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New Legislation Would Vacate Proposed Carbon Pollution Standard for New Power Plants

by Bethany K. Hatef

Congressman Ed Whitfield (R-KY.), the chairman of the House Energy and Commerce Committee’s Energy and Power Subcommittee, introduced a bill on October 28, 2013 that would void the U.S. Environmental Protection Agency’s (EPA) pending proposed rulemaking, regulating emissions of carbon dioxide from new coal-fired and natural gas-fired power plants.  Representative Whitfield worked closely with Senator Joe Manchin (D-WV), who will introduce the same bill in the Senate.  The legislation, if enacted, would impose restrictions on EPA’s issuance of any new proposal to regulate greenhouse gas (GHG) emissions from new and existing power plants, and could hinder EPA’s ability to comply with President Obama’s directive to regulate carbon emissions from existing power plants by June 1, 2015.  In connection with the legislation, coal miners and coal companies rallied on Capitol Hill in protest of EPA’s current proposed regulation limiting carbon emissions at new power plants, and the House Energy and Commerce Committee oversight panel held a hearing, entitled “EPA’s Regulatory Threat to Affordable, Reliable Energy: The Perspective of Coal Communities.”

The bill states that EPA may not issue, implement or enforce any proposed or final rule pursuant to Section 111 of the Clean Air Act that establishes a standard of performance for GHG (defined as carbon dioxide, methane, nitrous oxide, sulfur hexafluoride, hydrofluorocarbons and perfluorocarbons) emissions from a new source that is a fossil fuel-fired electric utility generating unit (EGU) unless EPA:  (1) establishes separate standards for coal and natural gas EGUs; (2) for the coal category, sets a standard that has been achieved for at least one continuous 12-month period by at least six EGUs at different plants in the U.S.; and (3) establishes a separate subcategory for new EGUs that use coal with an average heat content of 8300 or less British Thermal Units per pound (i.e., lignite coal) and sets a standard for such EGUs that has been achieved for at least one continuous 12-month period by at least three EGUs at different plants in the U.S.

The bill specifies that the EGUs used as the basis for the coal and lignite coal categories must collectively represent the operating characteristics of electric generation at different U.S. locations and EPA may not use results obtained from “a project to test or demonstrate the feasibility of carbon capture and storage technologies that has received government funding or financial assistance”).

The legislation states that any rule or guidelines addressing GHG emissions from existing, modified or reconstructed fossil fuel-fired EGUs will not be effective unless a federal law is first enacted specifying the effective date, and EPA has submitted a report to Congress containing the text of the rule, a description of its economic impacts, and the rule’s projected effects on global GHG emissions.  Finally, the legislation expressly repeals EPA’s prior proposed rulemakings establishing carbon dioxide limits for new EGUs.




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Power Plant Cases in the Supreme Court

by Jacob Hollinger

The Supreme Court’s 2013 term just began but it is already shaping up to be an important one for power plant owners and operators.  Three points stand out: First, on October 7, the Court denied cert. in Luminant Generation Co. LLC v. EPA, a case in which several power companies were challenging the Environmental Protection Agency’s (EPA) current approach to regulating air emissions during startup, shutdown and malfunction (SSM) events.  The Court’s action leaves in place a Fifth Circuit decision which upheld EPA’s approach, at least as applied to the Clean Air Act state implementation plan (SIP) for the State of Texas.  More importantly, the Court’s action is likely to bolster EPA’s confidence as it pursues its ongoing rulemaking concerning the SSM provisions in 39 other SIPs, a rulemaking in which EPA has proposed eliminating affirmative defenses for excess emissions that occur during “planned” SSM events.  More information about EPA’s ongoing SSM rulemaking can be found here:  https://www.epa.gov/airquality/urbanair/sipstatus/emissions.html.

