On February 28 and 29, 2012, the U.S. Court of Appeals for the District of Columbia Circuit heard oral argument in Coalition for Responsible Regulation v. EPA, No. 09-1322 et. al., consolidated challenges to the U.S. Environmental Protection Agency (EPA) ’s greenhouse gas (GHG) regulations.  These regulations are being challenged by a coalition of industry groups and some states (the Coalition).  The Coalition argues that the EPA does not have the authority to regulate GHGs from stationary sources under the Clean Air Act (CAA)’s Prevention of Significant Deterioration (PSD) permitting program without Congress amending the law.

The Coalition is asking the Court to vacate EPA’s rules regulating greenhouse gases, including the so-called Tailpipe and Tailoring Rules, on the grounds that  they are contrary to the Clean Air Act and deviate from the explicit emission permitting thresholds in the CAA.  As Peter Keisler, a lawyer for the National Association of Manufacturers (NAM) argued, “the agency crossed the line from stationary interpretation to statutory revision” and violated the law by raising the emissions thresholds far above those provided for by Congress in the CAA in order to avoid issuance of an unmanageable number of PSD permits in the short term . 

The PSD program applies to new major sources or major modifications at existing sources for pollutants where the area the source is located is in attainment or unclassifiable with the National Ambient Air Quality Standards (NAAQS).  As Keisler explained to the court, 83% of the GHG emissions from stationary sources would be regulated if EPA addressed greenhouse gas emissions solely in permits for the larger sources already subject to PSD requirements based on their emissions of criteria pollutants. 

As Keisler then explained, under EPA’s Tailoring Rule which requires permits based solely on greenhouse gas emissions, 86% of the GHG emissions from stationary sources would be regulated – “a very tiny increment of difference, but a huge difference” in the number of sources that would now be regulated.  And this increment of difference between 83% to 86% would translate into stationary sources never before regulated and now required to meet all PSD requirements, including implementation of costly best available control technology (BACT).

A decision by the Court is expected this summer. 

Having participated in oral argument preparation and having observed both days of the oral arguments, it is my impression that the NAM arguments against EPA's Tailoring Rule provide the Coalition with the best chance for victory.  NAM’s sound interpretation of the CAA and Congressional intent, coupled with the "avoidance of absurd results" doctrine, would blunt EPA's quantum leap through the CAA to create non-statutory GHG emission thresholds capturing only an additional 3% of stationary sources that were previously unregulated and would now have to bear crippling air pollution control costs for no real environmental benefit.  This is the real absurdity of EPA's Tailoring Rule that I hope the court's decision will remedy.

By Daniel Riesel and Vicki Shiah, Sive Paget & Riesel, PC

I attended on February 28th and 29th the oral arguments in the D.C. Circuit for what are euphemistically referred to as the “Greenhouse Gas Cases” now pending before that court. Two days of arguments, with 17 different attorneys presenting oral argument.  Perhaps not surprisingly, the judges weren’t the only ones who lost track of which issues were being addressed by different advocates.  The advocates themselves seemed to forget at times and repeatedly walked over each other’s lines.  It reminded me why the Supreme Court is so reluctant to allow for divided argument even in circumstances when the case for divided argument is otherwise quite compelling.

I will leave it to others to dwell on what the D.C. Circuit is likely to do, and instead will don my academic garb for an ironic aside on the history of the CAA’s PSD program. In watching the oral arguments, I was reminded about the extraordinary role that Hunton & Williams has played since the emergence of modern environmental law serving as environmental counsel for the powerplant industry including in this latest round.  One would be hard-pressed to identify any other law firm that has been such a constant and consistent voice on behalf of industry during the past four-plus decades of environmental litigation, especially on air pollution matters.

