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<p align="left"><font face="Arial"><strong><small>About The Author:<br>
<br>
</small></strong><span lang="X-NONE" style="color: black"><font size="2">
ROGER FELDMAN, Co-Chair of Andrews Kurth LLP Climate Change and Carbon
Markets Group has practiced law related to the finance of environmental and
energy projects and companies for 40 years. In particular, he has analyzed
and executed a wide variety and substantial value of project financings. He
chairs the American Bar Association’s Committee on Carbon Trading and
Finance, serves on the Board of the American Council for Renewable Energy,
and has been a senior official in the Federal Energy Administration. He is
a graduate of Brown University, Yale Law School and Harvard Business School.</font></span></font></p>
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<img src="../images/feldman.gif" alt="Washington Viewpoint by Roger Feldman" border="0" width="375" height="75"><p align="left"><b><u><br>
December 2008</u></b></p>
<p align="center"><font size="6"><b>Delivering the Green</b></font></p>
<p><strong>by Roger Feldman --
</strong><b>Andrews Kurth, LLP</b><strong><br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine
Magazine: 2008/12/10</em>)<br>
</font><span style="font-size: 10.0pt; font-family: Palatino; color: black">
</span></p>
<div>
<p class="BodyText05SS"><span lang="X-NONE" style="color: black">This
holiday season, as we all get lumps of coal in our financial stockings,
there is more interest than ever in finding out what might be under the
Energy/Carbon Christmas Tree. New carols echo: “Redo the Halls With
Energy Infrastructure,” “Come Bearing Tidings of Climate Change
Control.” There’s no want of things on our wish list: intelligent
grids and sparkling renewables, affordable carbon sequestration,
exquisite on-line efficiency management, energy efficient green
buildings and . . . (oh yes): dollars, the entrepreneurs to execute
projects, and an assurance that jobs will flow from it. In short,
everything needed to satisfy the pull and tug of the three basic policy
vectors: infrastructure stimulus (jobs), energy security (reduced net
foreign oil dependency, more reliable power sources), and climate change
control (neutral carbon footprint, cap and trade regulation). Hence,
the reemergence of the notion of a National Infrastructure Bank, a piggy
bank in one place targeted on those projects which would best
incentivize all of the above.</span></p>
<p class="BodyText05SS"><span lang="X-NONE" style="color: black">Pretty
wrapping; wrong present. What should be under the tree is a box of
sturdy interlocking green lego blocks to form public-private
partnerships (P3s) to create green jobs.</span></p>
<p class="BodyText05SS"><span lang="X-NONE" style="color: black">Why?
Because it makes sense <u>now</u> to focus on how government
institutions can <u>now</u>, or in the future, facilitate the kind of
public-private partnerships which can serve, as “delivery systems” for
the development and operations of the type of specialized
environment/energy initiatives in support of climate change and growth
being contemplated. Unlike an undifferentiated public works program for
“crumbling infrastructures,” these initiatives have certain
characteristics in common: emphasis on technology breakthrough or
change; application to sectors where there is already a major public
presence, and a complex of institutionalized governmental rules and
policy issues which must be accommodated, as well as the new energy
job/carbon imperatives; and requirement of a sharing of risk-taking
between the public and private sectors to assure achievement of these
imperatives.</span></p>
<p class="BodyText05SS"><span lang="X-NONE" style="color: black">
Infrastructure financing always requires a high degree of mitigation of
market and price risks and clear-cut definition of non-market
(political) external economic variables. It needs to be made through
delivery channels designed to meet these requirements. A national
infrastructure bank can certainly review financing variables to
determine that they have been dealt with in a financeable way, and may
be equipped with sovereign powers to plug holes in financing structures,
<i>e.g</i>., through loan guarantees, grants, or collateral financing
support. But such a multipurpose bank may suffer brain damage in
choosing among projects, of different sectoral types, subject to the
prerogatives of multiple regulators in different regions of the country,
and subject to lingering uncertainty of what the new Federal schemes
will look like.</span></p>
<p class="BodyText05SS"><span lang="X-NONE" style="color: black">Not to
say that a pump primer for each type of P3 is not necessary.
