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

As the sun sets on the Bush administration, it is at least maintaining its seemingly unmatched record for turning the notion of judicial deference to administrative action on its head, as the D.C. Circuit has rejected yet one more EPA Clean Air Act rule. This time, the Court struck down EPA’s rule exempting startups, shutdowns, and malfunctions (SSM) from emissions standards under § 112 of the CAA.

As with some of EPA’s other judicial defeats, this one was based largely on the Court’s reading of the plain language of the CAA. The Court concluded that “EPA’s decision to exempt major sources from compliance with section 112 emission standards during SSM events is contrary to the plain text of the statute and arbitrary and capricious in any event.” The Court noted that § 302(k) of the CAA defines an “emission standard” as a requirement to “assure continuous emission reduction.” Thus, the Court concluded, Congress required continuous standards under § 112.

Anyone who operates facilities subject to the CAA knows that SSM events pose special challenges. In this context, it is noteworthy that the Court emphasized that EPA had not purported to act under § 112(h) of the CAA, which provides that a standard may be relaxed “if it is not feasible in the judgment of the Administrator to prescribe or enforce an emission standard for control of a [HAP] (hazardous air pollutant).” 

It would be surprising if industry groups did not seek relief under § 112(h) at this point, though whether the Obama EPA will be interested is another matter.

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The Union of Concerned Scientists (UCS) released a report on Friday that concludes that the cuts in emissions from power plants within the Regional Greenhouse Gas Initiative (RGGI) region may be compromised by power generated outside the RGGI region and imported into the region. This problem is called "leakage" in carbon-capping jargon, and it is a problem for which RGGI, Inc. has never found a satisfying solution.

The UCS report highlights that although RGGI caps the emissions of power plants in 10 Northeastern states, ratcheting down emissions to 10% below 2005 levels by 2018, it does not preclude utilities that supply electricity to homes and businesses within the region from buying more electricity from coal-fired plants outside the region. UCS estimates that use of the excess capacity of existing coal plants to the west and south of the RGGI region -- the equivalent of 15 new coal plants -- could produce emissions greater than three and a half times the expected cuts of CO₂ emissions from RGGI. With the addition of the six coal-fired plants that are under or near construction in states near the northeast, emissions from outside the region could equal 140% of RGGI's reductions. The problem comes not only from the fact that cost of electricity within the RGGI region is already higher than in surrounding states, but also from planned efforts to expand the capacity of the grid, allowing less expensive power produced in coal-intensive states like Ohio, Pennsylvania and West Virginia to be imported into RGGI states at higher levels.

The report makes 4 suggestions for RGGI states to help "plug the leak":

• Limit the ability of in-state electricity suppliers to contract for power from more polluting plants, whether inside or outside the region.
• Cap global warming emissions for the entire portfolio of each local electricity supplier.
• Together or individually, RGGI states could require local electricity suppliers to account for global warming emissions from electricity produced outside the region as well as inside it, offsetting the advantage of imported coal power. States could, for example, require local suppliers to offset any increases in emissions linked to higher imports by expanding their investments in energy efficiency, renewable energy, or another public good.
• RGGI states could insist that proposed transmission projects to expand the import of power from states with abundant coal consider the Northeast’s goals for cutting global warming pollution.

The majority of these suggestions would require new legislation -- as the RGGI implementing statutes in each of the states only reach generators above 25 MW, not utilities -- but several states have already moved to require local electricity suppliers to account for greenhouse gas emissions generated by the power they sell, whether it is produced within the state, within the RGGI region, or imported. Such a provision is expected to be included in Massachusetts' second round of regulations implementing the Global Warming Solutions Act (see Thursday's post for more information), and New Jersey's draft report on implementing its Global Warming Response Act suggests managing imports as a solution to the issue of leakage.

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Last week, I posted about the Pollard decision, which made clear that local boards to not have unlimited discretion to ignore evidence provided by project proponents. This week, the shoe is on the other foot, so to speak. In Macero v. MacDonald, the Massachusetts Appeals Court reversed a decision in favor of a project opponent, on essentially the same analysis as that in Pollard.

In Macero, the developer sought a variance from state and local septic system regulations. The developer provided some information from a professional. However, the local Board of Health did not, apparently, formally review that information, and its decision did not include specific findings that the standards for the variance had been met. As the Appeals Court stated, “the authority of the board is broad…. However, competent judicial review … is … rendered difficult if not impossible by the lack of specific findings and rationale for the agency decision.”

