June 16, 2022 How Low Can You Go—U.S. EPA Attempts to Answer that Question With New PFAS Health Advisory Levels

Linkedin_Steven_Siros_3130BSteven M. Siros, Co-Chair, Environmental and Workplace Health & Safety Law Practice

Glass of drinking water - municipal water use | U.S. Geological Survey

U.S. EPA issued its long anticipated interim updated drinking water health advisories for perfluorooctanoic acid (PFOA) and perfluorooctane sulfonic acid (PFOS) that replace previous U.S. EPA health advisories for these per- and polyfluoroalkyl substances (PFAS) that had been set at 70 parts per trillion (ppt). The updated advisory levels, which U.S. EPA claims are based on new science and consider lifetime exposure, evidence that U.S. EPA believes that adverse health effects may occur with concentrations of PFOA or PFOS in water that are about as close to zero as you can get.  U.S. EPA notes that these interim health advisories will remain in place until EPA establishes a National Primary Drinking Water Regulation.

U.S. EPA has set a new health advisory level of 0.02 ppt for PFOS and 0.004 ppt for PFOA.  These new levels are dramatically lower than U.S. EPA's previous 70 ppt level that applied to both PFOA and PFOS.  U.S. EPA also set final advisories for hexafluoropropylene oxide dimer acid and its ammonium salts (also referred to as GenX) at 10 ppt and perfluorobutane sulfonic acid (PFBS) at 2,000 ppt.

Interestingly, U.S. EPA's health advisory levels for both PFOA and PFOS are set well below the current analytical detection limit of 4 ppt.   Responding to questions as to how the regulated community is supposed to demonstrate compliance with these health advisory levels, U.S. EPA acknowledged it was a "complicated matter" and U.S. EPA's advice was for water providers to test for PFAS using the currently analytical methodology that can test to 4 ppt.  

Environmental groups and the plaintiffs’ bar were quick to applaud the new health advisory levels, noting that any detectible levels of PFOA or PFOS represent unacceptable levels of these compounds in drinking water. The regulated community, on the other hand, blasted the new health advisory levels, claiming that the advisory levels ignored U.S. EPA’s commitment to embrace scientific integrity.

Regardless of which side of the fence that you find yourself, it is clear that U.S. EPA’s new PFAS health advisories will be relied upon by plaintiffs to file lawsuits in any instance where a detectible concentration of PFOA and/or PFOS is found in drinking water which in turn is likely to keep drinking water providers throughout the United States awake at night. 

We will continue to provide updates on U.S. EPA’s efforts to regulate PFAS at the Corporate Environmental Lawyer blog.

CATEGORIES: Climate Change, Emerging Contaminants, Groundwater, Water

PEOPLE: Steven R. Englund, Steven M. Siros

May 19, 2022 U.S. EPA Updates Regional Screening Levels to Add Five New PFAS Chemicals

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BSteven M. Siros, Co-Chair, Environmental and Workplace Health & Safety Law Practice


EPA logoOn May 18, 2022, U.S. EPA updated its Regional Screening Level tables to include five new per- and polyfluoroalkyl substances (PFAS).  The five new PFAS compounds added to the RSL tables are hexafluoropropylene oxide dimer acid and its ammonium salt (HFPO-DA – sometimes referred to as GenX chemicals), perfluorooctanesulfonic acid (PFOS), perfluorooctanoic acid (PFOA), perfluorononanoic acid (PFNA), and perfluorohexanesulfonic acid (PFHxS). U.S. EPA added its first PFAS substance, PFBS or perfluorobutanesulfonic acid, to the RSL tables in 2014 and updated that listing in 2021 when U.S. EPA released its updated toxicity assessment for PFBS.

The RSLs are risk-based screening values for residential and industrial soils and tap water that U.S. EPA relies upon to help determine if remediation is necessary.  Although U.S. EPA is quick to point out that the RSLs are not cleanup standards, regulators at both the state and federal levels rely on these RSLs to drive decision-making at contaminated sites.  The regulators also rely on these RSLs notwithstanding that U.S. EPA has yet to officially designate any PFAS as a CERCLA hazardous substance or RCRA hazardous waste (although efforts are ongoing on both fronts--CERCLA hazardous substances /  RCRA hazardous wastes).

