A VIEW FROM TEXAS: FIFTH CIRCUIT VACATES EPA DISAPPROVAL OF TEXAS FLEXIBLE PERMIT PROGRAM

Posted on August 30, 2012 by Patricia Finn Braddock

On August 13, 2012, the United States Court of Appeals for the Fifth Circuit held that the Environmental Protection Agency’s (EPA) disapproval of the Texas Flexible Permit Program (TFPP) had been arbitrary and capricious, an abuse of discretion, not in accordance with law, and unsubstantiated by substantial evidence on the record taken as a whole.  Accordingly, the Fifth Circuit granted the petition for review, vacated EPA’s disapproval of the Texas plan and remanded the matter to EPA.

The TFPP, a Minor new source review (NSR) permit program, had been submitted to EPA in November 1994 as a revision to the Texas State Implementation Plan (SIP).  The TFPP authorized modifications to existing facilities without additional regulatory review provided the emissions increase would not exceed an aggregate limit specified in the permit.

Despite the mandate in the Clean Air Act (CAA) that EPA approve or disapprove a SIP revision within eighteen months of its submission, EPA failed to make a determination on the TFPP for more than sixteen years.  By the time that EPA announced its disapproval, the State of Texas had issued approximately 140 permits under the TFPP.  And despite the excessive delay in announcing its disapproval of the TFPP, EPA found time to promptly notify flexible permit holders in Texas that their facilities were operating without a SIP-approved air permit and that they were risking federal sanctions unless SIP-approved air permits, requiring current Best Available Control Technology, were obtained.

The State of Texas and ten industry and business groups subsequently filed suit challenging EPA’s disapproval, which had been based on three primary arguments: 1) the program might allow major sources to evade major NSR; 2) the provisions for monitoring, recordkeeping and reporting (MRR) are inadequate, and 3) the methodology for calculating permit emissions caps lacks clarity and is not replicable.  Two of the justices on the 3-judge panel court rejected each of EPA’s contentions, with the third justice dissenting.

The majority rejected EPA’s contention that the TFPP allowed major sources to evade Major NSR because the TFPP includes three rules that affirmatively require compliance with Major NSR, and EPA could not identify a single provision in the CAA or the CAA implementing regulations that empowered EPA to disapprove a SIP that did not also contain an express negative statement that the Minor NSR permit could not be used to evade Major NSR.  Further the court noted that in its briefings, EPA had conceded that language explicitly prohibiting circumvention of the Major NSR requirements is not ordinarily a minimum NSR SIP program element.  75 Fed. Reg. at 41,318-19.

The majority also rejected EPA’s contention that the TFPP allowed the Texas Commission on Environmental Quality executive director too much discretion in determining MRR requirements in a Minor NSR permit and that this amount of discretion is contrary to EPA policy.  The court found that EPA could not identify an independent and authoritative standard in the CAA or its implementing regulations that required MRR requirements to be specified in a SIP, rather than based on the size, needs, and type of facility authorized in a Minor NSR permit.  In addition, the court found that EPA failed to identify the purported policy of disfavoring “director discretion” in any comments that EPA submitted to the State of Texas on the TFPP regulations or in EPA’s disapproval of the requested Texas SIP revision.  Thus, the court held that the purported policy is not in the record on which the court must review EPA’s disapproval under the APA.  Although not a factor in its decision, the majority also noted that “other recent EPA action tends to not only undercut the assertion of such a policy but also to give the impression that EPA invented this policy for the sole purpose of disapproving Texas’ proposal.”

Finally, the majority rejected all of the arguments EPA gave for finding the TFPP to be deficient.   Among other things, the court concluded that EPA could not identify a single provision in the CAA or EPA’s Minor NSR regulations  that requires a state to specify the method of calculating emissions caps or to demonstrate replicability in its SIP or as a condition of approval of a state’s Minor NSR program.    Similar to its comments on EPA’s second contention, the majority also noted that EPA appears to have adopted the third test solely for application to the TFPP.

Due to the uncertain status of the TFPP and the risk of federal enforcement, most flexible permit holders requested that the flexible permits be altered to reflect that the authorization meets the air permitting requirements already in the EPA-approved Texas SIP.  Thus, EPA succeeded in gutting a Minor NSR permit program that it had wrongly disapproved, but it did not achieve any substantive changes in permit requirements.  Although the majority vacated EPA’s disapproval of the TFPP and remanded the matter to the agency, EPA is not likely to act and facilities in Texas are not likely to decide on whether to pursue new flexible permits until after the November election.

Waiting for Godot . . . Oops! The Decision’s Finally Out

Posted on August 29, 2012 by Andrea Field

The Cross-State Air Pollution Rule (Transport Rule) [76 Fed. Reg. 48208] adopted by EPA in mid-2011 -- requires sources in the eastern U.S. to reduce their emissions substantially.  Numerous states and industry groups challenged the rule in the D.C. Circuit, and many of the petitioners asked the court to stay the rule pending litigation.  One motions panel of the court stayed the Transport Rule in late 2011, and then a subsequent panel directed that all briefing in the case be completed -- and oral argument be held -- within approximately 100 days after the stay was issued.     

That the case was put on such a tight briefing schedule led many litigants to speculate that the court wanted to resolve the case quickly and would issue its decision within 60 days of the April 13, 2012 oral argument.  When mid-June came and went with no decision, many of those same litigants then predicted the decision would come by mid-July so as not to interfere with the judges’ summer vacations.  In support of their mid-July prediction, they also claimed that the head of EPA’s Air Office, Gina McCarthy, agreed with them.  In early July, Ms. McCarthy had indeed told some state regulators that the court would issue its decision on Friday, July 13, but she had quickly added that her prediction should not be taken too seriously because she had been wrongly predicting the imminent issuance of the decision for the past thirty days.  Nonetheless, several in the media reported her prediction as gospel, prompting all involved to stay glued to the D.C. Circuit’s website on Friday, July 13. 

