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

The U.S. Securities and Exchange Commission (SEC) issued interpretive guidance yesterday which requires publicly traded companies to consider the impacts of climate change – both the physical damage it could cause, as well as the economic impacts of domestic and international greenhouse gas emissions-reduction rules – and disclose those risks to investors. As we noted when discussing the potential for this announcement in October, the disclosure requirements are likely to affect companies in a wide range of industries. 

In its press release announcing this decision, the SEC said that this interpretive guidance neither creates new legal requirements nor modifies existing ones; rather, SEC guidance is intended to provide consistency among issuers in their disclosure to shareholders of bottom-line risks and consequences. The guidance will cover:

• Risk Factors
• Description of the Business
• Legal Proceedings
• Management’s Discussion and Analysis

The interpretive release will be published in the Federal Register and posted on the SEC’s website. The press release summarizes the key points as these:

• Impact of Legislation and Regulation: When considering potential disclosure obligations, companies should determine whether the impact of existing laws and regulations regarding climate change is material. In some cases, companies should also evaluate the potential impact of pending legislation and regulation related to environmental issues and climate change.
• Impact of International Accords: Companies should consider, and disclose if material, the risks related to or effects upon their business of international accords and treaties relating to climate change.
• Indirect Consequences of Regulation or Business Trends: Legal, technological, political and scientific developments regarding climate change may create both new opportunities and new risks for companies. For example, a company may face decreased demand for goods that produce significant greenhouse gas emissions, or increased demand for goods that result in lower emissions than competing products. Companies should consider the actual or potential indirect consequences they may face due to climate change-related regulatory or business trends.
• Physical Impacts of Climate Change: Companies should also evaluate for disclosure purposes the actual and potential material impact of environmental matters on their business. It is not entirely clear what the SEC means by this, although one example might be agricultural risks associate with altered climate trends that appear to have reduced or increased annual rainfall in particular locales.

When the interpretive release is available, we will provide you with full information. It is likely that pressure from shareholder groups on this issue will continue (here, for instance, is CERES' statement), given that cap-and-trade legislation appears bogged down in Congress and that the prospects for EPA regulation under the Clean Air Act are unclear.

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EPA announced yesterday that it had reached a settlement with Duke Energy to address allegations of New Source Review violations at Duke’s Gallagher coal-fired generating plant in New Albany, Indiana. A jury had already found Duke liable for certain NSR violations at the plant. The settlement obviates the need for a remedy trial, which had been scheduled for early 2010.

The settlement requires Duke Energy to repower Units 1 and 3 at Gallagher with natural gas or shut them down and to install emission controls at Units 2 and 4. Duke will also pay a $1.75 million penalty and spend $6.25 million on various mitigation projects. 

The settlement is not that surprising, particularly given the prior liability findings. It nonetheless serves as a useful reminder that EPA continues to focus on coal plants and that it is going to use all the tools at its disposal to reduce coal plant emissions. Although the press release does not mention global warming, these settlements are another way for EPA to attack the climate change problem under existing authority, even in advance of rules regulating GHGs under the PSD program.

BTW, if it seems as though I am inundating you with posts today, the blog will be on vacation until January 4, so I wanted to get some last posts done. Happy holidays to all.

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EPA has published its annual Compliance and Enforcement Annual Results FY 2009. It always makes interesting reading. This year, EPA has added something new: a web-based map showing the location of all enforcement actions, with links to summaries of the specific actions taken. It’s actually a little tricky to navigate. I had to find an area of interest and zoom in far enough for the dots to be replaced by flags to be able to click on particular sites and obtain the detailed information.

I can see NGOs making a lot of use of this map, and I therefore recommend that regulated entities spend some time with it as well. Forewarned is forearmed. 

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On the be careful what you wish for front, Massachusetts Energy and Environment Secretary Ian Bowles announced yesterday an effort to examine “options for changes in administrative structures and programs to meet environmental goals in light of budget challenges.” The announcement identifies three separate areas of investigation:

Public-Private Partnerships – This makes a lot of sense, but, based on the announcement, seems to be too narrowly focused. The announcement indicates that the review will focus on management of properties owned by the Department of Conservation and Recreation. However, we shouldn’t just be looking at whether to let Disney sponsor the Freedom Trail. For example, I am on the board of the Corporate Wetlands Restoration Partnership, a public-private partnership that leverages private money to assist publicly funded wetlands restoration projects. Surely, there are other, similar opportunities to enlist the private sector in in financing EEA programs.

New Regulatory Models – Here is where the rubber meets the road for most of us attorneys and our clients. The announcement mentions MassDEP’s very successful privatization of our state Superfund program, Chapter 21E, and asks whether there are other opportunities for similar innovations. Some thoughts:

Greater use of general permits.

Other opportunities to privatize, such as inspections and audit functions. Naysayers will raise concerns about the independence of third-party inspections, but it’s a false dichotomy to contrast a world of perfect inspections by DEP with a system of private inspections. Audits and inspections would occur with much greater regularity if regulated facilities were required to pay a third party to audit their facilities every year.  Wouldn't that be a good thing?

