Posted on June 10, 2014
On March 27, 2014, the U.S. Fish and Wildlife Service announced its intention to list the Lesser Prairie Chicken (Tympanuchus Pallidicinctus) as a threatened species under the Endangered Species Act. The diminutive LPC is a member of the grouse family, shorter than its close cousin the Greater Prairie Chicken by about one inch. Known for its colorful garb and ritualistic mating dances (jokingly referred to by one biologist as "Spring Break for Chickens"), the LPC population and habitat have declined significantly over the last decade in five states, according to surveys by FSW and state agencies.
Prior to the FWS listing, a voluntary LPC Range-Wide Conservation Plan was proposed by the fish and wildlife agencies of Texas, Oklahoma, Kansas, Colorado and New Mexico. These agencies of the five states with LPC habitat created the Western Area Fish and Wildlife Authority, or WAFWA. Two days before the FWS listing, WAFWA announced that 32 oil and gas, power transmission, and wind energy companies had committed to enroll more than 3.6 million acres in its LPC range-wide conservation plan, providing about $21 million for habitat conservation over 3 years. Despite this effort by WAFWA, the FWS listing went forward.
Is the sky falling for landowners and other parties operating in the LPC habitat areas designated by FWS? Clearly there will be limitations on land use; particularly in the high-priority areas where surveys have shown the presence of "leks" where the LPC gather to mate, or other areas of primary habitat activity. Companies in oil and gas, pipeline, electric transmission, wind energy and other sectors can enroll in the WAFWA program, pay a one-time fee and follow guidelines to minimize unavoidable impacts on the LPC and its habitat.
By participation in the WAWFA range-wide plan, these enrolled companies become a party to a Candidate Conservation Agreement with Assurances. This CCAA provides for protection for "incidental take" of the LPC or its habitat which may occur during operations, including emergency repairs to pipelines, electric transmission lines or similar activities.
However, for "Little Guy" or "Mom and Pop" operations, the picture is not so clear. A ranch or farm operation or a small, independent oil and gas producer or developer may face the need for individual permits from FWS or enrollment in the Natural Resources Conservation Service LPC Initiative. Protective assurances may be given in return for per-acre fees of up to $2.25/acre for oil and gas operations, and in the example of ranch operations, NRCS terms may limit grazing by cattle to no more than once in each five years.
Concerns over these land use limitations and the uncertainty regarding FWS penalties and enforcement policies for incidental take of the LPC or its habitat leave many small farm and ranch operators or oil and gas companies feeling they are under surveillance by mysterious forces, subject to sanctions they do not fully understand, with little power to resist. As a result, some oil and gas companies are abandoning plans to develop existing leases within the habitat areas and are not seeking new leases. Even oil and gas companies who are enrolled in the Rangewide Plan are struggling to understand how to operate moving forward. Land values will be impacted in the habitat areas when ranchers and farmers can find safer ground outside the LPC boundaries. While the LPC and its habitat now are better protected, it is not without cost and anxiety for humans living in the same area.
Posted on June 9, 2014
BP Exploration and Production, Inc. (“BP”) was recently dealt another blow in its fight to reinterpret its multibillion dollar settlement for economic and property losses arising from the 2010 Deepwater Horizon disaster when the Fifth Circuit refused to rehear BP’s appeal of a prior district court ruling on “causation nexus” requirements in the agreement. In December 2013, U.S. District Court Judge Carl Barbier ruled that individuals and businesses do not have to prove that they were directly harmed by the oil spill in order to get paid under the terms of the settlement agreement.
In 2012, nearly two years after the spill, BP reached a settlement with the Plaintiffs’ Steering Committee (which acts on behalf of individual and business plaintiffs in the multi-district litigation proceedings) to resolve hundreds of thousands of private economic, property damage, and medical claims stemming from the Deepwater Horizon explosion and oil spill. BP has disputed many of the economic and property damage claims brought pursuant to the settlement agreement. BP argues that the claims administrator was incorrectly interpreting the meaning of the settlement agreement, particularly with respect to whether or not a claimant must submit evidence that its losses were directly caused by the spill.
Judge Barbier, who is presiding over the multidistrict litigation stemming from the Deepwater Horizon disaster, ruled that the settlement agreement did not contain a causation requirement beyond the revenue and related tests set out in the agreement, opening BP’s checkbook to economic loss claimants who may not be able to trace the cause of their damages back to the 2010 disaster. BP already had revised its original $7.8 billion estimate of its potential costs under the settlement agreement up to about $9.2 billion. Later, as it began challenging economic loss claims, BP proclaimed it could no longer provide a reliable estimate of the ultimate cost of the deal.
BP appealed the district court’s ruling to the Fifth Circuit Court of Appeals, claiming in December that it had to pay hundreds of millions of dollars to businesses and individuals that exaggerated losses from the disaster. The Fifth Circuit affirmed the district court’s ruling in March 2014, and on May 19, declined to rehear BP’s appeal. In a strongly worded dissent joined by two other justices, though, Judge Edith Clement argued that the district court’s rulings would “funnel BP’s cash into the pockets of undeserving non-victims” of the 2010 spill, adding that the appeals court had made itself “party to this fraud” by rejecting BP’s arguments. Judge Clement concluded that “another court surely must resolve this.” BP clearly agrees and has vowed to appeal its case to the U.S. Supreme Court, declaring that “no company would agree to pay for losses that it did not cause, and BP certainly did not when it entered into this settlement.”