As one of those waiting for the court to issue its opinion on the Transport Rule, I was reminded of a similar waiting game in which I was involved in 1997.  In May of that year, I had argued a case before a three-judge panel in the Fourth Circuit, where I had found one judge to be sympathetic to my argument, one judge to be antagonistic (but nicely so, because this was the Fourth Circuit after all), and the third judge to be a cipher.  As soon as oral argument ended, my client started bombarding me daily with the same question:  when would the court issue its decision?  I couldn’t answer that question (no matter how often I was asked), but I thought retired Fourth Circuit Judge James Marshall Sprouse might have insights into the court’s decision-making process.  He had been gracious enough  – and patient enough -- to help me prepare for oral argument in my case (and to help me persuade the client to eliminate some of the more bombastic points from the argument).   

Gamely consulting his crystal ball and taking into account that the case had been argued so late in the term, Judge Sprouse suggested that (1) if there was no dissent, then the court might issue its decision by the end of July; (2) if one judge dissented, then there might be a delay of another one to two months; and (3) if each of the three judges wrote a separate opinion or if one of the jurists was trying to be Solomon-esque -- finding areas of agreement and areas of disagreement with each of the other two judges on the panel -- then there might not be a decision until well into the fall.  Judge Sprouse was spot on in my case:  the decision -- which fell into Category 3 -- was issued in late October 1997.

Back to the present now.  The D.C. Circuit issued its decision on the Transport Rule on August 21, 2012.  In an opinion by Judge Brett Kavanaugh, joined by Judge Thomas Griffith, the court held that the Transport Rule exceeds EPA’s statutory authority in two respects, by (1) requiring upwind states to reduce emissions by more than their own significant contributions to nonattainment in other states, and (2) failing to allow states the initial opportunity to implement the emission reductions required by the Transport Rule.  Judge Rogers wrote a stinging dissent.

I leave it to my ACOEL colleague Dave Flannery and his more detailed description of the decision below.  I will add only that although Judge Sprouse passed away eight years ago, the timing of the decision was just what he might have predicted.

Interstate Air Transport Rule Vacated by the D.C. Circuit

Posted on August 28, 2012 by David Flannery

EPA was handed a setback in its efforts to establish aggressive controls on the energy industry in general, and the electric power industry in particular, when the D.C. Circuit issued its August 21, 2012 decision vacating the Cross-State Air Pollution Rule (CSAPR).  EME Homer City Generation LP v. EPA, Case. No. 11-1302.

Significantly, the D.C. Circuit’s order not only vacated and remanded CSAPR, but also directed EPA to continue administering the previously-in-effect Clean Air Interstate Rule (CAIR) pending the promulgation of a valid replacement for CSAPR. 

In a 2 to 1 decision, the court ruled that CSAPR exceeded EPA’s authority in two areas: 

     a.    CSAPR impermissibly required upwind states to reduce more than their “significant contribution” to  downwind non-attainment; and
     b.    CSAPR deprived upwind states of the initial opportunity to implement any required emission reductions by immediately imposing a Federal Implementation Plan. 


Significantly, the opinion of the court sets forth a roadmap for the development of a CSAPR replacement rule. This is accomplished by the court’s establishing “several red lines that cabin EPA’s authority.” In many cases the court offers specific examples of the types of calculations that EPA would have to make in order to determine permissible emission reductions. These “red lines” and example calculations are summarized below: 

     1.    EPA cannot force an upwind state to reduce more than its own contribution to a downwind state minus what level EPA determines to be insignificant. 

Example:  If 3 units were set at the level of insignificance and an upwind state’s contribution to nonattainment in a downwind state is 30 units, then the most reduction that could be required of the upwind state would be 27.

     2.    EPA’s authority to force reductions on upwind states ends at the point where the downwind state achieves attainment.

     3.    The extent to which an upwind state’s contribution is significant depends on the relative contribution to nonattainment of other upwind states.  The obligation to reduce emissions in the upwind states must be allocated “in proportion to the size of their contributions to downwind non-attainment.” 

Example 1:  Assume that the relevant national ambient air quality standard (NAAQS) is 100 units, that the ambient level of the at-issue pollutant in downwind state A is 150 units, and that state A is contributing 90 units to that overall concentration.  Assume also that three upwind states are each contributing 20 units to the total ambient concentration in downwind state A.  Under those circumstances, downwind state A is entitled to at most 50 units of relief -- with the 3 upwind states each contributing 16 2/3 units. 

Example 2:  If the scenario in Example 1 were changed only to the extent that the upwind states contributed 10, 20 and 30 units respectively, the upwind states would be obligated to reduce their contributions by 8 1/3, 16 2/3 and 25 units, respectively. 

Example 3:  If the air quality measurement in Example 1 was 180 units and downwind state A contributed 120 of those units, with 3 upwind states contributing 20 units each, then downwind state A is entitled to at most 60 units of relief to be distributed proportionately among the upwind states.

     4.    EPA may consider costs, but only to further lower an individual state’s emission reduction obligation.  EPA may do this in a way that benefits some upwind states more than others.  The objective of reducing the control obligation of an upwind state would be to prevent exorbitant costs from being imposed on certain upwind states. 

     5.    EPA must ensure that the combined obligations of the various upwind states do not produce more control than necessary for the downwind state to achieve the NAAQS. 

Example:  If state A reduces 5,000 tons of NOx to achieve its largest downwind emission reduction obligation while state B reduces 2,000 tons for the same purpose, and if EPA modeling then shows that “all downwind non-attainment” would be resolved if the combined reduction of the two states were 10% lower, then EPA would be obligated to reduce the emissions reduction obligation of the upwind states by 10%.

 

The court’s ultimate holding on this aspect of the CSAPR decision is: 

States are obligated to prohibit only those “amounts” of pollution “which will . . . contribute significantly” to downwind attainment problems – and no more.  Because the Transport Rule exceeds those limits, and indeed does not really try to meet those requirements, it cannot stand.

