Court Ruling Leaves Shale Gas Questions Unanswered

These days it seems there is constant release of new information about hydraulic fracturing. Recent news from a federal court in New York, however, is a departure from this trend. A September 24^th ruling in State of New York v. U.S. Army Corps of Engineers has rejected an attempt to require officials at the Delaware River Basin Commission (DRBC) to gather and release potentially valuable new information on the anticipated effects of hydraulic fracturing on the Delaware River Basin.[1]

The Delaware River Basin is a coveted landscape that provides drinking water to New York City and Philadelphia, among other locales. Because the water resources of the Basin are important to multiple states and communities, they are cooperatively governed by the DRBC.

Underlying much of the Delaware River Basin is the Marcellus Shale, a rich source of natural gas that has only recently become available and economic to exploit. Recognizing the potential environmental, economic and cultural impacts of significant new shale gas development, in 2010, DRBC began the process of developing regulations regarding natural gas extraction within the Basin. DRBC also determined that it would not permit any gas extraction in the Basin until such time as it adopts final regulations. Over the past two years DRBC has drafted and proposed – but not yet voted to adopt – new regulations that would lift the current ban on natural gas extraction in the Basin and permit regulated drilling.

In this interim period, the State of New York and a number of NGOs sued DRBC (and a series of federal partners) claiming that the National Environmental Policy Act (NEPA) requires DRBC to prepare an Environmental Impact Statement (EIS) detailing the potential impacts of its proposed gas drilling regulations.

Generally speaking, NEPA requires federal agencies to prepare an EIS whenever they are undertaking a project that will have significant environmental impacts. In the EIS, the federal agency considers the environmental implications of its project and evaluates possible alternatives. One important benefit of the EIS is that it is a single, comprehensive source for an abundance of data and information on the environmental impacts of a proposed federal project or program.

Unfortunately, the U.S. District Court for the Eastern District of New York ruled on September 24^th that New York State and the other plaintiffs cannot continue a lawsuit that might have forced DRBC to complete an EIS at this stage. This decision not only delays DRBC’s potential obligation to perform environmental review, but ratifies DRBC’s poor planning, which so far has proceeded with development of regulations without the benefit of an environmental review.

The primary question that the court addressed was whether New York State and the other plaintiffs would suffer injury if DRBC did not complete an EIS. In similar situations, other courts ruled that failure to complete an EIS could lead to “uninformed decisionmaking,” which amounts to an injury, and, because of this injury, past lawsuits were allowed to move forward.[2] However, the court here looked critically at the past cases and found that “in each case, the government had acted in the form of a final order, regulation, plan, denial of a request, or statute.” In other words, the court determined that failure to complete an EIS could only injure a plaintiff when it is attached “to an actual agency action,” which, according to the court, has not yet occurred in the DRBC case.

This reasoning appears strained. NEPA is designed to inform decisionmaking, and most federal agencies, at a minimum, recommend that the required environmental review happen at an early stage of project development. Here, the court found that a review is not required before an “actual agency action.” Yet there is no reason that issuance of draft regulations could not be considered sufficiently “actual.”  Issuance of proposed regulations should suffice because it is at this point that potentially injured parties will become fully aware of the existence and scope of the impending injury. In fact, at least one other court has specifically agreed that proposed action is enough to present a real threat of uninformed decisionmaking.[3]

The court here sets up a straw man, saying that it “believes that the reasoning [of other courts, allowing plaintiffs to sue for failure to complete an EIS] cannot be extended indefinitely backward, to embrace internal agency deliberations, drafts or legal analysis . . .” But the official public issuance of proposed regulations is certainly more substantial than internal drafts, deliberations or legal analysis.

In reality, the threat of uninformed decisionmaking arises as soon as decisionmakers begin to consider regulations without the benefit of an EIS. As the court noted, it is not practical to require an EIS at very early stages, in part because there is not any concrete government action associated with early deliberations. Conversely, though, when an agency officially issues proposed regulations without an EIS, it is clear that the agency developed these regulations without complete information, and this is when the actionable threat emerges.

Aside from the legal arguments, the real trouble here is that the basis for this lawsuit was not merely a battle of pro- and anti-fracking factions. Rather, it was an effort to gather information, to put as much transparent analysis as possible into the public sphere, and to improve decisionmaking. As it stands, the fracking debate is heated but largely under-informed. A great many questions about fracking’s air quality, climate, community, water use, wastewater, groundwater, economic and electricity generation impacts are still unanswered. Had this lawsuit turned out differently, it could have led to important new insights.

Thanks to Bruce Ho, Research Scholar in Law, Coca-Cola World Fund Faculty Fellow, and Clinical Lecturer in Law at Yale Law School for his contributions to this post.

______________

[1] State of New York v. U.S. Army Corps of Eng’rs, United States District Court for the Eastern District of New York, 11-CV-2599 (Sept. 24, 2012).

[2] Sierra Club v. U.S. Dep’t of Energy, 287 F.3d 1256, 1265 (10th Cir. 2002).

[3] See, e.g., Sierra Club v. U.S. Army Corps of Eng’rs, 446 F.3d 808 (8th Cir. 2006).

Announcing the Indicators in Practice Project

At the Yale Center for Environmental Law & Policy we are concerned with the state of our planet. We consider ways that national and international governance of our world can be improved to better humanity’s lot - and the lot of the species that coexist (somewhat shakily) with us on this tottering orb. 

One of the more longstanding ways we seek to improve global governance is by creating and publishing, in collaboration with the Center for International Earth Science Information Network (CIESIN) at Columbia University, our biannual ranking of the environmental performance of the world’s nations, the Environmental Performance Index (EPI). In this Index we consider the movement of each nation towards fulfilling their own environmental goals (reduce pollution; create more nature reserves). Those at the top of our list have set ambitious goals for improving environmental health and quality and, largely, they have achieved them. Those at the bottom struggle to set or achieve environmental targets, though many, like Azerbaijan, are quickly improving (earning them a high ranking on our “Trend EPI,” which considers rates of change in performance across years).

Now that the EPI has been around for nearly a decade, we are often asked what the true impact of this effort has been, or could be. 

Is the EPI having an impact on the governance of the world’s resources? 

Do decision makers, stakeholders, and activist agitators look to the scores of their country on the EPI and change the course of their actions? Are new policies implemented? Old ones abandoned?  

This is an ambitious question to answer. As a first step, we have developed the Indicators in Practice Project, a new endeavor to examine the question of the impact of environmental indices, our own EPI and other similar efforts, from a variety of perspectives. 

Through our case studies of government efforts to create and use environmental indicators we have already begun this process. But we are now expanding considerations of environmental performance metrics to include other sectors – businesses and civil society groups in particular.  We will publish an academic review of the literature on indicator impacts, and we will reach out to scholars, practitioners, and policy makers around to world to find and present success stories where strong measurement of environmental quality (matched against goals of environmental protection) have led to good results. 

Another key goal of this effort will be to contextualize the rankings presented in our EPI. Where possible we hope to dig deeper into our best and worst environmental performers -  and ask the question, from a policy and management perspective: what’s driving these scores?

We will revamp the EPI website to include a new Indicators in Practice section, coming soon. And check back often for case studies and discussions of how environmental performance metrics are being used across the world to drive real, measureable changes in the governance of our planet.

Aaron Reuben is a research assistant at the Yale Center for Environmental Law & Policy, where he studies the policy impacts of environmental health indicators. He holds a Masters of Environmental Management from the Yale School of Forestry & Environmental Studies and is a former Editor-in-Chief of the Yale environmental journal, SAGE Magazine.

“Academic Performance Index” Ranks YCELP Faculty

For more than a decade The Yale Center for Environmental Law and Policy (YCELP) has focused on developing and improving quantitative environmental performance measurement in order to provide a tool for nations to judge the effects of their environmental policy. As the Environmental Performance Index (EPI) has evolved and improved, the profile and proliferation of quantitative performance measurement in other fields have also grown. The margins of this growth is being partially captured in an ongoing YCELP project titled “Indicators In Practice.” In the meantime, one seemingly unrelated effort at performance measurement has captured our attention.

James C. Phillips and Professor John Yoo, both at the University of California-Berkeley, released a paper this month titled The Cite Stuff: Inventing a Better Law Faculty Relevance Measure. Their method attempts, as they say, “to provide a quantitative, albeit imperfect, measure of intellectual impact and productivity” based on “the number of times a scholar has been cited by his peers.” The paper not only presents a ranking for select faculty across the United States, it also breaks down the data into discrete fields, presenting the most cited faculty in a given area of law.

