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Federal Regulatory Developments Affecting Coal:

EPA and Congress

Montana Coal CouncilKalispell, MTJuly 21, 2009

PRESENTED BY

Peter GlaserTroutman Sanders LLP401 9th Street, NWSuite 1000Washington, DC 20004202.274.2950

www.troutmansanders.com

It’s High Noon for Coal in Washington

• Climate Change Legislation

• EPA Endangerment Finding

• Almost every other air quality regulation affecting use of coal is back to square one

Waxman-Markey

• Passed House June 26, 2009

• First bill to pass either House that mandates GHG Reductions

• 1427 pages (!)

• 300+ page Manager’s Amendment Filed at 3:00 A.M. the day of vote

What’s In Waxman-Markey?

• Cap-and-trade program for capped sources, principally large industrial sources emitting ≥ 25,000 tpy CO2e and accounting for 85% of U.S. GHG emissions.

• Targets and Timetables - 3% below 2005 when program starts in 2012 - 17% below by 2020 - 58% below by 2030 - 83% below by 2050 - Delayed compliance dates for certain industrials, NG LDCs

Allowance Allocations to EGU Sector

• 43.75% of allowances allocated at no-cost to EGU sector in 2012 and 2013

• Declining to 7% in 2029 and then none thereafter

NSPS for Coal Mines?

Bill directs EPA to issue New Source

Performance Standards for uncapped

sources, which would include coal

mine methane emissions

Source: Climate Policy Group

Source: Climate Policy Group

Source: Climate Policy Group

U.S. carbon market seen rocketing to $2T

"Make no mistake, these carbon markets can be the world's largest commodity markets in a few short years," Commissioner Bart Chilton of the Commodity Futures Trading Commission told a carbon market gathering in Chicago.

E&E Daily, Jun. 10, 2009

Senator Dorgan7/16/09

"My preference would be that we not take up the Waxman Markey bill, as such. I know a lot of work has gone into that legislation, but my preference would be that we start in a different direction. I do not have a problem with capping carbon...I'm for a low-carbon future, but in my judgment, those who would bring to the floor of the United States Senate a replication of what has been done in the House withover 400 pages describing the 'cap-and-trade' piece ofcapping carbon, will find very little favor from me and I wouldsuspect from some others as well. There are better andother more direct ways do this to protect our planet. But, I'vebeen to the floor many, many, many times talking aboutwhat has happened with credit default swaps, what'shappened with CDO's, what happened with the oil futures market,on and on and on. If what has happened gives anybody confidence,then they're in a deep sleep and just don't understand it."

The Senate

• 6 Committees have jurisdiction over bill, leading committee is Boxer’s EPW

• Reid asks for all Committees to complete work by late-September

• So bill can be brought to floor in October/November

Key Substantive Concerns for Coal

• Targets and timetables aligned with technology (CCS) development

• Allowance allocations to allow utilities to keep utilizing coal without undue cost

• Liberal provisions for offsets• Support for CCS

Key Political Considerations

• Northeast/West Coast vs. Heartland• Ag Sector Strength• Overwhelming complexity of bill and of

harmonizing work of different committees in Senate, plus between House and Senate

• Health Care• Unemployment Rate• Copenhagen in December• Don’t underestimate President’s

determination

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EPA Proposes Endangerment Finding on April 17, 2009

• Finds that elevated concentration of six GHGs in atmosphere constitute “air pollution” endangering both public health and welfare because of climate change effects

• Finds that four of these GHGs, including CO2, emitted by new motor vehicles cause or contribute to this air pollution

• Does not propose regulations to control these emissions – but once endangerment finding final, EPA must regulate

→ Comments filed June 23, 2009

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What Happens Next?

President announces agreement with automakers on May 19 on motor vehicle fuel economy regulations that will include GHG regulations under CAA – actual proposal expected this Summer before endangerment finding is finalized

Endangerment finding will be finalized later this year

Auto GHG regulations will be finalized some time next year

What Happens Next?

EPA will move to set standards for large coal-fired EGUs later this year

Numerous petitions in queue to regulate GHG emissions from a variety of other sources

Strategic Considerations on EPA vs. Congress

• EPA and Congressional leadership are trying to use threat of CAA regulation as sword to soften up industry on cap-and-trade – offering to exempt capped sources from CAA regulation as part of bill

• National legislation is preferable to CAA regulation by a mile, but not at any cost

• Two-front battle to get a sensible climate change program

GHG REGULATION: HOW MUCH PAIN?

Other EPA

• Post-CAIR (in East)• CAIR for West – Wild Earth

Guardians Lawsuit seeks to control interstate transport of SO2 and NOX in West

• Post-CAMR• Ozone and PM2.5 NAAQS• Regional Haze• Etc.