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Fracking Updates in NY, IL, and MN

Probably not the best sand for fracking. Photo by Sharon Mooney, some rights reserved.

A quick update on fracking regulations at the state level around the country: The New York State Assembly passed a two-year moratorium on high volume hydraulic fracturing, which must now go before the Senate, then Governor Andrew Cuomo. The bill also would require the State University of New York to conduct a review of high volume fracking. The Assembly’s bill follows similar moratoria passed in 2010 and 2011 that went nowhere in the Senate; however, the political makeup of the Senate makes the bill’s passage more likely this year.

Governor Cuomo’s administration is awaiting its own health impact study of fracking before proceeding with the Department of Environmental Conservation’s fracking regulations. This regulatory review process has already resulted in what is essentially a five-year ban on fracking. DLA Piper, whose memo gives the details on the moratorium, sees the prospects for shale gas production in New York to be low.

In contrast, Illinois, after five months of negotiations between environmental groups and the energy industry, has worked out draft regulations on fracking. The Natural Resources Defense Council stepped in to ensure that drillers were liable for water pollution and that they disclosed the chemical makeup of fracking fluid, among other safeguards.

The makeup of the fracking fluid that is injected to extract shale gas has been a hot topic recently, but a few Minnesota towns are making news by rejecting Minnesota Proppant’s proposal to open a sand processing and rail-loading facility. The sand near St. Charles Township in southeastern Minnesota is just the right size and strength to wedge open cracks just enough for natural gas to escape. And after St. Charles Township rejected their proposal, next-door St. Charles did the same. Supposedly Wisconsin has been more pro-sand mining in the past, but there is some evidence that it might not be smooth sailing there, either, as the town of Bridge Creek rejected similar plans for a sand mine there.

Energy and Environmental Bills in the Washington Legislature

Gray wolf. Photo by uhuru1701, some rights reserved.

Today, we’ll look at energy and environmental bills being considered closer to home, in the Washington State Legislature. Energy and climate bills are center stage, but wildlife and land use bills are also on the agenda.

SB 5802 would authorize the Governor to contract with an independent organization to evaluate greenhouse gas reduction strategies and declare an emergency related to greenhouse gases. Its companion bill in the House went to executive session in the House Committee on Environment on Wednesday. Business advocates, however, are concerned that unilateral action in Washington will put state businesses at a competitive disadvantage nationally, and Republicans have proposed a substitute bill that removes “absolute” language on climate change and ocean acidification.

Among this session’s more high-profile bills is SB 5547, does not address climate change directly but rather confronts the ocean’s rising acidity. It would create a Marine Resources Protection Council in the Governor’s Office to consider how to tackle increased acidity and its effect on reef development and marine life. The Washington Farm Bureau, for its part, has pointed to lack of definitive evidence relating local industrial activities to rising acidity, and the bill did not move out of committee.

Another set of bills address energy use. SB 5297, SB 5298, HB 1221, and HB 1222 would allow utilities to purchase coal transition power while still meeting the reduced cost cap for renewable energy investments, and to lower the obligations under I-937 that state utilities gradually increase the amount of new renewable resources in their electricity supply. HB 1301 promotes renewable energy by adjusting incentives. It modifies a tax credit to encourage energy consumers to meet on-site electricity demands by installing renewable energy systems, and would establish a fund to encourage clean energy manufacturing in the state.

On the other side of the mountains, Eastern Washington legislators are apparently very concerned about gray wolves. A total of ten senate and house bills have been proposed that for the most part would expand the ability of ranchers and counties to lawfully kill wolves that have killed livestock. Most of these bills are not making progress, though.

Finally, SB 5295, designed to reduce the burden of permit applications mandated by the Shoreline Management Act, is stalled in committee.

The Challenges to Offshore Wind

Photo by Rob Farrow, some rights reserved.

Mother Jones has a succinct piece on the challenges facing offshore wind projects, challenges that explain why the U.S. still doesn’t have a single offshore wind turbine. The UK has 870, and Germany has 416, for comparison. Now that has Congress extended the wind Production Tax Credit (after a long battle detailed here and here) and outgoing Interior Secretary Ken Salazar said he is optimistic that the Cape Wind project in Nantucket Sound will begin construction in 2013, it is a good time to look at the roadblocks that remain.