YCELP, of course, is inherently interested in understanding the most impactful environmental law faculty in the United States. YCELP is also inherently interested in having a sense of the diverse ways that others are using quantitative performance measurement. But this particular ranking offers something even more deserving of our attention. (So please forgive me for burying the lede, but we didn’t want to seem too proud).

Professor Dan Esty (YCELP Director on leave) and Professor Doug Kysar (interim Director of YCELP) were ranked as the two most cited faculty in the field of environmental law.  This is an impressive recognition that speaks highly of the work of both professors and the efforts of YCELP to promote that work.

It is worth pointing out that many excellent professors who frequently publish in the field of environmental law were categorized in other fields such as administrative law or public law. Were these professors, such as Richard Revesz, Richard Stewart and Jody Freeman (categorized in administrative law) or Dan Farber (in public law) included instead in environmental law, the rankings would be different.

Any ranking will have certain limitations. The Environmental Performance Index, for example, is limited by the availability, quality and consistency of national environmental data. The Phillips and Yoo “Academic Performance Index” (as I’ve dubbed it) is limited by the necessarily subjective nature of categorizing faculty and selecting proxies for academic impact, productivity or, finally, quality. Ultimately though, the purpose of quantitative performance measurement is not the static ranking that it can create, but the verified improvement or tangible results of investment that those rankings can demonstrate.

The 2012 EPI included a pilot Trend EPI, highlighting both environmental improvement and decline across the globe and creating a starting point for policymakers to explore how real policy has impacted a country’s performance. Phillips and Yoo likewise make clear that “[o]ne of the values of data is to assist one in making decisions.” In the case of the Academic Performance Index the decisions relate not to national environmental policy but to law school hiring decisions. 

The meaning of the new academic study is indeed nuanced, but the benefit of having such as study, as with the EPI, is significant. As Phillips and Yoo explain, quantitative measurement is “important in a profession that seeks not to collect knowledge for future generations like medieval monks, but desires to have an impact on the world now.”

Rio+20 rejects notion of ‘planetary boundaries’ - are there consequences for the EPI?

In the September 2009 edition of Nature, Rockstöm and colleagues proposeda range of essential Earth-system processes and their biophysical thresholds, or ‘planetary boundaries’, that, if exceeded, could lead to catastrophic environmental changes. Earlier this year, the planetary boundaries concept was accepted into the ‘Zero Draft’ of the Rio+20 conference as an essential element in negotiations toward setting environmentally related goals. However, following heavy scientific criticism, the concept was excluded from the Summit’s final statement in June.

The dismissal of planetary boundaries from the final Rio+20 text provides some implications for other environmental metric projects, including our work with the Environmental Performance Index (EPI). Here we address the arguments posed against planetary boundaries, which were recently reviewed by the staff at the Breakthrough Institute. Over the last decade we have incorporated many of these views into the EPI projects, and now we would like to offer some insight into our lessons learned. These experiences will be among the many we present in the upcoming release of our new “how-to” manual on developing environmental performance indices.

A huge challenge for many environmental metric projects is defining the goals and targets of the indicators they present. One of the major arguments from scientists is that planetary boundaries, or biophysical thresholds, are set subjectively, and humans, not ecological systems, determine the question, “How much is too much?” Research has shown that there are limits to an ecosystem’s capacity to absorb human impacts, and this understanding must be applied when defining a threshold or target. For example, we can only divert so much river water for irrigation before a river runs dry, and a plant can only take up so much nitrogen before the excess is washed away during a rainstorm.

Throughout our experience with the EPI, we have carefully considered setting limits and boundaries – constraints that may be viewed as subjective. We generally first looked toward global treaties or universally accepted goals for our indicator targets.  We also obtained feedback from experts through discussions of existing data and policy needs, and we chose targets based on that guidance. While the targets of our index are not thresholds per se, they do allow countries to compare their performance toward the overall EPI goal of global improvement while providing data-driven support for policymaking.

Another major challenge for environmental metric projects is comparability between the types of issues they present. Scientists argue against the attempts of the planetary boundaries concept to compare local and global issues collectively. Is it adequate to compare a global issue, such as climate change, with more local issues, such as biodiversity, water, land and fertilizer? For a planet-wide standard, this may be a hard argument to win because many of the processes presented in these boundaries are not static around the world, and vulnerability to changes in these processes may vary geographically. But these are problems that should be examined everywhere, and it is important to consider what geographical scope is necessary for adequate comparability and applicability of a given project.

Several concepts of environmental change attempt to integrate costs and benefits into a framework, which ultimately is a decision that must be made with regards to a project’s objectives and metrics (e.g., examining human influence on environmental change or measuring progress toward a policy-defined environmental objective). Many times, changes in the environment with respect to human influence are often seen as negative. The authors at the Breakthrough Institute frame this as a problem with planetary boundaries – that they only measure environmental change as negative, and it is impossible for progression toward these boundaries to be positive. They argue that humans have benefited from many of these changes, and any framework attempting to measure environmental change must acknowledge these trade-offs.

The planetary boundaries framework also addresses ethics within science – arbitrarily setting numbers that “reflect preferred outcomes.” The planetary boundaries concept failed to make an explicit connection between particular outcomes and values. Without clarification of meanings and trade-offs between numbers, these thresholds suggest “what is” or “what ought to be,” therefore hindering the transparency of the project’s ethical commitments.

The EPI team takes great care in selecting appropriate targets that are transparent, supported by data, and globally comparable. The EPI is not trying to answer the question of ”how much is too much” because this is only a question that can be answered with human subjectivity (e.g., zero human impact is not possible without ceasing all economic activity, and any goal above zero impact would be determined by individual notions of how much harm is acceptable). Rather, we are hoping to provide a useful and transparent measurement of performance toward a specified policy goal using unbiased judgment and expert reasoning.

The arguments against the planetary boundaries framework have offered our team a chance to reflect on the lessons we’ve learned in our environmental performance measurement work over the years. Data-driven research is necessary for sound policymaking, and the failure to incorporate planetary boundaries into the final Rio+20 text has important implications for environmental measurement projects, especially with regards to measuring change, establishing limits or targets, comparability, trade-offs, and transparency.

Laura Johnson is a master's student at the Yale School of Forestry & Environmental Studies, where she is focusing on biogeochemistry and pollution analysis of aquatic systems. She is interested in the science and policy of environmental issues and their impacts on human health and welfare.

Towards a China EPI - the first step in measuring environmental progress in China

A research team led by the Yale Center for Environmental Law & Policy (YCELP) and the Center for International Earth Science Information Network (CIESIN) at Columbia University completed in late 2011 the first steps in a large-scale effort to track progress in the governance and management of China’s environment.[1] The effort, published in the report Towards a China Environmental Performance Index, proposed a framework for aggregating diverse environmental health and ecosystem impact data from across China’s 31 provinces, and for comparing these data to the national and subnational environmental policy goals of the Chinese government.

“Given its burgeoning economic growth, its rapidly expanding industries, large population, and growing consumer class, many in the environmental field have an intense interest in how China will address its environmental problems,” Alex de Sherbinin, one of the study’s authors from CEISIN, noted in an introduction to the report. He called the study’s framework a “first cut at assessing China’s environmental management and performance at the provincial level.” 

The project, which stopped short of creating a final environmental index (largely because of current gaps in the quality and availability of environmental data, as well as a lack of clear Chinese environmental policy goals for 13 out of the 32 indicators) has paved the way for a longer-term effort to monitor the progress of China toward a cleaner environment and more sustainable future.

And the timing couldn’t better. The last few years have seen China emerge as a world cultural leader, most famously epitomized in its extravagant hosting of the 2008 summer Olympics; an economic leader, with the world’s second largest economy; and, as of 2007, a leading emitter of global greenhouse gases.[2] On a national level, addressing the growing impacts of a degrading environment has become a new priority for the Chinese government and an increasingly vocal middle class. Last fall’s popular protests over poor air pollution monitoring and reporting in Beijing are a salient example from this growing trend. 

The proposed China EPI, which will act as a blueprint for an index that the Chinese Ministry of Environmental Protection is currently working towards, aggregates environmental data across 33 indicators in 12 environmental policy categories, including air pollution, water quality, climate change, biodiversity, agriculture, and forestry.

