© 2007 Godfrey & Kahn, S.C.

National American Indian Housing Council Legal

Symposium

Planet Hollywood Resort & CasinoLas Vegas, NevadaDecember 5, 2007

© 2007 Godfrey & Kahn, S.C.

Global Warming, Green Energy and Opportunities

for TribesBrian L. Pierson

Godfrey & Kahn, S.C.780 N. Water St.

Milwaukee, WI 53202414-287-9456

bpierson@gklaw.com

Executive Summary

• A “GREEN” WAY OF LIFE IS NATURAL TO TRIBAL COMMUNITIES

• GREEN PRACTICES SAVE MONEY AND PRESENT PROFITABLE BUSINESS OPPORTUNITIES

• TRIBES HAVE BUSINESS OPPORTUNITIES NOT AVAILABLE TO OTHER GOVERNMENTS AND ENTERPRISES

Global Warming Consensus:Kyoto Protocol

• Agreed upon December 11, 1997 under United Nations Framework Convention on Climate Change. Went into effect 2005. First phase expires in 2012.

• Objective “stabilization of greenhouse gas (GHG) concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system”

• Treaty countries commit to reducing emissions of carbon dioxide and five other GHGs, or to engage in emissions trading if they maintain or increase their emissions

Global Warming Consensus:Kyoto Protocol (continued)

• Over 172 countries have ratified• Thirty-six developed (Annex I) countries (and

the European Union) commit to reducing GHG emissions by a collective average of 5% below 1990 levels by 2008-2012

• Flexible mechanisms allow Annex I economies to meet their limits by purchasing GHG emissions reductions from financial exchanges, from projects that reduce emissions in non-Annex I economies under a “Clean Development Mechanism,” or from other Annex I countries with excess allowances.

Global Warming Consensus:Kyoto Protocol (continued)

• Developing (Annex II) countries have no GHG emissions obligations but can participate in the Clean Development Mechanism.

• Of the countries that have signed, the United States and Kazakhstan have not ratified

Global Warming Consensus (continued)

In 2005, the national science academies of the G8 nations (including the United States National Academy of Sciences) plus science academies of Brazil, China, and India (three of the largest emitters of greenhouse gases in the developing world) signed a statement on the global response to climate change stresses that the scientific understanding of climate change had become sufficiently clear to justify nations taking prompt action.

Global Warming Consensus (continued)

The statement calls on world leaders, including those meeting at the G8 summit at Gleneagles in July 2005, to:

• Acknowledge that the threat of climate change is clear and increasing.

• Launch an international study to explore scientifically-informed targets for atmospheric greenhouse gas concentrations, and their associated emissions scenarios, that will enable nations to avoid impacts deemed unacceptable.

Global Warming Consensus (continued)

• Identify cost-effective steps that can be taken now to contribute to substantial and long-term reduction in net global greenhouse gas emissions. Recognize that delayed action will increase the risk of adverse environmental effects and will likely incur a greater cost.

• Work with developing nations to build a scientific and technological capacity best suited to their circumstances, enabling them to develop innovative solutions to mitigate and adapt to the adverse effects of climate change, while explicitly recognizing their legitimate development rights.

Global Warming Consensus (continued)

• Show leadership in developing and deploying clean energy technologies and approaches to energy efficiency, and share this knowledge with all other nations.

• Mobilize the science and technology community to enhance research and development efforts, which can better inform climate change decisions.

Global Warming Consensus (continued)

United Nations Intergovernmental Panel on Climate Change (IPCC) Reports

April 2007 Report:• Evidence of warming on the planet is unequivocal.• The increase of average global temperatures since the mid-

20th century linked “with 90% certainty” to the increase of manmade GHGs in the atmosphere.

• Scientists predict global temperature increases 3.2-7.1 degrees F by 2100. Eleven of the last twelve years have ranked among the 12 warmest years on record with the oceans absorbing more than 80 percent of the heat added to the climate system. Add in the melt-off of glaciers and sea ice and sea levels are rising.

• Sea levels to rise between 7 and 23 inches (18 and 58 centimeters) by the end of the century. “An additional 3.9-7.8 inches (10-20 centimeters) are possible if recent, surprising melting of polar ice sheets continues,” the report stated.

IPCC shared the 2007 Nobel Peace Prize with Al Gore.

