Law and the Environment : Environmental Lawyer & Attorney : Foley Hoag Law Firm : Boston, Washington D.C.

Late last week, Senate and House Democrats piled more pressure on EPA’s efforts to regulate greenhouse gases under existing Clean Air Act authority. Senator Rockefeller and Representatives Rahall, Boucher, and Mohollan introduced companion House and Senate bills to preclude EPA regulation of stationary source GHG emissions for two years. Unlike the resolution sponsored by Senator Murkowski, which would simply overturn the endangerment finding and thus preclude all GHG regulation, the new legislation would specifically allow mobile source regulation to proceed.

As long as the White House and important committee chairs oppose the legislation, it still seems unlikely to pass, though there have been enough political surprises in the past few months, and there are enough moderate Democrats supporting some kind of preclusion of EPA regulation, that I would no longer rule it out.

Even if the bills are not enacted, the filing of the legislation remains noteworthy. First, Representative Boucher was one of the early, and perhaps most surprising, supporters of cap-and-trade legislation. At a policy level, support for legislation and opposition to EPA regulation under existing authority is perfectly reasonable. I should hope so, because it’s a view that I share. Nonetheless, it still strikes me as a telling example of how much momentum seems to be building to slow down the more aggressive aspects of EPA’s approach to GHG regulation.

The flip side of this coin is EPA’s announcement that it will not require permits for GHG emissions until 2011 and that the program will initially cover only sources emitting at least 75,000 tpy of GHG. Time will tell whether administration opposition and EPA’s moves to limit the pain of stationary source GHG regulation will be enough to beat back the opponents of any GHG regulation under existing authority.

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Seemingly just in time to lend support to the revived idea of a carbon tax that we noted on Monday, an Obama Administration inter-agency workgroup has released a report that attempts to do the critical math necessary to put a price tag on CO₂ emissions.

The report sets out four dollar figures that represent the “social cost of carbon,” or the potential damages associated with not stopping the emissions of each incremental ton of CO₂. The figures, which differ due to the use of different models and discount rates, designed to capture different views about the impact of climate on future decisions, include such damages as changes in net agricultural productivity, human health, property damages from increased flood risk, and the value of ecosystem services. 

Not surprisingly, the numbers vary widely – spanning, in 2007 dollars, from $5 to $65 per ton for 2010 emissions, up to as high as $136 per ton for 2050 emissions.   The report outlines the potential shortcomings of the figures in detail, for instance, the potential impact of the other 5 greenhouse gases included in the EPA’s endangerment finding which have not yet been quantified, and the possibility of  “tipping point” scenarios in climate systems that could drastically change the marginal impact of each ton of emissions.  

However, even given these limitations, this valuation could be a critically important step towards determining such figures for use in policies like a carbon tax.  After all, internalizing the externality and cost to society is one main purpose of a carbon tax.

The more immediate impact of the report may also be significant.  Federal agencies are required, by Executive Order 12866, to assess the costs and benefits of regulations before deciding to act.  These figures will be used to incorporate the social cost of carbon into this analysis for all agency decisions, even those which might only have a small impact on global emissions.  As most federal agency decisions will have some impact on global emissions, even if only marginal, adding in the cost of CO₂ could have wide-ranging implications.

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Massachusetts has an “anti-SLAPP” statute (as do 26 other states at this point, apparently). The law protects “petitioning”, by precluding litigation targeting petitioning, providing an early motion to dismiss, and awarding attorneys’ fees to defendants where a court finds that the defendants were indeed engaged in petitioning activity.

Yesterday, the Massachusetts Appeals Court struck a blow for reason when it determined, in Brice Estates v. Smith, that a trespass is not protected petitioning activity. Those of you outside Massachusetts may be wondering why we needed a court case to tell us this. Those of you inside Massachusetts, particularly in the development community, know where this is headed.

Brice Estates involved a real estate developer, looking to build a large residential subdivision. Low and behold an abutter observed a four-toed salamander – a species protected under the Massachusetts Endangered Species Act. Of course, the developer shouldn’t have been surprised, because developers of projects with significant opposition often learn of mysterious discoveries of endangered species at the project location.