“Globally, the move toward a more data-driven empirical approach to environmental protection promises to better enable policymakers to spot problems, track trends, highlight policy successes and failures, identify best practices, and optimize the gains from investments in environmental protection,” the study authors write. The proposed China EPI, based in part on the research team’s experience producing the global Environmental Performance Index (EPI), provides a scaffolding for just such an approach.

“China, like many countries, has employed performance metrics in areas such as economic, educational, and social policy,” the authors write. “It is natural to extend this practice to the environmental sphere.”

Next Steps – a growing Chinese effort 

In response to the foundational work of the framework China EPI, Chinese academics and government and civil society leaders are now building the resources necessary for a final China EPI. This work will largely seek to address the data gaps and ambiguity of policy goals identified by the Yale and Columbia team as critical impediments to understanding China’s environmental performance at the province level. 

The Chinese Academy of Environmental Planning has shared with YCELP updates on a number of new governmental and non-governmental efforts to accomplish this task. These include:

-  Efforts to increase government environmental performance assessments.

The Chinese Ministry of Environmental Protection is proposing a China Environmental Performance Assessment System for implementation of the“12^th Five-Year Plan,” which establishes policy goals and governs development programs for China from 2011-2015, and plans to increase the number and diversity of environmental health indicators measured at the provincial level.[3]

-  Efforts to monitor the impact of Chinese corporations on the environment.

Chinese researchers, in cooperation with the government of Sweden, are developing a corporate environmental performance assessment indicator system, which will soon focus on 100 listed firms for a pilot study.

-  Efforts to track and improve the quality of life in China’s large cities.

The Chinese government is cooperating with the United Nations Environment Program to develop a China Pollution Reduction Performance Assessment research program, which will soon evaluate the pollution reduction performance of four pilot Chinese cities. There are, additionally, growing civil society and quasi-governmental programs seeking to assess the environmental quality of China’s cities, including the Asian Development Bank’s “China Environmental Livable Index of Cities,” the Economist Intelligence Unit (EIU)’s Asian Green Cities Index, and The People's Republic of China Urban Knowledge Hub.

For more information see:

- The YCELP and CEISIN report, Towards a China Environmental Performance Index, available here: http://envirocenter.research.yale.edu/files/China-EPI-Report.pdf

- An introduction to the China EPI, China’s Long March Towards Better Environmental Conditions, available here: http://environment.yale.edu/envirocenter/post/chinas-long-march-towards-better-environmental-conditions/

- The People’s Republic of China Urban Resources Hub, available here: http://www2.adb.org/Projects/PRC-Urban-Knowledge/default.asp

Aaron Reuben is a research assistant at the Yale Center for Environmental Law & Policy, where he studies the policy impacts of environmental health indicators. He holds a Masters of Environmental Management from the Yale School of Forestry & Environmental Studies and is a former Editor-in-Chief of the Yale environmental journal, SAGE Magazine.

Dispatch from Rio: Incorporating ‘Sustainability’ into the Human Development Index

Three Reasons America Should Ratify the Law of the Sea

It’s been thirty years since the Third United Nations Conference on the Law of the Sea (UNCLOS III), a treaty establishing international rules for the collective governance of the  world’s oceans, was first signed by the assembled nations of the UN in Montego Bay, Jamaica. Since that time its ratification by Congress has been debated every few years with new fervor, vainly.

As Mark Landler of the New York Times recently reported, UNCLOS is back on the docket in Congress, as Senator John Kerry, chairman of the Foreign Relations Committee, called Secretary of State Hillary Clinton and Defense Secretary Leon E. Panetta, among others, to testify before the Senate in the first of what will be many hearings on the importance of US ratification of UNCLOS.

Though there have always been strong arguments in favor of ratification, now has never been a better time to truly consider joining our country with the nearly 200 states that have ratified this treaty (161 states plus the EU to be precise).  Here are three reasons we should ratify UNCLOS right now:

1. The Arctic is Opening

Anthropogenic climate change is driving measurable loss of sea ice and warming of surface waters across the Arctic Ocean, meaning the Arctic is now more accessible to ocean vessels and deep-sea exploration than it has ever been before. 

UNCLOS can provide the framework for the five Arctic states identified in the treaty – the US, Canada, Denmark, Norway, and Russia – to collectively manage the ocean in this newly exploitable and fragile realm. This, importantly, is one of the nine priority objectives of our new National Ocean Policy, a hallmark environmental initiative of the Obama Administration. 

Perhaps more saliently for those concerned with America’s domestic economic interests, UNCLOS also includes a process for Arctic states to claim mineral and oil extraction rights in the Arctic seabed (under the jurisdiction of the International Seabed Authority) in areas beyond their existing national claims. Until the US ratifies UNCLOS it will not have access to these provisions and it will be unable to have its rights to these new resources recognized by the international community. 

2. Ecosystem Tipping Points Are Being Reached

According to a new study published in this month’s issue of Nature, the possibility of a large, planet-scale ecosystem shift (wherein the natural world as we know it alters quickly and irrevocably) is theoretically possible and increasingly likely. 

In explaining this increasing likelihood of “shift,” the authors point to a range of human-led drivers of global ecosystem instability that are, cumulatively, moving our planet towards a “tipping point.” Such drivers include the conversion of large portions of the planet towards agricultural production and urban development, the generation of new hypoxic dead zones across the world’s oceans (which is directly related to the first driver), and the mass release of climate forcing greenhouse gases.

The result?  The authors report that, “the biological resources we take for granted at present may be subject to rapid and unpredictable transformations within a few human generations.”

Aside from calling for increased bio-monitoring and forecasting to better anticipate this shift, the authors call for improved management of our planet’s ecosystems and it’s biological communities, particularly the world’s oceans.

Once again, UNCLOS provides a framework for this task:  the convention establishes obligations for protection of the marine environment by signatory states and offers a system for resolving conflicts around marine resources (under the International Tribunal for the Law of the Sea).

Until the US ratifies UNCLOS it will not be an active participant in global discussion about ocean management. Particularly in high seas regions, where management must be collectively overseen by multiple nations, this means we are abdicating our responsibility for solving problems we’ve helped create. 

3. Rio + 20 Will Need Help

This week marks the beginning of the United Nations Conference on Sustainable Development in Rio De Janero, Brazil, which itself marks the 20^th anniversary of the landmark Earth Summit that was held in Rio in 1992 (hence Rio+20). 

This conference of world leaders, scientists, and members of civil society and the private sector represents the best-concerted effort by the global community to lay the groundwork for the economic and social advancement of the developing world in a manner that can reduce humanity’s cumulative impacts on the environment.  Plans for improved management and protection of the oceans are one of the main achievements hoped-for in a successful Rio outcome.

But unfortunately, early reports from the conference are not good: the pace of agreement on the issues is slow, and many attendees are voicing skepticism that binding commitments are achievable.

It will be many months before the US ratifies UNCLOS, if indeed it ever does. But signing this historic treaty after a successful Rio conference will signal to the world America’s readiness to become a leader in the global effort to repair and safely manage our environment.  This in turn will give more momentum to the hard work of actualizing the agreements of Rio+20, turning whatever new principles we’ve created into goals, turning those goals into plans, and turning those plans into actions. It will be a long, complicated, and expensive process. And, for America, ratifying UNCLOS must be one of the first steps.

Aaron Reuben is a research assistant at the Yale Center for Environmental Law & Policy, where he studies the policy impacts of environmental health indicators. He holds a Masters of Environmental Management from the Yale School of Forestry & Environmental Studies and is a former Editor-in-Chief of the Yale environmental journal, SAGE Magazine.

The hidden pitfalls of performance ranking: can recognizing good performance lead to to worse?

Humans love to rank. We rank universities and sports teams, investment portfolios and spelling-bee contestants.

Partly we do so to simplify the world in a meaningful way. Rankings, particularly those created by a body of experts, can synthesize complex and opaque information into an accessible and potentially useful ordered presentation: this company has greater potential to earn profits, this school to produce knowledgeable students. We can look at a ranking and know, or think we can know, the better bets from the worse.

But we also rank to recognize good performance and to chastise bad behavior. Think of restaurant health code ratings. Here the goal, besides helping unwitting citizens avoid gastroenteritis, is to improve the performance of the ranked entities. Those at the bottom of a particular ranking can be convinced to shape up or close up, as is the case with health code violators, and those at the top may be blessed with accolades and fungible benefits, as is the lot for the rare restaurant to top out the Michelin restaurant ratings with three stars.  In both cases ranked individuals, we assume, are incentivized to perform well:  the former to improve their station in society, the latter to avoid losing their high status.

