The Drumbeat Continues: Another Court Rejects an FEIR For Not Properly Considering Climate Change

Last week, the 10th Circuit Court of Appeals reversed and remanded a District Court decision approving a decision by the Bureau of Land Management to approve new leases on mines that account for 20% of U.S. coal production.  The decision is just the latest in a series of cases making clear that courts will not approve new – or renewed – energy production that does not appropriately address the impacts of a project on climate change.

Here, the Court held that BLM tripped up on a fairly basic issue – supply and demand.  In the EIS, BLM acknowledged that coal from Powder River Basin – the location of the mines at issue – was cheaper than other coal.  BLM nonetheless assumed that perfect substitutes for Powder River Basin coal exist somewhere that would be used without affecting the price of coal.

The BLM did not point to any information (other than its own unsupported statements) indicating that the national coal deficit of 230 million tons per year incurred under the no action alternative could be easily filled from elsewhere, or at a comparable price.

In fact, BLM acknowledged that coal demand may decline in response to an increase in price – duh!  It argued instead that overall demand for coal would still increase.  However, that argument misses the point.  The question is not whether demand is increasing, overall.  The question is what would be the difference in price if the leases were renewed as compared to if they were not.  It’s indisputable that a decision not to renew the leases, taking 20% of U.S. coal out of production, would increase prices, thus driving down demand, reducing use of coal, and thus reducing GHG emissions.

The Court’s bottom line?

Therefore, we hold that it was an abuse of discretion to rely on an economic assumption, which contradicted basic economic principles, as the basis for distinguishing between the no action alternative and the preferred alternative.

Score one for economics.

How Imminent Are the Impacts of Climate Change in Everett?

Yesterday, Judge Mark Wolf dismissed part of the Conservation Law Foundation’s claims in its litigation against ExxonMobil concerning ExxonMobil’s Everett Terminal facility.  The opinion is both interesting and pleasurably concise – a rare combination!

Judge Wolf found that CLF had credibly alleged that the Terminal is violating its NPDES permit.  Importantly, he also found that CLF stated that there is:

substantial risk” that severe weather events, such as storm surges, heavy rainfall, or flooding, will cause the terminal to discharge pollutants into those areas in the near future and while the Permit is in effect. Finally, plaintiff plausibly alleges that these actual and imminent harms are redressable by the court through an order that defendants comply with the Permit.

The judge parted ways with CLF, however, with respect to allegations the he found to be more speculative.  Specifically, he concluded that CLF:

does not have standing for injuries that allegedly will result from rises in sea level, or increases in the severity and frequency of storms and flooding, that will occur in the far future, such as in 2050 or 2100. Such potential harms are not “imminent” and the claims concerning them are not ripe for decision because, among other reasons, the Environmental Protection Agency may require changes to the Permit that will prevent the harms from occurring.

I do feel compelled to crow a little.  When the complaint was filed, I noted the likelihood that we’re going to start to see more of such cases.  I also noted that cases are concrete and the allegations in a complaint matter.  As I said then:

The complaint does refer to the new FEMA flood maps.  I think it’s a fair allegation to say, if true, that ExxonMobil’s SWPPP does not reflect current FEMA flood maps.  I also think that it’s a fair defense to say, if true, that ExxonMobil’s SWPPP does address current FEMA maps and that ExxonMobil has no obligation to prepare for some hypothetical next-generation FEMA flood maps.

It thus seems to me that all the allegations in the complaint about ExxonMobil’s research on climate change are irrelevant.  This isn’t a fraud law suit, or shouldn’t be.  More broadly, I can certainly imagine many other such suits being brought, but they’re going to have to be based on provable facts.

My views haven’t changed — and now I know Judge Wolf agrees with me!

If China Can Cap-and-Trade Auto Fuel, Why Can’t We?

Bloomberg reported earlier this week that:

China will soon unveil a mandatory cap-and-trade credit program for electric cars, starting the countdown for carmakers to be in compliance with stricter rules on emissions and fuel economy.