The lesson here? Even if the board is on your side, make sure that they take the time to dot all their i’s and cross all their t’s.

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Following briefing from the parties, the D.C. Circuit Court of Appeals today withdrew its vacatur of EPA’s Clean Air Interstate Rule. While the decision striking down the rule stands, the Court determined that keeping CAIR in effect while EPA prepares a replacement rule “would at least temporarily preserve the environmental values covered by CAIR.”

EPA rejected a request by the industry plaintiffs to impose a deadline on EPA for issuing the replacement rule, but emphasized to EPA that it “did not intend to grant an indefinite stay of the effectiveness of this court’s decision.”

The decision to keep CAIR in place for now will provide a measure of certainty and should be particularly well received by state environmental agencies which had been trying to determine whether they needed to reinstate their NO_x SIP Call rules.

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A recent Superior Court decision may significantly affect how appeals are conducted in MEPA cases. In Canton v. Paiewonsky, Judge Fabricant ruled that Canton’s challenge to the MEPA certificate for the Westwood Station project was filed too late, because it was not filed within 30 days of the issuance of the first permit issued to the project, even though the first permit had nothing to do with the basis for Canton’s challenge to the MEPA certificate.

First, a bit of disclosure: this firm represents the Town of Canton in this case. Nonetheless, I truly believe that, unless I were representing Westwood Station, I would think that this decision is plainly wrong and will have several adverse consequences, even if we had no connection to the case.

The basis for the decision is the language in the MEPA statute, which provides that an action to challenge a MEPA certificate “shall commence no later than thirty days following the first issuance of a permit or grant of financial assistance by an agency.” The court concluded that this language is plain on its face – end of inquiry.

Canton made two arguments.  The Court gave them both short shrift. Canton noted that the first permit, a beneficial use determination, or BUD, by MassDEP, was not the subject of public notice, so the limitations period almost certainly would run before any member of the public were aware that it had even started. The court’s solution was simple, if totally unrealistic and impractical – “properly timed public records requests.”

Canton’s second argument was that it had no basis to sue on issuance of the BUD, because it had no concerns about the BUD, which was irrelevant to Canton’s claims that the MEPA certificate was flawed. In other words, Canton suffered no injury from issuance of the BUD, so it had no standing to sue. Canton’s concerns were largely about traffic issues. The Court largely ignored the case law cited by Canton, on the ground that those cases did not address the statute of limitations issue explicitly.

Interestingly, the Highway Department did not join in Westwood Station’s motion to dismiss, perhaps because the Department realized that, outside the four corners of this case, the decision does no one any good. First, with respect to the notice issue, resource-constrained state permitting agencies will certainly have to respond to many more public records requests. As a practical matter, even with more requests, it will be impossible for interested parties to know about all the approvals issued to development projects.

Even developers, aside from Westwood Station, will not benefit from this decision, because the result will be to force potential challengers into court early, increasing transaction costs and potentially making amicable resolution of development challenges more difficult. The court’s willingness to ignore the real ripeness issue will require project proponents to bring suit on issuance of the first approval, even if negotiations are still proceeding on the approval that really matters.

Sometimes a plain reading is not quite as plain as a judge thinks it is.

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As we previously noted, the recent Environmental Appeals Board decision in the Deseret Power matter raised the possibility that CO₂ and other greenhouse gases need to be considered in PSD reviews. On December 18, EPA Administrator Stephen Johnson issued an interpretation which concluded that GHG still do not need to be considered in PSD reviews.

Senator Boxer, not always known for her restraint, has already asked Attorney General Mukasey to reverse the interpretation, calling it “illegal.” Illegal or not, I’d guess that Senator Boxer will get her wish soon after January 20.

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RGGI, Inc., the operators of the Regional Greenhouse Gas Initiative (RGGI) announced today that the second auction has proceeded smoothly and as planned.  All 31,505,898 allowances offered for sale at Auction 2 on December 17 were purchased at a clearing price of $3.38 per allowance.  This price is above the first RGGI auction's clearing price of $3.07, and in line with recent prices for RGGI futures on the Chicago Climate Futures Exchange, which traded Monday at the same price. Auction 2 was the first to feature allowances from Delaware, New Hampshire, New Jersey, and New York, a factor which might have caused the increase in price.

RGGI's market monitor Potomac Economics noted that the majority of winning bidders were compliance entities or their affiliates, as in the first auction.  So far, it seems like the concerns about market manipulation and entities taking advantage of RGGI's 100% auction structure remain unfounded.