Global Warming Consensus (continued):

Successor to Kyoto• “Washington Declaration” of February 16,

2007. Leaders of Brazil, Canada, China, France, Germany, India, Italy, Japan, Mexico, Russia, South Africa, United Kingdom, and United States agreed in principle to a global cap and trade system to apply to industrialized and developing countries by 2009.

• G8 leaders in June 2007 committed to their nations cutting CO2 emissions by 50% by 2050.

Global Warming Consensus (continued):

Successor to Kyoto• December 3-15, 2007: UN-Sponsored

Climate Change talks in Bali, Indonesia. Goal is to begin negotiations on treaty to replace current Kyoto Protocol.

• Only one industrialized nation opposes mandatory GHG emission reductions.

Federal Initiatives

Executive Order 13423, January 24, 2007: Strengthening federal environmental, energy, and transportation management.

Sets goals for efficiency, acquisition, renewable energy, etc.

Requires 30% reduction of energy consumption by 2015.

Federal Initiatives (continued)

Requires construction or renovation of federal buildings to comply with “2006 Guiding Principles for Federal Leadership in High Performance and Sustainable Buildings Memorandum of Understandings” which will set standards based on:

• Integrated design principles;• Optimizing energy performance;• Protecting and conserving water resources;• Enhancing indoor environmental quality; and• Reducing environmental impact of materials.Federal government owns 445,000 buildings covering 3

billion square feet and leases 57,000 buildings.

Midwestern Greenhouse Gas Accord

The governors of six Midwestern states (Wisconsin, Minnesota, Michigan, Illinois, Iowa and Kansas) signed an accord in Milwaukee on November 14th to create a “Midwestern Greenhouse Gas Reduction Program” (Program) to reduce GHGs in their states. The governors agreed, among other undertakings to:

• Establish GHG reduction targets and timeframes;• Develop a market-based and multi-sector cap-and-trade

mechanism to help achieve GHG reduction targets;• Join the Climate Registry to track, manage and credit entities for

their GHG emission reductions;• Invite Midwestern Governors’ Association member and other

states, Canadian provinces, tribal governments, First Nations and other jurisdictions to participate in or observe the program;

• Establish a work group involving representatives of public, private and nongovernmental institutions to make recommendations regarding Program implementation.

The northeastern states and six western states have established similar accords in recent years.

Cap and Trade Systems

Under a cap and trade system, the total emissions of permissible GHG emissions are capped.

• Overall caps are established for geographical regions and, within the region, caps are set for particular industries.

• Entities that reduce carbon emissions accumulate credits for sale to high emitters.

• Reductions are “registered” with various registries.• It may become possible for a forest preservation plan to

qualify for registration, creating economic value for tribal forests.

• In Europe, where a cap and trade system has operated for several years, credits are currently selling for $20-$30 per ton.

• Existing US systems for sulfur dioxide, ozone.

Climate Registries

• Collaboration between states, provinces and tribes.• Aimed at developing and managing a common GHG

emissions reporting system with high integrity that is capable of supporting various greenhouse gas emission reporting and reduction policies for its member states and tribes and supporting entities.

• Goal is to provide an accurate, complete, consistent, transparent and verified set of GHG emissions data from reporting entities.

• Midwestern Governors’ Association’s Midwestern Greenhouse Gas Reduction Program, November 15, 2007 Accord – member entities will join.

• To be operational in 2008.

Climate Registries (continued)

Chicago Climate Exchange is World’s second largest after the European Exchange.

Montreal Protocol – for protecting the ozone layer.

European Union Emission Trading Scheme (GHG)

Wisconsin Voluntary Reduction Registry for carbon reductions (probably to be supplanted by above-mentioned Climate Registry)

Examples of Carbon Trading

• WE Energies in Wisconsin made deals with owners of forests in Brazil to manage and maintain forest for designated period of time, sold the credits under the Kyoto “Clean Development Mechanism” on the European Exchange for money

• Some European countries have bought old Chinese factories and shut them down, selling the credits on the European Exchange

• When the Midwestern System is implemented, it may be possible for tribes to reserve forests from development, create credits, and sell them on the exchange

• Anyone who wants to be “green” can trade today on the Chicago Exchange. See www.chicagoclimateex.com. Members include:– Ford, United Technologies, Rolls Royce, Dow Corning, Cargill,

Monsanto, City of Chicago, City of Portland, Oregon, etc.– Anybody with a big carbon footprint who wishes to be “green” may

purchase credits.