Ted Olsen, BP’s lead attorney, said in a 60 Minutes segment in May that the company would take its argument “as far as it is necessary to go to make sure that this settlement agreement is construed properly.” The New Orleans Times-Picayune reports that some experts following the case expect that the Supreme Court will not take up the case, but suspect that BP’s true motive may not be to win on appeal, but to simply prolong the litigation and delay paying claims. The Fifth Circuit lifted its stay on payout of settlement claims, and the Supreme Court just rejected BP’s request that the Supreme Court reimpose the stay pending filing and disposition of its petition for writ of certiorari.
Meanwhile, in the midst of its attempt to walk back from the economic and property loss settlement it negotiated and—at the time—happily agreed to, BP rejected a $147 million claim from the National Oceanic and Atmospheric Administration (“NOAA”) demanding additional funds to conduct its ongoing Natural Resource Damage Assessment (“NRDA”) activities related to the Deepwater Horizon oil spill. NRDA is the process created by the Oil Pollution Act (“OPA”) and its implementing regulations that authorizes natural resources Trustees to assess injuries to natural resources caused by oil spills and spill response activities, and to restore the injured resources. OPA requires that the party or parties responsible for the oil spill pay for the reasonable costs incurred by the Trustees to carry out the NRDA and restoration.
Last July, NOAA submitted a claim to BP for the estimated costs of NRDA activities that NOAA planned to implement in 2014. NOAA’s claim includes $2.2 million for research on the recovery of coastal wetlands, more than $10 million to remedy damage to dolphin and whale habitat, and $22 million for oyster habitat restoration. The Financial Times (free subscription required) reports that BP rejected the majority of NOAA’s requests, saying it was concerned by “the lack of visibility and accountability” in the process, and the unwillingness of the Deepwater Horizon NRDA Trustees (a handful of U.S. federal agencies and five Gulf Coast state governments) “to engage in technical discussions of the substantive issues.” The Financial Times reports that “BP said it had paid for work that was not done or done properly, been double-billed for the same study, and not been allowed to see research findings that it had been told would be shared”—evidence BP argues could be used at the trial over civil penalties to show that ecological damages from the spill are much less than once feared.
According to an April 30 report on BP’s website, BP has already paid nearly $1.5 billion to federal and state government agencies for spill response, NRDA activities, and other claims related to the Deepwater Horizon spill, and over $11 billion to individuals and businesses. I need to disclose, too, that my firm is assisting several claimants to the BP settlement fund.
Posted on June 3, 2014
On Friday, in a case argued by my colleague, Greg Garre and briefed by Leslie Ritts, the D.C. Circuit decided a closely watched case construing the EPA’s “regional uniformity” requirement under the Clean Air Act (CAA.) The court declared the agency’s directive to regional offices outside the Sixth Circuit to ignore a 2012 Sixth Circuit decision interpreting the CAA’s “single source” requirements as inconsistent with EPA’s uniformity requirement. The decision brings to light an important component of the CAA’s nationwide scheme.
Under the CAA, any “major source” of pollution is subject to certain heightened requirements. EPA regulations provide that multiple pollutant-emitting activities will be considered together for purposes of the “major source” analysis if they are—among other things—“adjacent.” But EPA has, in recent years at least, given “adjacent” an expansive and atextual meaning, concluding that even facilities separated by considerable physical distance should be deemed “adjacent” as long as they are “functionally interrelated.”
In 2012, the Sixth Circuit in Summit Petroleum Corp. v. EPA held that EPA’s interpretation was “unreasonable and contrary to the plain meaning of the term ‘adjacent.’” The EPA opted not to seek Supreme Court review of the Sixth Circuit’s ruling. A few months after the Summit decision, however, EPA circulated a directive to the Regional Air Directors informing them that the agency would abide by the Sixth Circuit’s decision within the Sixth Circuit, but that “[o]utside the [Sixth] Circuit, at this time, the EPA does not intend to change its longstanding practice of considering interrelatedness in the EPA permitting actions.”
The National Environmental Development Association’s Clean Air Project (NEDA/CAP), an industry group, filed a petition for review in the D.C. Circuit, challenging the EPA’s “Summit Directive” as contrary to the statute and EPA’s own regulations. NEDA/CAP explained that EPA’s Directive would impermissibly place NEDA/CAP members operating outside of the Sixth Circuit at a competitive disadvantage, subject to a more onerous permitting regime than their peers operating within the Sixth Circuit’s jurisdiction. That disparity between regions, NEDA/CAP explained, was inconsistent with the CAA’s requirement that EPA assure “uniformity in the criteria, procedures, and policies applied by the various regions,” 42 U. S. C. § 7601(a)(2), as well as EPA regulations that similarly require inter-regional uniformity.
On Friday, the D.C. Circuit issued a decision agreeing with NEDA/CAP in National Environmental Development Association’s Clean Air Project v. EPA. Rejecting EPA arguments that the policy could only be challenged in the context of a discrete stationary source permit application, the Court held that NEDA/CAP’s blanket challenge to the EPA’s creation of two different permitting regimes across the country could be challenged today because of the competitive disadvantages it created for companies operating in different parts of the country.
On the merits, the Court concluded that maintaining a standard in the Sixth Circuit different from the one applied elsewhere in the country was inconsistent with the agency’s regulatory commitment to national uniformity. The Court recognized that an agency is ordinarily free, under the doctrine of “intercircuit nonacquiescence,” to refuse to follow a circuit court’s holding outside that court’s jurisdiction. Here, however, the Court held that EPA’s own regulations required it to “respond to the Summit Petroleum decision in a manner that eliminated regional inconsistency, not preserved it.” Finding that the agency’s “current regulations preclude EPA’s inter-circuit nonacquiescence in this instance,” the Court vacated the directive.