Greater consistency in agency decision-making. I don’t think that EEA or DEP realize the costs imposed by their failed efforts to rein in street level bureaucrats who have their own ideas as to what good policy is.

Spend less time writing new guidance and let qualified professionals exercise their professional judgment without wasting precious agency time questioning whether a regulated entity used the proper font in its latest submittal (sorry, rhetorical excess alert).

Reorganization/Consolidation of State Agencies

Secretary Bowles, Commissioner Burt, and others involved should be commended for undertaking this effort. It would be great if the current budget crisis could be turned into a real opportunity for reform. As I’ve said on other occasions, this should be a Nixon-in-China moment for regulatory reform. 

Carpe diem.

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Late last week, Elliott Gilberg, Acting Director of EPA’s Office of Site Remediation Enforcement (OSRE) issued an Interim Policy on Managing the Duration of Remedial Design/Remedial Action Negotiations. Members of the regulated community may not be surprised by the contents of the memo, but they certainly will not be pleased. In brief, the memorandum fundamentally makes two points:

EPA wants to shorten the duration of RD/RA negotiation

EPA is going to use the heavy hammer of unilateral administrative orders, or UAOs, to keep PRPs’ feet to the fire and ensure that negotiations move quickly.

PRPs will likely agree that shortening the duration of negotiations would be a good outcome in the abstract – but achieving it by greater use of UAOs? I don’t think so.

I can only wonder if EPA has even considered the impact of the Burlington Northern decision here. Is this a perverse reaction from EPA? A metaphorical throwing down the gauntlet to PRPs? It certainly feels that way.

I have a different suggestion, if EPA truly wants to shorten negotiations. First, acknowledge Burlington Northern and compromise on the merits in those great majority of cases where there are legitimate divisibility arguments. Second, stop acting like the last bastion of command and control regulation. Set cleanup standards and then, to the maximum extent permitted by existing law, let PRPs clean up to those standards, without micromanaging every detail of the cleanup process.

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In a story from today’s Daily Environment Report, Cynthia Giles, the new Assistant Administrator for Enforcement at EPA, stated that she was looking increase the number of criminal investigators at EPA, noting that

Criminal enforcement is a very important part of our arsenal in achieving compliance and has a powerful deterrent effect. It's important to us that we're out there and that we pursue the criminal cases.

There’s no doubt that, in a simplistic way, she is correct. Generally speaking, as the plausible threat of enforcement increases, the amount of noncompliance will be expected to decrease. However, for criminal enforcement to be a truly useful enforcement tool, EPA has to communicate clearly and unambiguously what conduct constitutes a criminal violation of environmental laws and what does not. Where language is ambiguous and interpretations shift, criminal enforcement only works as the roughest kind of hammer. It may decrease noncompliance, but it will also decrease productive, compliant, economic activity, because the risk posed by uncertainty will not be worth the reward.

Anecdotal evidence is always dangerous, but from where I sit, the risk that EPA will fail to wield its bludgeon with due care is substantial.

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In another sign that the NSR program is alive and well under the Obama administration, the United States (together with the State of Illinois, filed suit Thursday against Midwest Generation, alleging violations of NSR requirements at six coal-fired power plants. Although the action is not too surprising, given that the Bush EPA had issued a notice of violation to Midwest Generation in 2007, it remains noteworthy. Each new prosecution serves to remind generators that failure to comply with NSR rules can lead to significant costs.

Of course, that in terrorem effect on other generators is precisely what the administration and environmental groups want. Unfortunately, for those of us who believe that the NSR program is an incredibly wasteful way to reduce air pollution, such litigation only detracts from efforts to make air pollution control regulations more cost-effective.

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As we have reported, EPA and MADEP have both been taking steps over the past year to broaden the scope of their stormwater programs beyond existing regulation under the rules concerning stormwater discharges associated with industrial or construction activity. EPA has proposed using residual designation authority in Maine and Massachusetts and the MADEP proposed sweeping rules governing existing private facilities.

In the regulated community, there has been substantial concern that these efforts have focused too narrowly on private properties, with the MADEP proposed rules, for example, potentially requiring costly retrofits on many properties without consideration of whether there might be more cost-effective ways to control stormwater pollution, such as through increased focus on MS4s.

Based on this week’s news, EPA may have heard these complaints.

On Wednesday, EPA Region I announced enforcement actions against municipalities for violations of MS4 requirements. EPA proposed to fine nine communities in Massachusetts and New Hampshire; EPA also issued orders requiring that the municipalities take certain actions to come into compliance with the MS4 requirements.  Given the current economic climate and the erosion in municipal budgets, the willingness to impose penalties demonstrates EPA’s seriousness in enforcing the MS4 requirements.

So why does the private sector need to remain worried? One word in the first sentence of EPA’s press release says it all: “integrated.”  Wednesday’s enforcement announcement was part of “a new integrated effort” to enforce stormwater requirements.  While this notice was focused on illegal connections to storm sewers, is there any doubt that this is also part of a broader “integrated” effort to attack stormwater pollution more generally?  Now, when EPA and MADEP come calling on the private sector, the agencies can respond to complaints about unequal focus by noting that they have already made municipalities take their medicine; now it’s time for the private sector to do so as well.