In the arena of corporate environmental performance, a term that describes the effort a firm has taken to limit their company’s impacts on the environment, this former trend seems to be especially true.  

In a recent study presented in the Strategic Management Journal, Aaron Chatterji, of Duke University’s Fuqua School of Business, and Michael Toffel, of the Harvard School of Business, examined the environmental stewardship behavior of nearly 600 firms across 5 years in relation to an initial environmental performance ranking.[1] The authors reported that firms that ranked poorly on measures of environmental performance one year were more likely than unranked or well-ranked firms to improve their environmental performance in subsequent years. Like restaurants with low health code ratings, the worst polluters were “shamed” into improving, in this case by lowering their annual total toxic chemical emissions.

This is good news, which supports the theory of rankings as social motivators.

But could the opposite phenomenon also occur? Could a positive ranking somehow incentivize a decrease in firm performance?  That is precisely the finding of a forthcoming study from Ben Lewis of Cornell University’s Johnson Graduate School of Management, who presented his research at the fourth annual conference of the Alliance for Research on Corporate Sustainability (ARCS) at Yale University this past May.

Considering Chatterji and Toffel’s findings that poor rankings led to improved firm performance, Lewis wondered where good rankings could lead. Did well-ranked firms maintain their strong performance over time? Or do they, once christened as good stewards, allow their socially beneficial behaviors to slide?

The answer was somewhat surprising, though perhaps it shouldn’t be. After examining the charitable-giving behavior of more than 400 firms over 5 years, Lewis found that firms that were ranked well on measures of corporate social responsibility were more likely than their low-ranked or unranked peers to perform worse in the future.[2]

Meaning that, at least for socially responsible firms, recognizing good behavior in the present can lead to worse behavior in the future.

Why is this true?

There may be many explanations for this trend but Lewis suggests that part of the answer may lie in the social science of “moral licensing.”

“A substantial body of work suggests that past moral behavior can make individuals more likely to commit potentially immoral actions without worrying about or appearing immoral,” he writes in a working paper on the study.

It is possible, then, that corporations recognized for good social behavior in the past can rationalize poorer behavior in the present. At the very least they are “less likely to reinterpret reductions in future performance as a sign of weakness or cause of concern,” writes Lewis.

Does this mean that we should stop recognizing good performers?  Does this call into question the practicality of rankings in general? The answer, I think, depends on why we rank. Rankings still provide numerous benefits outside of incentivizing good behavior: information is made publicly available and accessible, poor performers are still incentivized to improve, and it becomes possible to identify trends across individuals or within a sector.

But, “from a policy perspective,” Lewis writes, “these results suggest that positive ratings can lead to consequences that are the opposite of those intended by the raters.” And this means that, for the purposes of incentivizing behavior improvements, those who rate may be better off focusing more on chastising poor performers and less on celebrating winners. 

Grid Reliability and Mercury and Air Toxics Standards

Corinne Bell is a joint-degree student concentrating in energy systems and policy at the Yale School of Forestry & Environmental Studies and concentrating in environmental law at Pace Law School.

The Environmental Protection Agency’s Mercury and Air Toxics Standards (MATS), announced December 21, 2011, regulate power plant emissions in accordance with the 1990 Clean Air Act Amendments. These standards, which take effect April 2013, will prove to be a substantial planning challenge to grid planning and reliability.

Plants affected by MATS have two options: retrofit to meet the new standards within three years, or retire. More than half of the nation’s coal plants are over forty years old, and for a good portion of them, retrofitting will not be cost effective. The EPA estimates that the new rules will result in the retirement of 4.7 GW of coal-fired plants, while Brattle Group estimates the number to be around 50-65 GWs, or 15 percent to 20 percent of our current fleet. Independent System Operators (ISOs) and Regional Transmission Operators (RTOs) have serious concerns about how this will affect the reliability of the nation’s power grid.

ISOs are particularly concerned about the localized effects of decommissioned plants in transmission-constrained areas, including reduced service to certain load pockets. The Midwest ISO (MISO), covering all or part of eleven states in the Midwest, is one ISO that will be greatly affected by the new standards. MISO expects to retire 12.6 GW out of its current resources, totaling 114.5 GW. MATS will also increase pressure on marginal units,[1] and regions are coordinating with neighboring generators and system operators to manage for outages and ensure resource adequacy. Other options being explored to lessen the blow include demand response and behind-the-meter generation. Demand response allows utility customers to adjust their consumption based on price signals and behind-the-meter generation is defined as generation that delivers energy to load without use of the transmission system (for example, solar panels on a residential roof).

In the instance that retrofitting an affected plant is viewed as a sound investment, managers have two big issues to overcome: supply chain and retrofitting timeline restraints and plant outage scheduling.

Two of the available retrofit options, flue gas desulfurization and fabric filters, require a timeline longer than the three years allowed under MATS. The timing issue is further complicated by the relatively small supply of these technologies; it is not possible for suppliers to meet in a timely manner the surge in demand created by MATS.[2] MISO, for example, is looking very closely at these supply chain issues.[3]

Given the large number of plants affected, retrofitting must be carefully scheduled to ensure that enough capacity remains online to meet demand. These retrofit outages will be much longer than standard maintenance outages, which ISOs and utilities have more experience scheduling.

And then there is the issue of who foots the bill. Someone has to pay for the retrofits; does the plant absorb these costs, or can they be passed on to the ratepayer?

While some have called MATS an “attack on coal,” it is only one of the many gathering challenges to coal. (1) The economics of coal power are faltering:[4] coal prices have been on the rise while natural gas prices have fallen drastically. (2) Coal plants are much less efficient than combined-cycle technologies.[5] (3) Proposed Cooling Water Quality rules would also greatly affect coal-fired power plants and, (4) if new plants are evaluated under New Source Review Standards, they could not be built without carbon capture and sequestration (effectively meaning that no new coal can be built). To point to MATS as a coal killer is an overly simplistic view; it should instead be seen as finally internalizing some of the negative externalities for which these plants have not been held accountable in the past.

YCELP Welcomes Environmental Law & Policy Fellow

The Yale Center for Environmental Law and Policy is very pleased to introduce Bruce Ho, who will be joining the Center and Yale Law School as an Environmental Law and Policy Fellow for the 2012-2013 academic year.

Mr. Ho is currently a Sustainable Energy Fellow at the Natural Resources Defense Council (NRDC) in Chicago where his research focuses on methods for accelerating the Midwest’s clean energy economy. He has worked on climate and energy issues for NRDC in Beijing, the California Air Resources Board, and the California Environmental Protection Agency as well as water quality and aquatic resource protection in northern California and his home state of Texas.

Mr. Ho is a graduate of Stanford Law School and the Yale School of Forestry and Environmental Studies; he holds a BA in History from the University of Texas at Austin.

YCELP: What initially drew you to environmental law and policy?

Bruce Ho: I have been interested in the environment and the outdoors since I was child, but I never saw this area as a career path – much less the passion that it has become for me – until my last semester in college when I enrolled, on a whim, in a class called Political Ecology. That course, and the wonderful professor who taught it – Professor Diana Davis, who is now at UC Davis – challenged me to think about how humans interact with our world and inspired me to pursue a new direction. In fact, I became so engaged that Professor Davis encouraged me to apply to graduate school, which ultimately led me to the Yale School of Forestry and Environmental Studies (FE&S). I owe her more than anybody for leading me to this path.

YCELP: You've spent time at the California Air Resources Board and the California Environmental Protection Agency as well as NRDC's Beijing and Chicago offices; given the geographic scope of your work, what do you see as some of the most pressing issues?

Bruce Ho: I also spent a summer working on groundwater in Texas, three years in California wine country at the state’s water quality agency, two years on the East Coast when I was a graduate student at FE&S, and some time in Europe as a law student participating in climate meetings, so I’ve been all over! Perhaps the most important thing that I’ve learned in my travels is that there is interesting and challenging environmental work to be done no matter where you are on all kinds of different issues. In the last few years, though, I have increasingly focused on energy and climate change, and I’d be hard pressed right now to point to anything more important than accelerating the movement toward cleaner and more efficient sources of energy – everywhere.

YCELP: What policy issues are you focused on right now?