Even as EPA considers its next steps in the wake of the decision, states and regulated sources will begin to focus on how to develop and implement a program to address interstate air quality that satisfies the new ground rules that have been established by the court.

Three Strikes Against Deference in the Same Month

Posted on August 27, 2012 by Robert Brubaker

In split decisions over a two-week period on entirely different Clean Air Act issues, three different Circuits refused to give deference to EPA interpretations.

The merits of the three decisions – concerning the latitude States have in designing "minor" new source permitting programs approvable in their State Implementation Plans, the attributes that make a source "major" for Clean Air Act permitting purposes, and the limits on EPA's authority to manage emissions transported from one State to another – are far reaching and significant on many levels.  One interesting common thread underlying the merits is how the three different Circuits approached the doctrine of deference.

In Texas v. EPA, No. 10-60614 (5th Cir., Aug. 13, 2012), the Fifth Circuit vacated EPA's disapproval of a State Implementation Plan revision Texas submitted to make its Minor New Source Review rules more flexible (by using a "bubble" concept for reducing the types of minor changes needing separate preconstruction permits).  The Court dismissed EPA's position that the Texas rules conflicted with EPA's policy against State Implementation Plan provisions that allow "director discretion."  The majority concluded "[t]here is, in fact, no independent and authoritative standard in the CAA or its implementing regulations requiring that a state director's discretion be cabined in the way that the EPA suggests" and "[t]therefore, the EPA's insistence on some undefined limit on a director's discretion is . . . based on a standard that the CAA does not empower EPA to enforce."

In Summit Petroleum Corp. v. U.S. EPA, Nos. 09-4348 and 10-4572 (6th Cir., Aug. 7, 2012), the Sixth Circuit vacated EPA's determination that, because they are "functionally related," natural gas production wells are "adjacent" to the gas processing plant to which the output of the wells is pipelined.  The practical consequence is that if the wells and the plant are "adjacent," their potential emissions would be aggregated and would exceed the threshold level requiring a Title V permit, whereas if they are not "adjacent," they would be separately subject to less onerous "minor" source permitting requirements.  The Court relied upon the dictionary definition, etymology, and case law on the meaning of "adjacent" to conclude that "adjacency is purely physical and geographical."  The Court wrote "we apply no deference in our review of EPA's interpretation of ['adjacent']" since the word is "unambiguous," and "we hold that the EPA has interpreted its own regulatory term in a manner unreasonably inconsistent with its plain meaning . . .."

In EME Homer City Generation v. EPA, No. 11-1302 (D.C. Cir., August 21, 2012), the D.C. Circuit vacated EPA's Cross-State Air Pollution Rule (CSAPR), also known as the Transport Rule, requiring 28 States to curtail sulfur dioxide and nitrogen oxide emissions from one State deemed by EPA to "contribute significantly to nonattainment" of National Ambient Air Quality Standards for ozone or fine particulate matter in another State, or to "interfere with maintenance" of such standards in another State.  The Court held that the way in which EPA quantified allowable emissions from the various States exceeded the Agency's statutory authority, and that EPA's preemptive implementation of State Implementation Plan requirements was "incompatible with the basic text and structure of the Clean Air Act" and contrary to the "first-implementer role" reserved for the States by the Act.  The Court concluded that EPA's interpretation of the "good neighbor" provision – one of more than 20 State Implementation Plan requirements in Section 110(a)(2) of the Act – offended the principle that Congress does not "hide elephants in mouseholes" (citing the Supreme Court's 2001 decision in Whitman v. American Trucking Ass'ns).  EPA's interpretation of its authority to promulgate Federal Implementation Plans before giving the States an opportunity to submit State Implementation Plans after EPA determined the level of "good neighbor" emission reductions required was rejected on both step 1 and step 2 Chevron grounds.

Three swallows do not a summer make, but if Courts continue to delve more deeply into the merits of EPA decisionmaking under the Clean Air Act and similar statutes in this era of Congressional gridlock, the consequences could be profound for supporters and opponents of EPA actions.

The American College of Environmental Lawyers Announces Newly Elected Fellows for 2012

Posted on August 24, 2012 by Blogmaster

The American College of Environmental Lawyers is proud to announce its newly elected Fellows for the year 2012. Each individual was selected for his/her distinguished experience and high standards in the practice of environmental law and will be officially inducted into the College at its Annual Meeting in October.

ACOEL President, Brad Marten of Marten Law PLLC, stated, “With the election of these 26 lawyers, the College includes a select group of the top lawyers in government service, academia, the NGO community and private practice, drawn from 48 states. These individuals, chosen by their peers, have earned this recognition based on achievements over a minimum 15 year period, in which they have led the field in all areas of environmental law and policy. The College is honored to have this distinguished class join its ranks.”

The newly elected Fellows include:

- Linda Benfield, Foley & Lardner LLP (WI)
- LeAnne Burnett, Crowe & Dunlevy (OK)
- Dean Calland, Babst Calland (PA)
- John Dernbach, Widener  University (PA)
- Parthenia Evans, Stinson Morrison Hecker LLP (MO)
- Eric Fjelstad, Perkins Coie (AK)
- Scott Fulton, US EPA (DC)
- Kevin Gaynor, Vinson & Elkins LLP (DC)
- Lisa Heinzerling, Georgetown University Law Center (DC)
- Sheila Slocum Hollis, Duane Morris LLP (DC)
- James Holtkamp, Holland & Hart LLP (UT)
- Michael Last, Rackemann, Sawyer & Brewster (MA)
- Kenneth Mack, Fox Rothschild LLP (NJ)
- John Manard, Jr., Phelps Dunbar (LA)
- Steven McKinney, Balch & Bingham LLP (AL)
- Lisa Woods Munger, Goodsill Anderson Quinn & Stifel (HI)
- James Palmer, Jr., Butler, Snow, O’Mara, Stevens & Cannada, PLLC (MS)
- Robert Percival, University of Maryland School of Law (MD)
- Gail Port, Proskauer Rose LLP (NY)
- Jim Price, Spencer Fane Britt & Browne LLP (MO)
- Nicholas Robinson, Pace University School of Law (NY)
- Thomas Sansonetti, Holland & Hart LLP (WY)
- J. Gustave Speth, Vermont Law School (VT)
- Donald Stever, K&L Gates LLP (NY)
- David Uhlmann, University of Michigan School of Law (MI)
- Bruce White, Barnes & Thornburg LLP (IL)

