Posted on April 30, 2014
Ethanol prices appear to be on the rise. Weather and an increase in exports appear to be responsible for the uptick. The reason for the reported jump in ethanol prices has to do with turbulent winter weather and increasing United States (U.S.) exports, largely to Brazil. Ethanol has wide usage in both countries. The Renewable Fuels Association reported that for 2011, the U.S. and Brazil accounted for 87% of the world’s ethanol fuel production. Some U.S. ethanol plants have stopped production in part because of droughts that have ravaged much of the nation’s crops and pushed commodity prices so high that ethanol has become too expensive to produce.
Bioethanol produced from fermentation of carbohydrates in sweet and starchy crops like sugar cane and corn, has gained in popularity as concerns about energy security and rising oil prices have become more acute. Ethanol fuel, an alcohol derivative, is a renewable motor fuel that is used as a biofuel additive for gasoline. Most cars in the U.S. today run on blends of up to 10% ethanol. Today’s typical fuel pump blend, E10, is 10% ethanol and 90% gasoline. Backed by government subsidies and mandates, ethanol plants rose in the Corn Belt, generating a new market for crops and billions of dollars in revenue for producers of this corn based fuel blend. Generally, oil companies have opposed using higher concentrations of ethanol, and have tried to get Congress to change federal rules so that we use less ethanol.
The U.S. EPA (EPA) has not been immune to the ethanol crunch crisis. Last November, EPA proposed slashing the corn ethanol mandate to 13.01 billion gallons this year, down from 14.4 billion gallon requirement outlined by federal statute. After already proposing to reduce the corn ethanol mandate, this year, on March 27, in a congressional hearing, U.S. EPA Administrator, Gina McCarthy defended the proposal, citing “infrastructure challenges and the inability at this point to achieve the levels of ethanol that are in the law.” The U.S. EPA is the agency charged with the responsibility for developing and implementing regulations to ensure that fuel contains a minimum amount of renewable fuel. Together with many stakeholders, EPA developed the Renewable Fuel Standard (RFS) program, and in 2005, the Energy Policy Act (EPAct) created the first RFS program. The program established the first renewable fuel volume mandate in the United States.
The RFS program sets forth a phase-in for renewable fuel volumes beginning with 9 billion gallons in 2008 and ending at 36 billion gallons in 2022. As required under EPAct, the original RFS program (RFS1) required 7.5 billion gallons of renewable- fuel to be blended into gasoline by 2012. The EPA proposed reduction in the mandate would have significantly affected this year’s corn demand. In October 2013, the Renewable Fuels Association reported that the proposed 1.4 billion gallon reduction in the ethanol mandate would reduce corn demand by 500 million bushels, and result in a reduction in corn prices.
However, with the recent rise in corn prices, there is speculation that U.S. EPA could be reversing course. If U.S. EPA backtracks on its plans there could be more drift in corn prices. Ethanol prices are not merely dependent on what action U.S. EPA choses to undertake. On the federal level, the United States Department of Agriculture (USDA) conducts a large amount of research regarding ethanol production in the United States. Much of this research is targeted toward the effect of ethanol production on domestic food markets. So the oil industry, food companies and livestock sector will all be strong voices to determine what’s up with ethanol prices. As yet, there is no final rule from U.S. EPA.
Posted on April 30, 2014
On April 29, 2014, Justice Ginsburg delivered the opinion of the Supreme Court in EPA v. EME Homer City Generation, L.P., 572 U.S._(2014) reversing the DC Circuit’s decision regarding the Transport Rule, also known as the Cross-State Air Pollution Rule (CSAPR), a rulemaking designed to address the significant contribution of upwind States to nonattainment of National Ambient Air Quality Standards in downwind States under the Good Neighbor Provision of the Clean Air Act (CAA). In addition to upholding EPA’s cost-effective allocation of air pollutant emission reductions among upwind States as a permissible interpretation of the Good Neighbor Provision, the majority held that the CAA does not compel EPA to provide States with an opportunity to file a SIP after EPA has quantified the State’s interstate pollution obligations. This opinion is a severe blow to cooperative federalism.
In the majority opinion, cooperative federalism was relegated to a single footnote, which was surprising given the issues for which certiorari was granted. The second issue addressed in the briefs and argument – whether states are excused from adopting state implementation plans prohibiting emissions that “contribute significantly” to air pollution problems in other states until after the EPA has adopted a rule quantifying each state’s inter-state pollution obligations – provided the Supreme Court with an opportunity to address the relative health of cooperative federalism and whether the federalism bar should be raised or lowered in the context of the CAA.
Justice Ginsburg’s footnote addressed Justice Scalia’s dissenting opinion in which he criticized the majority for “making hash of the Clean Air Act, transforming it from a program based on cooperative federalism to one of centralized federal control.” EPA’s promulgation of federal implementation plans without providing the States with a meaningful opportunity to perform the emissions reductions through state implementation plans is inconsistent with the core principle and regulatory strategy of cooperative federalism embedded in the CAA – air pollution control at its source is the primary responsibility of States and local governments.
Homer’s Odyssey continues. For the next chapter, his ship will not sail under the fair winds of cooperative federalism.
Posted on April 29, 2014
On April 18, EPA lost another NSR enforcement case. Not only that, but this was a case EPA had previously won. As we noted last August, Chief Judge Philip Simon of the Northern District of Indiana, had previously ruled that the United States could pursue injunctive relief claims against United States Steel with respect to allegations by EPA that US Steel had made major modifications to its plant in Gary, Indiana, in 1990 without complying with NSR requirements.
Having reread the 7th Circuit opinion in United States v. Midwest Generation, Judge Simon has had a change of heart and now has concluded that injunctive relief claims (as well as damages) are barred by the statute of limitations, even where the same entity that allegedly caused the original violation still owns the facility. Judge Simon concluded that the Court of Appeals had spoken with sufficient clarity to bind him. The language he cited was this:
"Midwest cannot be liable when its predecessor in interest would not have been liable had it owned the plants continuously. (Italics supplied by Judge Simon.)"
