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

The Cape Wind project cleared another important hurdle yesterday with a 4-2 ruling by the Massachusetts Supreme Judicial Court, holding that the state Energy Facilities Siting Board (EFSB) can authorize local construction permits for the project’s transmission lines. The decision in Alliance to Protect Nantucket Sound Inc. v. Energy Facilities Siting Board is particularly significant because it means that the renewable energy project has all of the state and local permits it needs to move forward.  

In late 2007, after the Cape Cod Commission denied its proposed Development of Regional Impact (DRI), Cape Wind applied to the EFSB for a “certificate of environmental impact and public interest” -- a composite of all of the individual state and local permits required for the construction of the 18.4 miles of transmission lines that will connect the wind farm to the regional power grid. This suit, brought by the Cape Cod Commission, the town of Barnstable, and the Alliance to Protect Nantucket Sound, challenged the EFSB’s May 2009 decision granting the certificate to Cape Wind. In short, the SJC held that the EFSB had the authority to grant the certificate and upheld the Board’s substantive findings, which balance the environmental impacts of the transmission lines with the need for the project. 

A key aspect of the decision is the SJC's rejection of the petitioners' arguments that the EFSB should have reviewed “in-State” impacts of the wind farm, which is permitted exclusively by Federal authorities, rather than focusing solely on the impacts of the transmission lines, which require state and local permits.  Essentially, if the project is built in federal waters, the EFSB can trust the feds to get it right, the majority said.

Chief Justice Marshall (joined by Justice Spina) dissented, issuing a stern warning:

The stakes are high.  As we have recently seen in the Gulf of Mexico, the failure to take into account in-State consequences of federally-authorized energy projects in federal waters can have catastrophic effects on state tidelands and coastal areas, and all who depend on them. 

The decision also includes a lively debate about the implications of the public trust doctrine and the Chapter 91 licensing scheme in this context.

Writing for the majority, Justice Botsford concluded that the statute which authorizes the EFSB to issue certificates of environmental impact and public interest provides

an express legislative directive to the siting board to stand in the shoes of any and all State and local agencies with permitting authority over a proposed "facility"-- that is, a directive to assume all the powers and obligations of such an agency with respect to the decision whether to grant the authorization that is within the agency's jurisdiction, with regulatory enforcement thereafter returned to that agency.

Again, Chief Justice Marshall disagreed.  Reflecting on the SJC’s recent decisions in Moot v. Department of Envtl. Protection, (2007) and Arno v. Commonwealth, (2010), she reasoned that even in this case -- which has to do with the administration rather than the relinquishment of public trust rights -- the Legislature must act expressly. Here, Justice Marshall concluded,

the siting board has purported to act as the protector of the public's long-standing rights under the public trust doctrine without the necessary express legislative authority to do so.

Of course, underlying this debate is the important policy question of which picture of Nantucket Sound is more protective of the public trust?  The state, and now the SJC, have chosen.

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Those who operate industrial facilities or do development in Massachusetts often know far more than they would like about Chapter 214, § 7A, the environmental citizens’ suit provision of the Massachusetts General Laws. Chapter 214, § 7A, eliminates plaintiffs’ usual obligation to demonstrate standing and simply gives 10 citizens the right to sue to prevent or eliminate “damage to the environment.” The damage does have to constitute a violation of a statute, regulation, ordinance, or by-law, the major purpose of which is to prevent damage to the environment.

Chapter 214, § 7A, does not contain any statute of limitations. Does this mean that ten persons can sue any time, even if the conduct complained of is allowed under a permit and the permit was issued long ago, as long as the plaintiff alleges that the permit should not have been issued and the conduct in fact violates a statute or regulation? Thankfully, Judge Locke of the Superior Court recently answered that question, posed in EarthSource v. Burt, with an emphatic “No.”

Full disclosure time – this firm (including yours truly) represents Covanta, the private defendant, in EarthSource v. Burt.

Earthsource v. Burt deals with efforts by Covanta, which operates four municipal waste combustors in Massachusetts, to initiate a process at its SEMASS combustor in which it would take what are known as fats, oils, and grease (or FOGs) from restaurants, separate the FOGs from the associated wastewater, recycle the wastewater, and combust the FOGs at the SEMASS facility. EarthSource is a competitor of Covanta in the FOGs processing business. It and some citizens (many, if not all, of them affiliated with EarthSource or related entities) brought suit against MassDEP and Covanta, not just to stop the FOG project at SEMASS, but alleging wholesale violations by Covanta at all of its Massachusetts facilities. Routinely, the complaint alleged that DEP misinterpreted its own regulations, should not have issued the permits, and that the permits were void “ab initio.” 

Covanta and DEP both moved to dismiss those counts that involved claims related to permits issued outside the appeal period provided in either the applicable substantive statute or in the Massachusetts Administrative Procedure Act, ch. 30A, § 14. EarthSource argued that the APA does not limit the time in which suits can be brought under Chapter 214, § 7A. Judge Locke concluded otherwise, noting that:

a contrary rule would be disruptive to the permitting agencies and that G.L. c. 214, § 7A should not become a means to disturb otherwise settled permits whenever a group of plaintiffs chooses to file suit sometime in the future.

Truer words were never spoken. Going forward, the rule for persons who don’t like permits is going to be “speak now or forever hold your peace.”

