Internalize Externalities. How Difficult Can That Be?

Being a poor country environmental lawyer, I don’t often delve into the academic world.  I therefore just recently caught up to the article written last year by my friend Dan Esty.  Red Lights to Green Lights:  From 20th Century Environmental Regulation to 21st Century Sustainability, is a wonderful synthesis of a lot of work on how to build a better regulatory mousetrap.

The title does not exactly roll off the tongue, so I’ll do my best to shorten it.  And I can’t quite attain the one-word perfection of “plastics,” from The Graduate, but I think I can bring it down to two:  “Internalize externalities.”

It’s not a new idea, but that doesn’t minimize its importance.  For blog purposes, I’ll highlight just two points Dan makes.

  • Setting emission limits stifles innovation, because regulated industries have no incentive to attain continuous improvement.
  • Technological advances since the development of most of our environmental regulations in the 1970s and 1980s facilitate the use of market mechanisms and make them much more efficient and trustworthy.

And so I say, there’s a great future in internalizing externalities.  Think about it.

DOER: SMART on Track for November 26 Rollout

In a series of October presentations, the Massachusetts Department of Energy Resources (DOER) reiterated that it plans to launch SMART on November 26, opening an online portal at http://masmartsolar.com/ to begin accepting applications. All applications received between November 26 and 11:59 PM EST on November 30 will be considered as submitted at the same time with respect to capacity block assignment.

For applications received in the initial one-week window, projects will be ranked according to when the contract between the installer and the customer was executed (for projects less than or equal to 25kW AC) or when the project’s Interconnection Service Agreement was signed (for projects larger than 25kW AC).

Beginning on December 1, however, DOER will assign projects to capacity blocks on a first-come first-served basis.

While DOER will accept applications beginning November 26, don’t expect to receive Preliminary Statements of Qualification (SOQs) right away. DOER aims to release the first round of SOQs about a month after program launch. In the interim, it hopes to gather information about program uptake and to finalize details like the size of the adder tranches. It remains uncertain when final tariffs to implement the SMART program will be approved by the Department of Public Utilities.  Following the Order in D.P.U. 17-140 on September 26, the Distribution Companies filed a revised model tariff on October 16, but a further revised version is expected to be filed on November 16.

The big question is how quickly each capacity block and adder tranche will fill. In that regard, your guess might be as good as DOER’s — but DOER says it will release data on the capacity represented by submitted applications after the initial one-week enrollment period, and daily thereafter.

Check back for more information on the SMART program in the lead up to its launch and for updates on the capacity block shakeout once the program is underway.

Deja Vu All Over Again — The Trump Administration Refuses to Provide “Good Reasons” For Its Change in Course on Keystone XL

Yesterday, Judge Brian Morris granted summary judgment to plaintiffs on some of their claims challenging the State Department’s new Record of Decision for the Keystone XL project.  Whatever our Tweeter-in-chief may say, it’s actually a fairly balanced decision, which ruled in the Administration’s favor on a number of issues.

The most noteworthy part of the decision takes the State Department to task for failing to provide “good reasons” for the change in the ROD concerning climate change.  The Department’s failure even to try to justify the change is so stark that the Court’s explanation is worth some detail:

The Department possesses the authority to give more weight to energy security in 2017 than it had in 2015.  [H]owever,“even when reversing a policy after an election, an agency may not simply discard prior factual findings without a reasoned explanation.” The Department did not merely make a policy shift in its stance on the United States’s role on climate change. It simultaneously ignored the 2015 ROD’s Section 6.3 titled “Climate Change-Related Foreign Policy Considerations.”

Section 6.3 of the 2015 ROD determined that the United States’s climate change leadership provided a significant basis for denying the permit. The Department acknowledged science supporting a need to keep global temperature below two degrees Celsius above pre-industrial levels. The Department further recognized the scientific evidence that human activity represents a dominant cause of climate change. The Department cited trans-boundary impacts including storm surges and intense droughts.  And finally, the Department accepted the United States’s impact as the world’s largest economy and second-largest greenhouse gas emitter. The 2017 ROD initially tracked the 2015 ROD nearly word-for-word. The 2017 ROD, without explanation or acknowledgment, omitted entirely a parallel section discussing “Climate Change-Related Foreign Policy Considerations.” The 2017 ROD ignores the 2015 ROD’s conclusion that 2015 represented a critical time for action on climate change. The 2017 ROD avoids this conclusion with a single paragraph. The 2017 ROD simply states that since 2015, there have been “numerous developments related to global action to address climate change, including announcements by many countries of their plans to do so.” Once again, this conclusory statement falls short of a factually based determination, let alone a reasoned explanation, for the course reversal.