The only aspect of this case that was different was that a specifically identified person was known to have gone onto the developer’s property – thus providing the basis for a trespass claim. The Court of Appeals made clear that, while notifying the authorities of the presence of the salamander was protected petitioning activity, the trespass itself was not. Moreover, the court also made clear that, even if the reason why the owner filed suit was the protected petitioning activity, the owner may still bring the action with respect to the non-protected activity.

Time will tell whether the lesson to NIMBY types is “no shenanigans” or “don’t get caught.”

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To date, the only circuit courts that have reviewed public nuisance claims related to climate change, the Second Circuit, in American Electric Power, and the Fifth Circuit, in Comer v. Murphy Oil, have ruled that such suits can proceed. However, last week the Court of Appeals for the Fifth Circuit decided to hear Comer v. Murphy Oil en banc, which certainly has to give the plaintiffs pause. While I am not fully versed in this issue, a quick glance at the web indicates that statistical analysis confirms one’s naïve assumption, i.e., that a full appellate court often decides to hear a case en banc because a majority thinks that the panel got it wrong.

As I noted when the original decision was issued, even under liberal standing rules, which suggest that the plaintiffs’ harm can be “traced” to the defendant as long as the defendant’s conduct “contributed” to the harm, it’s going to be very difficult for plaintiffs, particularly under the Supreme Court’s new pleading rules, to argue that, for example, Murphy Oil “contributed” to the harm caused by Katrina. If the Fifth Circuit sitting en banc affirms the District Court dismissal in Murphy v. Comer, we could be headed back to the Supreme Court on climate change, since that would set up a conflict between the Second and Fifth Circuits.

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A few weeks ago, I queried whether three pollutant legislation might be back in play, particularly given the current rough sledding for broad climate change legislation. Now, it certainly appears that way. The bill has been formally introduced. In addition to Alexander, there are now three other GOP co-sponsors (Gregg, Graham, and Snowe), not including Senator Lieberman, who is also a sponsor. There will be a hearing on March 4.

The basic provisions are as follows:

Reduction in SO₂ emissions of 80% by 2018

Statutory authorization of the CAIR rule through 2011

Reduction in NO_x emissions of 53% by 2015

Reduction in mercury emissions from coal-fired power plants of 90% by 2015. 

I still don’t have a crystal ball on the likelihood that this bill will move, but there are certainly a number of reasons why it might. Uncertainty about the CAIR rule motivates a number of sources to prefer a legislative solution. The difficulties in moving the climate change legislation make a bipartisan agreement on three pollutant legislation attractive to both sides of the aisle. We’ll know more after the hearing, but the Ozone Transport Commission has already criticized the NO_x provisions as insufficiently stringent, which I take as a good sign for the bill’s prospects.

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Since I did a post earlier today indicating the cap-and-trade legislation is unlikely to become law in the near term, it’s only fair that I also do a post on efforts by Senators Kerry, Graham, and Lieberman to resuscitate the legislation. The bill's prospects are too uncertain to spend too much time on the details. In short, it would include a phased-in approach to regulation, starting with the biggest emitters, such as utilities, combined with a carbon tax on transportation fuels that has been supported by several major oil companies.

To me, the most notable statements come from Senator Graham, the only Republican in the gang of three. Senator Graham has turned out to be one of the more intriguing and less predictable members of Congress in recent years. This may have its pluses and minuses and I have no idea whether he can bring any GOP support along, but you have to sit up and take notice when a Republican says

Cap and trade as we know it is dead, but the issue of cleaning up the air and energy independence should not die -- and you will never have energy independence without pricing carbon.

Of course, he’s right. The sad thing is that the rest of his party has so demonized any and all taxes that no Democrat could possibly say something like this – and many of the distortions in the various bills we’ve seen to date have resulted from strenuous efforts to avoid having consumers see any price signals about the cost of carbon emissions.

