Law and the Environment

President and Chief Executive Officer of Thompson & Knight Global Energy Services to Serve as Program Chair of World Petroleum Congress

Houston, Texas (June 25, 2008) – Houston’s Renato Bertani, president and chief executive officer of Thompson & Knight Global Energy Services, LLC, is serving as program chair for the upcoming World Petroleum Congress (WPC), the most influential meeting place of the global oil and gas industry. The WPC meets every three years and will be celebrating 75 years this June 29-July 3 in Madrid, Spain.

"This is the largest and most prestigious meeting of energy leaders from around the world, and we have now confirmed representatives from more than 52 countries to attend this year, including more than 120 ministers, CEOs, and other high level authorities who will address the current issues in the energy sector," says Bertani. "The petroleum industry is facing its biggest challenge since the first time oil was drilled in 1859. As professionals, we must come together and find, develop, and produce increasing volumes of oil and gas to ensure sustainable development of the world’s growing economy."

The official theme for the upcoming WPC is "A World in Transition: Delivering Energy for Sustainable Growth," reflecting the ongoing concerns of the global industry. Discussions will include the phenomenal rise in the demand for oil and gas, the current high prices, and how the industry will continue delivering reliable and affordable energy for sustainable economic growth.

Bertani is the former president of Petrobras America Inc. and held a number of senior-level positions during his 30-year career with the Brazilian-owned energy conglomerate. Launched in 2007, Thompson & Knight Global Energy Services offers a wide range of specialized services to the industry including risk assessment and mitigation evaluations, portfolio management, asset evaluation, and analysis of exploration and production opportunities around the world.

About Thompson & Knight Global Energy Services, LLC

Thompson & Knight Global Energy Services, LLC (TKGES), a subsidiary of Thompson & Knight LLP, offers a wide range of specialized services to the energy industry, including the identification, assessment, and capture of exploration and production investment opportunities around the world, asset evaluations, and portfolio optimization. TKGES serves clients throughout the energy industry and works closely with clients to assist in optimizing business operations in areas such as business development, portfolio management, risk assessment and risk mitigation, fiscal optimization, asset evaluation in connection with acquisitions or divestments, preparation of packages to raise debt or equity, business modeling with long-term projections of key performance indicators, and other related services. For more information, please visit www.tkges.com.

EPA Plans for Issuing Draft and Final Greenhouse Gas Emission Reporting Rule

As mentioned in a prior post, the U.S. Environmental Protection Agency (EPA) is currently working on a draft rule to establish a federal, nationwide, and economy-wide greenhouse gas emission rule.  EPA has announced a schedule for the process and the existing protocols it is considering.  The Agency appears determined to move forward with issuing a draft rule by September of this year. 

The schedule is as follows:

January 2008 to September 2008:  Establish EPA Work group (completed);

                                                   Develop draft rule and supporting analysis;

                                                   Conduct outreach; and

                                                   Conduct inter and intra-Agency review of the draft rule.

September 2008:                          Propose and publish draft rule.

October 2008 to June 2009:          Conduct public comment period and hearings;

                                                   Review comments;

                                                   Develop final rule and supporting analysis;

                                                   Conduct inter and intra-Agency review of the final rule.

June 2009:                                   Publish final rule.

One of the critical issues is establishing the protocols that must be used for different types of sources and industry sectors.  The EPA is looking to regulate all six greenhouse gases:  carbon dioxide, methane, nitrous oxide, hydroflourocarbons, perflourocarbons, and sulfur hexafluoride.  The Agency is looking at regulating both upstream sources--fossil fuel and chemical producers and importers, and downstream sources--direct emitters--large industrial emitters.

The threshold amount of emissions that will bring a facility or source into the reporting regime must be determined by EPA. The Agency has stated that it is reviewing thresholds of existing mandatory and voluntary reporting programs to determine the appropriate trigger or threshold above which reporting will be required.  EPA has further said, "The rule is not expected to affect smaller operations where emissions are difficult to measure or where there are a large number of small sources."

The frequency of reporting must also be addressed.  EPA is reviewing the frequency of reporting under other programs to determine the frequency (annual or quarterly) of greenhouse gas emission reporting under the developing rule.

