1. Latham & Watkins operates as a limited liability partnership worldwide with an affiliate in the United Kingdom and Italy, where the practice is conducted through an affiliated multinational partnership © Copyright 2007 Latham & Watkins. All Rights Reserved. Climate Policy and Law Bob Wyman October 27, 2011

2. 1 How Tough Will This Be? YearUS PopulationPer Capita Emissions GDPTotal Emissions 2050420 Million (projected) 2.4 Tons (to meet target) ?1 Billion Tons (BT) 2005 (Base)303 Million20.3 Tons$ 14 Trillion6 BT 191092 Million10.9 Tons$ 572 Billion1 BT 188745 Million2.4 Tons$ 147 Billion

3. 2 Now You Have Our Attention! Coffee - "We see a significant risk to our supply chain in the future, and we are a company that relies completely and solely on this one product, called the arabica coffee bean," Hanna said. "And if that's not around anymore, our company doesn't exist in its current format anymore." (Jim Hanna, Starbucks Environmental Impact Director) Chocolate – International Center for Tropical Agriculture: climate change poses a significant threat to cocoa in West Africa (Ghana and Ivory Coast, responsible for more than half of the worlds chocolate And Wine?

4. 3 Some obvious (but often neglected) points This is not traditional pollution control; it is transforming our energy and transportation systems A carbon price signal is not enough Infrastructure gaps are material Example – transmission lines Technology and resource gaps are material Example – energy storage limitations, biofeedstocks, CCS Regulatory barriers to investment are material Examples – California Environmental Quality Act (CEQA), National Environmental Policy Act (NEPA), Endangered Species Act (ESA) substantially delay, increase project costs and often stop even new, low- carbon investment (e.g., cogeneration increases local emissions despite reducing regional emissions) Case-by-case Clean Air Act BACT program will hinder, not accelerate, desired investment A national (and regional) strategic energy investment plan should clear the way for desired investment

5. 4 Land Use Intensity of Energy Choices Source: The Nature Conservancy (McDonald et al), Energy Sprawl or Energy Efficiency: Climate Policy Impacts on Natural Habitat for the United States of America

6. 5 Congress

7. 6 State of the Law - Overview COMMON LAW NUISANCE CT v AEP – X (US) COMER KIVALINA REGULATORY PROGRAMS PROCEDURAL ENVTL REVIEW STATUTES NEPA CEQA ESA PERMIT PROGRAMS CAA PSD/BACT STATE PROGRAMS EPA MOTOR VEHICLE REG CAA §111 (NSPS) AB32/WCI RGGI degree of (legislative or regulatory) action on GHGs little or no action very specific action displacement? partial yes – Sup Ct

8. 7 Slides 7-9 reprinted w/ permission of Arnold & Porter & Columbia Law School Center for Climate Change Law (Michael B. Gerrard)

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11. 10 EPA US Supreme Court (Mass v. EPA, April 2007) GHGs are air pollutants under federal Clean Air Act EPA must determine whether GHGs from new motor vehicles cause or contribute to air pollution that may reasonably be anticipated to endanger public health and welfare December 7, 2009 – EPA finds that current and projected concentrations of 6 GHGs threaten public health and welfare. April 1, 2010 – EPA finalizes light duty vehicle regulation. January 2, 2011 – earliest date that a compliant 2012 model year vehicle may be sold in the US (date as of GHGs are considered regulated pollutants under Clean Air Act). January 2, 2011 – trigger date for EPA and state application of Best Available Control Technology (BACT) to major stationary sources in US. May 13, 2010 – EPA finalizes tailoring rule redefining major stationary source thresholds. December 21, 2010 – EPA signs settlement agreements in power and refining lawsuits committing to develop GHG performance standards – DELAYED?

12. 11 Potential Sources of EPA GHG Authority Endangerment Finding Required NAAQS (§§ 108-10) NSPS (§ 111) NESHAPS (§ 112) Intl Endangerment (§§ 115) Regulated Pollutant Requirements PSD (§§ 165,169) US emissions cause or contribute to air pollution reasonably anticipated to endanger foreign public health or welfare Foreign country reciprocity required SIP tools available (fees, marketable permits, auctions)

13. 12 Potential Sources of EPA GHG Authority Endangerment Finding Required NAAQS (§§ 108-10) NSPS (§ 111) NESHAPS (§ 112) Intl Endangerment (§§ 115) Regulated Pollutant Requirements PSD (§§ 165,169) US emissions cause or contribute to air pollution reasonably anticipated to endanger foreign public health or welfare Foreign country reciprocity required SIP tools available (fees, marketable permits, auctions) Possible Paths Forward plus?

14. 13 Types of Market Programs Cap and trade/allowance-based Sources must surrender allowances for their emissions Traded commodity is certified in advance Examples: acid rain program, EU ETS, RECLAIM, AB32 cap and trade Averaging/performance-based Sources average to a performance standard and must make up any shortfall by purchasing credits Credits/debits generated automatically by reference to credit line Performance standard can be periodically adjusted, if necessary Examples: lead phase-out from gasoline, low carbon fuel standard, EPA recreational marine engine standards Discrete emission reductions (Offsets) Requires case-by-case certification Credits generated for surplus reductions relative to baseline Examples: ERCs, Clean Development Mechanism (CDM) Emissions Charges and Financial Vehicles Examples: carbon tax, clean air investment fund (e.g., AQIP) Encourages demand-side reductions

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16. 15 OPEN MARKET CLOSED TECHNOLOGY MARKETS Strategic technologies CAP AND TRADE: 85% emissions 600 facilities 2-3% annual decline Electric power generators (via utility auction) Refineries Glass Plants Cement Plants Other heavy industry, landfills, etc. NO TRADING + OFFSETS (8% max) Internal Trading and Averaging Only Trading & Banking Reserve Auction (4%) renewable electricity standard (33% by 2020) low-carbon fuel standard motor vehicle standards Fuels SB 375 – Sustainable Communities Strategies + 2013 2015 CA AB32

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19. 18 Source: Sweeney/Weyant Draft Analysis of Measures to Meet the Requirements of Californias Assembly Bill 32