Keep sayin’ it, Brother Graham.

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The uncertainty surrounding EPA regulation of GHG emissions under existing Clean Air Act authority was driven home for me last week when the same conference resulted in two diametrically opposed headlines in the trade press. Regarding a forum held by the International Emissions Trading Association, the Daily Environmental Reporter headline was “Existing Law Too Inflexible to Accommodate Market-Based Emissions Cuts, Executives Say.” Over at ClimateWire, the headline was “Some Companies Want EPA to Establish a CO2 Cap-and-trade System.” 

Of course, in fairness to the two publications, both headlines are true – and that’s the problem with the current EPA efforts. Notwithstanding current efforts in Congress to preclude EPA regulations, the endangerment finding seems almost certain to withstand legal challenge. Thus, GHGs will be regulated. Almost everyone wants that regulation to be in the form of a cap-and-trade program, but the last time EPA tried that without explicit Congressional authority, it was shot down in the courts. This may be why the Daily Environment Report story indicated that Vickie Patton of EDF had “pleaded” with executives to support cap-and-trade legislation.

At this point, the most likely near-term outcome appears to be no federal cap-and-trade legislation, and a stripped-down EPA regulatory program that would only apply to really large emitters, so that the inefficiencies inherent in the facility-specific BACT approach won’t appear too unreasonable, because the only people complaining about it will be some very unpopular polluters and all of my economist friends.

Or, as the Stones might have said in their more cynical moments:  Not only can’t you get what you want, but you can’t even get what you need.

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Yesterday, EPA Administrator Jackson issued a letter to Senator Jay Rockefeller responding to certain questions regarding EPA regulation of GHGs under existing Clean Air Act authority, including promulgation of the so-called “Tailoring Rule”, describing how stationary source regulation under the existing PSD program would be phased-in once GHGs are subject to regulation. Here are the highlights:

EPA still expects to promulgate the Tailoring Rule by April 2010.

The GHG permitting threshold will be “substantially higher than the 25,000-ton limit that EPA originally proposed.”

No permits will be required until 2011. Initially, only facilities otherwise subject to CAA permitting will be required to obtain permits. The smallest facilities will not be subject to GHG permitting before 2016.

You can talk all you want about global warming, but it seems to me as though it’s EPA that’s feeling the heat. EPA has clearly heard the threats of a Congressional resolution barring EPA regulation of GHGs under existing authority. The reaction from Congress is all the evidence one needs. Both Senators Rockefeller and Murkowski praised the letter. While neither indicated that the letter would be sufficient to stop them from pursuing Congressional action, it might be enough to peel off some fence-sitters who might otherwise have felt compelled to support the legislation.

What does EPA’s statement of intent mean for various law suits swirling around this issue?

I don’t see any impact on litigation against the Endangerment Finding; it will still proceed and it will still lose.

The likelihood of law suits from environmental groups alleging that EPA is shirking its responsibilities under the CAA has certainly increased. Moreover, while EPA has a lot of discretion, I could imagine courts saying to EPA:  “Nice try, but the CAA doesn’t give you the kind of flexibility you have asserted in the Tailoring Rule. Only Congress can provide that flexibility by amending the CAA.” In this respect, the situation is similar to litigation over the CAIR regulations, which pretty much everyone liked, but which were struck down because the approach EPA took in the CAIR rule wasn’t consistent with the CAA.

Finally, any kind of regulation by EPA will provide an additional defense to private nuisance litigation. As I have previously noted, one question raised by the nuisance law suits is whether EPA has regulated GHG in a manner sufficient to “displace” the common law of nuisance. In this respect, the sort of program described yesterday by Administrator Jackson may be the best possible outcome for the regulated community, because it will narrow EPA regulations while providing a ground to preclude nuisance litigation.

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The grand total is 16 separate challenges to EPA’s endangerment finding, according to Greenwire. I’m not one of those lawyers who regularly bash the legal profession. I still recall my law school professor, Henry Hansmann, stating that the role of lawyers is in fact to be transaction-cost minimizers, and I think that that is largely true. That being said, I am certainly wondering what all of this litigation is about.