Judge Simon seems to have felt more compelled than persuaded.
"Candidly, it is a little difficult to understand the basis for the statements in Midwest Generation that even claims for injunctions have to be brought within five years. But that is what Midwest Generation appears to mandate. And in a hierarchical system of courts, my job as a trial judge is to do as my superiors tell me.
So while the basis for applying a limitations period to the EPA’s injunction claim under §§ 7475 and 7503 is thinly explained in Midwest Generation, upon reconsideration I do think that’s the outcome required of me here."
One final note. In his original opinion, Judge Simon ruled against US Steel, in part, because the concurrent remedy doctrine, which US Steel argued barred injunctive relief where damages were not available, could not be applied against the United States. As Judge Simon noted, the 7th Circuit Court of Appeals did not discuss the concurrent remedy doctrine, so we don’t know the basis of its holding that a party continuously owning a facility that is alleged to have violated the NSR provisions of the CAA more than five years ago is not subject to injunctive relief. However, it is worth pointing out, as we discussed last month, that Judge James Payne, of the Eastern District of Oklahoma, dismissed injunctive relief claims brought by the Sierra Club (not the government, of course), relying on the concurrent remedy doctrine.
Something tells me that the United States isn’t quite ready to give up on these cases, notwithstanding a string of recent defeats. The NSR enforcement initiative may be in trouble, but it’s not quite dead yet.
Posted on April 24, 2014
Common law litigation seeking relief from petrochemical companies for causing climate change has been much touted but little successful.
The insurance industry has been warning of huge coming losses due to climate change, but has not taken aggressive action to force change.
In a lawsuit filed in Illinois state court on April 16, 2014, some property insurers sued the City of Chicago and a host of regional and municipal water managers for failure to provide adequate stormwater storage. The class action suit alleges that the plaintiffs’ insureds would not have suffered so much flood damage from a 2013 storm had the defendants exercised better planning and construction to deal with foreseeable storms.
Notably, the plaintiff insurers rely heavily on the 2008 Chicago Climate Action Plan. The plan recognized that climate change would cause increased amounts, durations and intensities of rainfall. Plaintiffs allege that despite the foreseen problem and having had adequate time and opportunity, the defendants failed to make the recommended and necessary improvements, leading to the injuries to the insureds’ properties.
Certainly this suit faces many challenges. Courts are slow to override state and local governments’ complicated budgeting choices. Moreover, courts may be ill-equipped to oversee projects such as Chicago’s Deep Tunnel Project, which was commissioned in the 1970s to address metropolitan flooding, stormwater and sewage. After more than $3 billion so far, itwill not be completed until at least 2029.
Also, query whether such litigation will help or hurt state and local efforts to adapt to climate change. It could deter honest forecasting of what it will take.
Still, this lawsuit could augur a new wave of common law climate change litigation – a category involving well-funded plaintiffs with provable arguments for proximate cause of real damages.
Posted on April 22, 2014
Apart from a relatively mild editorial in the New York Times, the April 13, 2014 report of the Intergovernmental Panel on Climate Change (IPCC) warning that despite global efforts, greenhouse gas emissions actually grew more quickly in the first decade of the 21st century than in each of the three previous decades, was greeted, let us say, rather tepidly. In essence, the IPCC report declared that meeting the consensus goal limit of two degrees Celsius of global warming by mid-century would require mitigation measures on an enormous scale which, if not begun within the next decade, would become prohibitively expensive thereafter. As the New York Times put it, this is “the world’s last best chance to get a grip on a problem that . . . could spin out of control.”
Humankind’s track record for global cooperation on any scale is not good. When was the last time world peace broke out, or global poverty became a worldwide priority? The 2008 re-make of the 1951 classic film, The Day the Earth Stood Still, illustrates the problem. In the original movie, the alien civilization sent police robots to stop human aggression and nuclear weapons from spreading beyond Earth; in the re-make, the alien civilization decided that our species would have to be eliminated lest it destroy one of the rare planets in the universe capable of enormous biodiversity. In pleading with the alien for another chance, Professor Barnhardt says, “But it’s only on the brink that people find the will to change. Only at the precipice do we evolve.” And, of course, eventually and after a pretty flashy show of power and destruction, the alien rescinds the death sentence, agreeing with the Professor that at the precipice, humans can change.
Are we there yet? At the precipice? Hard to know. As Seth Jaffe pointed out in his April 14, 2014 post, global giant ExxonMobil has recognized the reality of climate change, but doubts there is sufficient global will to do much about it. On the other hand, the American Physical Society warmed the hearts of climate change skeptics in appointing three like-minded scientists to its panel on public affairs. I tend to agree with that great fictional academic, Professor Barnhardt; it will take something that all humankind recognizes as the clear and unmistakable hallmark of the precipice before we collectively put on the brakes. In the meantime, we muddle through to the next opportunity, the 21st Conference of the Parties in Paris in December 2014, the first such summit meeting on climate change since Rio in 1992.
Posted on April 21, 2014
Whether a wetland or modest stream is subject to Clean Water Act regulation as a “navigable water” of the United States (navigable in law) remains a muddy question. In Rapanos v. United States, the Supreme Court established a two-part test for determining CWA jurisdiction: the body of water must be “relatively permanent” and it must be adjacent (have a continuous surface connection) to navigable waters. Justice Kennedy’s concurring opinion says waters or wetlands sharing a “significant nexus” with traditionally navigable waters are subject to CWA jurisdiction.
