Environmental Entrepreneurs Update
November 27, 2002

This November 2002 E2 newsletter includes reports on the following activities:

1. A First Look at Clean Energy Markets
2. Politics Preventing EPA Enforcement of Environmental Laws
3. E2 Expands to New England
4. Leon Panetta in New York
5. The Segway
6. Executive Director's Report
7. Chino Dairy Farms Reducing Waste Pollution
8. Calendar of Events

E2 News

A First Look at Clean Energy Markets

On November 12, Environmental Entrepreneurs held its first EcoSalon examining the venture capital market for energy company startups and the startup environment for new companies in the energy field. We wanted to learn how the growing market for energy efficiency and local electric generation was developing and what environmental benefits might result.

Venture Capital

Our keynote speaker was Nancy Floyd, General Partner and Co-Founder of Nth Power. Nth Power manages a $240 Million fund - the largest venture capital fund focused on the energy market. According to Nancy, the deregulation of the telecommunications market is a good model for what is likely to happen in the energy market.

Telecom deregulation started in 1984 based on a US Court ordered breakup of the AT&T monopoly. In 1984 about $300 million per year of venture capital was going into the telecommunications market. By 1996 that investment figure jumped to $2 billion and in 2000, it reached a peak that surpassed $16 billion.

Deregulation of the energy market started in California in 1996 with Massachusetts and Pennsylvania following suit shortly thereafter. Unlike telecommunications, the energy market is different in each state. In 1996, about $100 million in venture capital went into energy startups. By 2000 that number had reached $1 billion and for 2002 it is projected to reach about $800 million. Despite the disruption caused by the way in which deregulation of the energy market started in California, it is clear that deregulation will continue to evolve. Because of business's need for power that is highly reliable and cost competitive, there is a growing economic opportunity for alternatives to electricity generated by giant, remotely sited power plants.

The Companies

Executives from four companies presented their ideas about the market:
Dan Reicher EVP Northern Power Systems (www.northernpower.com)
Jeff Colborn President Metallic Power (www.metallicpower.com)
Dan Shugar President Power Light (www.powerlight.com)
John Woolard CEO Silicon Energy (www.siliconenergy.com)

Northern Power is a system integrator helping businesses install their own power sources either to complement or be independent of the electric grid. Metallic Power has invented a new type of fuel cell based on zinc. Powerlight is a major provider of commercial photovoltaic roofing systems. Silicon Energy is a software company providing tools for the management and optimization of energy usage. All four companies sell their products to commercial businesses.

Why it Matters

Electricity production accounts for over one third of the air pollution in the United States. It also accounts for about forty percent of the country's carbon dioxide emissions (which are the largest contributor to global warming.) Moreover, during the 1990s, carbon dioxide emissions from power plants grew by more than 25% - triple the rate of growth in such emissions for the rest of the economy combined. When the market is more efficient in its use of energy, money is saved and pollution is reduced.

When companies generate their own local sources of electricity, they have opportunities to use either renewable sources (solar, wind, biomass) or to substitute cleaner sources for coal powered plants. The potential business benefits of using locally produced electricity are: (1) the excess heat can be captured and used to heat water and buildings, (2) it takes pressure off the grid that is at capacity in many places, and (3) companies can enter into long-term price protection agreements. The environmental benefits include reduced pollution from energy usage and energy generation, and more renewable, cleaner fuels. An important caveat, which figures strongly in NRDC's advocacy, is that much onsite small-scale generation today uses relatively inefficient and dirty diesel technology; the objective is not uncritical promotion of all small-scale power, but rather a focus on units with better environmental performance than their large-scale competitors.

All of our guest speakers emphasized that the market buys their products for the business benefits - the environmental benefits are a secondary factor. The primary business benefits are increased reliability and lower and/or more predictable costs.

Barriers

Our guest speakers had a strong consensus about the remaining barriers they see:

Regulatory Net metering: Allows a consumer/business to sell their excess power back to the grid at the relatively high retail price. This is currently capped to be no larger than the amount of energy they consume.
Real-time pricing: Allows the price of energy to vary with time-of-day demand.
Public Policy
Incentives: The public benefits from the positive environmental effects of clean energy and reduced energy consumption. Financial incentives from government or utilities can help jump-start the market. Incentives should be phased out as the market matures. Currently the federal subsidies to the mature fossil and nuclear technologies far exceed the benefit the public receives.
Financial Project Financing: While energy projects produce an immediate savings in operating costs once they go into operations, there are not enough sources of project financing which enable companies to borrow the capital needed to install the projects.

