July 2004

Cicada Glossary

by Roger Feldman  --   Bingham, Dana L.L.P.
(originally published by PMA OnLine Magazine: 2004/07/30)
 

This year Washington has been the subject of two cycles besides those presided over by Mr. Greenspan. One is cicadas: the “17 year locusts” that come breed, make noise and recede into the woodwork every 17 years.

The other is the reawakening din of concern with the U.S. vulnerability on the energy supply, the energy delivery and the energy ecology fronts. It is not to be confused with the perpetually on-going dull roar of advocates of programs for traditional hydrocarbons development. Even the Wall Street Journal has noted the renewed interest in something called “alternative energy.” This resurgence corresponds with the sunset in America of the merchant power model and the SUV. Careful attention to the din reveals it to have three distinct strains of sound which are not necessarily in harmony, but which tend to be banded together as much as by what they are not (hydrocarbon fuel, central station solutions) than by what they respectively are:

• “renewable energy resources”
• “distributed energy resources”
• “sustainable energy resources”

Call them, if you will, the songs of the Amory Lovins’ “soft road”. But note that they are not identical triplets.

It is more than a semantic or academic exercise these days to separate the policies and approaches connoted by these terms, as they represent, in some admixture, an important direction that future energy policy may trend - depending, of course on the election. Each lends itself more or less to State and local as well as to Federal resolution. From a commercial standpoint, each represents a different type of opportunity, which different energy industry players are more or less better able to exploit - and, consequently are more likely to partially support (without reference to party). Here, then, is a quick crib sheet for reading some of the upcoming energy news. Whether or not the tax bill makes its way through Congress, this crib sheet may be expected to be of continuing relevance, since that law does not comprise an energy policy.

“Renewables” broadly speaking, are forms of emerging electric generating technology or socially useful energy applications of byproducts of environmental clean up activities. Some like, wind and geothermal power can and are competitive when bolstered with available incentives. Others are more likely to derive more of their economics from disposal fees. Tax credit transfers are permitted by certain tax exempt entities — but not as a generalized mechanism. States have developed a variety of Renewable Energy Credit transfer programs, but until Renewable Portfolio Standards economic requirements are knit among all states, the larger efficacy of these programs is problematic. There are of course agricultural based renewable fuels which enjoy a variety of Federal subsidies, but the general consensus is that on a pure energy balance basis those products offer limited cost justification. The sustained jump in natural gas prices has been a major benefit to renewables proponents, but here the drumbeat for more cost competitive coal (and related syngas possibilities) moves the discussion away from “renewable” to “alternative”, but not necessarily to renewable resources, which are neither “sustainable” nor “distributed”.

The concept of “sustainable development” is one that has a less definitive approach to energy issues, but is of a potentially important general political impact. The 1992 Earth Summit defined it as “socially responsible economic development” that “protects” the resource base and the environment for future generations. As an American Bar Association committee recently put it - with a slightly harder edge: “Sustainable development brings a “Holistic” approach that takes a comprehensive and longterm view of benefit and costs”. The lingo is not as energy-focused as the other approaches, but it includes some concepts which powerfully overlay the consideration of, notably, hydrocarbon alternatives. By adding greater emphasis to inclusion of considerations of emissions tracking, climate change/greenhouse gases; and sustainable economics - as well as attention to impacts on rates and other economic resources, analysis from this prospective both heightens awareness of flaws in some hydrocarbon alternatives (coal) and equally importantly the economic value (currently mostly outside the U.S.) of carbon displacement credits for certain renewables. It is the intellectual cornerstone of the “carbon displacement credits” approach which has the potential to bolster certain renewable and certain environmental approaches.

ROGER FELDMAN, Co-Chair of Andrews Kurth LLP Climate Change and Carbon Markets Group has practiced law related to the finance of environmental and energy projects and companies for 40 years.  In particular, he has analyzed and executed a wide variety and substantial value of project financings.  He chairs the American Bar Association’s Committee on Carbon Trading and Finance, serves on the Board of the American Council for Renewable Energy, and has been a senior official in the Federal Energy Administration.  He is a graduate of Brown University, Yale Law School and Harvard Business School.