Spoonful of sugar, anyone?

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EPA announced today that it had reached yet another six-figure penalty settlement in an anti-idling case.  This time, the penalty was $650,000. This is one of the larger penalties EPA has obtained in this area.  There appear to be several reasons for the magnitude of the penalty.  First, the defendant, Paul Revere Transportation, LLC, was apparently a recidivist.  It has been the subject of an anti-idling enforcement action in 2003.  Second, Paul Revere refused to settle, making EPA go to trial to prove liability.  Finally, at the trial, EPA established a substantial number of idling violations.  Facing a separate trial regarding the penalty, Paul Revere quickly negotiated a settlement on the penalty amount.

EPA Region I has now targeted bus companies, transit companies, rental car companies, and waste haulers. Truly, any company which operates a large fleet of vehicles is at risk for an anti-idling enforcement action if it does not have a written company idling policy.  Moreover, a paper policy is not enough; companies must take care to ensure a top-down emphasis on compliance with its anti-idling policy.  Letting drivers start trucks before going inside to drink their coffee will not pass muster.

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I assume that environmental agencies’ focus on the annual dollar total of enforcement fines and penalties drives my clients as crazy as it does me. After all, the correlation between such figures and any environmental outcomes is pretty limited. Indeed, less enforcement may mean more compliance rather than more undetected violations.

It thus comes as at least limited good news from Inside EPA that EPA is looking at ways to measure the impact of enforcement efforts other than by measuring the amount of fines and penalties. Instead, as indicated by a presentation made last month by EPA’s Office of Compliance, EPA is going to try to measure the environmental benefits of its enforcement efforts.

(Of course, it’s more than a little depressing that the motivation for this change is the expected decrease in the dollar value of settlements in FY 2009 from the Bush administration’s FY 2008 numbers. God forbid that the Obama administration should recover fewer environmental enforcement dollars than the Bush EPA!)

While congratulations will be due to EPA for whatever strides they make in this area, it is only the tip of the iceberg. The problem of identifying the benefits of environmental programs extends far beyond the enforcement arena; it is endemic to the entire gamut of environmental regulatory programs, state and federal. 

EPA occasionally generates very gross overall numbers demonstrating that the benefits of some program outweigh the costs. However, such figures provide no real assistance in determining whether some other approach to regulating a particular air contaminant would have been more cost-effective or, more fundamentally, whether allocating resources to other contaminants or even other media would be a better place to spend environmental protection dollars. As I noted in one of my Superfund rants, a small town in New Hampshire can legitimately ask whether it could save more lives by devoting resources to public safety improvements than to cleaning up a Superfund site.  The fault is not that of EPA alone or that of state environmental agencies.  It’s very easy for Congress, under pressure from some apparent crisis, to create a regulatory program that explicitly or implicitly forbids considerations of cost-effectiveness or cost benefit analysis.

To hark back to a different rant of mine, on the subject of regulatory reform, is it too much to ask of the Obama administration that it make efforts to increase the cost-effectiveness of our regulatory programs?  If Obama is serious about bipartisanship, this might be one way to achieve it. 

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While some of my colleagues are laboring in the climate change vineyards (and we should have posts soon summarizing the House bill), I thought I would note another interesting enforcement decision issued this week.  United States v. Oliver is, in some respects, a run of the mill decision.  A mom-and-pop medical waste incinerator (the adjective is the court’s not mine; it does give one pause) failed for several years to comply with EPA regulations governing such facilities.  EPA sought and obtained a permanent injunction ceasing facility operations until the defendants can demonstrate to the satisfaction of EPA and the court that it can comply with the applicable regulations.

The interesting part of the decision relates to the Court’s imposition of a penalty.  EPA took the position that the Court should presume that the maximum penalty should be imposed, citing Pound v. Airosol and United States v. B & W Inv. Properties. Doing so in this case would have generated a penalty of $220,080,000 before any mitigation were considered. That EPA itself only sought a penalty of $445,000 demonstrates the absurdity of even starting with the maximum penalty. The court, noting that the defendant had two employees and was poorly capitalized, stated that the size of the business argued for a penalty “far smaller” than what the government sought.

The court also considered, as a separate factor, the impact of the penalty on business operations. While previously noting that the defendants showed no real likelihood of being able to come into compliance, the court nonetheless noted that imposition of a large penalty would pretty much make it impossible for the defendants to operate in compliance with applicable regulations, and therefore concluded “that the penalty should be dramatically lower than the amount sought by the United States.”  The court imposed a $75,000 penalty.

I’m not sure I’d read too much into this decision, but it does give defendants a basis for arguing that courts should not start with the maximum statutory amount in determining an appropriate penalty.  It also puts the defendant’s ability to pay front and center in the penalty calculus.

