Lake Okeechobee: In the Eye of Another Storm

Posted on March 22, 2019 by Michelle Diffenderfer

Lake Okeechobee is the center of a storm again, politically speaking!

Lake Okeechobee is the largest natural freshwater lake in Florida, 730 square miles in size, with an average depth of only 9 feet, extending to five different counties. To give you some perspective on the size, Lake Okeechobee is the largest lake in the southeastern United States and the second largest lake contained entirely within the contiguous United States.  Lake Okeechobee can hold close to a trillion gallons of water.

Everyone loves and needs Lake Okeechobee for something, and over the past 130 years it has become a very heavily managed and manipulated heart of the Central and Southern Florida Flood Control Project (C&SF).  The diking and canal connections to the Lake were started initially in response to two devastating hurricanes in the 1920’s that killed thousands of people around the Lake.  As a result, a series of well meaning “improvements” began to Kissimmee River, Lake Okeechobee and the Everglades in order to protect human life and to provide for the development of South Florida for agricultural and residential uses. Today the C&SF project is managed by the United States Army Corps of Engineers (USACE) and the South Florida Water Management District (SFWMD).  They are charged with accomplishing a variety of congressionally authorized purposes which include public health and safety, flood control, navigation, water supply, enhancement of fish and wildlife, and recreation.

Lake Okeechobee as it exists today receives flows from the Upper Kissimmee Chain of Lakes by way of the Kissimmee River.  It discharges to the east through the St Lucie Canal to the St Lucie River and Estuary, into the Atlantic Ocean; to the west through the Caloosahatchee Canal to the Caloosahatchee River and Estuary into the Gulf of Mexico; and to the south through a series of canals to the Everglades Agricultural Area, the Lower East Coast canal system, three Water Conservation Areas and finally down to the remnant Everglades system.

Today, water levels and releases from the Lake are managed pursuant to a regulation schedule which is periodically updated by the USACE pursuant to a number of federal laws including the Water Resources Development Act (WRDA) and the National Environmental Protection Act (NEPA).  The USACE has just started scoping on what will be a three-year NEPA process to update the water regulation schedule for Lake Okeechobee.  The update of the schedule is typically a controversial affair because the process must take into account the often-competing interests of two Native American Tribes, agriculture, water utilities, developers, fishermen, boaters, and environmental groups.

This time around the work is starting up after a year of citizen protests, outrage, and national headlines about the summertime releases of water containing “blue-green algae” (cyanobacteria)  from the Lake to the Caloosahatchee and St Lucie Rivers out to the estuaries.  Blue-green algae grows in freshwater systems and typically feeds on nutrients like phosphorus and nitrogen.  The blue-green algae can release nerve and liver toxins which – when carried with the freshwater discharges to the estuaries – presents greater opportunity for negative impacts to humans, domestic animals, and wildlife, including sickness and even death.  If that was not enough fun for Florida this past year we have also been suffering through outbursts of “red tide” or algal blooms along the coast which has caused additional negative impacts to wildlife, humans, and their pets. A very active and vocal group of citizens who live along and enjoy the rivers and nearby beaches that were affected are now showing up at the USACE scoping meetings.  They are pushing for the Lake schedule to be modified so that the Lake is held at significantly lower levels year round in the hope that this will lead to less discharges into the estuaries. This has also caught the attention of our brand new Governor and the local Congressmen who represents the St Lucie River residents who are weighing in and asking the USACE to hold the Lake lower than it has ever been held before. 

We are in the midst of a perfect storm, with no happy endings in sight, but lots of busy lawyers!

Delaware – The First State in Sustainability?