In 2011, the EPA and Army Corps of Engineers (ACOE) released draft guidance on “waters of the United States” which expanded the waters over which the agencies planned to assert CWA jurisdiction, compared to pre-Rapanos. Then, in September 2013, the EPA’s Science Advisory Board released a draft scientific report, “Connectivity of Streams and Wetlands to Downstream Waters,” for public comment, stating that the final version of the report would be the basis for a joint EPA and ACOE rule on CWA jurisdiction. On March 25, 2014, the two agencies released a proposed rule stating that all tributaries of traditional navigable waters and interstate waters, and adjacent water bodies, are automatically jurisdictional because they share a “significant nexus” with navigable waters. The proposed rule appears to assert default jurisdiction over many seasonal and rain-dependent streams and wetlands near rivers and streams, provided they are “tributaries.” Beyond this, the proposed rule states that jurisdiction over other types of waters with more uncertain connections to downstream waters—such as unidirectional waters, non-adjacent wetlands, and other waters outside of flood zones and riparian areas—will be evaluated on a case-by-case basis. The official version of the proposed rule was published in the Federal Register yesterday with public comments due in ninety days.
Parties understandably confused can petition for case-specific jurisdictional determinations. While a decision on such a petition may be definitive, courts have refused to allow judicial review of such decisions because they are not “final decisions” under the Administrative Procedure Act. In Belle Co., LLC v. U.S. Army Corps of Engineers, a federal district court noted that jurisdictional determinations do not impose any new or additional legal rights or obligations, but merely remind the party of existing duties under the CWA. By contrast, the Supreme Court determined in Sackett v. EPA that compliance orders issued by the ACOE or EPA following or flowing from jurisdictional determinations are subject to judicial review.
Adding to the challenge of navigating these uncertain legal waters, many states and municipalities have expanded their statutory definitions of “waters” (e.g. artificial features and groundwater) and “wetlands” (e.g. soil types and buffers) to increase the breadth and depth of state and local regulation. So, update your navigational charts and prepare for some challenging sailing!
Posted on April 21, 2014
New EPA Rule to Have Broad Implications for Construction Industry; Describes Required Best Management Practices for Stormwater
EPA recently finalized revisions to the effluent limitations rules for the Construction and Development (“C&D”) point source category under the Clean Water Act. The revisions will take effect on May 5th, and reflect the terms of a settlement agreement between EPA and the Wisconsin Builders Association, the National Association of Home Builders, and the Utility Water Act Group. See Wisconsin Builders Association v. EPA, No. 09-4413 (7th Cir. 2012).
The groups challenged EPA’s 2009 Effluent Limitations Guidelines for the Construction and Development Industry, known as the 2009 C&D Rule, arguing that the rule was unworkable and reflected incorrect calculations, and that compliance could cost stakeholders up to $10 billion annually.
The new revisions to the C&D rule eliminate the numeric limitations for turbidity in stormwater discharges from construction sites, in favor of non-numeric effluent controls and best management practices for reducing the effects of erosion and scour on water quality. EPA had previously included numeric limitations for turbidity in its 2009 C&D rule but had stayed implementation of those limitations as a result of several legal challenges to the rule.
The C&D rule has wide-ranging applicability, as it typically covers construction activities such as clearing, grading, and excavating at sites where one or more acres of land will be disturbed. Improperly managed soil at construction sites can easily be washed off during storms and has the potential to negatively impact nearby water bodies.
Under the stormwater permitting rule, construction site owners and operators are generally required to:
- implement erosion and sediment controls;
- stabilize soils;
- manage dewatering activities;
- implement pollution prevention measures;
- provide and maintain buffers around surface waters;
- prohibit certain discharges, such as motor fuel and concrete washout; and
- utilize surface outlets for discharges from basins and impoundments.
The new revisions to EPA's stormwater permitting standards may have implications for states that have issued construction-related stormwater permits since 2009. For projects in New York State, for example, the Department of Environmental Conservation Construction General Permit (“CGP”) expires in 2015; any necessary updates to the CGP resulting from the EPA C&D rule are likely to be incorporated into the revised CGP permit due in 2015.
Posted on April 18, 2014
Appalling environmental conditions that have accompanied China’s rapid growth have been described on Chinese social media as “postapocalyptic,” “terrifying,” and “beyond belief.” During the last year, air pollution in several Chinese cities became so horrendous at times that road travel, schools, construction projects, and airports temporarily were shut down. Epidemiologists estimate that 1.2 million Chinese die prematurely each year from exposure to air pollution. Due to widespread water pollution, tap water is not safe to drink, even in luxury hotels. Pollution is estimated to cost the Chinese economy more than 3.5% of gross domestic product annually.
Rising public demand to clean up the environment has caught the attention of China’s Communist Party leadership. In an address at the opening of the annual session of the National People’s Congress (NPC) last month, Chinese Premier Li Keqiang declared “war on pollution.” Chinese authorities agree that enforcement is the number one problem with their environmental laws. Bie Tao, Deputy Director General of Policies and Regulations of MEP, cited estimates that half of all regulated facilities in China violate the law and that pollution in China would be 70% less than it currently is if polluters were in full compliance with the law.
Problems with enforcement of China’s environmental laws run deep. China’s regulatory system is highly decentralized with the nation’s Ministry of Environmental Protection (MEP) less than a fiftieth the size of the U.S. EPA for a country with more than three times as many people than the U.S. Enforcement problems are compounded by local corruption, small penalties for violations, the lack of an independent judiciary and the absence of a long tradition of respect for the rule of law.
As Chinese authorities struggle to increase the enforceability of their environmental laws, two ACOEL members were given an unusual opportunity last month to peak into a window on the NPC’s legislative processes. On March 19, James A. Holtkamp and I were invited to appear before the Legislative Affairs Commission of the NPC’s Standing Committee in Beijing along with David Pettit, a senior attorney with the Los Angeles office of the Natural Resources Defense Council (NRDC). Billed as a “Green Dialogue,” the event was an extraordinary effort to obtain U.S. expert input to help resolve disagreements within the NPC on proposed amendments to make China’s basic Environmental Protection Law more enforceable.