Finally, the protocols for estimating emissions from various sources must be adopted by the Agency. EPA has the discretion to use existing methodologies under Section 821 of the Clean Air Act for electric generating facilities.  Other sources that are being considered include:  federal programs--such as Title IV ; state programs--such as the Climate Registry, California's system, and RGGI; corporate programs--such as the World Resources Institute/World Business Council for Sustainable Development; industry programs--such as the American Petroleum Institute, the CSI protocol (cement), and the International Aluminum Institute.

Companies who have not already begun to take measure of their greenhouse gas emissions can refer to the above-mentioned protocols and begin to evaluate the level of emissions from relevant facilities and sources at those facilities.  This will allow future planning as to the potential for their operations to be required to make federal reports once the reporting rule is issued.

                                                   

Representative Markey Announces Plan to File Climate Change Legislation That Would Reduce US Greenhouse Gas Emissions by 85 Percent

Representative Edward Markey, Massachusetts Democrat, announced that he is going to file a bill that would require an 85 percent reduction in greenhouse gas emissions in the United States by 2050.   Like almost all other bills filed in Congress, Markey’s bill would rely on a cap-and-trade system to achieve the emission reductions.  Markey is chairman of the House Select Committee on Energy Independence and Global Warming.

Texas Commission on Environmental Quality to Reject Data from Unaccredited Labs after June 30, 2008

This is an announcement from the Texas Commision on Environmental Quality on acceptability of lab data:

Starting July 1, 2008, analytical data submitted to the Texas Commission on Environmental Quality that is related to permitting or remediation must be generated by a lab that our Texas Laboratory Accreditation Program (TLAP) has accredited under the NELAC standard for matrices, methods, and parameters of analysis, unless:

The lab is an in-house lab and meets one of these criteria:

The lab performs work for its owner, for another company with a unit located on the same site, or without compensation for a governmental agency or charitable organization.

The lab is in another state and is accredited or inspected by that state.

The lab is accredited under federal law.

The data are needed for emergency-response activities and no TLAP-accredited lab is available.

The lab supplies data for which we do not offer accreditation.

Starting July 1, 2008, we will accept analytical data for a permitting or remediation decision only if the data comply with all applicable rules for the regulatory program involved and:

the lab generating the data is NELAC-accredited by TLAP,

we have approved an exception as described above, or

the data were generated on or before June 30, 2008.

This policy is based on the requirements of Title 30 Texas Administrative Code Sections 25.4 and 25.6. As well as applying to data submitted to us, this policy applies to analytical data kept on site for review by our staff.

NELAC   stands for National Environmental Laboratory Accreditation Conference, now part of the NELAC Institute (http://www.nelac-institute.org/).

Will EU Mandate Carbon Capture and Storage?

The European Union (EU) is reported in Reuters to be preparing to debate laws that would require all utilities to capture and store carbon dioxide (CO2) by 2025.  According to the article, Carbon Capture and Storage (CCS) would eliminate a third of global greenhouse emissions.  Such a step would take a substantial bite out of what scientists at the National Academy of Science, the American Association for the Advancement of Science, the Royal Society, and the International Panel on Climate Change assert is causing climate change, global warming, and will cause substantial to the Earth and future generations.  Whatever the science, the EU has established and is moving forward with more restrictive greenhouse gas emission limits and restrictions.  A future requirement for power plants to capture the CO2 they emit would reduce the emissions, but some parties question the technology to capture and store the gases and the impact of any potential leakage back into the atmosphere.

In CCS, the CO2 can be used to enhance oil and gas recovery.  CO2 has long been used for this purpose over many decades.  Much of this CO2 is from natural sources.  Already many small scale and a few larger scale CCS projects are in operation or under construction. 

Alliance Bernstein, a US investment firm, has conducted a study on climate change and investment opportunities and has found that CCS is a necessary step to address climate change.  Moreover, the firm has identified those industries that will likely prosper in this new CCS and carbon-constrained world, and those that will likely suffer in such a new world. Those entities that can invest in, develop, and profit from the construction of collection, pipelines, and injection facilities for CCS, will be highly profitable.