                                                                                             #  #  #  #

The American College of Environmental Lawyers is a professional association of distinguished lawyers who practice in the field of environmental law.  Membership is by invitation & members are recognized by their peers as preeminent in their field.  ACOEL members are dedicated to: maintaining & improving the ethical practice of environmental law; the administration of justice; and the development of environmental law at both the state & federal level.

Defining Additionality: Why the Challenge to California’s Cap-and-Trade Program Fails

Posted on August 20, 2012 by Patrick Dennis

Co-Authored by: Beth A. Coombs, Gibson Dunn & Crutcher LLP

California’s recently approved regulations establishing a Cap-and-Trade Program for the reduction of greenhouse gas (“GHG”) emissions are already under attack in California court.  In March 2012, two citizen groups filed a petition challenging the California Air Resources Board’s (“CARB’s”) regulations that allow entities to quantify GHG emission reductions and take credit for those reductions while, at the same time, making such reductions available to other GHG emitters to purchase as an “offset” to their own greenhouse gas emissions.  The case, Citizens Climate Lobby and Our Children’s Earth Foundation v. California Air Resources Board, Case No. CGC-12-519554, filed in San Francisco County Superior Court, represents the first major legal challenge to California’s landmark Cap-and-Trade Program.

The Cap-and-Trade program is part of the Global Warming Solutions Act of 2006, which the California legislature adopted in 2006 under Assembly Bill 32.  The bill required statewide GHG emissions to be reduced to their prior 1990 levels by 2020.  Cal. Health & Saf. Code § 38550.  As part of its overall statutory scheme, AB 32 vested the CARB with the discretion to decide whether to adopt regulations employing “market based compliance mechanisms.”  Health & Safety Code §38570.  Exercising that discretion,  CARB, through a multi-year process involving extensive public comment, promulgated regulations establishing offset credits through protocols specific to certain industries or business operations.  It is these offset protocols that are now under attack.

Petitioners claim that the protocols adopted by the CARB allow GHG emission reductions that are not “additional.” This, they say, violates AB 32’s mandate that offsets must be “in addition to any greenhouse gas emission reduction otherwise required by law or regulation, and any other greenhouse gas emission reduction that otherwise would occur.”  Cal. Health & Saf. Code § 38562(d)(emphasis supplied).  However, Petitioners’ interpretation of “additionality” is inappropriately and prohibitively narrow.  For example, under Petitioners’ view of AB 32’s requirements, the offset protocol for the use of anaerobic digesters that reduce GHG emissions (primarily methane) by treating manure at dairies and hog farms allows in “non-additional” projects because some farms within the United States already use digesters—despite the fact that (1) farms currently using digesters would not be credited under the program, (2) the use of digesters on farms is still rare, and (3) most digesters currently in use were installed under grants for increasing energy efficiency.  As another example, Petitioners argue that the offset protocol for the destruction of ozone depleting substances (“ODS”) allows crediting for projects that otherwise would occur because while less than 1.5% of recoverable U.S. sourced ODS is currently being destroyed, there are still ‘business reasons” aside from offset incentives for destroying ODS.  And they point to the General Electric Company as an example of a company that gains “goodwill” with the consumer public by voluntarily destroying ODS.

This prohibitively narrow view of AB 32’s offset requirements for “additionality” effectively nullifies the California legislature’s grant of regulatory authority to CARB to create an offset program, because no such program could comply with the strictures laid out by Petitioners.  Indeed, it is Petitioners’ philosophical disagreement with the legislature’s decision to allow an offset program that underlies this litigation.  Two members of one of the groups challenging the offsets long ago advised CARB that, “[i]t is critically important for ARB to resist the temptation to make offsets part of California’s cap-and-trade program.”  Laurie Williams & Allan Zabel, Comment on Proposed GHG Offset Protocols, 9, Dec. 13, 2010, Comment 521 for California Cap-and-Trade Program.  But this fundamental disagreement about whether offsets should be part of a government greenhouse gas reduction program is necessarily a policy decision – not one that should be decided by the courts – and the legislature clearly gave CARB the discretion to adopt the protocols.  

The legal problem with Petitioners’ attack is that they sidestep the critical definition of “additional” that CARB adopted as part of the same regulatory package that contains the offset protocols.  That definition provides that:

"in the context of offset credits, [GHG] emission reductions or removals that exceed any [GHG] reduction or removals otherwise required by law, regulation or legally binding mandate, and that exceed any [GHG] reductions or removals that would otherwise occur in a conservative business-as-usual scenario.”  Cal. Code of Regs. tit. 17, Section 95802(a)(3). 

The four protocols challenged by the litigation – livestock (digestors), ozone depleting substances, forests and urban forests – were all developed through a lengthy and thorough public process involving stakeholders from all perspectives on the political spectrum.  In each case, data and research were devoted to determining what “business as usual” meant with respect to GHG emissions reductions.  And where there were clear additional steps that very few, or almost none, of the industry was taking regarding GHG emissions reductions, then protocols were developed to recognize such steps as potentially qualifying for offsets.  There seems little doubt that the protocols easily meet the CARB definition of “additional” and that may be why Petitioners chose to avoid a challenge of the regulatory definition, and instead simply to claim that the protocols violate the statute.  But their failure to challenge the definition in the same regulatory package seems like a transparent attempt to avoid the more lenient “arbitrary and capricious” standard of review for the adoption of most regulatory programs in California, and to try for the more rigorous “de novo” standard of review.

