Shareholders Are Getting Restless; Climate Change Resolution Passes at Occidental

In March, I noted BlackRock’s increasing concern over climate.  One element of its statement was “potential support for shareholder resolutions on climate risk”, where “management’s response to our prior engagement has been inadequate.  Turns out that they meant it.

Earlier this month, shareholders at Occidental Petroleum approved a climate reporting proposal – over the directors’ opposition – proposed by CalPERS and supported by BlackRock, which is apparently Occidental’s largest shareholder.  True to its word, a statement from BlackRock noted that there was indeed a “lack of response” by the company’s management to previously expressed concerns about Occidental’s climate risk reporting.

Who’s next?  ExxonMobil shareholders vote on a similar proposal on May 31.

Hat tip to Sarah Altschuller and our CSR blog for bringing this to my attention.

Superfund Reform, Part 2: Giving Credit Where Credit Is Due

Last week, I offered less than fulsome praise of EPA Administrator Pruitt’s announcement that he was taking control of remedial decisions for big Superfund sites.  Now, he’s followed up with a memorandum announcing establishment of a task force to look at ways to reform Superfund implementation.  While he’s still plainly wrong in putting Superfund “at the center of the agency’s core mission,” I have to confess that I think he otherwise has pretty much hit a home run with the latest memorandum.

Let’s start with the basics.  Superfund is a mess.  It’s one of the most poorly written statutes in Congressional history, and Superfund cleanups take way too long, are way too expensive, and fail to deliver bang for the buck in either risk reduction or productive reuse.

In a perfect world, Superfund would be amended to privatize cleanups and put cost-effective risk-based cleanups at the center of the program.  However, Scott Pruitt cannot unilaterally amend Superfund.  Heck, he may not realize it, but even Donald Trump cannot unilaterally amend Superfund.

Given this reality, Pruitt’s memorandum identifies all of the appropriate goals for meaningful administrative reform.  They include:

  • a focus on identifying best practices within regional Superfund programs, reducing the amount of time between identification of contamination at a site and determination that a site is ready for reuse

  • overhaul and streamline the process used to develop, issue or enter into prospective purchaser agreements, bona fide prospective purchaser status, comfort letters, ready-for-reuse determinations

  • Streamline and improve the remedy development and selection process, particularly at sites with contaminated sediment, including to ensure that risk-management principles are considered in the selection of remedies

  • Reduce the administrative and overhead costs and burdens borne by parties remediating contaminated sites, including a reexamination of the level of agency oversight necessary.

The last is my personal favorite.

I somehow expect I’m not going to be praising this administration on a regular basis, but I can still acknowledge when they get something right.  Let’s just hope that the task force is for real and comes up with a set of meaningful administrative improvements.

Fingers crossed.

Scott Pruitt Just Solved All of the Problems with Superfund. Not.

Last week, EPA Administrator Pruitt issued a memorandum requiring that all Superfund remedies estimated to cost at least $50 million be approved by the Administrator.  I’m not optimistic that this will cure, or even ameliorate, what ails CERCLA.  

First, the memorandum gets off on precisely the wrong foot.  Administrator Pruitt states that:

 The Superfund program is a vital function of the U.S. Environmental Protection Agency, and under my administration, Superfund and the EPA’s land and water cleanup efforts will be restored to their rightful place at the center of the agency’s core mission.

What’s the problem with this statement?  When EPA has actually looked at the top risks addressed by its programs, risks from Superfund sites never even make the list.  Except for a limited set of circumstances, Superfund has been a colossal waste of money, resources, and focus for EPA.  If Administrator Pruitt wants to reform Superfund, he shouldn’t be “placing it at the center of the agency’s core mission.”  He should be further deemphasizing it.

Even if one assumes that this is just puffery, the new approach is flawed on the merits, for at least two reasons.

First, the problem with Superfund is that it’s the last bastion of command and control regulation.  I understand that Pruitt may want to take the reins precisely to reduce the number of ukases issuing from the regional offices.  However, the underlying problem will remain; he just thinks he’ll be providing kinder, gentler, command and control.  Wouldn’t it be better to support fundamental reform of CERCLA, to create a privatized program, such as in Massachusetts and other states?

Finally, while PRPs might just wish Superfund went away, in the real world, PRPs just want certainty and timely decisions.  Aside from a few cases where Pruitt might put the kibosh on expensive remedies that don’t eliminate real risks, I fear that in the majority of cases, all that will happen will be that cleanup decisions will be delayed; PRPs will pay more as a result of such delays.

This administration continues to give regulatory reform a bad name.

Will There Be a Trial on Climate Change Public Trust Claims? It’s Looking that Way.

