Posted on March 7, 2014
Almost as soon as U.S. Supreme Court Justice Scalia joined the bench in the fall of 1986, he made clear his disdain for arguments that the meaning of statutory text could be gleaned from its legislative history. And advocates before the Court who made the mistake of equating “congressional intent” with a statement made by an individual member of Congress during a hearing or a colloquy on a chamber floor could expect a sharp rebuke from the Justice.
The debate at the Court about the proper role of legislative history in statutory construction was not fully joined, however, until 1994 when Justice Stephen Breyer joined the bench. From the outset, Breyer, a former Senate staffer, made equally plain his view that legislative history was both fair game and could be highly relevant.
Indeed, Scalia’s and Breyer’s contrasting views regarding textualism in both statutory and constitutional interpretation became so celebrated that they literally took their debate on the road. To be sure, theirs was a far cry from the Lincoln-Douglas Debates on slavery 150 years earlier, but for legal scholars and Supreme Court observers, it was High Court entertainment.
During the oral arguments last month before the Supreme Court in Utility Air Regulatory Group v. EPA, Justice Breyer managed to take the debate to yet a new level. The issue before the Justices concerned the lawfulness of EPA’s regulations applying the Clean Air Act’s Prevention of Significant Deterioration Program to the emissions of greenhouse gases from new and modified stationary sources. As the Justices struggled to decipher the meaning of statutory terms and phrases that befuddle even seasoned environmental lawyers, Justice Breyer made a surprising reference. He did not merely ask what Senator Edmund Muskie, the bill’s chief sponsor, might have been intending in drafting the language at dispute before the Court. He asked what “Mr. Billings, I think, is the staff person” would have intended if faced with the policy issue that EPA now faced in trying to apply the language he drafted to greenhouse gases.
The Supreme Court courtroom was filled to capacity for the argument. Yet, I can probably safely say that fewer than ten, and likely fewer than five people in the room had any idea to whom the Justice was referring. And those few most certainly did not include any of the Justice’s colleagues on the bench or any of the advocates before him.
But for a few of us, who thrive on environmental law’s history, it was a moment of glory. The Justice was referring, of course, to Leon Billings who was Senator Ed Muskie’s chief staffer for the drafting of almost all of the nation’s path-breaking environmental laws during the 1970s, including, as the Justice correctly surmised, the Clean Air Act of 1970. The statutes were revolutionary in their reach, as they sought no less than to redefine the relationship of human activities to the nation’s environment.
Not relying merely on the soaring rhetoric of a law like the National Environmental Policy Act, these new pollution control laws got into the nitty-gritty of lawmaking. They addressed the extent to which costs, benefits, risk assessment, scientific uncertainty, and technological availability should all be relevant in determining the pollution control standards. They brokered compromises across partisan divides and remained nonetheless exceedingly ambitious and demanding in their reach.
The nation, more than four decades later, has reason to be grateful for the work of former congressional staffers like Leon Billings. Their impressive work lies in sharp contrast to that of Congresses over the past twenty plus years, which have passed no comparably significant environmental laws and done little more than deepen partisan divides even further. For that reason, the Supreme Court shout-out to “Mr. Billings” was a great moment at the Court. And the Justice’s question an apt one too.
Posted on March 5, 2014
Environmental response trusts created as a result of corporate bankruptcies demonstrate that workable mechanisms exist to protect against future environmental liability. This prompts the question: Can this concept be expanded and become an official amendment to CERCLA, or a separate Brownfields law?
The Revitalizing Auto Communities Environmental Response Trust (“RACER Trust”), the largest response trust every created, owns, manages and remediates the former holdings of General Motors. It includes 89 properties, 60 of which needed environmental remediation, with over $640 million provided to RACER Trust, nearly $500 million of that designated to address environmental liability. The RACER Trust holds the liability for onsite contamination when it sells a property as long as the new owner allows the remediation work to continue. This liability shield also travels with the land, providing security to future purchasers with regard to unexpected contamination that could otherwise cost thousands or millions of dollars. What is unique about this and other trusts, is the cooperative nature which the Trustees and the regulatory agencies have displayed in addressing contamination and remedial activities, very different than the standard contentious approach which routinely exist at sites today.
There have been several legislative proposals in the 113th Congress to provide fixes to CERCLA, the cornerstone law of environmental remediation. The proposed legislation, however, is more focused on transferring authority over clean-up of sites to the states and implementing credit for state contributions to the remediation. In its testimony to the House Energy and Commerce Committee last May, EPA’s Office of Solid Waste and Emergency Response laid out the reasons for its opposition to many of the legislative proposals. The main points of concern are over the potential delays, increased administrative and litigation costs, and conflicting clean-up authority at sites.
But instead of legislation that could result in further slowing down an already protracted process, what about creating opportunities and enticements for development of contaminated properties? Whether under the CERCLA regime, or through the Brownfields program, there are ways to create environmental liability shields that would restore these properties to useful status, providing industry and jobs for the surrounding communities. In 2007, a nascent proposal to address this issue was developed. The draft legislation called for the creation of the Recovered Property Protection and Assurance Trust or R-PAT for transfer of contaminated properties and their associated environmental liabilities to a quasi-governmental trust. The R-PAT concept would have required a current property owner to pay a significant fee in order to place the land in the trust, and then cleaned up and conveyed, liability-free, to a purchaser. For various reasons, including the quasi-governmental nature of the trust and the floundering economy, the proposal was a non-starter.
However, given the dearth of other viable proposals, perhaps it is time to re-examine the trust concept and how contaminated properties can be best put back to profitable use. If we really want to streamline CERCLA or improve the Brownfields program, then let’s talk about how to get the land back into use, how to remove the time consuming and wasteful antagonism surrounding remediation and how to provide bullet-proof shields for bona fide purchasers now and in the future.
Posted on March 4, 2014
I sit on the board of a land conservation organization. Recently, the Director of Land Preservation for our board made a presentation in which she lamented the negative impact that the 2008 recession continues to have on land conservation activities at the organization. Funding by governments, grant-making organizations and private donors have been reduced, and local governments – one key source of land preservation – are themselves cutting their conservation budgets. Our organization has preserved a steadily decreasing amount of acreage since 2008, and the amount of funds spent on acquiring lands has been diminishing.
Many questions presented themselves following this sobering presentation, including whether a similar situation obtains at other land conservation groups, and what might be done until the economy turns the corner and, hopefully, funding is restored to pre-recession levels.
My research has been neither exhaustive nor scientific, and my sources largely anecdotal, but land conservation in other areas of the country seems to have been a mixed bag during this recessionary period, with some regions able to preserve a significant amount of land. In areas as diverse as the Chesapeake Bay, western North Carolina and large swathes of the West, for example, conservation has been robust in recent years. According to the Land Trust Alliance, more land has been preserved in recent years in states such as California, Colorado and Montana than has been developed. Following the housing crisis of 2008, development has been substantially reduced, lowering land prices and thus presenting an opportunity for conservation organizations to purchase land at lower prices.
Yet, at the same time, many conservation groups lack the resources to take advantage of these opportunities. Government-funded trust funds have been depleted by reduced federal and state budgets, and land conservation organizations’ endowments similarly have dropped as a result of fewer donations and, at least until recently, a depressed stock market. Thus, while land is less costly, less money may be available to take advantage of the opportunity, a classic catch-22. What a shame to be losing the chance to preserve environmentally sensitive land while development pressures are reduced. It is only a matter of time before the economy improves, increasing land values and making preservation more costly.
A recent article in The Wall Street Journal illustrates one impact of tightening local budgets on conservation. As noted in that article, cases are pending before state supreme courts in Maine and Massachusetts in which local governments have assessed real estate taxes on land held for conservation, arguing that they provide insufficient public benefit to warrant full tax exempt status. One or more judgments in favor of the municipalities, while nominally increasing their coffers, would have a further negative impact on conservation by imposing an additional financial burden on conservation organizations.
Until the economy improves, and monies again become available for preservation, land trusts need to become creative in their strategies. For example, conservation easements are less costly than acquiring the fee itself, and often come without management costs because the landowners typically continue to use their land for timber, grazing or agriculture. Instead of purchasing larger tracts, our organization has been shifting its resources in recent years to buying largely residential properties that are subject to frequent flooding. Preservation of these parcels, while typically small in size, serves a vital function by allowing families to relocate to higher and safer grounds and by returning flood-prone areas to a relatively undeveloped state, thereby reducing both human impacts and further downstream flooding.
Let’s hope funding for land conservation – government as well as private and non-profit – increases in the coming years to enable the preservation of sensitive and ecologically-valuable lands for years and years to come.
Posted on February 28, 2014
In the words of Justice Thomas in United States v. Atlantic Research Corp., the Circuit Courts have “frequently grappled” with the interplay between Sections 107(a) and 113 of CERCLA. These are the two provisions of the Statute that enable “covered persons”, commonly referred to as potentially responsible parties or “PRPs”, to recover response costs from other PRPs. In Atlantic Research, the Court held that Section 107(a)(4)(B) provides PRPs with a cost recovery cause of action; whereas, Section 113 provides PRPs with two separate contribution claims. One right to contribution exists under Section 113(f)(1) but, according to the Court in Cooper Indus., Inc. v. Aviall Servs., Inc., only “during or following” a Section 106 or 107 enforcement action. The second contribution remedy is found in Section 113(f)(3)(B) for a PRP who has “resolved its liability” for some or all of a response action or for some or all of the costs of such an action in a consent decree or an administrative order on consent (“AOC”). The Court, in Atlantic Research, explained that Section 107(a) allows a PRP to recover costs that it has itself incurred from other PRPs; whereas, the Section 113 contribution remedies allow a PRP to recover amounts it has paid to reimburse others who have actually incurred the costs. These distinctions would seem clear enough, but the lower courts have struggled to apply them.