Bruce Ho: Currently, I am working primarily on energy efficiency in the Midwest and the challenge of aligning the financial interests of utilities, which under traditional regulatory models profit by selling more electricity, with those of ratepayers and society more broadly, which benefit by avoiding the cost and pollution of expensive new power plants and reducing reliance on outdated, dirty old ones. In addition to my work on energy efficiency, which is by far the cheapest, cleanest, and fastest to deploy energy resource available, I am also working on electricity transmission planning and policies to accelerate the deployment of electric vehicles.

YCELP: What projects are you planning to work on during your time at Yale?

Bruce Ho: My project portfolio is still evolving, but as a fellow next year at YCELP and Yale Law School, one of my chief tasks will be to help instruct students in Yale’s Environmental Protection Clinic as they work on a variety of interesting and cutting-edge legal and policy issues. I also hope to help build the energy law and policy offerings available to graduate students and to continue working on some of the issues that I have been tackling at NRDC, such as figuring out ways to integrate increasing amounts of efficient and renewable energy onto the electric grid.

YCELP: Any environmental law & policy book recommendations?

Bruce Ho: I recently read Nature’s Metropolis by William Cronon, and I highly recommend this book to anyone interested in urban development or the growth of the United States and changes in our environment more broadly. It’s not an environmental policy book per se, but is a fascinating exploration of how the City of Chicago developed during the 19th century in concert with – and as a direct result of – the development and exploitation of its natural resource hinterlands. For anyone frustrated by the state of the global climate negotiations, I also recommend Scott Barrett’s Environment and Statecraft, which won’t necessarily make you more hopeful about the future, but does offer helpful insights that explain why these issues are so difficult to resolve and provides some thought-provoking recommendations on the pathways forward.

Yale, Columbia Partner with AIEES on Air Quality Initiative

Air pollution is a critical concern for both human health and ecosystems and has become a high-priority environmental issue. Concentrations of air pollutants, such as particulate matter (PM), ozone, and toxic chemicals (mercury, persistent organic pollutants, and lead), are contributing to increased rates of asthma, lung and cardiovascular disease, and cancer. The World Health Organization estimatesthat in 2004, slightly less than one million disability-adjusted life years were lost due to outdoor air pollution.

Policy interventions, such as the Clean Air Act in the United States and the Clean Air Directive in Europe, have helped, but in other parts of the world (Asia in particular), air pollution is becoming an increasingly severe problem due to rapid industrial and urban growth.

Policymakers and governments need timely, accurate information to develop and implement air pollution abatement and control policies, but existing datasets for air pollutant emissions are either incomplete or incomparable among countries and in a global context. This lack of comparability is largely due to the variation in air quality monitoring systems between countries, which often produce fundamentally dissimilar data. Some countries do not have adequate monitoring stations or networks to produce representative data samples. In other cases, countries may lack the technical capacity to measure some critical air pollutants, which results in data gaps and leaves policymakers unable to develop relevant global indicators and indices.

One way scientists have tried to address such shortcomings is by using models to estimate emission concentrations, predict future growth, and simulate transport of pollutants across national boundaries. At the most fundamental level these models are based on algorithms -- not ambient empirical data – which results in some inherent degree of uncertainty. Previous editions of the Environmental Performance Index (EPI)have relied on a combination of reported air quality statistics from international organizations, such as the World Bank, and some modeled data for outdoor air pollution indicators, but the 2012 EPI abandoned both sources and opted instead to use a estimation of fine particulate matter concentrations (PM 2.5)derived from the MODISsatellite. While not perfect, these country-level PM 2.5 estimations were consistently calculated for each country, providing a basis for comparing long-term average exposures to a pollutant that is known to have acute human health effects.

To address these persistent data challenges in global air quality, the Yale Center for Environmental Law and Policy (YCELP) and the Center for International Earth Science Information Network (CIESIN) at Columbia University, are teaming up with the Asian Institute for Energy and Environmental Sustainability (AIEES) to launch a new initiative, “Towards a next generation of air quality monitoring.”

The resulting report will include a series of background papers that will each focus on a critical pollutant (i.e. ozone) or group of pollutants (i.e. persistent organic pollutants or POPs), as well as a policy blueprint with recommendations for policymakers on investments and improvements in air quality monitoring, data, and indicators. The report also aims to bring the scientific and policy communities together to provide clear direction for both groups. First, for scientists, it will provide guidance on short-term actions related to monitoring and modeling as well as longer-term challenges. Secondly, for decisionmakers, the report will provide targeted activities at different levels – regional, national, global – also divided into short- and longer-term categories.

The project launched in May, and AIEES will host a workshop in Seoul, South Korea, in October that will convene scientists and policymakers to review the draft report, which will be released in early 2013.

Climate Change Justice

Halley Epstein attended the recent Conference on Climate Change Justice at the University of Chicago. She’s summarized some of the highlights in the post below.

A deep debate exists among academics and policymakers about what constitutes climate change justice, and the failures of various international climate change summits – each convened to draft climate treaties with teeth – perhaps most acutely reflect the discord among power players, including the U.S., China, and India.

In their 2010 book Climate Change Justice, Eric Posner and David Weisbach argue for a climate treaty requiring nations to limit greenhouse gas emissions without addressing any issues not immediately connected to that task. Justice, whether distributive or corrective, should not guide the negotiations for a climate change treaty because the cooperation of all nations – both rich and poor, industrialized and developing – is required, and each nation holds conflicting views of the role justice should play. Posner and Weisbach’s central assertion is that a climate treaty must instead satisfy International Paretianism – it must make all nations involved better off (but could be satisfied if it makes at least one nation better off and no nation worse off). This, they contend, is a feasibility principle, not an ethical principle.

The recent Conference on Climate Change Justice, sponsored by the Institute for Law and Economics and the Chicago Journal of International Law, gave scholars an opportunity to respond to this idea while offering their own. Many conference discussions dealt with ethical questions of distributive and corrective justice, as well as whether moral and ethical considerations might actually alter nations’ views of their climate obligations.

I left the conference convinced that countries have been blinded by their pursuit of policy victories rather than reductions in greenhouse-gas emissions. Some highlights from the event follow.

Conflating a Climate Treaty with Distributive Justice

Posner and Weisbach assert that a treaty to reduce greenhouse gas emissions on a global scale should not involve the redistribution of wealth from rich to poor countries. Most conference participants seemed to agree that promoting all global goals through a climate treaty alone is unreasonable. University of Chicago Professor Martha Nussbaum cautioned against bracketing off distributive goals from a climate treaty entirely as there are opportunities to discover causal links and “fertile intervention points,” such as increasing the participation of women in matters of governance and promoting environmental policies and goals in countries such as India and Nepal.

As Posner and Weisbach suggest, sustaining ethical claims that a climate change treaty must redistribute wealth or that most abatement measures must occur in rich countries is difficult, but some presenters distinguished between seeking distributive justice through mitigation versus adaptation. University of Oxford Professor Henry Shue said it would be irrational for countries lacking the financial resources to deal with their own adaptation needs to make sacrifices for global climate change mitigation without an agreement from wealthier nations to help them with adaptation. Such an agreement, Shue said, could make up for the fact that poorer nations constrain development to some extent by restraining emissions, and whatever the treaty or agreement nations settle on for reducing emissions, distributive effects – whether from a moral or feasibility standpoint – must be part of the talks.[1]

Posner and Weisbach approach International Paretianism as an empirical principle with the assumption that no nation or state will agree to a treaty that leaves it worse off. But this does not address Shue’s concern about individuals. The poorest individuals lack political capital (as may their governments at the international negotiating table). So a treaty presumably could make a country better off, on the whole, while worsening conditions for its poorest people.

Corrective Justice: Who Pays? Do Historical Emissions Matter?

Posner and Weisbach do not believe historic emissions can or should be included in a climate treaty, but Georgia Institute of Technology Professor Paul Baer argued that the assumption that polluters should be unaccountable for cross-border damages is itself unsupportable. One of his major problems with the authors’ view is that they assume externalization of greenhouse-gas-emissions costs is a legitimate status quo.

Many conference presenters discussed the idea of fairness, which represents another feasibility constraint to forming a treaty that works for developed and developing nations alike. While some developing nations view historical emissions as a necessary calculation in determining nations’ obligations, nations that would shoulder responsibility for historic contributions reject the concept of accountability as justice, at least in this manner.