With the benefit of hindsight, however, those industrial clients might have fared a bit better had Hunton & Williams made one discrete exception to the consistency of its record.  The PSD program today finds its origins in the Supreme Court’s 1973 affirmance by an equally divided Court in Fri v. Sierra Club of a district court ruling that embraced the Sierra Club’s claim that the Clean Air Act, as drafted in 1970, required EPA to prevent “significant deterioration” of areas of the nation that were at the time cleaner than national ambient air quality standards.   The papers of Justice Harry Blackmun, which can be found in the Library of Congress, reveal, however, that Sierra Club achieved that affirmance after Hunton & Williams filed an amicus brief in the case in support of Edison Electric’s contention that the Clean Air Act did not require such a program. That filing apparently prompted Justice Lewis Powell – a former Hunton & Williams partner – to recuse himself from the case (after sitting at oral argument), resulting in the 4/4 split.  There is little doubt, based on his other pro-business votes in environmental pollution cases how Justice Powell would have voted had he not recused himself. The most certain upshot would have been an EPA victory and therefore the Agency never would have had to promulgate PSD regulations in compliance with the High Court’s ruling. And the absence of those initial PSD regulations would have dramatically shifted the political dynamic when Congress was amending the statute in 1977.

What I have always found especially odd about the firm’s amicus filing in the PSD case is that this was not the first time Justice Powell had recused himself in light of Hunton & William’s participation in a case before the Court, including on behalf of the powerplant industry as amicus curiae.  The Justice had done so consistently since joining the Court, which makes one wonder what the firm was thinking when it filed the amicus brief in Fri v. Sierra Club.  Interestingly, Justice Powell ended that recusal practice soon afterwards.  Perhaps the Justice received a very unhappy communication from either Henry Nickel or his close friend at the firm, George Freeman, regarding the necessity of a recusal in those circumstances?  Of course, I have no knowledge whether such a communication ever in fact occurred, but it does not take a lot of imagination to speculate that some folks at Hunton were likely exceedingly unhappy about the Justice’s recusal in light of the Court’s 4/4 affirmance. 

In all events, and regardless of the outcome of the recent greenhouse gas cases before the D.C. Circuit, the Sierra Club’s thank-you note to Hunton & Williams would seem long overdue. 

By Deborah Jennings and Andrew Schatz

In the wake of expected Greenhouse Gas New Source Performance Standards (NSPS) for Electric Generating Units pursuant to Section 111 of the Clean Air Act, Congress has shown some early resistance.  On November 4, 2011, EPA submitted to the Office of Management and Budget (OMB) its proposed rule for regulatory review.  The proposed rule would require new and modified electric utilities to meet potentially stringent performance standards and emissions guidelines for greenhouse gases at a level that has been “adequately demonstrated” by existing technology.  42 U.S.C. § 7411(a)(1).  Although the stringency of such standards is uncertain, they could require installation of expensive technology controls for fossil fuel combustion power plants. 

In response, a group of 221 Congressmen submitted a letter on February 23, 2012 to OMB urging the White House to bar EPA from issuing its proposed NSPS rule.  The letter cited, among other things, concerns that the rules could require installation of costly technology, such as carbon-capture and storage, which they feared would increase electricity costs.  The 221 figure is significant, because it constitutes a majority of the House of Representatives, who along with the Senate, could pass a resolution overturning the rule (with Presidential approval or Congressional override of a veto) under the Congressional Review Act (CRA), 5 U.S.C. §§ 801-808.

Yet, history suggests it is very unlikely that Congress will reverse an EPA climate change regulation using the Congressional Review Act.  For starters, the CRA allows Congress to pass a disapproval resolution seeking to reverse a recently promulgated federal regulation by a simple majority vote (no filibusters) within 60 days of receiving the final rule or its date of publication in the federal register.  Thus, Congress has a very short-time frame to pass such resolutions in both the House and the Senate.  Moreover, the President can still veto the disapproval resolution.  At that point, Congress would need a two-thirds majority to override the veto.  In fact, Congress has only successfully used the CRA once, overturning a Department of Labor rulemaking on ergonomics passed in the waning days of the Clinton Administration. 

Such a scenario could shape up this time around.  EPA originally planned on issuing the proposed utility standards in July 2011 and the final standards in May 2012.  Since EPA has yet to issue its proposed rule, a final rule may not be expected until late 2012 or early 2013, at the conclusion of President Obama’s first term.