Next Steps

E2 will continue to support NRDC's efforts at both the state and federal levels to encourage the growth of the clean energy market. At the federal level, the prospects for positive change are not encouraging. On November 22, the Environmental Protection Agency proposed a weakening of regulations under the Clean Air Act (see next article for details), which will enable old power plants to increase their pollution emissions substantially without installing the modern emission protection required of new power plants. The new Congress will start in again on a national energy policy, which, if it continues in the form proposed in the current Congress, will provide large subsidies to fossil fuels (the current bill proposes $33 billion in subsidies) and do little to advance the clean energy market. NRDC's work at the federal level will be to both challenge the legality of what has been done as well as work with Congress to develop a more economically and environmentally friendly energy policy.

At the state level, there is large opportunity for change. States have a large say in the control of local markets and can do much to encourage clean energy choices in those markets. California and many other states made significant progress toward this goal in 2002. As we expand E2 in New York and Massachusetts we expect to work with state and regional agencies to help accelerate the clean technology markets in those states.

Politics Preventing EPA Enforcement of Environmental Laws

President Roosevelt said, "Compliance with the law is demanded as a right, not asked as a favor." While the process of creating laws is a political one, as a society we want the enforcement of laws to be separate from political influence. If this is not the case, those with political access are likely to escape the consequences of breaking the law. Along this reasoning, the enforcement division within the Environmental Protection Agency, just like other legal prosecutors, has always worked separately from politics - until last year.

Eric Schaeffer, former head of EPA's Office of Regulatory Enforcement, joined EPA under President Bush Senior's administration and worked there until February of 2002 when he publicly resigned (see resignation letter). His mission included enforcement of environmental laws such as the Clean Air Act. When the Clean Air Act was written, standards were established for emissions from new plants and a "great compromise" was made for existing plants, which stipulated that they would be exempt from new standards until they upgraded, at which point they would need to comply with the new rules. Routine maintenance was allowed for old equipment, but upgrades causing new sources of pollutions (the New Source Rule) would trigger required emissions control improvements. The logic at the time assumed that these older plants would be run for their useful lifetime and then retired.

Mr. Schaeffer, leading the group enforcing the above and other rules, started to see the politicization of enforcement in the first half of 2001 when the Office of Regulatory Enforcement budget was slashed and statements were made by officials in the Department of Energy that enforcing standards set out by the Clean Air Act was a source of the California energy crisis. Claims were also made that the Act kept refineries from expanding - despite the fact that the previous three years had seen unprecedented expansion.

In 200, as the White House began publicly signaling that EPA would redefine the interpretation of "routine maintenance," the enforcement process at EPA, which was very close to resolution with several companies, became impossible to complete. Between November of 1999 and December of 2000, EPA filed lawsuits against 9 power companies for expanding their plants, without obtaining New Source Review permits and the pollution controls required by law. Collectively those companies emitted 5.0 million tons of sulfur dioxide every year (a quarter of the emissions in the entire country). Instead of compliance with the law, we saw the resignation of the head enforcer of the law.

The culmination of this rewriting of the rules came with the announcement made by EPA last Friday, November 21:

EPA ANNOUNCES IMPROVEMENTS TO NEW SOURCE REVIEW PROGRAM
November 22, 2002

In a move to increase energy efficiency and encourage emissions reductions, the U.S. Environmental Protection Agency (EPA) announced today that it has finalized a rule to improve the New Source Review (NSR) program. EPA also announced a proposed rule to provide a regulatory definition of "routine maintenance, repair and replacement."
(source: EPA Announcement)

The announcement is a significant relaxation of the Clean Air Act based primarily on the desires of the industry it was designed to regulate (see NRDC Response for details). The eastern states, environmental groups, and environmental champions in Congress all responded with outrage. This announcement was positioned as a major needed overhaul of the Clean Air Act with major environmental benefits and yet it was distributed at 5PM on Friday when both Administrator Whitman and President Bush were unavailable. We think it is important that this action by EPA be made very visible.

Next Steps

As reported by the United Press International "the attorneys general of the six New England states, New York, New Jersey and Maryland announced they would sue". NRDC will lead the lawsuit working with both EarthJustice and most likely the Attorneys' General if the court instructs.

We are preparing an E2Alert and will ask members to express their views on this policy change directly to EPA.

