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The National Law Journal

Publication Date: February 11, 2010

According to the U.S. Energy Information Administration, the U.S. energy-supply sector relies mainly on consumption of petroleum (37%), natural gas (24%) and coal (23%). Nuclear energy supplies 9% of domestic energy and, in total, other renewables supplied a mere 7% as of 2008. Of the 7% attributable to renewables, biomass and hydroelectric are the greatest contributors (53% and 34%, respectively), followed by wind (7%), geothermal (5%) and solar (1%). One crucial question is how the domestic energy supply sector will change following the United Nations Framework Convention on Climate Change Conference of the Parties last December in Copenhagen, Denmark.

The fundamental accomplishment of the conference was the Copenhagen Accord, an agreement negotiated by only five countries and outside of the U.N. process. It lays out the high-level agreement in principle of the largest greenhouse gas (GHG) emitters that are not party to the Kyoto Protocol: China, the United States and India. The Copenhagen Accord is a first-ever agreement with regard to some sort of GHG reduction by non-Kyoto parties, particularly China and the United States. And it offers $30 billion a year in financial support to poor countries with
"balanced allocation between mitigation and adaptation," growing to $100 billion by 2020, as the Copenhagen Green Climate Fund.

However, there is much the Copenhagen Accord fails to do. Even if fully implemented, it would allow global GHG emissions to rise past 2020 and would put the world on a course for a warming of nearly 4 degrees Celsius by 2100. Many critics worry that the accord is so weak and lacking in so many key details — it lacks any global emission targets and any enforcement mechanism for the national climate commitments — that it will undermine progress to control climate change by failing to give a much-needed clear signal to governments, markets and
investors about the need to reduce GHG emissions.

Furthermore, from a legal standpoint, the path from the Copenhagen Accord to a binding protocol under the convention is less than clear. Left unsettled and largely unexplained in the aftermath of the conference is how and when an agreement negotiated by only five countries and outside of the U.N. process will become reality. It should be noted that the convention was unable to adopt the Copenhagen Accord as a final decision (mostly due to party resentment at what was viewed as a "backroom" deal), but at the final plenary session, the new president, Philip Weech (Bahamas), found an elegant way to operationalize the Copenhagen Accord by "noting" it in a two-line decision and gavelling it through.

Energy investors watched the conference's outcome closely because the policies enacted following Copenhagen have the potential to markedly change the extent, and/or the way, that wealthy countries consume fossil energy during the next decades. What was the conference's outcome? In simple terms: no binding treaty, and chaos over future climate talks. Although this result offers the status quo business models some respite, it does little to give international investors any certainty regarding what future technologies will be viable internationally in the longer term. The result: uncertainty for the international energy sector.

However, to stop looking there to determine an effect on the domestic energy sector would be shortsighted. The remarks made by the parade of executive branch dignitaries who spoke during the conference were singularly consistent: that despite entrenched manufacturing and petrofuel-based special interests, the Obama administration views reinventing the energy sector as the economic catalyst to catapult our nation into another economic boom. It is a small leap to conclude that, despite the lack of a firm deadline in the Copenhagen Accord, the U.S. administration will continue to push to reinvent the domestic energy sector, if for no reason other than economic stimulus. This push is reinforced by the recent proliferation of "energy security" and "green jobs" bills proposed in Congress.

There were strong signals given at the conference regarding U.S. domestic energy policy as U.S. officials mapped a vision for new energy future in the United States. President Obama, in his prepared remarks given on the last day of the conference, said, "America is going to continue on this course of action no matter what happens in Copenhagen….America has…made our commitments, and we will do what we say:…cutting our emissions in the range of 17 percent by 2020, and by more than 80 percent by 2050 in line with final legislation." Secretary of the Interior Ken Salazar, speaking of the pending bills in the Senate, said unequivocally, "We will pass this bill; we will build a clean energy future."