The endangerment finding is basically a scientific determination. As I have previously noted, EPA discretion in this area is substantial and the likelihood that a court would reverse EPA’s scientific determination seems about as close to zero as possible. Apparently, some of the law suits do not attack the underlying scientific underpinnings of the determination, but instead attack EPA’s procedures for carrying it out or the expected regulatory and thus economic implications of the finding. If possible, these seem even less likely to succeed.

Finally, before we get to the merits of either of these arguments, there are substantial standing questions, given that the endangerment finding itself imposes no regulatory requirements on any of the plaintiffs.

It is more likely that these law suits are tactical in nature, filed as part of the broader battle to stop EPA from using existing Clean Air Act authority to regulate GHGs. I support that battle in that I agree that regulation under existing authority will be a nightmare. However, I think it’s a losing battle and I don’t see the litigation challenging the endangerment finding as likely to help in any case.

Hope springs eternal, I suppose.

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Late last week, the CEQ issued its long-awaited draft Guidance on how to factor climate change into NEPA reviews. CEQ explicitly stated the draft is not effective at this time. CEQ will take comment for 90 days and “intends to expeditiously issue this Guidance in final form” after close of the comment period. Assuming CEQ does so, it will join several states, including California, New York, and Massachusetts, which already require that climate change be addressed in their state NEPA analogues.

The draft is very limited in scope at this point; CEQ may have decided that what is most important is simply the statement that climate change is real, it matters, and it therefore must be taken into account under NEPA. For example, CEQ proposes a threshold a 25,000 tpy of direct emissions CO₂e for NEPA applicability. The Guidance does not propose to apply this threshold to indirect emissions, “the analysis of which must be bounded by limits of feasibility.” Shocking recognition of what’s actually possible.

There are some tidbits that will nonetheless give pause to those who expect to be subject to this Guidance. First, the Guidance does discuss the need to consider the cumulative effects of GHG emissions. This is not surprising, given that NEPA already requires consideration of cumulative impacts outside the GHG context, but since all GHG impacts are cumulative, it is of particular importance here. Second, the Guidance also notes that project planners must consider the impact of climate change on projects, as well as the impact of projects on climate change. The example given in the Guidance is a plan for transportation infrastructure on a barrier island. The Guidance also suggests a longer-term time horizon than may have been used in the past. The example here is that of an industrial process drawing water from a source that relies on snow pack that is expected to decrease as a result of climate change.

As noted above, CEQ spends a lot of effort making the case that the Guidance is not a radical document. The phrase “rule of reason” is used no less than four times in the draft Guidance – and it feels like more. Nonetheless, I doubt opponents will be satisfied. I suspect that they – like the CEQ itself – believe that the fact of the document is more important than its immediate requirements.

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Earlier this week, the Southeastern Legal Foundation filed a petition for review of the EPA Endangerment Finding with the District of Columbia Court of Appeals. It’s not really surprising that someone filed suit, but the list of plaintiffs is interesting – though more for who is not on it than who is. There is not a single Fortune 500 company on the list of plaintiffs. Whether that speaks to the larger corporations doubting the merits of the challenge or simply making a strategic decision that it is not worth it to be associated with the litigation, I leave for them to say.

I will say that the likelihood that this challenge succeeds is vanishingly small. Ever since Ethyl Corporation v. EPA, courts have given EPA extraordinarily broad discretion when regulating on “the frontiers of scientific knowledge.” Whatever concerns dissenters may have about climate change science, I think it is pretty clear that EPA has a stronger record to support the Endangerment Finding than it had in Ethyl Corporation.

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For those of you who missed it, the SEC finally issued an interpretive release last week clarifying public company disclosure obligations concerning climate change. Rather than rehash it here, I am instead linking to the client alert that we did on the topic.