The decision is noteworthy in a number of respects. Not only does the decision roundly reject EPA’s threshold objections to NEDA/CAP’s petition (standing, finality, and ripeness), but it appears to represent the first time a court has applied EPA’s uniformity regulations to invalidate a rule. The decision therefore puts a light on an important component of the CAA’s nationwide enforcement scheme—the “regional uniformity” requirement.
Posted on May 23, 2014
Recently, Governor Cuomo and the NY State Legislative leaders struck a $140 billion budget deal for FY 2014-2015. Historically, the budget process in New York is messy (sometimes very messy), protracted (with the budget often being late, sometimes very late) and largely plays out behind-the-scenes among the “three men in the room” (Governor Cuomo, Speaker Silver and Senate Co-Leader Dean Skelos). Nevertheless, the FY 2014/2015 budget was passed on time this year and without too much background noise.
How did the environment fare you ask? That might depend on who you ask. Parks advocates were declaring victory and applauding the infusion of $92.5 million in park capital funds, (which the State Senate initially had rejected) for repairs and restoration at New York’s state parks and historic sites. This is the third year of robust capital funding for parks after several years of severe cuts in parks funding, although Park state officials had identified more than $1 billion of required park rehabilitation projects across the state. On the environmental front, notwithstanding some modest successes in the budget process, the environmental community largely believes the new budget falls short when it comes to protecting the environment, making New York more sustainable and preparing New Yorkers for the challenges of climate change. Moreover, many of the so-called advocacy successes were, in reality, merely successful efforts to beat down some pretty bad ideas.
Here are some of the highlights:
1. The Environmental Protection Fund (the “EPF”): The EPF was established in 1993 to fund environmental projects that protect the NYS environment and enhance communities, including in the areas of open space (such as purchasing land for the NYS Forest Preserve), parks, recreation, historic preservation and restoration, habitat restoration, farmland conservation and solid waste management (including upgrading of municipal sewage treatment plants). The EPF, which once stood at $255 million but suffered deep cuts during the recession when it was raided to support the State’s General Fund, was increased in the FY 2014/2015 budget to $162 million, a $9 million increase over last year’s funding level, continuing the progress toward restoring the EPF. The environmental community had sought an increase to $200 million.
2. Brownfields Clean-up Program: No consensus was reached among the Assembly, Senate and Governor during the budget process on the needed reforms to the Brownfield Clean-up Program (“BCP”) and extension of the BCP tax credits deadline. Unless the Legislature and Governor can agree on a bill before the end of the legislative session in mid-June, the program will expire at the end of 2015. Negotiations are continuing on a compromise bill and there are at least 4 competing proposals currently on the table.
3. Reauthorization of the State Superfund Program: The budget agreement did not include new funding for the State’s Superfund program. It is hoped that this issue will be taken up along with a BCP bill and funding.
4. Clean Energy: Proposals from the Assembly and Senate to divert to the General Fund up to $218 million from the New York State Energy Research and Development Authority (“NYSERDA”) budget, which supports clean energy projects, energy-related job creation and greenhouse gas emissions reduction, were defeated.
5. Pesticides: The Governor had proposed to significantly gut the Pesticide Sales and Use Reporting Law. The Senate refused to go along with the Governor’s proposals, whereas the Assembly proposed to modernize the law. No consensus was reached so the law remains in effect.
6. Diesel Emissions Reduction Act (“DERA”): The Governor and Assembly acquiesced to the Senate’s desire to delay the deadline for compliance with New York’s DERA by one year. Accordingly, the State now has until the end of 2015 to bring the State’s fleet into compliance with the Act.
7. Mass Transit/the Metropolitan Transportation Authority: The final budget diverts $30 million in funds dedicated for mass transit to pay State debt, a disappointing loss at a time of record mass transit ridership.
Overall, one might characterize the final budget as being good for the environment mostly because of what it did not accomplish than for what ultimately was included in the FY 2014/2-15 budget.
Posted on May 22, 2014
A case working its way through the Rhode Island state court system, Power Test Realty Co. Ltd. Partnership v. Sullivan, No. PC 10-0404 (R.I. Super. Ct. Feb. 19, 2013), poses a dilemma regarding the obligation to remediate releases of virgin petroleum product.
Under the Rhode Island equivalent of CERCLA, virgin petroleum product is exempt from the definition of hazardous substances. R.I.G.L. 23-19.14-3(c), (i). Releases of virgin petroleum product are therefore not subject to the imposition of joint, several, strict and retroactive liability. One would accordingly expect that any obligation to remediate virgin petroleum product releases would be based on causation. Rhode Island oil pollution statutes and regulations appear to impose liability based on causation only.
Nevertheless, the Rhode Island Department of Environmental Management and the Rhode Island Superior Court have taken the position that (1) the obligation of a current landowner to remediate a release of virgin petroleum product that occurred before acquisition of title arises on the theory that the term “discharge” under the state oil pollution statute includes “leaching” and (2) leaching of pre-acquisition petroleum product into the groundwater constitutes a passive and continuing discharge for which the current landowner is liable to remediate.
The Superior Court held that causation is irrelevant under the state oil pollution control statute and regulations. This ruling clearly contradicts the intent of the legislature to carve out virgin petroleum product from a no-fault liability scheme.