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Last week, Judge Larry McKinney issued an order requiring to shut down three coal-fired generating units at its Wabash Station facility by no later than September 30, 2009. The decision actually struck me as a thoughtful analysis of injunctive relief issues in a situation where a violation of NSR regulations had already been proven. Although the decision has gotten most press for the order shutting down the units, it covers a number of issues important to injunctive relief situations, and there are some nuggets which are potentially useful to generators; it is not a one-sided decision. Here are some highlights:

The shut-down order – although significant, is not as earth-shattering as it seems. Cinergy gave the judge little choice by testifying that it would not be economic to install pollution controls on the units, given their age and size. The fight was thus about when, not whether, the units would be shut down. The judge was clearly annoyed that, following the liability finding, Cinergy had seemingly taken no action to plan for a shut-down. The judge, in response to reliability concerns, did allow the units to operate through the summer of 2009.

Irreparable harm discussion – a few noteworthy aspects here

The court relied on modeling which demonstrated that Wabash emissions contributed to PM_2.5 levels downwind

The court noted that contributions of “just a few tenths of a ug“ can be significant when an area is on the border between compliance and noncompliance.

Like the court in the TVA injunctive relief case we posted about earlier this year, the court specifically noted that adverse health affects can occur at levels below the NAAQS

The court rejected the plaintiffs’ argument that acid deposition and mercury emissions from Wabash had caused irreparable harm, concluding “that Plaintiffs did not provide sufficient nexus between the relevant excess emissions and the negative … effects. 

In a win for generators, the court rejected the plaintiffs’ position that BACT for NO_x emissions in 1989 was SCR technology. This is an important issue, because EPA and the states will sometimes try to take the position that unproven technologies are nonetheless BACT. The decision squarely rejects that argument.

Surrender of SO₂ allowances. The court required Cinergy to surrender SO₂ allowances equal to the excess emissions from the May 2008 jury verdict to the time the units are shut-down. However, it is important to note that the Plaintiffs had requested that the court order Cinergy to install BACT on larger units at the Station that had not violated NSR rules. The court rejected that argument, noting that the Plaintiffs’ proposal “does not bear an equitable relationship to the degree and kind of harm it is intended to remedy …. Imposition of such a remedy is punitive in nature.”

In sum, although the decision is important, it is not surprising in context. Indeed, the finding on BACT, which was favorable to Cinergy, may have the most precedential significance.

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Earlier this week, the jury reached a verdict in the Cinergy – now Duke Energy – NSR retrial. The short version is simple:

Condensor retubine – no need to go through NSR

Pulverizor replacement – requires NSR

I don’t know all of the details of the case.  For example, I don’t know if the pulverizer capacity was expanded when they were replaced.  If any readers know the details and want to share them, I’d be grateful.

The decision does call to mind a previous post, in which I suggested that environmentalists might trade elimination of the NSR program for a requirement that all existing facilities comply with NSPS by a date certain. If instead of the current NSR program, the CAA had been amended in 1977 to give existing facilities until 2002 – 25 years – to be as clean as new facilities, there would have been howls of outrage at the time from the environmental community, but today we would be in a much better place.  Although the same howls would be heard today, shouldn’t it be possible to reach a deal, particularly given the pressure old facilities will be under as a result of a cap-and-trade program, that would eliminate NSR in return for a date certain by which existing facilities have to be clean as new?  It might be 15 years later than if the deal had been struck in 1977, but that doesn’t mean it would be a bad idea now.

BTW, for a cogent economic analysis of this issue, take a look at my friend Rob Stavins' post from a few weeks ago.  I'm tempted to say great minds thing alike, but perhaps I'll just go with a great mind thinks alike.

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One more note on the Burlington Northern decision.  A client of mine has already noted that one impact of the decision will be to result in more litigation over divisibility, which will be good for private lawyers (ouch!).  She’s right, as my clients always are, but she shouldn’t be.

Litigation should only increase if EPA does not adjust its settlement demands. If EPA responds appropriately, and makes demands which reflect a fair resolution of a divisible liability, then there shouldn’t necessarily be more litigation than there is today.  However, if EPA continues to negotiate with PRPs as though liability is always joint and several, then there will certainly be more litigation – and EPA will start to lose some more cases.  

Anyone care to bet which response by EPA is more likely?

If EPA adjusts its settlement demands downward in response to the decision – or if we start to see litigation in which courts find liability to be divisible – then EPA’s ability to fund Superfund cleanups will be under even more pressure.  This could provide some additional momentum behind the current Congressional effort to reinstitute the Superfund tax.

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Those of us who have practiced in the Superfund arena for some time know that the government, in those rare cases where it has been forced to litigate, has used the same oral argument in every case: “Good morning, your honor. My name is ______. I represent the government in this action and we win.” Today, the Supreme Court made clear that that the government now needs a new oral argument template.

In Burlington Northern v. United States, the Supreme Court issued two important decisions in one. First, the Court held that a defendant must actually intend its waste to be disposed of before it can be found liable as an arranger under § 107(a)(3) of CERCLA. The facts were these. Shell Oil sold pesticides to Brown & Bryant, Inc., which operated a chemical distribution business. As part of the transfer of pesticides from Shell to B&B, some pesticides were released on the property. There was evidence that Shell knew that releases were a regular part of the transfer process. Both the District Court and Appeals Court concluded that Shell’s knowledge that releases occurred was enough to establish arranger liability.

