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Policy Shift: 2009 Law & Lawyers Report

Legal and regulatory changes are transforming the industry.

Fortnightly Magazine - November 2009

power and pipelines practice group. “There’s now a social, political and industry consensus that we’re going to do something about it, on a national and international scale. Virtually all of the other things happening in this industry flow from that issue.”

For instance, as part of the overall trend toward green energy, more than half of the states have implemented renewable portfolio standards (RPS), and legislators in Congress have promised to enact a federal standard soon, either as part of climate policy or as stand-alone legislation. Of course, environmental issues aren’t the only factor driving RPS and other green-energy policy legislation; most notably, policy makers are seeking to reduce U.S. dependence on imported fuels and the attendant consequences, in terms of national security and the trade deficit. Taken together, environmental and energy security issues have created powerful momentum toward policy transformation.

“I’m convinced that now we have the combination of political will and economic realities to drive toward [GHG] regulation,” says George Pataki, former governor of New York and now counsel with Chadbourne & Parke. “It’s not just about energy and the climate but also economic growth and strategic defense. We’re relying on people like Hugo Chavez to supply our energy, and it represents the largest transfer of wealth in the history of the world. The United States has a tremendous opportunity, and people are aware of that.”

Although legislation still faces major opposition, the current political calculus in Washington, D.C., seems to favor a combined federal RPS and carbon cap-and-trade policy. Proponents of this approach argue that it offers an effective carrot-and-stick combination to accelerate the industry’s green transition.

“Renewables look a lot more competitive, and indeed might be completely competitive when externality costs are factored in,” says Larry Eisenstat, partner and energy practice leader at Dickstein Shapiro. How quickly and readily this happens, however, might depend on how emissions credits are allocated in a carbon-trading regime. “Whether you’re really going to incentivize renewables depends on how allowances are determined. If you get the right price for carbon and you have true economic dispatch, dirtier units will be displaced. But if allowance values remain as low as they seem likely to be in the beginning, it will take a long while before [carbon regulation] has much effect on renewable development.”

Further, the allowance distribution mechanism will affect the way the carbon market evolves and develops. The Waxman-Markey American Clean Energy & Security Act , for example, which the House of Representatives approved in June 2009, would award allowances to retail electricity distributors, rather than to power generators. Eisenstat says this approach would skew the market in ways that are anti-competitive and ineffective. “You can’t just give all the allowances to jurisdictional utilities, because it will give them a huge advantage in the market. It makes sense to have a transitional period where they get a large share, which would give them an appropriate chance to retire some units,” he says. “But in order for a cap-and-trade system to have a meaningful effect on the environment, we need truly competitive procurement of