At least part of the explanation for that struggle can be traced to the statement of the Court in Atlantic Research, that “[w]e do not suggest that 107(a)(4)(B) and 113(f) have no overlap at all,” citing the case where a PRP incurs its own costs pursuant to a consent decree following a Section 106 or 107 suit:
“In such a case, the PRP does not incur costs voluntarily, but does not reimburse the costs of another party. We do not decide whether these compelled costs of response are recoverable under 113(f), 107(a), or both.” (emphasis added).
In Bernstein v. Bankert, the Seventh Circuit resolved that issue, ruling, consistently with most other Circuit Courts, that after Atlantic Research, a plaintiff cannot pursue a cost recovery claim when a contribution claim is available. Thus, CERCLA plaintiffs cannot have “both,” as the Atlantic States footnote had suggested might be the case. For many Superfund practitioners, however, much of the rest of the amended panel decision in Bernstein appears to be novel.
The plaintiffs in Bernstein entered into two AOCs with EPA under Section 113(f)(3)(B), one in 1999, the other in 2002. Under the 1999 AOC, the plaintiffs performed a study to identify a removal action to be conducted at the site. In 2000, EPA determined that the plaintiffs had successfully completed the requirements of the 1999 AOC. Plaintiffs then agreed to perform the selected removal action pursuant to a 2002 AOC. At the time of the Seventh Circuit decision, the plaintiffs were continuing to perform the work required by the 2002 AOC. Plaintiffs brought suit in 2008, seeking cost recovery and contribution from other PRPs with respect to both AOCs.
The Seventh Circuit concluded that the plaintiffs had a Section 113(f)(3)(B) contribution claim as to the 1999 AOC because they had “resolved” their liability to EPA, but the claim was barred by the statute of limitations. Plaintiffs argued that Section 113(g)(3), the statute of limitations applicable to contribution claims, contained a “gap” which should be filled by applying Section 113(g)(2), the statute of limitations applicable to removal actions, such as the work required by the 1999 AOC. The Seventh Circuit concluded that it need not resolve the “gap” argument because the claims under the 1999 AOC, filed in 2008, were barred under either Section 113(g)(2) (three years from the 2000 completion of the removal action) or Section 113(g)(3) (three years from the date of the 1999 AOC).
As to contribution claims under the 2002 AOC, the Seventh Circuit focused on the statutory phrase “resolved its liability” as a limitation on the availability of the contribution remedy under that section. Analyzing the language of the AOC (which appears to have been based upon EPA's model AOC for removal actions), the court concluded that a party “resolved its liability” when it completed the requirements of the AOC to the satisfaction of EPA, an event which had not yet occurred. Only then would EPA's “conditional covenant not to sue” the settling parties become effective. Since work in fulfillment of the requirement of the 2002 AOC was ongoing, the court held that the plaintiffs had not “resolved” their liability and therefore had no contribution claim under Section 113(f)(3)(B). Moreover, the Court concluded that a party has not “resolved its liability,” within the meaning of that provision, until “the nature, extent or amount of [the] PRP's liability” is determined, or settled at least in part with EPA. The 2002 AOC, like virtually all other AOCs entered in the Superfund program, contained a reservation of rights on the part of the settling parties to contest their liability. The Court then went on to conclude that since the plaintiffs did not have a contribution claim under Section 113(f)(3)(B), they had a cost recovery claim under Section 107(a)(4)(B) because they had incurred necessary costs of response consistent with the National Contingency Plan.
The defendants-appellees moved the Seventh Circuit for a panel rehearing of its first decision, supported by EPA as amicus. The Seventh Circuit denied reconsideration, but granted rehearing, “in part, to address some issues raised by the EPA:
Specifically, the EPA identified certain passages of our original opinion which suggested that a party may never structure a settlement agreement with EPA in such a way as to resolve their liability immediately upon execution of that agreement. That is not the case. A party responsible for an instance of environmental contamination may obtain an immediately effective release from the EPA in a settlement, or it may obtain only a performance-dependent conditional covenant not to sue with an accompanying disclaimer of liability. Whether, and when, a given settlement 'resolves' a party's liability is ultimately a case-specific question dependent on the terms of the settlement before the court. In this case, the terms of the settlement did not provide for a resolution upon entering into the agreement.
The Seventh Circuit panel interpreted Section 113(f)(3)(B) to authorize contribution actions only once a contribution plaintiff has “resolved its liability” in a settlement, but then went on to conclude that resolution of liability does not occur until the requirements of the settlement have been completed and accepted by EPA and until the liability of the PRP has been “determined.” Given the fact that response actions can take decades to complete, this reading of the statute could result in very substantial and likely unanticipated delays in the effectiveness of the covenants not to sue contained in Section 113(f)(3)(B) settlements. Moreover, the same statutory phrase, “resolved its liability,” also appears in Section 113(f)(2), the provision affording protection for settling parties against contribution claims. Before this decision, most Superfund practitioners are likely to have thought that the benefits of a settlement under Sections 113(f)(3)(B) and Section 113(f)(2) accrued when the settlement agreement was signed. Many will be surprised to learn that, at least in the Seventh Circuit, they will not enjoy those benefits until they finish the work required by their settlements and until that work is approved by EPA. Even then, they may not have those benefits if they reserved their right to contest liability, as is commonly the case in Superfund AOCs.
The interpretations of Section 113 in Bernstein appear to be contrary to commonly held understandings of Section 113 (even by EPA) and contrary to the analysis of the Sixth Circuit in RSR Corp. v. Commercial Metals Co. Therefore, many Superfund practitioners believed that such a split might motivate the Supreme Court to grant the petition for certiorari; however, the petition was denied on January 27. While EPA had served as amicus curiae in support of reconsideration of the original panel decision, EPA did not file an amicus brief in support of the petition.
The Seventh Circuit decision is surprising for several reasons:
- Although the Seventh Circuit did not have occasion in Bernstein to analyze the impact of the phrase “resolved its liability” on consent decrees, the reasoning of the court would suggest that the benefits of Section 113(f)(3)(B) will not accrue to signatories of consent decrees until the requirements of the consent decree have been completed and accepted by EPA. Since CERCLA requires that settlements involving remedial actions be documented in consent decrees, that effectiveness could easily be delayed for many decades. In the meantime, signatories to consent decrees in the Seventh Circuit may not have contribution rights under Section 113(f)(3)(B) or contribution protection under Section 113(f)(2).
- The Seventh Circuit reasoned that such delays could be avoided by specific language in AOCs or consent decrees, making the covenants not to sue in settlements effective immediately. This reasoning, however, would appear to overlook Section 122(f)(1) which requires that discretionary covenants not to sue contain reservations of rights for “future liability.” The reasoning also appears to overlook the fact that there are many hundreds, if not thousands, of AOCs and consent decrees that have been signed over the years which contain the same EPA “model” language found in the Bernstein AOCs. If the reasoning of the Seventh Circuit in Bernstein is followed elsewhere, those settling parties may have a major surprise awaiting them.
- No other circuit court has interpreted Section 113(f)(3)(B) in the way the Seventh Circuit did in Bernstein. No other circuit court has placed such emphasis on the term “resolved its liability” to shift the effectiveness of settlements from the point when the settlement agreement is signed until potentially decades later.
- The Seventh Circuit decision logically defers contribution protection, a key incentive for PRPs to settle with EPA, potentially for decades. Will settlements with EPA be more difficult to achieve in the Seventh Circuit?
- Under Bernstein, settling parties do not obtain the benefits of Section 113 unless their liability is “determined.” Forcing settling parties to concede their liability may prove to be a major deterrent to settlements.
- The Seventh Circuit ruled that the plaintiffs had a Section 107(a)(4)(B) cost recovery claim even though their Section 113(f)(3(B) contribution claim had not yet matured. What happens when that contribution claim matures? Do the Bernstein settling parties then lose their Section 107(a)(4)(B) claim? What statute of limitations will then apply? What standard of liability will then apply?
CERCLA is notorious for its ambiguities and lack of clarity. This decision by the Seventh Circuit will likely do little to shed light on the interplay between CERCLA cost recovery and contribution. In the meantime, settling parties in the Seventh Circuit may have different rights than settling parties in other circuits.
Posted on February 26, 2014
A working group of federal agencies has issued a preliminary list of options for improving chemical facility safety and security for public comment by March 31, 2014. This document implements Section 6(a) of Executive Order 13650, which was issued on August 1, 2013, in response to the explosions at a fertilizer plant in West, Texas. These options for changes in policies, regulations, and standards for chemical facility safety and security are potentially the most far-reaching actions triggered by this Executive Order, which has received renewed attention due to the recent drinking water contamination in West Virginia that was caused by a leak from a chemical storage facility.
The working group lists 49 distinct options, which are each presented as questions, for public input. A number of the options are applicable to specific chemicals, namely ammonium nitrate and other explosives. A few options specifically apply to oil and gas facilities. Most options, however, broadly deal with chemical safety and security within industry in general. This last category of options addresses issues relating to process safety, regulatory coverage of additional hazardous chemicals, chemical reactivity standards, security at chemical facilities and identifying regulated facilities.
These options raise many important and thought-provoking issues. Here are a few examples. Can overlapping chemical safety and security programs of two or more agencies be harmonized? Should being subject to one regulatory program, such as the OSHA process safety management, automatically mandate coverage under another program, such as EPA’s risk management program? Should agencies use rulemaking, policies or guidance to effectuate chemical facility safety and security improvements? How can agencies work with private consensus standard organizations in this area? Can strategies, such as greater worker involvement, root-cause analysis or the use of leading indicators, improve safety and security at chemical facilities? While focusing on the front-page accidents can help answer these issues, attention to successful models of chemical facility safety and security is a more reliable guide to identifying useful improvements.