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As many of you know, the Commonwealth's tidelands licensing statute, Chapter 91, is one of my favorites, for no other reason than that it gives me the opportunity to talk about where the "waters ebbeth and floweth."  Deriving from the Colonial Ordinances of 1641 and 1647, Chapter 91 is about as arcane as it gets – which, of course, lawyers are supposed to like. 

The short version is that the Commonwealth holds the fee interest in “Commonwealth Tidelands” – those below the low water line. While the Commonwealth can license private use of Commonwealth Tidelands, only the legislature, acting explicitly, can give up those rights. Private Tidelands, the land between high and low water, are owned by the upland owner, but are subject to public rights in “fishing, fowling, and navigation” – another reason why I love Chapter 91.

In a decision handed down today, the Massachusetts SJC made crystal-clear that nothing short of an explicit legislative act is sufficient to eliminate the public’s ownership rights in tidelands. In Arno v. Commonwealth, the “owner” of land in Nantucket that was filled in the 19^th Century sued the Commonwealth, essentially seeking a declaration that he was the fee owner of the land. His argument was that a prior owner had registered the land in 1922, and the Attorney General, in commenting at the time, did not object to registration or assert that the Commonwealth still owned the land. To the SJC, what the AG did – or intended to do – in 1922 was irrelevant. 

Neither the Land Court nor the Attorney General had the authority to divest the public of its rights in Arno’s parcel…. Only an act of or an express delegation by the Legislature could extinguish the public’s rights.

The decision is probably not a surprise following the SJC’s original Moot decision, but is nonetheless a lesson to those who would claim ownership in tidelands. If the waters ebbeth and floweth – or if they ever did – only the legislature can give them away.

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It has long been understood that Massachusetts that the Commonwealth cannot meet its renewable energy goals with solar power alone. Solar is great, but really ratcheting up the percentage of energy supplied by renewable sources is going to take a big commitment to wind. In fact, Governor Patrick announced a goal of 2,000 MW of wind on- and off-shore in Massachusetts by 2020. There are currently 17 MW of wind power in Massachusetts.

Everyone knows the permitting travails – now, hopefully, over – that Cape Wind has faced. It is less known that on-shore wind has not been any easier to develop in Massachusetts. Yesterday, in Ten Local Citizen Group v. New England Wind, the Supreme Judicial Court released a major on-shore wind project from permitting appeal purgatory. The New England Wind project (perhaps still better known as Hoosac Wind) in Florida and Monroe, Massachusetts, was proposed in 2003. Not uncommonly for projects of this sort, the appeal that delayed project implementation had nothing to do with the merits of on-shore wind. It was an appeal over wetlands approvals needed for a gravel access road. By the time MassDEP issued a Superseding Order of Conditions, the opponents requested an adjudicatory hearing, the hearing was held, the ALJ issued a 78-page recommended decision rejecting the permit, the Commissioner issued a 31-page final decision affirming the permit and rejecting the ALJ’s recommended decision, the Superior Court affirmed the Commissioner, and the SJC affirmed the Superior Court, it was July 6, 2010.

I don’t know about you, but I’m out of breath just typing this history. There has to be a better way. It’s certainly safe to say that if wind projects – wherever located – take 7 or 8 years to permit, it’s going to be 2120, not 2020, before we have 2,000 MW of wind in Massachusetts. As some readers will be aware, the Administration has been supporting legislation to facilitate siting of wind power facilities in Massachusetts, but it hasn’t been enacted yet and the forces that make it difficult to obtain final permits in Massachusetts go far beyond the issues that would be addressed by the wind siting legislation. 

For the lawyers among my readers, the decision breaks little ground. Yes, the Commissioner of DEP has considerable discretion in interpreting her own regulations. No, the ALJs who hear adjudicatory appeals and make recommended decisions are not entitled to any deference. 

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It may be time to learn a new acronym.  The 10 RGGI states, plus Pennsylvania and Washington DC have banded together to create the Transportation and Climate Initiative (TCI) -- a group that has pledged to create a plan to address the estimated 30% of greenhouse gas emissions on the eastern seaboard caused by the transportation sector. 

In a Declaration of Intent released Wednesday, the leaders of the environmental, transportation and energy agencies of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont and Washington DC, pledged to develop and implement a three-year work plan that outlines how the region can cut greenhouse gases from vehicles and improve efficiency of regional transportation systems.   The TCI builds on RGGI (which does not itself regulate fuels or transportation, but began the states' collaborative efforts on the issue of greenhouse gas emissions) and the 11-states' low carbon fuel memorandum of understanding signed in December.

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Last week, EPA released its Clean Watersheds Needs Survey 2008 Report to Congress. I have three immediate reactions to the Report. The first is that there are a lot of needs out there. The Report’s bottom line is that there is currently an expected shortfall of $298 billion over the next 20 years for clean water infrastructure. As Congress turns from short-term stimulus spending to long-term concerns about the deficit, it’s difficult to see Congress being eager to hear National Association of Clean Water Agencies Executive Director Ken Kirk say that

the federal government must become a long-term partner in developing a sustainable funding mechanism to address the growing infrastructure funding gap.