Green Rating Systems“Energy Star” Certification

Joint program of the U.S. Environmental Protection Agency and the U.S. Department of Energy helping us all save money and protect the environment through energy efficient products and practices.

• To earn the ENERGY STAR, a home must meet guidelines for energy efficiency set by the U.S. Environmental Protection Agency.

• At least 15% more energy efficient than homes built to the 2004 International Residential Code (IRC) and

• include additional energy-saving features that typically make them 20–30% more efficient than standard homes.

• Any home three stories or less can earn the ENERGY STAR label if it has been verified to meet EPA's guidelines, including: single family, attached, and low-rise multi-family homes; manufactured homes; systems-built homes (e.g., SIP, ICF, or modular construction); log homes, concrete homes; and even existing retrofitted homes.

Green Rating Systems (continued)

ENERGY STAR qualified homes can include a variety of 'tried-and-true' energy-efficient features that contribute to improved home quality and homeowner comfort, and to lower energy demand and reduced air pollution:

• Effective insulation• High-Performance Windows• Tight Construction and Ducts• Efficient Heating and Cooling Equipment • Efficient products, such lighting fixtures, compact

fluorescent bulbs, ventilation fans, refrigerators, dishwashers, and washing machines.

• Third-party verification

Green Rating Systems (continued):LEED System

US Green Building Council (Non-Profit) Leadership in Energy and Environmental Design (“LEED”) Rating System since 2000. For homes (silver, gold, platinum) for environmental friendliness. Maximum of 128 points; Categories

Sustainable sitesMaterials and resourcesWater EfficiencyEnergy and atmosphereIndoor environmental quality

E.g., rainwater harvesting system 4 pts, low-flow faucets 3 pts, gray-water re-use system 1 pt.

Cost $500-$2000 depending on size of home. Fee to certifier.

Uniform standard nation-wide.Homes above 2600 Sq. ft. penalized in scoring.

Green Rating Systems (continued)

National Association of Home Builders Developing Alternative Standards that are not so costly to achieve, to be finalized in February.

• Draft provides for 625 points for “Emerald” certification, e.g., drip irrigation 4 pts, weather forecasting irrigation controls 2 pts, composting or waterless toilet 4 pts:

• Home above 4000 Sq. ft. penalized in scoring• Standards vary by region, water consumption

needs to be lower in the Southwest United States.

Indian Tribal Energy Development and Self-

Determination ActIn 2005, Congress enacted the Indian Tribal Energy

Development and Self- Determination Act of 2005 (“Act”), P.L. 109-58, Title V. The Act seeks to encourage the development of energy resources in Indian country. Self-determination provisions provide relief from the requirement of Secretarial approval of leases, rights of way and other agreements relating to tribal lands.

The Act directs the Secretary of the Interior to establish and implement an Indian energy resource development program to assist consenting Indian tribes and tribal energy resource development organizations in developing tribal energy resources.

ITEDSDA (continued)

A tribal energy resource development organization is “an organization of two or more entities, at least one of which is an Indian tribe, that has the written consent of the governing bodies of all Indian tribes participating in the organization to apply for a grant, loan, or other assistance under section.” The Act authorizes the Secretary of Interior to provide:

• development grants to Indian tribes and tribal energy resource development organizations for developing managerial and technical capacity needed to develop energy and to properly account for resulting energy production and revenues;

• grants to Indian tribes and tribal energy resource development organizations for use in carrying out projects to promote the integration of energy resources, and to process, use, or develop those energy resources, on Indian land;

• low-interest loans to Indian tribes and tribal energy resource development organizations for use in the promotion of energy resource development on Indian land and integration of energy resources; and

ITEDSA (continued)

In addition to the grants for development of energy resources, grants relating to management and regulation of energy resources may be made to:

• A tribe for the development of a tribal energy resource inventory or tribal energy resource on Indian land;

• A tribe for the development of a feasibility study or other report necessary to the development of energy resources on Indian land;

• A tribe (other than an Indian Tribe in the State of Alaska, except the Metlakatla Indian Community) for (i) the development and enforcement of tribal laws (including regulations) relating to tribal energy resource development; and (ii) the development of technical infrastructure to protect the environment under applicable law; or

• A Native Corporation for the development and implementation of corporate policies and the development of technical infrastructure to protect the environment under applicable law; and

• A tribe for the training of employees that are (i) engaged in the development of energy resources on Indian land; or (ii) responsible for protecting the environment.