Second, the Court is actively considering whether to hear an industry challenge to EPA’s regulation of greenhouse gases under the Clean Air Act’s (CAA) prevention of significant deterioration (PSD) program.  The Court currently has before it eight cert. petitions seeking review of the D.C. Circuit’s August 2012 decision in Coalition for Responsible Regulation v. EPA, 684 F.3d  102 (D.C. Cir. 2012).  That decision rejected industry challenges to EPA’s four “core” greenhouse gas (GHG) regulations – the Endangerment Finding, in which EPA concluded that carbon dioxide emissions from motor vehicles contribute to air pollution reasonably anticipated to endanger public health and welfare; the Tailpipe Rule, in which EPA set motor vehicle GHG emission limits; the Timing Rule, in which EPA announced that GHGs are “subject to regulation” under the CAA as of January 2, 2011; and the Tailoring Rule, in which EPA announced that with respect to GHG emissions it was raising the statutory threshold for PSD applicability.  A central point of dispute in the Coalition matter is whether EPA’s conclusion that it is required to regulate motor vehicle GHG emissions means that EPA must also regulate stationary source GHG emissions.  We should know shortly whether the Supreme Court will address that dispute.

Finally, the Court is scheduled to hear oral argument on December 8 concerning EPA’s Cross State Air Pollution Rule, a rule which the D.C. Circuit invalidated last summer.  The Supreme Court’s eventual decision in that case, EPA v. EME Homer City Generation, L.P., No. 12-1182, is likely to be extremely significant for power plant owners regardless of which side prevails.  A ruling in EPA’s favor will reinstate stringent emission limits on upwind power plants, but a ruling against EPA may simply lead to more stringent emission limits being imposed in downwind states.  In all events, the case concerns a complex and difficult problem – interstate air pollution – and the Supreme Court’s decision is likely to clarify EPA’s authority to address that problem.




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EPA Proposes CO2 Emission Limits for New Power Plants and on Track to Regulate CO2 Emissions from Existing Plants by 2015

by Jacob Hollinger and Bethany Hatef

The U.S. Environmental Protection Agency (EPA) has issued a proposed rule concerning carbon dioxide (CO2) emissions from new coal-fired and natural gas-fired power plants. The September 20 proposal meets a deadline set by President Obama in a June 25 Presidential Memorandum and keeps EPA on track to meet the President’s June 2015 deadline for regulating emissions from existing power plants. Once the September 20 proposed rule is published in the Federal Register, interested parties will have 60 days to comment on it. 

Under EPA’s September 20 proposal, which replaces an earlier, April 2012 proposal, new coal plants would be limited to 1,100 pounds of CO2 emissions per megawatt-hour (lbs/MWh) of electricity produced, with compliance measured on a 12-operating month rolling average basis.  The proposed rule would also require new small natural gas plants to meet a 1,100 lbs/MWh emission limit, while requiring larger, more efficient natural gas units to meet a limit of 1,000 lbs/MWh. 

EPA is required to set emission limits for new plants at a level that reflects use of the “best system of emission reduction” (BSER) that it determines has been “adequately demonstrated.”  For coal, EPA has determined that the BSER is installation of carbon capture and sequestration (CCS) technology that captures some of the CO2 released by burning coal.  In essence, EPA is saying partial CCS is the BSER for new coal plants. But for gas, EPA is saying that the BSER is a modern, efficient, combined cycle plant.  Thus, CCS is not required for new gas plants.

An important feature of the proposed rule is the definition of a “new” plant. Under the pertinent section of the Clean Air Act (CAA), a “new” plant is one for which construction commences after publication of a proposed rule. EPA’s regulations, in turn, define “construction” as the “fabrication, erection, or installation of an affected facility,” and define “commenced” as undertaking “a continuous program of construction” or entering “into a contractual obligation to undertake and complete, within a reasonable time, a continuous program of construction.” 

EPA has concluded that its new proposal will have “negligible” benefits and costs – it won’t reduce CO2 emissions and it won’t raise the cost of electricity. This is based on EPA’s conclusion that even in the absence of the new proposed rule, all foreseeable new fossil fuel plants will be either modern, efficient combined cycle natural gas plants or coal plants that have CCS. In essence, EPA is proposing emission limits that it thinks would be met even in the absence of new regulations.

But if the rule won’t reduce CO2 emissions, why issue it?  First, EPA is of the view that it is required by the CAA to issue the rule; having already determined that CO2 emissions are endangering public health and welfare, EPA is required by § 111(b) of the CAA to publish regulations to address those emissions.  Second, EPA thinks the rule will provide regulatory certainty about what is expected of new plants.  Third, and perhaps most importantly, the rule [...]