RGGI will release more data January 6th, including the names of the "potential bidders" who qualified and filed an intent to bid in Auction 2 (whether or not they actually bid). 

Meanwhile, Governor Patrick's office has announced that Massachusetts will spend its $14.8 million share of Auction 2's $106.5 million total proceeds as set forth in the Green Communities Act, or more specifically:

• $2.4 million for 2008 utility-administered energy efficiency programs
• $5 million for start-up funds for the Green Communities program
• $2 million for heating system replacements for low-income households
• $400,000 for administrative and vendor costs for the RGGI auction
• $5 million for a new program, Energy Efficiency Skills and Innovation Institute providing job training for energy auditors and seed grants for innovative delivery methods of efficiency

RGGI compliance obligations for fuel-fired generators over 25 MW begin January 1, 2009.  The next auction will be March 18, 2009.

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Massachusetts and California seem to be neck-and-neck in the race to be the first state to cap greenhouse gases economy-wide.

Massachusetts issued emergency regulations last week which create the first phase of a mandatory reporting program, thus taking the title of first state to implement the beginnings of an economy-wide cap and trade plan.   The regulations commence January 1, 2009, so Massachusetts facilities that might need to report should read Foley Hoag's Client Alert on the new regulations very soon.

Not to be outdone, California also released big news last week.  With the Air Resources Board's approval of the Scoping Plan, California now claims it will be the first in the nation to approve a greenhouse gas cap that includes every sector of the economy.  

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Developers and others who appear before local boards know what an uphill battle it is to challenge decisions of those boards. After all, there’s a reason for the existence of the phrase “You can’t fight City Hall.” Of course, it’s never a good idea to fight City Hall unless you absolutely have to do so, but a recent decision from the Massachusetts Appeals Court gives some hope to those forced into that position by a board taking an extreme position.

In Pollard v. Conservation Commission of Norfolk, the local conservation commission, acting under its local wetlands bylaw, rejected a request for an order of conditions – a permit, to those of you outside Massachusetts – on the ground that the developer had not met its burden of demonstrating that the proposed work would not adversely affect a resource area. The developer had submitted a report by a consultant, in which the consultant opined that the project would not adversely affect the resource area and would comply with the bylaw.

The only evidence in the record before the commission was the report from the developer’s consultant. The commission took no other evidence. Instead, the commission simply concluded that the expert’s report was not credible. Since the developer had the burden of demonstrating compliance with the bylaw, the commission concluded that this was a sufficient ground on which to reject the permit application. 

The Appeals Court concluded otherwise.

While noting that the commission was not required to credit the developer’s expert, even though uncontradicted, the Appeals Court concluded that the commission was required to provide a basis for its rejection of the expert, noting that “evidence of a party having the burden of proof may not be disbelieved without an explicit and objectively adequate reason.” Since the commission had made no effort, either in its decision or in court, to explain its rejection of the expert opinion, the Court had no way to determine whether the commission “decision was arrived at with fairness and without predisposition.”

Developers cannot necessarily take this decision to the bank. As long as local boards provide some reasoned basis for their decision, a successful challenge will remain a long shot. However, where a local board truly ignores available evidence, there is some hope that courts will ensure that reason prevails.

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On the eve of the second RGGI auction, it is reasonable to ask what the trend is in CO₂ emissions in the RGGI states. Environment Northeast just issued a report which seeks to answer that question. According to ENE, which utilized data from EPA and the RGGI states, CO₂ emissions in the RGGI states through the third quarter of 2008 are trending 16 percent below the RGGI cap.

As ENE notes, both oil and coal prices were extremely high during this period, so there is no guarantee that these low emission levels will be reflected in data for the fourth quarter 2008 or in 2009. However, the cause of the recent price drop – lowered demand resulting from the contraction in economies worldwide – suggests that emissions will probably be low in 2009 as well. If total purchases of oil drop, it does not matter whether the cause is a shift along the demand curve due to higher prices or a shift in the demand curve due to lower economic output (though it is certainly true that, even with lower demand for energy overall, decreases in oil and coal prices will lead to shifts towards coal and oil).

The critical point to remember in all this is that businesses which have significant CO₂ emissions cannot be expected to reduce those emissions efficiently unless clear and stable price or regulatory signals are sent. Therefore, I for one hope that the ENE report does not lead regulators to conclude that the cap is too high and should be reduced. If we do that, do we then raise the cap again if emissions exceed the cap for more than the expected amount? What is needed is as stable a downward trajectory in greenhouse gas emissions as we can manage.

