Category Archives: Energy Efficiency

Legislative Wrap-Up II: Energy

August 2, 2013: Highlights of energy legislation.

Shale Gas/Hydraulic Fracturing. This is one area where the big news may be the legislative proposals that failed. The Senate adopted two controversial  shale gas provisions, but neither passed the House. Legislation adopted in 2012 effectively put a moratorium on hydraulic fracturing  by prohibiting issuance of permits until  the Mining and Energy Commission adopted rules and the  General Assembly acted to specifically allow permitting.  The N.C. Senate had always wanted to set a specific date for permitting to begin and tried again this year in Senate Bill 76 (the Domestic Energy Jobs Act). The version of the bill that came out of the Senate repealed the 2012   language  and authorized the Department of Environment and Natural Resources to begin issuing permits for hydraulic fracturing on March 1,  2015 without any further legislative action.  The House had concerns about the change. After back and forth on alternative language and  intensive lobbying in the  last  days of the legislative session, the final bill kept the permitting moratorium in place.

The other controversial Senate proposal  had to do with disclosure of information on chemicals used in hydraulic fracturing fluid. The Senate  intervened on behalf of the oil and gas industry when energy giant Halliburton expressed concern about a chemical disclosure rule drafted by the Mining and Energy Commission. The commission’s draft rule requires drilling companies to disclose all chemicals used in hydraulic fracturing fluid to the Department of Environment and Natural Resources, but allows DENR to keep any trade secret information confidential. You can find more about the chemical disclosure rule and trade secret protection in this post.   In an effort to make the rule more acceptable to the oil and gas industry, the Senate adopted language directing the Mining and Energy Commission to revise the rule to allow  drilling operators to withhold information on trade secret chemicals unless DENR needed the information to respond to environmental damage or a specific health problem.  In the face of significant opposition,   the Senate  modified the language to allow   state regulators  to review information on trade secret chemicals at the same time the drilling company  disclosed  other chemicals used in the fracturing fluid. The revised language did not allow DENR  to actually receive  information on trade secret chemicals — the department could only review  information  that remained  in the drilling company’s possession.  In the final  days of the legislative session, the  bill containing the Senate  language died and the restriction on chemical disclosure died with it.  Failure of the legislation allows the Mining and Energy Commission  to move ahead with the original draft rule on chemical disclosure.

The final version of Senate Bill 76 signed by the Governor included a number of  less controversial changes related to shale gas and hydraulic fracturing:

– Rules adopted by the Mining and Energy Commission are exempted from the  requirement for a fiscal analysis. State law  generally  requires every proposed rule that has an economic impact of $1 million or more (based on the total impact on everyone affected by the rule)  to be accompanied by a  fiscal analysis.

–  Minor changes in the makeup of the MIning and Energy Commission.

– Three new studies to look at:  1. creation of a coordinated permitting process that will allow issuance of a single environmental permit for all oil and gas exploration and production activities; 2. the appropriate level of severance tax for oil and gas resources; and 3. implementation of  the 2012 registration requirement for people involved in  purchase or lease of property for oil and gas exploration and development.

– Technical amendments to an existing law allowing the state to limit the total amount of oil and gas produced in the state (G.S. 113-394).

–  New criteria for setting the amount of  the reclamation bond required for oil and gas activities and a process for either the drilling company or the property owner to appeal the bond amount.

LEED Certification.  House Bill 628 (Protect/Promote Locally Sourced Building Materials) was signed into law after a major rewrite in the Senate.  The  original House bill would have prohibited state building projects from seeking Leadership in Energy and Environmental Design (LEED) certification under U.S. Green Building Council standards because few North Carolina forestry operations meet standards necessary to earn LEED credit for sustainable wood products. You can find more explanation of the controversy over sustainable forest practices and the LEED standard here.  The Senate rewrote the bill to allow construction of state projects under “green” building standards that  give credit for use of local building materials — which LEED standards do.   The  final bill also calls  for study of the energy efficiency standards for state buildings that were adopted in 2007.

