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New trade arrangement incentivizes power operators to be more energy-efficient.

By Paul A. Davies, R. Andrew Westgate, Qingyi Pan, and Jacqueline J. Yap

On January 1, 2021, the long-awaited China Emissions Trading Scheme (ETS) commenced operation, with 2,225 coal-fired power plants participating. Under this new ETS, China’s power operators will have to buy emissions permits if their coal plant exceeds carbon intensity benchmarks, giving power operators an incentive to improve efficiency. Since 2011, China has developed pilot emissions trading platforms in nine cities and provinces, paving the way for a national trading scheme that was first announced in 2017, along with an emissions trading market development plan for the power generation sector. After almost four years of development, the first annual compliance cycle officially began on January 1. China’s Ministry of Ecology and Environment (MEE) has published several policy documents on the national ETS that establish regulatory authority and specify general rules for key areas of market operation and design, including the Carbon Emissions Rights Trading Regulations (Trial), which was published in November 2020.

The pioneering case seeks an injunction to restrain the government from further promoting exchange-traded bonds until it complies with its duty of disclosure.

By Paul A. Davies and Michael D. Green

miningOn 22 July 2020, investors filed a class-action claim against the Australian government, alleging that it failed to disclose material climate change risks relating to its bonds (O’Donnell v. Commonwealth and Ors). The claim is thought to be the first of its kind against a national government.

The proposal signals continued convergence of international standards as the green bond market further matures.

By Paul Davies, Michael Green, and Aaron Franklin

On 29 May 2020, Chinese regulators published a draft of their 2020 revision to the Green Bond-supported Project Catalogue (Green Project Catalogue) for comments. The Green Project Catalogue comprises a list of projects that are eligible to be included as green projects in a green bond framework approved by Chinese regulators — with the 2020 version marking the first revision to the list since 2015. Perhaps the most eye-catching development in the new Green Project Catalogue is the exclusion of “clean fossil fuels”, a previously included project category that had led to a notable divergence between the projects that are eligible for green financing in China, and those that meet generally accepted market standards in other parts of the world.

EPA’s proposed standards have important implications, even though few coal plants are slated for development.

By Joel C. Beauvais and Stacey L. VanBelleghem

Background

On December 6, the US Environmental Protection Agency (EPA) signed a proposed rule to establish new source performance standards (NSPS) under Clean Air Act Section 111(b) for carbon dioxide (CO2) emissions from new, reconstructed, and modified power plants. The proposal would replace the existing Obama-era standards — which were based on applying partial carbon capture and sequestration (CCS) technology for new coal-fired plants — with significantly less stringent requirements. EPA’s proposal has several important implications for the power industry and other emitting sectors, even though few, if any, new coal plants are expected to be built in the United States in the near future.

EPA’s Current and Proposed CO2 Standards: A Comparison

EPA’s proposal would establish new emission limits, based on the “best system of emission reduction” (BSER) identified by the agency, for new, reconstructed, and modified coal-fired steam electric generating units (EGUs). For natural gas-fired combustion turbines, EPA proposes no changes to the 2015 Obama-era rule.

France announces voluntary adoption of a new law amending the Mining Code to meet Paris Agreement commitments.

By Paul Davies and Michael Green*

Background

After lengthy legislative debates, the amended Mining Code (MC) now provides that, as a matter of principle, the research and exploitation of coal, and of all liquid or gaseous hydrocarbons, shall be gradually phased out and then banned (Art. L.111-6§1). If liquid or gaseous hydrocarbons are “related” to deposits of substances not affected by the ban, then the title holder cannot exploit these either and must leave them untouched (Art. L.111-6§2). One exception to the ban is “mine gases” (i.e., gases located in formerly exploited coal seams for which recovery requires only necessary intervention to maintain mining cavities under low pressure for suctioning such gases) (Art. L.111-5).