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Obama’s Climate Plan Provides Timeline to Reduce Carbon Emissions at New and Existing Power Plants

by Bethany K. Hatef

Following up on his Inaugural Address promise to prioritize climate change, President Obama unveiled yesterday a Climate Action Plan (Plan), which includes details about what steps the Administration will take to reduce carbon emissions from power plants.The White House also released a Presidential Memorandum that provides the U.S. Environmental Protection Agency (EPA) with specific deadlines for future rulemakings concerning new and existing power plants but few details on what the eventual requirements for existing facilities will look like.

In the Plan, President Obama aims to reduce carbon emissions nationwide by encouraging the use and development of clean energy, bringing up-to-date the transportation sector, reducing energy waste and cutting emissions of other greenhouse gases, including hydrofluorocarbons.  With regard to power plant emissions, the Plan notes that there are currently no federal standards in place to reduce carbon pollution from power plants.  Although EPA issued proposed standards for new power plants over a year ago, it received more than two million comments and never issued a final rule.  The Plan refers to a Presidential Memorandum (Memorandum), issued yesterday, that directs EPA to develop and finalize carbon emissions limits for both new and existing power plants.

Under the Memorandum’s timeline, a revised proposed rule for new facilities is due September 20, 2013, with a final rulemaking to follow “in a timely fashion.”  With respect to existing power plants, the memorandum notably does not require EPA to issue a formal rulemaking setting standards for carbon emissions from such facilities.  Instead, President Obama directs EPA to use its power under Sections 111(b) and 111(d) of the Clean Air Act to issue “standards, regulations, or guidelines, as appropriate” concerning carbon emissions from “modified, reconstructed, and existing power plants” (emphasis added).  EPA must issue a proposal by June 1, 2014, and the final rule (or guidelines) must be promulgated by June 1, 2015.  State implementation plans will be due to EPA by June 30, 2016.  Regardless of the substance of the rules for new and existing power plants, the Memorandum’s timeline leaves little room for delay before the end of Obama’s Presidency.




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California Cap-and-Trade Program Marches Forward

by Ari Peskoe

California’s cap-and-trade compliance obligations became binding on January 1, 2013, culminating six years of regulatory proceedings. Although the California Air Resources Board (CARB) deemed the first auction for emission allowances in November a success, revised statistics revealed that two-thirds of all bids submitted were disqualified. In other recent developments, the state’s Public Utility Commission (CPUC) announced how revenues from the auctions will be allocated, and CARB (the program administrator) set the stage for emissions-offset projects. The second allowance auction is scheduled for February 19.

Authorized by the Global Warming Solutions Act of 2006, California’s cap-and-trade program aims to reduce the state’s greenhouse gas emissions to 1990 levels by 2020, a modest goal given the state’s numerous other initiatives aimed at reducing emissions. Approximately 75 participants, comprising utilities to large financial institutions, were authorized to bid in the first auction; all 23 million allowances offered for 2013 compliance were purchased. 

CARB initially reported that 3.1 bids were submitted for each available allowance, but later issued a statement that just 1.06 “qualified bids” were submitted for each allowance. According to CARB, only qualified bids are used in the settlement process, and “a very small number of participants exceeded their purchase limit, holding limit, or bid guarantee.” Bloomberg News cleared up the ambiguity when it reported in December that one of the state’s investor-owned utilities (IOU) had erroneously submitted approximately 72 percent of all bids due to an apparent misunderstanding of the bid format. As a result, this IOU bought 40 percent more allowances than it needed, even though most of its bids were disqualified.

The state’s electric utilities, including municipal utilities, are allocated free allowances. However, the IOUs are required to consign all of their allowances to auction, with the proceeds remitted to ratepayers. For 2013, those revenues will be at least $650 million, and could total more than $22 billion by 2020.   In late December, the CPUC announced that these revenues will be distributed to certain industrial users that emit less than 25 MTCO2e per year, small businesses (which are defined based on their electricity consumption), and residential customers. The CPUC also determined that it was not appropriate to use auction revenues for energy efficiency or clean energy programs at this time, but part of its reasoning was based on its own administrative processes. It encouraged parties to propose increased funding for efficiency and clean energy in other “appropriate proceedings.”

