Environmental update

Environmental update

June 01, 2013

By Sue Cowel

California sold 14,522,048 2013 vintage allowances for $14 a ton and 7,515,000 2016 vintage allowances for $10.71 a ton in an auction on May 16 under the state cap-and-trade program. Each allowance allows the holder to emit one metric ton of greenhouse gases. All of the 2013 vintage allowances offered for sale and roughly 79% of the 9,560,000 2016 vintage allowances offered were sold. 

The settlement price of the 2013 vintage allowance was higher than the auction reserve price (the minimum price at which the state was prepared to sell) of $10.71, while the settlement price for the 2016 vintage allowances was the same as the auction reserve price, suggesting relatively weak demand for allowances whose use is still three years in the future.

The covered entities who must turn in such allowances include certain power and manufacturing companies.

If covered entities need additional allowances, then allowances may be purchased at auction or covered entities may use “compliance offset credits.” Covered entities can meet up to 8% of their triennial obligations to surrender allowances by using compliance offset credits. 

Compliance offset credits are created when projects reduce or remove greenhouse gas emissions and meet regulatory criteria set by the California Air Resources Board or CARB. Only CARB can issue offset credits for use in the cap-and-trade program. These credits represent verified reductions in greenhouse gases or removal enhancements from sources of greenhouse gas emissions that are not subject to a compliance obligation under the cap-and-trade program. The reductions must come from a project that was undertaken using a CARB-approved compliance offset protocol or the offset credits can be issued by another jurisdiction whose credits California recognizes, or be sector-based offset credits issued by an approved sector-based crediting program.

CARB is considering expanding the number of compliance offset protocols. New protocols could mean additional business opportunities for those that are willing to go through the process.

CARB has already approved four existing compliance offset protocols (US forest projects, urban forest projects, livestock projects and ozone depleting substances). CARB proposed rice cultivation and mine methane capture as potential additional compliance offset protocols in May. These protocols focus on reductions in methane, a powerful greenhouse gas.

CARB is considering the rice cultivation protocol to quantify reductions in methane emissions resulting from certain cultivation practices that could be used in major rice-growing areas of California and states in the middle South (Arkansas, Missouri, Mississippi, Louisiana and Texas). CARB is considering three rice cultivation practices for California: replacing wet seeding with dry seeding, early drainage at the end of a growing season and rice straw removal after a harvest. In the middle South, CARB is considering rewarding the following practices: early drainage at the end of a growing season, rice straw removal after harvest, intermittent flooding and staggered winter flooding. 

CARB is also considering a protocol to quantify reductions in methane emissions from active underground mines, abandoned underground mines and active surface mines. Methane can be released from underground and surface mines from ventilation shafts and from drainage and gasification wells that remove methane associated with mining activities. 

Equator Principles

Version three of the Equator Principles takes effect on June 4, 2013, although there is a transition period for certain projects.

The Equator Principles are a voluntary framework to help identify, assess and manage social and environmental risk. Since their inception 10 years ago, more than 75 lenders have adopted them. By doing so, the lenders have committed not to provide project or project-related finance to borrowers who will not or are unable to comply with the Equator Principles. 

Version three contains the following notable changes from the previous version: expansion of the scope of the Equator Principles to include certain project-related corporate loans and bridge loans, a requirement for an analysis of less intensive greenhouse gas emitting alternatives for projects that will emit more than 100,000 metric tons of greenhouse gases per year (as measured in carbon dioxide equivalents) and additional information sharing and disclosure requirements. 

Developers of projects that may be subject to the Equator Principles should make sure that these new requirements will be met to avoid delays with lenders.

The revisions add the following to the list of covered lending activities: project finance advisory services where total project capital costs are US$10 million or more, project finance with total project capital costs of US$10 million or more, project-related corporate loans meeting certain criteria and bridge loans of less than two years that are intended to be refinanced by a project finance loan or a covered project-related corporate loan.

Version three requires projects that will emit more than 100,000 metric tons of greenhouse gases per year (as measured in carbon dioxide equivalents) to evaluate alternative ways to reduce the emissions. The lenders will have to see an alternatives analysis of technically, financially-feasible and cost-effective measures to reduce greenhouse gas emissions during project design, construction and operation. 

Wastewater Effluent Guidelines

The US Environmental Protection Agency proposed revisions in April to its wastewater effluent guidelines for power plants that make steam as an intermediate step to generate electricity. The revisions are required under a consent decree in Defenders of Wildlife v. EPA. It has been more than 30 years since these guidelines were last updated, a period during which air emissions limits for many other pollutants have been ratcheted down. Instead of being released into the air, these pollutants can end up being discharged in wastewater effluent. 

EPA proposed eight different options to control the following types of waste streams: flue gas desulfurization, fly ash, bottom ash, flue gas mercury control, combustion residual leachate from landfills and surface impoundments, nonchemical metal cleaning wastes, and gasification of certain fuels. EPA indentified four preferred alternatives from these options and noted that the differences among the alternatives relate to the waste streams covered, size of the units controlled and stringency of the controls.

EPA will accept public comments for 60 days after it publishes the new rules in the Federal Register and has scheduled a public hearing on proposed pre-treatment standards on July 9 in Washington. The new guidelines had not been published by the time the NewsWire went to print. 

According to EPA, “no coal plants are projected to close as a result of this rule.” It estimates that fewer “than half of coal-fired power plants are estimated to incur costs under any of the proposed standards, because most power plants already have the technology and procedures in place to meet the proposed pollution control standards. For example, over 80% of coal power plants already have dry handling systems for fly ash that avoid wastewater discharge.” 

EPA did not comment on the projected impact on coal-fired power plants when the new rules are combined with other regulations that will affect such power plants like the mercury and air toxics and pending coal combustion residual rules.

Startup, Shutdown and Malfunction

EPA is expected to issue a final rule this fall requiring changes to how 35 states and the District of Columbia are required to regulate excess air emissions during periods of start up, shut down and malfunction — so-called SSM periods. The states will then have 18 months to submit revised state implementation plans. 

In the meantime, states are left to ponder how they will revise state implementation plans, particularly with respect to those sources like peaker plants that may be disproportionately affected compared to baseload power plants. 

EPA issued a proposed rule in February with respect to how some states are handling sources of regulated non-hazardous air pollutants that, during short periods of time (particularly during planned start ups and shut downs) emit more of these air pollutants than during periods of normal operation. Some states currently allow defenses against enforcement for excess air emissions during periods of start up and shut down. Environmental groups have opposed these defenses. EPA issued the proposed rule in response to a petition by the Sierra Club.

Under the proposed rule, 35 states and the District of Columbia would be required to resubmit state implementation plans with respect to SSM periods. The 35 states are Alabama, Alaska, Arizona, Arkansas, Colorado, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Minnesota, Mississippi, Missouri, Montana, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Carolina, South Dakota, Tennessee, Virginia, Washington, West Virginia and Wyoming.


A state implementation plan describes how a state plans to achieve compliance with the national ambient air quality standards, also known by the acronym NAAQS. The NAAQS set allowable concentrations of six air pollutants in outdoor air (particulate matter, ozone, carbon monoxide, sulfur dioxide, nitrogen dioxide and lead). Each area of the country has been designated as either in attainment, not in attainment or unclassifiable with respect to the NAAQS for each of the six air pollutants.