Posted on March 21, 2019 by Robert Whetzel

Long known as the corporate capital of the United States, Delaware is home to over 50% of publicly-traded U.S. companies, and approximately 1.3 million legally incorporated or formed entities representing companies large and small. Businesses choose to organize under Delaware law for many reasons, including its well-developed body of corporate and alternative entity law, flexible and enabling corporate and alternative entity statutes, and highly regarded business courts. Until recently, Delaware law was largely silent on issues of sustainability as they relate to corporate and entity governance. In an effort to support the global sustainability efforts of its entities, the State of Delaware recently enacted first of its kind legislation creating a path for Delaware entities to adopt and implement sustainability standards in a rigorous, systematic and transparent manner.

On October 1, 2018, the Delaware Certification of Adoption of Transparency and Sustainability Standards Act (the “Delaware Sustainability Act” or “DSA”) took effect. The Delaware Sustainability Act establishes a voluntary program for Delaware entities to adopt sustainability standards and to report on sustainability performance with the Delaware Secretary of State. Entities that satisfy the DSA’s requirements receive a certificate from the Delaware Secretary of State indicating compliance with the DSA.

Although many companies have adopted sustainability standards, there is no universal framework for identifying, evaluating or comparing the implementation of sustainability standards.  By and large, businesses are free to adopt standards of varying scope with no common approach to reporting or performance evaluation. As a result, there are widely varying degrees of transparency in the adoption and implementation of sustainability standards. Delaware has attempted to change that model (at least for Delaware entities) by adopting the DSA, which requires participating entities to report publicly on their sustainability standards and performance and establishes a centralized, public database of sustainability reports that those entities have generated.

A Delaware entity may elect (but is not required) to become a reporting entity under the DSA. To do so, its governing body must adopt resolutions setting forth its sustainability standards and assessment measures, and file a statement to that effect with the Delaware Secretary of State. The DSA defines “standards” as the “principles, guidelines or standards” that the entity adopts to assess and report the impacts of its activities on society and the environment; those standards must be based on or derived from third-party criteria. The DSA does not mandate the specific sustainability standards that an entity should choose to adopt. Instead the entity is free to adopt standards developed by a third-party organization, including both governmental and NGO sources.  Once standards are adopted, a reporting entity must file an annual report with the Delaware Secretary of State containing a summary of the standards and assessment measures, actions taken to meet the standards, and a description of any additional efforts that will be taken to improve performance.

Delaware has a long-standing tradition of leadership in matters of corporate governance, and has now developed a framework for its corporate citizens to adopt best practices in governance and sustainability.  The DSA is entirely optional and voluntary, and it remains to be seen whether Delaware will become the First State in Sustainability.

Listen & Learn Next Tuesday — An ACOEL Webinar on Kisor v. Wilkie

Posted on March 21, 2019 by Allan Gates

Save the date.

On Tuesday, March 26th, Jeff Thaler and Sanne Knudsen will explain all you need to know about Kisor v. Wilkie, the SCOTUS case that will reexamine Auer deference to agency interpretations of their own regulations.

Jeff is one of fourteen law professors who filed an amicus brief in Kisor v. Wilkie; and Sanne has written authoritatively on Auer deference.  Jeff’s amicus brief and Sanne’s law review article are accessible here and here.

Jeff and Sanne’s webinar presentation is your opportunity to learn why Justice Scalia openly invited the Supreme Court to abandon his own majority opinion in Auer v Robbins, and to hear what SCOTUS reconsideration of Auer may portend for the future of Chevron.

Please join this ACOEL members-only webinar: 

            Tuesday, March 26th

            2:00 - 3:00 pm Eastern (11:00 am - Noon Pacific)

            Call In:  877-211-3621

            Participant Code:  9316435190

Jeff and Sanne’s webinar presentation will be followed the next day by oral argument in Kisor v. Wilkie before the Supreme Court.

Hoopa Valley Tribe v. FERC: When Does One Year Mean One Year?

Posted on March 19, 2019 by Rick Glick

As Seth Jaffe noted in this blog, on January 25, 2019, the U. S. Court of Appeals for the D. C. Circuit rendered a highly significant opinion with respect to state water quality certification under section 401 of the Clean Water Act (CWA).  In Hoopa Valley Tribe v. FERC, the court rejected the commonly used workaround of the one-year statutory limit on state action by allowing multiple cycles of withdrawal-and-resubmittal of applications, holding that the States of Oregon and California had waived their authority by acceding to this practice.  The attached article, just published in The Water Report, discusses the case and its implications in detail.

