Credit: U.S. Department of Carbon Value in Transactions: A Legal Perspective

Tessa Schwartz and William Sloan Morrison & Foerster*

Abstract

As market-based caps on greenhouse gas emissions have emerged as a primary policy response to , carbon markets have become a critical component of the regulatory landscape. In this article, Tessa Schwartz and William Sloan consider the principal legal and practical issues that lawyers, investors and businesses should consider in the context of carbon-related business transactions, including the concept of “ownership” of the benefits and liabilities of carbon reductions. Schwartz and Sloan propose strategies for capturing the value of carbon reductions under different regulatory regimes and how to account for the risks and liabilities in transactions under those regulatory frameworks.

Key Words: carbon reduction, carbon offsets, liability, transactions, cap-and-trade, Kyoto, UNFCCC, EU-ETS, valuation

to simply as “carbon”) in transactions, it is 1. Introduction imperative to understand the current and proposed markets and regulations related to To appreciate the economic and legal carbon reductions and credits. As carbon significance of greenhouse gases (often referred emissions are increasingly regulated, carbon

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markets in the United States will continue to other foreign markets, regulations already grow at an exponential pace and “carbon” will require certain emitters to measure, track and become a significant driver behind a myriad of report reductions in the emission of carbon business transactions. This article raises key dioxide or carbon dioxide equivalents. legal and practical considerations to take into Although a regulatory regime in the United account in the context of carbon-related business States will likely take the form of a “cap and transactions, including “ownership” of the trade” program, it may well include aspects of a benefits and liabilities of carbon reductions. “command and control” structure driven by government mandated reductions or even a “carbon tax” approach for excessive emissions. 2. Understanding Carbon and the Carbon In either case, which industries will be regulated Markets and to what degree will have a huge impact on the market for carbon “credits” and products and Given the potential size of the carbon services designed to reduce carbon emissions. market, investors, start-ups and established companies all need to consider the relevance of B. International Climate Change carbon in their business strategy.1 According to Regulation—Kyoto and the EU Lead the a report by the World Bank, the value of the Way global carbon market in 2007 was approximately $64 billion, up from approximately $31 billion In any case, the system that emerges will in 2006.2 According to the latest figures, the likely be influenced by the Kyoto Protocol and global carbon market doubled in size in 2008, the EU Emissions Trading Scheme as well as the with figures varying from $118 to $125 billion.3 existing structure created by regional players in Europe and Japan currently make up a dominant the United States. portion of the world market. In the event cap- Entering into force on March 21, 1994, the and-trade regulations are enacted in the U.S., United Nations Framework Convention on some analysts predict that the carbon emissions Climate Change (“UNFCCC”) became the 4 market will be valued at $1 trillion by 2020. world’s first treaty designed to address global warming by limiting greenhouse gas emissions. A. The Importance of Being Regulated A first step toward achieving this objective was the creation of a national greenhouse gas The inauguration of Barack Obama as inventory that requires signatory countries to President signals the likelihood that a federal submit annual inventories of all anthropogenic framework for carbon reductions (and, perhaps, greenhouse gas emissions from sources and trading) will be adopted in the near future. removals through carbon sequestration. President Obama’s plans include the institution of an economy-wide cap-and-trade system with On February 16, 2005, the Kyoto Protocol to investment of much of the funding from cap- the UNFCCC was adopted, creating an and-trade auctions in alternative energy research international greenhouse gas reduction scheme and efficiency improvements. In fact, the White that imposes caps on the emissions of Annex I House’s proposed budget calls for an economy- countries, with reductions to be achieved by 5 wide (i.e. not limited to only certain industries) 2012. Most countries target individual cap and trade system that relies on the auction of industrial entities, such as power plants, in order 100% of the permitted allowances. That budget to achieve their emissions reductions. The proposal anticipates that, starting in 2012, such United States is the only Annex I country that auctions will raise seventy to one-hundred has not ratified the Kyoto Protocol. billion dollars. The first commitment period for Kyoto ends Government regulation, whatever form it in 2012. While a successor agreement is due to takes, will drive the carbon markets in the be adopted in Copenhagen, Denmark in 6 United States. In Europe, Japan and certain December 2009, a number of geopolitically

