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

Yesterday, the North American Electric Reliability Corporation, or NERC, released its 2011 Long-Term Reliability Assessment. The NERC report identified environmental regulations as one “of the greatest risks” to reliability. Much of the focus of the concern was on EPA’s MACT rule for hazardous air pollutants and its 316(b) rule for cooling water intake structures. While expressing uncertainty about these not-yet finalized rules, the NERC report took an extremely cautious approach, largely assuming the worst in terms of the stringency and inflexibility of these rules.

Appropriate caution? Not according to EPA.

In a letter to NERC, EPA Deputy Administrator Bob Persciasepe accused NERC of simply ignoring what EPA has said regarding the provisions of those rules and how they will be implemented. For example, with respect to the 316(b) rule, NERC assumes that the rule will require closed cycle cooling, even though EPA has explicitly said it will not require closed cycle cooling on all units and the rule will allow the cost of controls and potential impacts on reliability to be considered in determining appropriate technology. 

As Persciasepe summarized:

NERC’s draft report describes an extreme outcome that arises from a scenario where the most stringent and costly rules imaginable took effect, and no one at the federal, state, or local level took any steps to ensure the continued reliability of the grid.

Fortunately, the EPA’s analysis and several external analyses show that, where the EPA’s actual rules are accurately characterized, there is no adverse impact on capacity reserves in any region of the country. If isolated, local reliability challenges were to emerge due to individual plant retirements, the Clean Air Act and Clean Water Act provide flexibility mechanisms to ensure that sources can be brought into compliance over time while maintaining reliability.

In my most recent post on this subject, I noted that a comprehensive look at the reliability issue by FERC would be helpful. While I understand NERC’s approach to err on the side of caution, I agree with EPA that NERC overdid it here. Most of the old plants at risk of retirement are not going to have to install closed cycle cooling. I wouldn’t quite describe the NERC report as Chicken Little, but I don’t think the sky is falling. I’m still waiting for a more balanced and comprehensive review – and still skeptical that such a report would attain universal credibility, even if were to deserve it.

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As one Potentially Responsible Party in Wisconsin recently discovered, Superfund consent decrees are the gift that requires you to keep giving.  In US v. Wauconda Sand & Gravel Co., a PRP which thought it was extinguishing its liability by signing a consent decree in 1994, received a demand from EPA a decade later to perform additional work.  The PRP balked, claiming that it believed it had completed its obligations under the consent decree.  The court, however, reached the opposite conclusion.  According to the court, the consent decree obligated the PRP to perform or pay for additional testing and remediation in the event that there was any exceedance of groundwater standards.  Because the groundwater standard for vinyl chloride had been exceeded in the area of the site, albeit a decade later, the court concluded that the PRP’s obligation to perform or pay for additional groundwater testing and remediation had been triggered.  Parties entering into Superfund consent decrees should take seriously the breadth of the "additional work" provision since courts are likely to. 

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There has already been significant attention devoted to whether EPA’s “train wreck” of rules affecting coal-fired power plants would affect electric system reliability. The Congressional Research Service analysis looked at the coming rules more broadly, but did touch on reliability, noting that most of the coal plants likely to be retired as a result of EPA regulations are small and inefficient, and already run infrequently. As we noted last June, the Bipartisan Research Center did focus on reliability, concluding “that scenarios in which electric system reliability is broadly affected are unlikely to occur.”

However, this work has not been enough to satisfy FERC Commissioner Philip Moeller, who recently issued a “Request for Evidence” concerning the impact of EPA’s coming rules. The request is both deep and wide-ranging. It includes 22 separate questions, not including sub-parts. The questions range from the broad -- “What evidence supports the assertion of a reliability problem?” -- to the very specific  -- "Will the loss of the system inertia that is supplied by coal plants impact the power grid in unforeseen ways? Does the topic of inertia require further study?”

In today’s polarized political climate, I’m not sure that there can be an answer to these questions that would satisfy everyone. At least inside the Beltway, decision-makers increasingly seem to know what they know, evidence be damned. Nonetheless, it can only help to have a more comprehensive analysis of the reliability issue by the government agency that has responsibility for ensuring electric system reliability.  A careful assessment by FERC seems even more necessary in light of Wednesday's story in the Daily Environment Report to the effect that EPA's draft MACT rule contained an acknowledgement of reliability concerns when it was sent to the White House for review in February, but that the reliability discussion was edited out before EPA signed and issued the proposed rule in March.

For my part, assuming that the reliability issue can be addressed, I’d rather have the train wreck than Chinese water torture. Precisely because small coal plants might shut as a result of the cumulative weight of the EPA regulations, isn’t it better for everyone that the owners of those plants know about all of the regulations at the same time, rather than have them promulgated seriatim over a number of years? Wouldn’t the owners feel foolish -- and justifiably annoyed -- having spent a bunch of money complying with the first rule to be promulgated, only to decide that the second, or third, or fourth is the straw that breaks the camel’s back? As a matter of both public and private sector planning, it has to be better for EPA to be promulgating these rules in at least the same general time frame.