All of these issues are laid out in the briefs that have been filed by Petitioners, CARB, and the interveners which include the Climate Action Registry (the original developer of the protocols), a business interveners group which includes many of the large utilities (Southern California Edison, for example, is a member), and the Environmental Defense Fund.  The Nature Conservancy has also submitted an amicus brief. It is certainly telling that a coalition of major utilities, the Environmental Defense Fund, and The Nature Conservancy have all lined up to take the same position of defending CARB’s adoption of the four offset protocols. 

The Court has scheduled November 6, 2012 as the date to hear the matter.

EPA Issues Draft Guidance for Oil and Gas Hydraulic Fracturing Activities Using Diesel Fuels

Posted on August 17, 2012 by Linda Bullen

In an effort to inject (no pun intended) regulatory certainty into the permitting of underground injection wells used in oil and gas hydraulic fracturing (HF) operations, on May 10, EPA issued draft guidance for HF operators utilizing diesel fuels in their injection process.  EPA did not initially consider HF to be covered by its Safe Drinking Water Act (SDWA) Underground Injection Control (UIC) program.  EPA's view changed as the result of a number of court decisions which concluded that HF activities are subject to that program.  In 2005, the Energy Policy Act revised the SDWA definition of underground injection was modified to exclude from UIC regulation the underground injection of fluids or propping agents other than diesel fluids used in HF operations related to oil, gas and geothermal production activities.  This exclusion has, understandably, proven to be controversial, at least in part because there is no one definition of what constitutes "diesel fuel".  The EPA draft guidance attempts to bring clarity to the definition of what constitutes a diesel fuel, by examining whether the injectate is included in one of six identified chemical abstracts and whether the fluid is commonly referred to as "diesel fuel".  The draft guidance also  touches upon other issues associated with HF operations including which activities are covered by  the UIC program and the management of wells over their operational lifetime.

The comment period for the draft guidance closed on July 9, and the guidance, when finalized, will apply only to those jurisdictions in which the EPA directly implements the UIC program (fourteen states and territories and most tribal lands).  The guidance, along with proposed requirements for HF on public lands published almost contemporaneously (77 Fed. Reg. 27691; May 11, 2012), signal an intention of the federal government to bring certainty to a very uncertain and controversial issue, and to impact a rapidly expanding industry which has previously been subject primarily to state and local regulation.

Judicial Activism and Judicial Restraint: The 5th Circuit Vacates EPA's Disapproval of Texas SIP Revisions Concerning Minor Sources

Posted on August 14, 2012 by Seth Jaffe

On Friday, in Texas v. EPA, the 5th Circuit Court of Appeals vacated EPA’s decision rejecting Texas’s SIP revisions that would have implemented (and did implement, for 16 years) a Flexible Permit Program for minor NSR sources. While genuflecting at the altar of deference to agency decisionmaking, the Court concluded that EPA’s rejection was not based on either EPA factual determinations or on its interpretation of federal, as opposed to state, law.  The Court also concluded that EPA had not in fact relied on the reasons given in its briefs, and refused to defer to EPA’s “post hoc rationalizations.” The Court thus gave essentially no deference to EPA’s decision.

The interesting part of the decision was the dissent by Judge Patrick Higginbotham, a Reagan appointee. Judge Higginbotham took the majority to task for “not faithfully applying the deferential arbitrary and capricious standard.” He then persuasively demonstrated why the Texas program, as written, did violate the Clean Air Act.

After dismantling the majority’s logic, he then addressed the practical heart of the case – EPA’s 16-year delay in rejecting the SIP revisions. While criticizing EPA for the delay, Judge Higginbotham pointed out that there is a statutory remedy for EPA’s failure to rule on the revisions – a suit under section 7604(a)(2) of the CAA – a remedy never pursued by Texas.

What’s important about this case is that is an excellent example of why judicial restraint is so often “more honor’d in the breach than the observance.” (It’s been a while since I’ve quoted Shakespeare.) When a federal agency unwinds state policy after a sixteen-year delay, it’s very tempting for courts to engage in judicial activism, if that’s what it takes to go upside the agency’s head. The harder course, requiring more discipline, is to remain true the ideal of judicial restraint – that a court is not to substitute its judgment for an agency acting pursuant to an act of Congress. Therefore, Judge Higginbotham’s conclusion seemed worth note:

"As so often with political debate in search of a legal forum, its utility lies largely in pleasure of expression. Angst over perceived federal intrusion into state affairs ought be eased by the reality that laws enacted by Congress are laws of the States. Congress passed the Clean Air Act and made it enforceable by the EPA. The State was represented in that decision by two senators and its thirty-two other elected members of Congress. It also bears mentioning that its former governor was resident in the White House for eight of the years in passage here. The Clean Air Act is not foreign law. I dissent."

Is Clarification of Superfund “Common Sense” Unnecessary? The EPA doth protest too much, me thinks…

Posted on August 10, 2012 by Charles Efflandt

“Let me be clear: EPA has never designated manure as a hazardous substance nor has the agency ever designated a farm a Superfund site and has no plans to do so.” So says Mathy Stanislaus, EPA Assistant Administrator, Office of Solid Waste and Emergency Response in testimony before the House Energy and Commerce Subcommittee on Environment and Economy on June 27, 2012. The subject of the hearing was a bill called the “Superfund Common Sense Act” (H.R. 2997), which seeks to clarify that livestock manure is not a hazardous substance, pollutant or contaminant for purposes of CERCLA response authority and EPCRA emergency reporting.