Section 401 provides that before a federal agency can approve a project that may result in a “discharge to the navigable waters” the applicant must obtain water quality certifications from the affected state.  However, the state is deemed to have waived its delegated authority under section 401 if it "fails or refuses to act on a request for certification, within a reasonable period of time (which shall not exceed one year) after receipt of such request."   

Determining the water quality effects and appropriate mitigation for hydroelectric facilities that have been in place for over half a century is a complex undertaking.  Additional study and data are often needed, which could take more than one year to complete.  Moreover, since relicensing brings out a myriad of stakeholders seeking an opportunity to influence the next license term, 401 issues are frequently addressed through multi-party settlement negotiations, which can also take a long time to resolve.  This has led state 401 agencies and applicants to enter into understandings under which the applicant would withdraw its application before the end of one year and then resubmit it to reset the clock.  Such withdrawal-and-resubmittal cycles have often stretched over a period of many years. 

The case arises under a settlement agreement between the States of California and Oregon, PacifiCorp and other stakeholders leading to eventual removal of PacifiCorp’s Klamath River hydroelectric projects.  Such removal requires FERC approval, and thus water quality certification by the two states. The parties contemplated that this process would take years to complete and agreed that each year PacifiCorp would withdraw and resubmit its 401 applications to avoid waiver, but the new annual applications would be unchanged from the previous ones.  The D. C. Circuit was plainly put off by this common practice, and it is clear that the particular facts of this case drove the outcome. 

The court’s holding has huge implications for owners of hydroelectric facilities going through the licensing or relicensing process at FERC.  In the attached article, I describe the decision, the context in which it was reached, and what it might mean for the FERC and section 401 processes going forward.

More litigation is likely to come.  Watch this space for updates.

How Carbon Pricing Could be Won or Lost in the West: Linked Cap and Trade Programs Proposed in the Pacific Coast States

Posted on March 14, 2019 by Kevin Poloncarz

On March 6, 2019, a bill was introduced in the Washington Senate, SB 5981, to establish a cap and trade program linked to the existing California-Québec program, which is implemented under the auspices of the Western Climate Initiative (WCI).  The bill mirrors many of the design elements from the California program, as amended pursuant to a 2017 law that authorizes its extension beyond 2020, and also borrows from legislation currently under consideration by the neighboring State of Oregon, HB 2020, which would establish a similar “cap and invest” program, also intended to be linked with the WCI jurisdictions. 

If both the Washington and Oregon bills were enacted, it would represent a significant step forward in the development of North American carbon markets and would help realize the original WCI vision of a broad, economy-wide trading program embracing a significant share of the North American economy.

The Washington bill contains many of the features of the California/WCI program, including:

  • Similar scope of covered entities and emissions thresholds, including for the “first jurisdictional deliverer” of imported electricity;
  • Three-year compliance periods with a requirement to surrender instruments amounting to at least 30 percent of the prior year’s emissions in the first two years of each period;
  • Auctions of allowances with a floor and ceiling price, an allowance price containment reserve, and free allocations to energy intensive/trade exposed entities; and
  • Authorization for covered entities to rely upon offset credits for a small portion of their compliance obligation, with a limitation on the number that can be sourced from projects that do not provide direct environmental benefits in the state.

Notable differences from the California program include a $200 automatic penalty (adjusted annually for inflation starting in 2025) for each compliance instrument that is not timely surrendered.  In California, the automatic penalty requires that a covered entity must surrender an additional three allowances for each instrument it fails to timely surrender. 