It’s pretty well known that China is not the world’s most transparent government.  Thus, I won’t fully believe until I see it.  On the other hand, it does seem pretty clear that China is intent on cracking down on motor vehicle pollution.  The article notes that China will be setting a deadline for a prohibition on sales of fossil-fueled powered cars.

All of which makes me ask:  If China can do it, why not us?

The Northeast already has RGGI.  Massachusetts just further tightened emissions on power plants.  All this notwithstanding that transportation now generates approximately twice the CO2 emissions as electric power generation.  When my clients in the generation biz ask me why they keep being targeted, notwithstanding that transportation and, to a lesser extent, buildings, have thus far largely been spared, I have a simple answer.

Electric generation may no longer be low-hanging fruit, but it’s still the lowest hanging fruit.  Transportation is hard and regulators will almost always take the easy way out.  Is that a legitimate excuse?  No.  If California can do it – and China can do it! – then we can do it.  More to the point, if we don’t do it, we’ll fail.  We might be able to reach 2020 GHG reduction targets solely on the back of electric generation, but we’re never going to make the 2050 target, or interim targets after 2020, if we don’t tackle the higher-hanging fruit.

To end on an optimistic note, the Statehouse News Service (subscription required) reported today that the Baker administration:

plans to tackle the thorny issue of extracting additional emission reductions from the transportation sector.

Let’s hope so.

Trump’s 2-For-1 Order: Still Arbitrary and Capricious After All These Months

In June, I posted about Foley’s brief in support of those challenging Executive Order 13771, the so-called “2 for 1” EO.  By ignoring the benefits of existing and proposed regulations, the Order ignores the purposes behind the legislation pursuant to which regulations are promulgated.  The Order is thus the definition of arbitrary and capricious.

Late last week, OMB issued a memorandum to executive agencies, requiring them to develop “Regulatory Cost Allowances” for FY 2018.  The memorandum is only one page.  In that one page, it uses the word “cost” 11 times.  The word “benefit” does not appear.

The memorandum notes that the purpose of the Order is to “lower regulatory burdens” and “to be prudent and financially responsible in the expenditure of funds, from both public and private sources.”

I hate to beat a dead horse, but one would have thought that the absolute size of the “regulatory burden” is not what’s relevant; what’s relevant is whether that regulatory burden is exceeded by the benefits of proposed regulations.  One would also have thought that requiring expenditures of private funds for regulatory compliance would be seen as “prudent” if those compliance costs are exceeded by the benefits.

Indeed, one would have thought – and I do still think – that seeking to lower regulatory compliance costs without regard to the benefits provided by government regulations is just plain crazy.

Silly me.

Cooperative Federalism Requires Cooperation From Both Sides

In 2011, the National Parks Conservation Association sued EPA for failure to enforce the regional haze requirements of the Clean Air Act.  EPA and the NPCA settled in 2012, establishing a schedule by when SIPs or FIPs had to be promulgated.  The only state remaining is Texas.  After several extensions, EPA is required to approve a SIP or promulgate a FIP by September 9, 2017.  You can hear the clock ticking.

On August 18, EPA moved unilaterally to extend the deadline to December 31, 2018.  The basis for the motion?

“policy changes legitimately instituted by the new administration led to a breakthrough in the relationship between EPA and Texas,” and that, through that new relationship, the Governor of Texas has made a “firm commitment” to “bring the full weight and resources of the State of Texas to bear” on the development of an approvable state implementation plan.

Judge Amy Berman Jackson was having none of it.  Last week, she denied the government’s motion.  As she concisely put it:

This is not the sort of significant change in circumstance that would warrant relief.

In other words, the cooperative federalism tango requires two willing parties — the federal government and the state involved. As the Court noted, Texas’s statutory obligation was in effect in 2007 and EPA informed Texas of its failure to comply with the SIP requirements in 2009.  “Texas has had ample time to develop, submit, and negotiate a compliant” SIP.

It takes two to tango.

What’s a Court to Do When EPA Misses a Statutory Deadline?

Earlier this week, a divided 9th Circuit Court of Appeals affirmed entry of a consent decree between the Sierra Club and EPA, resolving litigation over EPA’s failure to promulgate attainment designations for the sulfur dioxide NAAQS under the Clean Air Act.