Lukas Meyer, a professor at the University of Graz, Austria, said compensating countries with cash payments for historical contributions would be difficult to justify, distinguishing that type of distribution from distributive justice – basing the latter on evening out undeserved benefits or harms. Nussbaum pointed out that applying corrective justice turns into the blame game with a lot of jockeying for a less blameful (or blameless) position rather than cooperation for the sake of actually reducing greenhouse-gas emissions. I agree with both speakers, and think their comments reflect feasibility constraints and political realities. Ideally, though, rich and industrialized countries that have contributed to historical emissions and laid the path for the world’s current emissions trajectory should recognize the effect of their actions.

Posner and Weisbach criticize the notion of collective responsibility and point out that many of the people living today in industrialized countries are not actually the ones responsible for climate change (though they acknowledge these people have benefited from the emissions of their predecessors in, say, the U.S.). Past emissions, they say, will be largely moot since developing nations, namely China, India, and Brazil, will catch up to the U.S.[2]

Equal Future Shares

University of Chicago Professor Raymond Pierrehumbert discussed the equal future shares theory, which disregards historical carbon emissions and divides up the remaining carbon commons equally per capita (based on limits). Using this method he calculates the fair share of remaining carbon commons at 70 tonnes per person. What does this mean for Americans and the Chinese, for example? At current rates, North Americans would need to stop emitting carbon in 13 years while the Chinese could continue emitting for 56 years. If historical usage is factored in, North Americans used up their fair share in 1970; the Chinese will use up their fair share in 2040. Hopefully, we will have a climate treaty well before 2040 and countries will collectively have initiated significant steps to reduce emissions by that time.

Equal distribution of emissions allowances in an international system would be arbitrary, said Tel Aviv University Law Professor Yoram Margalioth, and would further assume common ownership. That, Margalioth argued, is an assumption we do not apply to most other goods; for example, countries with valuable mineral deposits are not required to divide profits among other nations. Posner and Weisbach also criticized this assumption: “When governments close commons, they do not . . . distribute shares of it to citizens on a per capita basis.”[3] Climate change affects nations in different ways, so it is unclear how distributing emissions allowances on a per-capita basis would achieve justice if countries that would benefit and countries that would suffer greatly from climate change received the same allowances.

Realism or Pessimism: Some Predictions of the Way Forward for a Climate Treaty

The conference presenters expressed a range of ideas for what the future may hold for an international climate treaty:

     -Any international agreements may simply follow what nations are already doing to reduce GHG emissions.

     -For an effective international climate treaty that addresses mitigation, the world needs the buy-in of the U.S., China, India, and Brazil.

     -The U.S. should have been a first actor, but arguably has already positioned itself to be at best a second actor.[4]

     -The “common but differentiated responsibilities” outlined at Rio in 1992 and solidified in Berlin in 1997 simply will no longer work. Harvard Professor Robert Stavins said this “dichotomous distinction” made progress virtually impossible in later international   negotiations. At a minimum, Stavins believes the Durban Platform for Enhanced Action breaks with the Berlin Mandate because it is a mandate to adopt by 2015 a new legal framework to include all key countries for implementation in 2020; this opens up negotiations to outside-of-the-box thinking.

     -If countries continue to pursue cap-and-trade systems, harmonizing the systems in advance will minimize or avoid political discord about features of such systems, such as whether a safety valve should be included. For example, the EU does not want a safety valve provision while any U.S. system would likely include that “escape hatch,” so reconciling these positions will be necessary to achieve international coordination.

More information about the conference, including a list of participants and links to paper drafts, is available online on the conference website.

Emerging Issues in the Electric Power Industry: Challenges and Opportunities in Meeting Clean Energy

Meeting clean energy goals, complying with environmental standards, achieving state renewable portfolio standards (RPS), and maintaining grid reliability require enormous resource and capital investment throughout the energy industry. The recent Energy Bar Association (EBA) Spring Seminar and 66^th Annual Meeting in Washington DC offered insight into numerous aspects of these important issues, including the effects of shale gas and new EPA regulations on coal-fired electric generating units (EGU), challenges facing the integration of renewable energy resources, and a discussion of recent Federal Energy Regulatory Commission (FERC) orders, including Order 1000. A summary of meeting highlights follows.

Coal Plant Economics

Rapid growth in shale gas production throughout the United States has led to the lowest natural gas prices in over a decade. Futures prices dipped below $2.00 per thousand cubic feet in April 2012 for the first time since September 2001, and the Energy Information Administration projects that low natural gas prices (in the $4- to $6-per-thousand-cubic-feet range) will continue for the foreseeable future. Low natural gas prices combined with increasingly stringent EPA regulations on power plant emissions have important implications for the electric power industry.

Kurt Bilas, Executive Director of Government Relations at the Midwest Independent System Operator (MISO), noted that out of the approximately 70 gigawatts of coal-generation capacity in the MISO service territory, 60 GW will need to retrofit or retire as a result of EPA’s Mercury Air Toxics Standard (MATS) and the Cross-State Air Pollution Rule (CSAPR, which is currently under stay). Out of that 60 GW, approximately 12 GW (representing over 10 percent of MISO’s total generation capacity) would have to retire.

With EPA’s proposed greenhouse gas rule, the economics for coal fired EGUs – both existing and new – are becoming increasingly marginal in competitive wholesale electricity markets. Further complicating the issue, the decision to retrofit or replace these units must account for the possibility that a significant retrofit of a facility could trigger New Source Review (NSR) and compliance with New Source Performance Standards (NSPS) under the Clean Air Act. Many operators are looking for greater stability and certainty for the long term, and natural gas is quickly emerging as the fuel of choice for new electric power generation.

Infrastructure Limitations

Some regions of the country already rely heavily on natural-gas-fired generation. In 2010 natural gas supplied over 45 percent of the power produced in the ISO-New England service territory, up from just 6 percent in 1990. In other regions, natural gas represents the second largest portion of proposed new generation (second only to proposals for wind). However, switching from coal to gas generation is complicated: new facilities must be constructed and pipeline transportation infrastructure must be in place to deliver the fuel.

In fact, the pipeline infrastructure and nature of the natural gas delivery contracts represent some of the most significant barriers to the transition. In regions such as the Northeast, natural gas is also used as a heating fuel in the winter months. Because gas generators generally take natural gas delivery on an interruptible basis, other customers taking delivery on a firm contract basis – such as the home heating market – take precedent when demand is high and pipeline capacity is full. Expanding pipeline capacity is the logical solution to this problem; however, this takes years of planning, environmental review, siting, permitting, and construction.

Compounding the issue for coal plants is the EPA’s 2015 compliance deadline for MATS (2016, if a state extension is granted). Many operators will choose to retire these old generators rather than upgrading them to meet the new standards. Without adequate replacement capacity in the system, a generation facility could be called upon to run for reliability reasons – putting it out of compliance with the law. The U.S. House of Representatives recently responded to this issue with the passage of H.R. 4273. 

Liability Exemption?

H.R. 4273 would amend the Federal Power Act (FPA) to exempt a generator operating under an FPA Section 202(c) emergency order from liability if it were otherwise in violation of federal, state or local environmental laws. While the principles contained in the bill are sound – dispatching a generator for emergency reliability purposes should not subject that generator to liability for non-compliance with the law – it opens the door for generators to subvert environmental policy and extend the date of compliance.

Opponents of the legislation have argued the bill would effectively write a loophole into the FPA that would delay compliance with EPA regulation. Further, the EPA maintains that Section 202(c) orders are rare and the legislation is unnecessary, given the other tools that EPA has at its disposal. While the fate of HR 4273 may be a bellwether for how Congress ultimately responds to EPA regulation in the electric industry, the long-term generation resource portfolio that will replace retiring coal units largely will depend on economic, technological, and infrastructure constraints. Public policy, such as state RPS or EPA regulations like MATS, CSAPR, and the proposed greenhouse gas rule, must be considered in regional transmission planning processes pursuant to FERC Order 1000.

Transmission Planning

In July 2011 FERC issued Order 1000 in an attempt to address challenges associated with transmission planning and cost-allocation. At the EBA meeting, former FERC Commissioner Suedeen Kelley noted that the promotion of competition in regional transmission planning processes lies at the core of Order 1000. Requiring the incorporation of public policy into the planning process should stimulate a more holistic assessment of transmission needs, costs, and benefits for transmission infrastructure. This is particularly important for the integration of renewables – which has a sort of “chicken and egg” conundrum associated with it. Renewable developers won’t build new wind turbines if there are no transmission lines to deliver the power to load, and transmission developers won’t build new transmission in the hopes that a wind farm will go up and energize the line.