Posted on February 25, 2014
In an article earlier this week, the Boston Globe reported on concerns that the Massachusetts Department of Environmental Protection is planning to weaken cleanup standards for hazardous waste sites in Massachusetts, seemingly in response to pressure from developers. The article is so wrong and the concerns are so misplaced that some response is necessary.
First, we expect MassDEP to regulate in the face of uncertainty. That means that MassDEP must set cleanup standards without perfect knowledge. As a result, most people – and certainly the environmentalists complaining about the regulatory changes – would expect MassDEP to err on the side of conservatism, making the cleanup standards more stringent than may be necessary.
At the same time, science evolves and we’d expect MassDEP to alter cleanup standards periodically in response to changed science. Moreover, if MassDEP originally erred on the side of being overly conservative, one would expect that, as science improves, many standards could be relaxed – and that that would be a good thing.
What’s most troubling about the article and the NGO position here is the idea that environmental protection is still a black hat / white hat arena and that if something is good for economic development, then it must be bad for the environment. I thought we’d gotten past that in Massachusetts. Indeed, brownfields redevelopment is the prototypical example given of environmental protection being used to advance economic goals. That’s why it’s both stunning and deeply depressing to see lines such as this in the article:
"Critics worry the rules will spur developers to build on contaminated land, known as brownfields."
Better instead that we should plow under the greenfields and leave the brownfields vacant and without any cleanup, I suppose. I thought we already tried that strategy and concluded it didn’t work.
Posted on February 24, 2014
Across the globe, populations of elephants, rhinos, tigers, and other wild animals have been decimated as poachers, organized criminal syndicates, terrorist organizations, and corrupt officials seek to capitalize on the growing demand for their ivory, horns, and carcasses. By recent estimates, there are only 3,200 tigers and less than 30,000 rhinos left in the wild, with many subspecies extinct or at the brink of extinction. Combined with a loss of up to 30,000 elephants a year out of an estimated 500,000 remaining worldwide, we may soon see the loss of these great species within the next decade.
The United States recently announced a series of measures aimed at protecting endangered and vulnerable species from the growing risk of extinction at the hands of poachers, traffickers, and consumers. On February 11, 2014, the White House released its National Strategy for Combating Wildlife Trafficking and announced a ban on the commercial trade of ivory. Once implemented, these measures could amount to the most significant efforts by the U.S. government to combat the illegal wildlife trade within the United States and abroad in over two decades.
While China and other southeast Asian countries represent the primary source of demand, it might be surprising to know the United States is actually considered the second largest market for wildlife products in the world. Although international trade in ivory products is generally outlawed under the Endangered Species Act, 16 U.S.C.A. §§ 1531 to 1543, which implements the 1974 Convention on International Trade in Endangered Species (CITES), these restrictions are often times evaded (legally and illegally) under exceptions for trade in “antiques” (100 years and older) and permissible domestic ivory trade.
For example, as noted by the U.S. Fish and Wildlife Service (FWS), it has been permissible under US law to:
- Import unworked African elephant ivory (i.e., raw tusks) as part of a lawfully taken sport-hunted trophy for which appropriate CITES permits are presented
- Import and export worked African elephant ivory that meets the requirements for an “antique” under the ESA (with CITES documentation)
- Export ivory that qualifies as “pre-Act” under the ESA and “pre-Convention” under CITES
- Sell within the U.S. African elephant ivory lawfully imported into the U.S. as “antique” under the ESA or before the 1989 import moratorium under the African Elephant Conservation Act (AECA).
- Sell legally acquired African elephant ivory within the U.S. unless restricted by “use after import” limitations associated with items imported after the listing of the species under CITES or unless prohibited under state law.
Going forward, however, international and interstate trade in elephant ivory will be severely limited to primarily antiques, while intrastate sale in ivory will be generally limited to ivory imported prior to 1990 for African elephants and 1975 for Asian elephants. In all cases, the burden of proof to demonstrate that the ivory is compliant will now be on the buyer/seller.
Under the US Fish and Wildlife Service’s proposed regulatory changes, the following activities will be prohibited:
- Commercial import of African elephant ivory
- Export of non-antique African and Asian elephant ivory (except in exceptional circumstances as permitted under the ESA)
- Interstate commerce (sale across state lines) of non-antique African and Asian elephant ivory (except in exceptional circumstances as permitted under the ESA)
- Sale, including intrastate sale (sale within a state), of African and Asian elephant ivory unless the seller can demonstrate that the ivory was lawfully imported prior to listing in CITES Appendix I (1990 for African elephant; 1975 for Asian elephant) or under a CITES pre-Convention certificate or other exemption document
Imports of African elephant ivory will be limited to certain items and purposes where the ivory item will not be sold (i.e. law enforcement, scientific purposes). Imports of sport-hunted trophies of African elephants will be limited to two trophies per hunter per year.
The proposed regulatory changes will likely take place over the course of the next year, and include: (1) issuance of Director’s Order that will provide guidance to Service officers on enforcement of the existing 1989 AECA moratorium, and clarify the definition of “antique” (mid-February 2014); (2) a proposed or interim final rule to revise the 1989 AECA moratorium and create regulations under the Act in the general wildlife import/export regulations, including measures to limit sport-hunting of African elephants (June 2014); (3) a proposed or interim final rule to revise endangered species regulations to provide guidance on the statutory exemption for antiques (June 2014); (4) a proposal to revoke the ESA African elephant special rule (April 2014); and (5) finalize revisions U.S. CITES regulations, including the “use-after-import” provisions in (February 2014).
While the proposed changes severely restrict ivory sales, they nonetheless leave some room for trade, particularly in the intrastate market. Accordingly, states are also seeking to impose additional restrictions. In New York State, the largest market for illegal wildlife products in the US, Assemblyman Robert Sweeney is proposing to ban the sale of all ivory products, even those legal under federal law. Other states may be inclined to follow suit.
The National Strategy for Combating Wildlife Trafficking – while too detailed for summary here – seeks to implement three strategic priorities: (1) strengthening domestic and global enforcement; (2) reducing demand for illegally traded wildlife at home and abroad; and (3) strengthening partnerships with international partners, local communities, NGOs, private industry, and others to combat illegal wildlife poaching and trade. Combined with measures to be adopted under the commercial ivory ban, there is increased hope for vulnerable and endangered wildlife.
These issues are front and center this month as world leaders and conservation leaders gather at the London Conference on Illegal Wildlife Trade 2014 on February 13. The conference seeks to help eradicate illegal wildlife trade and better protect the world’s most iconic species from the threat of extinction. DLA Piper attorneys have been working closely on this issue, and recently produced a ten-country report assessing gaps in domestic legislation, judicial capacity, and institutional capacity to combat wildlife trafficking. As the world reacts to this growing threat, there remains much to be done, but also new foundations for hope.
This blog post is co-authored by Andrew Schatz.
Posted on February 21, 2014
There is a very interesting case pending in the Ninth Circuit regarding lead ammunition and its impact on raptors and scavenger birds, including California condors, in and around the Kaibab National Forest in Arizona. In Center for Biological Diversity v. U.S. Forest Service, the Center is pursuing a citizen suit alleging that the Forest Service is contributing to an “imminent and substantial endangerment” to wildlife under the Resource Conservation and Recovery Act by allowing the continued use of lead by hunters in the National Forest.
Factually, the allegations in the case are straightforward. Despite the existence of a “voluntary” program designed to reduce the use of lead ammunition in the Kaibab, hunters are still using it and the wildlife are still suffering the consequences, including mortality. Condors and other wildlife species are exposed to spent lead ammunition when they consume animals that have been shot but not retrieved or when they feed on the remains of field-dressed animals (also known as “gut piles”) that have been killed with lead ammunition. When lead-core rifle bullets strike an animal, they often fragment into hundreds of small pieces of lead that can be found several inches from the site of the wound in large game animals. A very small lead fragment is enough to severely poison or kill a bird, even one as large as a California condor, North America’s largest flying bird. Wildlife that ingest spent lead ammunition, even in minute amounts, experience many adverse behavioral, physiological and biochemical health effects, including seizures, lethargy, progressive weakness, reluctance to fly or inability to sustain flight, weight loss leading to emaciation, and death. In turn, wildlife experiencing these effects are far more susceptible to other forms of mortality, such as predation.
Nowhere is the threat of spent lead ammunition more apparent than on the Kaibab National Forest, an approximately 1.6 million-acre parcel of federal property in northern Arizona, bordering both the north and south rims of the Grand Canyon. Lead ingestion and poisoning from ammunition has been documented in many avian predators and scavengers that inhabit the Kaibab, including bald and golden eagles, northern goshawks, and ferruginous hawks. The most acute threats in the Kaibab are those posed to the condors. There are currently only approximately 75 free-flying condors in northern Arizona and southern Utah. Lead poisoning from exposure to spent lead ammunition is the primary cause of mortality in this fragile population. Even the surviving condors frequently need to have their blood treated for lead contamination; one female condor recently received 16 life-saving treatments over a 16-year period, before she ultimately died of lead poisoning.
The legal issues currently pending before the Ninth Circuit involve standing. The district court found that the Center lacks standing, relying both on its view that the Government would need to undertake a rulemaking in order to ban the use of lead ammunition in the Kaibab and on the fact that the condors’ range extends beyond the Kaibab itself, and thus that they might ingest lead elsewhere even were the Center to prevail. On appeal, the United States relies primarily on the latter of these two theories, which is interesting given that the condors’ lead exposure levels correlate strongly with the deer-hunting season on the Kaibab. As Alan Zufelt of the Arizona Department of Game and Fish put it: “We can put it on the calendar that every year right after the deer hunt there’s going to be a huge spike in condor lead poisoning.”