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charged disagreements (including whether E. Carbon Registries developed and developing countries should share the financial burden of addressing climate New registries for reporting emissions and change through the imposition of emissions trading emission reductions are also emerging caps) must first be reconciled. around the globe. In 2008, the Chicago Climate Exchange (“CCX”) announced the opening of In Europe, the European Union Emissions the Tianjin Climate Exchange offices in China Trading Scheme (“EU-ETS”) was enacted to and launched an initiative to establish a climate comply with EU obligations under the Kyoto exchange in India. In North America, the Protocol; it began operation in 2005. Under the Climate Registry already includes 39 U.S. states, EU-ETS, some 10,000 energy-intensive plants in addition to Canadian provinces and Mexican across the EU are able to buy and sell permits, states and is well positioned to become a de representing about 40% of the EU’s total facto national registry for emission reporting in greenhouse gas emissions. the United States. C. California Dreamin’—Efforts to Curb Emissions in the Golden State 3. Impact to Legal Practice: Advising On Carbon-Based Transactions1 In the absence of leadership from the Bush Administration and the failure of Congress to Given the global warming crisis, the growth enact federal legislation regulating greenhouse of carbon markets and the likelihood of stronger gases, states and regions stepped in to fill the regulation of green house gas emissions, carbon void. California emerged as one leader with its has become increasingly relevant to a wide enactment of a comprehensive program for range of transactions. Whether in connection greenhouse gas emission reductions. Assembly with the transfer of carbon credits themselves, Bill No. 32 (the California Global Warming the sale of a business, the license or assignment Solutions Act of 2006) sets emissions limits to of , the building or financing cut California’s greenhouse gas emissions to of a project, the provision of services and 1990 levels by 2020.7 This legislation is serving products, or other transactions, carbon may be as a model for similar initiatives in other states critical to a deal and the way it is structured. such as Florida, New Mexico, Arizona and The second part of this article focuses on Illinois. specific issues to consider in the context of carbon-related transactions. D. Regional Initiatives A. Valuing Carbon Regional initiatives include the Western Climate Initiative, launched in 2007 by several In determining what kind of value can be western states; the Regional Greenhouse Gas extracted from transactions with a carbon Initiative (“RGGI”), formed in 2005 by a group component, the parties to a transaction should of northeastern states; and the Midwestern identify “positive” and “negative” value. On Greenhouse Gas Reduction Accord, established one hand, the positive value associated with in 2007 by Midwestern states. Typical of these carbon can take the form of, for example, credits initiatives is the setting of goals for emission which may be bought and sold, revenue share reductions by a given date and the from carbon reduction products and services, or recommendation for a cap-and-trade system. intellectual property rights for carbon reduction RGGI has already begun successful quarterly and carbon capture technologies. On the other credit auctions. 1 This article does not address the particularities of transactions traded through the Kyoto Protocol and, specifically, the Clean Development Mechanism, as a detailed set of existing regulations and guidelines apply to those transactions.

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hand, there may be value gained from mitigation transactions other than for the sole purpose of or avoiding carbon-related risks, e.g., risks compliance with emissions regulations. associated with reductions in the market for The value of a carbon credit is often not carbon credits, litigation risks for excess linked to a material asset. Rather, the value of , director/officer liability for climate carbon credits (at least, in a compliance market) change and the like. Being able to recognize all is determined by a need-based cost/benefit types of value to carbon in transactions is critical analysis, i.e., the difference between a buyer’s to structuring transactions and business assessment of the potential credit acquisition operations with a carbon component. cost and the potential cost of non- 1. Affected Entities compliance/failure to purchase. Cap-and-trade schemes will likely become a A number of variables affect this large part of the carbon regulatory landscape in determination, from the cost of governmental the U.S. in the near future. Unlike schemes that fines for non-compliance with regulations and do not allow for trading (such as setting hard penalties under contract for failure to hit certain caps on emissions and penalizing excess benchmarks, to less tangible costs such as a loss emissions or indirectly setting soft caps by of goodwill for failure to appear “green.” A lack taxing emissions), cap-and-trade systems have of regulation makes current valuation attempts the potential to create value for both regulated even more uncertain. While this may be viewed and unregulated entities. The ability to identify as an opportunity for futures market traders, it those companies included within the scope of a can adversely affect negotiations in valuing cap-and-trade scheme or otherwise subject to transactions today with an eye to carbon value in carbon emission regulation (whether as clients the future. or as counterparties) will be critical to 3. Addressing and Capturing Value maximizing carbon value. That is, a company that must cap its emissions will likely require Given the uncertainties about carbon and value emissions reductions and create the valuation, how can attorneys advise clients most significant markets for carbon reduction wanting to account for carbon in anticipation of technology, products and services. forthcoming regulation? While it is tempting to wait until a regulatory framework is in place, Under certain regulatory scenarios and in clients (especially those with long-term contracts voluntary markets, unregulated entities may also with a significant carbon component) will want be able to derive value from reductions, for to account for carbon issues or risk losing any example, by selling offsets from reductions to rights they may have had to extract value from companies within the cap, using reductions to carbon. This lesson has already been learned the meet other needs, i.e., public relations and hard way in the context of stakeholder requirements, selling products or credits. services that reduce emissions, or licensing carbon reduction and sequestration technology. Thus, parties to a transaction can and should Whether part of a regulated industry or not, account for carbon value in contracts and can do companies can benefit from the development, so even without assurances of the actual value of implementation and commercialization of carbon in the marketplace. For example, technology, products, or services that reduce negotiated value can include an agreed-upon emissions. metric for adjustment, or the parties can agree to assess value once regulations have been 2. The Obstacles to Determining Value implemented. One concern for attorneys advising their In addition, parties may allocate all carbon clients is properly reflecting the value of carbon value benefits to one party or the other with a credits in transactions, particularly where such resultant cost adjustment to reflect such credits are future assets or where they arise in allocation; or benefits may be allocated among