The potential for a European plan would certainly spur investment in research and construction to achieve this goal.  Oil company representatives believe the injection and storage of CO2 is a well-established technology, based on many decades of experience.  Others question whether the much larger scale of CCS will pose new challenges.

One of the challenges is the concern of liability if the CO2 leaks and returns to the surface, say into someones home.  In Texas, the Legislature seeking to gain selection for the FutureGen project that was to be in large part funded by the US government, passed a law providing liability protection for the project.  Some industry experts have called for a sort of "Price-Anderson Act" that protected or at least set a cap for nuclear power plants in the United States.

The initial proposal was to only require new power plants built after a certain date to install CCS.  It appears there is some talk about requiring all plants to retrofit by 2025.  The cost may be steep, depending on the approach used. One estimate was a $1.5 billion investment per plant, which may be hard to finance without government assistance.

Other technologies and approaches may in fact be able to achieve CCS for much less.  The area is still in initial development, and new ideas and innovative approaches may make CCS a reality.  To achieve the goals suggested by the IPCC, CCS would have to be required more globally, in the US, China, India, and perhaps other countries. 

At a recent climate change seminar in Austin, Texas, the Chairman of the Texas Railroad Commission spoke out in favor of taking steps to assist the oil and gas industry in finding ways to implement a system of installing a system to use capture CO2 in enhanced oil and gas recovery programs.  The Lieberman-Warner bill that will be debated in the US Senate in June of this year contains provisions for encouraging CCS.  Thus, whatever political argument exists over climate change, the concept of CCS to attempt to address this issue has some support on more than one side of the political spectrum.

In Australia, the State of Victoria, which has about a 500-year supply of coal, is considering investing $120 million Australian dollars in CCS.

If the EU passes a law with future deadlines for installing CCS, this industry will take off, and investment capital will follow--assuming the right incentives, and perhaps public financing, are used to spur this new approach to reducing greenhouse gas emissions.

Guest Column on EnergyLaw360

I recently published a guest column on EnergyLaw360 entitled Laws Set Stage for Carbon Trading Opportunities.  The article discusses the new federal greenhouse gas emissions reporting law that was enacted and how EPA must publish final rules by September 2009.  These rules will serve as the foundation for coming climate change legislation that will create a cap-and-trade system for regulating greenhouse gas emissions, and create significant opportunities in developing greenhouse gas emission reductions that can be monetized in the form of carbon credits.

Will New ASTM Standard for Assessing Vapor Intrustion Wreak Havoc on Phase I Environmental Site Assessment Process?

Sitting at a Starbucks at in Dallas, Texas, I'm looking North at a Chevron-branded station owned by TETCO.  This is clearly noted on the sign with regular gasoline at $3.19 per gallon.  Clearly I am sitting downhill from the station, and if my client were buying the shopping center, my first suggestion would be testing the groundwater to see if the underground storage tanks containing various grades of gasoline or diesel below the gas station/convenience store have leaked and contaminated the property--under the Starbucks.  When I visit this site after dropping my daughter at school, I see the capped groundwater monitoring wells.  I would venture a guess that the hundreds of people who walk over or park on top of them have no idea what they are?  The two charming elderly women sitting outside the women in front of me have no idea that their may be gasoline and diesel 10 or 20 feet below their feet.  In reality, they probably have no reason for concern.  But a new standard for assessing risk from vapors from soil and groundwater may create havoc for real estate developers and banks.

Thinking about these issues is no different from any day in the office as an environmental lawyer.  (The "office" having grown with laptops, Blackberries, and cell phones to be about anywhere I am, ergo sitting in Starbucks with my T-Mobile connection blogging about an environmental issue--the mobile environmental lawyer.) Tanks leak.  Piping leaks.  People drive off and pull of the hose dispenses or otherwise spill fuels.  This is nothing new and has been going on for decades.  What is new is an ASTM standard for assessing the risk that those chemicals in the soil and groundwater are turning into vapor and getting into a building?  Could this new standard wreak havoc on the Phase I environmental site assessment process?  Could it be that I'm breathing benzene as I sit here typing this message?