The Washington bill would also amend the state’s greenhouse gas reduction goals, requiring a 40 percent reduction below 1990 levels by 2035 and an 80 percent reduction below 1990 levels by 2050.  California has the same 2050 target.  For the mid-term target, a 2016 California law requires the same 40 percent reduction below 1990 levels, but by 2030, five years earlier than would be required under the Washington bill.  While the Oregon bill has the same 2050 target as both California and the Washington bill, it sets a mid-term target for Oregon of reducing emissions to 45 percent below 1990 levels by 2035.  These disparities among the mid-term targets pose some question regarding whether the programs are equivalently stringent, which is a requirement for linkage imposed by a 2012 California law.  California’s approval of linkage with Ontario (which has since cancelled its program) was premised upon an Ontario goal of reducing emissions to 37 percent below 1990 levels by 2030; so linkage clearly doesn’t require uniformity of goals.

The Washington bill would also exempt emissions from a coal-fired power plant in Centralia, Washington, which is subject to a prior agreement that it must shutdown by the end of 2025. That exemption, as well as an exemption in the Oregon bill for power exports from an in-state gas-fired power plant, could pose additional obstacles to linkage and be the subject of legal challenges.  The attorneys general of Montana and Wyoming featured a similar exemption that had appeared in a 2018 Washington carbon tax bill as a basis for asserting in a letter to Governor Inslee that application of the tax to imported electricity would be unlawful.    

Obstacles aside, linking the Pacific coast states’ market-based programs would fulfill a fundamental goal of a 2013 agreement between the three states and British Columbia.  Additionally, California’s implementation of its cap and trade program in isolation of other western jurisdictions has been observed to result in emissions “leakage” in the Energy Imbalance Market, as zero-carbon power elsewhere in the west is directed to California and then back-filled by higher-emitting generation.  In response, the 2018 bill establishing California’s state policy of supplying 100 percent of retail sales from renewable and zero-carbon resources by 2045 mandates that the transition to a zero-carbon electric system must not cause or contribute to emissions increases elsewhere in the western grid or allow for resource shuffling.  That could prove challenging in the absence of equivalent price signals in other jurisdictions.  For that reason alone, the motivation for California to pursue linkage could be even stronger than when the Western Climate Initiative was launched over a decade ago.

ANNOUNCING THIS ACADEMIC YEAR’S STEPHEN E. HERRMANN ENVIRONMENTAL WRITING AWARD COMPETITION

Posted on March 12, 2019 by JB Ruhl

The American College of Environmental Lawyers (“ACOEL”) announces its annual Stephen E. Herrmann Environmental Writing Award (“Herrmann Award”) for the 2018-19 academic year.  Stephen E. Herrmann is a distinguished, nationally recognized environmental lawyer. For some forty years, Mr. Herrmann has been a leader in the area of environmental law as a practitioner, teacher, and writer. The ACOEL honors his leadership in environmental law and his role in the formation of the ACOEL.

The ACOEL is a professional association of distinguished lawyers who practice in the field of environmental law. ACOEL Fellows come from the private bar, not for profit organizations, government, and law schools. Membership is by invitation. Fellows are recognized by their peers as preeminent in their field. The ACOEL is dedicated to maintaining and improving the ethical practice of environmental law, the administration of justice, and the development of environmental law at the state and federal levels. 


Eligibility: Student-edited law journals or equivalent publications published by accredited U.S. law schools are eligible annually to nominate one student-authored article, note, case comment, or essay either (1) published by the submitting law journal during the current academic year, or (2) scheduled for publication in the next academic year. The article should be selected for its ability to promote understanding of legal issues in the broad field of environmental law, including natural resources law and/or environmental or resources aspects of energy law. The article must have only one author, and the author may be a candidate for the J.D., LL.M., or S.J.D. degree.

Award: The Herrmann Award is a stipend of $3,500 to the author of the winning submission – whether an article, note, case comment, or essay – and $500 to the submitting law journal. The winner of the Herrmann Award will be invited to discuss his or her submission to the Fellows at the ACOEL Annual Meeting, which in 2019 will be held October 10-12 in Williamsburg, Virginia. 