My second reaction is that I’m skeptical of these numbers. I don’t doubt the big picture funding gap, but it’s clear in a quick review that different states report these numbers differently. For example, as readers of this blog know, both EPA and Massachusetts DEP are making big pushes to increase stormwater regulation in Massachusetts. However, the Report states that, while Massachusetts has almost an overall $8 billion shortfall, its stormwater needs are only $41 million. The Report further states that Massachusetts needs literally zero money for stormwater conveyance infrastructure and only $22 million for treatment systems. Pennsylvania, on the other hand, apparently needs $6 billion for stormwater infrastructure. 

As much as I love my adopted state, I’m doubtful that Massachusetts is that far ahead of Pennsylvania. I sure hope that, before spending decisions are made, someone takes a closer look at these numbers.

My third reaction is one of fear, particularly on the stormwater front. Nationally, the overall shortfall associated with stormwater is nearly $43 billion. We’ve already seen in Massachusetts efforts to push stormwater compliance costs onto private landowners. With that sort of shortfall, the pressure to do so can only increase, particularly as local governments are starved for revenue. 

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EPA is proceeding with its plan to establish a new program to regulate stormwater discharges from new development and redevelopment, with a target date for a final rule by November 2012. The next step: the reissuance of draft mandatory questionnaires that, once finalized, will be sent to various stakeholders, including approximately 738,000 owners and developers of residential, industrial and commercial sites. According to EPA, the “target population for the Owner/Developer Questionnaires is all development establishments in the United States,” as defined by 8 NAICS codes (see Part A.4 of EPA’s Supporting Statement for further information on whether your business would be covered).

The questionnaires request detailed information about real estate improvements during the last five years as well as the financial characteristics of development companies and their projects. There are two versions of the Owner/Developer questionnaire, but only the longer version -- which will be sent to “selected recipients” -- seems to address the types of stormwater controls actually used, or the cost of those controls, in any detail. Thus, while the longer questionnaire will present an additional burden for its recipients, it will also allow developers to report key information for the regulated community, including the cost-effectiveness and context of stormwater controls (e.g. soil types, urban vs. rural settings). 

Among other stakeholder groups, EPA will also send questionnaires to owners and operators of municipal separate storm sewer systems (MS4s) and to National Pollutant Discharge Elimination System (NPDES) permitting authorities. That means that one party that apparently won’t have to fill out a questionnaire is the Massachusetts DEP, which, along with 4 other states and the District of Columbia, does not have NPDES permitting authority. Particularly in light of MA DEP’s own recent stormwater proposal, EPA might consider asking all state environmental authorities about the scope of their current and planned regulatory efforts with respect to stormwater, so as to better coordinate state and federal programs. 

We’re pleased that EPA is making an effort to base its regulatory proposal on good information. Nevertheless, developers should watch the rulemaking process carefully between now and 2012. The 30 day public comment period on the draft questionnaires ends June 9, 2010.

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Yesterday’s New York Times had a very interesting article regarding the use of advanced municipal waste combustor technology in Europe. As the article notes, such plants are relatively commonplace in Europe, whereas literally no new waste-to-energy plants are being built in the United States. Ian Bowles, our own Secretary of Energy and Environmental Affairs – and someone who has generally been a very successful promoter of renewable energy technology – acknowledged that “Europe has gotten out ahead with this newest technology.” 

This shouldn’t be surprising given that states such as Massachusetts have moratoria on new municipal waste combustors. It’s difficult to keep up with Europe when you order people not to try. In fairness to Secretary Bowles, the article pretty much makes clear why it is that Massachusetts has a moratorium in place and why we’ve fallen behind Europe. Laura Haight, at New York PIRG said that

Incinerators really are the devil.

Glad that there’s no rhetorical excess at NY PIRG. In any case, it’s difficult for regulators to move forward when one of their prime constituencies thinks that the technology is the devil.

Is it possible that the U.S. environmental community is letting the perfect be the enemy of the good on this issue? NY PIRG wants to get to a “zero waste” economy. I think we’ll get to a zero carbon economy before we get to a zero waste economy.

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EPA Region 1 continues to roll out new programs on the stormwater front, and this week’s development is particularly important for private property owners in the Charles River watershed. The agency released proposed amendments to the Residual Designation for the Charles River (“RDA”) and a Draft General Permit for Residually Designated Discharges. While the proposed permit only affects the Massachusetts communities of Milford, Bellingham, and Franklin, EPA has stated that it may expand the General Permit to include other Charles River communities in the future, so property owners along the entire length of the Charles River should be paying attention.

The full set of materials can be found on the EPA’s website, but here are a few highlights: 

2-acre threshold: “Designated Discharges” covered by the permit consist of two or more acres of privately-owned impervious surfaces. (Many publicly-owned properties located in the Charles River basin will be subject to the Massachusetts North Coastal Small MS4 General Permit, released in draft by EPA Region 1 earlier this year.)

Aggregation: As those of you following stormwater issues in Massachusetts are aware, the first draft of the RDA was linked to the proposed state stormwater regulations, which included an “aggregation rule” with a number of onerous consequences. The amended RDA and the draft General permit are no longer connected to the stalled state regulations, but they still include the concept of requiring a single permit for contiguous but separately owned properties that share stormwater controls. Fortunately, unlike the state proposal, each co-permittee will only be responsible for ensuring compliance for “all terms and conditions of this permit applicable to the activities that it controls or has the right to control.”