Noting that CERCLA does not define the term “arrange[e] for”, the Court looked the phrase’s ordinary meaning. Doing so, the Court concluded that liability may attach only where the defendant “takes intentional steps to dispose of a hazardous substance.” The government argued that, because the defendant knew that disposal was the inevitable result of its sale of product to the site owner, the defendant had “intended” disposal to occur. The Court rejected this argument. The Court was very clear: The defendant “must have entered into the sale of [the product] with the intention that at least a portion of the product be disposed during the transfer process.”

The direct holding with respect to Shell will be important in a number of cases and is helpful in setting a fairly bright line on arranger liability. Even beyond the immediate holding, however, I wonder what, if anything, this case means for what is known as transshipment liability. Under section 107(a)(3), a person is liable as an arranger if they

arranged for disposal or treatment … of hazardous substance owned or possessed by such person, by any other party or entity, at any facility or incineration vessel owned or operated by another party…

It has always seemed to me that the plain reading of § 107(a)(3) is that the defendant must have “arranged” for the disposal of the hazardous substances at the site where disposal occurred. In those not uncommon situations where the site operator transshipped the waste – without the generator’s knowledge or consent – the generator should not be liable under CERCLA at the transshipment site, because it did not intend for any disposal at the transshipment site. Given the Supreme Court’s emphasis on what the generator intended, I think that, in the right case, a transshipment generator defendant would stand a pretty good chance of winning, if he or she were willing to litigate the case all the way up to the Supreme Court. 

I hope someone will and I hope I’m right. 

The second holding in Burlington Northern may be of even more practical significance. In it, the Court reversed the Court of Appeals and upheld the District Court’s original divisibility finding with respect to the Burlington Northern Railroad. The District Court used a simple formula based on percentage of the site owned by Burlington Northern and the percentage of time that Burlington Northern leased the land as compared to the total duration of site operations. What’s most significant is that the Court did not even require any significant analysis to uphold the District Court; Justice Stevens’ opinion merely stated that there was evidence that contribution from the railroad parcel to the overall contribution was limited, so that, “[w]ith these background facts in mind, we are persuaded that it was reasonable for the court to use the size of the leased parcel and the duration of the lease as the starting point for its analysis.”

This seems obvious, but is probably a game changer in government Superfund litigation. The overwhelming tenor of lower court opinions has been that the defendant’s burden in a divisibility argument is almost overwhelming and that the burden will be satisfied in the rarest of cases and only upon almost perfect evidence of divisibility. The Supreme Court has made clear that that is simply not the case. Superfund cases are no different than other cases and there is no unstated higher burden of proof. 

Thus, while a district court judge might still be affirmed if he or she concludes that the defendant did not meet its burden of proving divisibility, the real import of the decision is that now district court judges need not fear that they will be automatically reversed if they do conclude that the harm is divisible. Given the standard stated in Burlington Northern, it might go too far to say that most cases will be divisible, but divisibility findings should not be at all rare – and that’s definitely news.

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As some of my clients know all too well, I’ve been spending a lot of time on some Superfund matters recently. Although I can’t remember a period when I didn’t have at least one moderately active Superfund case, significant immersion in complex remedial decision-making and negotiations provides an unwelcome reminder just how flawed CERCLA is. Almost 20 years after the acid rain provisions of the Clean Air Act ushered in wide-spread acceptance of the use of market mechanisms to achieve environmental protection goals and the state of Massachusetts successfully privatized its state Superfund program, the federal Superfund program, like some obscure former Russian republic which remains devoted to Stalinism, is one of the last bastions of pure command and control regulation.

Can anyone tell me why the remedy selection process takes years and costs millions of dollars – before any cleanup has occurred or risk reduction been achieved? Can anyone tell me why, after the remedy has been selected, EPA has to spend millions of dollars – charged back to the PRPs, of course – to oversee the cleanup? Oversight costs can easily exceed 10% of cleanup costs, while oversight during the remedial design and feasibility study process sometimes seem to be barely less than the cost of actually performing the RI/FS.

While there are certainly a multiplicity of causes, there are two factors which greatly contribute to the problem. One was, coincidentally, highlighted in a post today by my friend Rob Stavins. As Rob noted, unlike the acid rain program, which was new at the time, the Superfund bureaucracy is well entrenched and there are a number of actors with a vested interest in maintaining the status quo. 

The second issue relates to the genesis of the Superfund program, as well as its continuing raison d’être. Whenever EPA has ranked relative risks from different environmental hazards, Superfund sites come in at the bottom. However, if you think back to Superfund’s origins, what comes to mind? Love Canal and the Valley of the Drums – and some concerned near-by residents who rallied around a cause to ensure that the problem would be addressed. As renowned risk communications expert Dr. Peter Sandman has noted, there is not necessarily a significant correlation between actual risk levels and public outrage, and it’s not possible to decrease outrage simply by providing accurate information about risks.