Judging Criteria: The prize will be awarded to the author of a student article, note, case comment, or essay either (1) published by the submitting law journal during the current academic year, or (2) scheduled for publication in the next academic year, that in the judgment of the ACOEL best presents a current topic within the broad field of environmental law.  Submissions will be judged based on originality, quality of research, presentation and writing, and significance of contribution to the field of environmental law. Entries will be judged by the ACOEL Stephen E. Herrmann Award Committee. 

Submission Schedule and Guidelines: Please email one electronic copy of a submission to the Stephen E. Herrmann Environmental Writing Award, ACOEL, using same as the email “Subject” line, to Professor J.B. Ruhl at jb.ruhl@vanderbilt.edu. Entries must be received no later than June 10, 2019. Please include with your entry: (1) a cover letter or e-mail message stating the name of the submitting law journal, (2) email address(es) of author (with post-graduation email address if applicable), (3) year of author’s graduation, and (4) a statement that the submission was not written as part of paid employment. If you have questions, please contact J.B. Ruhl by email referencing the same subject to ensure a prompt response.

Does the Clean Water Act Cover Discharges to or Through Groundwater, Part III?

Posted on March 7, 2019 by David Buente

In both 2016 and 2017, I blogged to discuss a key Clean Water Act (“CWA”) jurisdictional issue:  whether the indirect discharge of pollutants into groundwater which is hydrologically connected to a surface water of the United States is regulated under the CWA.  At the time, the district courts were split on this issue, and the only courts of appeals to rule on this point (a Fifth Circuit opinion from 2001 and a Seventh Circuit opinion from 1994) got the issue right by rejecting CWA or Oil Pollution Act jurisdiction over such discharges.  Since then, the landscape has shifted dramatically.  In 2018 alone, three circuit courts weighed in on this topic in five decisions.  And, as noted on this blog last month, the Supreme Court recently granted a petition for certiorari in one of these cases, meaning that years of confusion will finally be resolved, in some fashion, by 2020. 

The first circuit court to issue an opinion in 2018 was the Ninth Circuit in February 2018, in Hawai’i Wildlife Fund v. County of Maui (the opinion was amended in March 2018).  That case addressed whether treated wastewater effluent which traveled from the County’s underground injection wells, through groundwater, into the nearby Pacific Ocean constituted discharges regulated under the CWA.  The Ninth Circuit held that the wastewater was a covered discharge since it came from a point source (the wells) and was “fairly traceable from the point source,” even if it did not make its way directly from the wells to the ocean. 

The next circuit to weigh in was the Fourth Circuit, in April 2018 in Upstate Forever v. Kinder Morgan Energy Partners, L.P.  This decision held that the movement of gasoline which resulted from a pipeline spill in 2014 and was allegedly still seeping through groundwater approximately 1000 feet into surface waters constituted a CWA discharge, since it originated from a point source (the pipeline rupture) and there was evidence of a “direct hydrological connection between [the] ground water and navigable waters….”  This decision in fact expands the CWA even further than the Maui opinion, because it held that the CWA covered discharges when the original release of pollutants from the point source has ceased, but the pollutants continue to travel diffusely through groundwater.  In a September 2018 decision, a different Fourth Circuit panel in Sierra Club v. Virginia Electric & Power Company acknowledged the Upstate Forever panel’s adoption of the direct hydrological connection theory but rejected liability on the grounds that the coal ash landfills and basins at issue were not point sources.   

Finally, on the same day in September 2018, the Sixth Circuit issued decisions in Kentucky Waterways Alliance v. Kentucky Utilities Company and in Tennessee Clean Water Network v. Tennessee Valley Authority.  Both cases dealt with alleged discharges through groundwater from coal ash basins to navigable waterways.  Contrary to the Fourth and Ninth Circuits (and in line with the earlier circuit court case law), the Sixth Circuit held that groundwater was not a point source and that these discharges are not regulated since they must be directly from the point source to a water of the United States.