I would have thought that entry of the settlement would be fairly straightforward.  EPA misses deadlines with some regularity.  Persons sue over such failures with some regularity.  EPA then agrees to schedules with some regularity.  Here, EPA agreed to a schedule – albeit one that purports to give it seven (7) extra years to make the required designations.  The Sierra Club, for its part, agreed not to sue EPA again over the designations, so long as EPA keeps to the schedule.

Several states objected, on three grounds.  First, they argued that the consent decree improperly disposed of their claims.  The short answer to this was that the decree does no such thing; the states are still free to litigate EPA’s failure to timely make the required designations.  Second, they argued that the decree imposes obligations on them, even though they are not a party to it.  However, as the majority noted, the obligations to which the states are subject are not as a result of the decree; they are the result of EPA’s so-called Data Requirements Rule, which EPA separately promulgated in order to obtain the information necessary to make the designations.

The final argument is the one on which I want to focus.  The states – and the dissent – argued that the decree was tantamount to judicial legislation, because, by giving its imprimatur to a seven-year delay, the Court effectively amended the statute.  I’m sorry, but I don’t see it.  The Court isn’t amending the statute; it’s recognizing reality.  Once EPA misses the deadline, it’s impossible to order EPA to go back and promulgate the designations timely.  Nor is it possible to issue an order requiring EPA to promulgate the designations instantly.

The argument does nonetheless raise an important issue of statutory interpretation.  When I was in law school, my then-Professor Guido Calabresi taught a course on his book A Common Law For The Age Of StatutesThe basic problem addressed by the book was that times change and legal requirements change.  Judges have authority to revise the common law if precedents no longer serve their purpose.  Judges, however, have no authority to amend statutes; they are effectively written in stone.

Amending statutes is supposed to be Congress’s right and responsibility.  However, it ignores reality to drop all statutory problems in Congress’s lap and blindly take the position that Congress can amend a statute if it so chooses.

We live in an increasingly complex world.  Some of the deadlines in the CAA are no longer practical, if they ever were.  I don’t think that the Court here amended the Clean Air Act, but it’s at least worth discussing whether allowing courts limited authority to do so would be such a bad idea.

The Arbitrary and Capricious Standard Remains in the Eye of the Beholder

In a very interesting – and extremely rare – case, Emhart Industries has successfully defended itself against a unilateral administrative order issued by EPA under CERCLA, on the ground that key decisions made by EPA were arbitrary and capricious.  The decision, concerning the Centredale Manor Restoration Project Superfund Site, is worth a read for CERCLA practitioners, even though it weighs in at 108 pages.

The decision’s length highlights the first important take-away:  the arbitrary and capricious standard is almost infinitely malleable.  Judges reach whatever decision seems reasonable and then justify it in one of two ways.  If a judge wants to support an agency, he recites the highly deferential standard required by arbitrary and capricious review.  If a judge wants to support the challenger, she recites the highly deferential standard, but then notes something along the lines of “deference is not abdication.”  In this case, Judge Smith chose the latter course.

While I’m sympathetic to Judge Smith’s responsibilities in assessing a large and complex record (and I’m always sympathetic to those challenging EPA’s often just plain silly remedial decisions), a 108-page decision is almost prima facie evidence that Judge Smith inquired more deeply into the record than the standard of review would generally warrant.

The second important take-away is on the merits.  Although Judge Smith affirmed many of EPA’s decisions, he rejected EPA’s conclusions on two related – and critically important – issues.  The basis for both decisions was his conclusion that the record did not provide adequate support for EPA’s conclusion that the source area at the site could be a drinking water supply.  That conclusion supported both EPA’s decision about groundwater cleanup standards and the need for a RCRC C cap of the source area.  Why did the Court disagree?  Because Judge Smith concluded that:

The evidence makes overwhelmingly clear that the Source Area groundwater is currently far too contaminated to provide a source of drinking water.