If the Ninth Circuit holds that the Center has standing, which, in this author’s view, it should, the case will then proceed to the merits, where the key legal question will be whether a landowner that knowingly allows visitors to engage in activities that result in the spread of poisons on its property may be deemed to be “contributing” to any resulting endangerment to wildlife. This issue could have implications not only for condors and the other wildlife on the Kaibab, but ultimately in other land-management contexts as well.
Posted on February 20, 2014
As I sit in my thankfully warm office on a frigidly cold winter day, I ponder the difficulty of regulating the environmental consequences of climate change. Whether a true believer or a science skeptic, it is hard not to wonder what happens if global warming believers are right. Isn’t it a good idea to work to improve air quality regardless and be ahead of the curve if systematic warming proves a fact?
Even that fairly cautious, deliberative body, the United State Supreme Court, in its 5-4 decision in Massachusetts v. EPA, made quick work of EPA’s reasons for inaction in deciding that EPA could regulate greenhouse gases under the Clean Air Act. The reader may recall that the State of Massachusetts, along with other entities, challenged EPA’s decision that the agency had no authority to regulate carbon dioxide and greenhouse gases. EPA had argued that even if the agency had authority, it could not practically regulate greenhouse gas emissions in a meaningful way to address global climate change. Thus EPA had decided to exercise discretion by not regulating—based on foreign policy considerations such as not putting the U.S. at a competitive disadvantage.
The majority of the U.S. Supreme Court, in rejecting this rationale, was favorably disposed toward taking incremental steps on climate change. The Court said: “Agencies, like legislatures, do not generally resolve massive problems in one fell regulatory swoop (citation omitted). They instead whittle away at them over time, refining their preferred approach as circumstances change and as they develop a more-nuanced understanding of how best to proceed.” Perhaps, in other words, one has to start somewhere. To its credit, EPA then initiated regulatory steps to do just that but has largely been hindered at every step by further legal challenges.
The old adage “Think globally, but act locally,” long touted in land use politics and grassroots environmental movements, might also test the global climate change debate about how best to address this collective problem. It should not come as any great surprise that efforts to address climate change globally have met with limited success. Why should one nation-state undertake costly reform while others continue as usual? One only has to look at how difficult it has been to get “started” regulating greenhouse gas emissions in the U.S. with the push-back from some states, regulated utilities, and global warming skeptics in general.
The New York Times recently reported about a new study on China’s “export” of pollution that focuses on the economics and trade implications on a global scale. That was followed by the recent announcement by the European Union, with an activist record on climate change, that it intends to scale back some of its climate change goals and regulations—citing economic problems like high energy costs and declining industrial competitiveness as reasons. The U.S. continues to raise climate change issues in its diplomatic dialogues and trade discussions with other countries, but it is hard to gain much leverage when the U.S. is unwilling to make commitments to the global community in the same way other industrialized countries have.
If the global problem seems so insurmountable, how can we get much traction taking those incremental steps on a national, state and local level? I am an advocate for addressing climate change—I just don’t know how to persuade the skeptics, if the current science doesn’t convince them. Perhaps taking a second look at economic incentives would help us draft better, fairer regulations that create greater motivation for regional and local initiatives—like carbon trading and the Regional Greenhouse Gas Initiative in the northeastern U.S. It is usually better to frame things via positive incentives. Use carrots rather than sticks.
Two other Times stories also caught my eye. One story was about corporations like Coca-Cola and Nike awakening to the threat of climate change because of a growing realization that weather conditions causing drought and crop failures will ultimately affect their bottom lines. They needed to plan for water scarcity. That reminded me of how the clothing corporations, a while back, were scrutinized for their overseas labor practices and started expressing interest in human rights—arguably with a view to their future bottom line profits. While the impact of the current stories is debatable, public attention may bring consumers and stakeholders into the debate. Some companies are worried about consumer boycotts after bad publicity; better to be ahead of the curve, improve labor rights or use of natural resources, avoid consumer wrath, and protect profits via change now. So both the soft drink industry and particularly clothiers were looking to the future, trying to anticipate negatives.
The other story was about the political debate over flood insurance and who should bear the risk of building in flood zones, another perceived cost of climate change. Broadening public attention to these climate change issues and the probable dire consequences of no action should help improve the political and regulatory debate. The Obama administration's announced creation of seven regional “climate hubs” to help farmers and rural communities understand the potential consequences of climate change may be just such a new strategy.
So where does this leave me? Still stymied, but hopeful that by broadening my perspective I might yet see allies and alternatives on how regulating climate change might move forward, even incrementally. Two rules of thumb: 1) anticipate probable future negatives and head them off now, and 2) find more carrots and rely less on sticks. By the way, did I mention that I am a state regulator but my remarks are my own?
Posted on February 19, 2014
The recent decision of the D.C. Circuit in Oklahoma DEQ v. EPA vacated the 2011 Tribal NSR Rules with respect to non-reservation lands for which EPA has not made a prior determination of tribal jurisdiction. By its broad terms, the opinion’s reach extends well beyond lands solely within Oklahoma (“We…vacate the Indian Country NSR Rule with respect to non-reservation Indian country.”). States with EPA-approved implementation plans may once again permit facilities within their borders located on such non-reservation lands, in the wake of this decision. Though it may be decried by EPA and Native American tribes as effecting a partial loss of federal jurisdiction and/or tribal sovereignty, it should be praised by all who value legal and regulatory certainty, especially including those who wish to obtain air permits for their commercial activities within Indian Country.
EPA promulgated the Tribal NSR Rules to fill a regulatory gap created by the asserted general lack of state authority to regulate air quality within Indian Country. It did so by exercising its authority under Clean Air Act § 7601(d)(4) to administer a federal program over Indian Country in the stead of the tribes. This gap persisted for twenty years, until the Tribal NSR Rules were finalized as a Federal Implementation Plan (FIP) for Indian Country lands nationwide that lacked such a plan.
This twenty-year regulatory gap led to the inability to obtain air permits in Indian Country for certain activities, or the conduct of such activities without air permits at all: neither a good result. It also led to enforcement against even well-controlled activities and facilities in Indian Country because without a legally and practically enforceable limit on their emissions, such as in a valid permit, EPA and tribes were required to assume emissions were as high as their potential to emit without controls, often triggering the most serious, alleged violations. This unhappy state of affairs persisted from the passage of the 1990 CAA amendments until 2011, interrupted only in 2006 by the faint promise of proposed rules that would take another five years to be finalized.
When is a Regulatory Gap not a Gap?
EPA’s overbroad assertion of jurisdiction under the Tribal NSR Rules is what ultimately led to the vacatur of the rules for non-reservation lands. The case turned on the D.C. Circuit’s prior holding in Michigan v. EPA, which involved review of the Federal Operating Permits program for Indian Country. In that rule, EPA had established a federal CAA program throughout Indian Country, but declared it would “treat areas for which EPA believes Indian Country status is in question as Indian Country.” 64 Fed. Reg. at 8262. The court in Michigan sided with the petitioners and confirmed § 7601(d)(4) permits the EPA to act only in the shoes of a tribe, and EPA could not regulate in Indian Country where a tribe could not, i.e., on non-reservation lands where there had been no demonstration of tribal jurisdiction. The Oklahoma DEQ decision was controlled by this prior interpretation of EPA’s authority under § 7601(d)(4), and confirmed that a state “has regulatory jurisdiction within its geographic boundaries except where a tribe has a reservation or has demonstrated its jurisdiction.”
The good news is that part of the gap EPA sought to fill was not a gap at all: states with valid SIPs were authorized all along to issue permits for activities on non-reservation lands for which tribal jurisdiction has not been demonstrated. The decision reaffirms such authority of states for such non-reservation lands, so air permitting with respect to them may proceed, albeit after a period of transition (EPA had loudly proclaimed in the Tribal NSR Rules that states don’t have jurisdiction anywhere in Indian Country).
While this result is not optimal from a tribal perspective, and appears to complicate the future ability of tribes to assume the broadest possible authority to regulate air quality, it is not all bad. For example, in Oklahoma, where no reservation lands remain due to the assimilationist policies of the last century, and where title to allotment lands is a legal quagmire preventing anyone from easily determining if a project is on non-reservation lands within Indian Country, the state may once again issue permits to protect air quality. I suggest it is also not a bad thing in other states, since the ability to obtain valid state air permits for activities on non-reservation lands within Indian Country will not only protect air quality there, but will create air permitting certainty, thereby removing some of the regulatory barriers to economic development on non-reservation lands.
Posted on February 18, 2014
The valleys and mountains of the Great Basin hold cold air in when a high pressure parks itself overhead, with the result that the valleys with significant populations, primarily the 100+ mile Wasatch Front, are subject to a wintertime PM2.5 grunge that builds up until the next storm front moves in to clear it out.
Although Salt Lake City and other parts of the state are in compliance with the annual PM2.5 NAAQS, exceedances of the 24-hour NAAQS have been recorded during inversion periods since 2006, when EPA lowered that standard from 65 μg/m3 to 35 μg/m3. As a result, Utah is going through an arduous PM2.5 state implementation plan (SIP) revision process to address the PM2.5 nonattainment.
Because we can’t change the topography around here or install fans large enough to blow air out of the valleys, the state must seek reductions in emissions that contribute to the wintertime PM2.5 exceedances. Nearly three-fifths of those emissions are from car and truck emissions. About thirty percent of the contributing emissions are from area sources and wood-burning fireplaces and stoves. And the rest of the emissions –only about a tenth of the PM2.5 precursor and direct emissions – are contributed by large industrial sources in the airshed.