I have previously noted the Administration’s apparent unwillingness to meet even the lenient standard established by the Supreme Court in FCC v. Fox Television Stations for the review of changes in policy by a new administration.  The new administration merely must provide a “reasoned explanation” for the change.  However, as in the prior cases I have discussed, the State Department did not even try to do so.  In California v. BLM, the Court stated that BLM was “casually ignoring” its previous findings.  So too here.

And I am left wondering once more whether Trump even wants Keystone XL to be built or whether he actually prefers the opportunity to rile up his base by complaining about another disgraceful decision thwarting his goals.

The UCS Wants to Preserve Existing Nuclear Plants — You Know that Means the Climate Situation Must Be Dire

The Union of Concerned Scientists just released a report, The Nuclear Power DilemmaAs Ken Kimmell, UCS’s President, said in a blog about the report, it:

calls for proactive policy to preserve nuclear power from existing plants that are operating safely but are at risk of premature closures for economic reasons or to ensure that lost nuclear capacity is replaced with carbon-free sources.

Anti-nuke greens should chill for a moment before committing harakiri.  The report does not call for the development of new nuclear capacity.  It makes clear that, if there is a path to replacing nuclear power with renewable energy, that would be fine.

UCS’s concern is a really practical one.  A significant percentage of existing nuclear capacity is at risk of closure and, as matters currently stand, that capacity is not going to be replaced by 100% renewable energy.  It’s going to be replaced by fossil fuels.

UCS’s preferred policy approach would be either to tax carbon or to promulgate a low carbon electricity standard.  Both options would improve the economics of existing nuclear plants, but would of course also stimulate development of additional renewable energy sources.

And here’s the really sticky part.  If there are no federal remedies, what should states do?  They can create or strengthen similar policies at the state level, but what happens in the short run if individual nuclear plants threaten to shut down.  Here’s UCS’s tempered recommendation, which probably won’t satisfy either proponents or opponents of nuclear power:

The UCS report does not argue for subsidies for any specific plants. That case will have to be made in state-specific forums. Should states decide to support nuclear power plant subsidies, our report calls for them to be temporary and subject to periodic reassessment. And companies seeking subsidies must open their books and allow the public and regulators to make sure that the subsidies are needed and cost-effective, and that the same level of carbon free power cannot be provided during the relevant time period with less costly options.

Full disclosure – UCS is a client of Foley Hoag (and we have done work for some nuclear plants), so take this for what it’s worth.  To me, it’s a balanced perspective and a generally reasonable approach – something seen all too rarely in these dismal times.

And Then There Were Three: Why Is Massachusetts Still Refusing to Seek NPDES Delegation?

As readers of this space know, I have been mystified by the opposition in Massachusetts to obtaining delegation of the NPDES Program.  In my temperate way, I have called it an embarrassment.

I have just learned that Idaho was recently delegated authority to operate the NPDES program.  Now, only Massachusetts, New Mexico, and New Hampshire remain undelegated.

The Boston Globe said that the current arrangement has worked.  Someone apparently failed to tell the Globe editorial staff that, for permits of any complexity, delays of more than 10 years happen routinely.  It’s a new maxim – If it’s broke, don’t fix it.

It saddens me that environmental groups oppose delegation.  It annoys me that they gave Governor Baker an F grade for supporting delegation.  It’s not just that they are wrong; it’s that their opposition indicates that they remain stuck in the past, unable to overcome the historic stereotype of state regulators as being in the pocket of bad-guy polluters.

It’s not where we should be in 2018.

A Mixed Bag For Climate Litigation Plaintiffs

Last week there were two court decisions on cases in which groups of citizens are seeking court orders requiring the government to act on climate change.  The biggest news was that the Supreme Court denied the stay requested by the United States in Juliana v. United StatesThis “Case of the Century” was supposed to go to trial on October 29.