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parties (e.g., through revenue sharing), leaving as who will have the right to sell, trade and the upfront transaction costs unaffected, but otherwise dispose of credits and any generated providing for a source of future revenue. For value). Such proactive drafting may not seem, example, the price of the project, technology, at this early stage in the development of carbon product or service may be increased to reflect markets, to add any value to a transaction. anticipated earned offsets by the buyer or user; However, to the extent that past verifiable or the parties may instead agree to share future carbon credits may be deemed marketable in any revenue streams from offsets based on the actual future carbon markets, an absence of a clear value of the sale of carbon credits that result intention with respect to the allocation of from reductions in carbon emissions. ownership rights may result in the loss of such rights. In any case, the parties will want to address issues related to the mechanics of measuring, California Senate Bill 107 (2006) presents a tracking, reporting and trading credits and the classic example of this kind of retrospective loss parties’ obligations and expenses in connection of rights in a similar context. Under Senate Bill with such activities. 107, unless renewable energy providers had the foresight to retain or reserve ownership over B. Ownership renewable energy credits in pre-2005 contracts, the law would assume that the benefit of such One challenge in this rapidly evolving field credits had been transferred to the purchasers of of law related to transactions that involve the energy sold. greenhouse gas emissions is determining ownership of value created by carbon credits. Metrics for value calculation or, if such Once the reduction of greenhouse gases can be metrics are not available, agreed-upon standards turned into a currency or commodity-like for determining future metrics, need to be tradable unit, ownership can be more readily clearly established, as must the scope of determined, particularly if the unit is assigned a allocations, to the extent that the parties agree to unique serial number or other similar unique share in the burden and benefits of any credits. identifier. Until such reductions are expressly Where parties to a transaction choose to allocate defined, however, it is not entirely obvious how ownership of carbon value in a contract, parties to assign “ownership” of carbon and its need to be aware, in drafting such contract, of a associated rights and obligations. range of rights, obligations and liabilities attendant to ownership of “carbon reductions,” Existing regulatory regimes provide some which may include: guidance on how ownership and its attendant rights and obligations may be allocated in the • the right to emit pollution; context of carbon credits. For example, Title IV • benefits from tax credits; of the 1990 Clean Air Act Amendments, which • the right/obligation to control allowed trading of SO emission credits to 2 measuring, tracking and reporting control acid rain, expressly refrained from credits; conferring property rights in those credits. • the right/obligation to register In any event, the parties to a transaction may credits; (and should) resolve such issues by contract. Parties to any transactions that may involve • the obligation to comply with greenhouse gases can best address ownership applicable regulations concerning concerns by including in their contracts clear credits; language allocating ownership rights to carbon • the right to sell credits and retain the credits (e.g., who will own the right, title and value of such credits; interest in and to all carbon credits, including revenue, monetization, or other value generated • the right to claim any reduction in from or otherwise related to such credits, as well emissions for regulatory purposes;