Conventional availability of tax credit and depreciation benefits is not
sufficient to cause private investors to otherwise take the lead in
pulling the weight of change which is job productive: The applicable
rules for that market for service must otherwise clearly be laid out
through P3 arrangements, so that revenues are assured. Without revenue
stability, the tax credits do little good. </span></p>
<p class="BodyText05SS"><span lang="X-NONE" style="color: black">
Public-private partnerships (“P3s”) are an old concept, which may be
perceived to have fossilized into a single model: public retention of
asset ownership, contractual delegation to the private sector for a
“concession” price of the right to build facilities and provide
services, implicit government credit support for the ventures through
governmental service fees or lease payments, and explicit assumption of
technical risk by the private sector. In that sense, a “public utility”
is the most airtight of P3s. But the concept can and is becoming more
flexible than that in an effort to align public policy objectives and
private long-term ROI objectives.</span></p>
<p class="BodyText05SS"><span lang="X-NONE" style="color: black">The P3
model can be adapted to meet the green jobs/infrastructure crisis, in
the near term, by a series of measures built around existing programs
and appropriate funding sources. In particular, this can be done in the
field of energy efficiency/renewables, as applied to the provision of
public sector services and infrastructures. The key elements of P3s
which are most critical for these purposes are the following:</span></p>
<p class="BodyText05SS"><span lang="X-NONE" style="color: black">
(1) Basis for demonstrable measurement/computation of efficiency
savings payback.</span></p>
<p class="BodyText05SS"><span lang="X-NONE" style="color: black">
(2) Clear-cut baseline and methodology for carbon and other
environmental credit benefits.</span></p>
<p class="BodyText05SS"><span lang="X-NONE" style="color: black">
(3) Specific public authority identified and qualified to
administer services even though multiple services crossing functional
lines are involved.</span></p>
<p class="BodyText05SS"><span lang="X-NONE" style="color: black">
(4) Support by fragmented legislation in the Federal, state, and
local sectors is both substantial and subject to clear reconciliation
mechanisms and includes, or is consistent with, use of funding available
for renewables and/or innovative infrastructure and/or innovative carbon
reduction practices.</span></p>
<p class="BodyText05SS"><span lang="X-NONE" style="color: black">
(5) Framework for allocation of different levels of technology
risk and governmental risk, to public and private participants in
venture, is clearly laid out and justifiable.</span></p>
<p class="BodyText05SS"><span lang="X-NONE" style="color: black">
(6) Governmental incentives mixing, <i>e.g.</i>, purchasing
power, technology development grants/loans, use of public finance bond
funding vehicles,<i> e.g</i>. CREBS, EQCBA, and IDBs may be utilized.
</span></p>
<p class="BodyText05SS"><span lang="X-NONE" style="color: black">
Elements of viable P3s with most of these features are susceptible to a
“component assembly” approach from the bottom up (government and private
sector working together), as well as from the top-down, and thereby side
stepping inter-government and broader policy issues which otherwise
could be roadblocks. This kind of component assembly is a setting where
creative Federalism has something to offer which all-knowing National
Infrastructure Bankism may not. A P3 based on these principles can be a
do-it-yourself kit that can be enhanced over time. Jurisdictions have
different resources to attract new industry development, local
institutional development, and public service cost containment. These
may include educational institutions (with innovation capability), local
electric utilities (with efficiency facilitation capability), and
existing centers of entrepreneurship, Different jurisdictions have
different types of financing as well as institutional mechanisms
suitable for blending. Knitting them together has a distinctly local
flavor. The myriad types of public-private partnerships for specific
purposes that are sustainable presently will only be enhanced as Federal
programs become clearer. They may not look, or be, financially alike,
and they may differ in risk profiles for the parties. They may be in
different functional areas, such as water, heating and cooling, or local
power distribution. But they will all produce least-cost solutions to
the particular jobs/public service environment configuration of a
particular jurisdiction. New Federal programs can thus support a
diverse program of public-private delivery systems, which may be funded
by the states.</span></p>
<p class="BodyText05SS"><span lang="X-NONE" style="color: black">In
short, public-private partnership can represent interlocking lego block
assemblies, not the clunky programmatic wooden toys of sometimes
questionable success. They are the best way to assure that in future
years the green goods will be delivered. </span><br>
</p>
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text-align:left"><font face="Arial" size="2">
<span lang="X-NONE" style="color: black">ROGER FELDMAN, Co-Chair of Andrews
Kurth LLP Climate Change and Carbon Markets Group has practiced law related
to the finance of environmental and energy projects and companies for 40
years. In particular, he has analyzed and executed a wide variety and
substantial value of project financings. He chairs the American Bar
Association’s Committee on Carbon Trading and Finance, serves on the Board
of the American Council for Renewable Energy, and has been a senior official
in the Federal Energy Administration. He is a graduate of Brown University,
Yale Law School and Harvard Business School.</span></font></p>
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