In other words, precisely because the operation of the site had led to so much contamination, EPA did not reasonably determine that the source area groundwater could be used as a drinking water supply.  I think that Judge Smith reached a fair conclusion, particularly since Superfund liability is general strict, i.e., without regard to fault, but it’s one that has to stick in EPA’s craw.  Moreover, given the precedential importance of this issue, I could see EPA appealing Judge Smith’s ruling – or at least I could have under any other administration.  Time will tell, in this case.

(Full disclosure:  Many years ago, Foley Hoag represented Centredale Manor in connection with the Site.  Centredale Manor settled early.  I can only say that our client is well out of it.  Judge Smith noted that the “Centredale Site is truly a litigation gift that keeps on giving.”!)

State Street Global Advisors Gets on the Climate Disclosure Express — In a Big Way

Earlier this month, State Street Global Advisors joined the chorus of money managers urging corporate boards, particularly those in “high-impact sectors” – meaning “oil and gas, utilities and mining” – to do a better job reporting risks related to climate change.  SSGA’s recent “Perspective on Effective Climate Change Disclosure” is a serious document.  To put it in formal technical jargon, SSGA whacks the heck out of most companies in high-impact sectors, particularly companies in the United States.  Among the nuggets:

A vast majority of US companies have yet to fully embrace climate-related scenario-planning, which is reflected in the quality of their climate-related disclosure.

In Europe, boards have established dedicated committees to oversee sustainability-related risks, including climate risk. In the US, some companies in high-impact sectors have a dedicated committee but many companies do not explicitly reference oversight of climate risk in their board or committee charters.

Most companies in the high-impact sectors in Europe set 5–10 year goals. In the US, few companies set goals beyond a year, while most companies do not set goals at all…. We believe that long-term GHG goal setting is important because:

  • Goals or targets focus companies on managing emissions; without goals, actual emissions cannot be contextualized to evaluate the efficiency of operations
  • GHG goals help companies demonstrate that their long-term scenario-planning processes are robust and can inform strategic decision-making
  • Costs of controlling emissions to meet targets should be considered when making capital allocation decisions to arrive at the true cost of an asset.

SSGA found that most companies in the US do not disclose their carbon price assumptions, in contrast to European and Australian companies…. We believe that carbon price assumptions are important.

Time will tell whether statements such as this one from SSGA or earlier ones from BlackRock will have an impact.  The sceptic in me worries that rich climate deniers will start buying up the stock of high-impact companies in the United States, in the hope that companies that ignore climate risks will be more profitable.  I don’t think that there are enough rich climate deniers to swing the markets; I sure hope not.

We’ll Always Have RGGI: Paris or no Paris, New England and Mid-Atlantic States Continue to Lead on Greenhouse Gas Emission Reductions

Yesterday, Massachusetts and the eight other New England and Mid-Atlantic states that participate in the Regional Greenhouse Gas Initiative announced a proposed plan for the continued implementation of RGGI (the region’s cap-and-trade program) between the years 2020 and 2030.   The plan calls for an additional reduction of GHGs by 30% by 2030, beyond the RGGI 2020 levels. Emissions would be capped at about 75 million tons in 2021, declining by about 2.25 million tons every year until 2030. The rate of reduction (approximately 3% per year) is more aggressive than that in place during the first period (approximately 2.5%). (More detail on the program elements can be found here.)

The plan also calls for an increase in the price cap for allowances calls and the implementation of an Emissions Containment Reserve (ECR), designed to address lower than expected allowance prices. Under the new mechanism, for states that chose to implement the ECR, if the RGGI auction price falls below a predetermined trigger price, then some portion of the allowances would not be sold. This market correction would reduce the supply of emissions allowances to reflect the reduced demand demonstrated by the low market price. The goal of the ECR is to reduce price volatility and ensure that the program continues to serve its goal of reducing total emissions. The think-tank Resources For the Future proposed the ECR mechanism for RGGI, described in detail in their recently published report.

Sources are also reporting that New Jersey may return to RGGI after dropping out under Governor Chris Christie (both candidates running for Governor Christie’s term-limited seat have pledged to rejoin) and that Virginia may sign on as well. While the world certainly needs Paris, the commitments of the RGGI states will have reduced the emissions cap 65 percent from 2009 levels, far ahead of goals set in both the Clean Power Plan and the Paris Climate Accord.