U.S. EPA set the screening levels for PFOA, PFOS, PFNA, and PFHxS based on the Minimal Risk Levels from the Agency for Toxic Substances and Disease Registry’s toxicological profiles.  The screening level for HFPO-DA was set based on a final, peer-reviewed toxicity value.  For example, the screening level for PFOS is set at 38 parts per trillion for tap water and 1.6 parts per million for industrial soils and the screening level for PFOA is set at 60 parts per trillion for tap water and 2.5 parts per million for industrial soils   

As we await further U.S. EPA action with respect to regulating PFAS under RCRA and CERCLA, it is interesting to note that U.S. EPA is currently engaged in a significant information gathering exercise related to historical PFAS use.  Relying on its authority under CERCLA Section 104(e), U.S. EPA has recently issued scores of information requests seeking information regarding facilities’ past PFAS uses and practices.  The use of these information requests is consistent with the statements in U.S. EPA’s 2021 PFAS Roadmap where U.S. EPA indicated that it intended to rely on its various enforcement tools to identify and address PFAS releases. 

We will continue to provide timely updates on PFAS-related issues at the Corporate Environmental Lawyer blog. 

CATEGORIES: Cercla, Climate Change, Contamination, Emerging Contaminants, Groundwater, RCRA, Sustainability, Water

PEOPLE: Steven R. Englund, Steven M. Siros

May 12, 2022 SEC Enforcement Division's ESG Task Force "Lifts the Vale" on Its Scrutiny of ESG Disclosures

May RielySigelBy Alexander J. May, Charles D. Riely, and Gabrielle Sigel

Since early 2021, the SEC has emphasized that ESG-related issues are important to investors and a key SEC disclosure and enforcement priority. Although the agency’s heightened focus on these issues led to the recent proposal for new climate disclosures, the SEC also has made clear that it would seek to bring cases under existing law and not wait for new rules to be passed.

The reality that the SEC Enforcement Division is on the ESG beat was reinforced late last month, when the Climate and ESG Task Force filed charges against a Brazilian mining company – Vale, SA. Vale describes itself as the world’s largest producer of iron ore, pellets, and nickel. The case stems from an investigation opened after one of the company’s dams collapsed, causing over 200 deaths and dramatic environmental damage. In its complaint, the SEC alleged that Vale made misstatements about its dam's safety and engaged in deceptive conduct that concealed it had committed misconduct in obtaining required certifications related to dam safety. After the SEC filed action, Vale indicated that it denied the allegations in complaint and intended to defend the action.

The SEC’s approach to the Vale litigation provides a roadmap for public companies to consider how ESG-related disclosures and statements will be scrutinized when the company is impacted by adverse events that are ESG-related. It illustrates that companies should be prepared for the SEC to closely scrutinize statements about risk in ESG disclosures such as sustainability reports or climate impact analyses. This alert discusses the SEC’s case against Vale and real-world “lessons learned” for all public companies when publishing materials about ESG, climate, and operational risks.

Summary of the SEC’s Allegations in Complaint against Vale

The SEC’s complaint alleges that Vale failed to make appropriate disclosures in the lead-up to an environmental disaster that had a direct impact on its investors’ bottom line. The January 25, 2019 collapse of Vale’s Brumadinho dam was described by the SEC as “one of the worst mining disasters in history,” releasing “nearly 12 million cubic tons of mining waste... – a toxic sludge of iron, manganese, aluminum, copper, and other rare earth minerals – in a deluge rushing downhill toward the Paraopeba River.” Compl. ¶2. The disaster killed 270 people “while also poisoning the Paraopeba River and its tributaries and causing immeasurable environmental, social, and economic devastation.” Id. As a result of the dam’s collapse, both the company’s financial performance and stock performance were impacted. In the earnings released the quarter after the dam’s collapse, Vale “reported quarterly loss and negative earnings (EBITDA) for the first time in its history.” Compl. ¶212. Vale’s corporate credit rating was also downgraded to junk status. In the aftermath of the dam’s collapse, the SEC also alleged that Vale’s American Depository Shares “fell by nearly 25%, wiping out approximately $4.4 billion in market capitalization.” Id.