This case of first impression is now before the Rhode Island Supreme Court on a writ of certiorari, Docket No. SU-13-0076. Practitioners await with interest how the Court will work its way through this issue. Stand by for some tortured reasoning if the Superior Court ruling is upheld.
Posted on May 21, 2014
With a heap of fanfare, in mid-February, New York’s Governor Cuomo announced that the NY Green Bank is open for business. Cuomo began ramping up his clean energy policy last summer, with the appointment of Richard Kauffman, as New York’s chairman of energy and finance, and Chair of the New York State Energy Research and Development Authority (NYSERDA). Kauffman was the former U.S. Energy Secretary Steven Chu’s senior advisor on clean energy finance. NY’s energy and finance chair is making it clear that government subsidies alone have not been successful in creating a robust clean energy marketplace. Kauffman believes that government could encourage the development of private sector capital markets by helping to foster a demand for a low carbon economy. The creation of new Green Banks could lead to permanent, steady and reliable financing for clean energy efficiency projects, and create clean-energy jobs along the way. It’s a win- win for everyone, ensuring a low carbon future and building long-term economic prosperity. New York is not alone, the United Kingdom has a national Green Investment Bank, and in the U.S., Connecticut, Vermont and Hawaii, have Green banks. New York expects that NY Green Bank will advance the state’s clean energy objectives.
Established in June 2011, Connecticut’s Clean Energy Investment Authority was the first state green bank, the first of its kind in the country. On the federal level, the Green Bank Act of 2014 was first introduced in April, in the U.S. House of Representatives by Congressman Chris Van Hollen of Maryland, and Senator Chris Murphy of Connecticut introduced a companion bill in the Senate, as well. In 2009 a bill passed the House, but not the Senate. The Green Bank Act of 2014 would establish a Federal Green Bank with a maximum capitalization of $50 billion from Green Bonds and the authority to co-fund the creation of state-level Green Banks with a low-interest loan of up to $500 million. The legislation provides for the Green Bank to be supported with $10 billion in “Green Bonds” issued by the Treasury; it will have a 20 year charter and will be able to acquire another $40 billion from Green Bonds. Passing the Green Bank Act of 2014 would give all states the option to receive funds from the federal government to assist with financing on a local level and to encourage the movement to a clean energy future. This appears to be yet another arena where the states will take the lead and eventually the federal government will follow.
NY Green Bank is a state sponsored investment funding institution created to attract private funds for the financing of clean energy projects. Mainly, it is a public-private financing institution having the authority to raise capital through various means ― including issuing bonds, selling equity, legislative appropriations, and dedicating utility regulatory funds ― for the purpose of supporting clean energy and energy efficiency projects. NY Green Bank got started with an initial capitalization of $218.5 million, financed with $165.6 million of uncommitted funds raised through clean energy surcharges on the State’s investor owned utility customers, or idle clean energy ratepayer funds, combined with $52.9 million in auction proceeds from emission allowances sales from the Regional Greenhouse Gas Initiative (RGGI). The $218. 5 is meant to be a first step in capitalizing the $1 billion NY Green Bank initiative announced by the governor in his 2013 State of the State address.
NY Green Bank is a division of the NYSERDA, a public benefit corporation aimed at helping New York State meet its energy goals: reducing energy consumption, promoting the use of renewable energy sources, and protecting the environment. Globally, we have seen natural gas and renewables gaining ground at the expense of crude oil and coal.
On April 10, I had the pleasure of hearing Alfred Griffin, the President of the Green Bank, and Greg Hale, Senior Advisor to the Chairman of Energy and Finance Office of the Governor of NY, speak at a roundtable sponsored by Environmental Entrepreneurs (E2). They explained that NY Green Bank was created in December 2013, when a Public Service Commission (PSC) order, provided for its initial capitalization. The order was issued in response to a petition filed by NYSERDA seeking clean energy funds. Griffin and Hale see the $1 billion dollar investment fund as breaking down barriers for projects that are currently neglected. NY Green Bank, however, is not there to provide operating capital, it is there for project capital. They are seeking credit worthy projects and looking to promote standardization. These types of clean energy projects will be a bridge to private markets, eventually not requiring any public subsidy, and ultimately becoming sustainable. NY Green Bank will need impactful deals to demonstrate market success. In the clean tech space, investors are setting investment targets for private equity activity. Residential rooftops are among the type of projects being considered. The bank, for example, would work with a private partner to seed investment in a solar power company for solar panel construction at a specific site. The money would be directed for the panels not salaries or operating expenses. Given the global makeup of energy consumption, energy investors here and abroad are looking to leverage growth opportunities to decide where to invest growing dollars to take advantage of shifts in the energy market. New York state, although, not first, is situated right where it should be.
Posted on May 20, 2014
The old adage, jokingly told by my college Economics 101 prof, that “economics is not a science but rather a black art”, is amply borne out by disputes between warring factions of resource economists that are playing out in ground water contamination natural resource damages litigation in New Jersey, Puerto Rico, and elsewhere. The issue: how to value contaminated ground water. So far, the few courts that have actually looked at this issue have been skeptical of the “creative” economics propounded largely by the plaintiff bar.