Representatives of the NPC’s Standing Committee and MEP presented us with six sets of questions concerning U.S. enforcement procedures and policies. Many were directed at understanding how penalties for environmental violations are determined in the U.S. A proposal to provide that maximum fines for environmental violations in China be calculated in part based on the number of days the violation has occurred was one issue that had created disagreement within the NPC. We noted that this has become a fundamental principle of U.S. pollution control law and that it provides a powerful incentive for violators promptly to stop and correct violations. We emphasized the importance of monitoring and reporting requirements in environmental permits. We also suggested that China should consider adopting a policy that enforcement actions should recoup at least the economic benefit of the violation to ensure that companies do not profit from their violations. This has been EPA’s long-standing policy and there appears to be some interest in adopting such a policy in China.
Chinese authorities are moving toward requiring greater transparency from polluters. Beginning on January 1, 2014, they mandated that China’s 15,000 largest companies provide the public with continuous data concerning their air and water emissions, something that would have been unthinkable just a few short years ago. By opening up a “Green Dialogue” on U.S. enforcement practices, China’s legislators are exhibiting a healthy appetite for entertaining new ideas to improve the effectiveness of their environmental laws. Our U.S. expert panel consisting of an industry practitioner, a public interest lawyer, and an academic apparently proved to be a persuasive coalition for we have learned that many of our recommendations are being incorporated into the new draft of China’s basic Environmental Law.
Posted on April 17, 2014
On April 15th, the D.C. Circuit Court of Appeals affirmed EPA’s rule setting limits for emissions of mercury and other air toxics from fossil-fuel-fired electric steam generating units. The focus of the decision – and the issue on which Judge Kavanaugh dissented – was whether EPA was required to consider the costs that would be imposed by the rule. EPA said no and the majority agreed.
Section 112(n) of the Clean Air Act required EPA to perform a study of the health hazards related to hazardous emissions from EGUs prior to regulating them. How was EPA to utilize the results of the study?
"The Administrator shall regulate [EGUs] under this section, if the Administrator finds such regulation is appropriate and necessary after considering the results of the study required by this subparagraph."
The industry petitioners and Judge Kavanaugh took the position that Congress’s use of the word “appropriate” evidenced an intent to require EPA to consider costs. To Judge Kavanaugh, “that’s just common sense and sound government practice.” However, persuasive Judge Kavanaugh may be as a matter of policy, the majority was not persuaded that the law requires a consideration of cost.
As the majority noted, nothing in section 112(n) requires that EPA consider cost. Indeed, the word “cost” is not mentioned in section 112(n). Moreover, Congress required EPA to make the “appropriate and necessary” determination based on a study of health impacts, not a study of costs. Finally, as EPA and the majority noted, the Supreme Court, in Whitman v. American Trucking Ass’ns, c
autioned against finding authority – let alone a mandate – to consider costs in ambiguous provisions of the CAA, given that there are sections of the Act which do address costs.
I’m with Judge Kavanaugh as a matter of policy (though it’s worth noting that EPA in fact did a cost-benefit analysis and found that the benefits of the rule substantially outweigh its costs). On the law, however, the dissent seems pretty much a case of ipse dixit. When the rule was promulgated, I said that I would be “stunned” if the rule was not upheld on judicial review. Notwithstanding the dissent, I’d be equally stunned if the Supreme Court flips this decision. I don’t think that there’s anything here warranting Supreme Court review.
Posted on April 16, 2014
Transportation of crude oil via rail has increased from 9,500 carloads in 2008 to more than 400,000 carloads in 2013, and an increase in incidents associated with these shipments has occurred as well. On February 25, 2014, the U.S. Department of Transportation (DOT) issued an Emergency Restriction-Prohibition Order (amended on March 6, 2014) to address safety issues of transporting crude oil by rail.
The DOT Emergency Order focuses on the imminent safety hazard posed by misclassification of crude oil, which can lead to the use of containers that lack the safety enhancements necessary to safely transport oil properly classified as Packing Group (PG) I and II materials. The Emergency Order required testing and classification of crude oil prior to transportation rather than reliance on generic information. The amended Emergency Order stepped back somewhat because it “does not specify how often testing should or must be performed, nor does it require testing to be performed for each and every shipment.” The amended order allows the operator to determine whether it has sufficient data available to reliably classify the crude oil it intends to ship. It still requires operators to treat Class 3 petroleum crude oil as a PG I (highest danger classification) or PG II (medium danger classification) material rather than the less demanding PG III classification. A presumptive PG I or PG II classification removes from use several models of tank cars that have fewer safety measures. Recent accident investigations indicate that presumptive classifications become dangerous where some sources of crude (like the Bakken Formation) exhibit comparatively higher volatility.
This Emergency Order followed a DOT safety initiative (agreed to by the Association of American Railroads (“AAR”)) that establishes new, voluntary safety standards for the transportation of crude oil by rail, including speed restrictions, increased rail and mechanical inspections, and improved braking systems. But are these measures enough?
Overall, yes. Improved safety requires actions of different types: (1) operational changes; (2) additional steps to prevent derailments; and (3) tank car design changes. The Emergency Order and DOT/AAR safety initiative address the first two pathways. What about tank car design? The Emergency Order leaves that issue for another day. Although the Emergency Order will affect the ability to use certain tank cars with fewer safety measures, it has been estimated that the tougher classification standards for crude oil will affect less than three percent of tank cars now used in the United States. In 2011, AAR adopted higher standards for new tank cars transporting crude oil and ethanol, although there were no retrofit specifications adopted. According to the AAR, roughly 92,000 tank cars are moving flammable liquids and approximately 78,000 of them do not meet the new 2011 tank car standards.
Regulators have also acknowledged the need for improvements for tank cars. The Pipelines and Hazardous Materials Safety Administration (PHMSA) is considering recommendations by the AAR to upgrade new tank car standards and require existing tank car retrofits. The AAR recommended to PHMSA several improvements for tank cars transporting flammable liquids, including an outer steel jacket around the tank car, thermal protection, improved pressure relief valves, and other measures to prevent puncture in the case of an accident.
None of these measures are the final solution, but the Emergency Order, the DOT safety initiative and upgrades to tank car safety standards are crucial steps toward safer transportation of crude oil.