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With the first compliance period in the Regional Greenhouse Gas Initiative (RGGI) coming to a close in December, it seems an appropriate time to look back at what we can learn from the country’s first market-based program aimed at reducing emissions of carbon dioxide from power plants. A report released Tuesday by the Analysis Group analyzed the economic impacts of RGGI – how the program impacted electricity prices, power producers’ costs, and consumers’ electric bills, and what effect the millions in quarterly auction proceeds has had, and will have, on the region’s economy.

The report does not try to predict what will happen or should happen to RGGI to update it for 2012 and beyond. Instead, it takes the last three years as a snapshot, and models the impacts that the allowances sold and money spent by the states through the last 3 years will have over the next 10 years.

Overall, the 10 states took in $912 million from the auctions, which, when invested by the states in various programs and initiatives, added $1.6 billion in net present value to the region's economy, even when taking into account the nearly $1.6 billion loss in income that power producers face with more efficient energy usage reducing prices and consumption. The report also found that the first three years of RGGI have created over 16,000 new “job years” – from employing people to conduct energy efficiency audits or install efficiency measures,  to maintaining workers in state-funded programs that might have been cut had a state not used RGGI funds to close budget gaps.

The study found that, although the cost of the allowances was largely passed along to consumers, RGGI only increased consumers’ bills by an average of 0.7% over the last 3 years. The study predicts that, over time, RGGI will lower consumers’ bills, because the states invested a substantial amount of the allowance proceeds on energy efficiency programs.  By 2021, consumers of electricity in the 10-state region will enjoy a net savings of nearly $1.1 billion on their electricity bills, and, due to efficiency programs focused on insulation and heating efficiency, another $174 million in savings from avoided expense on natural gas and heating oil. 

The analysis I found the most interesting concerns how state decisions to spend RGGI proceeds affected local economies. The Memorandum of Understanding that set up RGGI required that the states invest at least 25% of the proceeds for “public benefit,” but left the rest up to each state. As a result, there was a divergent approach to spending that, according to today's report, resulted in significant differences in returns.

New England states spent 86% of their RGGI funds on energy efficiency, and only 3% on direct  assistance to low-income consumers. Because the investment in energy efficiency introduced funds into the economy twice – both when the state paid into the efficiency program, and when consumers paid less for electricity, leaving them free to spend elsewhere in the economy – the overall macroeconomic impact of RGGI in New England was almost $900 million, even though those states only took in $275 million in allowance funds.

In comparison, the states in the PJM regional transmission organization (New Jersey, Delaware and Maryland), spent 41% of their funds on direct bill assistance and only 13% on energy efficiency.  The direct bill assistance also freed consumers to spend money elsewhere in the economy, but the analysis found that, without the multiplier effect of energy efficiency, the returns for these states were not as great.   As a result, although these three states received more money from allowance sales than New England -- $310 million – the net positive impact of RGGI was only $341 million.

It’s not much of a surprise that the investment of auction proceeds in energy efficiency is one of the big success stories of the first three years of RGGI. Nonetheless, it will be interesting to see whether the report’s conclusions regarding the relative impact of spending on energy efficiency as compared to low-income assistance will influence how states spend their auction proceeds going forward. 

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Earlier this week, Greenwire noted a Los Angeles Times story reporting that businesses are using the California Environmental Quality Act – California’s version of NEPA – as a tool of economic competition, trying to kill or delay projects for economic reasons. Much like Claude Rains, I am shocked, shocked, to find that there is strategic litigation going on here. In the past two years, I have defended multiple court cases and administrative hearings brought by a 10-citizens group against one particular client. Many of those claims have been premised on our state MEPA statute. Who are the members of the citizens’ group? A competitor of our client, and a variety of employees of the competitor and relatives of the competitor’s principal.

As suggested by the headline, none of this is really news to practitioners, who have to live with this stuff all the time. What really caught my eye in the Times story was this quote from a defender of the status quo:

Environmental advocates say the focus on why groups use CEQA is misplaced. "You shouldn't really be looking at motivations of petitioners," said Doug Carstens, an environmental lawyer in Santa Monica who often files CEQA complaints. "Even if it's a solely economically motivated actor, if they're promoting transparency, good government, why not?"

Why not? Why not? Because transaction costs matter. Because they are a dead weight on the economy. Because they distract agency personnel from focusing on more important and pressing environmental issues. Because they really can kill valuable developments. Perhaps Mr. Carstens is an outlier, but I fear that he in fact remains all too typical in an environmental movement that remains, at its core, very skeptical of, if not downright opposed to, economic development.