Also in December, CARB approved two organizations to review carbon-offset projects and issue offset credits. These organizations will use CARB-approved methods of accounting to determine emissions reductions for four types of projects: forestry, urban forestry, dairy manure digesters, and destruction of ozone-depleting substances. A covered entity can use offsets to comply with up to eight percent of its obligation.

Finally, the second auction for 2013 allowances is scheduled for February 19 and has a January 22 application deadline. The reserve price is $10.71, which is slightly higher than the first auction based on a predetermined formula. More than twice as many 2013 allowances will be up for auction as [...]

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New Research Finds Shale Natural Gas Production Emits Less Fugitive Methane that Previously Reported

by James A. Pardo and Brandon H. Barnes

Shale natural gas production emits significantly less fugitive methane than previously thought, concluded researchers at the Massachusetts Institute of Technology (MIT) in a November 26, 2012, study published in Environmental Research Letters.  According to the researchers, "it is incorrect to suggest that shale gas-related hydraulic fracturing has substantially altered the overall [greenhouse gas] intensity of natural gas production." 

 Methane has been singled out as one of the most powerful greenhouse gases (GHG) because of its "global warming potential" – or the relative heat trapped in the atmosphere by a gas – which is 20 times greater than that of carbon dioxide.  Fugitive methane emissions are losses of methane gas that may occur during flowback (the return of fluids), during drill-out following fracturing, and during well-venting to alleviate well-head pressure.  Fugitive emissions can also occur as a result of equipment leaks, transportation or storage losses, and processing losses, but in much smaller quantities. 

An earlier study by Cornell University professor Robert Howarth, which garnered much media attention, reported that shale gas production had a lifetime carbon footprint greater than coal production, mainly as a result of fugitive methane emissions that Howarth had estimated to be as great as 4,638 Mg per well.  In contrast, the MIT study determined that actual fugitive methane emissions average approximately 50 Mg per well after taking into account flaring and green completions technology, both of which are widely used by industry and required under most state regulatory regimes (as well as under new Environmental Protection Agency rules).  The MIT researchers evaluated actual production data from approximately 4,000 horizontal shale natural gas wells, and found a potential for about 228 Mg of fugitive methane emissions per well.  The researchers cautioned that estimates about fugitive methane emissions had been "inappropriately used in analyses of the GHG impact of shale gas" insofar as actual emissions are reduced — by an average of 178 Mg per well — by flaring and green completion technology.        

Hydraulic fracturing stakeholders need to understand the body of publicly available science, as a growing body of research will inform how EPA and other state and federal regulatory agencies will regulate the industry.




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Coming Soon: California’s First Cap-and-Trade Auction

by Ari Peskoe

On November 14, California’s Air Resources Board (CARB) will conduct the first greenhouse gas (GHG) allowance auction as part of the state’s cap-and-trade program. Earlier this month, CARB issued two notices, one identifying the deadlines between now and November 14 and the other explaining financial requirements for participation. Compliance obligations for the electricity industry and some industrial facilities start in 2013, and CARB estimates that sources responsible for 85 percent of the state’s current emissions will ultimately be covered by the program. Although this new market is the first of its kind in the United States, given the declining GHG emissions in California over the past few years, the program’s goals are relatively unambitious.

Authorized by the Global Warming Solutions Act of 2006, California’s cap-and-trade program is intended to reduce the state’s GHG emissions in 2020 to 1990 levels. Its first phase covers facilities generating electricity, importers of electricity, and large industrial sources, such as facilities used for fossil fuel extraction or refining, mining and manufacturing. Initially, only sources that emit more than 25,000 tons of CO2 equivalents per year are required to participate. In 2013, approximately 90 percent of allowances will be distributed for free to electric generators and operators of industrial facilities based on their most recent emissions. In 2015, distributors of petroleum, natural gas and other fuels will also be required to hold GHG allowances, as will many stationary sources that emit less than 25,000 tons of CO2 per year. In addition to covered entities, financial institutions and other intermediaries are allowed to participate in auctions and trading.