Proposed NIGC Regulations

IGRA provides that “the construction and maintenance of the gaming operation, and the operation of that gaming is conducted in a manner that adequately protects the environment and the public health and safety.” 25 U.S.C. 2710(b)(2)(E),

On October 18th the National Indian Gaming Commission (“NIGC”) published a proposed rule that would require tribes to license their gaming facilities in accordance with new federal standards and to authorize temporary closures by the National Indian Gaming Commission (NIGC) in the event of non-compliance.

Within 30 days after issuing a facility license, the tribe must provide a copy to NIGC along with a certification that

• the tribe has identified the environmental and public health and safety laws applicable to its gaming operation,

• the tribe is in compliance with those laws; and • the tribe has ensured that the construction and maintenance of

the gaming facility, and the operation of that gaming is conducted in a manner which adequately protects the environment and the public health and safety.

NIGC Regulations (continued)

Tribes must include with their certifications a list of laws, resolutions, codes, policies or procedures applicable to gaming operations. These laws are expected to cover

“(1) emergency preparedness, including but not limited to fire suppression, law enforcement, and security,

(2) food and potable water, (3) construction and maintenance, (4) Hazardous materials, (5) sanitation (both solid waste and wastewater), and (6) other environmental or public health and safety

standards adopted by the tribe in light of climate, geography, and other local conditions and applicable to its gaming facilities, places or locations.”

EPA Class I Air Designation for Reservations

Section 164 of the Clean Air Act allows for states and tribes to seek to redesignate attainment areas from Class II to Class I. Class I redesignation

• Substantially limits the amount or "increment" of certain air pollutants (called "criteria pollutants") in the Class I area, including sulfur dioxide, nitrous oxides, and particulates

• Allows the tribe to identify air quality related values ("AQRVs") that it wishes to protect, e.g,

– protection of lakes from mercury and/or acid deposits, – visibility, – scenic, cultural, physical, biological, ecological, recreational, resources. – Allows a tribe to comment on applications for permits for off reservation

sources, giving tribe significant influence over off reservation development with on-reservation impacts

• Provides for resolution of permit-related disputes through the US EPA

EPA Clean Air Class I (continued)

Proposed EPA rule would • Diminish the ability of tribes to protect air

quality in lands designated Class I• Allow air quality in Class I areas to sink to

Class II standards• Weaken procedures for assessing impacts

of new pollution sources • Impose greater administrative burdens NCAI resolution DEN – 07- 066, approved in

November, opposes proposed rule.

Benefits of Locating Green Energy Facilities in Indian

CountryFacilities: Wind, landfill methane, solar, biomass• Sources of funds (ITEDSDA) to explore possible renewable energy options, including

development grants to tribal energy resource development organizations in which a tribe is a majority member.

• Accelerated depreciation. Under special rules that apply to Indian country, accelerated depreciation of generation facility and related assets could be obtained for tax purposes to the extent they are owned by a taxable entity. See I.R.C. § 168(j)(2). While this provision is due to sunset at the end of 2007, Congress has for many years continued to reauthorize it and we expect that to occur again before it expires.

• Employment tax credits. Employment tax credits could be obtained if a taxable entity runs the facility and hires tribal members to help operate the facility. See IRC § 38(b) (10). Like the accelerated depreciation rules, we expect this provision, due to expire at the end of 2007, to be reauthorized by Congress.

• Regulatory Relief. Tribal Government makes decision. Outside Indian country, multi-year process, hearings, judicial review, etc often required.

• Preference for purposes of selling energy: The Indian Tribal Energy and Self-Determination Act of 2005 provides that

“in purchasing electricity or any other energy product or byproduct, a Federal agency or department may give preference to an energy and resource production enterprise, partnership, consortium, corporation, or other type of business organization the majority of the interest in which is owned and controlled by 1 or more Indian tribes.”