Renewable Energy.  Legislation to repeal the state’s Renewable Energy Portolio Standard  died.   With the support of a number of conservative political organizations — including Americans for Prosperity — House Bill 298 and Senate Bill 365 (both titled the Affordable and Reliable Energy Act)  proposed to repeal the 2007 state law requiring major electric utilities to generate an increasing percentage of power from renewable energy sources.  An earlier post talked about the politics of the renewable energy standard and  the practical problem the bill presented for Republican  legislators. The tension between the practical (jobs) and the political (conservative opposition to  subsidies for renewable energy) played out in both the House and the Senate.  In the end, neither bill got all of the committee approvals needed to get to  a floor vote.

The General Assembly adopted legislation setting up a permitting program for  wind energy projects (House Bill 484). The bill largely responds to concerns about the potential impact of wind turbines on military training  activities in the coastal area. Two onshore coastal wind projects already proposed for the coastal area had generated questions about interference with radar and risk to pilots flying low-level military training routes.  Aside from establishing environmental criteria for permitting wind turbines, the bill requires DENR to provide notice of  the permit application to commanders at  nearby military installations and to the Federal Aviation Administration. The bill makes interference with military operations a basis for denying  a wind energy permit.

The final budget for 2013-2015  eliminated state funding for the N.C. Biofuels Center. The General Assembly created the Biofuels Center in 2007 to  encourage  biofuels production in N.C. using  non-food crops.  The Biofuels Center set a goal of replacing 10% of the state’s imported petroleum with homegrown biofuels. To develop biofuels production, the Biofuels Center made grants to support biofuels research and to develop pilot  projects.  Late in July, the N.C. Biofuels Center board decided that it would not be practical to continue operations without state funding; the  Center will  close by the end of October and unused grant money will be returned to the state.

Offshore Energy.  Senate Bill 76 also addressed offshore energy production. One section of the  bill creates a plan for allocating revenue from offshore energy production off the N.C. coast. The first $250 million in royalties to the state would go into an Offshore Emergency Fund to be used for emergency response and cleanup in case of an offshore oil or gas spill. Any royalties to the state beyond the first $250 million would go largely to the General Fund (75%); the remaining 25% would be divided among the Highway Trust fund (5%), the Community College System (5% for programs to train students in fields related to energy development), DENR (5% for coastal projects), the UNC system (5% for energy-related research and development); State Ports Authority (3% for ports infrastructure associated with energy production); and Department of Commerce (2% to recruit energy-related industries to the state).

Note: Offshore oil and gas production would almost certainly occur in federal waters beyond the three-mile limit of state jurisdiction. North Carolina will not receive any royalties from offshore production in federal waters unless Congress specifically authorizes revenue-sharing with the state.

The bill also encourages  the Governor to negotiate a regional energy compact with the states of Virginia and South Carolina to develop a regional strategy for offshore energy production in the three-state region. The General Assembly directs Governor McCrory to work with his counterparts in those states to encourage the U.S. Department of Interior to amend the national 2012-2017 Five Year Leasing Plan to include leasing for oil and gas exploration and development in waters of the Atlantic Ocean off the VA-NC-SC coast.

Energy Policy Act.  Senate Bill 76  makes significant changes to the state’s Energy Policy Act (the Act begins at G.S. 113B-1). The changes  generally run in the direction of  reducing  the emphasis on energy efficiency and renewable energy and increasing  the emphasis on job creation.   The amended Energy Policy Act has more to say about expanding development of all energy sources – including natural gas and nuclear power — and much less about energy conservation.  The bill changes the makeup of the Energy Policy Council (an advisory board created to guide state energy policy) along the same lines:

– The seat on the Council for a person  with experience in alternative fuels or biofuels becomes a seat for a representative of  an investor-owned natural gas utility.

–  The seat designated for a person  with experience in energy efficient building design or construction  becomes a seat for  an energy economist.

–  The seat on the Council for a person with experience in renewable energy becomes a seat for an industrial energy consumer.