Though offshore projects benefit from the Production Tax Credit, worth $1 billion a year, and the Incentive Tax Credit, which pays 30% of wind projects’ constructions, higher construction and transmission costs make electricity from offshore turbines twice the price of electricity from more traditional sources. While in the U.S., states and utilities are understandably hesitant to embrace it, Germany, for example, fully subsidizes the offshore wind system.

The opponents of offshore wind that have gotten the most press are “stakeholders” in areas near potential projects, those who organize groups like the Alliance for Nantucket Sound in opposition to the Cape Wind project, which to date has fought a dozen lawsuits over the turbines’ effect on interfering with boat traffic, desecrating sacred sites, and harming avian and marine life (the GM has covered this here and here). Not surprisingly, these wildlife worries have been hijacked by waterfront homeowners; meanwhile, the National Wildlife Federation, Greenpeace, and the Sierra Club are all in favor of the project.

The strangest problem offshore wind is facing is a 1920 law requiring ships sailing between ports in the U.S. to be U.S.-flagged. This is apparently a problem because the small fleet of ships capable of installing a 400-foot turbine in the ocean floor is based mostly in Europe – and once one of those ships installs the foundation for a turbine, it qualifies as a ‘port,’ and cannot proceed to dock in the U.S. A shipbuilder in New Jersey is building a turbine-installation ship, but until its completion at earliest in 2014, the cost of bringing in ships from abroad can be prohibitive.

Finally, our beloved federal system of government means that states award utility contracts, while the Interior Department manages the deep water where wind turbines can be built. Developers worry that even if they get a contract with a state to buy their power, Interior could award the ‘land’ rights to someone else.

Is U.S. Natural Gas Boom Due to Good Government?

Photo by Dru Bloomfield, some rights reserved.

The economics of the energy industry are perennially unstable due to resource availability and regulatory uncertainty, and we are barraged with data about the latest developments every week. Haynes and Boone just released a memo detailing that oil and gas companies paid landowners $21 billion in 2010, and we have written about the average cost of producing oil in the Arctic versus in the Gulf of Mexico and West Africa. Often it is useful to look at all these developments with a different perspective in mind.

Today’s post looks further at the reasons for the U.S.-led surge in shale drilling, considering the arguments of BP’s chief economist that stable property rights in addition to “open access and sound government” – as opposed to dumb luck and fortunate geology – unleashed the recent boom in natural gas extraction. Evidence he offers to support this claim is that natural gas drilling has not taken off outside North America. India and parts of Latin America and Africa also have generous supplies of accessible shale gas, but the market pricing of energy and private-sector drive in the U.S. have enabled natural gas development to become a natural gas boom unlikely to be copied elsewhere anytime soon.

The answers to the questions these politically-driven tidbits touch on will require some serious economic analysis, but still they are a useful reminder that geology is not the only factor in the cost of energy extraction. While production costs in the Arctic may be so much higher than in West Africa for reasons of the physical difficulty of drilling, Canadian and American market pricing, infrastructure, and private property rights certainly drive some of the natural gas industry’s ability to expand so quickly.

New Investment Structure for Renewable Energy On the Radar

Looking for new ways to finance this. Photo by Paul Anderson, some rights reserved.

While those who created the Green Mien envisioned it as a blog focusing on energy regulation, this writer often strays away from the law into the workings of the energy industry. Today, we get to combine these topics, courtesy of the insight of a New York Times ‘Dealbook’ article on renewable energy companies lobbying for a new legal framework for investment structures modeled after those used by the oil, gas, and real estate industries.

The renewable industry credits themselves for technological progress but sees the cost of financing projects as a barrier to lowering the cost of the energy they produce. Allowing renewable energy companies to raise funds through a master limited partnership (M.L.P.) or a real estate investment trust (REIT) would make financing easier and cheaper and reduce the cost of their energy by a third.

