The Role of Biomass in a Carbon-Constrained WorldMay 12, 2010

Forest Resources Association -- Western Region Spring Meeting

Craig Gannett

Agenda

Context Federal Legislation Federal Regulations Regional and State Activities Risks and Opportunities

Context

Context (cont.)

Federal Legislation

Status of the Federal Legislation

Waxman-Markey (HR 2454) passed the House on June 26, 2009

Kerry-Boxer (S. 1733) reported by the Senate Environment and Public Works Committee on November 5, 2009. Prospects for Senate floor action almost zero.

Senators Kerry, Graham, and Lieberman were working on a grand compromise, but Graham has now pulled back.

Action this year very unlikely.

Key Provisions

Cap and Trade Forest Offsets Renewable Energy Credits (RECs)

Cap and Trade

Overall goal: 80% reduction below 2005 levels by 2050 Reductions across all sectors of the economy One allowance must be submitted to EPA for each ton

emitted Transition from free allowances to full auction GHGs from biomass-fueled electric generating

facilities are exempt from the cap (W-M, p. 735)

Cap and Trade (cont.)

In addition to free allowances, covered entities can comply by obtaining allowances via -- Purchasing at auction Trading (not limited to covered entities) Banking Borrowing Offset credits (W-M, p. 740-41)

Stiff penalties for non-compliance

Forest Offsets

An offset is the reduction or avoidance of GHG emissions, or sequestration of GHGs, in a sector not subject to the cap. (W-M, p. 780)

Forestry and agriculture are the primary sources of offsets

An offset credit is a tradeable compliance instrument, just like an allowance

Forest Offsets (cont.)

Forestry offsets include afforestation, reforestation, and forest management resulting in increased sequestration. (W-M, p. 1394)

Sequestration must be additional, verifiable, and permanent, and leakage and reversals must be accounted for. (W-M, p. 780-81; 787-90)

Proposed offset project plans must be submitted to USDA for approval. (W-M, p. 1406)

Potential for early offset credits (W-M, p. 802)

Renewable Energy Credits

Electric utilities must meet 20% renewables by 2020 (W-M, pp. 24, 31); can either produce or purchase RECs

Biomass-fueled electric generating facilities create RECs Key definition for both cap and trade and RECs: “renewable

biomass.” From federal lands, it includes: materials removed as part of a federally recognized timber sale, or

to reduce hazardous fuels, or to restore ecosystem health; Not from Wilderness Areas, old growth, or late successional

stands; Harvested in environmentally sustainable quantities, as determined

by the federal land manager

Renewable Energy Credits (cont.)

Renewable biomass from non-federal lands includes any organic matter that is available on a renewable or recurring basis.

Residues and byproducts from wood, pulp, or paper products facilities. (W-M, p. 857-59)

EPA

EPA Regulations

While Congress dithers, EPA moves ahead under Clean Air Act

GHG Reporting Rule (Final) EPA expects approximately 10,000 facilities to report,

accounting for nearly 85% of total GHGs Reporting only – no emission limits or reductions Monitoring required as of 1/1/10; first annual reports due

3/31/11. Applies to pulp and paper facilities emitting more than

25,000 tons of GHG annually. (40 CFR 98.270 et seq.)

EPA Regulations (cont.)

Prevention of Serious Deterioration (PSD) Tailoring Rule (Proposed) Due to endangerment finding, new or modified major

stationary sources will be required, beginning next year, to address GHGs through the PSD permitting process.

High quantities of GHGs makes 100/250 tpy limits in the CAA unmanageable; therefore, EPA is “tailoring” the rule to cover only sources over 25,000 tpy.

No established technologies to capture GHGs; Energy efficiency is only answer from EPA’s Climate

Change Work Group so far.

EPA Regulations (cont.)

Possible PSD/tailoring rule outcomes – Endangerment finding overturned Rule implementation delayed further Court enforces 100/250 threshold Congress enacts climate change legislation

EPA Regulations (cont.)

Boiler and Process Heat Rule (Proposed) Addresses toxics, not GHGs, but applies to biomass-

fueled facilities Would require Maximum Achievable Control

Technology (MACT)

EPA Regulations (cont.)

Renewable Fuel Standard -- 3/26/10 Final RFS rule intended to dramatically increase amount of renewable fuels blended into all transportation fuels.

Biomass-based diesel to grow from 650 million gallons in 2010 to 1 billion gallons by 2012. Feedstock includes slash and pre-commercial

thinnings from non-federal forestland that is not ecologically sensitive.

USDA Rulemaking

Biomass Crop Assistance Program (BCAP) off to a rocky start -- Much more expensive Diverted wood fiber from higher value products

Proposed rule issued on 2/8/10 -- Payment for wood waste limited to that which would not

otherwise be used for a higher-value product But payment allowed for slash chipped solely for

purposes of transport Alternative payment limits proposed

Comment period ended on 4/9/10; USDA says final rule will be issued “this year.”

Regional and State Efforts

Western Climate Initiative (WCI) 7 states, 4 Canadian Provinces (including B.C and

Manitoba) Forestry offset rules Constitutional problems

State RES requirements Biomass definition is critical Will RES percentages go up? Will Congress preempt?

State GHG reporting requirements

Risks and Opportunities

Risks Compliance with new EPA rules Increased feedstock costs due to RFS Inconsistent biomass definitions may hinder REC market

Opportunities Exemption from cap and trade Forest offsets Ability to create RECs Market pelletized biomass as substitute for coal Market biofuels under RFS

Questions?