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It is, as the lawyers say, black letter law that the National Environmental Policy Act, or NEPA, is a procedural statute, which provides no substantive protection to the environment. It merely requires the appropriate level of assessment of the potential environmental consequences of federal action. Whether the action should be taken is outside NEPA’s purview.

Rarely, however, has this critical limitation on NEPA’s scope been stated so plainly as in yesterday’s decision in Save Strawberry Canyon v. U.S. Department of Energy, in which Judge Alsop of the Northern District of California rejected a NEPA-based challenge to a DOE-funded laboratory at the University of California. As Judge Alsop wrote:

We must always remember that NEPA is a procedural – not a substantive – statute. Once the agency takes a hard look at the environmental consequences of the proposed action, the agency is free to destroy the environment. (My emphasis.) NEPA does not require, in making the substantive decision, that any extra weight be given to environmental preservation, sad as that sometimes is.

As an empirical matter, I’m skeptical that judges’ views on the merits of projects don’t infect their thinking regarding whether NEPA procedural requirements have been met, but the decision is nonetheless a salutary reminder of both NEPA’s purpose and its limits.

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What follows is the full text of Bill S.325, introduced in the Massachusetts legislature this term. 

SECTION 1. LIABILITY RELIEF In the event an individual or group of individuals unknowingly purchase contaminated residential land that does not qualify for Brownsfield funding and are not the polluter, they must be relieved of liability and fines in connection with said pollution. The Department of Environmental Protection(DEP) must be proactive in balancing public safety with feasibility. Specifically, where you have residential land that naple is present on part of the land. And, the innocent land owner wants to build over the area naple is not present and designate through an activity use limitation (AUL) the area with naple subsurface as a parking area, the DEP must accept, in a timely manner, this as a permanent solution where there is no eminent danger to environment and man.

SECTION 2. MANDATE FUNDING In the event, where the DEP desires additional testing (fishing expedition) the DEP must perform said testing without cost or harm to the innocent land owner.

SECTION 3. LICENCE SITE PROFESSIONAL CONFLICT(LSP) In order to prevent the appearance of a conflict of interest, there should be a different LSP at each phase of the permanent solution steps.

I invite readers to top this as a model of succinct legislative drafting. Fortunately, this bill is not in eminent danger of being enacted.

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In response to yesterday’s post, I received an email from someone at GreenWire notifying me that Lisa Jackson had not called her opponents “jack-booted thugs.” Instead, she was actually complaining that her opponents were describing EPA employees as jack-booted thugs. Definitely a different level of rhetoric, though it was certainly a much more interesting story in its original version. Oh, well.

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Two seemingly unrelated stories from last week suggest that EPA may have its limits in how far it is going to go to make nice with those who are opposing its regulatory agenda. The first story, reported by Greenwire, is pretty much all in the headline: “EPA official accuses Kan. department of lying over proposed plant.” The second story, also from GreenWire, reported that EPA Administrator Lisa Jackson referred to opponents of EPA’s greenhouse gas tailoring rule as “jack-booted thugs.”  She has also described Republican efforts to limit EPA regulatory authority as a “too dirty to fail” policy.

It’s difficult to interpret at least Administrator Jackson’s remarks as anything other than part of the 2012 Presidential campaign. I realize that I may be hopelessly optimistic in asking that even campaign rhetoric make sense, but these comments don’t make sense. How is it that opponents of the tailoring rule – and I actually support the rule, though I’m not sure about EPA’s authority to promulgate it – are “jack-booted thugs”? They may have misrepresented the scope of the rule, but that hardly makes them thugs, let alone jack-booted ones.

And too dirty to fail? I don’t even know where to begin. Let’s start and end with the simple point that it is not precisely because these plants are dirty that we refuse to regulate them – which is the only way the analogy to “too big to fail” could possibly make sense. This is nothing more than trying to make polluters look bad by comparing them to banks. I do feel compelled to observe that we are in a funny place when banks have a worse reputation than polluters and we have to stir up populist anger at the polluters by comparing them to the big, bad, banks.

In any case, calling your opponents liars and thugs, and describing their political strategy as supporting polluters because they are "too dirty to fail” is not going to engender a spirit of compromise. I understand EPA’s frustration with its congressional opponents. Again, I must emphasize that I support not just the tailoring rule, but may of EPA’s regulatory initiatives. I also note that EPA has taken steps – rarely noted or appreciated – to respond to the concerns of opponents. Nonetheless, aside from providing red meat to the base, this is hardly constructive. After all, it’s not as though anyone expects the Democrats to win such overwhelming majorities in the House and Senate that Lisa Jackson won’t have to deal with congressional Republicans after January 2013. Good luck with those jack-booted thugs.