With such an unequivocal statement of agency intent, is this latest Congressional effort to ensure a “common sense” interpretation of CERCLA and EPCRA with respect to livestock waste simply an attempt by agricultural interests to create an unnecessary and unwarranted regulatory “free pass,” or a prudent effort to provide needed certainty to the regulated community?

EPA’s position appears to be that the proposed codification of Superfund “common sense” is an uncalled-for response to the concerns being voiced. Beyond his broad statement of agency interpretation and intent, Mr. Stanislaus argues that EPA’s 2008 final rule exempting animal waste at certain farms from air emissions reporting under CERCLA section 103 and EPCRA Section 304 further demonstrates that the agency is already exercising common sense in its regulation of livestock waste.

Notwithstanding these assurances, however, Mr. Stanislaus admits that this final rule is currently under EPA review to address various issues being raised by a range of stakeholders. He also references EPA’s ongoing efforts to develop emissions estimating methodologies to better quantify air releases at livestock operations, presumably for future regulatory purposes.

Needless to say, such statements offer little comfort to the bill’s sponsors and regulated community, which are similarly discomforted by other statements of Mr. Stanislaus.  For example, Mr. Stanislaus testified that the Act would prevent EPA from responding under its CERCLA authority to “damaging” releases of hazardous substances associated with manure. Also, Mr. Stanislaus voiced the agency’s concern that the bill’s “common sense” provisions would prevent EPA from using CERCLA to issue abatement orders in response to releases presenting a substantial danger to health or the environment.

Proponents of the bill state that the Act is not about whether manure should be regulated, as animal feeding and other farm operations are already adequately regulated under the Clean Water Act, Clean Air Act and state-specific authorities. Rather, the issue is whether CERCLA’s environmental response provisions and requirements were intended to or should apply to manure management. Although recognizing that CERCLA has specifically exempted only the “normal application of fertilizer” from its definition of “release,” proponents argue that such definitional language is not dispositive of congressional intent with respect to the general characterization of manure as a CERCLA hazardous substance. They also point out that EPA has never issued guidance on what constitutes “normal application of fertilizer,” leaving that exemption and broader CERCLA issues to be resolved by the courts and agency.

Opponents argue that because constituents of manure, such as ammonia and hydrogen sulfide, are hazardous substances, there is no legal or scientific basis to totally exempt manure from the regulatory scheme of CERCLA and EPCRA. They also challenge the notion that CERCLA authority is unnecessary or duplicative by identifying gaps in the reach of other federal environmental laws, including authority to deal with natural resource damages and the recovery of response costs.

Whatever side of the fence you may be on, it does seem inevitable that, if the legal and scientific issues being debated are not addressed by Congress, they will almost certainly be considered and resolved in some fashion by EPA, state agencies and the courts. In light of this -- and notwithstanding EPA’s protests that codification of Superfund “common sense” is unnecessary because agency common sense already prevails -- is a legislative approach to clarifying these important issues preferable to the uncertainties of future agency rule making and the inconsistencies inherent in judicial rulings?

What Ever Happened to Reasonable Further Progress?

Posted on August 8, 2012 by Robert Falk

Under the federal Clean Water Act (CWA), most municipalities in the United States are now required to have National Pollutant Discharge Elimination System (NPDES) permits for discharges of stormwater/urban runoff.  As intended by Congress, both the U.S. Environmental Protection Agency (EPA) and authorized state NPDES permit writers originally took a programmatic approach relative to the requirements they put into such Municipal Separate Storm Sewer Systems or “MS4” permits.  Over time, though, municipalities have, in various ways, been required to address water quality standards more directly, including where such standards are expressed quantitatively. 

In California, this has manifested itself in the issuance of MS4 permits containing provisions called “Receiving Waters Limitations,” which, among other things, preclude the permitted municipal stormwater discharges from “causing or contributing to a violation of an applicable water quality standard.”  Since this ambitious goal is a tall order that likely cannot be met without the construction of large, capital-intensive detention and treatment facilities for which no funding is available, other language contained in these MS4 permits has instructed the municipality that if “exceedances of water quality standards persist,” they must evaluate and submit plans to improve their stormwater management programs to address the situation and then implement such plans and improvements according to a schedule they propose – an “iterative process” that envisions reasonable further progress towards the achievement of water quality standards over time and which inherently recognizes that resource and feasibility constraints may inform the pace of that progress.

Last year, in NRDC v. County of Los Angeles, et al., 636 F. 3d 1235 (9th Cir. 2011), the U.S. Court of Appeals ruled that demonstrating compliance with the iterative process language in these MS4 permits did not create a safe harbor and shield a municipality from direct enforcement of the Receiving Water Limitations themselves, including by means of a citizens’ suits.  The U.S. Supreme Court recently granted cert. in this case, raising a glimmer of hope for municipalities that a reasonable further progress approach might somehow be restored.

Unfortunately, the High Court may well not speak directly to this issue notwithstanding its practical import for municipalities.  Its cert. grant instead requested briefing and argument on the more unusual and academic issue of whether water that flows from one portion of a river that is navigable water, through an MS4 or other engineered channel, and into a lower portion of the same river is “discharge” from an “outfall” requiring an NPDES permit.  As its cert. grant itself suggests, this is an issue the U.S. Supreme Court likely already addressed in South Florida Water Management District v. Miccosukee Tribe of Indians, 541 U.S. 95 (2004).  Accordingly, if the Ninth Circuit’s decision is reversed on this basis and without a discussion of the broader issues that caused it to arise, it will be left to Congress, EPA, or state permit writers to decide if they are willing to restore a reasonable further progress approach to municipal stormwater permitting.