It is worth noting that, as mentioned in the alert, the release has engendered significant political controversy. Indeed, ranking member Spencer Bachus sent a letter to the SEC questioning the appropriateness of the release. My favorite question in the letter:

Do you believe the Commission’s role is to promote a social policy agenda through the securities laws and regulations?

I wonder how the SEC will answer that one?

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While Congress may be fiddling on climate legislation, Senators Carper and Alexander are attempting to put three pollutant legislation back on the congressional agenda. Yesterday, they introduced an aggressive three pollutant bill. Here are the highlights. The bill would:

Codify the CAIR program through 2011

Gradually reduce the cap on SO₂ emission allowances to 1.5 million tons by 2018 – substantially more stringent than the CAIR would have imposed. 

Reduce NO_x caps to 1.6 million tons by 2015. 

Create two NO_x trading zones. Zone 1 includes 32 Eastern states and the District of Columbia. Zone 2 includes the remaining 16 contiguous states.

Coal- and oil-fired power plants would have to reduce mercury emissions by 90%. There would be no trading program for mercury.

I still find it remarkable that Senator Alexander, a coal-state Republican, is a co-sponsor of the bill. Nor does he seem to be half-hearted about it. Money quote:

We have a number of different things to work out on carbon.…  But there's no excuse for waiting a minute on SOx, NOx and mercury because we have the technology, we know what to do, and we shouldn't be operating coal plants without pollution control equipment. (My emphasis.)

I have, until recently, assumed that climate change legislation would happen this year. Now that that seems less likely, and with Senator Alexander as a sponsor, it will be interesting to see if the Senate is able to move this legislation, as an alternative. It is worth noting that climate change legislation necessarily would also have resulted in reductions in SO₂, NO_x, and mercury. Unfortunately, the converse is not also true. In the absence of GHG controls, three pollutant legislation would actually increase GHG emissions, because the traditional means of reducing emissions of SO₂, NO_x, and mercury are energy hogs. Oh, well.

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Until now, I haven’t posted about the climate change email brouhaha. I haven’t thought it mattered. I didn’t think it affected the underlying validity of climate change science and I still don’t. That science seems overwhelming to me. 

However, I have concluded that the email issue matters.  Yesterday’s ClimateWire reported that climate scientists had repeatedly ducked Freedom of Information Act requests, in ways that demonstrate an astounding degree of arrogance. Here’s the money quote from Phil Jones, the head of the Climatic Research Unit at the University of East Anglia:

When the FoI requests began here, the FoI person said we had to abide by the requests,… It took a couple of half-hour sessions -- one at a screen -- to convince them otherwise, showing them what CA [Climate Audit, climate skeptic Steve McIntyre's Web site] was all about. Once they became aware of the type of people we were dealing with, everyone at UEA ... became very supportive.

In other words, the Freedom of Information Act is meant only to provide information to those who agree with you? I don’t think so. 

Doesn’t it seem as though there’s a reason why environmentalists are often described as elitists? Isn’t this the essence of elitism? I know what the data means and you don’t and you can’t be trusted to have it, because you’ll do bad things with it. I may be naïve, but I don’t think that’s what democracy’s about.

Which is what brings me to a related criticism – self-righteousness. God is on my side. The future of the planet is at stake. I can therefore do anything to ensure what I personally know to be the right outcome. 

Sorry, folks. Doesn’t sell. Most people have very sensitive self-righteousness detectors and it’s a major turn-off. Precisely because climate change is so important, climate scientists need to knock it off. Right now, they are their own worst enemies.

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Given the stories this week of continuing efforts in Congress to preclude EPA from regulating GHGs under existing Clean Air Act authority, I couldn’t resist this headline. 

The first story is that three House members, including two Democrats (House Agriculture Committee Chair Collin Peterson and Missouri Rep. Ike Skelton) have followed the lead of the Senate – where there are also Democratic sponsors – and introduced legislation preventing EPA regulation. According to Representative Skelton, the bill would “get the EPA under control.”