In 2007, CARB set the 1990 baseline (and 2020 goal) at 427 million metric tons (MMT) per year and estimated that the 2020 business-as-usual forecast would be approximately 600 MMT. With that estimate, the 2020 goal represented a decline of about 30 percent. While GHG emissions increased slightly from 2000 to 2007, they dropped sharply in 2009, roughly at the same rate as national GHG emissions fell in the wake of the recession. As a result, in 2010, CARB reduced its 2020 business-as-usual scenario from 600 to 508 MMT. With the new estimate, the 2020 goal represented a decline of 15 percent compared to the business-as-usual scenario. This updated estimate, however, did not account for California’s increase in its renewable portfolio standard target from 20 percent by 2010 to 33 percent by 2020, or for new state and national vehicle efficiency standards. CARB estimates that these measure alone would more than account for the difference between today’s actual emissions and the 2020 goal. 

California has long been a pioneer in energy regulation. In 1996, for example, the state legislature restructured its electricity industry, becoming the first in the country to rely on market-bidding to procure power and services for its electric grid. Two years after the markets opened, prices soared, FERC declared the market structure to be seriously flawed, and California scrapped the original market design and tried again. Today, it is considered a model market for policy makers.

California may see this initial cap and trade program [...]

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Appeals Court Forcefully Validates EPA’s Emerging Program for Controlling Emissions of Greenhouse Gases

by Jeffrey D. Watkiss

A unanimous panel of the U.S. Court of Appeals for the D.C. Circuit in Coalition for Responsible Regulation, Inc. v. EPA decisively affirmed against industry and state challenges EPA’s developing programs for regulating emissions of greenhouse gases. Those programs respond to the U.S. Supreme Court ruling in Massachusetts v. EPA, 549 U.S. 497 (2007) that greenhouse gases are an air pollutant subject to regulation under the U.S. Clean Air Act (CAA). As EPA moves ahead to implement the new programs, natural gas-fired and renewable generation will increasingly if not completely, displace new investment in coal-fired generation.

 

In direct response to the Massachusetts decision, EPA issued an Endangerment Finding for a single air pollutant defined as comprising an aggregate group of six long-lived and directly emitted greenhouse gases that are “well mixed” in the atmosphere and cause global climate change: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydroflourocarbons (HFC), perflourocarbons (PFC), and sulfur hexafluoride (SF6). Affirming EPA,the panel explained that the CAA requires EPA to answer only two questions in connection with endangerment: whether greenhouse gas may reasonably be anticipated to endanger the public health and welfare and whether motor-vehicle emissions cause or contribute to that endangerment. These are scientific determinations, the court explained, that are not informed by “performing cost-benefit analyses, gauging the effectiveness of whatever emission standards EPA would enact, [or] predicting society’s adaptive response to the dangers or harms caused by climate change.”

The panel dismissed as “little more than a semantic trick” the petitioners’ complaint that EPA improperly “delegated” its scientific determinations to the Intergovernmental Panel on Climate Change (IPCC), the U.S. Global Climate Research Program and the National Research Council by relying on the research compiled and synthesized by those research bodies. The panel ruled that EPA “reviewed existing scientific evidence” that included syntheses of individual studies and research,” including 18,000 peer-reviewed scientific studies in the case of the IPCC. The panel rejected the petitioners’ argument that EPA itself was required to perform those studies:   “EPA is not required to re-prove the existence of the atom every time it approaches a scientific question.” As to Texas’ complaint that EPA did not identify the atmospheric concentration that endanger public health or welfare, the panel held that such a threshold is not required by the CAA. The opposite is what is required: a case-by-case “sliding scale” that sounds the alarm as danger is approached. 

 

Challenges to the Tailpipe Rule and the panel’s discussion of those challenges were brief, but consequential. The petitioners did not challenge the substance of the Tailpipe Rule, but instead argued that EPA arbitrarily and capriciously ignored the automatic consequence of setting this standard for new motor vehicle emissions of greenhouse gases: Once a standard is set for regulating the emissions of greenhouse gases from new motor vehicles, then EPA becomes obligated to also set a New Source Review performance standard and operating permits for major stationary sources of greenhouse gas emissions. EPA consideration of collateral costs associated with triggering standards for major stationary sources is not permitted, the [...]