Last November, the District Court of Oregon denied the motion of the United States to dismiss claims that the United States had violated a public trust obligation it owes to US citizens to protect the atmosphere from climate change.  Not surprisingly, the government sought interlocutory appeal.  On Monday, Magistrate Judge Thomas Coffin issued a Finding and Recommendation that the request for interlocutory appeal be denied.  Since certification of interlocutory appeals is discretionary with the District Court, it looks as though there’s going to be a trial on the plaintiffs’ claims.

I found the really interesting part of the F&R to be the Court’s summary of the United States’ answer, filed on January 13, 2017, just a week before the inauguration.  In it, the government admitted what I’m sure the plaintiffs are describing as “all kinds of good stuff.”  Allegations from the complaint that the government admitted include:

That there is a scientific consensus that the buildup of GHGs (including CO2) due to human activities (including the combustion of fossil fuels) is changing  the global climate at a pace and in a way that threaten human health and the natural environment.

That climate change is damaging human and natural systems, increasing the risk of loss of life, and requiring adaptation on larger and faster scales than current species have successfully achieved in the past, potentially increasing the risk of extinction or severe disruption for many species.

That current and projected atmospheric concentrations of six well-mixed GHGs, including CO2, threaten the public health and welfare of current and future generations, and this threat will mount over time as GHGs continue to accumulate in the atmosphere and result in ever great rates of climate change.

I can understand why the Obama administration might move to dismiss this case on political question grounds, while admitting to many of the underlying allegations, including these.  I can also imagine that the Trump administration might want to defend this case on the merits as well.

This case may take longer to resolve than I had previously thought.

Not “Too Big to Fail.” Too Big to Comply.

Last year, the 5th Circuit Court of Appeals vacated the decision by District Judge David Hittner not to impose any penalties on ExxonMobil for violations alleged in a Clean Air Act citizens’ suit concerning ExxonMobil’s Baytown facility.  At the time, I asserted that the case was largely a win for ExxonMobil.

Last week, Judge Hittner, in an opinion which was admirably scrupulous in not trying to dodge the 5th Circuit remand, imposed a $20 million penalty against ExxonMobil.  I still think ExxonMobil should declare victory.

Why?

Because Judge Hittner reiterated all the same issues I noted last May:

  • Deviation reports, by themselves, do not constitute evidence of violations
  • There is no need for a declaratory judgment
  • There is no need for an injunction
  • ExxonMobil demonstrated good faith efforts to comply.

Ultimately, the court simply utilized the available evidence concerning the economic benefit of noncompliance, determined that benefit to be approximately $14 million, added a 50% multiplier, and set the penalty at the resulting $20M.  Given that he found more than 16,000 days of penalties and the maximum penalty was more than $500M, it indeed seems like a pretty good result for ExxonMobil.

The complexity of Baytown is almost beyond comprehension.  It is subject to more than 120,000 separate permit conditions.  Exxon spends more than $500M annually on maintenance at Baytown; the $20M is thus only 4% of the annual Baytown maintenance budget — just a drop in the bucket.

This is not a criticism of Judge Hittner or ExxonMobil.  The Judge was clearly sympathetic to ExxonMobil, but I still think he took the remand order seriously and did a thorough job in assessing the violations and determining the appropriate penalty.  It appears that he was justified in concluding the ExxonMobil had made good faith efforts to comply.

The bottom line is that ExxonMobil is just too big to comply.  Maybe the big banks should have tried that argument.

Perhaps It Should Be Renamed the “Really, Really, Endangered Species Act”

Last Friday, the 9th Circuit Court of Appeals affirmed a District Court decision ruling that the Fish & Wildlife Service decision that listing of the whitebark pine as endangered or threatened was “warranted, but precluded” was not arbitrary and capricious.  The decision seems correct, but as the frustration of the Court reflects, it’s only because the ESA is designed to fail.

The procedural history is lengthy and not really necessary to repeat here.  Suffice it to say that the whitebark pine is both an important species and in significant distress, if not dire straits.  In response to a listing petition, the FWS issued a finding that listing the whitebark pine is “warranted, but precluded.”  Thus, the FWS instead added the whitebark pine to the list of “candidate species.”

A candidate species is one for which [FWS has] on file sufficient information on biological vulnerability and threats to support a proposal for listing as endangered or threatened, but for which preparation and publication of a proposal is precluded by higher priority listing actions.

The particular issue here was whether the FWS has any authority to base listing decisions on anything other than the Listing Priority Number assigned to the species.  As the Court noted, however, the ESA provides only that the ranking system is intended to “assist” in the identification of species for listing.  There is nothing that makes the LPN determinative.

