The Modern Energy Economy
Energy regulation, renewable energy development, clean technology and sustainable development at one time were largely considered local issues that required a narrow legal services team to navigate a relatively confined government process. Over the course of a few years, all that has changed. The modern economy is driven by an energy market that is influenced by regional, federal and international standards.
This has caused the complexity of compliance to mushroom. At the same time, it has also created opportunities for those companies willing to undertake the effort to understand the nuances of these new regulations. Nationally, half of the states have passed initiatives to recruit green businesses, and many have passed laws mandating or encouraging renewables. All of these initiatives are wrapped in newly minted, and largely untested, regulations.
To illustrate the point, I will examine the Green Communities Act passed by Massachusetts. In Massachusetts, new energy and technology enterprises are the tenth largest economic sector in the state and capture about 10 percent of the global capital in the space.
The Green Communities Act, signed into law on July 2, impacts a range of energy and environmental industries, regulations and programs. The act requires utilities to work with localities to develop methods of conservation before flipping the switch on generating more power to meet demand. The law also calls for a reduction in overall consumption
in the state.
Other sections target renewable energy developers. It dramatically increases Massachusetts Renewable Portfolio Standard requirements for energy providers, expands Department of
Public Utilities (DPU) oversight of such contracts entered into by the utilities, and increases the types of generation technologies that qualify. Further, the Massachusetts Renewable Energy Trust Fund grows under the new law. In addition, local governments are encouraged to construct renewable energy generation and participate in the environmental marketplace.
Recently, Massachusetts revamped its utility rate structure towards encouraging conservation. The DPU issued an order calling for utilities to launch rate plans that decouple the costs of electricity and gas from the costs of maintaining their distribution systems. This is a practice that is used in several other states, and illustrates the comprehensive nature of the reform occurring in Massachusetts.
Regional Green House Gas Initiative (RGGI)
The Green Communities Act also requires the Massachusetts Department of Environmental Protection (MA DEP) to codify regulations that are compliant with Regional Green House Gas Initiative (RGGI) requirements by March 1, 2009. The ten states that have adopted RGGI are designing a cap-and-trade program to reduce carbon dioxide emissions from power plants through a CO2 Budget Trading Program. By January 1, 2009, each state is expected to launch a CO2 Budget Trading Program, which will be part of RGGI's quarterly allowance auctions. The first RGGI CO2 allowance auction is slated to occur September 25, 2008.
International Standards and Carbon Offsets
Massachusetts has always recognized its participation in the global marketplace. The Green Communities Act and recent agency policies further illustrate that recognition. On June 1, 2008, MA DEP determined that not enough carbon credits are being generated from renewable projects in the region, and decided that emitters can offset emissions with the purchase of credits from outside the United States. The determination allows emitters to use carbon credits from the Clean Development Mechanism (CDM) Markets and the European Union's (EU) Emissions Trading Scheme to help meet their RGGI requirements. Also, in a further reform that will need to be carefully monitored in the project development community, the Green Communities Act calls for the implementation of the International Energy Conservation Code (IECC) in Massachusetts. This will impact building requirements for energy performance for residential and commercial buildings, including the installation of energy efficient mechanical, lighting, and power systems.
Once a company has come to grips with state-level regulations, federal mandates and incentives are waiting. While much of the international dialogue focuses on the domestic economic effects of global mandates, the debate in Washington has changed from "if" to "when" there will be a federal mandate to reduce greenhouse gas emissions by sector and industry. Most of the federal legislation under current consideration rewards early compliance activity, so a business adjusting its actions to reduce its carbon footprint now should include that legislative trend in their strategic planning. Corporate board rooms are also taking early action by disclosing to stakeholders the risks presented to their bottom line if the federal government enacts sweeping climate change legislation. Such early action is indeed advisable. With regional activity in the West and the Northeast, and those regimes considering linkage with the EU and CDM markets, it is nearly certain that there will be federal action to cure the economic instability that can be
caused by non-standardized regional regulatory activity within the states.
The Federal Government already has numerous programs and incentives in place that encourage the production of renewable energy, clean technologies, and energy infrastructure. The National Energy Policy of 2001, the Energy Policy Act of 2005 and the Energy Independence and
Security Act of 2007 created a full pallet of tax incentives, loan guarantees, grants, bonds and research and development dollars specifically designed to bring alternative forms of energy generation and energy efficiency technologies to the market place. In addition, new rules were created at the Federal Energy Regulatory Commission and the Department of Energy to enhance reliability standards, and reduce the barriers to infrastructure development.
So where should a company start? To take full advantage of the programs and incentives for renewable energy development, and in order to protect one's interest in a world of complex regulations and regulatory uncertainty, a client should seek experienced and expert counsel.
Vincent DeVito is a former U.S. Assistant Secretary of Energy and Regulator who is currently an Energy and Climate Change Attorney residing in Bowditch & Dewey LLP's Boston office. Mr. DeVito can be reached at firstname.lastname@example.org.