For some advocates of greenhouse gas regulation, tort law has become the primary vehicle to achieve their goal.  Dissatisfied with their progress in the political branches, they’ve begun presenting their claims to courts as tort lawsuits.  When the claims are rejected, they repackage them in different common-law wrappings and sue again. 

The first of these suits was Connecticut et al. v. American Electric Power Co. et al. (“AEP”) (dismissed by the U.S. Supreme Court earlier this year), in which several States and land trusts sought to declare greenhouse gas emissions a common law “nuisance” and secure an injunction capping emissions from a small group of national electric utilities at levels the plaintiffs deemed “reasonable.”  Next came Comer et al. v. Murphy Oil USA et al., where a group of Mississippi landowners sued the same utilities, and scores of other companies, for damages caused by Hurricane Katrina, claiming that the defendants’ greenhouse gas emissions constituted a common law “nuisance,” a “trespass,” and “negligence.”  (After dismissal by the district court and Fifth Circuit, the plaintiffs simply refiled the case—motions to dismiss again are in briefing).  Next, in Native Village of Kivalina v. ExxonMobil Corp. et al., an Alaskan village relied on many of these same common law theories, with allegations of a “conspiracy” added for good measure, suing many of the same defendants for costs the village would purportedly incur protecting itself from storms and other risks they attributed to climate change.  (The district court’s dismissal was recently argued to the Ninth Circuit.)  While courts have thus far rejected all of these suits at the pleading stage, the complaints reflect a continuing trend towards regulation by litigation, in which individual groups of plaintiffs endeavor to advance policy goals through common law actions.

The most recent case is Alec L. et al. v. Jackson et al.  Casting aside even the pretense of a traditional tort case, where one party seeks relief for damages caused by another party’s conduct, the plaintiffs in Alec L. are suing five federal Executive Branch agencies (the Environmental Protection Agency, Department of Defense, Department of the Interior, Department of Commerce, and Department of Agriculture), and explicitly seek an order directing those agencies to promulgate regulations addressing greenhouse gas emissions.  Relying on the “public trust doctrine,” an archaic common law concept rarely cited in modern court decisions, the plaintiffs assert that the federal government holds the atmosphere “in trust” for the public, and that these agencies therefore have a fiduciary obligation to protect the atmosphere from greenhouse gas emissions.  In particular, they ask the court to order the agencies to impose immediate and drastic restrictions on greenhouse gas emissions in this country (6% annually), with the ultimate goal of virtually eliminating the use of conventional fuels by the end of the century.

There is no reason to think that the claims in Alec L. will fare any better than those in the other tort cases discussed above.  All of these claims seek to impose liability for global climatic conditions that are attributable (if at all) to greenhouse gas emissions from billions of sources around the planet over the course of centuries, not to any particular, small group of defendants.  Moreover, they would all put a federal court in the position of making fundamental policy determinations regarding the proper regulatory approach to issues of national and international importance, ordinarily reserved for the political branches.  Indeed, in this respect, the claims in Alec L. are even more difficult to rationalize than those in AEP, as Alec L. asks the court to commandeer and control agencies of the federal government in a manner directly contrary to pre-existing statutory mandates and executive directives.  However, what Alec L. does show is that advocates for greenhouse gas regulation, undiscouraged by their lack of reception at the Supreme Court earlier this year, will continue re-wrapping their claims to send them to more courts.

By Joseph Manko - Manko, Gold, Katcher & Fox, LLP

While climate change skeptics continue to dispute the linkage between climate change and greenhouse gas emissions, others throughout the scientific community continue to report on problems being caused by climate change and to call for a serious assessment of what can be done to adapt to these changes in climate.  The following are a few examples of recent reports on climate change impacts and calls for adaptation to those impacts.

The National Oceanic and Atmospheric Administration (NOAA) concludes that the temperature in the first decade of the 21st century (2000-2010), averages 1.5 degrees Fahrenheit above that of the 1970s.  Without including the record high temperatures in the first half of 2011, satellite data indicate that the earth’s groundwater is being depleted.  In addition, a report by the PEW Center on Global Climate Change concludes that climate change is increasing the frequency of extreme weather events (e.g., wildfires in the southwest, flooding in North Dakota and myriad tornadoes, heat waves, and heavy precipitation) and calls for the entire community to join with the scientific community not only to determine the resultant damage and debate its causes, but also to decide how best to respond by means of adaptation.