Permit requirements: The draft permit includes a series of stormwater control requirements including a 65% phosphorus load reduction target (derived from the Lower Charles River TMDL) that permittees can implement on-site through structural or non-structural controls or through a “Certified Municipal Phosphorus Program.”

Comments are due June 30. We expect EPA to take a lot less time to finalize these documents than MassDEP has taken to finalize its own stormwater program.  

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I’ve been waiting to write this headline ever since the SJC took this case. Today, the SJC issued its long-awaited decision in Moot v. Department of Environmental Protection. For those of you who pay attention to where the waters ebbeth and floweth – or at least where they ebbed and flowed in 1641 – you know that this is the second time that Moot has been before the SJC.

After the SJC struck down MassDEP regulations which provided that landlocked tidelands did not need a license under Chapter 91, as the Commonwealth’s waterways statute is now known, the Legislature took a shot at fixing what would have been a major problem by passing new legislation specifically excluding landlocked tidelands from the need to obtain a license. 

Moot challenged the legislation, arguing that it completely relinquished all of the Commonwealth’s rights in private tidelands, without making the findings necessary to justify such a relinquishment. The SJC did not agree. The Court concluded that the Commonwealth has preserved its rights in landlocked tidelands, and noted that projects subject to MEPA must address project impacts on the Commonwealth’s tideland rights. In essence, the Court concluded that the oversight provided by MEPA was sufficient to demonstrate that the Commonwealth could and would still enforce its rights in landlocked tidelands. Since those rights are still protected, the Court concluded, the Legislature had authority to exclude landlocked tidelands from the need to obtain a license under Chapter 91. 

This is clearly the right result. The only question in my mind is the gymnastics that the Court had to go through to get there. The Court may have concluded that the Commonwealth has not relinquished all of its rights in landlocked tidelands, but does anyone think that the MEPA process will ever result in developers being required to make changes to their projects to protect those rights? I sure hope not. Certainly, the first developer forced to do anything different as a result of that process is not going to be a happy camper. It would have been cleaner for the SJC to acknowledge that the Legislature was effectively relinquishing the public’s rights in landlocked tidelands and to affirm that act. Nonetheless, this decision pretty much did what was needed and a large number of landowners – not just the developers defending this case – are breathing a lot easier this afternoon.

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Those of us who advise clients regarding compliance with environmental regulations have often been in the awkward position of agreeing with clients that the agency position is, shall we say, misguided, yet at the same time advising against legal challenge, because the judicial review deck is stacked so heavily in favor of the agency. (In another time or place, one might ask why this is so.)

Nevertheless, occasionally, the agency loses and, when it does, that loss can be instructive. Yesterday, the Massachusetts Supreme Judicial Court ruled that MassDEP may not impose conditions on registrations under the Water Management Act without first promulgating regulations to guide its discretion in imposing such conditions.

Under the WMA, withdrawals existing as of the date of Act were grandfathered and persons with such withdrawals are allowed to maintain them by registering the withdrawal with MassDEP. Such registrations must be renewed periodically, but MassDEP may not reduce the size of the withdrawal. (New or increased withdrawals, on the other hand, require a permit and are subject to more stringent regulation.)

In the last round of registration renewals, MassDEP began imposing conditions on the registrations in order to increase water conservation. However, while the statute authorizes MassDEP to impose conditions on permits, similar language does not exist with respect to registrations. 

The SJC spent some time discussing MassDEP’s authority to promulgate regulations that would impose conservation requirements on registrants, but made clear that the plain language of the statute did not seem to authorize MassDEP to impose conditions on registrants absent regulations.

What’s the lesson here? With respect to the WMA, it’s “no shortcuts.” If MassDEP wants to impose conservation requirements on registrants, it must do so pursuant to validly promulgated regulations. What’s the broader lesson? Challenging the agency may be an uphill battle, but legislative language does matter and, where the language is clear, the courts will – at least sometimes – enforce it.

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As most of my Massachusetts readers know, on Friday, Secretary of Energy and Environmental Affairs Ian Bowles and DEP Commissioner Laurie Burt announced that Massachusetts would retain its moratorium on new construction or expansion of municipal waste combustors. Although the overall outcome is not really a surprise from this administration, a few points are worth noting.

The announcement says nothing about new technologies, such as plasma arc gasification. Arguably, such a technology is not “incineration” or “combustion,” so we’ll have to see whether the administration remains open to such alternatives to traditional incineration.

The administration emphasized that it is committed to decreasing the volume of the waste stream and noted some specific initiatives that it intends to pursue:

Comprehensive producer responsibility legislation for discarded electronics – The announcement did not refer to any specific legislation (see here for a helpful table summarizing the current state of e-waste legislation nationwide, including in MA), but the administration is clearly going to be pushing for some kind of E-waste bill.

Expansion of the bottle bill to cover water and sports drinks. Since I have joined those who consider bottled water use a pet peeve, I can’t complain about this one.

Finally, the Secretary stated that he had directed DEP to cease permitting any use of construction and demolition, or C&D, waste as fuel in any energy facility until a comprehensive review can be completed.  The announcement specifically called out the Palmer Renewable Energy facility as being affected by the halt.

It is clear that the current economy is not discouraging the Patrick administration from its aggressive environmental agenda.