Posted on April 15, 2014
This week, the Environmental Council of the States (ECOS) publicly announced a memorandum prepared by ACOEL members concerning important issues arising under the Clean Air Act. In May 2013 ACOEL entered into a Memorandum of Understanding with ECOS to facilitate a relationship pursuant to which members of ACOEL will provide assistance on issues of interest to ECOS.
In accord with the President’s June 2013 Climate Action Plan, EPA announced plans to use existing Clean Air Act Section 111 authority to develop greenhouse gas emissions (GHG) standards for new and existing sources. Thereafter, ECOS contacted ACOEL and requested an extensive and neutral review of the history and background of section 111(d) of the Act. A diverse group of ACOEL members from academia, private law firms, and public interest groups volunteered and produced the attached comprehensive memorandum, which was well received by ECOS. This week, ECOS made the memorandum publicly available.
In announcing the memorandum, Dick Pedersen, the President of ECOS and Director of the Oregon Department of Environmental Quality, thanked the members of ACOEL for their significant time and effort in preparing the memorandum, and added that ECOS looks forward to working with ACOEL in the future. ACOEL hopes that this memorandum will serve as a valuable resource in connection with EPA’s anticipated rulemaking efforts in this area.
ACOEL: Memorandum for ECOS Concerning Clean Air Act 111(d) Issues pdf
Posted on April 14, 2014
Last week, in response to shareholder requests that it disclose information regarding how climate change might affect it in the future, ExxonMobil released two reports, one titled Energy and Climate, and one titled Energy and Carbon – Managing the Risks. They actually make fascinating reading and seem to represent a new tack by ExxonMobil in its battle with those seeking aggressive action on climate change.
The reports do not deny the reality of climate change. Indeed, the reports acknowledge climate change, acknowledge the need for both mitigation and adaptation, acknowledge a need to reduce fossil fuel use (at some point), acknowledge the need to set a price on carbon, and acknowledge that ExxonMobil in fact already is making future planning decisions utilizing an internal “proxy” price on carbon that is as high as $80/ton of CO2 in the future.
The reaction of the shareholder activists who pushed for the disclosures? They are not happy. Why not?
Because ExxonMobil has said explicitly that it doesn’t believe that there will be sufficient worldwide pressure – meaning government regulations imposing very high carbon prices – to reduce fossil fuel use sufficiently quickly enough to limit global temperature rise to 2 degrees Celsius. It also does not believe that worldwide carbon regulation will leave it with any “stranded assets.”
I understand the moral case against fossil fuel use. Personally, however, I’d rather rely on a carbon price that provides the appropriate incentives to get the reductions in CO2 emissions that we need to mitigate climate change. On that score, sadly, it’s not obvious to me at this point that ExxonMobil’s analysis of likely outcomes is actually wrong.
My biggest complaint with the reports is the refusal to recognize that markets react dynamically to new regulatory requirements. The history of big regulatory programs is that they pretty much always cost less than the predictions made before the regulations are implemented. The lesson then is that the current projections of energy cost increases resulting from a high cost of carbon are likely to be overestimated.
Time will tell. At least I hope so.
Posted on April 11, 2014
A year ago, this blog contribution described the latest battle in a nearly 40-year old water war in Oregon’s Klamath Basin. Now, there is a tenuous peace agreement in place – but it may be short-lived. With substantial leadership from Senator Ron Wyden and Governor John Kitzhaber, a “Proposed Upper Klamath Basin Comprehensive Agreement” was negotiated among the Klamath Tribes, State of Oregon, and a large group of independent farmers and ranchers who hold water rights to surface waters in the Klamath Basin, above Upper Klamath Lake. The underlying war has to do with who gets how much water in an on-going “general stream adjudication” of water diversions that began in the late 1800s to early 1900s, along with quantification of federally reserved water rights.
In March, 2013, the Oregon Water Resources Department (“OWRD”) issued its “Findings of Fact and Final Order of Determination” (“FFOD”), which approved the federally reserved claims of the Klamath Tribes for substantial instream flows in the Klamath River and tributaries above Upper Klamath Lake, and for specified lake levels. The Tribal water rights were granted a priority date of “time immemorial.” When the FFOD took effect last year, the Tribes were legally entitled to make a “call” for water – requiring the OWRD to take immediate action to curtail water use by junior appropriators until the Tribes’ instream flow allocations were satisfied. As a result, thousands of acres of irrigated farm and pasture lands were dry.
The impact of the call was economically, socially and politically devastating, leading Senator Wyden and Governor Kitzhaber to convene a fast-moving settlement process that began late last fall and resulted in conceptual agreement before the end of 2013. Further work in early 2014 resulted in a comprehensive agreement for the Upper Basin -- but the deal is fragile. Implementation of key settlement terms depends on securing substantial federal funding and state agency support, with no guarantees of either.
The settlement includes two key components: a Water Use Plan and a Riparian Program. Under the Water Use Plan, irrigators will voluntarily retire or reduce historic diversions by up to 30,000 acre-feet. Under the Riparian Program, landowners will commit to voluntary habitat restoration actions. The two components are to be implemented over a five year period, subject to the availability of federal funding. An additional $40 million of federal funding is to be provided for Tribal economic development.
This settlement agreement complements another agreement, reached several years ago, among the Tribes, state and federal agencies, and lower basin irrigators who receive water from Upper Klamath Lake under contracts with the U. S. Bureau of Reclamation. That agreement also requires substantial federal funding that has not yet been committed, due at least in part to political pressures stemming from the fact that it addressed only half of the basin – leaving upper basin irrigators to bear the brunt of a Tribal call. With the upper basin interests now addressed through this second settlement agreement, the basin is now fully covered with strategies to help recover instream flows to meet Tribal water needs while maintaining a sustainable level of economic use for farmers and ranchers.