The General Assembly also consolidated state energy programs in the Department of Environment and Natural Resources. The budget bill moves the State Energy Office (which has largely carried out federally funded energy efficiency programs) from the Department of Commerce to DENR. Senate Bill 76  moves the Energy Policy Council, which had also been under the Department of Commerce,   to DENR. The Council will be  staffed by the Division of Mineral, Energy and Land Resources.

Compromise on LEED Certification

The bill proposing to prevent state construction projects  from   seeking  “green building” certification  under LEED  standards  (House Bill 628) appears to be moving toward a compromise.  An earlier post described the controversy over  LEED standards for wood products.  Yesterday, the Senate Agriculture and Environment Committee approved a  new – and entirely rewritten – version of  House Bill 628.  You can find the new bill draft here. The Senate version of House Bill 628 does two things:

  1.  The bill adds entirely  new  language on  energy efficiency standards for state construction projects. The Senate bill  would  change existing law to only require state construction projects to meet more aggressive energy efficiency standards adopted by the General Assembly  in 2008  if the result would be a net savings in construction and operating costs.  To calculate “net savings”, the bill uses construction costs added to operating costs for the first ten years after completion (as compared to building the same structure without meeting the energy efficiency standards).   The committee heard some concerns about using ten years of operating costs to calculate net savings.  Apparently most energy efficiency construction contracts use 15-20 years as the time period for recovery of costs and calculation of net savings.  Senator Tommy Tucker, who offered the amended bill language in committee, said that he would be willing to consider a different time period as long as it is reasonable.
  2. The bill completely replaces the original House Bill 628 language on acceptable  “green” building certification.  The Senate version would allow state construction projects to  use any energy efficiency/environmental design rating system that  “(i) provides certification credits for, (ii) provides a preference to be given to, (iii) does not disadvantage, and (iv) promotes building materials or furnishings, including masonry, concrete, steel, textiles, or wood that are manufactured or produced within the State”.   The LEED rating system seems to meet that requirement by  providing  specific credits for use of  regional  materials. You can find the list of LEED credits available for new building construction/major renovation projects here.    A new commercial building must meet basic  LEED  requirements  and earn a minimum of 40 points on a 110-point  rating  scale to get  LEED certification. Use of wood products meeting  Forest Stewardship Council standards  can provide one  point, but use of regionally sourced  building materials can provide  two  points  (if 20% of the building materials meet the regional material standard).

A footnote on the issue of LEED certification and  use of N.C.  wood products: There has been an ongoing fight over what should count as “sustainable” forestry. (See the earlier post  on a recent complaint filed with the Federal Trade Commission about  “green” labelling for wood products.) Setting that aside,  concerns about the  impact of LEED certification on use of N.C. wood products  may   also come  from  the  way architects translate LEED standards into specifications for individual construction projects   The  House bill sponsor, Representative Michele Presnell,  used an example of major renovations at Tryon Palace (a colonial era building in New Bern) where the material specifications required use of wood products meeting Forest Stewardship Council  standards. Although major wood producers are located within a stone’s throw of Tryon Palace,  Representative Presnell said  they were closed out of bidding because none of those producers operate under FSC  standards.   I don’t have any direct knowledge of the specifications for the Tryon Palace project, but if that happened it seems to be an unnecessary result even under LEED standards. With a 110-point rating system, there are many different ways to reach the  40 points needed for LEED certification.  It is possible to reach  LEED certification without relying on the one point for wood products at all. (And the wood products credit only requires that 50% of the permanent wood products used in the building meet the FSC  standard.)

A conversation between the N.C. forest products industry and the state chapter of the American Institute of Architects about how specifications for LEED projects can be written to support use of N.C. products might benefit the industry even more than legislation.

House Bill 628 is on the Senate calendar today and will then go to a conference committee to work out the differences between the House and Senate versions.

House Bill 628 : It’s Not Easy Being “Green”

May 7, 2013:  I just learned of  House Bill 628 (Protect/Promote N.C. Lumber)  today and set out to understand why the N.C. General Assembly would  want to stop  state construction projects from trying to  meet energy efficiency and environment sustainability standards. The short answer may be a perfect symbol of the  current environmental moment — an industry has asked the state legislature to do something to influence  a private nonprofit organization’s voluntary  environmental sustainability standards  because those standards set a higher bar than the industry wants to meet  to get credit for being “green”.