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As I discussed last week, in response to the current dire state fiscal outlook, Massachusetts Secretary of Energy & Environmental Affairs Ian Bowles announced, pursuant to a request from Governor Patrick, a search for “options for departmental reorganization and consolidation, streamlined operations and procedures, and new models for doing the public's business.” Given that Secretary Bowles has invited public assistance, it should not be too surprising that some folks have stepped up to the plate, so I thought I would share submittals that I have seen. 

Recently, both NAIOP and the Environmental League of Massachusetts have made suggestions to Secretary Bowles. Before going further, I should note that I need to be a little more circumspect here that I might normally be, because I do advise NAIOP on regulatory reform issues and I’m on the board of ELM. Since that is the case, you’re going to get more summary and less commentary than you otherwise might. That being said, here goes.

The NAIOP letter was much more detailed. I think that the regulated community sees this as an opportunity to push for regulatory reform efforts that it truly believes benefit both the regulated community and EEA. The benefits to EEA are precisely those that were the subject of the Governor’s request to his cabinet – by increasing use of general permits, privatizing more audit-type functions, and reducing the number of unnecessary, i.e., not statutorily-mandated regulations and guidance documents, EEA and MassDEP can operate more leanly and conserve precious resources. These types of changes may have a sympathetic audience at EEA, but they are very difficult to implement, because the environmental community is so skeptical of these types of programs. The current budget problems may provide a rare opportunity to advance this part of the regulated community’s agenda.

ELM’s letter was much more limited in its scope. It largely provides the rationale for limiting cuts to EEA departments. I think that this largely reflects a “where you stand depends on where you sit” phenomenon. NAIOP sees the budget problem and the Secretary’s invitation as an opportunity; ELM and other environmental NGOs see it as an exercise in damage control. ELM’s position is understandable and defensible. It is true that DEP, at least, took what many see as disproportionate cuts during the last budget crisis.

If I may mix my metaphors, I’m an optimist, so I sit in the half-full glass, and I thus stand squarely in favor of seizing this opportunity for thoughtful regulatory reform. The budget crisis is obviously a major headache for EEA and its departments. However, many of the suggestions NAIOP has made are good public policy that would maintain – or increase – environmental protection, while allowing the agencies to accomplish this important goal with fewer resources.

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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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The Regional Greenhouse Gas Initiative (RGGI) has released the clearing prices from its 5th quarterly auction of CO₂ allowances, held on September 9, 2009.  Prices for the 28.4 million 2009 vintage allowances sold fell sharply from the June auction's clearing price of $3.23 to $2.19, and the 2.1 million 2012 vintage allowances sold for only $1.87, just one cent above the market floor of $1.86, and well below the $3.05 that they earned at the March 2009 auction, which was the first at which these later vintage allowances were offered for sale. 

Interestingly, while the number of participants in the 2009 vintage auction remained relatively steady, no non-compliance entities (persons not regulated under RGGI) participated in the 2012 vintage auction.  These participants had amounted to 38% of the bids for 2012 allowances in the June auction. 

RGGI, Inc. has also released the range of bid prices in the 5th auction, allowing some insight into how the players value these allowances.  Bid prices for the 2009 vintage allowances ranged from the minimum clearing price of $1.86 to $12.00, the same as in the 4th auction, while bid prices for the 2012 auction ranged from $1.86 to just $3.00, down from June's high bid price of $3.84 and March's high bid price of $4.40.

Wednesday's auction was the first since the passage of ACES by the House in late June.  ACES provides for an even exchange of RGGI allowances for national allowances, something that could increase the value of RGGI allowances going forward, as it removes some uncertainty.  Nonetheless, pundits had predicted lower prices from this auction for a number of reasons, including doubt about the likelihood that the Senate will pass a national cap-and-trade program

The decrease in prices and lack of participation in the 2012 auction is also interesting given a report released on Wednesday by Point Carbon which predicts that actual emissions from the RGGI-regulated northeastern power plants will already be much lower than the RGGI cap, set at 188 million allowances per year.  According to Climate Wire, the report notes that the economic downturn, combined with a cool summer and warm winter reduced the amount of fuel for electricity used in the 10-state region. Falling natural gas prices have also prompted generators to switch away from more carbon-intensive fuels like coal and oil to natural gas.  The report predicts that the CO₂ emissions from the 233 power plants regulated under RGGI will emit 155 million tons this year, well below the cap.

Although the RGGI cap will begin decreasing by 2.5% each year in 2015, the years until then may provide an opportunity for regulated generators and other interested bidders to stockpile  allowances.  Given that RGGI allowances may be banked for future use without restriction, such a large number of allowances being banked could keep prices depressed for some time.

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Although not breaking any new ground, a decision from the Massachusetts Appeals Court last week provides a helpful summary of the discretion typically given to MassDEP in making permitting decisions. In Healer v. Department of Environmental Protection, abutters to a proposed wastewater treatment facility in Falmouth sued MassDEP, claiming that the groundwater discharge from the leach field associated with the facility would damage drinking water supplies and nearby wetlands. The Court affirmed the MassDEP Commissioner’s rejection of the abutters’ challenge.