5th Circuit Upholds EPA Approval of Affirmative Defense for Unplanned Startup, Shutdown, and Malfunction Events

Posted on August 7, 2012 by Karen Crawford

On July 30, the United States Court of Appeals for the Fifth Circuit Court of Appeals handed down an opinion finding that EPA was within its authority to approve in part and to disapprove in part the most recent revisions to the state implementation plan (“SIP”) that Texas submitted to EPA in 2006 [Luminant Generation Co. LLC v. EPA, No. 10-60934 (5th Cir. July 20, 2012)]. EPA's action, effective on January 10, 2011, allowed an affirmative defense for unplanned startup, shutdown, and malfunction (“SSM”) events, but it disapproved the portion of the SIP revision providing an affirmative defense against civil penalties for planned SSM events. 

Several groups of Environmental Petitioners (including the Environmental Integrity Project,  Sierra Club, Environmental Texas Citizen Lobby, Citizens for Environmental Justice, Texas Environmental Justice Advocacy Services, Air Alliance Houston, and Community In-Power and Development Association) challenged EPA’s partial approval of that part of the SIP which created an affirmative defense for unplanned SSM events.  The State of Texas and several Industry Petitioners and Intervenors (Luminant Generation Company, Sandow Power Company, Big Brown Power Company, Oak Grove Management Company, Texas Oil & Gas Association, Texas Association of Business, Texas Association of Manufacturers, and Texas Chemical Council)  challenged that part of EPA’s action which disapproved the creation of an affirmative defense against civil penalties for planned SSM events.

A three-judge panel of the Fifth Circuit determined that EPA's decision was valid unless "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law."  Applying that standard of review and citing myriad cases upholding the premise that a state is afforded "broad authority to determine the methods and particular control strategies [it] will use to achieve the statutory requirements," including consistency with the Clean Air Act and the attainment and maintenance of NAAQS of the Act, (referenced throughout the opinion as Chevron deference), the court found the EPA's administrative decision-making process had been "consistently formal and deliberative prior to and during its promulgation of final rules under the Act." In particular, the court cited the reasoning EPA set forth in the final rule to explain its decision approving the portion of the state's SIP which "squarely adheres to its past policy guidance" and observed that EPA’s decision was "the result of a formal and deliberative decision-making process."  The court also found that the EPA's interpretation of the Clean Air Act was based on a permissible construction of the statute because the agency found: (1) the affirmative defense for unplanned SSM activity was narrowly tailored; (2) the affirmative defense did not interfere with the Act's requirement that a SIP's emission limitations be continuous or with the state's ability to enforce emission limitations; and (3) the affirmative defense did not interfere with any other applicable requirement of the Act, including the attainment of national ambient air quality standards (NAAQS).  The court was not persuaded by Environmental Petitioners' arguments, in part because the wording of the affirmative defense excludes all emissions that could "cause or contribute to an exceedance of the NAAQS, PSD increments, or a condition of air pollution" and thereby was not inconsistent with EPA's past policy and guidance, referencing a 1999 Memorandum of Steven A. Herman relating to excess emissions during SSM events.

In evaluating the state’s and Industry Petitioners' arguments, the court – after applying virtually the same analysis and criteria – found that EPA had not been arbitrary or capricious in disapproving an affirmative defense for planned SSM events.  In reaching that conclusion, the court relied in large part on the premise that such events and excess emissions from such events were "avoidable."  Further, in upholding the disapproval and denying Texas’s and Industry Petitioners’ request for relief, the court observed that EPA's reasons provided for the disapproval "conform to minimal standards of rationality."

REP. BLUMENAUER INTRODUCES WATER INFRASTRUCTURE BILL—THERE’S A GROWNUP IN THE HOUSE

Posted on August 6, 2012 by Rick Glick

On August 1, Oregon Congressman Earl Blumenauer introduced the Water Protection and Reinvestment Act (HR 6249) to address the nation’s aging water infrastructure.  The bill would use excise taxes targeted at industries that are dependent upon and impact safe and reliable water to reinvigorate the Clean Water State Revolving Loan Fund (CWSRF).  The CWSRF awards grants to states to capitalize loans to publicly owned treatment works in accordance with the Clean Water Act.  Under the bill, the funds would be available for “green infrastructure” and water efficiency initiatives as well. 

Initial funding sources identified in the bill include a 3 cent per container excise tax on water-based beverages, a 3% excise tax on items disposed of in wastewater, such as toothpaste, cosmetics, toilet paper and cooking oil and a 0.5% excise tax on pharmaceutical products.  The Congressional Budget Office is directed to identify additional funding sources.

The need for action is real as our water infrastructure has been badly neglected and underfunded over the last couple of decades.   As the congressman’s bill summary indicates, the American Society of Civil Engineers said that “if current trends persist, by 2020, unreliable infrastructure will cost businesses $147 billion and households $59 billion.” 

But it’s hard to see the bill getting anywhere in the current political environment, especially in an election year.  Although such an infusion of resources would certainly create a lot of jobs, and although the bill is presented as “deficit-neutral”, House Republicans would almost certainly paint it as just another Democrat tax and spend bill.  Too bad.  Rep. Blumenauer has consistently been one of the few grownups in the Congress focused on the basic underpinnings of any successful economy—transportation and water systems that work.

Corporate Disclosure of Climate Change Risks Since the SEC Interpretive Guidance

Posted on August 3, 2012 by Christopher Davis

In February 2010, the U.S. Securities and Exchange Commission (“SEC”) issued interpretive guidance that clarified corporate disclosure obligations regarding climate change-related risks and opportunities. While the guidance didn’t create any new legal requirements, it indicated that climate-related issues can have a material impact on companies that requires appropriate disclosure. It also offered examples of the ways in which companies may be impacted, including from regulations, international accords, litigation, and physical impacts from water quality and quantity issues. 

A recent Ceres report, “Physical Risks from Climate Change: A Guide for Companies and Investors in Disclosure and Management of Climate Impacts,” released in May 2012, highlights the economic impacts of extreme weather events on companies and their supply chains in seven key sectors.

More than two years after the release of this guidance, what is the state of corporate disclosure on climate change issues? Two recent reports by Ceres examined climate-related disclosure in multiple sectors.