The SEC alleged that “Vale and its executives knowingly or recklessly engaged in deceptive conduct and made materially false and misleading statements to investors about the safety and stability of its dams.” Compl. ¶¶277, 280, 283. As is typical, the SEC complaint details the key section of the defendant’s periodic statements that it alleged were false and misleading. Compl. at ¶284. In addition, the SEC included allegations that reflected its investigation had focused closely on the company’s ESG-related disclosures. The complaint includes false and misleading statements in Vale’s sustainability reports and “ESG Webinars” posted on the company’s public website. E.g., Compl. ¶¶ 23, 29, 245.

In alleging fraud, the SEC emphasized that Vale had committed misconduct in connection with obtaining dam stability declarations required by local law. Because of past disasters in Brazil, the company was required to obtain stability declarations from auditors to certify that auditor had approved the mine’s safety. Compl. ¶ 1. To obtain the required certifications, the SEC alleged that Vale “concealed material information from its dam safety auditors,” and “concealed material and “removed auditors and firms who threatened Vale’s ability to obtain [the required] dam stability declarations.” Id. The SEC also alleged that it “removed auditors and firms who threatened Vale’s ability to obtain dam stability declarations.” Id.

Although statements to auditors and local regulators are not typically themselves actionable under the federal securities laws, the SEC used this misconduct to support its argument that Vale defrauded investors. First, it alleged that Vale described the stability declarations that it had obtained without also disclosing the circumstances in why it procured these certifications. Second, in pursuing its case, the SEC also used this misconduct to prove the company’s executives acted in bad faith. Consistent with this, the SEC emphasized Vale’s “deceptive conduct” in connection with the audit through the complaint.

In framing this case as about ESG misstatements, the SEC was able to note that Vale itself had highlighted dam safety as an important ESG issue. Undoubtedly, Vale’s own ESG characterization of its publications addressing dam safety made them a target for an enforcement analysis with an ESG lens. For example, in 2017, in the last Sustainability Report issued before the Brumadinho dam collapse, Vale identified “priority topics” in its “materiality matrix,” which included commitments concerning “health and safety of the workforce and of the community” and “management of social, environmental and economic impacts,” as well as “management of mineral waste” and “management of business and operational risks.” Vale publicly considered “sustainability” to include many aspects of its operations, including dam safety. 2017 Sustainability Report, pp. 11-12. Indeed, in the 2019 Sustainability Report, issued in the year after the dam collapse, Vale described the consequences of the dam collapse using ESG-type language, “the rupture...cannot be understood only in light of the survey of its impacts on the population and the environment. For the company, these situations impacted the human rights of the people affected, residents and local workers.” 2019 Sustainability Report, p. 14. Thus, Vale’s emphasis on ESG issues in its framing of its operations and goals apparently gave the SEC an opportunity to focus on “ESG disclosures” as part of its Climate and ESG Task Force enforcement initiative.

Potential Implications and Lesson Learned

The SEC emphasized that the case against Vale was part of its focus on ESG-related issues. In the press release announcing the filing of the action against Vale, Gurbir Grewal, the Director of the Enforcement Division, emphasized the SEC’s consistent theme that ESG statements are material to investors. Grewal said, “Many investors rely on ESG disclosures like those contained in Vale’s annual Sustainability Reports and other public filings to make informed investment decisions,” and he stated that the company’s misstatements “undermined investors’ ability to evaluate the risks posed by Vale’s securities.”

The SEC’s focus on ESG and climate issues has increased the importance of ensuring the accuracy of disclosures (and omissions) on those issues. Although the Vale case represents a unique set of facts, it provides an important reminder on importance of carefully vetting ESG-related disclosures. Such ESG disclosures should be considered not just a marketing initiative but should be scrutinized carefully for accuracy and proper caveats. In practice, this means that companies should ensure that it has backup for each statement made. In addition, companies should be mindful of how “worst case” scenarios or “black swan” events could impact their disclosures.

The case also highlights that the SEC will investigate a potential defendant’s interactions with regulators in evaluating fraud charges. If it finds evidence of misconduct, the SEC could cite it to prove intent to deceive or to allege that the lies to investors were designed to conceal misconduct.

This reinforces the importance of making sure communications with such regulators are carefully vetted. In the US, for example, companies often disclose information about their workplace safety and environmental operations. A serious workplace or environmental accident resulting in a material impact could lead to an SEC enforcement action led by its Climate and ESG Task Force, in addition to any fines, penalties, or damages resulting from the accident itself.