Optimists are hopeful the region will now be able to move forward with a united front to seek needed support from Congress. Pessimists say the deal will crumble beneath the political weight and budget pressures of Washington DC. One thing is for sure – the Klamath Basin water wars will not be ended soon. Stay tuned for next year’s update.
Posted on April 10, 2014
In the Spring of 2012, just before trial on the Deepwater Horizon oil spill, BP and the plaintiffs reached a class action settlement. This settlement created a business claims process that required no direct causation beyond a showing that the business was located in a certain geographic area and had experienced a certain decline in revenue during the relevant period. The settlement included claims from throughout Mississippi, Louisiana and Alabama, and certain coastal counties of Florida and Texas. In November, 2012, the district court held a fairness hearing where BP argued for approval. In December, 2012, with the support of BP, the court certified the class and approved the settlement.
Over time, estimates of BP’s claims exposure under the settlement agreement grew. Frustrated by attorney advertising that getting paid by BP did not require showing that your losses were caused by the oil spill, BP returned to the district court and objected to the claims administrator’s interpretation of the settlement agreement. BP argued for the first time that claims should be evaluated on an accrual basis accounting method rather than a cash basis. This could have reduced BP’s exposure, but most small businesses maintain their books on a cash basis and the district court upheld the claims administrator’s interpretation. BP appealed to the Fifth Circuit.
In the Summer of 2013, a 3-judge panel of the Fifth Circuit heard this first appeal and remanded the case for further development of the record on the parties’ intent. (link to decision) One judge questioned sua sponte whether a causation standard that did not require proof of a connection to the oil spill undermined the parties’ legal ability to enter into a class action settlement. The panel also instructed the district court to stay the payment of claims pending resolution of these issues.
Meanwhile, parties who had objected at the fairness hearing took a second appeal to the Fifth Circuit that challenged class certification. BP joined in this appeal, notwithstanding having argued for certification before the district court. BP argued that because the settlement agreement was being interpreted to pay claims that were not connected to the oil spill, the class was not properly certified. In January, 2014, a 3-judge panel hearing the second appeal affirmed class certification based on the panel’s understanding of the injury alleged on behalf of potential class members and the panel’s view of Article III standing requirements and Rule 23 class certification requirements applicable at the settlement stage of the case. (link to decision)
Back to the first appeal. On remand, the district court ruled in December, 2013 that the revenue-based causation standard agreed to by the parties was sufficient for class certification and met the requirements of Rule 23 and other federal laws regarding class actions. Predictably, BP asked the first Fifth Circuit panel to review this ruling. On March 3, 2014, that first panel affirmed the district court’s ruling and ordered that the stay on payments be lifted. (link to decision) Focusing more on the Claims Administrator’s interpretations of the Settlement Agreement, this panel determined that the agreed-upon claims process included elements sufficient to establish traceability of the claimed damage to the spill. In a sense, the earlier panel decision reviewed the Settlement Agreement as a matter of principle and the later decision reviewed it in application. On March 17, 2014, BP sought rehearing en banc. As a result, the panel’s mandate will not issue and the stay will remain in place pending resolution of BP’s request for rehearing. Is the gravity-challenged opera person warming up?
Posted on April 8, 2014
On March 28, 2014, a federal district court vacated EPA’s “Water Transfer Rule,” which had sought to clarify EPA’s position that transfers of water between navigable bodies of water do not require NPDES permits. See Catskill Mountains Chapter of Trout Unlimited, Inc. v. United States Environmental Protection Agency (SDNY, 3/28/2014). The Water Transfer Rule, codified at 40 CFR § 122.3(i), was the presumptive culmination of a long and meandering trail of EPA regulatory interpretation, guidance memoranda and judicial opinions, including a trip to the United States Supreme Court in the case of South Florida Water Management District v. Miccosukee Tribe of Indians, 541 U.S. 95 (2004).
The Catskill ruling is notable in several respects. First, it came from a district court. After the Supreme Court ruled, in Decker v. Northwest Environmental Defense Center, that district courts, rather than appellate courts, have jurisdiction in certain situations to review such regulations -- even if the suits are brought years after the rules were promulgated, the Eleventh Circuit held in Friends of the Everglades v. EPA that it lacked original jurisdiction over a challenge to the water transfer rulemaking, a ruling that the Supreme Court declined to review.
Second, the district court did not stay its ruling pending appeal, though appeal is a virtual certainty. Thus, the permit status of various water transferors who relied on the rule (irrigation districts, dam operators, water utilities, etc.) is now in limbo until a higher court reviews the Catskill decision or EPA promulgates a temporary fix. Any such fix, by the way, may be hard to come by in light of the district court’s expressed views about EPA’s misinterpretation of Congressional intent.
Third, the opinion contains language about the definition of “navigable waters” that does not quite align with EPA’s and the Corps’ imminent release of a Notice of Proposed Rulemaking addressing that very definition.
At this time, then, the only certainty is that litigation over the Water Transfer Rule will continue to flow.
Posted on April 7, 2014
For over forty years, the risk of incurring major liability under the Clean Water Act (CWA) has effectively discouraged “Good Samaritan” volunteers from cleaning up abandoned hardrock mine sites throughout the U.S. Past efforts to amend the CWA to remove this disincentive have been blocked, based in part on the assumption that EPA policies alone should be sufficient to remove the threat of CWA liability and effectively encourage such cleanups.
In the words of the Gold Rush prospectors, that assumption and related agency policies have simply not panned out. A Good Samaritan Initiative adopted by EPA in 2007 and clarified and “improved” in 2012 has had virtually no effect on removing this threat of CWA liability or causing actual cleanups involving water impacts to occur. Meanwhile, willing Good Samaritans continue to be discouraged from conducting useful remedial actions, and these problem sites remain untouched.
During this same period, flexible state and federal “brownfield” and voluntary cleanup programs have cleaned up hundreds of former industrial sites and revitalized key urban areas, including in lower downtown Denver. But some members of Congress have rigidly refused to apply similar common-sense approaches to abandoned mine sites.