To assist with the phase out and ban, the government has introduced measures to help title holders transition to an alternative use. As such, four years prior to the expiration of their permits, affected title holders may also apply to convert their permits to allow the exploitation of other substances or other uses of the sub-soil. In order to qualify for permit conversion, title holders must demonstrate both that: (i) the new substance or new use is “related” to the hydrocarbons present in the deposit; and (ii) the pursuit of the exploitation of such deposit is necessary to secure its profitability (Art. L.111-7).

By Paul Davies and Andrew Westgate

China has made notable strides to transition towards a lower-carbon economy. Most recently, local authorities were ordered to halt construction of coal-fired power plants in 13 provinces where capacity already outstrips demand. Demonstrable of its efforts to end reliance on coal and invest in green alternatives, China is ramping up efforts to increase renewable energy use.

China is rapidly emerging as a renewable energy leader and has committed significant investment to achieve a low-carbon future:

  • China invested US$110.5 billion in clean energy in 2015 – a 17 percent increase on the previous year, and nearly double the USA’s investment of US$56 billion.
  • China’s capacity for solar power has grown 169-fold and its wind power capacity has quadrupled in five years.
  • The total share of non-fossil fuels in energy consumption increased to 12 percent in 2015, putting China on track to meet its Paris pledge of 20 percent by 2030.

Whilst encouraging, these figures mask a common challenge faced by all countries seeking to diversify energy resources – renewables capacity going unused. For example, nearly 10 percent of China’s solar capacity remained untapped during Q1 and Q2 of 2015, and 15 percent of wind power remained unused across the year. Daiwa Capital Markets analysts forecast this figure could rise to 18 – 20 percent in 2016. This problem is also common in Europe and referred to as “curtailment”, which typically occurs because the market is structured to source energy from fossil fuels. Consequently, the market must evolve to achieve a fuller transition to renewables.

By Paul Davies and Andrew Westgate

China’s National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) have ordered local authorities to stop construction of coal-fired power plants in 13 provinces where capacity already outstrips demand. A further 15 provinces will be required to delay construction of previously approved coal-fired power plants. These provinces include Shanxi and Inner Mongolia, home to much of China’s coal industry.

These orders reinforce China’s efforts to transition towards a lower-carbon economy – an economy no longer heavily dependent on coal power.

By Paul Singarella, Claudia O’Brien, Marc Campopiano Daniel Brunton, Joshua Bledsoe, Lucas Quass, John Heintz, Joshua Marnitz and John Morris

On July 27, 2015, the US Department of the Interior, through its Office of Surface Mining Reclamation and Enforcement (OSMRE), proposed to revise regulations adopted under the Surface Mining Control and Reclamation Act of 1977 (SMCRA) that govern surface coal mining and reclamation operations near surface streams (the Proposed Rule). According to the OSMRE, “[t]he primary purpose of this proposed rule is to reinforce the need to minimize the adverse impacts of surface coal mining operations on surface water, groundwater, fish, wildlife, and related environmental values, with particular emphasis on protecting or restoring streams and aquatic ecosystems.” OSMRE asserts widespread impacts including loss of headwater streams, long-term degradation of surface water quality downstream from mines, displacement of native species, compaction of postmining soils and watershed hydrology impacts. SMCRA requires OSMRE regulations to respect coal’s important place in the country’s energy portfolio. Whether this draft rule strikes a reasonable balance under SMCRA will be the subject of intense debate as this rulemaking proceeds.

The Proposed Rule would significantly alter OSMRE’s decades-old “Stream Buffer Zone” regulations, which nominally require a 100-foot buffer for mining operations along streams,[1] and would expand regulatory oversight in the coal industry. Along with the Proposed Rule, OSMRE has published a draft Environmental Impact Statement (EIS) and a Regulatory Impact Analysis (RIA).

By Eli Hopson and David Pettit

The nation’s coal fleet is getting older and will become subject to a looming suite of regulatory requirements issued by the U.S. Environmental Protection Agency (EPA), such as the Mercury and Air Toxics Standards (a/k/a “Utility Maximum Achievable Control Technology” or Utility MACT) and the Cross-State Air Pollution Rule (CSAPR). Given these EPA rules and the entry of more efficient, lower-cost generation and demand response resource competitors, many coal plants are expected…