If I were the plaintiffs, I wouldn’t count my chickens yet.  The stay was denied without prejudice and the Order at least suggests that the 9th Circuit Court of Appeals might want to reconsider its denial of mandamus in the case.  Of course, plaintiffs almost certainly have multiple objectives and, while they would presumably like to win, just getting to trial and having the opportunity to put on their case would itself presumably be considered a major public relations victory.

On the state litigation front, a judge in Alaska has dismissed similar claims under State law.  As other courts have done, Judge Miller dismissed certain of the counts as raising non-justiciable political questions and others on prudential grounds, concluding that the Court should not entertain declaratory judgment counts, because:

declaratory relief would not advance Plaintiffs’ interests in obtaining a reduction in greenhouse gas emissions….

These cases remain very much uphill battles for plaintiffs.  Nonetheless, it will be interesting to see whether a public trial of the plaintiffs’ claims in the Juliana case will have any impact on the public perception of climate change science.

The Rubber Begins to Hit the Road on Adaptation

I gave up some time ago on the idea that focusing on adaption was just a means of weaseling out of necessary measures to mitigate climate change.  As the extraordinary becomes commonplace, it’s evident that we’ve ignored the externalities of carbon longer than was prudent.

It’s thus great to see Boston’s Mayor Walsh release Resilient Boston Harbor.  Even for those who follow these issues for a living (and I have a personal stake, since my wife and I are about to move to Fort Point Channel, ground zero for climate change flooding impacts in Boston), what’s really amazing is the granularity of both the analysis and the recommendations.

If you want to understand just how granular the analysis must be in order to develop specific recommendations, you might take a look at this figure from the full Climate Ready South Boston report.  Don’t just skim the Executive Summary on this one.

I find this work both inspiring and discouraging.  There is so much to do.  Among other tasks, environmental lawyers have to figure out how to make these recommendations feasible in light of existing environmental regulations that would actually prevent implementation of some of the recommended adaptation measures.

I had thought of closing with a nice climate-inspired haiku.  Instead, I think I’ll leave you with this:

It is not your responsibility to finish the work of perfecting the world, but you are not free to desist from it either.

A Short Rant Concerning Transportation Sector GHG Emissions

The Energy Information Administration today released CO2 emissions numbers through 2016.  While I could rant about the 21.4% increase in GHG emissions in Florida since 1990, as compared to the 23.7% decrease in Massachusetts over the same period, when Florida faces even great climate risk than Massachusetts, I won’t do that.

Today’s rant is about transportation GHG emissions.  While there’s a lot of fun data in the EIA report, I’ll keep this short.  Since 1990, electric generation sector emissions in Massachusetts have declined by 58% — that’s not a typo.  Over the same period, transportation sector emissions have increased by 10%.  Transportation Climate Initiative, you’ve got your work cut out for you.

‘Nuff said.

EPA’s Latest Particulate Review Shows Impacts Below the Current NAAQS. How Will Trump Avoid Doing Something About It?

Last week, EPA posted its draft Integrated Science Assessment for Particulate MatterIt’s the foundational document for EPA’s periodic review of its National Ambient Air Quality Standard for PM.  The current standard for PM2.5, promulgated in 2012, is 12 ug/m3.

Section 109 of the Clean Air Act requires the Administrator to set the NAAQS “requisite to protect the public health” with “an adequate margin of safety.”

The new ISA states that:

Evidence from U.S. studies examining short-term PM2.5 exposure and mortality indicate a linear relationship at concentrations as low as 5 µg/m3 with cut-point analyses providing no evidence of a threshold.

There is some uncertainty in the discussion in the ISA, but it seems pretty clear to me that the current standard of 12 ug/m3 does not protect the public health with an adequate margin of safety.

Before Scott Pruitt left EPA, he instructed the Clean Air Scientific Advisory Committee to consider adverse economic and energy impacts resulting from changes to NAAQS.  I have a hard time seeing how that direction comports with the statutory language.  I suspect that the current Supreme Court may explain that to me at some point.

A Carbon Tax Twofer. A Meat Tax? No, Sir.