The proposed SIP seeks some reductions from the large industrial sources, which must be retrofit not with RACT but with the equivalent of BACT, notwithstanding hundreds of millions of dollars of pollution control improvements already installed over the last decade. The rest of the PM2.5 emissions to be reduced during inversions must come primarily from mobile source and area emissions.
The modeling underlying the SIP shows that attainment will barely be reached by the 2019 attainment date. But, with the D.C. Circuit throwing out the PM2.5 implementation rule a year ago and requiring EPA to promulgate a new one under more restrictive provisions of the CAA and the predictable citizen’s suits, who knows if attainment can be achieved short of literally turning out the lights and leaving town.
The Utah Legislature is in session and legislators are falling over each other trying to show that they care about cleaner air. However, there is not much state legislators can do, given that the emissions and fuel standards for mobile sources are set by the federal government (with states having the option of adopting California standards under certain circumstances). So, the state is squeezed between the Wasatch Mountains on the one side and the Clean Air Act on the other. It might be easier to cart off the mountains than to bring the Clean Air Act requirements into alignment with the real world.
Posted on February 14, 2014
On February 11, 2013, the United States District Court for the District of New Mexico denied a Motion for Preliminary Injunction filed by the Village of Logan, seeking to compel the Bureau of Reclamation (“BOR”) to perform an environmental impact statement (“EIS”) for the Ute Lake Diversion Project in eastern New Mexico. The BOR issued an environmental assessment (“EA”), which failed to analyze the foreseeable impacts to Ute Lake based on the design capacity of the intake structure to withdraw 24,000 acre-feet per year (“af/yr”). The BOR contended that, while contracts had been issued to deliver the full 24,000 af/yr of water, the project which it funded was limited to withdrawals from the lake of only 16,450 af/yr. Significantly, the environmental and socioeconomic impacts of 16,450 af/yr paled in comparison to the projected impacts resulting from withdrawals of 24,000 af/yr.
The briefs in the Tenth Circuit present an issue of first impression under NEPA. That is, can the BOR defer an analysis of certain impacts it knows will occur in the future, and summarily discuss those deleterious impacts under the rubric of “cumulative” rather than “direct” effects? According to the Department of Justice, Logan’s complaint about the matter is only one of “nomenclature,” and it should not matter whether the effects are deemed “direct” or “cumulative.” In response, Logan argues that the difference is one of substance, as an analysis of “cumulative” effects of a project does not require a comparison of the project to reasonably available alternatives, whereas an analysis of foreseeable “direct” effects, i.e., withdrawals up to the capacity of the intake structure, would require a vigorous comparison to available alternatives. These alternatives, which received only a one-half page discussion in the EA’s section on cumulative effects, include retirement of wasteful irrigation groundwater rights to augment municipal water supplies in eastern New Mexico. According to Logan, allowing the BOR to analyze a plainly foreseeable “direct” effect as merely “cumulative” would result in the illegal segmentation of the project. If such a result were sanctioned, there would be no NEPA analysis ever undertaken of the effects between 16,450 af/yr and 24,000 af/yr.
Oral argument is scheduled for March 17, 2014.
Posted on February 13, 2014
A former federal district judge was fond of telling his law clerks that Fifth Circuit Court of Appeals opinions were like the Old Testament. “You can find something there to support about any proposition you want.” The January 31, 2014 release of the State Department’s Final Supplemental Environmental Impact Statement for the Keystone XL Pipeline Project brought Judge Roberts’ words to mind.
The Keystone XL Pipeline Project backers tout the report’s conclusion that because the Canadian tar sands oil will be developed with or without the construction of the pipeline, it will not “significantly exacerbate the effects of carbon pollution” (to use the President’s avowed standards for pipeline permit approval). On the other hand, pipeline opponents point to the fact the report does not specifically address the project’s greenhouse gas emissions. Both are valid points, but the gist of the report appears to be the project has finally cleared its environmental hurdle.
That said, other hurdles remain. While this long-awaited environmental impact statement is an important step in the process, it is just that, a step. Ultimately, the final decision on the pipeline permit will involve something more akin to the common standard for law firm attorney compensation, the so-called “all factors considered” standard. In this instance, that decision will involve economic and national and international political concerns, as well as how the project affects U.S. and international climate policy.
With the issuance of the report, the 90-day interagency consultation period begins. Once EPA, and the Departments of Energy, Defense, Transportation, Justice, Interior, Commerce, and Homeland Security weigh in, the Secretary of State will at some point make to President Obama a permit recommendation. The President, of course, has the final say.
Stay tuned; the project appears to have cleared another hurdle, but the five year and counting race is far from over.
Posted on February 11, 2014
Last week, EPA released its second external review draft of an updated Policy Assessment on the national ambient air quality standard for ozone. It also released updated draft risk and exposure assessments. To no one’s surprise, the new drafts confirm support for lowering the ozone NAAQS from 75 ppb to a range of 60 ppb to 70 ppb.
Why is this not a surprise? Because, as I noted some time ago, the prior draft policy assessment also supported a NAAQS in the range of 60 ppb to 70 ppb. Moreover, the Clean Air Science Advisory Committee weighed in on the prior draft, supporting a standard in the 60 ppb to 70 ppb range. In fact, before getting cold feet, CASAC had indicated that the data would support a standard below 60 ppb.
Courts’ deference to CASAC determinations on these issues is pretty well established. It seems clear that EPA has to lower the NAAQS to at most 70 ppb in order to survive judicial review. It’s not even obvious that 70 ppb would stick, though that will be clearer after CASAC has reviewed this most recent draft Policy Assessment.
The other significant question is when EPA will actually issue the new standard. After all, EPA was prepared to issue a new standard in 2011 or early 2012, when the White House put the proverbial kibosh on EPA’s plans. Will EPA somehow manage to delay issuance of the new standard until after the November elections? Now that the Super Bowl is over, I think that the Vegas bookies are putting their money on after.
Posted on February 7, 2014
The Western states face two reciprocating and overarching problems in water resources policy. First, water is an increasingly scarce resource facing sharply competitive needs. Climate change is projected to put even more strain on water supplies. Second, most streams listed as water-quality impaired in the West are designated as such for issues related to the biological integrity of the waterway. The combination of aggressive human use of waters, manipulation of stream channels, and failure to control agricultural runoff has resulted in widespread degradation of aquatic habitat.
The primary impediment to addressing these related issues arises from dated legal constructs designed to achieve different objectives in eras with markedly different economies. In other words, trying to apply these constructs to today’s problems is like attempting to fit square pegs into round holes.
The doctrine of prior appropriation governs water rights everywhere in the West. It was developed in the 19th century to promote mining and agriculture—both water intensive enterprises—in arid climates. The doctrine provides that the first to physically take control of the water and put it to beneficial use has priority over later comers. Thus, the oldest water rights with the highest priorities are mostly agricultural, and many streams have become over-appropriated during the past century. So where does a growing community go for new water supplies? And what about maintaining sufficient high-quality flows instream for healthy fisheries?
The problem is made more acute by the formidable costs and regulatory uncertainty of developing major water storage projects. Many cities seek to acquire or share in old agricultural water rights through direct payments to water right holders or they finance irrigation system improvements for more efficient use of water. Such water marketing approaches free up water for municipal use, while reducing pressure to remove still more water from oversubscribed streams. But if a legislature could have anticipated then what we know now, might it a century ago have considered systems that allocate water based more on maximum public value and efficient use, rather than simply priority in time?
The Clean Water Act was enacted over 40 years ago to address toxic discharges of industrial and sewage wastewater to rivers and lakes. Dramatic events like the spontaneous ignition of the Cuyahoga River drove public demand for government intervention, leading to the new law. The Act has done a remarkable job of cleaning up end-of-pipe discharges (point sources), but has largely failed at controlling more diffuse sources of pollution (nonpoint sources) from stream channelization, devegetation of riparian habitat and agricultural runoff. Thus, many streams today are impaired by turbidity, nutrient loading, and higher temperatures.
Since the Act does not provide enforcement tools for nonpoint sources, regulatory agencies use the authority available to them to ratchet up controls on point sources. One solution to this problem is water-quality trading, in which a point source permittee can take watershed-restorative action upstream to correct a nonpoint pollution problem in order to meet escalating permit requirements. This approach can yield better ecological outcomes at lower cost. But if Congress were drafting the Clean Water Act today, any rational approach would address the problem of diffuse sources of pollution.
It seems unrealistic to expect substantive changes to either the law of prior appropriation or the Clean Water Act any time soon. Aside from the politics, changes to prior appropriation raise significant constitutional questions to the extent property rights are affected. In the meantime, we’ll have to continue looking for creative workarounds. This circumstance makes interesting work for lawyers, but is hardly the optimal approach to effective water resource use and protection.
Posted on February 5, 2014
In the mid 1970’s, the City of Cleveland and some fifty plus surrounding communities created a sewer district now known as the Northeast Ohio Regional Sewer District (“NEORSD”) to handle sanitary and industrial discharges into Lake Erie, and several rivers, including the Cuyahoga. Over time, however, the Cleveland area experienced considerable urban sprawl, creating vast expanses of impervious surfaces in the form of parking lots and large clusters of office, shopping, Big Box, commercial and industrial facilities. With the conversion of green space to impervious roofs and parking facilities, some of the communities began to experience more flooding and erosion problems. Indeed, the Cleveland Metroparks, known as the “Emerald Necklace” because of the park lands situated in the flood plains of the Cuyahoga, Chagrin, and Rocky Rivers, was particularly hard hit from the storm water runoff originating in the nearby suburbs.