In short, the public is outraged by hazardous waste sites and does not trust PRPs to clean them properly. All of those EPA oversight costs are, in large part, intended not to decrease risk, but to lower outrage.  Outrage is understandable in some circumstances, and efforts to reduce it are laudable, but is it really an appropriate use of scarce environmental protection resources to spend the money that gets poured into Superfund sites?

There has to be a better way. Indeed, there is a better way. It’s called a privatized system in which PRPs have to meet well-defined cleanup standards, but are allowed to do so on their own, in whatever manner is most cost-effective, subject to audits by regulators. Privatized programs such as the one in Massachusetts are not perfect. However, their flaws – which largely stem from a failure to fully support privatization -- pale in comparison to the waste that is the federal program under CERCLA.

In other contexts, I’ve called on the Obama administration to embrace regulatory reform. Why not start with Superfund? Notwithstanding Rob Stavins’ point about the difficulty of overturning an entrenched status quo, if the states could do it, why not the federal government?

Besides, I have an entrenched personal reason for seeking Superfund reform. This stuff drives me nuts.

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We posted recently about the revival of EPA’s NSR enforcement program. Now, yet another shoe has dropped. The Center for Biological Diversity has announced the creation of the Climate Law Institute, the purpose of which is to use citizen law suits under existing laws to advance regulations intended to address climate change. The press release states that the Institute has $17 million in funding with which to pursue its mission.  

While that mission will focus on climate change, as its name implies, it will not be limited to litigation under the Clean Air Act. It was the CBD which led the litigation resulting in the listing of the Polar Bear under the Endangered Species Act.  The Institute indicates that, in addition to the Clean Air Act, the ESA, NEPA, and the Clean Water Act may all be utilized as part of its overall litigation strategy.  

Among other specific targets identified in the press release, the Institute states that it aims to prevent the construction of any new coal-fired power plants and to phase out existing coal plants as quickly as possible.

Unless EPA moves very quickly across a number of fronts – which may well happen – it looks as though we’re going to see a lot of climate-related litigation in the near future.

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In addition to our post yesterday and the items highlighted in the New York Times Green.Inc blog on the difficulties facing new and existing coal-fired power plants this week, the Environmental Protection Agency and the Department of Justice have launched what they call a new national crackdown targeting coal-fired plants that violate the Clean Air Act.

As the first piece of this campaign, the agencies filed suit on Wednesday against a Kansas power plant for PSD violations dating back to 1994, and following a notice of violation issued to the plant owners in January 2004.   

EPA and DOJ  had been criticized for not pursuing new cases against power plants during the Bush administration, but it looks as though efforts to take on the coal industry are ramping up again.

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The EPA and DOJ announced yesterday that Kentucky Utilities (KU), a coal-fired electric utility, has agreed to spend approximately $135 million on pollution controls to resolve violations of the Clean Air Act New Source Review program.  KU will also pay a $1.4 million civil penalty plus $3 million in implementing supplemental environmental projects, or SEPs.  Finally, KU will also surrender over 50,000 SO₂ allowances shortly after entry of the consent decree, and annually surrender any excess NOx allowances resulting from the installation of pollution control equipment.   

The consent decree, which covers one of the three coal-fired electric generating units at the E.W. Brown plant in Mercer County, Kentucky, requires KU to meet the most stringent limit for nitrogen oxide (NOx) emissions ever imposed in a federal settlement with a coal-fired power plant.  According to the EPA's fact sheet, the new pollution control equipment will reduced combined emissions of SO₂ and NOx by more than 31,000 tons per year to just 10% of the 2007 emission levels.  KU has also agreed to install controls to reduce particulate matter emissions by approximately 1,000 tons per year.

Notably, one of the SEPs provides for KU to contribute $1.8 million towards a $7 million carbon capture and sequestration pilot project led by the University of Kentucky.

This Consent Decree is the sixteenth judicial settlement in the series of cases begun in 1999 against 32 plants in 10 states to bring the power plant industry into full compliance with the NSR and PSD requirements of the Clean Air Act.  It shows that although these cases have been around for a while, the EPA and DOJ are still focused on enforcement for NSR violations.

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Readers of a certain age will recall Chevy Chase’s Weekend Update segment during the first year of Saturday Night Live, when, for a number of shows, he would report that Francisco Franco was still dead. (And isn’t it great that there is actually a Wikipedia article on the subject of Franco still being dead!).

This segment was brought to mind by the report of this week’s decision out of the District Court for the District of Columbia, in the case of General Electric v. Jackson, affirming that EPA’s authority to issue unilateral administrative orders under § 106 of CERCLA had survived an as applied constitutional challenge brought by General Electric. Clients have been asking their lawyers whether CERCLA could possibly be constitutional ever since it was passed more than 28 years ago. Today, with this decision, I can report that CERCLA is still constitutional.