That’s all well and good, but it does nothing for the whitebark pine.  As the Court stated:

When pending actions outstrip available resources, the Secretary must make its choices and live with its priorities, even though that means leaving factually (if not listed) threatened or endangered species without the protections of the ESA.

In other words, to paraphrase Eddie Cochran, “I’d like to help you tree, but you’re too inanimate to vote.

State Sovereignty, Meet the Supremacy Clause

Earlier this week, the 10th Circuit Court of Appeals reversed a District Court decision and vacated an injunction which had prevented the U.S. Fish & Wildlife Service from reintroducing the Mexican gray wolf onto certain federal lands in New Mexico.  The decision seems fairly straightforward and plainly correct.  The interesting aspect of the case is the Court’s discussion of state sovereignty.

The State of New Mexico argued in part that the reintroduction of wolves onto federal land without a permit from the State was a violation of the State’s sovereignty.  The Court rejected the argument, without even addressing whether a state could ever assert a sovereignty claim over federal land within its borders.  The Endangered Species Act in fact generally does not exempt FWS from state permitting requirements.  Instead, it has a limited exemption from the requirement to comply with state permits, but only where the FWS has determined that to do so would interfere with the accomplishment of the objectives of the ESA.  The Court found that FWS had reasonably concluded that enforcement of the state permitting requirements would interfere with accomplishment of ESA objectives.

Case over.  The decision doesn’t even mention the Supremacy Clause, but it seems applicable to me.  I know that we live in uncertain times, but I believe federal law remains supreme, at least for now.

South Florida — The Front Lines of Climate Change?

Two related items about climate change resilience and adaptation caught my eye this week.  First, the American Academy of Actuaries issued a report on “The National Flood Insurance Program: Challenges and Solutions.”  Those wild and crazy actuaries at the AAA certainly have a gift for understatement:

Increased flooding due to higher sea levels can only increase the amount of loss from storms absent expensive investment in coastal defenses. In the face of rising sea levels and increased losses, it will be impossible to maintain current premiums, coverage, and eligibility without severe limits on building, strong mitigation requirements, or exposure to enormous program losses and additional U.S. debt.

Focusing on South Florida in particular, Bloomberg BNA (subscription required) had a report today on “The Nightmare Scenario for Florida’s Coastal Homeowners.”  The BNA story does discuss the NFIP, but only as one aspect of a range of problems that could trigger:

a housing crisis for coastal areas more severe than the Great Recession, one that could spread through banks, insurers and other industries.

I’ve been astounded for some time at the continued willingness of investors to pour money into South Florida real estate and I particularly like this discussion of someone named Ross Hancock, who sold his property in Coral Gables:

He described South Florida’s real estate market as “pessimists selling to optimists,” and said he wanted to cash out while the latter still outnumbered the former.

I love that line.  And so, to paraphrase a bumper sticker many of us have seen, I will just close by noting that climate change doesn’t care if you’re an optimist or a pessimist.

It’s Wise to Make Certain that Contracts Properly Allocate Future Environmental Compliance Costs

Last week, the 6th Circuit Court of Appeals ruled that AEP, which entered into a consent decree requiring it to install certain pollution controls at its Rockport 1 and 2 power plants, could not force the owner of those plants to pay to install the controls.  The case involved the interpretation of specific contractual language under New York law, but it still has lessons for power plant owners and operators everywhere.

AEP built Rockport 1 & 2.  It later entered into a sale-leaseback arrangement, running through 2022.  In 2007, EPA took enforcement action against several AEP facilities, not including Rockport.  Nonetheless, AEP entered into a consent decree in which it agreed to install pollution controls at Rockport by December 31, 2019.  In 2013, the government agreed to extend the time for installation of final controls at Rockport until December 31, 2028.

After entry of the modification to the decree, AEP took the position that the plant owner had the obligation to install the controls required by 2028, because the lease terminates in 2022.  While it actually persuaded the District Court, the Appeals Court was having none of it.

By reading the Facility Lease to allow AEP to settle litigation regarding alleged Clean Air Act violations at other plants by way of a consent decree affecting Rockport 2 and then encumber the owners’ interests in Rockport 2 via the 2013 modification, the district court gave AEP carte blanche authority to avoid the [contractual provisions making AEP liable for judgments entered against it.]

Why does this case matter?  I don’t know if it’s abject or object, but it’s certainly a lesson.  In the modern world of electric generation, with merchant capacity taking an ever larger role, and with power plants changing hands with dizzying frequency, the case is a useful reminder that the language of agreements matters, the parties on both sides of any transaction had better think carefully what the generation world might look going forward, and it would be wise to plan for all foreseeable contingencies.