Conclusion

The Enforcement Division’s focus on ESG-related issues is likely to continue. As detailed above, the SEC’s action against Vale provides a roadmap for how they will approach these issues and this framework can help companies better prepare for this scrutiny.

***

Law Clerk Claudia M. Diaz-Carpio is a contributing author to this client alert.

CATEGORIES: Climate Change, Sustainability

PEOPLE: Gabrielle Sigel

April 27, 2022 Vermont Joins Growing Number of States Allowing Medical Monitoring for Alleged Exposure to Chemicals

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BSteven M. Siros, Co-Chair, Environmental and Workplace Health & Safety Law Practice

black, stethoscope, eyeglasses, white, surface, ecg, electrocardiogram, heartbeat, heart, frequency, curve, cardiology, check-up, heart diseases, healthcare, medical, pulse, live, pulsating, drug, pills, tablets, glasses, healthcare and medicine, medical exam, doctor, medical equipment, studio shot, examining, healthy lifestyle, white background, medical supplies, medical instrument, medicine, indoors, diagnostic medical tool, occupation, people, beauty, pill, equipment, still life, care, pulse trace, doctor's office, healthcare worker, 5K, CC0, public domain, royalty freeOn April 21st, Vermont Governor Phil Scott signed into law Senate Bill 113 that provides a cause of action for medical monitoring for individuals exposed to toxic chemicals.  The new law specifically provides persons without a present injury or disease with a cause of action for medical monitoring if the following conditions are demonstrated by a preponderance of the evidence:

  • Exposure to a toxic substance at a rate greater than the general population;
  • The exposure is a result of tortious conduct of the defendant;
  • As a result of the exposure, plaintiff has suffered an increased risk of contracting a serious disease;
  • The increased risk makes it medically necessary for plaintiff to undergo periodic medical examinations different from that prescribed for the general population; and
  • Monitoring procedures exist that are reasonable in cost and safe for use.

The bill also provides for an award of attorneys’ fees and other litigation costs. 

The new law comes on the heels of a Vermont federal court's approval of a $34 million dollar class action settlement relating to alleged PFAS exposures that included a $6 million dollar medical monitoring fund. 

With its new law, Vermont joins Arizona, California, the District of Columbia, Florida, Massachusetts, Missouri, New Jersey, Ohio, Pennsylvania, Utah and West Virginia as states that specifically allow lawsuits seeking reimbursement for medical monitoring costs in the absence of present injury or disease.   However, unlike these other states where the right to medical monitoring is a right recognized by the courts, Vermont is one of first states in the nation to provide that right via statute.  Other states may well follow Vermont’s lead and there have been ongoing albeit unsuccessful efforts to create a federal cause of action for medical monitoring for exposure to certain toxic chemicals at the federal level.

We will continue to provide updates on federal and state efforts to codify the ability to bring claims seeking medical monitoring relief at the Corporate Environmental Lawyer blog.   

CATEGORIES: Climate Change, Consumer Law and Environment, Contamination, Emerging Contaminants, Sustainability, Toxic Tort

PEOPLE: Steven R. Englund, Steven M. Siros

April 21, 2022 An Uncertain Future: Legal Challenges and the Forthcoming Climate Refugee Crisis

Rubin_Connor_COLOR HR


By Connor S.W. Rubin 

Earth Week
The Russian invasion of Ukraine has led to over 11 million people fleeing their homes, and 5 million who have reportedly left Ukraine – a staggering number for a conflict that began in late February. However, while the war in Ukraine is one of the latest events causing a surge of refugees, those fleeing Russian aggression are by no means alone. As of the most recent data from the United Nations High Commissioner on Refugees (“UNHCR”), which counts until mid-2021, there were 20,835,367 people qualified as refugees under the UNHCR’s mandate – an uptick from the 20,661,855 recorded in 2020. Additionally, the UNHCR tracked 50,872,901 “internally displaced persons of concern” during the same period in 2021.