The same court had rejected a facial challenge to CERCLA’s constitutionality in 2005. In the recent decision, the court concluded that EPA’s “pattern and practice” in implementing § 106 also survived challenge. GE had raised two concerns. The first is that, under the decision in Ex Parte Young, EPA’s coercion of PRPs through its use of § 106 deprives PRPs of their due process rights. The court rejected this argument on the ground that the availability of the sufficient cause defense and the ultimate availability of judicial review meant that EPA’s issuance of § 106 orders is not unconstitutionally coercive.

Second, GE argued that EPA’s process for issuing § 106 orders deprives PRPs of a constitutionally protected property interest and that, in order to do so, EPA must provide more process, in particular a neutral decision-maker, prior to issuing orders. Here, while the court found that issuance of § 106 orders does deprive PRPs of a property interest, the balance of harms weighs in EPA’s favor and imposition of greater pre-issuance process would impose substantial costs on EPA without providing significant benefit to PRPs.

Francisco Franco is still dead. CERCLA is still constitutional. Plus ca change, plus c’est la même chose.

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In a decision that could have significant impact on states’ efforts to limit cross-border pollution, Judge Lacy Thornburg of the District Court for the Western District of North Carolina issued an affirmative injunction against the TVA this week, requiring it to install pollution control equipment at its facilities located nearest to North Carolina and imposing specific emissions limits from those facilities. The basis for the injunction was a finding, after trial, that the facilities created a public nuisance as a result of the air pollution transported from those facilities to North Carolina.

The decision is notable for a number of the findings and holdings.

• Generally speaking, compliance with regulations does not preclude a finding that air emissions constitute a nuisance. (The Court applied the nuisance law of the states in which the plants were located.)
• Ozone and PM_2.5 can create adverse health impacts at concentrations below the National Ambient Air Quality Standards (NAAQS). This suggests that facilities contributing to concentrations of air pollutants can be subject to an injunction requiring the facility to decrease emissions, even if the area is in attainment of the NAAQS.
• The Court looked to survey data indicating that Blue Ridge Parkway visitors would pay $328 in annual taxes in order to improve visibility. As many readers will know, this kind of survey research is extremely controversial and may lead to some extraordinary damages findings.
• The Court declined to impose an injunction against TVA facilities that were not proximate to North Carolina, essentially on the ground their impacts on North Carolina were de minimis. The court found that those plants against which an injunction was entered contributed to somewhere between 5% and 10% of ambient contaminant concentrations. The other plants contributed less 0.1% of ambient concentrations.
• The Court imposed a stringent schedule by when pollution control equipment must be installed. The Court gave the TVA 27 months to install scrubbers and 21 months to install SCRs. This time frame was substantially shorter than that proposed by the TVA.

The one piece of good news for generating plants was the court’s causation analysis with regard to more distant plants. That analysis, if followed, suggests it would be extremely hard for a public nuisance plaintiff to prevail in a global warming case, since the causative contribution of any facility or even group of facilities to the global warming problem is almost certain to be even more attenuated than for those TVA plants distant from North Carolina.

The decision undoubtedly gives downwind states a substantial hammer against upwind sources of contamination (and could be applied to water pollution cases as well as air pollution). Indeed, in the current set of Congressional negotiations, industrial interests could conceivably be tempted to accept more stringent emissions limits in return for preemption of state nuisance laws. It will be interesting to see how this plays out in Congress.

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While many economists are worried about the possibility of deflation in the current economic crisis, EPA still is concerned about inflation – specifically inflation in the amount of statutory civil penalties under statutes enforced by EPA. In a Federal Register notice dated December 11, 2008, EPA announced increases in its civil penalties. 

Some of the increases are not trivial. It is of course true that EPA rarely obtains, or even seeks, the maximum permissible penalty, but the maximum does set the boundary for negotiations with the agency. 

All joking aside, EPA has a statutory obligation under the Debt Collection Improvement Act of 1996 to review penalty amounts at least every four years and to adjust the penalties based on the provisions of the DCIA. Nonetheless, in the current situation, EPA’s sense of timing is impeccable.

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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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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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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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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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Can a party found liable of violating the Clean Air Act's New Source Review provisions be required to reduce future pollution more to mitigate emissions caused by past violations?  According to a recent U.S. District Court decision, maybe.

In U.S. v. Cinergy Corp., S.D. Ind., No. 99-1693, decided October 14, 2008, the first court to rule on whether retroactive, as opposed to prospective relief, is available under Section 113 of the Clean Air Act found that the court does have the authority to grant such relief.  Although the court stopped short of ordering this relief (procedurally, this opinion was a denial of the defendants' summary judgment motion), the court held in sweeping language that nothing in the Clean Air Act limits the full range of equitable relief that courts can order.

This recent ruling relies heavily on a 1946 U.S. Supreme Court decision, Porter v. Warner Holding Co., 328 U.S. 395, 398 (1946), in which the Supreme Court held that when a court's equitable jurisdiction is invoked by a statute, "all the inherent equitable powers of the District Court are available for the proper and complete exercise of that jurisdiction," unless the law by "clear and valid legislative command" or "necessary and inescapable inference" has restricted the court's equitable powers.