Does NEPA Require Assessment of Downstream GHG Emissions Resulting From Gas Pipelines?

Last week, a divided panel of the D.C. Circuit Court of Appeals ruled that FERC violated NEPA in failing to assess downstream greenhouse gas emissions resulting from construction of the Sabal Trail pipeline, part of the Southeast Market Pipelines Project.  If the decision stands, it is going to have a very significant impact on review and development of gas pipelines.

(Full disclosure – Foley Hoag represents NextEra, one of the developers of the project, in a variety of environmental matters, though we were not involved in this case.)

To the majority, the case was fairly straightforward.  NEPA requires assessment of indirect impacts of projects, which are those which are downstream of the project, but nonetheless are “reasonably foreseeable.”  Since the basic purpose of the pipeline is to supply gas to power plants, the Court had no trouble concluding that GHG emissions from those plants are reasonably foreseeable.

In response to FERC’s argument that assessment of those indirect impacts was not practical, the Court noted that NEPA “necessarily involves some ‘reasonable forecasting.’”  Since FERC knows how much gas will be transported and at least roughly how much CO2 will be emitted by the power plants, the Court concluded that sufficient quantification of the downstream impacts is possible.

The Court also noted that FERC had argued that the pipeline gas will at least partially allow gas-fired plants to replace more polluting coal-fired plants.  The Court’s response?  All well and good, but not an excuse for failing to quantify both the emissions increases and decreases resulting from the pipeline.

The dissent by Judge Brown had a different take.  First, she noted that the case seems indistinguishable from prior precedent, including recent decisions authorizing natural gas export terminals.  She also noted that the Supreme Court has ruled that “but for” causation is not a sufficient basis to require an agency to assess indirect impacts under NEPA.

Given the dissent, and the arguable conflict with prior cases, it would not surprise me were the full Circuit to hear the case en banc.  I certainly expect FERC to seek en banc review, and probably to appeal to the Supreme Court, if necessary.

If the case stands, one might note the beginning of something of a trend.  Just last week, I posted about Montana Environmental Information Center v. U.S. Office of Surface Mining, in which the Court ruled that OSM could not approve a coal mine expansion without assessing the impacts of the GHG emissions that would result from the mine expansion.

We certainly live in interesting times.

The Social Cost of Carbon: Not Too Speculative for NEPA

Earlier this week, the Judge Donald Malloy of the District Court for the District of Montana granted summary judgment to the Montana Environmental Information Center on several of its claims alleging that the Office of Surface Mining had violated NEPA in approving a modification of a mining plan to expand the Bull Mountains Mine No. 1.  The decision is important for two reasons.

First, Judge Malloy agreed with the plaintiffs that it was arbitrary and capricious for OSM to fail to consider the costs associated with expansion of the mine.  As Judge Malloy acknowledged, NEPA does not always require a cost benefit analysis.  However, here, OSM calculated the economic benefit of the mine without attempting to determine the costs.  (Do I hear an echo of the case challenging President Trump’s “2 for 1” Executive Order, that requires zeroing out the cost of regulations, with no consideration of their benefits?)

Interestingly, the Court also specifically mentioned the Social Cost of Carbon Protocol, developed under the Obama administration, as one tool to use to quantify the costs associated with the mine expansion.  We’ll see how that fares under this administration. 

The second point is a broader one about NEPA, and is a useful reminder, even if not original.  The defendants repeatedly argued, on the social cost of carbon issue, as well as others raised in the case, that they had no obligation to address the issues raised by the plaintiffs, because it would have been speculative to do so.  The Court disagreed, noting repeatedly that uncertainty and a lack of precision are not the same as “speculation.”  In fact, as the Court noted, the presence of uncertainty about impacts makes it even more important to conduct a full environmental impact assessment.

It is probably true that one person’s speculation is another’s reasonable foreseeability.  Either way, it’s a good reminder that this is an issue that both citizen groups and project proponents need to address and properly frame.