First, House Bill 628 really protects and promotes the particular type of “green” certification for  wood products supported by the N.C. Forestry Association. Certification of products and buildings as energy efficient and environmentally sustainable has become both an environmental movement and a marketing tool.  “Green” labels on consumer products appeal to environmentally conscious consumers. A green building certification appeals to those same consumers and to large institutions (public and private) interested in  environmental protection or cost savings from energy and water efficiency.  That consumer appeal gives a “green” label economic power and a war is currently raging over the kind of forestry practices that should get credit toward green product labels and green building certification.

House Bill 628 wades into the green building controversy. The U.S. Green Building Council, a nonprofit organization,  has developed the most widely known and accepted standards for environmentally sustainable and energy efficient construction.  The Green Building Council’s  program gives credit toward LEED (Leadership in Energy and Environmental Design) building certification for use of wood products that meet standards set by  the Forest Stewardship Council. You can find more information on LEED certification standards here.

The American  Forest and Paper Association created its own set of sustainable forestry standards in the 1990s.  The Forest and Paper Association’s  Sustainable Forests Initiative has since separated from the industry organization and operates as an independent nonprofit that maintains voluntary standards for sustainable forestry practices and  certifies  forestry operations meeting those standards.  The forest products industry has pushed the U.S. Green Building Council to give credit toward LEED certification for use of wood from a forestry operation certified by the Sustainable Forests Initiative, but the Green Building Council has resisted the change.

One afternoon has not been enough to fully understand the differences between certification under the Sustainable Forests Initiative versus the Forest Stewardship Council, so I am not going to try to resolve the controversy over their relative merits.  For purposes of understanding the political fight, conservation organizations believe the Forest Stewardship Council standards used for LEED certification do a better job of protecting endangered species and old growth forests and are less likely to result in clear-cutting.  The forest products industry prefers the Sustainable Forests Initiative standards as less costly and sustainable enough.

What does House Bill 628 do?

●   It prevents any future state construction projects from seeking LEED Certification.  (The bill only allows state projects to seek green building certification from a program that gives credit under the Sustainable Forests Initiative and uses standards approved by the American National Standards Institute.  The LEED program does not meet either of those requirements.) The move away from LEED certification for state buildings  will likely set back efforts to push state construction projects to greater energy and water efficiency and a smaller environmental footprint.

●   Ironically, the bill may hurt other North Carolina industries that benefit from LEED standards encouraging use of local materials.  A representative from Nucor Steel (a North Carolina-based company that produces steel from recycled   materials)   spoke against the bill in the House Agriculture Committee meeting today  and noted the value of  LEED standards as an incentive to use of domestic steel in construction.

Is there an offsetting benefit to the North Carolina lumber industry? That is not clear. Nothing the N.C. General Assembly does can compel the U.S. Green Building Council to change  LEED standards; it is entirely possible that House Bill 628 will order the state to abandon LEED certification for state construction projects without achieving any change in LEED standards for wood products.  It also isn’t clear that the LEED standard for wood represents a real barrier to use of North Carolina lumber.  The LEED standard for wood represents a very small part of the LEED green building certification. A commercial building must meet basic  LEED  requirements  and earn a minimum of 40 points on a 110-point  rating system scale for  LEED certification. Meeting the wood standard  just provides one point.   The wood standard itself is modest —  a builder can earn that one point by using only 50% (based on cost) of wood-based materials and products certified by the Forest Stewardship Council for permanent building components( such as framing and floors); temporary construction materials do not count against the percentage.

It is also difficult to argue that the LEED standards disadvantage N.C.  products, when each  N.C. forestry operation can choose to meet  the  voluntary Forest Stewardship Council certification standards that  receive credit  toward  LEED certification. The real issue is that N.C. wood producers want the benefits of a “green” product label — but also want to set the standards for being “green”.