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• liability for costs if credits do not to acquire the carbon credits is unclear for such accurately reflect emissions tax purposes. reductions; IRS guidance with respect to similar • liability for early release of carbon programs may provide a reasonable basis for (in the case of sequestration), predicting the tax treatment that might be sometimes referred to as accorded to the carbon credits.8 However, this “impermanence risk”; and IRS guidance applies to emissions trading programs that may have very different features • other rights and claims for damages from the programs that may be enacted with (e.g., rights to claim against a third respect to carbon emissions; and, consequently, party for diminutions of value). there can be no assurance that the IRS would C. Intellectual Property reach similar conclusions regarding the proper tax treatment of a carbon emissions trading In transactions involving technology that program. may reduce greenhouse gas emissions, counsel In 2008, the IRS addressed the proper federal needs to carefully consider the value of the income tax treatment of gain from the sale of technology (and related intellectual property excess carbon credits granted under the EU- rights) and how the parties will allocate the ETS. In Private Letter Ruling 200825009 (June benefits of carbon credits that result from 20, 2008), the IRS ruled that gain from the sale application of such technology. For example, of surplus carbon credits did not constitute instead of requiring a licensee to pay technology “foreign personal holding company income” for license royalties based on the number of purposes of the “controlled foreign corporation” products sold, it would be possible to require rules of the Internal Revenue Code. The IRS that a licensee pay royalties on greenhouse gas concluded that the emissions credits were reductions, carbon credits, or other such excepted because they were intangible property measures. used in the controlled foreign corporation's trade Parties should also consider the likelihood or business. This ruling suggests that carbon that improvements and new applications for credits under a cap-and trade-program would be carbon reduction technology and intellectual treated as intangible assets giving rise to capital property rights will be developed by the parties gain or loss rather than ordinary income or loss to an agreement. These new developments and for U.S. federal income tax purposes. applications may hold significant value. Thus, in addition to addressing ownership of carbon E. Treatment of Liabilities and Insurance credits themselves, parties should address Issues ownership and rights to use new technology and Ownership of rights to carbon credits or related intellectual property rights. reductions will likely be a key factor in D. Tax Treatment determining liability for damage or injury related to the reduction. For example, a party in Because a federal cap-and-trade program has a carbon sequestration project should consider not yet been enacted, there are no statutory whether and how to allocate responsibility for provisions and no guidance from the Internal maintenance costs at sequestration sites after the Revenue Service (“IRS”) to provide for the carbon dioxide injection is completed. The proper U.S. federal income tax treatment of parties may also want to address “impermanence carbon credits that may be issued or purchased risk.” i.e. the possibility of unintentional under a cap and trade program. Thus, the proper emission releases from storage sites. treatment of the receipt of the carbon credits (if The importance of allocating environmental not required to be purchased), gain or loss from liabilities cannot be underestimated either. The the sale of the carbon credits and amounts spent United States Supreme Court has determined

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that the Clean Air Act authorizes the company’s actual emissions levels are greater Environmental Protection Agency to regulate than claimed. carbon dioxide emissions and other greenhouse While many entities are already voluntarily gases.9 In reaching its decision, the Court disclosing emissions data,10 certain regulated reasoned that emissions of carbon dioxide and entities and public companies will soon face a other greenhouse gases fit within the definition legal obligation to do so. On March 10, 2009, of “air pollutants.” the Environmental Protection Agency (EPA) Counsel should help clients to determine proposed a rule that requires mandatory whether to obtain warranties, disclaimers of reporting of GHG emissions from large sources warranty and indemnities with respect to these in the United States. The rule would require issues and other liability issues as appropriate. suppliers of fossil fuels or industrial greenhouse Such risk allocation provisions should be drafted gases, manufacturers of vehicles and engines, in the context of each party’s ability to insure and facilities that emit 25,000 metric tons or against liabilities. more per year of GHG emissions submit annual reports to EPA.11 Insurance companies are also treating climate change more seriously as an emerging Moreover, there may be substantial liability and significant risk, and some have begun for failing to appropriately disclose and address asking potential insureds whether they have the risks associated with GHG emissions. While developed comprehensive strategies for dealing the SEC does not yet specifically require with claims relating to carbon emissions. reporting on greenhouse gas emissions, the Moreover, director and officer liability policies Sarbanes-Oxley Act of 2002, which governs most often contain exclusionary clauses that corporate governance, disclosure and financial permit insurers to deny claims made for accounting, requires that responsible corporate environmental pollution. Insurance coverage for officers personally certify the accuracy of carbon credits (for the risk that such credit is of quarterly and annual financial statements and low quality or that sequestration fails) is an disclosures. Over time, those disclosures are additional expense that companies may also likely to be interpreted, including disclosures have to address in future transactions. regarding liabilities associated with GHG emissions and climate change risks.12 Other On the carbon credit transaction side, SEC regulations may also give rise to liability insurers have developed new products offering for failure to accurately disclose risks related to coverage for the risks inherent with projects that GHG emissions: Securities Exchange intend to generate credits. Such coverage can Commission (SEC) Regulation S-K Item 101 encompass the failures or delays in the approval, requires disclosure of the material effects that verification and issuance of credits. By the costs of compliance with environmental laws offloading some of the risk in these projects, may have on its financial position; Regulation S- insurers (such as Zurich and Swiss Re) are K Item 103 mandates the disclosure of material facilitating early financing of the projects— legal proceedings involving environmental financing that typically must occur before the regulations; and Regulation S-K Item 303 issuance of credits can be secured. As these requires a management’s discussion and analysis insurance products become more mainstream, (MD&A) that discloses “currently known trends, they will play a vital role in opening new demands, commitments, events, and opportunities to obtain investment in this field. uncertainties that are reasonably expected to F. Disclosures and Carbon Claims have a material effect on liquidity or capital resources.”13 There is increasing pressure for companies to A company’s readiness to purchase carbon disclose their greenhouse gas emissions and for offsets in order to take advantage of the companies to appear “green.” However, the intangible benefit of being seen as “green” must potential for litigation may increase where a also be tempered with the realization that the