Time to hire good lawyer!

Environmental False Advertising: An Earth Day Green Guide Review

Earth Day is coming up on April 22, which means that a lot of consumers are going to be reminded to think green, and to buy green. What if your company is looking to access this vast market of environmentally-minded shoppers, but your product or service isn’t really that environmentally conscious? Can you just go ahead and label yourself “Green” anyway?  Who’s gonna notice?

Well,… More

Does Chevron Ever Permit EPA to Rewrite a Statute? EPA’s Release Reporting Exemptions Are Struck Down

On Tuesday, the Court of Appeals for the District of Columbia vacated EPA’s final rule governing reporting of air releases from animal feeding operations.  The Court found that EPA had no statutory authority to exempt AFOs from the reporting regulations.

The decision is also important because it is another in a recent line of cases regarding the extent of agency authority to interpret statutes.  The issue was whether EPA had authority to exempt smaller AFOs from reporting requirements, on the ground that it could not:

foresee a situation where [it] would take any future response action as a result of such notification[s].

Although EPA did not explicitly justify its rule on de minimis grounds, the Court understood EPA to be making a de minimis argument and analyzed the rule in that context.  The Court concluded that EPA had not justified a de minimis exception, because:

an agency can’t use it to create an exception where application of the literal terms would “provide benefits, in the sense of furthering the regulatory objectives, but the agency concludes that the acknowledged benefits are exceeded by the costs.”

Here, the Court found that there were benefits to requiring reporting without a de minimis exception.  That was enough to vacate the rule.

It is worth noting the concurrence from Judge Janice Rogers Brown, who agreed that EPA had overstepped, but was concerned about the panel opinion’s summary of Chevron as being focused on whether the agency’s interpretation is “reasonable.”  Stoking the anti-Chevron flames, Judge Brown wrote to make clear that the “reasonableness” inquiry does not apply at step one of Chevron.  Ever-vigilant, she wants to be certain that courts do not abdicate their duty to state what the unambiguous language of a statute means.

I don’t have any problem with that.  Phase I of Chevron is an important bedrock principle.  If there’s no ambiguity, there’s no deference.  However, it’s worth noting that Judge Brown also stated that:

an Article III renaissance is emerging against the judicial abdication performed in Chevron’s name.

Notwithstanding the congressional discussion of this issue, I remain skeptical that any such “Article III renaissance” is occurring.  One concurrence from one appellate judge who happens to be named Gorsuch does not a renaissance make.

Of course, the really important part of Judge Brown’s concurrence was her citation to Luck Be a Lady, from Guys and Dolls, the greatest musical of all time.

Should Courts Defer to EPA’s Scientific Expertise if EPA Gets Rid of Its Expertise?

Earlier this week, the 9th Circuit Court of Appeals rejected challenges to the Federal Implementation Plan EPA promulgated after finding that Arizona’s regional haze State Implementation Plan was inadequate.  I think that the result is both correct and unsurprising.

However, one part of the opinion – a recitation of black-letter law – caught my eye.  In discussing the standard of review, the court noted that the arbitrary and capricious standard is “highly deferential.”  No surprise there.  It also noted that courts are particularly deferential when reviewing agency scientific determinations.  Also no surprise.

And yet….

What happens if EPA eliminates all of its climate science expertise, and then eliminates the Endangerment Finding?  Certainly, a court could still recite the traditional level of deference, but then note that “deference is not abdication” and rule that EPA’s decision must be reversed even under the deferential threshold.

And yet….

What happens if the Trump administration repeatedly makes regulatory decisions based on a “scientific” viewpoint that is so broadly rejected by the scientific community that “scientific” must be put in quotation marks?  Might courts at some point conclude that EPA has forfeited the deference normally given to agency scientific decisions?

Just asking.  It’s purely a hypothetical, of course.

Six Years in the Making, New Ch. 91 Flexibility Washes Ashore

Last month, MassDEP and the Massachusetts Office of Coastal Zone Management released long-awaited revisions to the regulations governing waterfront development in Massachusetts (the Chapter 91 regulations, the Designated Port Area regulations, and the Municipal Harbor Plan regulations).  The changes have been in the works since 2010, when MassDEP and CZM first convened working groups to review whether the regulations could be revised to provide greater flexibility to accommodate a variety of uses along the waterfront.  We summarized the draft regulations last spring.