Petitions for writs of certiorari before the Supreme Court have proceeded on similar timeframes in the Maui and Upstate Forever cases.  In each case, the petitioners filed their petitions in August 2018.  The Maui petition addressed the indirect discharge via groundwater issue and a fair notice question.  The Upstate Forever petition raised both the indirect discharge through groundwater issue and whether an ongoing violation for purposes of a CWA citizen suit occurs when the point source ceased discharging but pollutants are still reaching navigable waters via groundwater.  In December 2018, the Supreme Court, signaling interest in the cases, requested the Solicitor General to file an amicus brief in both cases by January 4, 2019, expressing the view of the United States.  In that amicus brief, the United States urged the Supreme Court only to accept the Maui case, and only on the groundwater discharge issue.  The United States’ rationale was that Maui presented the groundwater discharge issue more squarely, since the ongoing violation issue in Upstate Forever was a threshold concern.  The brief separately observed that EPA was planning to take action shortly in response to its February 2018 request for comment on the groundwater discharge issue. 

On February 19, 2019, the Supreme Court, adhering to the United States’ request, accepted only the Maui petition and only on the groundwater discharge question.  The Maui case will likely be the Supreme Court’s most seminal CWA decision in over a decade, since the split decision in Rapanos v. United States, 547 U.S. 715 (2006).  Industry should track this case closely, as its resolution will have an effect on everything from federal and citizen suit enforcement to National Pollutant Discharge Elimination System permit requirements.   

Loving that PFAS: Does EPA’s Valentine’s Day PFAS Action Plan Portend a Change of Heart?

Posted on March 6, 2019 by Tom Burack

In a February 13 blog, I focused on the substantial role that states are playing in addressing PFAS compounds, in no small measure because EPA has not to date fully asserted itself in the arena, making the acronym as much one about a “Problem for All States” as about Poly- and Perfluoroalkyl Substances.  The following day, with only limited advance notice, EPA released its “PFAS Action Plan,” a Valentine’s Day gift to all of those who have been waiting to see if EPA has much interest in spending more time, let alone falling in love, with these ubiquitous contaminants.

EPA’s plan, while comprehensive in scope, has met with mixed reviews, in no small measure because it remains unclear where this is all leading or how fast anything will happen, and whether EPA will ultimately embrace a substantial and decisive leadership role in addressing PFAS contamination across the country, or whether, in this age of cooperative federalism, it will stick more to developing the background science and largely leave the standard-setting, regulatory and enforcement actions to the States. The Plan itself includes a number of major components that focus variously on reducing future PFAS exposures, understanding PFAS toxicity as a basis for developing groundwater cleanup and drinking water standards, identifying and mitigating exposures, providing a regulatory and liability framework for cleanups (including possible Maximum Contaminant Level (“MCLs”), as well as TRI and CERCLA hazardous substance listings for PFOA and PFOS), furthering research on PFAS health effects, and improving risk communication and engagement capabilities.  Most of the planned actions are described as the next steps in various processes, not as end results or guaranteed outcomes.

For example, the Plan states that EPA will take the next step in deciding whether to issue MCL regulations for PFOA and PFOS by proposing a “regulatory determination,” which EPA says “provides the opportunity for the public to contribute to the information the EPA will consider relating to the regulation of PFAS in drinking water.”  EPA will publish a preliminary regulatory determination in the Federal Register, obtain public comment, and then decide whether or not to issue a National Public Drinking Water Regulation for either PFOA or PFOS.  In so doing, EPA will need to weigh three criteria: Whether PFOA or PFOS have an adverse effect on the health of persons; whether PFOA or PFOS occur or have a chance to occur in public water systems often enough and at levels of public health concern; and, whether, in the EPA Administrator’s sole judgment, regulation of PFOA or PFOS presents a meaningful opportunity for health risk reductions for persons served by public water systems.  (See https://www.epa.gov/dwregdev/how-epa-regulates-drinking-water-contaminants.)  While the answer to the first criterion is likely “yes,” to date the available data on occurrence have not been so compelling as to drive rapid EPA action and, accordingly, the Administrator’s ultimate judgment under the third criterion is far from predictable, and likely at least a year away.  The trade press reports a range of statements having been made by EPA leadership in recent weeks that may intimate where the agency’s heart will ultimately be on the subject, but until the next phase of the process has run its course, uncertainty will remain and states will, accordingly, continue to individually proceed to take their own responsive regulatory actions. 