The time has come to recognize that informal agency policies encouraging these voluntary mine cleanups have not fixed and legally cannot solve this long-standing problem and to embrace the practical types of legislative approaches that have worked in the urban brownfield programs. The Good Samaritan CWA amendments introduced in 2013 by Senator Udall and others offer just such a practical solution. Past opponents of such legislation should acknowledge that agency efforts alone cannot remove the existing disincentive for cleaning up these sites and should support this modest, practical step to facilitate these mine cleanups.
The Problem. According to the GAO, there are over 160,000 abandoned hardrock mines, mainly in the western U.S., that can leach heavy metals such as lead, mercury and arsenic into the environment. EPA’s estimate is over three times higher. EPA further estimates that historic mines have contaminated over 40 percent of the watersheds in the west and would cost more than $35 billion to clean up. These former mines are considered “orphan” sites, because their owners and operators are either dead, defunct or insolvent.
Remediating these sites has proven to be an intractable problem for several reasons. One is the technical difficulties and enormous costs of remediating such sites in full compliance with applicable environmental laws. Another is the risk of incurring substantial liabilities or obligations under those laws for a non-compliant or partial clean up.
The Disincentive. While CERCLA contains a “Good Samaritan” provision that shields qualified non-liable volunteers from incurring liability under that law when they conduct voluntary remedial actions, the Clean Water Act (CWA) currently contains no such exemption. Because the most serious of these abandoned mine sites involve impacts to water quality, this threat of CWA liability has severely inhibited both private Good Samaritans and state and local governments from conducting common-sense, voluntary cleanups that would significantly improve the affected watersheds.
Beginning in 1995 and continuing to the present, Senator Baucus and others have introduced various “Good Samaritan” amendments to the CWA aimed at removing this major legal disincentive. However, because the amendments would have allowed less than full compliance with otherwise applicable water quality standards and discharge permit requirements, certain NGOs and members of Congress to date have strongly opposed and defeated such efforts.
This well-intentioned opposition has been misguided and a classic instance of the perfect being the enemy of the good. By demanding that remediation of these orphan sites be fully compliant and permitted without exception, only a handful of minor abandoned mine cleanups involving water have occurred during the last four decades.
Ineffective EPA Initiative. To address this Congressional logjam and currently discouraged Good Samaritans, EPA has laudably attempted to address this disincentive by adopting in 2007 an administrative “Good Samaritan Initiative”. The Initiative consisted of an EPA statement of Interim Principles and a “Comfort Letter” and model settlement agreement offered to non-liable entities that volunteer to remediate abandoned hardrock mines. This initial guidance focused primarily on the fact that, under the CERCLA 121(e) “permit shield,” no permit would be required under the CWA or other laws while an on-site CERCLA “removal” action was occurring. However, that guidance did not address the fundamental question troubling Good Samaritans about what happens once the removal is completed but some discharge unavoidably continues. As a result, that Initiative did little to allay those concerns and had no appreciable effect on increasing efforts to remediate abandoned mines with water impacts.
In recognition of that ineffectiveness, EPA in December 2012 attempted to bolster its 2007 Initiative by issuing a guidance Memorandum describing two clarifications to the 2007 Guidance. The first was that a CERCLA removal action could be extended through periodic monitoring or other activities, which would lengthen the period when the CERCLA permit shield would apply. However, the prospect of being engaged in a very-long-term CERCLA action has neither enthused Good Samaritans nor addressed their root concern about CWA liability once the CERCLA action is done.
To address that key issue, EPA further clarified that, based on the application of five listed factors, a Good Samaritan cleaning up an abandoned mine “might” not be considered by EPA to be a liable “operator” required to obtain an NPDES discharge permit. All of those factors relate to whether the volunteer has the “power or responsibility” to access the site and control the ongoing discharge after its remedial action is finished.
While issued with much fanfare in 2012, this “improved” Good Samaritan Initiative has again had virtually no effect on addressing the concerns of potential volunteers or increasing cleanups of these sites, for several reasons. First, EPA has emphasized that this Initiative merely explains its current interpretation but is not binding on EPA, third party NGOs, or the courts and “may not be relied on to create a right or benefit … by any person.” Not exactly the assurance that Good Samaritans want and need. Second, EPA stresses that this guidance applies only to Good Samaritans at orphan mine sites, but the factors for determining whether an entity is a CWA-liable “operator” cannot be unique to those parties. As a result, potential Good Samaritans have rightly been skeptical whether they can make any potential CWA liability vanish simply by arranging that their right to access and conduct operations on the affected site terminates upon completion of some defined task. If a mining lessee or contractor attempted such an arrangement, EPA and the courts no doubt would reject any claim it was not a CWA-liable operator. There currently is no legal basis to treat volunteers any differently. This point also offers no comfort to a governmental volunteer, who likely will always have the power of access and thus trigger operator liability.
The 2012 memo also repeatedly indicates that, if a Good Samaritan is not deemed a responsible operator, then the site owner would be required to comply with NPDES permitting requirements. But EPA ignores the fact that, at these orphan sites, there simply is no owner (unless it is the U.S., which to date has largely ignored its own liability).
Over a year after issuance of this “improved” Good Samaritan Initiative, it is clear that this EPA policy has been ineffective in increasing mine cleanups or addressing the CWA legal disincentive for such actions. To the contrary, several groups dedicated to these voluntary efforts have made clear that these nonbinding agency guidance documents have had little to no impact, and the groups’ efforts continue to be stymied in the absence of effective legislative reform.
The Proposed Legislative Fix. To address this problem, Colorado Senators Udall and Bennett have introduced S. 1443, the Good Samaritan Cleanup of Abandoned Hardrock Mines Act of 2013. The bill creates a new Good Samaritan Permit under the CWA, to be issued by EPA or an approved State or Tribe, that would authorize a Good Samaritan volunteer to conduct a specified remedial action at an abandoned mine site. Those actions could include relocating waste rock, re-routing drainages, establishing wetlands, and similar measures that would greatly improve watershed conditions, but they would not need to result in complete compliance with otherwise applicable water quality standards or require a long-term discharge permit. Compliance with that special permit would then shield the volunteer from liability under the CWA and cure the current disincentive for volunteers willing to address these sites.