The Montreal Protocol Is Not a Climate Change Statute

Earlier this week, the D.C. Circuit Court of Appeals struck down part of an EPA rule promulgated pursuant to the Montreal Protocol.  The section that was struck down would have required manufacturers of HFC-134a, which is not ozone-depleting and which had previously been determined by EPA to be an acceptable replacement for ozone-depleting compounds, to find other replacements, because EPA determined in 2015 that HFC-134a did not “reduce overall risks to human health and the environment.”  Why?  Because HFC-134a is a potent greenhouse gas.

There’s been a lot of commentary about this decision from both sides of the aisle.  I think it’s all overblown and I think that the decision is correct under the “Give me a break” theory of statutory interpretation.

On the merits, the Court concluded that, because HFC-134a had previously been deemed less risky, and because HFC-134a had long ago “replaced” ozone-depleting substances, it’s continued use could not reasonably be considered to be “replacing” anything.  The Court thus struck down the rule on the basis of step one of Chevron.  I’m with the Court on this one.  The dissent just seems to tie itself in knots in order to find an ambiguity in the statute so it can get to step 2 of Chevron.

I’ll go further on the Chevron question.  I think it would be a mistake for environmentalists who support this rule because it would be environmentally beneficial to go too far.  If the dissent were to prevail here, it would only add legitimate fuel to the fire that those who oppose Chevron are trying to set.  If there’s an ambiguity here, it’s difficult to conceive of many statutes that aren’t ambiguous, leaving all interpretation to agencies.  That’s not supposed to be what Chevron is about, though it is what Chevron’s critics say it is about. Supporters of Chevron should not be giving ammunition to its critics.

On the implications of the decision, I’d advise everyone to calm down.  Conservatives are excited and liberals concerned because Judge Kavanaugh stated that “climate change is not a blank check for the President.”  For those who believe in the rule of law, that should hardly be a controversial statement.

On the other hand, perhaps liberals should be excited and conservatives concerned, because Judge Kavanaugh had no problem affirming EPA’s underlying judgment that climate change provided a sufficient to determine that HFC-134a would not, going forward, be seen as a safe substitute for ozone-depleting substances.  He also identified several other statutory regimes that might provide EPA with authority to regulate existing uses of HFC-134a.

The case really is not that broad.  All the majority opinion does is preclude EPA from determining retroactively that HFC-134a was not a safe replacement.  As a result, EPA may not require those who used HFC-134a to replace ozone-depleting compounds, because EPA told them that they could, to find another substitute.

Everyone on both sides may now pause and take a deep breath.

Coming Soon To a Massachusetts Facility Near You: More Citizen Enforcement?

Earlier this week, the Massachusetts Executive Office of Environmental Affairs went live with two new web sites intended to increase the public availability of information concerning regulated entities in Massachusetts.  The first, ePLACE, will provide information about on-line permit applications.  However, since MassDEP began accepting on-line applications on May 5, 2017, ePLACE is going to be of much more interest in the future than it is today.  As of now, there is not much there.

The more interesting site is the Data Portal, which lists permits, inspections, and enforcement actions with respect to any facility in Massachusetts.  The site does not provide many specifics, but it does list every existing permit and enforcement action against each facility in Massachusetts.

Even without a lot of detail, the Data Portal is potentially a treasure trove for activists and interest groups.  It’s somewhat similar to the Obama EPA Next Generation Compliance program, in terms of increasing transparency and encouraging citizen enforcement.  EEA certainly is never going to say explicitly that environmental budgets are lean and it thus wants to facilitate citizen enforcement to backstop reduced governmental enforcement resources, but we can all draw our own conclusions.

Citizens, go forth and sue!

Regulated community, check the Data Portal regularly.  An ounce of prevention is worth a pound of cure!

Real Superfund Reform Would Not Place It At the Center of EPA’s Core Mission

Earlier this week, Scott Pruitt released the results of the Superfund Task Force he established in May.  Though skeptical, I was pleased at the creation of the task force and goals he established for it.  With the release of the report, my skepticism has returned.