These numbers reflect the staggering impact of human conflict and economic instability; however, they do not show the full impact of human activity. The term “refugee” has a specific definition, laid out in the 1951 Convention Relating to the Status of Refugees and its 1967 Protocol (together “the Convention”). The definition includes any person who crosses a border “owing to well-founded fear of being persecuted for reasons of race, religion, nationality, membership of a particular social group or political opinion.” That definition, written 24 years before Wallace Broecker first put the term “global warming” into the public domain, does not include those fleeing climate disasters in its definition. While recent legal guidance from the UNHCR notes that communities impacted by climate change “may be exposed to a risk of human rights violations that amount to persecution within the meaning of the 1951 Convention” due to limitations on “access to and control over land, natural resources, livelihoods, individual rights, freedoms and lives”, impacts of climate change alone do not qualify someone fleeing their homeland as a refugee. This is because fleeing formerly arable land that no longer sustains crops due to gradual desertification or fleeing cities that have become unlivable due to flooding, fires, or other extreme events do not inherently create “a well-founded fear of being persecuted.”

Is it time for an update to the definition? Some commenters believe so. According to the World Bank, by 2050 over 143,000,000 people could be intra- or internationally displaced from Sub-Saharan Africa, South Asia, and Latin America by climate change. This is roughly equivalent to the populations of California, Texas, Florida, New York, Pennsylvania, Illinois, and Tennessee combined. Without changes to how we view refugees, many of these people may be forced from the areas they’ve lived for generations without any legal status or protections. Advocates who support such changes argue that the current definition of “refugee” under international law fails to include many people forced to flea their home for reasons that fit the spirit of refugee law, but not the strict limitations imposed by the 1951 Convention. The (aptly named) advocacy group “Climate Refugees” gives examples of hypothetical cases, including “the Bangladeshi family displaced across borders by a disaster, the subsistence farmer in Chad with no option but to leave his country because he lacks water for farming, or a mother forced to flee her country because of a climate change-induced resource war.” Such displaced people fall into the goals as stated in the preamble of the 1951 Convention that all people should be able to “enjoy fundamental rights and freedoms without discrimination.” As further articulated by Andrew Schoenholtz in the Chicago Journal of International Law, while “some individuals displaced by natural disasters and climate change may be ‘persecuted’ in connection with a characteristic protected by the Refugee Convention, the vast majority of these newest forced migrants will need new norms developed to address their unique situation.”

Other (though less ubiquitous) compacts or treaties such as the 1969 Convention Governing the Specific Aspects of Refugee Problems in Africa, by the Organisation for African Unity – subsequently adopted by the African Union (“the OAU Convention”) and the 1984 Cartagena Declaration have expanded the definitions of “refugee”, but these may also be inadequate for what advocates seek. The 1969 OAU Convention was organized as many African states were either newly freed from colonialism, or else still fighting for freedom. As such, the definition of refugee was expanded to include “every person who, owing to external aggression, occupation, foreign domination or events seriously disturbing public order in either part or whole of his country of origin or nationality.” The “events seriously disturbing public order” could likely be found to include natural disasters but may still not be fully inclusive of climate change’s pernicious, but slower-acting changes. Further, the requirement of “serious” disturbance of the public order may require large-scale disorder, which may not be present in each circumstance. The Cartagena Convention is a non-binding regional instrument signed by 10 Latin American nations. The definition of refugee is like that found in the OAU Convention’s and includes “persons who have fled their country because their lives, security or freedom have been threatened by generalized violence, foreign aggression, internal conflicts, massive violation of human rights or other circumstances which have seriously disturbed public order.” These two instruments are uniquely broad in their definition, and even they may not include the full sum of those advocates seek to include in a new definition of “climate refugee.”

However, that may not be the case for long. On February 4, 2021, President Biden signed Executive Order 14013 entitled Rebuilding and Enhancing Programs to Resettle Refugees and Planning for the Impact of Climate Change on Migration. This order required the National Security Advisor and Secretaries of State, Defense, Homeland Security, the Director of USAID, and the Director of National Intelligence to “prepare and submit … a report on climate change and its impact on migration, including forced migration, internal displacement, and planned relocation.” That report, released in October of 2021, advocates for an interagency working group to address growing climate migration and its effects, and an expansion of the use of Temporary Protected Status to help resettle those impacted most severely by climate disasters. While stopping short of what some advocates hoped for in terms of seeking to declare climate refugees protected, the report at least shows a willingness to substantively engage in the effects of climate change and its role in global movement.