To address storm water and erosion problems that were “regional” in scale, the NEORSD developed a program in 2010 that included the payment of fees by all property owners based on the amount of impervious surface areas, like driveways, parking areas, and roof tops. The NEORSD expected to use these funds on projects that would alleviate flooding and stream erosion. But there was no unanimity among the member communities of the NEORSD about the need for, or the type of program that the district wished to implement. Approximately ten of those communities objected, in large part because their geographical elevations were such that they likely would never benefit from the preventive measures. Moreover, many of those communities already had their own expensive, capital intensive storm water systems. Furthermore, a significant number of commercial property owners objected because of the hefty fees that they would pay based on the parking lots and roof structures they maintained.
To validate the regional program, the NEORSD filed a declaratory judgment action in the Court of Common Pleas in Cuyahoga County, where it prevailed. But the dissenting communities and commercial property owners appealed, and secured a two to one appellate reversal in 2013. The appeals court concluded that the sewer district did not have the authority to address storm water unless it was also contaminated with sewage. The court of appeals did not reach the merits of the claim that the storm water fees were illegal taxes. (The NEORSD had billed approximately $35,000,000 in fees by the time of the appeals court decision.)
The NEORSD has appealed the decision to the Ohio Supreme Court, with significant amicus support. The dissenting communities and the commercial property owners have urged the Ohio Supreme Court to decline to hear the case, and claim that the legislative process in the General Assembly is the proper place to balance the political considerations that might be involved in a fee supported regional storm water management plan. They claim that the current plan is nothing more than power grab and illegal tax by an unelected and unaccountable body. The NEORSD, on the other hand, argues that the storm water problems know no political boundaries, and thus its regional, holistic approach is far superior to the piecemeal, community by community approach that previously existed.
As of this note, the Ohio Supreme Court has not decided whether it will take the case. The underlying court of appeals decision can be accessed here.
Posted on February 3, 2014
Courts have long wrestled both with the survival of environmental claims in bankruptcy and with the proper prioritization of environmental claims within bankruptcy. In Munce’s Superior Petroleum Prods. v. N.H. Dep’t of Envtl. Servs., the First Circuit split with the Third Circuit over the prioritization of punitive fines for a company’s post-petition violation of environmental laws. In Pa. Dep’t of Envtl. Res. v. Tri-State Clinical Labs., Inc., the Third Circuit determined these to be general unsecured claims, but the First Circuit disagreed and gave the fines administrative expense priority ahead of unsecured creditors.
Tri-State Clinical Labs. involved a company that violated solid waste disposal laws by disposing of biological materials into the general trash. The company engaged in this conduct both before and after filing for bankruptcy, and the Pennsylvania Department of Environmental Resources (DER) assessed criminal fines for both the pre- and post-petition conduct. The parties agreed that the fines for the pre-petition violations were general unsecured claims, but DER contended the fines for the post-petition violations should be given administrative priority pursuant to 11 USCS § 503(b)(1)(A) (i.e., as “the actual, necessary costs and expenses of preserving the estate”). The court disagreed. First, the court looked to the specifically-itemized administrative expenses set forth in the statute, and determined, with the exception of fines related to taxes, they were all “compensation for services that are necessarily incident to the operation of a business.” The fines, being punitive in nature, were not compensation for services, and a company’s unlawful conduct is not a “necessary cost of doing business.” In addition, the specific inclusion of tax fines suggested Congress’ intent not to include any other type of “non-compensatory” penalties. Finally, the end result of granting a punitive fine administrative priority status would be the payment of that fine by innocent third parties (the unsecured creditors), not the debtor. The court contrasted its decision with a situation involving compensatory payments to the state for its work in cleaning up a contaminated site, which would have received administrative priority.
The court in Munce’s Superior Petroleum Prods. disagreed with this analysis. Munce’s Superior Petroleum Prods (MSPP) violated state environmental laws requiring secondary containment around its aboveground storage tanks. The New Hampshire Department of Environmental Services (DES) filed an action in court, seeking injunctive relief and civil penalties, and the court entered a consent preliminary injunction requiring MSPP to bring its tanks up to code or take them out of service. MSPP did not comply with the injunction, and DES filed a motion for contempt. MSPP then filed for bankruptcy. The state court stayed the DES action, but then lifted the stay on a finding that DES was “protecting public health and safety and the environment.” The state court then granted DES’ motion for contempt, ordered MSPP to take its tanks out of service and fined MSPP $1000 per day of noncompliance. MSPP still did not comply, and the court ultimately granted DES’ motion for $192,000 in fines.
The bankruptcy court assigned the $192,000 in fines administrative expense priority, and the First Circuit affirmed. The court first determined that the fines were for post-petition conduct (not complying with the contempt order), not for the pre-petition environmental violations that originally triggered DES’ lawsuit. Next, the court decided that “in light of today’s extensive environmental regulations, the payment of a fine for failing to comply with those regulations is a cost ordinarily incident to operation of a business.” Therefore, “fines for noncompliance post-petition with state environmental law” fall within 11 USCS § 503(b)(1)(A) and should be granted administrative expense priority.
Posted on January 30, 2014
In a matter brought in the Original Jurisdiction of the South Carolina Supreme Court, the Court opined in its January 22, 2014 decision that the citizen group plaintiffs lacked standing. The plaintiffs asserted public nuisance and zoning claims related to Carnival cruise ship Fantasy’s operations at the Union Pier Terminal near Charleston’s Old and Historic District. The Court granted Carnival Cruise Lines’ motion to dismiss the lawsuit.
The Court cited its previous decision in Sea Pines, a challenge by animal rights groups to the issuance of a depravation permit to reduce the deer population on Hilton Head Island, where many children’s vacation fantasies of seeing Bambi are often fulfilled. The citizen groups attempted to emphasize their “particularized injury” caused by the Fantasy docking in Charleston Harbor. Specifically, these groups asserted, among other things, the Fantasy “visually disrupts the historic skyline” and emits “noise pollution, including broadcast announcements and music” that have injured these groups and their members by “reducing their use and enjoyment of the local environmental and Charleston’s historic assets.”
Having pondered all of the alleged egregious conduct resulting from the presence of the Fantasy, the Court found “all members of the public suffer from and are inconvenienced by traffic congestion, pollution, noises and obstructed views.” Thus, it concluded the citizen group plaintiffs lacked standing, a fundamental prerequisite for instituting a legal action.
Posted on January 29, 2014
The Food and Drug Administration recently recommitted itself to its feeble policy of addressing the profligate use of antibiotics in livestock by enlisting the voluntary participation of the drug companies that make the antibiotics. Peter Lehner discussed previous iterations of this policy in his ACOEL blog post of November 2012. Two documents issued in December 2013 reveal the details of the agency’s current plans. The first is a final guidance document describing the FDA’s process for handling drug sponsors’ voluntary efforts to phase out certain uses of antibiotics in animal feed and water and to bring the remaining uses under the oversight of a veterinarian. The second is a draft rule relaxing the requirements for veterinarians in exercising this oversight. (In a new article, I provide an in-depth analysis of the several different strands of the FDA’s plan.)
Together, the documents recently issued by the FDA promise little more than continued delay in tackling a public health risk that has bedeviled the Agency for decades. The FDA’s decision to rely on voluntary action by drug companies and to continue to allow routine uses of antibiotics in whole herds and flocks of animals in order to prevent infections brought on by stressful conditions leaves gaping holes in the protection the Agency purports to provide. The Agency’s meager backup plans in case this endeavor does not work out as it hopes do little to comfort the skeptical. Moreover, the FDA’s proposal to weaken rules for veterinary oversight undermines the Agency’s plan to place veterinarians at the front line of preventing agricultural overuse of antibiotics. In addition, after a small outburst of transparency at the start of the process, this whole undertaking will move underground for three years while the FDA works things out privately with participating drug companies.
Rather than pursuing this doomed course, the FDA should do what a federal district court has already ordered it to do: complete regulatory proceedings to withdraw approvals for the mass administration of medically important antibiotics to food-producing animals. As I have explained in a recent article, the FDA’s refusal to do so rests on the mistaken legal premise that such withdrawals must be preceded by formal, trial-type hearings; this premise ignores decades of developments in administrative law and misreads the Agency’s own enabling statute.
Posted on January 28, 2014
On December 19, 2013, in Robinson Township v. Pennsylvania, a three-justice plurality of the Pennsylvania Supreme Court revived the previously moribund Environmental Rights Amendment of the Pennsylvania Constitution, which provides:
The people have a right to clean air, pure water, and to the preservation of the natural, scenic, historic and esthetic values of the environment. Pennsylvania’s public natural resources are the common property of all the people, including generations to come. As trustee of these resources, the Commonwealth shall conserve and maintain them for the benefit of all the people.
Pa. Const. art. 1, § 27. According to the plurality, lower courts interpreting the provision had been disregarding the constitutional text in favor of a judge-made rule under which the Environmental Rights Amendment offered protection only through implementing legislation. The plurality noted that when “prior decisional law has obscured the manifest intent of a constitutional provision . . . [,] adjustment of precedent is . . . salutary.” Slip op. at 64.
The realigned jurisprudence, under the plurality’s interpretation, now recognizes a directly enforceable right to clean air, pure water, and to the preservation of the natural, scenic, historic and esthetic values of the environment, which limits state power; common ownership of public natural resources, meaning all resources that “implicate the public interest” (air, water, wild flora and fauna) but are outside the scope of purely private property; and a trustee relationship, under which both state and local government must manage those resources for the benefit of “all the people,” including future generations. The trust provision may be enforced by “citizen beneficiaries. . . in accordance with established principles of judicial review,” id. at 85, as well as by municipalities on behalf of their citizens.
Relying exclusively on the trust provision, the plurality ruled that provisions of a state law that purported to preempt local environmental regulation of oil and gas operations and that required localities to authorize drilling in all zoning districts violated the Environmental Rights Amendment. A concurring opinion by one justice, based on substantive due process, resulted in a 4-2 decision invalidating those provisions. The decision thus transforms a state ceiling on environmental regulation of the oil and gas industry into a floor.