It's actually unlikely.  My toxicologist friends working who work with me to assist clients in advising clients who remediate contaminated sights say it is highly unlikely in most instances.  In fact, they tell me it is when you fill up your car that you get your biggest shot of benzene--a known human carcinogen. 

So why the ASTM standard for assessing these risks if in fact they are so unlikely?  In the environmental regulatory world I live in as a corporate environmental lawyer since I graduated from Harvard Law School over 20 years ago, the regulatory agencies have begun to focus on these issues.  Yes, primarily in California, where all environmental regulatory programs tend to start (California has enacted and will be implementing a climate change greenhouse gas program before the Congress passes a bill), and the Texas environmental agency has not really tackled this issue and does not necessarily require that it be assessed.  Reportedly, the California agency is going back to sites closed under old rules that did not require vapor intrusion analysis and requiring that the sites be re-examined.  EPA has issued guidance documents on the subject of vapor intrusions and how to test for it.

As regulatory agencies and scientists begin to look at vapor intrusion into buildings, these issues have come up in real estate transactions in many parts of the country.  Real estate developers, real estate investment trusts, and banks then start to ask questions and the environmental lawyers and environmental consultants that work for them in their transactions start to ask questions.  Is vapor intrusion a problem?  What are the concentrations of chemicals in buildings that may arise from human sources in the ground (in soil and groundwater)?  Do such concentrations present a risk to people who work, live, visit these buildings?

The new ASTM standard is titled "Standard Practice for the Assessment of Vapor Intrusion into Structures on Property Involved in Real Estate Transactions" (E-2600-08). Roger Smith of Weston in Dallas provided this summary of the Standard.

The standard provides for a tiered approach to assessing and mitigating vapor intrusion conditions (VICs):

Tier 1

– Screening Level Assessment conducted with information typically gathered for a Phase I ESA (current and previous property use, location relative to potential sources, etc.) to decide if a potential vapor intrusion condition (pVIC) is present. It would make sense to include a request for a E 2600-8 Tier 1 VI screening level assessment along with the standard ASTM E1527 Phase I ESA. Since the assessment is based to a large degree on information gathered for the Phase I, there should be little additional cost associated with the screening levels assessment.

Tier 2

– Screening Level Assessment conducted by comparing information typically gathered in a Phase II ESA (soil and groundwater analytical data) to risk-based concentrations (look-up values) to decide if a pVIC is present. The Tier 2 VI assessments will mostly likely be requested whenever a standard Phase II ESA is requested. Since this is comparison to look-up values, there should be little additional cost associated with the Tier 2 screening level assessment.

Tier 3

– Vapor Intrusion Condition Assessment using modeling, soil gas samples, sub-slab vapor samples (from within buildings), and/or indoor air samples to decide if a VIC is present. This would be conducted when it has been determined that a pVIC is present that could affect current or future development on the property. The least expensive approach is likely to be modeling using existing data. This is typically a very conservative approach that may overestimate the risk of a VIC. If additional sampling is needed, the cost for conducting a VI assessment would typically be less than the cost for a Phase II assessment of the property.

Tier 4

– Vapor Intrusion Mitigation by building design, institutional controls, or engineering controls (removal of source, barriers, or mitigation systems). The scope and cost would be highly variable for Tier 4. For new construction, all three options are available. For existing construction, you are typically looking at the options for engineering controls.

The Standard is dense and may cause insomnia for even an environmental lawyer or consultant, but it does have potential implications for real estate transactions.  While it is not a part of the Phase I Site Assessment Standard which is used on almost all commercial real estate transactions, it is an add on to this standard.  It may in time become a standard practice to evaluate soil vapor intrusion.

If this happens, it may raise new issues and confusion in the commercial real estate market.  Banks will be unfamiliar with it and may be skiddish about chemical vapors and buildings.  What we need is to try to educate the real estate and banking industry about these issues.  While it will take time, it may be important not to scare off buyers and banks over vapor intrusions.

First, real risks may be rarely found.  The concentrations necessary to create a risk to workers in office buildings and industrial or warehouse settings are probably going to be rare.  People may need to work in buildings for 20 or 30 years, which is rare these days.  For residences, the concentrations are probably rarely going to raise a concern.  Second, for new buildings a vapor barrier can be constructed to prevent vapors from entering structures.  For old buildings, steps can be taken to vent the vapors.