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Hopefully, since I like to think the readers of this blog are largely law-abiding, this post will not be relevant to very many of you, but it seemed newsworthy nonetheless. On December 10, EPA announced a new web site dedicated to helping to locate and bring to justice fugitives from environmental crimes. The new web site includes profiles of 25 men wanted for a variety of environmental claims.

The web site is largely self-explanatory, but I did want to note two items. First, in a transparent bid to limit my liability, I will note, as does EPA on the web site, that it is a bad idea to try to apprehend any of these individuals yourself. Second, as a Red Sox fan, I need to emphasize that the David Ortiz who was recently apprehended is definitely not our own Big Papi. Sorry, Yankees fans.

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For those of you who haven’t been keeping up with the law on private cost recovery and contribution claims under CERCLA, following the decision in Atlantic Research, I recently participated in a panel discussion on the issue. A copy of my presentation can be found here.

The most contentious issue during the discussion was whether private parties who have settled with the government and performed direct cleanups – as opposed to reimbursing the government – as a result of such settlements have an action for cost recovery under § 107 of CERCLA or an action for contribution under § 113 of CERCLA. 

My own view is that the Supreme Court has backed itself into a corner by so narrowly associating claims under § 113 with traditional contribution claims. It seems to me that the Court has limited contribution claims to situations where one liable party has reimbursed the original plaintiff for more than the contribution plaintiff’s fair share of the common liability. Thus, in a situation where the private plaintiff has directly incurred response costs – even if following a consent decree – no contribution claim lies. This is also consistent with a plain reading of § 107 – and we know that the Supreme Court loves plain language interpretations of CERCLA – which provides for claims for response costs, without any distinction being drawn between whether those costs were incurred voluntarily or not.

As I said at the panel, I just wish that the language of CERCLA was as clear to me and all of the practitioners with whom I work as it apparently is to Justice Thomas and the rest of the Supreme Court.

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As we have noted, there have been a number of arguments regarding the implications of a decision by EPA to utilize current Clean Air Act authority to regulate greenhouse gases. The Chamber of Commerce has been in the “sky is falling” camp. Nonetheless, environmentalists are already pressing President-elect Obama to regulate greenhouse gases under the CAA, without waiting for what could be a lengthy legislative process.

According to a story in the Daily Environment Report, at a recent forum held by the American Law institute and the American Bar Association, the prevailing view was that the sky would not fall and that EPA’s authority under the CAA is sufficiently flexible as to allow it to regulate greenhouse gases without regulating every source that emits more than 250 tons per year of CO₂, which is the usual major source threshold for criteria pollutants – and a level that is certainly exceeded by many, many, more facilities than are currently subject to regulations.

William Harnett, director of EPA’s Air quality Policy Division, identified at least two ways to avoid regulating sources that emit greater than 250 tpy of CO₂. First, he suggested that EPA could rely on “administrative necessity,” taking the position that it does not have the resources to regulate all sources above 250 tpy. Harnett also suggested that EPA could take the position that the result of regulating all sources above 250 tpy would be absurd – a proposition with which the Chamber of Commerce would probably agree – and therefore could not be what Congress intended.

I’m not sure that I would like to have had to defend either of these arguments in law school. However, as David Bookbinder, chief climate counsel at the Sierra Club noted, if EPA, business, and environmental groups all do not want EPA to regulate small sources of CO₂, then, as a practical matter, EPA should be able to find a way to make CO₂ regulation work under the existing CAA framework. That does not mean that everyone would be happy with the format of such regulations. However, if the Obama administration does not want to wait for Congress – or if they want to put pressure on Congress to act – EPA will probably figure out a way to regulate under the CAA.

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Demonstrating that the recent announcement of new stormwater controls for the Charles River in Massachusetts were not an aberration, EPA, joining with the Maine DEP, announced last Friday that it will be imposing new stormwater regulations for discharges into Long Creek, which ultimately flows into Casco Bay.

Responding to petitions from the Conservation Law Foundation, EPA has exercised its Residual Designation Authority under its NPDES permitting regulations.

The new designation can be found on EPA’s website. Notably, the new program will apply to impervious surfaces larger than one acre. This is a smaller area than is currently proposed for the Charles River. EPA estimates that regulating impervious surfaces one acre and up will place 90% of all impervious area in the Long Creek watershed under NPDES jurisdiction.

Owners of properties in other degraded watersheds, you may be next on the list.