Areas of adaptation include reducing our reliance on fossil fuel and our demand for electricity while increasing green practices (to further reduce the emission of greenhouse gases).  Those leading the “adaptation discussion” also call for efforts to make certain that our infrastructure is protected from climate change by focusing on its repair, restoration, and -- in some instances -- relocation.

Accomplishing these adaptive practices in “normal times” would be tough.  It is even more difficult to make progress, though, in the height of a recession, with legislators at both the federal and state level facing persistent gridlock and reduced budgets for infrastructure improvements (e.g., EPA’s Federal Clean Water and Drinking Water State Revolving Funds).

By:  Bob Wyman and Aron Potash, Latham & Watkins LLP

The ultimate fate of California's greenhouse gas (GHG) cap and trade program is firmly in the hands of the judiciary and, for now, the program may continue. On June 3, 2011, the California Court of Appeal for the First Appellate District temporarily stayed a writ of mandate enjoining California from further work on its program until the State more fully analyzes the environmental impacts of alternatives to cap and trade. The writ of mandate was first issued in Association of Irritated Residents v. California Air Resources Board following the California Air Resources Board's (CARB) petition to the court for a writ of supersedeas. CARB's petition asks the court to both declare the trial court's writ of mandate automatically stayed upon CARB's June 1 appeal and, failing that, to issue a discretionary stay of the writ of mandate pending CARB's appeal. The June 3 ruling granted CARB a stay, although only a temporary one. The Association of Irritated Residents and other appellees have until June 20 to file a brief opposing CARB's petition for a writ of supersedeas. Perhaps unaware that the writ of mandate had been temporarily stayed, the court that issued the writ issued another order on June 6 declaring both that the writ was not automatically stayed upon CARB's appeal and that CARB violated the writ by continuing cap and trade implementation activities. Nonetheless, given the temporary stay, CARB is in the clear to continue implementation activities for now. For how much longer is a question that will be resolved as CARB's appeal and petition for a writ of supersedeas wind their way through the appellate court.

Although even casual observers will have noted the fanfare surrounding the U. S. Securities Exchange Commission (SEC)'s release last year of guidance to public companies on disclosures regarding climate change and its consequences under federal securities laws and regulations, far less attention has been given to other developments in the carbon disclosure milieu that should inform corporate strategy. While the debate over regulation of greenhouse gas (GHG) emissions remains a hot topic in the courts, stakeholder pressure for greater transparency regarding GHG emissions management continues unabated, as illustrated by the evolving agendas of key stakeholders in the U.S. and abroad, two of which are highlighted briefly below.


Carbon Disclosure Project

The Carbon Disclosure Project (“CDP”) is a non-profit initiative launched in London in 2000 “to collect and distribute high quality information that motivates investors, corporations and governments to take action to prevent dangerous climate change.” Approximately 2,500 organizations in over 60 countries now measure and disclose GHG emissions and climate change strategies through CDP. Data is made available for use by institutional investors, corporations, policymakers and their advisors, public sector organizations, government bodies, academics and the public, including via channels on both Bloomberg and Google Finance. Investor CDP requests information on GHG emissions and climate change strategies on behalf of 534 institutional investors with a combined $64 trillion in assets under management and provides climate change data from thousands of the world’s largest corporations. Other notable initiatives include CDP Supply Chain, through which 60 corporate members encourage suppliers to measure and disclose climate change information. CDP's Public Procurement initiative, through which national and local governments can question suppliers about energy use, GHG emissions and related risks, is a beginning to have an impact, including at the US General Services Administration, where work is underway on a project analyzing the costs and benefits of disclosing through CDP. CDP has launched a new product for investors with FTSE and ENDS Carbon called the FTSE CDP Carbon Strategy Index. It has launched initially with two UK indices; the FTSE CDP Carbon Strategy All-Share Index and the FTSE CDP Carbon Strategy 350 Index. Both indices have been designed in response to growing awareness of the significant potential impact of climate change on investment returns. Post Copenhagen, governments across the globe have been working towards holding emissions below levels that would increase global temperatures by 2ºC. Achieving these levels will require increased costs for carbon emissions. The FTSE CDP Carbon Strategy Index Series reflects this carbon risk in its initial offering of ‘carbon-tilted’ versions of the UK’s FTSE All-Share and FTSE 350 indices. The indices feature the same constituents with a variation of weightings based on their exposure to carbon risk, relative to their sector peers. The index series is based on future-oriented criteria rather than past emissions data. It is the first index series to offer a long term forward-looking investment tool that closely tracks established UK benchmarks while supporting the reduction of climate change risks across investment portfolios. This means retail and institutional investors, such as pension funds, can achieve broad and diversified market exposure as well as manage the impact of climate change on their investment. One can gain considerable insight into the state of the art of carbon disclosure from a review of responses to CDP, as well as the cross-cutting analyses compiled by the organization and its partners. To access the most current and archived reports, click here.  