As the Court noted

the “applicable standard of review is “highly deferential to the agency” and requires the reviewing court to accord “due weight to the experience, technical competence, and specialized knowledge of the agency, as well as to the discretionary authority conferred upon it…. We give deference to the decision of an agency interpreting its own regulations … [and] do not intrude lightly within the agency’s area of expertise, as long as the regulations are interpreted with reference to their purpose and to the purpose and design of the controlling statute.”

As if that were not enough of a nod towards agency deference, the Court also noted, in the context of the plaintiffs’’ challenge to the monitoring requirements imposed in the permit, that

The Legislature “has chosen to put into the hands of an expert administrative agency the decision making regarding complex issues of environmental … science…, and has allowed the agency considerable discretion in determining monitoring of applicable parameters in order to carry out its duty….

Finally, the Court made at least one statement about the plaintiffs’ affirmative case that is sure to be cited by MassDEP and permittees in future citizen suits. In rejecting the plaintiffs’ argument that toxic household chemicals might cause environmental damage, the Court stated that the “regulations do not require the department to establish permit conditions based on the plaintiffs’ speculative concerns.”

So, what’s the upshot of Healer? It certainly confirms that, as a general matter, courts are not going to reverse agency decisions unless they seem really off-the-wall.  On the other hand, it remains true that MassDEP does not always win and my own jaded view is that courts remain willing to reverse MassDEP, even when deference would require that the court affirm the agency, if the agency decision somehow rubs the court the wrong way.

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In an important decision yesterday, the Massachusetts Supreme Judicial Court ruled that the operator facility participating in the renewable portfolio standard program did not have standing to challenge a state decision authorizing other facilities to participate in the RPS program. The decision may have broad implications regarding when businesses may challenge the issuance of permits or other approvals to competitors in Massachusetts.

In Indeck Maine Energy v. Commissioner of Energy Resources, the plaintiffs operated biomass facilities which were authorized to sell renewable energy credits. When the Department of Energy Resources authorized two other biomass facilities to sell RPS credits, plaintiffs sued.

As the SJC noted up front, to establish standing, a plaintiff must “allege an injury within the area of concern of the statute or regulatory scheme under which the injurious action has occurred.” At least in Massachusetts, an injury from business competition does not confer standing. However, prior cases held that this rule “does not apply … to competitors in a regulated industry.” The question is thus: What does it mean to be in a regulated industry?

After analyzing the purpose of the RPS statute and its prior cases on this issue, the court came to a relatively simple conclusion:

The question of standing in the context of competitive injury turns not simply on whether an industry is regulated, but rather on how that industry is regulative. The common threat present in the cases in which standing has been found is regulatory schemes that contemplated some form of protection of the competitive interests of the respective plaintiffs.

Accordingly, if an industry is regulated in such a way that it can be said that the protection of competitors is within the regulatory scheme’s area of concern, such a competitor alleging harm deriving from business competition would have standing to sue.

Applying the rule here, the SJC concluded that the plaintiffs did not have standing, because the Legislature “did not seek to protect and thereby confer standing to sue on existing competitors, thereby creating a barrier to market entry.” In other words, a business does not have standing to challenge an approval issued to a competitor unless the very purpose of the regulatory scheme was to protect the competitive position of the plaintiff.

This decision has potentially significant impacts on other permitting regimes, such as those implemented by MassDEP.  Following Indeck, a business harmed by the issuance of an environmental permit issued to a competitor will not have standing to challenge the permit, because it is not the purpose of any of the environmental permitting regimes to create barriers to market entry.

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The Massachusetts Department of Environmental Protection (DEP) yesterday published a final amendment to the first set of Global Warming Solutions Act regulations, 310 CMR 7.71.  These regulations set a baseline for Massachusetts' 1990 emissions and create a reporting system that will track emissions going forward, providing a framework for economy-wide reductions of 10% to 25% by 2020 and 80% by 2050.  The regulations are the first phase of implementation of the Global Warming Solutions Act, passed last August, which, at the time, called for the largest cuts in greenhouse gas reductions seen in the nation.

In short, the reporting regulations require any facility that emitted more than 5,000 short tons of CO₂ equivalents from stationary sources (whether from fossil fuel combustion or biofuels), and any facility that is required to have an air permit under Title V of the Clean Air Act to report annually its greenhouse gas emissions.  The regulations begin with reporting 2009 emissions of CO₂ from the combustion of fuels, and ramp up in 2010 to require reporting of emissions for all six greenhouse gasses (CO₂, methane, nitrous oxide, chlorofluorocarbons, per fluorocarbons, and sulfur hexafluoride), whether or not they were produced by the combustion of fuels. Most reporting entities will also have to report emissions from vehicles (both off-road and on) that are owned or leased by the company and used in support of a facility.  As DEP provided in its response to comments, this could include cars given to executives for commuting.  

The final regulations make substantial changes from the emergency regulations, issued in December, 2008.   Among them, reporters must certify their emissions and have independent third-party verification of emissions every three years.  Also notable is the provision that requires every retail seller of electricity in Massachusetts to report the megawatt hours it sold the previous year and the greenhouse gas emissions that are associated with that power.  To calculate the emissions, DEP will create four emissions factors every year -- one based on fossil fuel-powered generators in Massachusetts, one based on biofuel-powered generators in Massachusetts, and two that are based on New England-wide emissions.