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Yesterday, the Daily Environment Report noted the formation of the Coalition for Better Buildings, or C4BB, an alliance of environmental, business, and real estate interests intended to increase the incentives to make buildings more energy-efficient. Its members include real estate trade groups such as the Real Estate Roundtable and the Building Owners and Managers Association, as well as some heavyweight companies, such as Vornado. It also includes environmental groups such as the NRDC and companies who will look to profit from investments in building efficiency, such as Siemens and Johnson Controls.  

The C4BB’s mission is to:

• Propose policy solutions from commercial and multi-family building stakeholders to foster greater energy efficiency in the structures we own, manage, finance and service.
• Save businesses billions of dollars every year by reducing the energy used in commercial and multi-family buildings.
• Create jobs through building efficiency retrofit projects that will put the construction, manufacturing, and service sectors back to work.  

All of this is good stuff and I am always encouraged when environmental and business groups succeed in finding common ground. One obvious intersection is support for tax incentives for building efficiency. Certainly such programs are going to have a greater likelihood of success with this kind of organized support. However, given the gaping hole in federal and state budgets, it will be difficult to enact new tax programs that provide sufficient incentives to make a difference.

The C4BB web page also notes that it supports “improving benchmarking tools including the expansion and enhancement of Energy Star.” This starts to get on to much shakier territory. One form of benchmarking could conceivably be use of building rating systems, which would push buildings towards energy efficiency by giving grades to buildings, with lesser buildings getting the proverbial scarlet “I” for “Inefficient.” As I noted in a post in August, the Institute for Market Transformation – which is a member of the C4BB – has put out a study on the state of building rating systems.

While the environmental groups and the energy efficiency companies may like building rating systems, owners of old buildings may not like them so well. It will be interesting to see whether the Real Estate Roundtable will support or oppose building rating systems. It is important to remember that much of the action in this area is at the state or local level. In states such as California and Massachusetts, rating systems may look better than mandatory efficiency targets. 

In any case, since buildings make up more than a third of energy use, and since some states still are pursuing hard targets for energy usage reductions, the issue of how to increase the energy efficiency of buildings is not going to go away.

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Yesterday, EPA announced that it was granting the petition submitted by New Jersey under § 126 of the Clean Air Act, requiring the Portland Generating Station in Upper Mount Bethel Township, Pennsylvania, to reduce emissions of SO₂, in order to avoid causing exceedances of the NAAQS for SO₂ downwind in New Jersey. The requirements are fairly straightforward. Within three years, the plant must limit emissions as follows:

Unit 1 emissions may not exceed 1,105 lb/hr

Unit 2 emissions may not exceed 1,691 lb/hr.

The facility must attain a heat input limit of 0.67 lb/mmBtu, regardless of operating load

The facility will also be subject to a short-term limit, to be attained within 12 months, of 6,253 lb/hour. This limit is expressed as a total for both units to provide the owner with more flexibility. EPA states in its fact sheet that this interim limit can be attained by switching to low sulfur coal.

At a certain level, the rule granting the petition is not that big a deal. Section 110(a)(2)(D) of the CAA, the “good neighbor” provision, prohibits emissions in one state that interfere with attainment of NAAQS in another state. Petitions under § 126 to enforce this requirement are not new. Nonetheless, the rule is noteworthy.  As EPA stated, this is the first sole-source petition under § 126. EPA spokesman Lawrence Ragonese described the rule as “precedent-setting” and said that it opened the door for other such petitions. 

Second, I think that the rule has to be seen in the context of the current debate in Congress over EPA’s CAA authority. The fact sheet specifically notes that the rule requires the same type of controls as would the Cross-State Air Pollution Rule and the Mercury and Air Toxics Standard, both of which are under attack at the moment. By essentially inviting other § 126 petitions, EPA seems to be signaling to Congress that attacking the CSAPR and MATS rules won’t make the problem go away. Presumably, too, the message is that the comprehensive approach in the CSAPR, which permits as much trading as the CAA allows, might be a better option than forcing EPA to respond to – and generators to comply with – individual petitions under § 126.

Finally, and on a related note, issuance of the rule seems consistent with Administrator Jackson’s remarks late last week, described by E&E Daily as a “vow” to “crack down on coal.” If EPA’s recent retreat on the revised NAAQS for NO_x and its delays in issuance of other rules might have led some observers to conclude that EPA was backing down, Jackson’s remarks seem explicitly designed to announce that EPA will not be backing down. In that context, the grant of the petition would seem to be a tangible demonstration that she really means it.

The battle is clearly not over, but the petition does illustrate one important factor – much of what EPA does is not really discretionary. Rather, it is mandated by some existing provision of the CAA. If Congress is not happy with EPA, it really has only itself to blame. If it wants less regulation; it is going to have to vote to amend the CAA in significant ways – and, presumably, survive a presidential veto.

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