The Midwest has vast wind resource potential that could play an important role in the nation’s energy portfolio over the long term. Texas, Kansas, Montana, Nebraska, South Dakota, North Dakota, and Iowa have over 6,900 GW of combined wind generation potential. With only 46 GW of installed wind power capacity in the United States in 2011, wind has a long way to go to before it represents a significant portion of the nearly 1000 GW of the country’s total installed capacity.

Balancing Short-Term Market Signals with Long-Term Energy Policy

FERC Order 1000 fosters greater competition and inter-ISO/RTO cooperation in transmission planning, requiring the incorporation of public policy goals in the transmission planning process.  While this is a step in the right direction, comprehensive Congressional action is critical – but unlikely in the near term. That makes it all the more critical for states and regional entities to coordinate on clean energy goals and cost-effective solutions to meeting environmental standards while maintaining grid reliability.

Greater harmonization of state RPS, even if only among states within the same ISO/RTO service territories, could lead to more cost-effective renewable power integration and ease the transmission planning and cost-allocation process. While increased natural gas development will and must be part of our energy future, short-term market signals must be tempered by long-term energy policy goals, including increased federal attention to transmission and renewable energy development.

Beren Argetsinger is a joint-degree student at the Yale School of Forestry & Environmental Studies, where he is pursuing a MEM with a concentration in energy systems and policy, and Pace Law School.

The Strategic and Economic Dialogue and Energy and Climate

This post was originally published May 2, 2012, on ChinaFAQs.

The State of Play of Chinese Policy and Bilateral Issues

The Obama administration’s fourth major meeting with China, involving multiple Cabinet Secretaries and Chinese Ministers, the Strategic and Economic Dialogue (S&ED), will be held May 3 and 4 in Beijing. As usual, the U.S. delegation will be led by Secretaries Clinton and Geithner, and their Chinese hosts will be Vice Premier Wang Qishan (who focuses on economic policy) and State Councilor Dai Bingguo (responsible for foreign policy).

This S&ED comes at a time when there are particularly sensitive political and economic issues for the two countries to address, and many of these will obviously be the focus of the meetings. However, if past S&ED’s are any indication, we would expect at least some discussion of climate change, and climate and energy cooperation, despite areas of genuine difference, can be a positive and fruitful area of engagement. Moreover, several of the economic topics likely to be discussed are connected to climate and energy debates. With that in mind we preview some of the climate and energy issues.

Looking at domestic policy there have been a number of important recent developments:

1. Moves Toward Absolute Targets: the Coal Cap and Industrial Capacity Cuts

China’s 12^th Five Year Plan set overall national targets, including the 16% energy intensity and 17% carbon intensity (both per unit GDP) reduction targets that have been widely publicized. Implementation depends on sectoral and provincial level Five Year Plans that spell out more of the details. The intensity targets were distributed to the provinces last year, but one of the big open questions was whether China would also start to set some absolute limits. There had been considerable speculation of an overall energy cap, and while that has not emerged, one of the alternatives to a total energy cap was a total coal cap, and that has now appeared.

In the “12^th Five-Year Coal Plan”, released in April by the National Development and Reform Commission, coal production capacity is capped at 4.1 billion tons and an annual output target of 3.9 billion tons by 2015, which would limit coal production growth to about two percent per year, considerably lower than the 5-10% growth seen in recent years. While this type of guidance is not as binding as the overall intensity goal, it does give strong policy direction to controlling the share of coal in China’s overall energy mix.

In addition, the Ministry of Industry and Information Technology announced this past week a series of industrial capacity cuts that should also help to reduce energy consumption and carbon intensity. The Ministry plans to shut 7.8 million tons of steelmaking capacity, 700,000 tons of copper smelting capacity this year, 270,000 tons aluminum capacity, 10 million tons iron-making capacity, 320,000 tons zinc capacity and 1.15 million tons of lead capacity by the end of the year. Of these, only the copper target is higher than last year. The lower targets in part reflect the fact that many inefficient plants were closed during the previous Five Year Plan, and also the overall slowing of GDP and industrial growth, suggesting the market is already shifting somewhat from industry to services.

2. Seven Emissions Trading Pilot Programs:

China has continued preparation for the launch of seven carbon-trading pilots by next year and an eventual nationwide carbon-trading program in 2015. The emissions trading programs will be piloted in the cities of Beijing, Tianjin, Shanghai, Chongqing and Shenzhen and the provinces of Hubei and Guangdong. These pilots will provide inputs into the design of the eventual nationwide program, and in large part will shape the future of carbon markets in China.

The specific design and implementation details for the pilots are still being worked out. We can expect that the caps will be closely tied to the energy intensity reduction goals specified in the NDRC’s “Energy Conservation and Emissions Reduction Comprehensive Workplan for the 12^th Five-Year Period (2011-2015)” (Chinese only). Each pilot is being designed separately, and as with earlier policy pilots, we’d expect the national government to compare the effectiveness of different approaches before designing a national program. Many of the details are still under discussion, but some cities such as Beijing have begun to discuss possible details. Beijing has announced that more than 600 companies with emissions exceeding 10,000 tons per year – likely industrial plants and utilities – will be included on a mandatory list for emissions limits. It is possible that other cities will choose to focus on specific sectors. While the national government has not formally committed to using absolute caps rather than intensity targets for the trading schemes, our understanding is that there is widespread recognition that for trading to be most effective there will need to be absolute caps for firms included in the trading itself, even if the cities overall do not have absolute caps. These caps can then be distributed by allocation or auction. While most economists see auction as more economically efficient, most countries find it difficult to begin that way – rather than with free allocation. Beijing indicated it might begin with 15% auctioned and the rest allocated.

For the pilot trading schemes to be successful, the select cities and provinces will need to build local capacity to accurately measure and account for greenhouse gas emissions, as well as ensure that the legal infrastructure can spell out clearly defined emission permits, allocation systems, trading rules, monitoring, and enforcement (See this report by the Stockholm Environment Institute for more details of these challenges).

Finally, while there was much discussion amongst Chinese officials about a likely carbon tax during this Five-Year Period, there is still a question as to whether a tax will be instituted and how it will relate to a nationwide emissions trading program. It is likely that the Chinese will begin with the emissions trading pilots first, and decide on how to integrate a carbon tax at a later point in time.

These programs are an effort over the medium term to move from targets and quotas to more market-based mechanisms. In the near-term they will contribute mainly to learning and policy development. The existing infrastructure of quotas and targets under the Five Year Plan will deliver most of China’s emissions control.

3. Higher Prices, But Energy Shortages Remain:

While China is working to curb energy demand, policy analysts still expect shortages this summer. The China Daily reported blackouts are likely, especially in Eastern and Southern China, as China Electricity Council estimates 30-40 million kW shortages during peak demand periods in the summer. These shortage levels are similar to last year and reflect the same mixture of weather (droughts have once again limited hydropower production) and policy choices. Many outside observers argue for market-based pricing, although many fail to note that Chinese electricity prices are not low – they are actually comparable to U.S. prices and in many cases higher. However, they do not vary with peak loads, as they do in the U.S. For example, electricity prices in China in March were 12.4 cents for commercial and industrial consumers and 8.4 cents for residential consumers. This compares to an average price in the U.S. in March of 9.6 cents, with industrial users paying the least – 6.6 cents – and residential consumers the most – 11.6 cents.¹ Thus on average Chinese industry pays considerably more for power than does U.S. industry. Since industry is the major user in China, and residential use is more substantial in the U.S., focusing higher charges on the larger group of consumers is more effective at providing a price signal to influence consumption.

While China has higher electricity prices, these prices vary far less than in the U.S., where rates vary not just state by state, but also with daily shifts in demand. This, in part, reflects different opportunities – commercial and residential demand is more variable, while China’s industrial demand is fairly constant. However, the blackouts in the summer are caused by peaking demand from residential and commercial consumers of air conditioning during particularly hot spells during the summer months. Variable pricing would enable the grid to more easily discourage other uses during these peak demand times. Instead, the grid generally deals with these shortfalls by cutting power to industries on a schedule.

Overall, industrial electricity prices having been rising steadily in China, up over 16% in the last 5 years. Coal prices, while fluctuating month to month, have more than doubled over the same period, with high quality coal for power plants now priced at over $120/ton, well above prices in much of the world. Chinese analysts do not expect to see prices fall. The much more rapid change in coal prices, compared to the regulated electricity price, provides an incentive for power producers to look at renewable energy.