What will this "clean energy future" look like? According to Commerce Secretary Gary Locke when he spoke at the conference, the future will turn the energy-supply sector on it head: "What's required is nothing less than completely rethinking the way we produce and consume energy….In the next few decades, we need to rebuild and reinvent virtually every industrial activity; from power generation and transportation to manufacturing and construction, to run efficiently and economically in a carbon constrained world." Although there is much speculation at this point, it is clear there will be "winners" and "losers" from an energy-supply technology standpoint.

If the administration officials speaking at the conference are to be believed, expect wind energy to play an important role in this "clean energy future." The National Renewable Energy Lab estimates the wind potential in the Atlantic Ocean to be 1,000 gigawatts. Currently, renewables account for about 7 quadrillion British thermal units of energy supply, so that 1,000 gigawatts, although impressive, is not proportionally a large increase in renewable supply from wind. Furthermore, less than 5.3 gigawatts of new wind capacity would be ready for construction by the end of 2010. Therefore, in the short term, the energy sector for wind is not transformed, although it does increase. However, according to Salazar, wind can generate as much as 20% of our electricity by 2030.

Solar figures in the domestic transformation of the energy sector as well. The Department of the Interior has set aside 1,000 square miles of public lands in "Solar Energy Study Areas" to evaluate environmentally appropriate solar energy development across the West and the deserts of the Southwest, including near Los Angeles and Las Vegas.

A renewed interest in nuclear has surged, at the conference and domestically, particularly in California. However, it is too soon to make any statements as to the precise role of nuclear in our domestic energy future.

Also, despite some skepticism regarding efficacy on an international level, carbon capture and storage (CCS) is being heavily emphasized domestically. Salazar highlighted "carbon capture and storage" as one of three new functions that his department will manage federal lands to accommodate. Secretary of Energy Steven Chu, through the Recovery Act, is investing $2.4 billion to accelerate the commercial deployment of CCS technologies. Part of this emphasis is likely a function of the fact that 30 states either mine coal or burn it for the majority of their electricity and therefore support technology that would allow that to continue even as the nation reduces carbon dioxide emissions.

The fact that any domestic GHG reduction plan will likely entail reliance on CCS, at least in the short term (that is, between now and 2030), is significant in trying to predict future changes in the energy supply sector both near and long term. The use of CCS means that coal-fired electricity-generating units and GHG-intensive manufacturing processes do not need to change their operations — they simply need to capture and store the GHGs. Therefore, if CCS is viable, some portion of coal-supplied electricity will continue as long as CCS technology is employed.

However, the long-term viability of coal-supplied energy is bleak to nonexistent. If we are to meet our 2050 goal of an 80% reduction in GHGs, this likely means decommissioning every existing domestic coal-fired generating unit to prevent unacceptable GHG "lock in" (that is, GHG emissions that can not be reduced) since existing electricitygenerating units are noncapture-ready. The recent endangerment finding by the U.S. Environmental Protection Agency, which by implication mandates that the EPA consider GHG emissions in any best available control technology permitting, will go a long way toward insuring that coal-fired electricity-generating units built after 2010 are capture-ready.

In sum, the domestic energy supply sector will change dramatically. During the next 10 to 20 years, we can expect to see a threefold increase in supply from renewables. Coal-supplied electricity will trickle off during the next 40 years but, assuming a viable CCS program, in the near term significant production of electricity from coal will remain.

Lawrence Demase (ldemase@reedsmith.com) is a partner in the environmental law practice at Reed Smith and is based in the Pittsburgh office. Jennifer Smokelin (jsmokelin@reedsmith.com) is counsel to the environmental law practice and an adjunct professor of law at the University of Pittsburgh School of Law. Both attended the U.N. Climate Change Conference Copenhagen 2009 as delegates on behalf of the Environmental Markets Association.

Reprinted with permission from the February 8, 2010 issue of The National Law Journal. © 2010 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.