In light of the efforts in Congress, it just seemed too perfect not to note that EPA’s Assistant Administrator for Air, Gina McCarthy – never one to mince words – was quoted in GreenWire today as saying that

We are furiously ensuring that we get the light-duty vehicle out and ready in March…. There is no hesitation about that. It will be happening.

I don’t doubt that EPA is working furiously to get the rule done, particularly since President Obama has acknowledged that a cap-and-trade bill might not get passed this year. Whether EPA is actually furious, I don’t know. It does appear that some members of Congress may be furious in March if EPA goes ahead and issues the rule. Stay tuned.

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Earlier this week, EPA announced release of a draft North Coastal Small Municipal Separate Storm Sewer System General Permit. Once finalized, the General Permit will affect 84 communities in eastern Massachusetts. EPA has noted that similar MS4 General Permits will also be rolled out for the rest of the Commonwealth.

The draft General Permit is only the latest salvo in an ongoing debate among EPA, MassDEP, municipalities and the regulated community regarding how to control stormwater discharges. The background to all of this is the increasing attention being given to the TMDL process and NGO efforts, including litigation, to ensure that EPA and the state actually make the TMDL process work.

As followers of this blog know, in November 2008, MassDEP released an extremely ambitious set of draft stormwater regulations. I think it is fair – and apt – to say that MassDEP was deluged with comments. While MassDEP may not accept this characterization, the length of time which has passed without issuance of final MassDEP regulations suggests that MassDEP may in fact have, as requested by the regulated community, gone back to the drawing board.

One of the issues raised by the regulated community in commenting on the MassDEP proposal was precisely that, because EPA regulates MS4s, it would make sense for the federal MS4 program, rather than a new state program, to be the bedrock for stormwater regulation. One big question left hanging with today’s announcement by EPA will be the extent, if any, to which MassDEP now builds on the MS4 permit, rather than creating its own program from scratch.

Since the regulated community to some extent asked for this permit, I can’t complain about the concept, but make no mistake, the MS4 General Permit will impose significant changes on municipalities and those changes will absolutely trickle down to the regulated entities.

The draft permit is 57 pages, not including appendices, so it is far too long to summarize here, but I will note some highlights:

Municipalities within the Charles River Watershed subject to approved TMDLs will have to develop specific Phosphorus Control Plans to demonstrate how they will attain the phosphorus reductions required.

New and increased stormwater discharges will face stringent requirements. In some cases, such discharges will not be eligible for coverage under the General Permit, but will instead require individual permits.

Municipalities will have to reduce discharges to the Maximum Extent Practicable, or MEP, through the use of Best Management Practices. 

Municipalities will be required to enhance programs to identify and eliminate illicit discharges.

Notwithstanding the existing General permit for construction sites, permittees will have to continue to develop their own construction site stormwater program.

Permittees will have to establish a program to minimize post-construction run-off by tracking the extent of impervious surfaces and imposing new requirements on new development and redevelopment.

Municipalities have already cried foul based on concerns about the cost of implementing the General Permit. Unfortunately, unless Congress amends the Clean Water Act to eliminate the TMDL program, it is difficult to see how a general permit in some form can be avoided. Indeed, as already noted, the MS4 level is probably the right place to focus stormwater reduction efforts. The question will be how efficiently the program can be implemented and whether EPA and MassDEP can harmonize their respective programs in a way that allows progress towards attaining compliance with the TMDL program in a cost-effective way.

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As we noted a few weeks ago, EPA has proposed lowering the NAAQS to a range of from 0.060 ppm – 0.070 ppm. Earlier this week, EPA’s Clean Air Science Advisory Committee, or CASAC, met and endorsed EPA’s proposed range. Some CASAC members did express concern about EPA’s proposed secondary seasonal standard, intended to protect crops and forests. However, overall, the CASAC seal of approval is pretty much the end of this argument.

It is important to recall how we got here. CASAC already endorsed the 0.060 ppm – 0.070 range several years ago, before EPA’s last ozone standard was issued. It was EPA’s refusal to follow the CASAC recommendations, and instead propose a 0.075 ppm standard, which led to litigation challenging the standard and the current controversy. 