As the world grapples with how to prevent climate change, and increasingly turns to how to adapt to the effects of climate change, climate refugees will continue to be a growing problem around the world. Addressing their legal status is just one step in a complex and quickly evolving landscape.

CATEGORIES: Climate Change, Sustainability, Water

PEOPLE: Allison A. Torrence

April 20, 2022 “Silent Spring” and the Life Cycle of Emerging Contaminants

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BSteven M. Siros, Co-Chair, Environmental and Workplace Health & Safety Law Practice

Earth Week 2022

On the 60th anniversary of the publication of Rachel Carlson’s groundbreaking book “Silent Spring”, the world continues to struggle to manage the human health and environmental risks associated with newly discovered emerging contaminants.  Silent Spring focused on the challenges associated with managing the risks associated with pesticides (and more specifically DDT), and even today, many of the largest personal injury verdicts are associated with alleged exposure to pesticides. 

Over the many years since Silent Spring, numerous contaminants have moved through the emerging contaminant life cycle, including asbestos, dioxins, PCBs, MTBE, BPA, 1,4-dioxane, and most recently, per- and polyfluoroalkyl substances (PFAS) (although PFAS seems stuck in the middle of the life cycle).      

The life cycle journey of emerging contaminants has been influenced significantly by our improved ability to understand the potential impacts of these emerging contaminants on human health and the environment.  As new contaminants are identified, resources are devoted to better understanding the potential environmental and health risks associated with these contaminants and regulations generally evolve to mitigate identified risks.  In response to increased regulatory pressure, industry’s use of chemicals evolves and the risks are mitigated.  Of course, industry’s use of these chemicals also evolves and is influenced by lawsuits when the regulations and/or the enforcement of the regulations lags.  

In addition to improved understanding of the risks posed by some of these emerging contaminants, the fact that we are able to measure smaller and smaller quantities of these contaminants also impacts the life-cycle journey of these emerging contaminants.  When I started practicing environmental law in the dark ages, contaminants in soil and groundwater were measured in parts per thousand.  As science evolved to detect lower and lower levels, regulatory levels moved from parts per million to parts per billion, and then parts per trillion, and PCBs are now regulated in parts per quadrillion.   As detection levels drop, the number of new emerging contaminants will increase and the life-cycle journey for each of these contaminants begins.  

A lot can be said for the progress that has been made since the summer of 1962.  Although some will argue it should still be faster, the time from discovery of the contaminant to identification of risks and regulation of these identified risks has greatly improved since the 1960s.  This is due in part to the fact society has a much lower tolerance for risks posed by emerging contaminants and is much quicker to demand a response from the regulators now than was the case in the 1960s when environmental laws in the United States were in their infancy. A reformed TSCA is better situated to address both environmental and health and safety impacts of chemicals (both newly manufactured chemicals and new chemical uses).   U.S. EPA, working in collaboration with manufacturers, implemented a global stewardship program to eliminate the manufacture and import of long-chain PFAS compounds.  In October 2021, U.S. EPA announced its PFAS Strategic Roadmap intended to implement a whole-of-agency approach to addressing PFAS.

As our understanding of risks evolves and our detection levels drop, it is inevitable that we will continue to identify new emerging contaminants that need to be regulated.  However, I think Rachel Carlson would be proud of the progress we have made and continue to make to ensure that the world is a safer place for everyone. 

CATEGORIES: Climate Change, Consumer Law and Environment, Contamination, Emerging Contaminants, Groundwater, Sustainability, TSCA, Water

PEOPLE: Steven R. Englund, Steven M. Siros

April 19, 2022 Earth Week Series: The Future of Environmental Regulation

Torrence_jpgBy Allison A. Torrence

Earth Week
As we near Earth Day 2022, the United States may be headed toward a profound change in the way EPA and similar administrative agencies regulate the complex areas of environmental law. EPA began operating more than 50 years ago in 1970, and has been tasked with promulgating and enforcing some of the most complex regulations on the books. From the Clean Air Act to the Clean Water Act; to CERCLA and RCRA and TSCA; and everything in between.

EPA has penned voluminous regulations over the past 50 years to implement vital environmental policies handed down from Congress—to remarkable effect. While there is certainly progress left to be done, improvements in air and water quality in the United States, along with hazardous waste management, has been impressive. For example, according to EPA data, from 1970 to 2020, a period in which gross domestic product rose 272% and US population rose 61%, aggregate emissions of the six criteria pollutants decreased by 78%.