In one corner, we have the classical economists, usually retained by the defendants’ bar, who argue that ground water must be valued based on the impairment of an economic use, such as potable fresh water that could otherwise be consumed or ground water that could otherwise be used for crop irrigation or for industrial process uses. They call this “use value.” Let’s say that we have a facility that contaminates ground water that is naturally salty, does not meet the federal SDWA secondary drinking water standards, and is not migrating beneath anybody else’s property, or generally any ground water that is not impacting any offsite user. These economists argue that this water should not be valued for its loss as potential drinking water or other uses and thus the cost of replacing it should not be considered, leaving the monetary resource value of this water to be zero.
In the other corner we have the “creative” guys, typically retained by plaintiffs. They advance several theories upon which to predicate large monetary values for contaminated, but unused and unusable, ground water. Here are three:
Benefits Transfer: Under this theory, clean ground water has an inherent “value” to people, called by its proponents “existence value” and thus whether it is used or not, or anybody suffers actual harm or not, is irrelevant. The proponents of this theory rely on several, mostly old, studies in which groups of people were asked what they would pay to have assurance that their own ground water supply would be free of contamination. For example, would they contribute to the cost to construct a treatment facility? These economists then use an algorithm to calculate a per-gallon “value” of the contaminated ground water using the monetary values derived from those studies. This approach ignores real-world concepts of economic value, substituting for it a sort of fictional “gestalt” value.
Resource Equivalency Analysis: This approach borrows from techniques appropriately used to value damaged wetlands or plant or animal habitat. Its proponents also assume that ground water has inherent economic (“existence”) value. They first calculate the volume of contaminated groundwater over time, and attempt to determine what it would cost to purchase an amount of land sufficient to “protect” an equivalent volume of ground water elsewhere in perpetuity. Although this approach works for habitats, it has all kinds of problems when applied to ground water. For example, in one recent case the economist’s “equivalent” resource was a fresh water aquifer, which he was projecting as equivalent to a saline portion of the same aquifer, ignoring the fundamental meaning of the word “equivalency.” Additionally, protecting ground water resources by preserving land also provides extraneous environmental benefits — such as providing habitat — which the theory seems to ignore. Furthermore, it is very difficult to determine appropriate land values.
Wasteful Use: This is my favorite. In a pending litigation, a plaintiff economist named Kevin Boyle asserted that extracting contaminated seaside ground water from beneath an industrial facility, treating it to remove contaminants pursuant to a RCRA corrective action permit, and discharging the treated water to the ocean, constitutes a “wasteful use” of the extracted ground water. His argument was premised on returning the treated water to the aquifer and thus making it available for use, instead of discharging the water to the ocean. But the aquifer in question was naturally salty, on the edge of the ocean, naturally flowed out under the ocean, and the recharge area would have been entirely within the property of the industrial defendant. He calculated his “wasteful use” value as the per gallon rack price of an equivalent volume of desalinated water sold to the public by the local water utility.
Stay tuned, sports fans. Surely more to come.
Posted on May 16, 2014
In 2012 and 2013, the Supreme Court issued several decisions recognizing claims for regulatory takings that observers believed might indicate a shift toward greater protection of private property rights. In Arkansas Game and Fish Comm’n v. United States, 568 U.S. ___ (No. 11-597, Dec. 4, 2012), the Supreme Court upheld a claim for a temporary taking based on flooding associated with a Corps of Engineers project, discussed here. And in Horne v. Department of Agriculture, 569 U.S. ___ (No. 12-123, June 10, 2013), under very unusual circumstances, the Supreme Court allowed the takings claim to be presented as a defense to government regulatory action. The 2013 decision in Koontz v. St. Johns River Water Management District, 570 U.S. ___ (No. 11-1447, June 25, 2013), concerned mitigation requirements associated with land development in Florida, discussed here and here. Shift in judicial approach to greater protection of property rights? Maybe not.
During the same time period, the Court of Appeals for the Federal Circuit held that a landowner could not claim a taking arising out of denial by the Corps of an application for approval of a wetland mitigation bank. Hearts Bluff Game Ranch, Inc. v. United States, 669 F.3d 1326 (Fed. Cir. 2012). This lesser-known decision addresses a fundamental aspect of takings law — what is the property interest that is protected by the takings clause? Apparently it matters whether you have a permit denial (and can seek compensation) or a denial of a government approval of a benefit (which confers no compensable property right).
A wetlands mitigation bank is a property where wetlands have been enhanced or restored or otherwise improved. The mitigation bank credits generated by those efforts are available as compensatory mitigation for impacts authorized under Corps permits issued under Section 404 of the Clean Water Act. Unlike dredge or fill of wetlands or streams that require a Section 404 permit, the mitigation bank is not approved by permit. Rather, under regulations, the mitigation bank is reviewed by the Corps, EPA and other federal and state agencies, known as the Interagency Review Team (IRT). Subject to IRT review, the Corps and the mitigation banker sign a Mitigation Banking Instrument (MBI) that approves the mitigation bank. The MBI contains terms such as the size and nature of the wetland enhancement or restoration that will occur on the bank property. The MBI also establishes the credits for the bank, i.e., the marketable element that can be sold to a wetland permit applicant who needs to provide compensatory mitigation.
Despite this seemingly complicated process, the situation can be simplified in this way: Mr. Black, owner of Blackacre, wants to fill wetlands on his property to build homes. Mr. Black must obtain a Section 404 permit from the Corps and likely will need mitigation to offset what he fills. Ms. White, owner of Whiteacre, wants to restore and enhance wetlands on her property, and use that enhancement as a basis to offer credits for wetland compensation to those who need to mitigate their impacts to wetlands, like Mr. Black. Ms. White needs to go through the mitigation banking regulatory process for her approvals. Her MBI will authorize the planned “ecological development” of her property.