Gasoline is also not inexpensive in China. The current price in Beijing is about $5/gallon, over $1 higher than the current U.S. average. Prices are regulated, so there is less fluctuation in China, but that has meant that they tend to hold steady or rise, and not fall, regardless of global market conditions.

In addition, the meeting may be a venue for discussing current multilateral and bilateral disputes:

1. Opposition to European Union’s Aviation Tax:

One area where the U.S. and China have aligned their positions, albeit in opposition to a climate change measure, is with regard to the European Union’s Aviation Tax. In early February, China banned its airlines from complying with the EU’s plan to include airline emissions in its Emissions Trading Scheme (ETS). The move would require airlines with flights originating in and leaving Europe to purchase carbon permits to cover excess emissions. China is not alone in opposing the move and is joined by the United States and India. China’s opposition was intensified when Beijing also suspended the purchase of $14 billion worth of aircraft jets from Airbus, a European manufacturer of long-haul carriers.

While the U.S. and China are essentially on the same page with respect to the E.U.’s plans, there is danger that such a strong stance and economic retaliation could stymie the progress of international climate talks. There are indications that the European Union might be backing down from its initial stance to allow another year for additional negotiation and possible compromise. Thus, there is an opportunity for the U.S. and China to engage in constructive dialogue with the E.U. so as to prevent a global carbon trade dispute and perhaps find a more constructive and climate-friendly approach for both the U.S. and China.

2. Trade Issues:

The most likely issues to appear in the S&ED plenary are issues more directly connected to economic concerns. Secretary Geithner has been quoted in the Chinese press naming key concerns as currency and intellectual property. Intellectual property concerns, while far broader than energy, are of great interest to the clean energy community.

Two other trade disputes might well be discussed. These are the anti-dumping case against Chinese solar panels and a World Trade Organization (WTO) case concerning rare earths. The Commerce Department made a preliminary decision in March to place a modest tariff on Chinese panels, and is reviewing that case until May 17. This gives time for both governments to discuss the issues. There have been growing calls in the U.S. not to impose high tariffs on Chinese goods. Editorials and news articles have argued that much of the U.S. solar industry actually benefits from these imports. Others have argued that fairness is also at stake, and that perhaps there is an opportunity to get Chinese manufacturers to shift some production to the U.S. One potential bright spot is that China’s current solar plan calls not just for increasing production, but also increasing installed capacity in the country and reducing the domestic price of solar power to encourage domestic use. ChinaFAQs has compiled a list of resources concerning the solar trade case here.

The U.S., Japan and the European Union also filed a WTO complaint against Chinese restrictions in the export of rare earths, minerals used in the production of many high-tech products. The rare earths issue is complicated, because China currently produces most of the world’s supply, but there are reserves elsewhere, including in the U.S. Moreover, part of China’s current dominance is fueled by poor environmental standards enabling cheaper production, and there has been an effort by the Chinese government to close down poor facilities, with limited success. The rare earths case is in many ways similar to a case decided against China last year, concerning other Chinese mineral exports. Given the number of disputes, and the risks of economic harm from a trade war, it will be worth watching this meeting to see if any agreements are worked out. In the past, the U.S. and China have often used these bilateral meetings to resolve such issues.

^{1. All U.S. prices from the Energy Information Agency. Chinese prices from the National Development and Reform Commission, the China Petroleum and Chemical Industry Association and DBCCA analysis, except for the price of gasoline, which is the observed retail price in late April.↑}

Angel Hsu is a doctoral student at the Yale School of Forestry and Environmental Studies and project manager of the 2012 Environmental Performance Index. Deborah Seligsohn serves as Principal Advisor to WRI’s climate and energy program on issues in China as well as to the ChinaFAQs China Climate and Energy Network.

Measuring Progress at Rio and Beyond

This post was originally published March 31, 2012, in Sage Magazine.

This past Sunday at the US-Canada Citizens Summit for Sustainable Development, I facilitated a group discussion on metrics and indicators for measuring progress toward sustainable development goals. Indicators and targets are mentioned throughout the “Zero Draft” document titled “The Future We Want,” a 19-page document that distills over 6,000 some pages of viewpoints from member states and major groups. This document has been serving as the basis for negotiations, and hopefully will be adopted as some sort of “outcome document” at the Earth Summit in Rio this June.

What does the Zero Draft say about indicators and metrics? Paragraph 33 makes mention of a “set of indicators to measure progress” toward implementation of countries’ implementation of green economy. Paragraph 43 elaborates a recognition of the importance of measuring global progress. The goal of establishing indicators and measures “to evaluate implementation” is stated for achievement in the next three years. Subsequent to Paragraph 108, which makes mention of Sustainable Development Goals (SDGs) to complement the Millenium Development Goals (MDGs), Paragraph 109 states, “We also propose that progress towards these Goals should be measured by appropriate indicators and evaluated by specific targets to be achieved possibly by 2030.” Lastly, included in Paragraph 111 is a statement that expresses agreement of the limitations of GDP as a measure of well-being.

Discussion of metrics, indicators, and targets to better quantify and track progress toward green economy, poverty eradication, and sustainable development goals came up in every session I attended during the Summit. Representatives from civil society, the private sector, municipal governments, and academia voiced the need for better data and metrics.  How does a city know how much money it will save from energy efficiency measures, and how will it know which measures to implement and how those policies are performing?  How does a country know how its ecosystems are functioning if there is no data by which to measure its conditions?  How can cities be considered “sustainable” without metrics to define them?

These are daunting questions that decision-makers at every level are facing. Unfortunately, through my observations of the latest informal negotiations on the Zero Draft at the United Nations this past week, neither do most negotiators. Discussions haven’t progress past the conceptual level at the UN – what the insertion of “planetary boundaries” means and what the scope of green economy should include, for example.

The 2012 Environmental Performance Index (EPI) can be a possible solution and specific tool that can help bring some level of clarity to the discussion.  A joint project between The Yale Center for Environmental Law and Policy and the Center for International Earth Science Information Network at Columbia University, the 2012 EPI provides countries with a comparative framework by which to assess environmental performance on a range of issues.  These include the environmental burden of disease, air quality, water quality, forestry, agriculture, water quantity, climate change and energy issues, biodiversity and fisheries.  Incorporating the last decade’s worth of globally-available data on these issues, countries can clearly see areas in which they perform well, where they lag, and how they’ve improved or declined overall.

The EPI framework and methodology already measure progress toward some key environmental goals that came out of Conventions originally negotiated at the 1992 Earth Summit.  An indicator on biodiversity and habitat protection gauges how close or far countries are from protecting 17 percent of each terrestrial biome within its borders – a target set by the Convention on Biological Diversity at its 10th Conference of Parties in Nagoya, Japan in 2010.  The EPI also uses a target for carbon dioxide emission levels established by the Intergovernmental Panel on Climate Change, the scientific body on climate change whose work supports the UN Framework Convention on Climate Change.  Therefore, countries can already get a sense of how they are doing on key issues originally identified at Rio 20 years ago, as well as an indication of how far they still have to come.

While the EPI provides a starting point, there are still persistent data gaps that prevent a more complete picture of sustainability.  We identified several of these gaps in our analysis, including missing global data for recycling rates, toxic and chemical exposures, heavy metals, municipal waste management and treatment, desertification, water quality (sedimentation and organic/industrial pollutants), nuclear safety, climate adaptation, agricultural soil quality and erosion, to just name a few.  These gaps are indications that while we have come a long way in terms of improving data and measurement practices for environment and sustainability issues, we still have much further to go if we hope to be able to better understand the complexity of ecosystems, human impact on the environment, and whether we have achieved green economic growth.

Although it is unlikely that Rio will produce a new indicator for capturing social, economic and environmental progress that will replace GDP, leaders can at least begin to move toward a definition of a set of indicators that better encapsulate sustainable development, poverty eradication, and green economy (all identified themes of the Earth Summit this June).  This way countries, cities, organizations, industries, and individuals can begin to identify what information needs to be collected and where investments in monitoring are needed.  But for these improvements to happen, negotiators must also earmark financing to support data collection and monitoring.

A summary of the main conclusions from this session as well as others are available in the Outcome Document, which can be accessed on www.citizenssummit.org as soon as it’s compiled.

Angel Hsu is a doctoral student at the Yale School of Forestry and Environmental Studies and project manager of the 2012 Environmental Performance Index.