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.