It’s probably not news that the immediate prospects for a carbon tax aren’t great.  I still think that it’s going to seem impossible until, fairly suddenly, it actually happens.  Hope springs eternal.

In any case, there has been some news on the carbon tax front this month.  Here’s the quick summary.  The Climate Leadership Council, everyone’s favorite collection of Republicans who used to matter, released The Dividend Advantage, which provides an excellent and concise summary of 10 reasons why the fee and “dividend” approach that they propose is the best approach.  I agree with everything in it.  I particularly like point 5, about what they call “regulatory simplification.”  I’ll only note that, while I don’t believe the term can be copyrighted, I have long called for a “grand bargain” that would put a price on carbon in exchange for eliminating some of the more cumbersome current air regulations.

If the CLC is not persuasive enough, another conservative group, the Alliance for Market Solutions, has its own report on a carbon tax, prepared by Ernst & Young.  The E&Y analysis looks a carbon tax initially priced at $31/ton.  E&Y recommends against the CLC dividend, concluding that making the most recent tax cuts permanent would have the greatest positive impact on long-term GDP.

Finally, we have a late entrant, a meat taxA meat tax would respond to concerns that production of meat, particularly red meat, is a significant contributor towards climate change.  I’m all for taxing externalities and I don’t doubt that meat production is more carbon-intensive than other food sources.  However, it does appear that at least some of the claims about the carbon intensity of meat production may not be valid.

My vote is for the CLC tax (let’s call a spade a spade) and dividend model, but I’m open to anything that puts a price on carbon.  (Should dishes that are charred cost more than steak tartare?)

A Sliver of Hope for the Government’s Remaining NSR Enforcement Cases?

Earlier this month, the 5th Circuit Court of Appeals granted something of a reprieve to EPA’s New Source Review enforcement initiative.  The Court first confirmed what everyone other than EPA and DOJ already knew – that failure to get a pre-construction permit is a one-time offense, so that penalty claims for alleged violations more than five years prior to filing are barred by the statute of limitations.

However, the Court then surprised most observers by holding that expiration of penalty claims did not doom the government’s claim for injunctive relief.  Specifically, the Court ruled that the “concurrent remedies doctrine,” which bars equitable remedies when no legal remedy is available, cannot be applied to a sovereign.

I’m not going to provide an exegesis of the doctrine, which carries more than a whiff of Jarndyce v. Jarndyce I’ll settle for three points.  First, it may not be a legal doctrine, but I’d apply the doctrine of common sense, rather than the doctrine of concurrent remedies.  Given that all courts agree that NSR does not impose ongoing operational requirements, it doesn’t even make sense to me to think of ongoing forward-looking injunctive relief with respect to a one-time violation that may have occurred twenty years or more ago.

I’ll add to that a related point.  As other NSR cases have noted, many of these facilities have changed hands since the projects at issue were constructed.  In those cases, the former owners aren’t subject to injunctive relief, because they don’t own the facilities and thus have no ability to install BACT.  The new owners aren’t subject to injunctive relief, because they did not violate the Clean Air Act.  In these circumstances, are we really going to make the availability of injunctive relief subject to the random circumstance of which facilities have been sold and which have not?  That just seems nuts.

Finally, I’ll emphasize that EPA and DOJ shouldn’t get too excited over this decision.  The Court was very clear that it was not deciding whether injunctive relief was appropriate, only that it wasn’t barred by the statute of limitations.  The Court’s language was unlike any I’ve ever seen before and is worth a read:

On remand, the district court must further consider whether any equitable relief is appropriate and proper under the legal and factual circumstances of this case in which the legal relief has been time barred. We recognize that we are not giving the district court much guidance in this task. … Perhaps the answer to this knotty question of injunctive relief will reveal itself after a full hearing and the presentations of the parties. And we hope that we are not being too cowardly when we sincerely wish the district court good luck.

And I’m sure that the District Court will appreciate the 5th Circuit’s good wishes.

Time For Another Superfund Rant: Still Stupid After All These Years.