Environmental assessments have become a standard practice in the real estate industry.  If vapor intrusion assessments become more commonly a part of those assessments, we need to be sure they don't become a source of undue alarm.  As commercial real estate faces the collateral damage of the subprime mortgage debacle, we need to take care that a new environmental concern and potential risk does not hamper transactions and the health of the market.  Understanding the scientific realities and real risk analysis is the first step in this process. 

Governor Vetoes Bill That Would Have Allowed Two Coal-Fired Power Plants in Kansas

In a rather stunning development, Governor Kathleen Sebelius vetoed a bill passed by the Kansas Legislature to allow two coal fired-power plants to receive their air emissions permits in a move to overturn the Kansas environmental agency to hold them back in response to the greenhouse gases they would emit. The veto in effect is a current ban on coal-fired power plants in Kansas. This development shines a spotlight on the need to develop a coherent and effective climate change and energy policy for the United States. Carbon capture and storage or sequestration will be a necessary part of those policies.

After vetoing the bill that would have allowed 11 million tons of greenhouse gases to be produced from two new coal-fired power plants, the governor signed Executive Order 08-03, which establishes the Kansas Energy and Environmental Policy Advisory Group.

"We know that greenhouse gases contribute to climate change,” Sebelius stated. “As an agricultural state, Kansas is particularly vulnerable. Therefore, reducing pollutants benefits our state not only in the short term – but also for generations of Kansans to come.”

Sebelius has named Jack Pelton, chairman, president and chief executive officer of Cessna Aircraft Company, to lead this group.

"I am so pleased that one of our most prominent business leaders has agreed to serve as chair,” Sebelius said. “Jack understands the balance between continuing to grow our economy and making sure that we protect our environment and maximize our natural assets for future generations. The Advisory Group will explore opportunities in all sectors of our economy to accomplish the goal of reducing our greenhouse gas emissions; and, at the same time, continue to take advantage of the economic prosperity provided by job growth throughout Kansas."

In her State of the State Address this past January, Sebelius discussed the need for Kansas to join 36 other states in developing a state plan to deal with climate change. The Energy and Environmental Advisory Group will develop recommendations to the governor involving opportunities to reduce greenhouse gas emissions, as well as a recommended timetable for implementation.  Other issues to be examined by this group include a study of the impact electrical production has on community economic development and the opportunities to diversify Kansas’ energy portfolio.

The process will be facilitated by the Center for Climate Strategies (CCS). Their work is supported by the Energy Foundation and the Sandler Family Supporting Foundation, which includes the Rockefeller Brothers Fund. CCS has developed climate action plans in: Arizona, New Mexico, Montana, Colorado, Washington, Minnesota, North Carolina, and Vermont. State plans are underway in South Carolina, Florida, Arkansas, Michigan, Maryland, and Alaska.

The veto decision places increasing pressure on state legislatures and the federal government to develop a coherent and national climate change and greenhouse gas management plan that incorporate an energy policy and strategy the US has lacked for decades.  It is clear that climate change policy and energy policy are inextricably intertwined, requiring policy decisions in the near future as Congress and the current President have failed to take on these issues.

One of the other key issues not discussed is the reality that coal-fired power plants must capture and store or sequester the carbon underground.  The capture phase presents some challenges but could be implemented with existing technologies.  Cost is the primary concern and utilities cannot justify the expense unless legislation requires the investment.  The transportation and storage or sequestration below ground is an old technology used to enhance oil and gas recovery.  Thus, to begin requiring new coal-fired power plants to capture the carbon dioxide from these plants and to inject it underground is a step that is critical to using a low cost source of energy in a manner that protects the environment.  By capturing the gases emitted from coal-fired power plants, other pollutants like sulfur dioxide and mercury would also removed from the emissions of the plants that would otherwise be released to the atmosphere.

This veto and effective prohibition of coal-fired power plants demonstrates it is clearly time for the sake of the utility industry and the public that we have a coherent energy and climate change policy for the United States. Hopefully, we will see consistent and dedicated work in Congress this year and leadership by a newly-elected president in 2009, whomever that party may be.