MassDEP’s regulatory changes offer enhanced flexibility by allowing waterfront developers to meet their Ch. 91 obligations to provide public access to the waterfront through a new category of uses, called Facilities of Limited Accommodation.  These “FLAs” include uses that are open to the public by appointment or enrollment, such as photography studios and childcare centers.   These uses may are now permitted in up to 50% of the ground floor of a project within jurisdiction, if a demonstration can be made that a market does not exist for a traditional Facility of Public Accommodation (such as a restaurant or hotel) at the project site.  In exchange for this flexibility, developers must devote 20% of the net operating income of the FLA to fund specific construction or activities in geographic proximity to the project site that enhance public waterfront access.

Developers of smaller projects (less than 75′ in height) are given more flexibility in that they can license FLAs for fifteen-year terms before they must re-evaluate the feasibility of siting FPAs.  Developers of larger projects are limited to 10-year terms, and must, in the first instance, demonstrate that they have attempted to market the site for FPA use for at least 1 year without success, including offering rents at 50% below market rate to non-profits.

These changes are an innovative response to long-acknowledged difficulties with the Chapter 91 licensing process, in which space on the ground floor of waterfront buildings in less-trafficked areas set aside for public accommodation would remain vacant for lack of ability to attract an appropriate tenant. A report prepared for the former Boston Redevelopment Authority back in 2005 noted,

“no provisions currently exist in the regulations encouraging developer concessions such as below market rent, free utilities or a build-out of the raw space. Without such concessions, waterfront sites lie beyond the reach of most cultural uses, generally non-profit in nature.”

In response to comments received after the publication of draft regulations last spring, MassDEP made minor revisions (see MassDEP’s summary here and the final redline here).  MassDEP clarified certain provisions, including the division between smaller and larger projects and the method by which net operating income is to be established for an owner-occupied building.  Some in the regulated community were hoping for additional changes that would allow Chapter 91 applications, public notices and hearings to proceed while the applicant is undergoing MEPA review.   MassDEP declined to adopt these proposed changes, leaving in place the current requirement that Chapter 91 review cannot begin until the Secretary issues a Certificate on a Final EIR.

As part of the same set of regulatory revisions designed to introduce more flexibility into waterfront licensing, MassDEP finalized its Designated Port Area regulations (see summary and redline), and CZM modified its corresponding regulations.

Our takeaway?  It will be interesting to see how quickly licensees adopt the flexibility provided by these new provisions, particularly in hot market areas like the downtown Boston waterfront.  But civic and cultural non-profits should be on the lookout for 50%-below-market rates in large new waterfront buildings, and other providers of waterfront-activation uses should seek opportunities to partner with FLA licensees to receive the 20% net operating income bonus.

 

Exxon Case Against AGs Transferred to New York: Judge Kinkeade Fires a Parting Shot

On Wednesday, Judge Ed Kinkeade ordered that Exxon Mobil’s suit against NY Attorney General Eric Schneiderman and Massachusetts Attorney General Maura Healey be transferred to the Southern District of New York.  The AGs must be breathing sighs of relief this morning.

It’s a very curious order.  It’s 12 pages long, yet contains just one sentence explaining why the case is being transferred:

The United States District Court for the Southern District of New York is the proper venue for this case because “a substantial part of the events or omissions giving rise to the claim occurred” in New York City, New York at the AGs United for Clean Power press conference on March 29, 2016.

The entirety of the rest of the Order is basically a summary of why Judge Kinkeade thinks that there is merit to Exxon Mobil’s complaint and all the shameful actions he believes that the two AGs have taken.  I don’t think I’m going out on a limb in asserting that Judge Kinkeade’s statements fall under the heading of dicta.  I have a hard time seeing that they constitute any kind of binding law of the case on the judge who draws the case in New York.

Something tells me that Exxon Mobil is not likely to find as much sympathy in the Southern District of New York.

McDonalds Won’t Be Serving Utah Prairie Dog Burgers Any Time Soon

On Wednesday, the 10th Circuit Court of Appeals held that regulation of takes of the Utah prairie dog, a purely intrastate species, does not violate the Constitution.  Reversing the decision below, the 10th Circuit joined all four other circuit courts to have dealt with the issue thus far in upholding the ESA against such Commerce Clause challenges.

I will note that I predicted this outcome when the District Court case was decided, though I can’t claim that much credit.  As the Court noted, more than 2/3 of protected species are purely intrastate.  Moreover:

Because a species’ scientific or other commercial value is not dependent on whether its habitat straddles a state line, Congress had good reason to include all species within the protection of the Act. It did not behave irrationally by taking the broader approach.

Given the absence of a circuit split, I don’t see the Supreme Court taking this case.  I do hope that People for the Ethical Treatment of Property Owners keeps fighting the good fight, though.  I just love that name.