Climate Disclosure Standards Board

The Climate Disclosure Standards Board ("CDSB") is an initiative convened by the World Economic Forum at its annual meeting in 2007 and hosted by the CDP as Secretariat in response to increasing demands for standardized reporting of climate change information in “mainstream” reports. The term "mainstream reports“ is used to describe annual reports in which corporations are required to deliver audited financial results under the corporate, compliance or securities laws. CDSB released a Reporting Framework in September of 2010.  In connection with its work, CDSB has also compiled a database of global developments on legislation that directly or indirectly affects the way in which GHG emissions are calculated and/or the way in which risks are disclosed in corporate and securities filings. CDSB is in the process of upgrading the format to a new platform called “Interactive Standards” where the public and others will be able to see and contribute to the database. Other plans for 2011 center around engagement with corporations, investors and regulators through structured programs designed to align further the needs of preparers and users of climate change-related information.

Despite a House Republican agenda to eviscerate EPA’s GHG authority, EPA is pushing forward with workable greenhouse gas reduction solutions.  EPA’s gradual phasing in of GHG permitting requirements for new facilities has provoked a vicious response from both heavy industry and political partisans, despite the requirements’ limited scope on only the largest pollution sources in the country – those that emit the equivalent of a burning railroad car of coal a day – and the common-sense requirements that these new facilities install the most efficient cost-effective technology available.

EPA has moved cautiously in deployingpotentially more important regulatory tool: New Source Performance Standards (NSPS).  Starting with the two largest sectors of emitters in the U.S., electricity generators and refineries, NSPS can create a “floor” of minimum standards for new and modified facilities, as well as create a flexible, state-based system to drive steady reductions from existing sources.  Importantly, reinvented NSPSstandards can capture the benefits of and build upon existing state GHG reduction programs, encourage other states to pursue or join in broader clean energy solutions, and produce greater environmental benefits (GHG reductions) than traditional NSPS.

In part to exploreand flesh out its new approach to NSPS, EPA held several “listening sessions” to hear from industry, air pollution control agencies, NGOs, and others in February and March of this year.  A recurring theme throughout these sessions was flexibility.  The most common stakeholder response has been thatEPA should set reasonably stringent 111(b) standards for new and modified sources.  At the same time, EPA should build upon its experience in allowing state emissions averaging and trading to propose guidelines for states to regulate existing sources.  These guidelines should include astraightforward method for states to show that alternative existing or proposed programs – whether or not they include individual numeric standards for individual NSPS sources– would achieve equivalent or greater emission reductions to traditional NSPS, individually applied.

Several states, including California, were quite vocal in these listening sessions, and for good reason.  As Seth Jaffe pointed out in his blog, emissions trading programs such as California’s cap-and-trade program under Assembly Bill 32 clearly provide the most cost-effective emission reductions.  Other states could propose clean energy programs, that achieve local economic development and energy security objectives, as well as emissions reductions, or they could be attracted to join existing regional initiatives.  Rather than adopt a one-size fits all NSPS, EPA can establish a stringent NSPS that allows states, their industries, and other stakeholders to work together to innovate and create unique solutions that serve multiple goals.