On Feb. 19, 2020, the IRS released Notice 2020-12 and Revenue Procedure 2020-12 (together, the “Carbon Guidance”) which provide highly anticipated clarity on the Internal Revenue Code Section 45Q credit for carbon oxide sequestration. The Carbon Guidance provides details on determining when construction has begun on an eligible project, and valid partnership allocations (including a permissible partnership flip structure), which in each case are very similar rules to those applicable or relied upon in solar and wind tax credit tax equity transactions.

This article provides a useful summary of the background and requirements for Section 45Q credit qualification; and the Carbon Guidance, including the “Physical Work Test” and the “5% Safe Harbor” as relates to establishing commencement of construction on a qualified facility or carbon capture equipment.

Read the full GT Alert, “Summary of Guidance on Section 45Q Carbon Tax Credits Under 2020 Notice and Revenue Procedure.”

On Feb. 19, 2020, the Internal Revenue Service released partial guidance on the implementation of section 45Q tax credits related to the capture and sequestration of carbon dioxide. The section 45Q tax credit was updated on Feb. 9, 2018, as part of the Bipartisan Budget Act (Pub. L. 115-123) to increase the amount of the tax credit per ton and to broaden the applicability to include “qualified carbon oxide.” The new IRS guidance is designed to assist in implementing the modified law.

The 2018 law removed the volume cap applicable to the tax credit, expanded the definition to include not just carbon dioxide but other carbon oxides such as methane, and raised the amount of the tax credit per ton. Carbon oxides captured and used for enhanced oil recovery can now receive a tax credit of up to $35 per ton, while carbon oxides deposited in secure geological storage can receive a tax credit of up to $50 per ton. Continue Reading IRS Takes First Steps to Implement Carbon Capture Tax Credit

With the recent passage of New York’s Climate Leadership and Community Protection Act, which calls for a carbon free electricity market by 2040, New York became the sixth state to pass legislation calling for a carbon free electricity market. Just one year earlier, California passed similar legislation, SB100, adopting a state policy to achieve a zero-carbon electricity market by 2045. These goals will have to be pursued notwithstanding the fact demand for electricity is projected to increase as other sectors pursue beneficial electrification to comply with ambitious emission reduction goals they face. Whether these goals can be achieved, and at what cost, will depend on technology advancements and how these laws are interpreted and implemented by regulators.

Click here to read the full article by Thomas R. Brill and Steven C. Russo, “An uncertain path to a cleaner future: Zero carbon electricity legislation in New York and California,” published by Utility Dive on Aug. 23.

For more on regulations and legislation aimed at reducing our carbon footprint, click here.

On July 23, 2018, Mexico published new administrative provisions (the “Guidelines”) implementing minimum insurance requirements for entities engaged in activities related to transportation, storage, distribution, compression, decompression, liquefaction, regasification, or retail sale of hydrocarbons or petroleum products in Mexico (“Regulated Entities”).

The Guidelines will help Regulated Entities that carry out activities in the hydrocarbon sector understand minimum insurance requirements for civil liability and environmental damage liability or losses that may occur as a result of their activities.

The Provisions are effective as of July 24, 2018.

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As Michael Cooke noted in his post the following day, on June 3 EPA proposed its “Clean Power Plan” that EPA estimates would, if adopted and implemented, cut greenhouse gas emissions from existing electricity generating units by 30% from 2005 levels.  79 Fed. Reg. 34,829 (June 18, 2014).  A few weeks later, as Mike again noted, the Supreme Court decided that EPA could impose technology-based GHG emission controls on new or modified emission sources, provided that the trigger for new source review came from new emissions of some other pollutant.  Utility Air Regulatory Group v. United States Environmental Protection Agency, 82 U.S.L.W. 4535 (U.S. June 23, 2014).

The uncertainty and upheaval in greenhouse gas regulation has caused some to focus on the opportunities to advocate for more favorable rulemaking or to litigate the regulators’ authority to impose obligations at all.  However, if you think about it, any pervasive GHG regulation has to create winners and losers.  Some businesses are going to be able to capitalize on these changes.  Lawyers should not forget the unglamorous and apolitical role of advising clients on how to do as well as possible under the new rules.  That is the subject of my column this month in Pennsylvania Law Weekly.  Read Carbon Emissions, the Supreme Court, and Business Opportunity, 37 Pa. L. Weekly 650 (July 15, 2014), by clicking here.

On June 2, 2014, the U.S. Environmental Protection Agency (“EPA”) published a draft rule that is intended to cut carbon emissions from existing power plants.  EPA hopes to accomplish this through a state-focused strategy that is essentially an energy control rule than a traditional environmental pollution control effort.  EPA expects to finalize the rule by June 2015 and the States will then have until June 2016 to implement state-specific plans to meet the requirements of the final rule.  According to EPA, existing power plants are the largest source of carbon emissions in the U.S., accounting for roughly one-third of all domestic greenhouse gas emissions.  This rule proposes to cut carbon emissions from the power sector by 30 percent from 2005 levels, aiming at changing how energy is generated and used.   The rule also proposes specific reduction goals for each state.  Under section 111(d) of the federal Clean Air Act, the states are given flexibility in designing plans to meet the standards once they are set.  Therefore, much of the decisionmaking on how to implement these requirements will occur at the state level.  Comments on the proposed rule will be due within 120 days from the date of publication of the rule in the Federal Register.

For a copy of the draft rule and related documents, click here.

