regulatory consequences. ■ EPA staff went for the “big solution” and issued a massive regulatory blueprint. July 2008 [▪ 2 ]

■ The ANPR is here: http: //www. epa. gov/climatechange/anpr. html ■ EPA's endangerment evaluation is here: http: //www. regulations. gov/fdmspublic/componen t/main? main=Docket. Detail&d=EPA-HQ-OAR-20080318 July 2008 [▪ 3 ]

Immense Complexity ■ Multiple regulatory programs, including NAAQS, Mobile Sources, Stationary Sources, PSD (everyone? ) ■ Many practical questions. ØDoes EPA have cap and trade authority? ØWill the entire country be “non-attainment”, thus limiting development? ØDoes EPA really have the authority to require CAA permits for every 100, 000 sq ft building? ØShould EPA be regulating cows? July 2008 [▪ 4 ]

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GHG Regulation via CAA Title I Stationary Sources Power Plants, Buildings, Restaurants(? ), Farms(? ), Malls(? ), Factories, Refineries, Mines International Concerns Foreign Sources WTO Duties July 2008 Title II Mobile Sources Cars, Trucks, Ships, Planes, Construction Vehicles, Lawn mowers, ORVs State/Regional Issues California, RGGI, WCI, MGGRA, Preemption? Natural Resource Issues NEPA, ESA (Polar Bears) MMPA [▪ 7 ]

Politics/Outcomes ■ Bush White House unable to control EPA staff, thus it published the ANPR with criticism of staff conclusions contained therein. ■ EPA staff has already determined endangerment and is prepared to go “big solution. ” It claims authority, among other things, to regulate using a ‘life cycle’ approach to the control of GHG emissions and reduce the possibility of leakage…” ANPR p. 432. ØExample: a “super-category” could be created allowing EPA to regulate “all aspects of the production, processing, and consumption of petroleum fuels or to regulate the production and consumption of fossil fuels for heat and power…” ANPR p. 432 fn. 245. July 2008 [▪ 8 ]

■ The ANPR was designed to mobilize opposition to CAAbased GHG regulation. ØHuge impact on the economy for no GHG benefit. ØObvious data quality issues. ØLegislative decisions should be made by Congress, not bureaucrats. ■ GHG action in 2009 is all but certain. Time frame for implementation (barring legislative action): ØProposed rules out mid-2009. ØFinal rules out mid/late-2010. ØLitigation, 2009 to ? ? ? July 2008 [▪ 9 ]

EPA/GHG-A Regulatory Godzilla July 2008 [▪ 10 ]

Transportation & Energy Update ■ Transportation. ØMajor operational impact (design, use, work practices). EPA claims “broad authority” to impose standards “based on technologies not yet available” and to “require GHG emission reductions from transportation fuels. ” ANPR p. 226. Ø New regulatory duties all but certain – precise duties unclear (“EPA has not determined what level of GHG emission reduction would be appropriate…”, ANPR p. 226), but trucking and airlines are at particular risk. (Good time to own a railroad? ) July 2008 [▪ 11 ]

ØMajor impact on financing, accounting, and valuation. Moderate to high litigation risk. Claims for past emissions likely. ØEven if GHGs can be effectively monetized, costs will exceed credits in most cases. Example: cap may be based on “overall emissions from a manufacturer’s production. ” ANPR p. 236. July 2008 [▪ 12 ]

■ Energy. ØOnerous new operational and permit obligations are certain. Significant financing/governance/valuation problems. ØCompeting state/federal mandates and requirements will make fossil fuel energy more expensive. Strict caps and limits are first steps, not final measures. ØVery high litigation risk. Kivalina v. Exxon. Mobil Corp (tort suit) and Friends v. Couch (permit challenge) are indications of things to come. “Superfund” suits possible. July 2008 [▪ 13 ]

What To Do? ■ Get ahead of the curve. ØStay informed. ØUpdate operations/governance/management procedures. ØGrab the low-hanging fruit – efficiency, easy alternatives, new products, risk hedges (esp. insurance). ■ Think creatively, act conservatively. ■ Respond to the political process. July 2008 [▪ 14 ]

Resources ■ ANPR http: //www. epa. gov/climatechange/anpr. html ■ EPA Endangerment evaluation http: //www. regulations. gov/fdmspublic/componen t/main? main=Docket. Detail&d=EPA-HQ-OAR-20080318 ■ EPA “Stationary Source” evaluation http: //www. regulations. gov/search_results. js p? css=0&Ntk=All&Ntx=mode+matchall&Ne=2 +8+11+8053+8054+8098+8074+8066+8084+8055&Ntt =Technical%20 Support%20 Document%20%20 Stationary%20 Source%20&sid=11 B 4 C 95 E 881 A July 2008 [▪ 15 ]

■ EPA Mobile Source evaluation http: //www. regulations. gov/search_results. js p? css=0&Ntk=All&Ntx=mode+matchall&Ne=2 +8+11+8053+8054+8098+8074+8066+8084+8055&Ntt =Technical%20 Support%20 Document%20%20 Section%20202%20 Greenhouse%20 Gas%20 Emiss ions%20&sid=11 B 4 C 972 AB 6 C ■ EPA Vehicle GHG Emission evaluation http: //www. regulations. gov/search_results. js p? css=0&Ntk=All&Ntx=mode+matchall&Ne=2 +8+11+8053+8054+8098+8074+8066+8084+8055&Ntt =Vehicle%20 Technical%20 Support%20 Document%2 0 -%20 Mobile%20 Source&sid=11 B 4 C 98 B 9 D 00 July 2008 [▪ 16 ]