It’s been some time since I ranted about Superfund, but that’s not because the statute’s gotten any more reasonable.  To the contrary, there’s so much to rant about that it usually just seems too futile to bother.  Take Scott Pruitt’s vow to return Superfund to the “core” of EPA’s mission.  Funny, as stupid as CERCLA has always been, it’s never been at the core of EPA’s mission, because prior administrations acknowledged that the risks posed by Superfund sites aren’t even in the top ten risks EPA has responsibility for addressing.

In any case, the decision last month in LCCS Group v. A.N. Webber Logistics reminded me why periodic rants are necessary.  The LCCS Group is remediating the Lake Calumet Cluster Site (a name which itself would prompt all sorts of comments here if this were not a family-friendly blog).  It brought a contribution claim against Interplastic Corporation, whose only connection to the Site was apparently one shipment of 50 drums of waste resin to the LCCS.

The manufacture of the resin utilizes certain CERCLA hazardous substances.  However, it’s pretty clear that, once the resin has cured, no hazardous substances can leach out of the cured resin.  The Court denied cross motions for summary judgment, largely because it wasn’t totally clear whether the waste resins sent to LCCS by Interplastic were fully cured, so that there was a genuine dispute of material fact.

Then why the rant?  Because the entire discussion has something of an angels on the head of a pin quality to it.  Because the Court made clear that whether Interplastic’s waste resins actually leached hazardous substances or whether any such releases actually caused the incurrence of response costs simply does not matter.

I understand strict liability.  I don’t object to strict liability.  There are fine economic reasons for imposing strict liability.  But liability without causation?  It’s part of what resulted in Superfund being the incredibly inefficient, wasteful, program that all practitioners know it to be.

Time to move CERCLA to the core of the ashbin of history, where it has long deserved to be.

No Circuit Split Here: Second Circuit Affirms New York’s ZEC Program

As Carol Holahan discussed, the 7th Circuit last month affirmed the Illinois zero emission credit program.  Now the 2nd Circuit has weighed in, agreeing with the 7th Circuit and affirming the similar New York State ZEC program.  Whatever one’s views on the merits, it seems pretty clear at this point that state programs to encourage generation of renewable or zero-emissions energy will be upheld by the Appeals Courts, so long as the incentives are:

Untethered to a generator’s wholesale market participation.

Traditional generators are going to have an uphill battle combating these programs for at least three reasons.  First, liberal judges want to preserve programs that encourage renewable energy use.  Second, conservative judges want to preserve state authority.  Finally, in the absence of a Circuit split (which is becoming less likely by the day), the Supreme Court seems unlikely to take these cases.

Of course, we still haven’t figured out how to allow states to regulate energy production to encourage outcomes states find desirable without interfering in efficient wholesale markets.  Just because these programs are constitutional doesn’t mean that the deregulated market system developed over the past 20 years doesn’t face some significant challenges.

Are Discharges to Groundwater Potentially Subject to the Clean Water Act? A Circuit Split Tees It Up.

The Sixth Circuit ruled earlier this week that discharges to groundwater are not subject to Clean Water Act jurisdiction.  We now have the requisite circuit split, opening the possibility of Supreme Court review.  For those who might still be open-minded, I commend both the majority and dissenting opinions in the 6th Circuit; they are each as clear and as persuasive as they could be.

Although I have long thought that it does not make sense to regulate discharges to groundwater under the CWA, I have to confess that my views have evolved.  It’s a very close question, but so long as potential liability is limited in some way, such as by requiring a “direct hydrological connection” between the discharge and the ultimate receiving surface water, it’s hard to argue that the CWA shouldn’t apply.  For me, the dissent poses the key question – one which the majority, as well-reasoned as it is, fails to address:

Can a polluter escape liability under the Clean Water Act (“CWA”) by moving its drainage pipes a few feet from the riverbank?  The Fourth and Ninth Circuits have said no.  In two cases today, the majority says yes.

I’m just having a hard time seeing why the outcome on CWA jurisdiction should differ based on whether the facility owner has a pipe from its coal ash pond discharging pollutants into the river it abuts, or whether the owner instead simply allows pollutants to leach from the pond into the river.

It sure looks as though the Supreme Court may take the opportunity to explain it to me.