NRDC also anticipates that this is not the end but rather the beginning of an attempt to change the foundation of our environmental laws - not by amending them in Congress, but rather by establishing new interpretations of words and by using the budget process to prevent enforcement. In the Clean Air Act example mentioned above, the new proposed definition of the word "maintenance" expands its original meaning to include "Activities undertaken to promote the safe, reliable and efficient operation of a plant, whose costs fall within the allowance". When Mr. Schaeffer asked a plant operator whether this definition would reasonably include all capital expenditures, the answer was "yes". Thus, by redefining maintenance to include what would previously have been categorized as updates, plants will not be subject to standards outlined by the Clean Air Act. NRDC does not expect this rewriting of the rules to stop with the Clean Air Act. They anticipate that the Clean Water Act will be weakened by exempting creeks and tributaries from the act. A recent New York Times editorial speaks about the issues of political influence and current efforts to relax environmental rules.

Our winter EcoSalons in New York and San Francisco will feature Eric Schaeffer, who will talk about enforcement and environmental laws. While we view the coming fight to defend the Clean Air Act as a call to action, we close this section with a witticism from EPA Administrator Whitman. She reported in an internal memo to EPA employees that while EPA's budget for enforcement did not go well, at least the public got a tax cut.

E2 Expands to New England

On November 20 we held our first organizing meeting of Environmental Entrepreneurs in Boston. The meeting featured an update by NRDC Legislative Director Greg Wetstone. Three New England E2 members organized the first meeting: Dan Goldman, Chris Kaneb and Myron Kassaraba. The event was very well attended. In New England, we will focus on Climate Change (bringing the California Clean Car Bill to Massachusetts), Clean Air and Energy policy, and rebuilding fish populations. Our heartfelt thanks go to Dan, Chris and Myron on a great start as well as to the folks at Bingham McCutchen, who were generous and enthusiastic hosts. Our next event will be on January 29 (see calendar). If you know people living in New England who may be interested in E2, please send information to Christine Koronides (ckoronides@nrdc.org) and she will forward the information to the team.

Leon Panetta in New York

Leon Panetta, former California Congressman, former Chief of Staff to President Clinton, and current chair of the Pew Oceans Commission, joined more than 40 E2 members and friends for lunch on November 7th at the Century Association. Mr. Panetta's remarks were candid, thoughtful, and very wide-ranging, from the crisis facing our oceans (which is the focus of the Pew Commission) to how the Democrats lost the Senate and how the changing balance of power in Washington will affect environmental protections. Throughout his talk there was one common thread. He stated repeatedly how important it is for pro-environment business people to make their voices heard. The health of a given industry, or the economy as a whole, is all too often used as a pretext to weaken environmental laws and regulations. This argument is usually disingenous, more often than not shifting the burden to the taxpayer rather the corporation which evaded regulation. Mr. Panetta stressed that members of the business community need to tell their legislators (and fellow corporate leaders) that often, the approach that makes the most environmental sense makes the most economic sense as well.

The Segway

E2 member, Karen Skelton, turned a few heads at the November EcoSalon when she powered into the room in the Segway (www.segway.com). It is a personal transportation device and an engineering marvel that allows you to travel at speeds up to 12 miles per hour while standing. If you were one of many people waiting to try it or ask Karen a question and didn't get your chance, she can be reached at Kskelton@deweysquare.com. The Segway may provide many benefits over cars for short distance travel and it may be successful getting people to and from public transportation.

NRDC News

Executive Director's Report

E2 members (only) can access the quarterly Executive Director's Report from NRDC's Frances Beinecke at December 2002 report. The report gives detail of all NRDC programs.

Chino Dairy Farms Reducing Waste Pollution

On November 19, 2002, five Chino California dairy operations, NRDC and Newport Beach-based Defend the Bay entered into major new agreements to reduce the impacts of dairy waste on the environment. These agreements, called consent decrees, resolve litigation filed by NRDC and Defend the Bay. United States District Court Judge Virginia A. Phillips formally issued the consent decrees, which are orders of the court.

The five operations have agreed to develop and implement plans to improve dairy waste management practices at their facilities. These environmental management plans will include comprehensive training programs for facility employees on waste management practices, the construction of berms and other structures to control wastewater, and other measures to reduce dust and other pollutants from leaving the property. Pursuant to the consent decrees, the environmental management plans will be developed in the next six months and, depending on the nature of the improvements, implemented within twelve to eighteen months. Immediate steps will be taken before the plans are complete to implement a series of practices, including remedial action to correct discharges from observed points on the facilities. The dairies also will jointly initiate a pilot project to test the effectiveness of covering wastewater lagoons, which are common to many dairy facilities in the region, to reduce air emissions and odor.