And maybe this is just the way that things will or even should play out, because while EPA’s on-line cover page for its PFAS Action Plan asserts that the Agency is “taking a proactive, cross-agency approach to addressing PFAS,” it also acknowledges that the “key actions” will “help provide the necessary tools to assist states, tribes, and communities in addressing PFAS …”  Yes, EPA loves PFAS, but maybe its heart isn’t so committed that it would not also expect the states, tribes and communities to profess at least an equivalent fondness, if not an even greater passion, for regulating these chemicals and seeing to their cleanup.  Put differently, invoking the spirit of cooperative federalism, EPA’s message seems to be that the states and EPA have complementary ways of showing their love for emerging contaminants like PFAS, so there should be plenty of love to go around.

Dorothy’s Contaminated Slippers: Developing Brownfields in OZ

Posted on March 5, 2019 by James B. Witkin

The hottest topic of the past two years in the real estate development world has been the birth of the Opportunity Zone (“OZ”). A creature of the mammoth tax bill passed by Congress at the end of 2017 (the “Tax Cuts and Jobs Act”), the Opportunity Zone program provides potentially significant tax breaks for new investments in developments in certain economically-distressed communities. Accounting firms and law firms (including those of many ACOEL members) have produced blizzards of client alerts and set up OZ practice teams, to help clients benefit from the program, which some have estimated could amount to trillions of dollars.

The law provides for states to designate certain distressed areas as Qualified Opportunity Zones (each, a “QOZ”); almost 9,000 have now been established nationwide. A taxpayer who invests untaxed capital gains in a specialized investment fund (a “QOF”), which in turn invests in a property or business in a QOZ, can defer—and potentially receive a discount on—any tax ultimately owed on the invested gain. (Environmental lawyers will be happy to see that tax lawyers like acronyms as much as we do.)  And, if those funds are invested for 10 years, and other rules are followed, any post-acquisition gains may be free from tax. (Warning: there are lots of gray areas and potential pitfalls which your tax partners have identified—make sure you review those client alerts before investing.)

The Department of the Treasury issued proposed OZ regulations a few months ago. While the legal consensus seems to be that there are still many unanswered questions, the market appears to be moving forward full steam ahead. Google “Opportunity Fund” and you will see many sponsors eager to separate taxpayers from their untaxed capital gains.  OZ deals are working through the pipeline. I’ve heard practitioners opine with varying degrees of enthusiasm on the underlying deals which will, after all, provide the ultimate investment return.

So where is the environmental angle? While there is nothing in the OZ law that encourages investment in brownfields, there is also nothing that prohibits it.  More important, certain states provide various types of incentives for brownfield development.  Nothing (at least at the federal level) prohibits the layering of those incentives. The right project in the right location could benefit from the OZ federal income tax breaks, as well as state and local tax reductions and other benefits.

As an example, in various counties in Maryland, a project which has successfully completed the state Voluntary Cleanup Program (VCP) may be eligible for a five year property tax cut. If the property is also located in a state Enterprise Zone, the length of that period may extend to ten years and in certain counties the amount of the tax reduction increases.

There can be challenges combining these incentives--for example, reconciling the federal and state requirements concerning the length of time investments must be maintained, and satisfying the state rules on what constitutes a qualifying brownfields investment. Still, it appears that there may be opportunities for additional tax savings for properly structured brownfield developments in Opportunity Zones.