Seventh Circuit Upholds Illinois ZEC Program for Struggling Nuclear Units

On September 13, 2018, the Court of Appeals for the Seventh Circuit affirmed the trial court’s dismissal of claims that the zero-emission credit (ZEC) program enacted by the Illinois legislature in 2016 violated the U.S. Constitution’s dormant Commerce Clause and was preempted by the Federal Power Act. The Court took the unusual step of requesting an amicus brief from the Federal Energy Regulatory Commission (FERC).  FERC and the Department of Justice jointly filed a brief in response, arguing that the Illinois’ program neither interferes with interstate auctions nor is otherwise preempted by federal law.  Once FERC weighed in on the side of Illinois, a result in favor of the State was a likely conclusion.

Similar to the framework used for or “RECs,” Illinois’ ZEC program directs state regulators, based on defined criteria, to select certain nuclear plants to generate ZECs and then requires utilities to purchase those ZECs for a predetermined purchase price. The state-developed ZEC price is derived from the social cost of carbon, but is adjusted based on an index tied to wholesale power prices. The Electric Power Supply Association (EPSA), the national trade association comprised of many of the large, non-nuclear competitive power producers in the U.S., brought suit. The lower court dismissed those claims and the appeal ensued.

The crux of EPSA’s preemption argument rested on the premise that: (1) by propping up uneconomic nuclear units with ZECs, the state’s program impermissibly altered the total supply within the wholesale market, thus decreasing the amount ultimately paid to all generators in the annual capacity auction; and (2) that because the ZEC payments are made in connection with energy sales in the wholesale markets, over which FERC has exclusive jurisdiction, states may not interfere with that regulation. The court, however, rejected EPSA’s preemption argument, concluding instead that, “a state policy that affects price only by increasing the quantity of power available for sale is not preempted by federal law.” In reaching this result, the court distinguished the Illinois law from the state program rejected by the U.S. Supreme Court in Hughes v. Talen Energy Marketing. In upholding the ZEC program, the Seventh Circuit joined the Second Circuit in Klee, along with the Third Circuit’s pre-Hughes decision in Solomon, to rule that federal law does not preempt state policies that provide incentives to new or existing capacity.

Nor, according to the court, was the fact that the Illinois law tied the price for ZECs to capacity prices in FERC-regulated auctions a fatal flaw.  Unlike the state program rejected in Hughes, which incentivized new natural gas-fired generation facility by “tethering” state contract payments to the unit’s participation in the federally-regulated wholesale market auction, the receipt of the ZEC is not dependent on wholesale market participation.  Moreover, because, under the Illinois’ statute, every producer of power receives the same price for the ZEC, it did not impermissibly intrude on federal jurisdiction over the markets, even if that price may adjust based on market auction rates.  The Court determined that, “’[S]o long as a State does not condition payment of funds on capacity clearing the [interstate] auction, the State’s program [does] not suffer from the fatal defect that renders Maryland’s program unacceptable.’”

Neither was the court swayed by EPSA’s argument that the Illinois’ program violated the Constitution’s dormant Commerce Clause.  The Court stated that the “Commerce Clause does not ‘cut the States off from legislating on all subjects…[just because] the legislation might indirectly affect the commerce of the country.’” Instead, the court determined that the Federal Power Act calls for a balancing of federal and state interests with respect to the regulation of electricity.  Because the ZEC program did not overtly discriminate against out-of-state power producers, and the effects of the statute would be felt wherever power is used, the court concluded that the statute did not violate the dormant Commerce Clause.

The effect of the Seventh Circuit’s decision should not be underestimated.  One day following the release of the Seventh Circuit’s decision, the Ninth Circuit determined that Oregon’s low-carbon fuel standard did not unconstitutionally favor in-state versus out-of-state power producers.  So far, every decision since Hughes has distinguished Hughesand upheld such state regulatory programs.

Moreover, while not binding, the decision will likely play heavily into the case currently pending before the Second Circuit evaluating New York’s ZEC program.  While EPSA has not announced whether it will appeal the Seventh Circuit’s decision to the U.S Supreme Court, given FERC’s participation in the proceeding, and the fact that that the impact of state-sponsored programs can be mitigated through changes to the wholesale market rules, any appeal will face an uphill battle.  Indeed, the more interesting developments from the Seventh Circuit’s decision will not likely come from the federal courts, but will be what, if any, market reforms related to price formation FERC will institute as a result.