2020_baby_graphic_1970-2020

(source: epa.gov)

For the past 50 years the environmental administrative law process has worked mostly the same way: First, Congress passes a law covering a certain environmental subject matter (e.g., water quality), which provides policy objectives and a framework of restrictions, prohibitions and affirmative obligations. Second, EPA, the administrative agency tasked with implementing the environmental law, promulgates detailed regulations defining terms used in the law and explaining in a more comprehensive fashion how to comply with the obligations outlined in the statute. Depending on the subject matter being addressed, Congress may leave more details up to EPA, as the subject matter expert, to fill in via regulation. In some instances, there is a third step, where additional authority is delegated to the states and tribes to implement environmental regulations at the state-level based on the framework established by Congress and EPA. Occasionally someone thinks EPA overstepped its authority under a given statute, or failed to act when it was supposed to, and litigation follows to correct the over or under action.

Currently, this system of administrative law is facing challenges from parties that believe administrative agencies like EPA have moved from implementing Congress’s policy to setting their own. The most significant such challenge has come in the consolidated Clean Air Act (“CAA”) cases pending before the U.S. Supreme Court, West Virginia v. EPA, Nos. 20-1530, 20-1531, 20-1778, 20-1780.[1] In West Virginia v. EPA, challengers object to the Obama-EPA’s Clean Power Plan (“CPP”), which used a provision in the New Source Performance Standards (“NSPS”) section of the CAA to set greenhouse gas emission standards for existing power plants. The biggest issue with the CPP, according to challengers, is that the new standards would require many operators to shut down older coal-fired units and shift generation to lower-emitting natural gas or renewable units. Challengers, which include several states, power companies and coal companies, argue the CPP implicates the “major questions doctrine” or “non-delegation doctrine”. These doctrines provide that large-scale initiatives that have broad impacts can't be based on vague, minor, or obscure provisions of law. Challengers argue that the NSPS provision used as the basis for the CPP is a minor provision of law that is being used by EPA to create a large-scale shift in energy policy. EPA argues that, although it is currently revising its greenhouse gas regulations, the actions taken in the CPP were authorized by Congress in the CAA, are consistent with with the text of the CAA as written, and do not raise the specter of the major questions or non-delegations doctrines.

While this case will certainly dictate how EPA is permitted to regulate greenhouse gases under the CAA, it will likely have broader impacts on administrative law. On the one hand, the Court may issue a narrow opinion that evaluates the CPP based on the regulations being inconsistent with the text or intent of the CAA. On the other hand, the Supreme Court may issue a broader opinion that invokes the major questions or non-delegation doctrines to hold that based on the significant-impacts of the regulation, it is an area that should be governed by Congress, not an administrative agency. If the Supreme Court takes the latter route, it could set more limits on Congress’s ability to delegate regulatory authority to administrative agencies like EPA.

Indeed, in the Supreme Court’s recent decision on the OSHA emergency temporary standard on employer vaccine or test mandate (“the OSHA ETS”), Ohio v. Dept. of Labor, et al., 595 U.S. ____ (2022), the Court struck down an administrative regulation in a preview of what might be coming in the EPA CAA case. As everyone knows by now, the Supreme Court struck down the OSHA ETS, holding it was an overstep of the agency’s authority to regulate safety issues in the workplace. The Court’s opinion focused on the impact of the OSHA ETS—that it will impact 84 million employees and it went beyond the workplace—instead of the statutory language. The Court stated, “[i]t is telling that OSHA, in its half century of existence, has never before adopted a broad public health regulation of this kind—addressing a threat that is untethered, in any causal sense, from the workplace.” Slip op. at 8.  

Justices Thomas, Alito and Gorsuch invoked the major questions doctrine in their concurring opinion, stating that Congress must speak clearly if it wishes to delegate to an administrative agency decisions of vast economic and political import. In the case of OSHA and COVID-19, the Justices maintained that Congress did not clearly assign to OSHA the power to deal with COVID-19 because it had not done so over the past two years of the pandemic. Notably, the fact that when Congress passed the Occupational Safety and Health Act, it authorized OSHA to issue emergency regulations upon determining that “employees are exposed to grave danger from exposure to substances or agents determined to be toxic or physically harmful” and “that such emergency standard[s] [are] necessary to protect employees from such danger[s]”, was not a sufficient basis for the Court or the three consenting Justices. In their view, in order to authorize OSHA to issue this vaccine or test mandate, Congress had to do more than delegate to OSHA general emergency powers 50 years ago, but instead would have had to delegate authority specific to the current pandemic.