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Non-EU Countries Oppose Inclusion of Emissions from Airlines in EU ETS

by Prajakt Samant and Simone Goligorsky

Following the preliminary court ruling that all aviation emissions are to be regulated under the European Union (EU) Emissions Trading Scheme (ETS), several non-EU countries have convened to oppose the inclusion of their airlines in the EU ETS. In a meeting held in Moscow at the end of February, a reported 26 countries, all members of the United Nation’s International Civil Aviation Organization (ICAO), met to discuss possible countermeasures to the EU ETS.

The countries, which include the U.S., China, India and Russia, stated that if non-EU based operators are forced to participate in the EU ETS, then they may consider adopting one or more of the following measures:

  • Prohibiting national airlines from participating in the EU ETS;
  • Lodging an official complaint with the ICAO;
  • Requiring EU airlines to submit data, including flight details, thereby adversely affecting entities operating in Europe;
  • Suspending current and future talks with EU airlines regarding possible new routes; and
  • Recovering the cost of the EU ETS by imposing levies and charges on EU airlines.

The countries also requested a review of the Bilateral Air Services Agreements, including the Open Skies agreement. Following the meeting in February, delegates of the opposing nations issued a declaration stating that the “inclusion of international civil aviation in the EU ETS leads to serious market distortions and unfair competition.”

Separately, Russia has stated that it would consider imposing fees on European carriers undertaking flight routes over Siberia, or capping the number of flights over Siberia. This measure would come despite Russia having previously agreed to ease the restrictions, as part of its World Trade Organization accession.  

A spokesman for the U.S. State Department stated that he hopes that the European law will be revised before coming into force, thereby exempting non-EU airlines. Instead, he is of the view that it would be prudent to adopt a scheme that would be more globally suitable. Policy makers in the EU have stated that they would be amenable to such this approach, as long as the global program adopted ensured that all airlines using EU airports paid for carbon credits.

Further meetings of the non-EU countries opposed to the inclusion are scheduled for the months.




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Consultation Describes State Aid for Third EU Carbon Emissions Trading Period

by Prajakt Samant

The European Commission (EC) published in December 2011 a Consultation on the draft guidelines for targeting State Aid (Guidelines) in furtherance of the European Union (EU) Emission Trading Scheme (ETS) when the Third Trading Period begins in January 2013.  Interested parties have until January 31, 2012, to submit comments on the draft Guidelines before they are finalized.

Launched in 2005 to combat human-caused climate change by ratcheting down emissions of carbon dioxide, the ETS, as revised in 2008, allocates EU-wide emissions allowances for auction that can be used, banked or traded.  According to the Consultation, State Aid (as defined in the Treaty on the Functioning of the EU), can be directed to the following emission reduction activities:

  • Minimize Carbon Leakage — Carbon leakage occurs when emissions from a source within an EU Member State are reduced by migrating to a source outside of the EU where emission controls are less strict or non-existent.  State Aid can be directed to minimize the risk of leakage.
  • Efficient Power — State Aid can be used to make investments in highly efficient power plants, including facilities capable of capturing and sequestering greenhouse gas (GHG) emissions from power plants Efficiency is to be measured against a standard articulated in the Guidelines.
  • Allowance Grants in lieu of Auction — Member States will have the option to grant free (non-auctioned) allowances to electricity generators where the savings are invested in modernizing their operations through investments in clean technologies and in diversifying their energy mix and sources of supply.
  • Exempting Certain Emission Sources — According to the Consultation, State Aid can be used to exempt certain small emission sources, including hospitals, from the EU ETS, but not from other obligations to reduce GHG emissions.

The amount of State Aid awarded to each of these applications will be based either on a formula in the Guidelines or according to the application’s environmental contribution.  Awards are to be guided by the precept of European law that a sledgehammer should not be used to crack a nut, also known as the principle of proportionality.




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