Now that the 1990 baseline has been officially set at 94 million metric tons, DEP must next establish a firm target for reductions of between 10% and 25% below that baseline to be reached by 2020, and issue an economy-wide plan to achieve that target by January 2011.   DEP estimates that 300 facilities in Massachusetts will report their emissions under 310 CMR 7.71.  It will be interesting to see the percentage of the reduction the Commonwealth will call upon those 300 entities to achieve.  If the Commonwealth looks solely to those entities to achieve the reductions, then there will surely be complaints about both fairness and efficiency.  If the Commonwealth looks beyond the 300, then there will be questions as to how compliance will ultimately be monitored. 

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Laura Rome of Epsilon has helpfully reminded me that the maturity of a regulatory program is also relevant to whether an agency should proceed by guidance or regulation.  With newer programs that remain in flux, the flexibility inherent in guidance – and the easier amendment process for guidance – counsels in favor of guidance rather than regulation.

Laura’s comment also reminded me that, a few years ago, NAIOP was sufficiently concerned about MassDEP’s use of guidance as an end-run around the formality of the regulatory process that it submitted to MassDEP suggested “Guidance on Guidance.”  The overarching principles contained in the NAIOP proposal are helpful reminders regarding the uses and limitations of guidance documents.

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There are not too many areas of environmental law where practice intersects frequently with academic theory. One such area is whether agencies should use notice and comment rule-making any time they want to set forth policy or whether they should instead be permitted to use flexible guidance documents. The real issue from the practitioner’s point of view is the extent to which use of guidance permits street level bureaucracy a degree of unfettered discretion that is truly scary. Like Judge Roy Bean, these bureaucrats are the law West of the Pecos – or at least outside agency headquarters. The flip side of the debate is the notion that modern environmental law is simply too complicated to specify all rules through notice and comment rule-making. Agencies need, as a practical matter, the flexibility to operate through informal guidance.

The debate is illustrated by two D.C. Circuit Court of Appeals decisions. First, in Appalachian Power v. EPA, issued in 2001, the Court struck down EPA use of a guidance document. The Court nicely summarized the issue:

The phenomenon we see in this case is familiar. Congress passes a broadly worded statute. The agency follows with regulations containing broad language, open-ended phrases, ambiguous standards and the like. Then as years pass, the agency issues circulars or guidance or memoranda, explaining, interpreting, defining and often expanding the commands in the regulations. One guidance document may yield another and then another and so on. Several words in a regulation may spawn hundreds of pages of text as the agency offers more and more detail regarding what its regulations demand of regulated entities. Law is made, without notice and comment, without public participation, and without publication in the Federal Register or the Code of Federal Regulations. … The agency may also think there is another advantage--immunizing its lawmaking from judicial review.

The Court dismissed EPA’s contention that the document was not binding, and said this in response to EPA’s reference to its boilerplate statement that the guidance created no rights: 

“[R]ights” may not be created but “obligations” certainly are…. The entire Guidance, from beginning to end – except the last paragraph – reads like a ukase.

Haven't all our clients felt what it is like to be under agency ukase?

Unfortunately for those who liked the outcome in Appalachian Power, it seems to have been the high-water mark for those wanting to circumscribe agency use of guidance. More recently, the D.C. Circuit refused to review EPA guidance as though it were a rule. In Cement Kiln Recycling Coalition v. EPA, responding to an Appalachian Power-type challenge, the Court concluded that EPA had not treated the guidance at issue as binding and noted that, in response to Appalachian Power, EPA had edited the guidance to make it look less binding. The Cement Kiln plaintiffs thought this was evidence of subterfuge; the Court did not buy it. The Court did acknowledge that an agency assertion that guidance is non-binding “will not make it so where there is evidence —or practice – to the contrary."

The immediate context for this post is efforts by the Massachusetts Environmental Policy Act, or MEPA, office to take a second look at its greenhouse gas (GHG) policy in light of the legislative passage of the Global Warming Solutions Act. The work group (of which I am a member) reviewing this issue has been considering whether it is better to leave aspects of the policy as guidance or whether to put them in regulation.

As you can probably tell from the start of this post, my gut reaction is always to make the agency put its rules into notice and comment regulation. I’ve had too many experiences of street level bureaucrats who take advantage of the “flexibility” of agency guidance documents to become their own version of Roy Bean.

However, my friend Sam Mygatt, whose judgment I trust, has strongly endorsed the approach of leaving many of these issues to guidance. After puzzling over this for some time – How could Sam be right and I be wrong? – I realized what the answer is:

The size of the bureaucracy matters. 

The rules -- or guidance -- at issue here are promulgated by the MEPA office.  This is also the agency Sam deals with most frequently (he did run it at one time, after all). The MEPA office has a handful of reviewers. The consultants, such as Sam, who have large MEPA practices deal with the MEPA reviewers repeatedly. They are able to build relationships of confidence and trust; it is very difficult for these reviewers to see Sam as the devil, merely looking to desecrate the environment to benefit his client. 

Larger bureaucracies are different. Street level bureaucrats have inherently more autonomy in larger bureaucracies. Moreover, while we may all get to know some staffers at DEP or EPA, it is impossible to build the same type of relationships as is possible with the MEPA office.

At a casual empirical level, this distinction seems to have substantial force. For smaller bureaucracies, stick with guidance; with larger bureaucracies, make them issues rules.