In Cinergy Corp., the district court said its equitable powers were invoked by the phrasing of Section 113 of the Clean Air Act which gives a court, "jurisdiction to restrain [a] violation [of the Clean Air Act], to require compliance, assess [a] civil penalty, to collect any fees owed the United States... and to award any other appropriate relief."   Applying this rule, the court determined that it would have the authority to require the three defendants to take appropriate actions that remedy, mitigate and offset harms to the public and the environment caused by their proven violations of the Clean Air Act.

In this particular enforcement suit, three companies -- Cinergy Corp. (now part of Duke Energy Corp.), PSI Energy Corp., and the Cincinnati Gas & Electric Co. -- were found liable in May of long-term violations of the New Source Review requirements in their operation of a power plant in West Terre Haute, Indiana. The US requested in their filings that the court impose specific measures to reduce pollution beyond what is required for prospective compliance, in order to make up for the nearly two decades of illegal pollution caused by the plant. 

A trial on remedies is expected to begin in February, 2009.

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As those of us who have practiced in the Superfund arena for some time know, in the early years of Superfund litigation, such litigation was, from the defendant’s perspective, brutish and short, if not nasty and mean. The DOJ attorney would, in essence, march into court, state “I am from the government; I win,” and the case would be over.

In recent years, that approach has not proven quite so uniformly successful. The key case in the defendants’ arsenal is United States v. Bestfoods. In Bestfoods, the Supreme Court looked to traditional common law principles regarding corporate law to assess the potential liability of a parent corporation under CERCLA. The Court concluded that a parent corporation could not be held liable for the acts of its subsidiary unless the traditional test for piercing the corporate veil could be met.

In a recent decision, the Seventh Circuit Court of Appeals also looked to common law principles in assessing liability under CERCLA. Once more, reference to the common law spared the defendant – at least temporarily – from the Superfund gallows. In United States v. Capital Tax Corporation, the defendant had purchased tax certificates from Cook County with respect to certain contaminated property. After it found a buyer for the property, Capital Tax then actually obtained tax deeds to the property. Capital Tax had no written agreement with the buyer and did not transfer the tax deeds to the buyer, because the buyer never made full payment of the purchase price. 

Eventually, EPA issued an administrative order to Capital Tax requiring it to clean up the property. When Capital Tax refused to do so, EPA performed the cleanup and sued Capital Tax, seeking recovery of response costs and penalties for failure to comply with the order. Capital Tax defended the case, arguing that, although it did hold legal title to the property, it did so only as security for the balance of the purchase price. In other words, Capital Tax asserted that it was entitled to the security interest defense under § 101 of CERCLA.

The Court found for Capital Tax, but took a slightly different approach. The Court concluded that Capital Tax should have an opportunity to establish that it is not the current owner of the property because, under the doctrine of equitable conversation, the true owner was the party to whom Capital Tax intended to sell the property. 

Ultimately, the facts of the case are complicated, obscure, and not necessarily transferable to other cases. What is transferable is the Court’s insistence that state common law rules about ownership are important in determining whether a party is an owner under CERCLA. As the Court stated,

The understanding that state law governs property and the expectations built around that understanding strongly suggest that the federal standard should be rooted in an adoption of state property law. … To invent out of whole cloth a distinctly federal law of property would be inappropriate, if not impossible.

The lesson from Capital Tax is thus a simple one, even if its application may be complicated in specific cases. CERCLA does not mean that the government always wins. It does not mean that common law is irrelevant. If a party’s status is the determining issue for Superfund liability, then the party should carefully consider what applicable state common law says about that status. The government may still win most of the time, but the defendants now have at least a few arrows in their quiver.

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EPA’s enforcement efforts under the New Source Review, or NSR, program have had more twists and turns during the past ten years than it is possible to catalogue, at least in a blog post short enough to avoid crashing the server. In brief, EPA began under the Clinton administration an ambitious effort to bring NSR cases against numerous power plants. Those efforts have had substantial, though not perfect, success in court. Settlements with some targets have also yielded hundreds of million dollars in agreed-to upgrades in plant emission controls.

The Bush administration, of course, sought to amend the NSR regulations in ways that were inconsistent, at least going forward, with the pending enforcement actions. The Administration nonetheless continued to prosecute the cases that had already been brought, though at least for a time it decided that it would only bring new cases if they were consistent with its new NSR regulations. Still with me?

A settlement recently reached by EPA with St. Marys Cement, demonstrates that EPA’s NSR enforcement efforts still have some life. The settlement is the first by EPA with a company in the cement industry. All of the prior settlements were either with power plants or refineries. In the settlement, St. Marys agreed to pay $800,000 in civil penalties and to implement emission control projects. While the consent decree does not state the expected cost of the emission controls, these projects often cost in the millions or tens of millions of dollars.

There is no reason to think that the St. Marys settlement is a one-off by EPA. Other facilities in the cement industry should be assessing their potential NSR exposure, and any facility, whether power plant, refinery, cement kiln, or other major source, should assess the NSR rules in making decisions regarding facility maintenance or upgrades. 

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