It is difficult to overstate the weight given the CASAC’s views. Indeed, EPA’s fine particulate standard was vacated in significant part because EPA failed to follow CASAC’s recommendations.

Thus, a standard that does not comport with CASAC’s recommendations would likely be rejected by the courts as arbitrary and capricious. However, I suspect that CASAC’s influence also runs the other way. Assuming that EPA does indeed promulgate a revised NAAQS in the 0.060 ppm – 0.070 ppm range, and assuming that industrial interests challenge the new standard, it will be very difficult to establish that the new standard is arbitrary and capricious if it has been endorsed by CASAC. 

As I noted in connection with the fine particulate standard, it’s not obvious to me that this is a good thing. Depending on whose ox is being gored, anyone can get up on a soapbox and say that they want science to be free of politics. However, these are really policy decisions. It’s one thing to acknowledge that these are complicated issues and we thus have to allow Congress to delegate its authority to the EPA administrator. It’s another effectively to delegate the decision further to the CASAC, which is about as obscure an acronym body as we have. Do we really want standards which will result in compliance costs in at least the tens of billions of dollars being made by groups which truly are not accountable in any meaningful way?

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The U.S. Securities and Exchange Commission (SEC) issued interpretive guidance yesterday which requires publicly traded companies to consider the impacts of climate change – both the physical damage it could cause, as well as the economic impacts of domestic and international greenhouse gas emissions-reduction rules – and disclose those risks to investors. As we noted when discussing the potential for this announcement in October, the disclosure requirements are likely to affect companies in a wide range of industries. 

In its press release announcing this decision, the SEC said that this interpretive guidance neither creates new legal requirements nor modifies existing ones; rather, SEC guidance is intended to provide consistency among issuers in their disclosure to shareholders of bottom-line risks and consequences. The guidance will cover:

• Risk Factors
• Description of the Business
• Legal Proceedings
• Management’s Discussion and Analysis

The interpretive release will be published in the Federal Register and posted on the SEC’s website. The press release summarizes the key points as these:

• Impact of Legislation and Regulation: When considering potential disclosure obligations, companies should determine whether the impact of existing laws and regulations regarding climate change is material. In some cases, companies should also evaluate the potential impact of pending legislation and regulation related to environmental issues and climate change.
• Impact of International Accords: Companies should consider, and disclose if material, the risks related to or effects upon their business of international accords and treaties relating to climate change.
• Indirect Consequences of Regulation or Business Trends: Legal, technological, political and scientific developments regarding climate change may create both new opportunities and new risks for companies. For example, a company may face decreased demand for goods that produce significant greenhouse gas emissions, or increased demand for goods that result in lower emissions than competing products. Companies should consider the actual or potential indirect consequences they may face due to climate change-related regulatory or business trends.
• Physical Impacts of Climate Change: Companies should also evaluate for disclosure purposes the actual and potential material impact of environmental matters on their business. It is not entirely clear what the SEC means by this, although one example might be agricultural risks associate with altered climate trends that appear to have reduced or increased annual rainfall in particular locales.

When the interpretive release is available, we will provide you with full information. It is likely that pressure from shareholder groups on this issue will continue (here, for instance, is CERES' statement), given that cap-and-trade legislation appears bogged down in Congress and that the prospects for EPA regulation under the Clean Air Act are unclear.

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Last month, I noted with some trepidation that EPA Administrator Jackson had stated that "I don't believe this is an either-or proposition," referring to the possibility that there could be both climate legislation and EPA regulation of GHGs under existing EPA authority. Today, it’s looking more like a neither-nor proposition.

First, with respect to the prospects for climate change legislation, Senator Gregg was quoted in ClimateWire as saying that “the chance of a global warming law passing this year was ‘zero to negative 10 percent.’" Whether Senator Gregg has the odds pegged exactly right, legislation certainly seems less likely than was thought even a month ago, as health care legislation struggles and Scott Brown (R. Mass.) takes office.