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Federal Trade Commission (“FTC”) is States and carbon markets mature, it will scrutinizing such carbon-based green claims. become more common to focus on and The FTC has begun a series of public workshops document the “carbon value” of transactions. with the aim of revising its “Guides for the Use Until then, those who have the foresight to of Environmental Marketing Claims,” and address carbon issues will have a distinct indications are that there will be a stronger economic and legal advantage over those who emphasis on the enforcement of green claims do not. than in the recent past.14

G. Accounting

ENDNOTES Often accounting issues drive aspects of commercial or corporate transactions. Currently * Tessa Schwartz is a Partner in Morrison & there is no accepted standard for the treatment of Foerster’s Technology Transactions Group and carbon emission credits in the financial co-chair of the firm’s Cleantech practice. Ms. statements of corporate entities. Even in Schwartz counsels Cleantech and other Europe, where the carbon credit market is more companies on big-picture intellectual property mature than that found in the United States, a strategy and negotiates complex intellectual 2007 survey by PricewaterhouseCoopers and the property and commercial agreements, from key International Emissions Trading Association patent licensing and technology procurement found that companies had used fifteen distinct agreements to complicated development, joint 15 approaches to accounting for EU-EUAs. The ventures and distribution deals. In 2009, she was Financials Accounting Standards Board is also named one of the top 20 under 40 attorneys in undertaking the development of standards, but California by the Daily Journal. Ms. Schwartz is guidance is not expected in the short-term. based in San Francisco—one of the epicenters of Concerns for clients will include the Cleantech activity. characterization of emissions as assets or William Sloan is of counsel with Morrison & liabilities, the effect of emissions pricing Foerster in its San Francisco office, serves on volatility on income statements and the fair the firm’s Cleantech Steering Committee and market valuation of emissions (particularly in chairs the environmental group’s carbon team. light of the revised rules on determining fair Mr. Sloan represents domestic and international market value in FASB Statement No. 157). clients on matters involving and Indeed, carbon value may even prove to be emission management, regulation and litigation, an additional concern in the bankruptcy context. with a particular focus on climate change, Unless ownership and the various energy and resources. He has advised responsibilities and rights of the parties with clients on carbon offset generation projects and respect to carbon credits or carbon reductions emission reduction purchase agreements, both are sufficiently clarified in a transaction, under the Clean Development Mechanism of the bankruptcy and liquidation proceedings may Kyoto Protocol and in the voluntary offset prove much more complicated. marketplace. With respect to water, he has counseled clients on water rights and water supply assessments and has handled contested 4. Conclusion cases involving groundwater basin adjudications and water quality compliance. Every board of directors and executive 1 team—and their legal, financial and other Even now, lenders, as well as the venture capital and private equity community, are advisers—should consider how carbon reducing their risks and shifting investment regulation may impact business transactions and strategies based on carbon issues. For example, the way such transactions are structured. As a The Carbon Principles (“The Carbon regulatory framework emerges in the United Principles,”