Under current law, renewable energy companies receive a tax credit against their income, but because they are often marginally profitable, they need extensive investment from companies (often those looking to shield their non-energy profit from taxes) in order to take advantage of the credits. Through a M.L.P. or a REIT, renewable energy companies could reach a much wider pool of investors, allowing them to offer a lower rate of return than that demanded by the few big investors who can currently invest in renewable companies.

The IRS has the authority to allow a company to form a REIT for group of renewable energy projects – and is considering one such case right now. But M.L.P.’s, which have been used to fund the development of much energy infrastructure, especially pipelines, can be opened to renewable energy companies only through an act of Congress. There are signs of support: Senator Chris Coons, Democrat from Delaware, plans to reintroduce a bill on M.L.P.’s next year, and is building support from the Obama administration and Republicans for the measure. And in December, 31 lawmakers sent a letter to the White House supporting the changes.

The big challenge to opening M.L.P.’s to renewable companies or to similar changes is its small-fries status in the tax overhaul brewing in Congress. The White House is also focusing its efforts on eliminating subsidies and loopholes to level the playing field.


Climate Assessment Report to Direct Policy Debate

Photo by ~sunny2001bj, some rights reserved.

At the Green Mien we focus on policy that affects the energy industry, but today we have the opportunity to examine a document whose findings will direct policy discussions for years to come. The U.S. National Climate Assessment and Development Advisory Committee, required by a 1990 law to submit a report to the President and Congress every four years summarizing the current scientific understanding of climate change and its impacts, released a draft Climate Assessment Report open for public review until April. (Thanks to Osler for their Update on the draft Report).

It’s pretty bulky – over a thousand pages – so maybe you could read it in the three-month comment period. It covers thirty topics, including climate change’s impact on health, water, energy, transportation, agriculture, and profiles of particular regions. The draft Report concludes that climate change due to human activity is to some degree inevitable, and that we should focus on mitigation efforts. Namely, economic and health challenges should be front and center, and that companies or states can find new economic opportunities if they recognize and overcome climate challenges.

Mildly critical of the U.S. legislative approach to reducing emissions enough to significantly mitigate climate change’s momentum, the draft Report identifies a model where the most effective state and federal efforts could serve as “best practices” to guide further legislative changes.

In addition, the scope of the Report’s impact will extend to the policy debate in Canada, as the Government of Canada continues to work with the U.S. in climate policy. They are positioned to benefit from the Report’s analysis of climate change’s impact on infrastructure even down to the municipal level, and on health, recreation, and agriculture, because the challenges faced by Canada are relatively similar.

Salazar Departs Interior, Remembered for Advancing Renewables

Photo by Bob Johnson, USFWS Mountain Prairie, some rights reserved.

Photo by Bob Johnson, USFWS Mountain Prairie, some rights reserved.

One of the stars of the Green Mien since its inception has been Ken Salazar, Obama’s Secretary of the Interior, who announced he would be leaving Washington to return to his home in Colorado in March. He focused Interior on renewable energy and reorganized the formerly scandal-ridden agency into three agencies with clear and separate functions. We have written about his hand in the Extractive Industries Transparency Initiative, in developing oil drilling plans in Alaska, in offshore oil and gas oversight, and much more.

The White House has given no indication as to who might succeed him, and combined with the departure of EPA’s administrator Lisa Jackson and DOE’s Steven Chu, continuity of the Obama Administration’s policies toward energy development and climate change is in question. As these vacancies are filled, expect to read about expectations for the new administrators’ goals and policies here.

Salazar has broadened the scope of Interior’s activities from its traditional focus on mining, forestry, and oil and gas development to an emphasis on renewable energy. Since 2009, the department has authorized 34 solar, wind, and geothermal energy projects, settled a 15-year legal battle with American Indian tribes, and established seven new national parks. His handling of contentious oil and gas issues, like the Deepwater Horizon spill and allowing Shell begin exploration for oil in the Arctic, drew the most headlines.

President Obama once rebuked the famously blunt former lawyer for using cowboy language. “We have our boot on their neck to make sure they got the job done,” Salazar explained, referring to Interior’s oversight of BP officials in the Deepwater Horizon spill cleanup. Hopefully we’ll be able to find another character to replace him.

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