Funding to Explore Potential for Green Energy Generation

There are multiple grants available that may potentially help fund portions of a landfill gas-to-energy project. Grants have various application deadlines. Amounts may change in 2008 round:

• U.S. Department of Agriculture and U.S. Department of Energy grants, up to $1 million each, for research and development of biofuels, bioenergy and related processes.

• U.S. Department of Interior grants under the Energy and Mineral Development Program, limited to tribes, to include development of biomass energy sources contributing to tribal economic development.

• U.S. Department of Agriculture Rural Business Opportunity Grants, up to $50,000, to promote sustainable economic development.

• State Grants: E.g., Wisconsin Department of Natural Resources Waste Reduction & Recycling Demonstration Grants, up to $150,000, to promote alternative uses of landfill sites and include development of biomass energy sources.

• U.S. Department of Agriculture National Extension Program Development and Planning for Forest and Rangeland Based Bioenergy Extension grants, up to total of $264,000 divided between 4 awards. Deadline of application response due by July 26, 2007.

• U.S. Department of Agriculture Small Business Innovation Research Program Phase I grants to promote development of biofuels and biobased products, conservation of soil and water resources and rural development, with grant awards ranging from $80,000 to $350,000. Deadline of application response due by September 5, 2007.

• U.S. Economic Development Administration grants to promote new business formation in rural economic development and private sector community investments, with grant awards ranging from $150,000 to $350,000. Deadline August 3, 2007.

Case Study: Methane to Energy

Landfill near reservation. Landfill gas (methane) occurs naturally. Is currently being flamed off. Assume potential production of about 4 megawatts per year.

• Partner with investor to form partnership of limited liability company.• For about $5 million, build facility that will convert the methane to energy,

produce four megawatts of power. • Take advantage of Indian Employment Tax credit and accelerated depreciation. • Meet own power needs on reservation, sell excess to surrounding communities.• Earn back investment in 4-5 years.• Landfill gas is one of the most cost‑competitive forms of renewable energy

generation.• Landfill gas-to-energy generation projects help destroy methane, a potent heat-

trapping gas.• In addition to destroying methane, the landfill gas-to-energy project would avoid

the need to use coal or other fossil fuels to generate 4 megawatts of power, equivalent to the reduction on the order of 45,570,000 pounds per year (22,800 tons/per year) of CO2 reductions.

• CO2 reductions likely have a value in excess of $100,000 per year or could be kept or donated as part of a green marketing strategy. CO2 credits have significant potential market value that should be included in the total value of the project and divided in some manner among the parties.

Summary

• There is a consensus among the international community, state governments and even the federal government that greenhouse gases must be reduced.

• Conservation and use of green energy sources reduce greenhouse gases that cause global warming.

• Initiatives to reduce global warming are multiplying at the state, federal and international level.

• An ever-growing web of federal and state legal mandates and economic incentives will reward those who are ahead of the green energy curve.

• Federal Regulations may soon mandate enactment of tribal ordinances relating to environmental and energy issues

Summary (continued)

• Indian people have always practiced a “green” way of life and are, therefore, natural leaders in the movement away from greenhouse gases.

• Tribes and tribal housing authorities are natural leaders with respect to environmental matters.

• Tribes have opportunities not available to others to protect their resources and develop renewal energy sources.

• Tribes should survey current mandates, trends and Indian country-specific opportunities and adopt a comprehensive energy policy addressing – environmental protection, – conservation, and – green energy generation.

Elements of a Green Energy Strategy

• Commission an Energy audit of tribal buildings, including government buildings, enterprise facilities, and housing, taking advantage of available grants.

• Adopt one of the “green construction” standards for new construction on the reservation.

• Apply for a grant for a feasibility study to determine if the Tribe has the capacity to generate renewable energy on the reservation through wind, biomass, landfill methane, solar or other source.

• Adopt a procurement policy that requires purchase of products that have the “energy star” certification.

• Adopt an environmental code that limits GHG emissions on the reservation.

• Explore Clean Air Act “Class I” status to achieve a means of impacting off reservation development that might degrade reservation air quality and increase greenhouse gases.

• Accept invitations to participate in State or Regional Initiatives like the recently-announced Midwestern Greenhouse Gas Reduction Accord.

• Join the Climate Registry.