NRDC believes the five consent decrees serve as models for reducing pollution at other large dairy operations in the country. NRDC's senior attorney David Beckman, who directs NRDC's Los Angeles-based coastal water project, commented "If we can tackle the problem in Chino, then there is no excuse for other regions of the country not to follow suit. These operations have seized the initiative and we look forward to working with them to hammer out effective plans to enhance protection of the region's natural resources."

Calendar of Events

Thursday, December 5, 2002 (6:00 PM - 7:30 PM EST) Focus Meeting

Wes Warren on Backdoor Assaults on Environmental Protections, New York It takes a lot of time and effort to pass an environmental law, but it takes money to enforce it. Tough environmental protections can be effectively weakened through the budget process with little or no public input. By cutting off or decreasing funding, an official can essentially block the enforcement of existing law without attracting notice.

WESLEY WARREN, senior fellow for environmental economics at NRDC, served as head of the Energy and Environment Division of the White House Office of Management and Budget, and as Chief of Staff at the Council on Environmental Quality. On Thursday, December 5 at 6:00 pm at NRDC's New York office, Wes will lead a discussion on how the laws protecting our air, water and public lands are quietly under siege, and what we can do to shine a spotlight on these backdoor tactics.

Tuesday, December 10, 2002 (6:00 PM - 8:00 PM PST) EcoSalon

An Evening with Robert F. Kennedy, Jr., NRDC Senior Attorney - Huntington Beach, California

E2 members are cordially invited to attend cocktails and dinner with Bobby Kennedy, Jr., NRDC Trustee and E2 Co-Founder Bob Epstein, and David Beckman, NRDC Senior Attorney and Director of the Coastal Water Quality Program . The Eco Salon will be hosted by Joan Irvine Smith and will take place in Huntington Beach; directions provided upon acceptance. An electronic invitation will be mailed to E2 members in November. If you have been thinking of joining or renewing your E2 membership, now is the perfect time! Your membership/renewal will enable you to participate in this fabulous event. Please respond to Nancy Golden at (323) 934-6900, ext. 326 or ngolden@nrdc.org for more information.

Thursday, December 12, 2002 Benefit

New York Benefit Movie Premiere: Two Weeks Notice

NRDC and Castle Rock Entertainment are premiering "Two Weeks Notice," a new romantic comedy starring Hugh Grant and Sandra Bullock, on December 12th at New York's Ziegfeld Theater. Tickets for the movie and after-party at The Boathouse at Central Park are $1,000, $500 and $300 each. Benefit packages of 10 tickets for the movie and party are $15,000, $10,000 and $5,000 each. Tickets for the movie are $100 each. If you are not yet an E2 member, your ticket purchase can be applied toward your E2 membership. Proceeds from the premiere benefit NRDC. For more information, please contact Jennifer Meyer in NRDC's office of special projects at (212) 727- 4446 or jmeyer@nrdc.org.

Wednesday, January 29, 2003 (12:00 PM - 2:00 AM) EcoSalon

EcoSalon with Robert F. Kennedy, Jr. in Boston

We hope that E2 members and friends in the Boston area will join us on January 29th for a luncheon with NRDC Senior Attorney Robert F. Kennedy, Jr. Bobby will discuss why the environmental movement and the business community should be, and can be, allies in promoting sound environmental policies. Invitations to follow in December.

Saturday, March 8, 2003 - Wednesday, March 12, 2003 EcoTrip

EcoTrip to Laguna San Ignacio, Baja, Mexico
This EcoTrip to Laguna San Ignacio, Baja California, gives E2 members a unique opportunity to see California Gray Whales and their new calves. The host for the trip is NRDC's Joel Reynolds who lead the campaign to protect the region from becoming an industrial site. The sanctuary is one of two breeding grounds for the whales. The trip is limited to 22 E2 members and members at the Principle and Steering Committee levels have priority.

E2 Membership

We hope you'll tell your friends about E2 and NRDC. To learn about E2 and our programs please go to www.e2.org Information about NRDC can be found at www.nrdc.org.

Thanks for your support. Comments, questions and introductions to possible new members are always welcome! Learn how to join E2 at how to join
.

Bob Epstein, Nicole Lederer, John Sullivan and Roger Ullman
bob@bobepstein.to nicolelederer@netscape.net johnasullivan@att.com rogertullman@hotmail.com