At the same time, Senator Murkowski is moving forward with a resolution to disapprove EPA’s endangerment finding, in order to preclude EPA regulation under existing authority. While binding Congressional action to preclude EPA regulation is unlikely, because it would require approval by President Obama, Senate action does not appear out of the question at this point, given that Senator Murkowski has obtained three Democratic co-sponsors of the resolution, Senators Sen. Blanche Lincoln (D-Ark.), Ben Nelson (D-Neb.) and Mary Landrieu (D-La.). A Senate vote in favor might not preclude EPA regulation without House and Presidential concurrence, but it’s hard to see how such a vote wouldn’t be a further black eye for the administration.

The situation certainly seems to warrant ClimateWire’s lede that “Climate chaos reigned on Capitol Hill yesterday.” Unfortunately, as I have noted previously, uncertainty is not really to anyone’s benefit. Does anyone doubt that, in the longer run, there will be some kind of climate regulation in the U.S.? How are regulated entities supposed to do cost-effective planning for such regulation in the face of this kind of uncertainty?

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I have never been a fan of specialized courts, but I have to admit that the Massachusetts Supreme Judicial Court’s MEPA jurisprudence is strong evidence for the other side. It’s almost hard to describe how badly the SJC has mangled MEPA. The most recent example is yesterday’s decision in Town of Canton v. Commissioner of the Massachusetts Highway Department. (Requisite disclaimer – this firm represented the Town of Canton in the case.)

In Canton, the SJC ruled that a party bringing suit to challenge the adequacy of the Certificate issued by the Secretary of Energy and Environmental Affairs an on EIR must do so within 30 days following issuance of the first permit issued to the project under review – even if the plaintiff doesn’t care about that permit. For example, in Canton, the case was dismissed because suit was not brought within 30 days of issuance of a sewer connection permit, even though Canton’s complaint was that the EIR did not adequately address traffic issues and the Highway Department had not yet acted on the necessary traffic approvals.

The basis for the decision is a plain language reading of the statute – 30 days of the first permit means 30 days. However, the Court’s policy logic is exactly backward. The SJC stated that it is necessary to adhere to the strict 30 day rule in order to make challenges to projects efficient and not unduly delay them. I fear that the development community will not be happy with the results of this case, however. The purpose of MEPA is consultative. Get all the information out there and make sure that the agency considers it before issuing approvals. The import of Canton, however, is to short-circuit the review process. The next time this fact pattern appears, plaintiffs will be forced to bring suit, without even giving the Highway Department a chance to get it right. How does encouraging litigation before it is known even to be necessary help citizen plaintiffs, developers, or agencies?

In fairness to this Court, while I think that they got the decision wrong, it is at least understandable given prior SJC MEPA jurisprudence. The problem is that the SJC began getting MEPA wrong in the Cummings and Enos cases, and they haven’t stopped since. The notion that parties challenging the adequacy of an EIR cannot sue the EEA Secretary – the person that approved the EIR – is just nuts. Put Enos and Cummings together with Canton and here’s the result, taking the agencies in play in the Canton case. 

1.         EEA approves an EIR

2.         DEP issues sewer connection permit

3.         Highway Department issues traffic approvals.

Where has the SJC left us? The citizen plaintiffs care about 1 and 3, and not 2, but suit is triggered when 2 happens, even though the plaintiffs don’t yet know whether the Highway Department will do the right thing or not.

Here’s another scenario likely to happen with some frequency. EEA secretary approves EIR. Citizen plaintiff believes that endangered species analysis was deficient. As is often the case, however, the Division of Fisheries and Wildlife takes some time to issue the needed permit. DEP, however, issues an unrelated permit. Once more, action by DEP triggers a need to sue, even though the plaintiff cares about the Secretary’s approval of the EIR and the DFW take permit, which hasn’t yet been issued – and may never be issued.

Which is going to come first, a legislative fix, the SJC revising the whole structure of MEPA jurisprudence, or hell freezing over?

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