Comparing the Hearts Bluff decision to more standard regulatory takings law, if Mr. Black’s application for a permit is denied, he may be able to sue the United States for compensation for the taking of his property. If Ms. White’s application for approval of the mitigation bank is denied, the Federal Circuit says she has no compensable property interest.
Hearts Bluff sought approval for a 4000 acre mitigation bank in Texas. The land was located where the planned Marvin Nichols Reservoir might be sited, a proposed reservoir that has a long history in Texas. Hearts Bluff also sued in state court. After consulting with the state and evaluating the potential site, the Corps denied the application for mitigation bank approval, citing reasons that do not appear in the takings decisions.
Any regulatory takings claim faces a number of hurdles. What is unusual about Hearts Bluff is that the court held that the company had no “cognizable property interest.”
The Federal Circuit focused on its two-part test for evaluating takings claims. “First, as a threshold matter, the court determines whether the claimant has identified a cognizable Fifth Amendment property interest that is asserted to be the subject of the taking. . . .Second, if the court concludes that a cognizable property interest exists, it determines whether that property interest was ‘taken.’” Id. at 1329. The court stopped at step one, finding that there was no property interest.
The court adopted the government’s position that Hearts Bluff “was never entitled to operate a mitigation bank solely by virtue of its ownership of the land and that it did not have a property right in access to the mitigation banking program because the program is entirely a creature of the government and subject to pervasive and discretionary government control.” Id. at 1330. The mitigation banking program, said the court, “is run exclusively by the Corps, subject to its pervasive control, and no landowner can develop a mitigation bank absent Corps approval. Mitigation banking in its entirety would not exist without the enabling government regulations. Under our precedent, therefore, the Corps’ discretionary denial of access into the Corps program cannot be a cognizable property interest.” Id. at 1331.
The court relied on precedent where the claimant owned property but not the particular right to use the property as it asserted. For example, in Air Pegasus of D.C., Inc. v. United States, 424 F.3d 1206 (Fed. Cir. 2005), the court had held that a helicopter operator had no takings claim when a federal “flight restriction” essentially destroyed its business. There are not many cases in this area, and many of them deal with personal property, rather than real property. These decisions do not turn on the distinction between a government permit and a government benefit, but rather delve into whether the claimant’s property carried with it the right to pursue the particular “end goal.”
In short, while Hearts Bluff certainly owned the real property, its ability to “develop” it as a mitigation bank was not a “right” that could be taken by the Corps’ denial of its application. It was not such a right because the government essentially created the end use (mitigation banking).
It’s been a long time since my law school days, but the “bundle of sticks” that I was taught constitute real property rights should include the right to seek governmental approval for the owner’s preferred uses, regardless of whether the government program is new, old, established by regulations, or described in a statute. The government does not always commit a taking by denying such uses, but it is troubling that property rights should depend on which government program is involved.
Posted on May 8, 2014
Debarment is the process whereby the federal government can permanently prevent a company from doing business with the federal government or suspend a company from doing business with the federal government for a period of years. The debarment process has been available for decades to the United States to be used against companies or persons whom the government believes are untrustworthy. For instance, removal from EPA’s list of violating facilities requires agency evaluation of corporate attitude. But the Obama Administration has broadened the scope of the process to potentially ensnare many an unsuspecting entity.
The debarment process as it currently exists has resulted in the following scenarios:
A. An oil company in the Rocky Mountain region settled a regulatory violation with the Department of the Interior’s Bureau of Land Management and as part of the agreement paid a substantial seven figure fine and adopted new procedures designed to prevent a reoccurrence of the violation and a two-year period of probation. Imagine the surprise of the company’s managers and in-house lawyers when eighteen months after the settlement was executed, they received a Notice of Debarment for a three-year period preventing the use of their federal leases requiring new permits.
B. A wind farm owner that was convicted for killing bald eagles discovered that the company could not sell future electricity production to a federal facility.
C. An oil and gas company that pleaded guilty to a Clean Water Act spill faced debarment from being able to bid on federal oil and gas leases for five years.
Companies or persons found to be in violation of civil or criminal statutes or departmental regulations are subject to debarment. While in egregious cases debarments can be perpetual, most debarments are for a period of three to nine years. Debarments do not affect a company’s current government contracts, but do affect renewals of those contracts or the need for new permits on federal lands. The debarments are company-wide. Consequently, the above-mentioned wind farm owner also could not sell its electricity produced from its coal fired power plants to federal facilities.
Debarment proceedings are administered by the various Offices of Debarment, located within each cabinet department, with the closest responsibility for enforcing the law that was violated. Thus, the Department of the Interior’s Office of Debarment (staffed by the Inspector General’s personnel) handles violations of fish and wildlife, public lands and Indian law. Environmental Protection Agency lawyers in the grants and debarment program handle debarment proceedings authorized by Section 508 of the Clean Water Act or Section 306 of the Clean Air Act.
Upon the entry of a federal court judgment or consent decree a representative of the Department of Justice, often an Assistant United States Attorney, forwards the document to the appropriate cabinet department’s Office of Debarment. The government deems debarment proceedings to be separate from the underlying litigation. Agreements to avoid debarment may not be a condition of any plea bargain or consent decree. Adverse outcomes after executive branch debarment hearings may be appealed to a federal district court under deferential Administrative Procedures Act standards.