This huge, languishing problem of abandoned hardrock mine sites needs a solution. This bill isn’t perfect. But it’s a good start. Let’s get started.
Posted on April 2, 2014
What happens when an administrative agency actually fails to comply with a court order mandating the adoption of regulations? New Jersey administrative agencies and bodies have an idea despite the state’s Supreme Court modification of a lower court’s order. As state environmental agencies and boards often face court orders mandating new or modified regulations, they should know what almost happened in New Jersey.
In New Jersey, the nation’s most densely populated state, there is a constant tug between development and preservation. Two New Jersey Supreme Court decisions and the state’s Fair Housing Act address housing. In effect, they require all 566 municipalities to provide for the development and existence of low and moderate-income housing so that each municipality meets its fair share of the region’s housing needs. The Act created the Council on Affordable Housing (COAH) to establish housing fair share numbers for the municipalities and the regulatory means to meet them. COAH has been criticized routinely and has been the subject of several major decisions since its creation. The last such decision, In re Adoption of N.J.A.C. 5:96 & 5:97 by N.J. Council on Affordable Housing, was in September of 2013 when the Supreme Court ordered COAH to enact new rules within five months. With COAH under attack from the current administration and with several seats on its board empty, meeting the deadline seemed unlikely. COAH held no meetings within the five months and the deadline was not met.
As a result of missing the deadline, the Superior Court-Appellate Division, our intermediate court, issued a decision and order of March 7, 2014, that should be a lesson to all regulatory bodies. The Appellate Division took the extraordinary measure of requiring a COAH meeting five days after issuing the order to be attended by sufficient board members to constitute a quorum, at which meeting the board was to instruct its executive director to prepare compliant rules. The Appellate Division required that the new rules be presented to COAH two weeks later. On that date, COAH was to meet again with a quorum, conduct an official meeting and adopt the rules consistent with the state’s Administrative Procedures Act. Six weeks later, again with a quorum required, COAH was to meet to review all public comments, consider them and any amendments proposed by the executive director and adopt the rules.
As if the level of detail in directing COAH was not enough, here’s the part of the decision and order that caused a stir. If this aggressive schedule was not met in any way, the Appellate Division ordered that “each member of the COAH Board will be ordered to personally appear before this court … to show cause why he or she shall not be declared in contempt of this court’s authority subject to monetary sanctions, civil detention, and such other sanctions the court may deep suitable to induce compliance with this order.” If this order does not send a chill into the hearts of tardy regulators, nothing will.
Perhaps the chill was ameliorated by the subsequent order of the New Jersey Supreme Court of March 14, 2014, setting more lenient time frames for compliance. The Supreme Court’s order also dropped the language about appearing personally at a contempt hearing but another court might not if its order to issue regulations is not met. For state regulators in such a situation, their court of highest jurisdiction may not back away from the approach taken by the New Jersey Appellate Division, establishing a specific agency schedule and threatening severe personal consequences in the face of non-compliance with a court order.
There may be nothing particularly new about the judicial power to enforce its orders, including use of citation for contempt. In the context of reviewing administrative regulations and dealing with appointed or elected boards or agencies, exercise of this judicial power generally includes recognition of and sensitivity to the separation of powers and the “real world” circumstances in which agencies act. However, these recent New Jersey orders should put regulators on notice that reviewing courts will be less tolerant of failures to implement their decisions.
Posted on April 1, 2014
Within three days in March, ACOEL lost two Fellows who were among the most important figures in the history of environmental law. David Sive, who died on March 12, 2014, was memorialized on our blog in the March 26, 2014 posting by our colleague Daniel Reisel, Mr. Sive’s longtime law partner. Three days earlier, on March 9, 2014, Professor Joseph L. Sax died in San Francisco at the age of 78.
Joseph Sax, Professor Emeritus at the University of California, Berkeley, was responsible for establishing the public trust doctrine in environmental law; the concept that there is a public interest in the protection and preservation of certain natural resources such as water bodies, shores, air and particular lands. He wrote of the principle in a seminal 1970 article in the Michigan Law Review, “The Public Trust Doctrine in Natural Resources Law: Effective Judicial Intervention.”
The doctrine was taken up by environmental advocates as the basis to pursue both legislative initiatives to protect natural resources, and judicial actions and remedies to conserve lands, waterways and air.
In 1979, the National Audubon Society, evoking the public trust doctrine, sued in California state court to enjoin the Los Angeles Department of Water and Power from diverting certain waters from non-navigable tributaries of Mono Lake, far north of the City, due to the impact that the diversions would have on the lake itself. In February, 1983, the Supreme Court of California, referencing a number of the historical antecedents discussed in Professor Sax’s Michigan Law Review article, and citing the article itself for its history of the doctrine, rendered an important and influential decision in favor of the National Audubon Society, recognizing the application of the public trust doctrine both to navigable waters such as the lake, and to the non-navigable tributaries that feed it.
The doctrine has been incorporated in the laws of a number of states, including the Michigan Environmental Protection Act of 1970, which Professor Sax wrote while on the faculty of the University of Michigan Law School. It has also been adopted in other nations. According to the obituary published in the New York Times, the doctrine has been has been advanced almost 300 times in litigation in state and federal courts in the United States.
Professor Sax graduated from Harvard University (1957) and the University of Chicago Law School (1959). Before beginning his long and distinguished teaching career, he worked at the Department of Justice. He began teaching at the University of Colorado in 1962, then went to the faculty of the University of Michigan in 1965, and joined the U.C. Berkeley School of Law faculty in 1986. Throughout his career as a teacher and scholar, Professor Sax was actively involved in advancing environmental causes and advocacy. From 1994 to 1996, he also served as counsel to Secretary of the Interior Bruce Babbitt, during the Clinton administration.