First, the report and Pruitt’s memo about it repeat the claptrap about restoring “the Superfund program to its rightful place at the center of the agency’s core mission.”  Since he keeps repeating that statement, I have to keep repeating that, every time EPA – or the private sector – looks at the top environmental risks, Superfund doesn’t even make the list.  This time, Pruitt goes further, stating that:

I ask myself every day, what could be more important, more ‘core’ than giving Americans the ability to use the land they are blessed with.

And I answer, “What about the air we breathe and the water we drink?”  It’s harder to avoid breathing the air and drinking the water than using any particular piece of land.  That’s why we have institutional controls to restrict land use, but not institutional controls to prevent breathing of contaminated air.  The skeptical part of my brain is now telling me that this Task Force and putting Superfund at the core of EPA’s mission are just a way for Pruitt to pursue his deregulatory agenda for air and water while still claiming that he’s a real environmentalist.

On the merits, the report has some good ideas, but it’s pretty much a mishmash, many of the pieces of which are internally inconsistent.  I’d be shocked at this point if anything meaningful results.

Remember, I represent the regulated community.  I’d love to see Superfund reformed.  I’d particularly like to see the recommendations for reducing oversight costs implemented.  The government should be embarrassed that it regularly incurs more in oversight costs than PRPs incur in actually performing cleanups.

I just don’t see much prospect for success for a reform initiative when the real purpose of the initiative appears to be to use Superfund as a fig leaf to cover the widespread roll-back of important regulations in other areas.

State Programs to Encourage Zero-Emitting Generation are Really, Really, Constitutional

Hard on the heels of decision upholding the Illinois “zero-emission credit” program to prop up nuclear plants in that state, Judge Valerie Caproni of the South District of New York has now upheld a similar ZEC program in New York. There’s definitely a trend here.  So long as state programs do not directly interfere with wholesale markets, it looks as though they will be affirmed.

(Renewed caveat:  This firm represents, in unrelated matters, a number of the generators who challenged the statute.  We also represent numerous renewable energy firms generally supportive of state authority to provide incentives to renewable energy.  This post is definitely agnostic about the New York statute.  It is the broader question of state authority that interests me here.)

The reasoning of the New York decision was very similar to that in Illinois (as well as the Allco 2nd Circuit decision upholding Connecticut statutes supporting renewable energy generation).  I note only two points from the New York decision that were not discussed, at least with the same directness, in the prior cases.

First, Judge Caproni found that the plaintiffs did not even have standing to argue that the Federal Power Act preempted the New York statute, because she concluded that, under Armstrong v. Exception Child Center, private parties cannot bring Supremacy clause challenges against States.

Thus, the FPA precludes private enforcement except as provided for by PURPA, and private parties such as Plaintiffs “cannot, by invoking [the Court’s] equitable powers, circumvent Congress’s exclusion of private enforcement.”

Second, in finding on the merits that the FPA does not preempt the ZEC program, the plaintiffs argued that:

ZEC program is “tethered” to the wholesale auction. Plaintiffs argue that there is an impermissible tether because: (1) a nuclear generator is eligible for a ZEC only if the NYISO auction rates are insufficient for the generator to stay in business….

Importantly, the court noted that plaintiffs’ argument essentially proved too much.  Many state programs that no one would consider preempted would be at risk if that were the test:

A whole host of measures that States might employ to encourage clean energy development—such as tax incentives or direct subsidies—involve propping up the operation of a generator that might otherwise be unprofitable. Hughes did not prohibit such state assistance, and Plaintiffs have not argued that such state subsidies are per se preempted.

****

Fatal to Plaintiffs’ argument is their failure to offer any cogent explanation why ZECs are preempted but other state incentives to generate clean energy—such as tax exemptions, land grants, or direct financial subsidies—are not. Such incentives also allow clean energy generators to be more competitive than they would otherwise be, and they therefore also affect price signals in the wholesale auction.

And that’s the key to it all.  States can encourage all kinds of generation.  States can provide financial incentives for all kinds of generation.  West Virginia could probably implement a program to encourage coal generation, articulating policy reasons specific to the Mountain State.  As long as the programs do not directly interfere with FERC authority over wholesale markets, the programs should survive constitutional challenge.