Posted on May 7, 2014
Anadarko Petroleum Corporation (“Anadarko”) and its Kerr-McGee unit, which Anadarko purchased in 2006, has entered into a settlement agreement with the United States, whereby Anadarko/Kerr-McGee agreed to pay $5.15 billion for a vast array of environmental clean-ups around the country. The settlement represents the largest environmental enforcement recovery on record by the Department of Justice.
The settlement stems from the bankruptcy of Tronox, a spinoff company created by Kerr-McGee for its chemical operations in 2006. When Tronox declared bankruptcy in 2009, the United States and co-plaintiff Anadarko Litigation Trust (a litigation trust created to pursue Tronox’s claims on behalf of its environmental and torts creditors) asserted fraudulent conveyance allegations against Anadarko and Kerr-McGee, along with certain of its affiliates. In December 2013, the U.S. Bankruptcy Court for the Southern District of New York found that the historic Kerr-McGee fraudulently conveyed assets to the “new” Kerr-McGee (a new corporate entity with the same name), leaving its legacy environmental liabilities behind in the old company (renamed Tronox and spun off as a separate company), with the intent to evade its debts —including liabilities for environmental clean-up at numerous sites across the country. The court stated that “there can be no dispute that Kerr–McGee acted to free substantially all its assets … from 85 years of environmental and tort liabilities.” In re Tronox Inc., 503 B.R. 239, 280 (Bankr. S.D.N.Y. 2013).
Under the terms of the settlement agreement, the litigation trust and Anadarko/Kerr-McGee mutually agree to release all claims against each other. Additionally, the United States government and Anadarko/Kerr-McGee have provided mutual covenants not to sue.
As a result of the settlement agreement, it is anticipated that the funds will be allocated to a number of clean-ups, which will include:
• $1.1 billion paid to a trust charged with cleaning up contaminated sites around the county, including the Kerr- McGee Superfund Site in Columbus, Mississippi
• $1.1 billion paid to a trust responsible for cleaning up a former chemical manufacturing site in Nevada that contaminated Lake Mead
• Approximately $985 million paid to the U.S. Environmental Protection Agency (EPA) to fund the clean-up of approximately 50 abandoned uranium mines on land of the Navajo Nation
• Around $224 million paid to the EPA for clean-up of thorium contamination at the Welsbach Superfund Site in Gloucester, New Jersey
Posted on May 5, 2014
Last month, after 30 years of negotiations between the parties, an arbitration decision set the price to be paid by the Confederated Salish Kootenai Tribes (CSK) to PPL Montana to acquire the Kerr Dam. The tribes expect the dam -- the first major hydroelectric facility owned by a tribal entity -- will serve as a driver for economic development for tribal members, residents of the Flathead Reservation, and the surrounding area. The dam will operate under the same licensing requirements applicable to PPL Montana and will sell energy generated by the dam on the open market. The dam has the generating capacity of 194 megawatts, standing at 205 feet high and 541 feet long.
After considering arguments by the tribes and PPL Montana, a panel of the American Arbitration Association set $18,289,798 as the price to be paid by the CSK to acquire the dam. This price includes $16.5 million for the existing plant and $1.7 million for required environmental mitigation and was the original price agreed to by the parties in a negotiated deal in 1985. The tribes had argued to the panel that $14.7 million would be a fair price while PPL Montana maintained the tribes should pay close to $50 million for the dam.
The arbitration decision is a culmination of a long history of the construction and operation of the dam. Negotiation for purchase has been going on since 1984 when the 50-year lease terminated. Understanding the debates surrounding the dam requires some explanation. In 1934 a subsidiary of the Montana Power Company began construction on the Kerr Dam on tribal lands on the Flathead River despite opposition from members of the Flathead Indian Reservation. In 1938 the construction was completed and named after the then CEO of Montana Power Co., Frank Kerr. The construction financing for the project included a 50-year term lease that provided for lease payments to the tribes for the dam, which is located on tribal lands and uses tribal resources.
The arbitration decision indicated that the purchase can occur after September 5, 2015. Energy Keepers, a federally chartered corporation owned by the tribes is expected to tender the purchase money early in September 2015. The CSK Tribes hopes to develop the dam as a self-sustaining energy source for the tribes as well as a revenue source. The Tribal Council is expected to choose a new name for the dam after the transfer.
In 2011 the tribes competed for and received a federal grant, which was available for energy projects. The grant money funded a feasibility study to assess energy efficiency improvement projects and to implement energy conservation measures in existing tribal facilities. The grant funding also supported the development of an organizational structure to acquire the dam.
Not all tribal members supported acquisition of the dam. The arbitration process ran from February 3 to March 3, and some tribal members have objected that lack of notice means that public comment should be allowed at this time. Additionally, some tribal members have noted in the media the need for caution in going forward. For example, some have emphasized that, after the purchase, the dam will no longer be a taxable asset and tax support for schools in the area will be lost or will need to be funded from other sources. Preparation for the transition to tribal ownership has begun, and the tribes are working with current employees at the dam who are tribal members and searching for engineers and information technology employees.
Posted on May 2, 2014
Before environmental law existed, David Sive knew that the law could protect forests and fields, abate pollution of air and water, and restore the quality that humans expected from their ambient environments. He fashioned legal arguments and remedies where others saw none. His commitment to building a field of environmental law is exemplary, not just historically, but because we shall all need to emulate his approach as we cope with the legal challenges accompanying the disruptions accompanying climate change.