Your take?

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RGGI, Inc. the operators of the Regional Greenhouse Gas Initiative (RGGI) today announced the results of its third auction of CO₂ allowances, held on March 18, 2009.  The auction offered allowances from all ten states participating in RGGI -- Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont. 

 As we noted earlier, new for RGGI’s third auction was that the states offered just under 2.2 million allowances for the 2012 vintage, providing a first-look at future market prices for RGGI allowances. These 2012 allowances sold at a clearing price of $3.05, while the 31.5 million 2009 vintage allowances offered sold at a clearing price of $3.51 per allowance, up nearly 4% from the December 17^th auction’s clearing price of $3.38 and significantly above the initial auction’s clearing price of $3.07. This increase seems particularly notable given current economic conditions.

For the first time, RGGI, Inc. also released the range of bid prices, allowing some insight into how CO₂ is valued by the players in these auctions. Bid prices for the 2009 vintage allowances ranged from $1.86 (the minimum clearing price) to $10.00, while bids for the 2012 vintage allowances ranged from $1.86 to $4.40. Regulated generators and their affiliates continued the trend from the first two auctions of winning the vast majority of the allowances – 78% of 2009 and 93% of 2012.

It is interesting, though not surprising, that 2009 vintage allowances raked in higher bids than the 2012 vintage allowances. Given that RGGI allowances may be banked without limitation and used in future years, the 2009 vintage allowances are arguably more valuable. Even so, the fact that the 2012 vintage allowances sold for $3.05, lower even than the first RGGI auction’s clearing price of $3.07, indicates some lack of confidence in those allowances’ future value. The 2012 allowances are the first to fall within RGGI’s second three-year compliance period (2012-2015), which is significant because 2015 is the first year that the RGGI cap begins its annual process of ratcheting down 2.5%. One might think that this feature would make the allowances more valuable.  However, there remains significant uncertainty regarding what the carbon emission market will look like in 2012, whether there will be a national cap-and-trade system, and whether RGGI will still exist. Given that uncertainty, this relatively low price is understandable.

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It looks as though Massachusetts is going to at least try to avoid having lengthy environmental reviews create obstacles to spending its share of the federal stimulus package. A draft report prepared by the Commonwealth’s Permitting Task Force makes several recommendations which, if implemented, would indeed help to ensure that the money can get out the door and the shovels in the ground. Highlights include:

·                     Allowing projects to proceed, at their own risk, during permit appeals.

·                     Providing that appeals related to any stimulus projects would be heard in the permit session of the Land Court.

·                     Exempting stimulus projects from federal review. This echoes a suggestion previously made by Governor Schwarzenegger and by at least one Republican Senator. The Senate has already rejected it. As described in the Task Force report, the exemption would be limited to projects where the only basis for federal review is federal funding. There would be no general exemption from federal permitting requirements. Unlike Governor Schwarzenegger, the Task Force is not recommending that MEPA, the state environmental review statute, be waived for stimulus projects.

·                     Efforts to bring the Massachusetts Historic Commission to the table – MHC declined to participate in the Permitting Task Force

·                     Creation of permits by rule for certain types of projects in order to avoid delays resulting from individual permit applications/reviews

Time will tell whether the Commonwealth adopts any or all of these recommendations. This is only a draft report at this point. Time will also tell regarding the stimulus effort itself and efforts in Congress to smooth out the environmental review process. 

In any case, these common-sense recommendations could only help

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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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Although some of you may think that the regulatory agencies are now all climate change all the time, Massachusetts DEP has demonstrated that there is still life in some more traditional aspects of environmental regulation. MassDEP has just proposed sweeping new stormwater regulations that would go far beyond the traditional EPA model of regulating construction sites and stormwater discharges from industrial facilities.

DEP’s proposal is far too detailed for a blog post. For those interested in this issue, take a look at the client alert we issued, which hits the big issues. One big-picture item to note: There certainly seems to be something of a competition brewing between EPA and DEP regarding regulations of stormwater. 

Anyone who has at least 5 – and perhaps at least 2 – acres of impervious surface should certainly consider commenting on the regulations when they are formally issued for public comment.

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It’s not really a surprise, but the nation’s financial woes have begun to affect state government. On Wednesday, Governor Deval Patrick announced a set of wide-ranging budget cuts, intended to save more than $1 Billion. The cuts were made necessary by a steep drop in tax revenue and predictions that the drop will continue for the rest of the state fiscal year. The Governor’s stated intention is to avoid cuts in local aid and education funding and this announcement did avoid any cuts in these areas.

Therefore, it is not surprising that agencies such as the Executive Office of Energy and Environmental Affairs and the Department of Environmental Protection have had to make cuts, though the Governor apparently did take into account the severity of the cuts made at DEP during the last downturn, and spared DEP more than what might have been expected.

One area where the cuts may be felt is in the speed of environmental permitting and responsiveness to the regulated community. Among the cuts at DEP are $100,000 from the Clean Air Operating Permit and Compliance Program and $45,000 from the Hazardous Waste Cleanup Program. Although Governor Patrick has frequently trumpeted his goal of having DEP and other permitting agency respond “at the speed of business,” such cuts cannot help but slow down DEP’s ability to respond to permit applications and other filings by businesses.

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