Clearing the Waters: A Review of Corporate Water Risk Disclosure in SEC Filings,” released June 18, 2012, examined corporate disclosure on a key climate-related issue—water risks—to see what impact the interpretive guidance had on disclosure practices. The report analyzes changes in water risk disclosure by more than 80 companies in eight water-intensive sectors: beverages, chemicals, electric power, food, homebuilding, mining, oil and gas, and semiconductors. It found that significantly more companies are disclosing exposure to water risk in 2011 compared to 2009, with a focus on physical risk. For example, 87 percent of companies surveyed now report physical risk exposure versus 76 percent in 2009, with the biggest increases coming from the oil and gas sector. There was also a meaningful increase in the number of companies connecting water issues to climate change as part of a long-term trend.

The report recommends, however, that companies make further efforts to include quantitative data and performance targets in financial filings to clarify how they are actually responding to these water-related risks. Without this level of specificity, as well as more information on water management systems, it remains difficult for investors to incorporate these factors into their decision-making. 

Another new Ceres report, “Sustainable Extraction? An Analysis of SEC Disclosure by Major Oil & Gas Companies on Climate Risk and Deepwater Drilling Risk,” released August 2, 2012, examines climate change disclosure in one carbon-intensive industry: oil and gas. The report examined the financial filings that ten of the world’s largest oil and gas companies filed in 2011, a year after the interpretive guidance was issued. While six of the ten companies provided fair disclosure on efforts to manage their own greenhouse gas emissions, the disclosures reviewed in the report were generally disappointing. Particularly on regulatory risks—both direct and indirect—the level of specificity, comprehensiveness, and quality of analysis varied widely across the ten companies’ filings, showing a clear need for further attention and due diligence on material climate risks.

Climate change is a complicated issue for companies to address in their financial filings, particularly with emerging and shifting regulatory regimes and the complexity of modeling the physical impacts of a changing climate. Good climate disclosure that meets the requirements of the SEC guidance and is useful to investors requires the collaboration of a company’s senior legal, environmental, financial and operational managers and advisors. The above-referenced Ceres reports provide a window into the current state of climate-related disclosure and offer recommendations for companies to improve how they address their climate-related risks.

The Perils of Budget Balancing – or When to Let Sleeping Dogs Lie

Posted on August 2, 2012 by Susan Cooke

On June 14, the Washington Supreme Court heard oral arguments regarding the constitutionality of utilizing the proceeds from a state excise tax on motor vehicle fuel for non-highway related purposes.  The tax in question is the Hazardous Substances Tax which went into effect in its current form in 1989 as part of the Model Toxics Control Act and covers the first in-state possession of petroleum products, pesticides, and a number of chemicals, with “possession” defined as “control of”, and “control” as the power to sell or use, or to authorize sale or use. 

The tax is currently set at 0.7% of the fair market wholesale value of the substance in question, with 47.1% of the proceeds placed in the State Toxics Control Account and the remaining 52.9% in the Local Toxics Control Account.  Those accounts provide funding for contaminated site cleanup and a number of other state and local environmental programs, particularly those relating to waste and toxics controls.  The projected tax revenues for fiscal year 2013 are estimated to be $144 million, with more than 80% of those revenues attributable to payments made by in-state petroleum refineries.

According to the pleadings, the plaintiff Automobile United Trades Organization (“AUTO”) had some concerns about the legality of the Hazardous Substance Tax as adopted in 1989, but did not raise an objection at that time because AUTO also believed it was “good to clean up toxins in the environment”.  As a result, the pleadings reference an “uneasy peace” that continued in effect until the Washington State Legislature diverted $180 million of the 2009 tax proceeds to the state’s general fund to help balance the state budget, and  bills were introduced in both the state house and senate in 2010 to increase the tax rate from 0.7% to 2% and divert very substantial percentages of the additional revenues to the general fund for at least several years thereafter. 

In 2010 the AUTO and Tower Energy Group filed a declaratory judgment action with respect to the constitutionality of the Hazardous Substance Tax as applied to motor vehicle fuel, arguing that any proceeds from taxing motor vehicle fuel must be used for highway purposes under the 18th Amendment of the Washington State Constitution (see Article II, Section 40).  A lower court dismissed this argument, concluding that the Amendment did not require such use.  It also found that the claim was barred by the doctrine of laches.

The 18th Amendment was adopted in 1944 after the state legislature had used gas tax revenues to fund non-highway related projects.  It provides that motor vehicle license fees, as well as all excise taxes collected by the State of Washington on the sale, distribution, or use of motor vehicle fuel and all other state revenue intended to be used for highway purposes, must be placed in a special fund to be used exclusively for highway purposes.   It also includes a proviso that exempts certain taxes then in existence (vehicle operator license fees, excise taxes imposed on motor vehicles or their use in lieu of a property tax on such vehicles, or fees for certificates of motor vehicle ownership) from its purview, and it states that “this section shall not be construed to include revenue from general or special taxes or excises not levied primarily for highway purposes”. 

The Washington State Attorney General argues that the proviso language just quoted limits the scope of the 18th Amendment to the previously noted gas tax and any other motor vehicle fuel excise tax specifically levied for highway purposes.  Thus, the 18th Amendment would not apply to the Hazardous Substance Tax.  The plaintiffs disagree, noting the Amendment’s reference to “all excise taxes”, and that the State Attorney General’s interpretation would dismantle its anti-diversionary policy.  As made clear during oral argument, the plaintiffs interpret the quoted language as a catch-all provision intended to cover any tax levies in existence at the time of the Amendment’s passage that were similar to the two then existing taxes (a motor vehicle excise tax and a business and occupation tax) exempted from its purview. 

Given the questions raised during oral argument, it appears that the Washington Supreme Court’s decision will address the scope of the 18th Amendment and its relationship to the Model Toxics Control Act.  Regardless of the outcome, the sequence of events does bring to mind that old adage about sleeping dogs.