In more than 70 pages addressed to the Equal Rights Amendment, the plurality dropped tantalizing hints about the further potential reach of its analysis. The opinion suggests that government actions imposing “much heavier environmental and habitability burdens” on some properties and communities than on others—i.e., causing environmental injustice—violates the trustee’s obligation to manage the trust corpus for the benefit of “all the people.” Under the plurality’s interpretation, moreover, respect for the rights of future generations requires that the state’s power to promote prosperity “be exercised in a manner that promotes sustainable property use and economic development.” Id. at 79. Whether Pennsylvania’s judiciary is ready for the new jurisprudence of environmental rights contemplated by the plurality remains to be seen. A motion for reconsideration is pending before the Supreme Court.
Posted on January 24, 2014
EPA has touted water quality trading for more than a decade as a viable tool for combating water pollution, particularly pollution due to excess nutrients and sediment. But the Clean Water Act contains no express authority for water quality trading or offsets, and some environmental groups view trading as a “license to pollute” that violates the Clean Water Act’s promise to eliminate the discharge of pollutants into waters of the United States.
Last month a federal district court issued a final ruling in the first reported challenge to the legality of water quality trading. The court dismissed the action without reaching the legality of water quality trading. Instead, the court held that the plaintiff environmental groups (Food and Water Watch and Friends of the Earth) lacked standing and that EPA’s “authorization” of trading in the Chesapeake Bay TMDL was not a final agency action. Food and Water Watch v. EPA, No. 1:12-cv-01639 (D.D.C. decided December 13, 2013).
Although the court’s decision did not address the substantive legality of water quality trading, the case still presents four interesting aspects that may prove instructive on what to expect in future challenges.
First, environmental groups split over the question of joining the challenge to water quality trading. It is widely rumored that Food and Water Watch actively solicited support from environmental groups involved in Chesapeake Bay issue but met with stiff resistance. It appears that the other environmental groups’ support for the Chesapeake Bay TMDL overrode any interest they might otherwise have had in supporting a challenge to the legality of water quality trading.
Second, the defense of water quality trading made for strange bedfellows. Three parties intervened as defendants. One was a group representing municipal point source dischargers who support the Chesapeake Bay TMDL (National Association of Clean Water Agencies). Two were non point source groups who are actively challenging the legality of the Chesapeake Bay TMDL in another case (American Farm Bureau and National Association of Home Builders). The non-point source representatives argued that the trading component of the Bay TMDL would be important and valuable to their members if their challenge to the validity of the Bay TMDL in the other case was unsuccessful.
Third, the court’s decision on standing, ripeness, and the question of final agency action suggests it may be difficult to litigate the basic legality of water quality trading until a program is fully established and permits allowing credit for trades are issued. EPA argued successfully that no actual or imminent injury to the plaintiffs was caused by the Chesapeake Bay TMDL’s express reference to trading as a means for meeting the waste load allocations. According to this argument, the TMDL did not compel any trades; it simply acknowledged that states in the Chesapeake Bay watershed might use trading as a tool in developing permits that implement the TMDL. Carrying this argument to its logical conclusion, one could envision the possibility that there would be no basis for private party standing to challenge the legality of a trading program until after a stream has been listed as impaired, a TMDL has been performed, a trading program has been established, and permits have been issued allowing credits for trades within the program. Litigating the legality of water quality trading at such a late stage would presumably face a significant task in unwinding the momentum of such a fully developed administrative structure.
Fourth, given the success of EPA’s standing and ripeness arguments, it seems unlikely that there will be any definitive judicial ruling on the legality of water quality trading any time soon. The partisan division in Congress makes clarifying legislative action even less likely. As a consequence, EPA’s success in defending against the Food and Water Watch lawsuit may have the ironic result of postponing the day when states and permit holders will have a clear and definitive answer regarding the basic legality of water quality trading.
Posted on January 23, 2014
As 2013 drew to a close, USEPA amended its All Appropriate Inquiries Rule (AAI Rule) and anticipates that purchasers and environmental professionals will “embrace” the recently published ASTM International E1527–13 "Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process," commonly referred to as the “ASTM Phase I Standard.” Although the Agency had initially indicated the old flame of the ASTM E1527-05 standard was just as attractive, the final AAI Rule makes clear that USEPA considers the 2013 standard to have many new charms and recommends its use. Further, the Agency has indicated that the old standard is absolutely replaceable -- and plans a rulemaking to remove the 2005 standard, perhaps as early as this spring.
USEPA warns that the regulated community should not be naughty. The Agency will keep an eye on the new relationship and threatens that if the regulated community doesn’t get sweet on the new standard (if it is not being “widely adopted”), then USEPA may further modify the AAI rule to explicitly require activities under the updated standard.
The Agency believes the ASTM E1527–13 improves upon the E1527–05 standard and reflects evolving best practices and the level of rigor that will afford prospective property owners necessary information when making property transaction decisions and meeting continuing obligations under the CERCLA liability protections. In particular, the new ASTM E1527–13 standard enhances the previous standard with regard to the delineation of historical releases or recognized environmental conditions at a property. It also makes important revisions to the standard practice to clarify that all appropriate inquires and Phase I environmental site assessments must include, within the scope of the investigation, an assessment of the real or potential occurrence of vapor migration and vapor releases on, at, in or to the subject property.
USEPA, perhaps inadvertently, couldn’t let go without complimenting “the ex” – and may have created some litigation issues. The Agency went out of its way to opine that the prior standard already called for identification of vapor release issues and vapor migration issues. There has been some legitimate debate on whether the ASTM E1527-05 standard was clear on that point. Some attorneys anticipate additional malpractice litigation against environmental professionals where vapor issues weren’t adequately addressed in Phase I assessments issued between 2005 and 2014 that claimed to comply with the standard.
Apologies to the Gershwins and Nat King Cole, but I expect the ASTM E1527-13 is entirely embraceable – to the extent that environmental professionals are able to follow detailed consensus standards written by a team of engineers and lawyers. Many environmental lawyers have concluded that even in late 2013, most ASTM Phase I Standard site assessments that purported to meet the ASTM standards failed to measure up.
Posted on January 21, 2014
The EPA Audit Policy, “Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations,” adopted in 1995, 60 Fed. Reg. 66,706 (Dec. 22, 1995), amended at 65 Fed. Reg. 19,618 (Apr. 11, 2000), was targeted by EPA for abandonment in 2012. Perhaps in response to resounding objections by industry and outside counsel, EPA has not yet dismantled this cherished avenue toward forgiveness.
For counsel productively utilizing the EPA’s Audit Policy, EPA’s announcement that it intended to abandon the Audit Policy, particularly in the context of Next Generation Enforcement and budgetary cutbacks in “boots on the ground” inspections, created significant concern that industry would be caught in a communication and policy void that would lead to more punitive yet unnecessary enforcement proceedings. While EPA has removed the possibility of e-reporting per its Audit policy electronic disclosure website, EPA has maintained regulated entities’ ability to utilize the Audit Policy by directly reporting to regional Audit Policy staff. See EPA’s Audit Policy website here. Hopefully, EPA will continue to recognize the many benefits resulting from continued support of the Audit Policy, particularly in the context of more remote enforcement strategies, fewer “boots on the ground” and heavier reliance on state enforcement resources.
Audit policy – History
In response to developing state audit privilege legislation, EPA developed an interim policy addressing the scope of “privilege” allowed for voluntary environmental audits and their findings. 60 Fed. Reg. 66,709 (March 31, 1995). Seeking to avoid litigation regarding the scope of privileged environmental audit findings, EPA’s interim policy offered incentives to conduct voluntary audits where the findings were disclosed and promptly corrected. EPA issued its final Audit Policy in 1995, with the specific purpose of enhancing protection of public health and the environment by encouraging regulated entities to voluntarily discover, disclose, correct and prevent violations of Federal enforcement law. The benefits offered by EPA’s 1995 final Audit Policy included reductions in the amount of civil penalties, possible elimination of gravity-based penalties, and a determination not to recommend criminal prosecution of disclosing entities. EPA’s adoption of the 1995 Audit Policy followed five days of dialogue, hosted by ABA’s SEER (then SONREEL) with representatives from regulated industry, states and public interest organizations which identified options for strengthening the former interim policy and included changes reflecting insight gained through this ABA dialogue, over 300 comments received and EPA’s practical experience in implementing the interim policy. Since its adoption, EPA has issued several guidance documents, including EPA’s Audit Policy Interpretive Guidance (January 1997), Audit Policy; Frequently Asked Questions (2007); and EPA’s Audit Policy: Tailored Incentives for New Owners, 73 Fed. Reg. 44, 991 (Aug. 1, 2008), all available here.
Enforcement budgetary constraints
In the face of fierce political opposition and severe budgetary cutbacks, EPA issued public statements regarding areas where resources would be cut back or eliminated. Specifically, on April 30, 2012, EPA’s OECA issued its “National Program Manager (NPM) Guidance” to EPA’s regional offices proposing to spend no resources processing self-disclosures under the Audit Policy beginning with EPA’s 2013 Fiscal Year. In the NPM Guidance, EPA stated its position that internal compliance reviews had become more widely adopted by the regulated community as part of good management, that most violations disclosed under the Policy were not in the highest priority enforcement areas for protecting human health and the environment, and that EPA could reduce its investment in the program to a limited national presence without undermining the incentives for regulated entities to do internal compliance reviews to find and correct violations with potentially a modified Audit Policy that is self-implementing. See the FY2013 OECA NPM Guidance (Publication Number – Final: 305R12001) available here.