The New York State Department of Environmental Conservation (DEC), in conjunction with the New York State Energy Research and Development Authority (NYSERDA), is currently accepting public comments on several proposed changes to the DEC’s regulations governing New York’s participation in the Regional Greenhouse Gas Initiative (RGGI). DEC’s proposed changes, which are based on updates to the RGGI model rule, are designed to reduce the RGGI emissions “cap” to increase the costs of CO2 emissions credits to encourage further reduction in CO2 emissions.

The linked GT Alert Carbon Claustrophobia — Significant Changes Coming to the Regional Greenhouse Gas Initiatives Cap and Trade Program explains the significance of the changes to the RGGI regulations.  Steven Russo of GT’s New York office and Adam Silverman of GT’s Philadelphia office prepared the alert.

From Joseph Z. Fleming at GT Miami:

Whether there is global warming, climate change, or not, other nations are increasingly taking action to reduce the “carbon” footprint in a manner that will impose an ever-increasing footprint on the American workplace. An example recently occurred with the E.U.’s determination that U.S. carriers must comply with E.U. emissions reductions or, in the alternative, pay fines which could add up to billions of dollars. The United States has officially complained about this policy. The outcome is not final.  

The dispute may be a harbinger of an increasing trend to impose restrictions related to climate change, which may be faced by American employers. In addition to this newly reported development, recent reports (see here and here) have confirmed that the Foreign Trade Agreements proposed by the United States with other nations increasingly contain not only labor but environmental standards, some of which are stricter than those in the United States. 

Continue Reading Foreign Responses To Climate Change May Impose Carbon Footprint On US Companies

From Marvin Kirsner of GT Palm Beach County:

The 4th Circuit held this week that a federal district court has jurisdiction over a case challenging a local carbon tax, even though the Tax Injunction Act generally deprives federal courts of jurisdiction in state or local tax controversies. This case should be very helpful to companies challenging a local tax that is in the nature of a punitive regulatory fee, especially where the tax is structured to apply to a single company.

This case, GenOn Midatlantic, L.L.C. v. Montgomery County, No. 10-1882 (5th Cir. June 20, 2011), involves a Montgomery County, Maryland “tax” on carbon emissions. The county imposed a tax at the rate of $5 per ton of carbon dioxide emitted, but the tax only applies to companies that emit more than 1 million tons of carbon annually. If the 1 million ton annual threshold is reached, then the tax applies to the first ton emitted.

Continue Reading Federal Court Has Jurisdiction Over Local Carbon Tax Dispute

I recently wrote a column for The Legal Intelligencer’s Pennsylvania Law Weekly, reposted on this blog here, raising questions about whether the Pennsylvania courts have correctly identified the public natural resources that ought to be valued and conserved as the corpus of the public trust established by the Environmental Rights Amendment to the Pennsylvania Constitution. In a series of decisions in litigation brought by the Pennsylvania Environmental Defense Foundation, the Commonwealth’s appellate courts have grappled with whether, and how much of, the proceeds of leasing oil and gas resources underlying state parks and forests must be appropriated to restricted conservation purposes, and how much can be appropriated to the general fund. The courts treat the oil and gas as the trust assets that matter, rather than the surface resources.

The Court of Appeals for the Third Circuit has weighed in, at least indirectly, and the problem persists. In Yaw v. Del. R. Basin Comm’n, No. 21-2315 (3d Cir. Sept. 16, 2022), the court affirmed dismissal for lack of standing of a challenge by certain Republican members of the General Assembly and the Republican Senate Caucus to the ban on high volume hydraulics fracturing in the Delaware River Basin imposed by the Delaware River Basin Commission, an interstate compact commission. However, the legislators were joined by Wayne and Carbon counties and two townships in Wayne County. 

The two counties and two townships asserted that they were trustees for the public natural resources within their jurisdictions under the Environmental Rights Amendment. The Court of Appeals agreed. The municipalities then asserted that they had standing to challenge the reasonableness of the ban because it interfered with their ability to manage the trust assets for the benefit of the trust beneficiaries. That is, some of the oil and gas in Wayne and Carbon counties are public natural resources. Production of that oil and gas – as well as private oil and gas – would provide funds to the towns and counties that could be used for environmental conservation purposes. However, the municipal governments, as trustees, were deprived by the DRBC ban of their ability to exercise their discretion as to whether to allow development of the oil and gas, and therefore they had an injury in fact and standing to challenge the DRBC regulation.

The Court of Appeals disagreed, holding that to allow that standing would “turn [the ERA] ‘upside down’. . . .” The court reasoned that the point of the ERA was to conserve public natural resources, and that to grant standing because the municipality might want to sell some of those resources would be contrary to the amendment even if the proceeds of the sale would return to the trust.

But that view treats the oil and gas in the ground as if it matters for purposes of the ERA public trust. What matters under the ERA might be said to be the environmental features that provide “clean air, pure water, and . . . the natural, scenic, historic and esthetic values of the environment.” Trustees might be said to have an obligation to exercise independent judgments as to whether disposition of some trust assets that do not provide any of those values – like oil and gas in the ground – would, on balance, better enhance the trust corpus’ ability to provide those values. Why that does not confer standing to challenge imposition of a ban is not clear. Consider, for example, if the DRBC prohibited installation of any concession kiosks on any park land in Philadelphia (which is in the Basin). Maybe that would be a good idea, but shouldn’t the City have standing to challenge the judgment of the Commission? 

Oil and gas cases may not be the best ERA cases to be bringing. This one was indirect and might have been unavoidable, but we are not making the most coherent law by putting public natural resources a mile underground front and center under an environmental constitutional provision.