1. 1 Year in Review: Climate Change Presented by: Tom Wood Stoel Rives LLP October 8, 2010 EPA Heats Things Up

2. 2 Air Permitting and GHGs Issue: –PSD triggered for source with ≥100 tpy emissions of regulated air pollutant if one of designated source categories e.g., fossil fuel fired steam electric plants of more than 250 MMBtu/hr heat input –PSD triggered at ≥250 tpy of regulated air pollutant for other source categories –EPA has declared that GHGs are regulated air pollutant Creates unworkable program burdens –EPA wanted to “tailor” PSD applicability requirements

3. 3 EPA Tailoring Rule Published June 3, 2010: –Relies on the “Absurd Results” doctrine “Administrative Necessity” doctrine, and the “One Step at a Time” doctrine –GHGs subject to PSD starting January 2, 2011 –EPA imposed tiered GHG permitting scheme

4. 4 EPA Tailoring Rule Phase 1 (January 2, 2011) –PSD only triggered for GHGs if both The source triggers PSD for another pollutant, and The project increases GHGs by 75,000+ tons/yr CO 2 e Phase 2 (July 1, 2011) –PSD will apply to GHGs if both The source has GHG PTE ≥100,000 tons/yr CO 2 e, and There is a net emission increase for GHGs ≥75,000 tons/yr CO 2 e

5. 5 So What Does This Mean? Oregon has a SIP approved PSD program –Oregon rules do not change to match EPA shifts –Oregon does not include GHGs as a regulated air pollutant EPA will declare Oregon SIP inadequate –Starts SIP call process –EPA must give Oregon reasonable time to cure 1 year v. ~21 days –FIP simultaneously proposed EPA cannot implement until DEQ blows deadline –FIP starting January 1, 2011

6. 6 So What Does This Mean? DEQ normally issues PSD permits without Region 10 involvement Starting January 2, 2011, EPA will need to issue any PSD permit for GHGs –Can result in considerable delay if the project triggers PSD Creates powerful incentive to avoid PSD DEQ to seek FIP delegation authority DEQ also seeking to take revised Oregon GHG PSD program –Won’t happen until February 2011 at earliest

7. 7 So What Does This Mean? Permitting in interim? –Confused –Could result in significant delays

8. 8 Greenhouse Gas & Biomass EPA implemented GHG reporting rule earlier this year –Applies to more pollutants than Tailoring Rule –Applies to portions of facilities –Biomass derived emissions do not trigger reporting by themselves Different approach under Tailoring Rule & PSD –EPA not treating biomass emissions as carbon neutral for permitting purposes at this time –Oregonian Editorial October 6, 2010

9. 9 Greenhouse Gas & Biomass Big debate as to whether biomass combustion is carbon neutral –Debate heavily influenced by attitude towards forest management –Many of the criticized biomass sources are not relevant to NW biomass projects e.g., whole log chipping for hog fuel, closed loop biomass fuel crops In NW, biomass is typically either diseased logs (salvage timber), forest thinning/slash or residuals from timber processing

10. 10 Greenhouse Gas Neutrality Carbon release takes places as either: –Uncontrolled combustion (slash burning or forest fire) –Landfilling –Other decomposition Set amount of carbon in wood residual Slash burning releases same amount of CO 2 as controlled combustion, but dramatically more of conventional air pollutants Decomposition releases CH 4 (methane) which has global warming potential of 21

11. 11 Greenhouse Gas Neutrality Excellent study of benefits of biomass combustion: –Pacific Institute (May 2008) “Atmospheric greenhouse-gas levels in 2006 were lower by 70 million tons of CO2 equiv. of fossil greenhouse gases and by 62.5 million tons of CO2 equiv. of biogenic greenhouse gases as a result of solid-fuel biomass power production in California during 1980-2006.” Opposing point of view: –Manomet study (June 2010) “For biomass replacement of coal-fired power plants, the net cumulative emissions in 2050 are approximately equal to what they would have been burning coal; and for replacement of natural gas cumulative total emissions are substantially higher with biomass electricity generation.”

12. 12 Greenhouse Gas Neutrality So who is right? –Manomet issued statement after study released clarifying conclusions Noted it was very Massachusetts-centric On NY Times blog, Manomet President stated: “over time using wood for energy can lead to lower atmospheric greenhouse gas levels.”

13. 13 Greenhouse Gas Neutrality –Groups such as AF&PA criticize Manomet study Manomet assumed half of the annual timber harvest was diverted from lumber production to hog fuel Manomet only considered carbon from the moment that timber is harvested so ignored the sequestration leading to harvest Manomet focused on single stands so ignored the sequestration continously occurring among managed stands Manomet did not recognize slash burning as the alternative to use of the fuel in a biomass plant –Study: http://www.manomet.org/node/322http://www.manomet.org/node/322 –Blog: http://green.blogs.nytimes.com/2010/06/22/q-and-a- woody-biomass-pros-and-cons/http://green.blogs.nytimes.com/2010/06/22/q-and-a- woody-biomass-pros-and-cons/