With the issuance of the April 2012 NPM Guidance came a strong response by regulated entities. Members of the national environmental bar, including individual practitioners, the American College of Environmental Lawyers and the Corporate Environmental Enforcement Council, reached out to the EPA and requested discussion, urging EPA to retain the Audit Policy. See e.g., related ACOEL blog postings available here, and CEEC letter to Cynthia Giles, Assistant Administrative, EPA OECA (Feb. 8, 2013), available here.
Common arguments defending the continued implementation of the Audit Policy include the fact that the Audit Policy serves as the basis for a continued culture of compliance even in landscape of dynamic changes to industry and regulation, quantifiable benefits in achieving compliance, as well as serving as a consistent baseline for states adopting their own audit policies.
EPA’s Promotion of Next Generation Enforcement
In 2012, EPA began promoting its Next Generation Compliance initiative. See Next Generation Compliance article from Environmental Forum, republished here. With EPA’s NGC, EPA is seeking to streamline federal enforcement oversight with regulations adopting “built-in” compliance, advanced pollution monitoring, electronic reporting, increased transparency and innovative enforcement strategies. EPA’s examples of “built-in” compliance include standards for manufacturers of mobile sources and air pollution control equipment, where compliance with standards are certified initially by the manufacturer, rather than relying initially on post-installation field testing. Following installation of air pollution control equipment, EPA’s approach would utilize advanced pollution monitoring to evaluate compliance of operating air pollution control equipment. Advanced pollution monitoring would also include fence-line monitoring and remote sensing techniques including infrared cameras. Examples of electronic reporting include NPDES Electronic Reporting, see 78 Fed. Reg. 46006 (July 30, 2013) (proposed rule), and EPA’s Toxic Release Inventory electronic reporting data based, TRI-MEweb, available here. With electronic reporting, greater electronic availability of data allows greater transparency of reported data. Finally, innovative enforcement strategies build on advanced monitoring, electronic reporting and third-party verification, coupled with industry sector approaches, including industry wide recognition and notification of noncompliance, followed by set compliance deadlines and, if necessary, enforcement.
EPA’s Reduced Enforcement Goals for 2014-2018
On November 19, 2013, EPA published its Draft 2014-2018 Strategic Plan, with public comment ending on January 3, 2014. 78 Fed. Reg. 69412 (Nov. 19, 2013). Comparing EPA’s proposed 2014-2018 enforcement goals to its 2011-2015 enforcement goals shows that EPA intends to significantly cut back on the number of inspections as well as many other enforcement goals. Specifically, EPA is reducing its 5-year cumulative inspection and evaluation goal from 105,000 inspections to 70,000 inspections. EPA expects to initiate fewer civil judicial and administrative enforcement cases, setting its initiation goal at 11,600 compared to an earlier 19,500, and conclude fewer cases, 10,000 compared to an earlier 19,000. Compare Draft FY 2014-2018 EPA Strategic Plan, available here, to FY 2011-2015 EPA Strategic Plan, available here.
Implications of NGC and Reduction in Inspections
EPA’s Next Generation Compliance approaches, coupled with significantly reduced inspections, may seem like a relief to some. However, EPA’s NGC emphasizes remote monitoring methods and automatic electronic reporting. In other words, data will be reported electronically, potentially without the necessary context required for a full compliance evaluation. However, numbers alone do not allow a conclusive compliance determination. Reliance on mere data without the context achieved with an in-person inspection raises risks that enforcement actions, albeit reduced in number, may be allowed to proceed despite facts that mitigate against taking such action. Of course, this risk varies depending upon the regulatory program and may be less significant where delegated states maintain sufficient budgets for inspections. However, this concern remains magnified where qualitative data, such as, for example, fence-line monitoring and use of remote infrared cameras, may be relied upon in the Clean Air Act enforcement context to create a presumption of noncompliance, potentially collected in a manner that is divorced from actual quantitative point-source emission data and permitted parametric operating conditions which facilities rely on to demonstrate ongoing compliance. While regulated entities maintain documentation demonstrating ongoing compliance, the threat remains that such NGC techniques could mire entities in unnecessary enforcement actions where an in-person inspection could preempt such proceedings.
In this uncertain enforcement environment, regulated entities will likely want to continue to directly rely on the assurance provided by EPA’s Audit Policy, as well as state audit policies adopted pursuant to, and maintained consistent with, EPA’s Audit Policy and the policies and principles therein.
As of January 2014, EPA continues to allow regulated entities to avail themselves of EPA’s Audit Policy by reporting to named regional EPA Audit Policy staff. Hopefully, EPA’s dismantling of its electronic Audit Policy reporting program constitutes sufficient savings to allow EPA’s regional offices to continue accepting Audit Policy disclosures.
Posted on January 15, 2014
Some regulatory and economic forces are calling into question the business models of some of the world’s largest oil and gas, coal and electric power companies, and posing a new kind of risk to the investors who own them. Variously described as “unburnable carbon,” “carbon asset risk,” “stranded assets,” “peak carbon,” or the “carbon bubble,” this issue has recently become a hot topic among institutional investors, energy analysts, the International Energy Agency (IEA) and a handful of NGOs—and as a result, some of the world’s largest energy companies.
According to the International Energy Agency and UK NGO Carbon Tracker Initiative (CTI), 2/3 of the current proven carbon reserves of the world’s publicly listed fossil energy companies need to be left in the ground to avoid warming exceeding 2 degrees. Yet according to CTI, these oil, gas and coal companies spent over $650 billion in 2012 to explore and develop new reserves. If these reserves are substantially unusable, or if their use causes catastrophic change, this business model and strategy are unsustainable.
The “unburnable carbon” thesis is based in part on the premise that governments will take action to restrict GHG emissions to avoid catastrophic climate change. Alternatively, global demand for fossil fuels may peak and decline due to a combination of advances in energy efficiency, switching to renewables and cleaner fuels (e.g., from coal to gas), and environmental regulation generally.
These regulatory and market forces, in combination with energy companies’ varying production costs for conventional and unconventional (e.g., tar sands, hydraulic fracturing, deepwater drilling) resources, are predicted to cause high cost producers’ reserves to become “stranded assets.” Indeed, we are already seeing some stranded assets in the U.S. coal industry, where demand— and share prices —have fallen significantly. Proven, producible reserves are a key determinant of the market valuation of fossil energy companies. If the “unburnable carbon” theory is even partially valid, some of these companies’ valuations are at risk.
Based on concerns about “Carbon Asset Risk,” in September 2013, 70 institutional investors, who collectively manage assets of nearly $3 trillion and own substantial shares of major energy companies’ stock, sent letters to 45 of the world’s largest oil & gas, coal and electric power companies inquiring about their exposure to this issue. The letters asked the companies to do scenario analyses on the impact on their business of regulations that would limit global warming to 2 or 4 degrees Celsius, to assess their capital expenditure plans for reserve development under differing demand scenarios, and also to assess the impact of unmitigated climate change on their operations, and to share the results of these analyses with their investors.
More than 30 of the recipient companies have made initial responses, ranging from agreeing to do the requested analyses, to requesting clarification on what the investors are seeking. Others claim they have fully assessed these risks, or dismissed the requests and underlying concerns as totally unfounded. The participating investors intend to engage in dialogues with those companies that respond constructively, and initial meetings have occurred with several major oil companies.
It is anticipated that investors will file shareholder proposals seeking the same assessments and disclosures from U.S. listed companies that are unresponsive or decline to cooperate, and nine such proposals have been filed to date. Some of these resolutions will likely be voted on at corporate annual meetings during the 2013-14 proxy season.
It is unlikely that the institutional investors’ Carbon Asset Risk initiative will convince Exxon Mobil or Peabody Energy that they are in the wrong business or to abandon production of oil, gas and coal. But the unburnable carbon thesis and the risk of stranded assets do raise serious questions about the viability of the long-term business strategies of many fossil energy companies. They are effectively betting that governments will not take meaningful action to curb climate change anytime soon, that climate change won’t have serious physical and economic impacts on their businesses, and that demand for their products will continue to increase for the foreseeable future.
As an investor, I would not bet my money that they are right. And as a lawyer I’d ask if there are material SEC disclosure issues about these risks, the value of their reserves and potential liabilities to shareholders should these assets become stranded.
Posted on January 6, 2014
The Office of Surface Mining Reclamation and Enforcement (OSM) announced an important policy decision on August 20, 2013, clarifying the circumstances under which a coal mining permit can be terminated due to the permittee’s failure to commence mining operations. Under Section 506(c) of the Surface Mining Control and Reclamation Act (SMCRA), a surface coal mining permit “shall terminate” if the permittee has not commenced coal mining within three years of the issuance of the permit. The statute provides for extensions upon a “showing” that extensions are necessary for specified reasons, including for “reasons beyond the control of the permittee.” The statute and its counterparts in the approved SMCRA states, however, do not clearly indicate when a failure to mine will be deemed “beyond the control of the permittee.” Thus, many state permitting agencies and permittees have lacked sufficient guidance on whether permits could terminate automatically with no notice to the permittee and whether extensions had to be in writing or could be obtained through verbal discussions alone. And this, in turn, forced some permit-holders to review paperwork and interview employees -- in some cases from many years ago -- to determine if needed extension had been sought from regulators.
The drama came to an end in August when OSM reversed the position of a West Virginia OSM regional office, clarifying that SMCRA permits do not terminate automatically. Citing the line of cases disfavoring “automatic forfeitures,” OSM indicated that a coal mining permit remains valid, even if not used, unless and until the permitting authority takes an affirmative action to terminate it. The decision provides much-needed clarity to permittees -- reportedly hundreds -- facing uncertainty on this front. The battle continues, however, because environmental organizations recently filed suit in federal courts in West Virginia and Washington, D.C., arguing that OSM’s policy clarification constitutes an illegal rule that was issued in violation of the Administrative Procedures Act and SMCRA. Stay tuned.