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(http://carbonprinciples.org/documents/ ruled that the allocation of sulfur dioxide Carbon%20Principles.pdf)) developed by emissions credits will not result in gross income banking institutions with advice from energy to the utilities when issued. Thus, the utilities companies and environmental groups, create an will not measure basis in the credits by their fair approach to evaluate and compensate for carbon market value. risks in financing electric power projects. Press Revenue Procedure 92-91, 1992-2 C.B. 503, Release, J.P. Morgan, Leading Wall Street provided additional guidance on the treatment of Banks Establish the Carbon Principles, (Feb. 4, the sulfur dioxide credits. Under Revenue 2008), Procedure 92-91, a utility or a non-utility facility http://www.jpmorganchase.com/pdfdoc/jpmc/co acquiring an emission credit will generally be mmunity/CarbonPrinciplesPressRelease_FINAL permitted to recover its basis in the credit by .pdf (last visited Feb. 14, 2009). deducting the amount of its tax basis in that 2 THE WORLD BANK, STATE AND TRENDS OF credit in the year the sulfur dioxide was emitted. THE CARBON MARKET 2008, May 2008, Further, a utility will recognize gain or loss on http://siteresources.worldbank.org/NEWS/Resou the sale or exchange of emission credits in the rces/State&Trendsformatted06May10pm.pdf year of the sale or exchange equal to the (last visited Feb. 14, 2009). difference between its adjusted basis in the credit and the amount of consideration it 3 Analyst: World Carbon Market Doubles in receives by the purchaser, unless a non- 2008, BUSINESSGREEN.COM, Jan. 14, 2009, recognition provision applies. In addition, the http://www.businessgreen.com/business- Revenue Procedure required the costs incurred green/news/2233973/carbon-markets-doubles- to acquire or hold an emission credit to be 2008 (last visited Feb. 14, 2009). capitalized (rather than depreciated) because the 4 Press Release, New Carbon Finance, Economic credit has a useful life substantially beyond the Researchers Predict $1 Trillion U.S. Carbon tax year to which it is allocated. Trading Market by 2020 (Feb. 14, 2008), 9 Massachusetts v. Environmental Protection http://www.newcarbonfinance.com/download.ph Agency, 549 U.S. 497 (2007). p?n=New_Carbon_Finance_Press_Release_US_ Carbon_Market2.pdf&f=fileName&t=NCF_dow 10 See, e.g., nloads (last visited Feb. 14, 2009). http://www.theclimateregistry.org/about/mission -statement.php. 5 Signatories to the UNFCCC are split into three 11 The proposed rule will be published in the groups: Annex I countries (industrialized Federal Register (www.regulations.gov) shortly countries); Annex II countries (developed under Docket ID No. EPA-HQ-OAR-2008- countries that pay for the costs of developing 0508; see also countries); and Developing countries. http://www.epa.gov/climatechange/emissions/gh 6 See Decision 1/CP.13, Bali Action Plan, 2007, grulemaking.html. http://unfccc.int/resource/docs/2007/cop13/eng/0 12 Sarbanes-Oxley Act of 2002, § 302, 15 6a01.pdf (last visited Feb. 14, 2009). U.S.C.A § 7241 (2007); 18 U.S.C. § 1350; see 7 Full text version of the bill is available at also Christina Ross, Evan Mills, and Sean http://www.leginfo.ca.gov/pub/05- Hecht, Limiting Liability in the Greenhouse: 06/bill/asm/ab_0001- Insurance Risk-Management Strategies in the 0050/ab_32_bill_20060927_chaptered.pdf (last Context pf Global Climate Change, UCLA visited Feb. 14, 2009). School of Law Research Paper No. 07-18, STANFORD JOURNAL, 8 In addressing the proper tax treatment of sulfur VOL. 26A, P. 251, 2007. dioxide emissions credits allocated by the 13 See 17 C.F.R. § 229.101 (2007), 17 C.F.R. § Environmental Protection Agency to electric 229.103 (2007), and 17 C.F.R. § 229.303 utilities pursuant to the Clean Air Act, in (2007). Revenue Ruling 92-16, 1992-1 C.B. 13, the IRS

67 Tessa Schwartz & William Sloan, Carbon Value in Transactions: A Legal Perspective, 1 Clean Tech Law & Business 59 (Spring 2009)

14 See http://www.ftc.gov/bcp/grnrule/guides980427.ht m. 15 Lack of consistency in carbon accounting – IETA, PwC, CARBON FINANCE ONLINE, May 17, 2007, http://www.carbon- financeonline.com/index.cfm?section=lead&acti on=view&id=10541 (last visited Feb. 14, 2009).

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