David Sive learned to love nature by hiking and rambling from parks in New York City to the wilderness of the Catskill and Adirondack Mountains. He carried Thoreau’s Walden into battle in World War II in Europe, and read William Wordsworth and the Lake poets while recuperating from wounds in hospitals in England. He had a mature concept of the ethics of nature long before he began to practice environmental law.
His early cases were defensive. He defended Central Park in Manhattan from the incursion of a restaurant. He rallied the Sierra Club to support a motley citizens’ movement that sought to protect Storm King Mountain from becoming a massive site for generating hydro-electricity on the Hudson River. Scenic Hudson Preservation Conference v. Federal Power Commission [FPC] (2d Cir. 1965), would become the bell-weather decision that inaugurated contemporary environmental law. The case was based on the multiple use concepts of the Progressive Era’s Federal Power Act. The FPC (now FERC), had ignored all multiple uses but the one Con Edison advanced. When the Court of Appeals for the Second Circuit held that citizens had the right to judicial review to require the FPC to study alternative ways to obtain electricity, as well as competing uses for the site, the court laid the basis for what would become Section 102(2)(c) of the National Environmental Policy Act (NEPA).
When Consolidated Edison Company decided to build a huge hydroelectric power plant on Storm King, the northern portal to the great fiord of the Hudson River Highlands, citizens and local governments were appalled. This was no “NIMBY” response. Con Ed had forgotten that these fabled Highlands inspired the Hudson River School of landscape painting. This artistic rendering of nature in turn inspired the birth of America’s conservation movement of the late 19th century. The Hudson also instrumental to the historic birth of this nation; here the patriots’ control of the Highlands had kept the British from uniting their forces, and here soldiers from across the colonies assembled above Storm King for their final encampment as George Washington demobilized his victorious Army. The Army’s West Point Military Academy overlooks the River and Storm King.
David Sive and Alfred Forsythe formed the Atlantic Chapter in the early 1960s, despite heated opposition from Californians who worried the Club would be stretched too thin by allowing a chapter on the eastern seaboard. David Sive chaired the Chapter, whose Conservation Committee debated issues from Maine to Florida. He represented the Sierra Club, pro bono, in its intervention in the Storm King case, and other citizens brought their worries about misguided government projects or decisions to him.
David Sive represented similar grassroots community interests in Citizens Committee for the Hudson Valley v. Volpe (SDNY 1969), affirmed (2d Cir. 1970). Transportation Secretary Volpe had approved siting a super-highway in the Hudson River adjacent to the shore in Tarrytown and Sleepy Hollow, to accommodate Governor Nelson Rockefeller’s proposal to connect his Hudson estate to the nearby Tappan Zee Bridge. Without the benefit of NEPA or any other environmental statutes, which would be enacted beginning in the 1970s, and relying upon a slender but critical provision of a late 19th century navigation law, after a full trial in the US District Court for the Southern District of New York, David Sive prevailed against the State and federal defendants. He won major victories on procedure, granting standing to sue, and on substance, a ruling that the government acted ultra vires. David Sive saved the beaches, parks and marinas of the Hudson shore.
Public interest litigation to safeguard the environment was born in these cases. Public outrage about pollution and degradation of nature was widespread. In September 1969, the Conservation Foundation convened a conference on “Law and the Environment,” at Airlie House near Warrenton, Virginia. David Sive was prominent among participants. His essential argument was that “environmental law” needed to exist.
On December 1, 1970, Congress enacted the NEPA, creating the world’s first Environmental Impact Assessment procedures and establishing the President’s Council on Environmental Quality (CEQ). The CEQ named a Legal Advisory Committee to recommend how agencies should implement NEPA chaired by US Attorney Whitney North Seymour, Jr. (SDNY). This Committee persuaded CEQ to issue its NEPA “guidelines” on the recommendation of this Committee. That year launched the “golden age” of NEPA litigation. Courts everywhere began to hear citizen suits to protect the environment.
David Sive went on to represent citizens in several NEPA cases, winning rulings of first impression. In 1984, he reorganized his law firm, Sive Paget & Riesel, to specialize in the practice of environmental law. From the 1970s forward, NEPA allowed proactive suits, no longer the primarily defensive ones of the 1960s. “Citizen suits” were authorized in the Clean Air Act, Clean Water Act and other statutes.
David Sive knew that without widespread support among the bar and public, these pioneering legal measures might not suffice. He became a founder of the Natural Resources Defense Council (NRDC), which became one of the nation’s pre-eminent champions of public environmental rights before the courts. To continue the Airlie House conference precedent, he institutionalized the established professional study of environmental law, as a discipline, through creation of the Environmental Law Institute (ELI). With ALI-ABA (now ALI-CLE) he launched nationwide continuing legal education courses to education thousands of lawyers in environmental law, a field that did not exist when they attended law school. He devoted an active decade to teaching law students in environmental law, as a professor at Pace Law School in New York.
This month, the Intergovernmental Panel on Climate Change (IPCC) released the second part of its Fifth Assessment Report. The IPCC summaries of peer-reviewed scientific investigation suggest that law will confront problems even more challenging than those that David Sive addressed. New legal theories and remedial initiatives will be needed that do not exist today. The wisdom of ecologist Aldo Leopold can inform the next generation. Globally, others carry on David Sive’s role, such Attorney Tony Oposa in the Philippines or M. C. Mehta in India. The law can cope with rising sea levels, adaptation to new rainfall patterns, and other indices of climate change, but it will take individual commitment to think deeply about environmental justice in order to muster the courage to think and act tomorrow as David Sive did yesterday.
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.