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On the better late than never front, I finally got around to reviewing the still relatively recent decision in United States v. Cinergy Corp. regarding the scope of injunctive relief available with respect to violations of the Clean Air Act’s New Source Review, or NSR, provisions. Although the decision was issued in mid-October, its significance is great enough to mention here.

As most readers here will know, the Cinergy case is one of the remaining NSR enforcement cases originally brought by the Clinton administration. The defendants had previously been found liable for NSR violations at the Wabash River power plant. The recent decision involved the defendants’ efforts to preclude the government from seeking retroactive injunctive relief, i.e., not penalties, and not prospective relief to prevent future violations, but injunctive relief intended to remedy, mitigate, or offset the prior violations.

The relevant statutory language, from § 113 of the CAA, provides that a court may “restrain” violations, impose penalties, and, critically, “award any other appropriate relief.” The court in Cinergy held that this broad language authorizes injunctive relief focused on past harm, rather than just restraint of future violations.

It is one thing to order restoration of an illegally filled wetland. In that context, such a remedy is understandable and its scope necessarily somewhat limited. In the case of air pollution, however, once the emissions have occurred, it is obviously impossible to identify the location of that pollution or the scope of the remedy appropriate for such past harm. In other words, demonstrating an appropriate nexus between the harm and the remedy will often be difficult, if not impossible. 

One obvious possible form of relief would be to calculate the excess emissions resulting from the non-compliance and require the defendant to overcontrol in the future until it has offset those excess emissions. Whether the court will order such an offset or any other form of remedial injunction is not yet known, because the court concluded that it needed to have an evidentiary hearing regarding what relief it should in fact order. However, the mere possibility that such relief may be available certainly provides the government with a significant hammer to use during settlement negotiations in pending or future NSR enforcement cases. 

One issue of concern is whether such relief might be ordered against a current owner of a facility even if the original NSR violation was caused by a prior owner. In that case, the prior owner is not capable of offsetting the historical excess emissions, but the current owner would have a strong equitable argument that a remedial injunction should not be imposed against it.

As always, some of these questions are obviously going to have to wait for future judicial decisions.

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As the reality of climate change begins to hit home – and as the economy continues to weaken – one issue that may ultimately prove critical in how we respond may be how corporations account for the financial impacts of climate change. Now ASTM is getting into the act. ASTM is working on a standard, titled “Financial Disclosures Attributed to Climate Change,” to provide guidance on the issue.

ASTM has something of a track record in setting environmental standards. Its guidance on doing Phase I site assessments has dictated practice in that area to the point that it was essentially written into EPA’s brownfields regulations. Time will tell whether the financial disclosure standard has the same impact.

In any case, for those interested in learning more about the state of the ASTM process, Gayle Koch of the Brattle Group, who is on the ASTM work group preparing the standard has written a helpful summary of where ASTM appears to be headed. ASTM has recognized that it will not be possible to eliminate uncertainty regarding financial impacts of climate change. ASTM has also acknowledged that the costs to obtain information about the financial impacts of climate change should not outweigh the benefits of the information. 

In summary, the guidance will likely require reporting of near term impacts that could be severe for the company, where the likelihood that such impacts will occur is more than remote. It’s hard to imagine how a guidance document such as this could be more specific – flexibility is obviously necessary and appropriate – but there is little doubt that CPAs and lawyers will have much to argue about concerning when this standard has been met.

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In October 2007, the Massachusetts MEPA office issued its Greenhouse Gas (“GHG”) Policy, requiring certain limited categories of projects subject to MEPA to assess the GHG impacts of those projects and include mitigation of those impacts in the environmental impact review. In short, projects with obvious traffic or air emissions impacts were subject to the policy.

On August 8, 2008, Governor Patrick signed the Global Warming Solutions Act of 2008. Among other provisions, the Act provided specific statutory authority for the MEPA GHG Policy and provided that greenhouse gas emissions should be addressed in any state permits.

As a result of this change, the MEPA office has revised the MEPA GHG Policy to require that any project that will require an Environmental Impact Report must comply with the GHG Policy. This revision to the jurisdiction of the policy will be applicable to any project proponent who files an Environmental Notification Form after the February 2, 2009 MEPA filing deadline. The Secretary has retained discretion to require compliance with the GHG Policy for any Notice of Project Change filed after the February 2, 2009 filing deadline. For your convenience, the MEPA office has provided a summary of the changes to the policy.

Let the fun begin.

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