Applying this logic to EPA and the currently-pending CAA case, Justices Thomas, Alito and Gorsuch may conclude that provisions of the CAA written 50 or 30 years ago, before climate change was fully on Congress’s radar, should not be used to as the basis for regulations that impact important climate and energy policy. Of course, many questions remain: Will a majority of the court adopt this view, and how far they will take it? If Congress can’t delegate climate change and energy policy, what else is off the table—water rights? Hazardous waste? Chemical management? If Congress can’t delegate to EPA and other administrative agencies at the same frequency as in the past, how will Congress manage passing laws dealing with complex and technical areas of law?

All of these questions and more may arise, depending on how the Supreme Court rules in West Virginia v. EPA. For now, we are waiting to see what will happen, in anticipation of some potentially significant changes on the horizon.

 

[1] Jenner & Block filed an Amicus Curiae brief in this case on behalf of Former Power Industry Executives in support of EPA.

CATEGORIES: Air, Cercla, Climate Change, Contamination, COVID-19, Emerging Contaminants, Greenhouse Gas, OSHA, RCRA, TSCA, Water

PEOPLE: Allison A. Torrence

April 18, 2022 Earth Week Series: Imagine a Day Without Environmental Lawyers

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By Gabrielle Sigel, Co-Chair, Environmental and Workplace Health and Safety Law Practice

Earth Week
On this 52nd anniversary of Earth Day, I am not writing yet another, typically not very funny, riff on one of Shakespeare’s most famous lines.[1] Instead, I am inspired by one of the most popular of our blogs, written in 2017 by our talented former partner, E. Lynn Grayson, “Imagine a Day Without Water.” To start our Earth Week series of daily blogs by our firm’s EHS department, I offer words of hope and gratitude for the vast amount of work that has been done to improve and protect the environment – work done by lawyers, scientists, policy makers, and members of the public, to name a few.

Imagine what lawyers and scientists faced in 1970, the year of the first Earth Day. There was oppressive soot and polluted air throughout urban and industrial areas in the United States. The Cuyahoga River was so blighted it had caught fire. Although there was a new federal Environmental Protection Agency and two new environmental statutes – the National Environmental Policy Act and the Clean Air Act, one of the most highly complex and technical statutes ever written – both needed an entire regulatory structure to be created in order to be operationalized and enforced. This foundational work had to be done when there was not even an accepted method for determining, much less regulating, environmental and public health risk. Then two years later, in 1972, a comprehensively overhauled Clean Water Act was enacted, followed within the next decade by TSCA, RCRA, and CERCLA, to address the consequences of past waste and chemical use, and to control their future more prudently. Other laws were also passed in that time period, including the Safe Drinking Water Act and the Endangered Species Act.

Although Earth Day was created in the U.S. – the idea of Senator Gaylord Nelson (WI-D) and supported by Representative Pete McCloskey (CA-R) (both lawyers) and grass roots organizers – environmental consciousness also was growing worldwide. The 1972 Stockholm Declaration, from the first UN Conference of the Human Environment, recognized the importance of environmental protection amid the challenge of economic disparities. That work, including of the United Nations Environment Programme, led to the 1992 “Earth Summit” issuing the Rio Declaration on Environment and Development, which adopted a focus on sustainable development and the precautionary approach to protecting the environment in the face of scientific uncertainty, and creating the United Nations Framework Convention on Climate Change, which itself led to the 1997 Kyoto Protocol and the 2015 Paris Agreement, as well as other global efforts focusing on climate change and resource conservation.

Thus, within a split-second on our earth’s timeline, humans were able to tangibly improve and focus attention on the environment, through laws, agreements, governmental and private commitments, and public support. I note these developments, which were stimulated by lawyers on all sides, not to naively suggest that the global climate change, water accessibility, toxic exposure, and other environmental challenges that we face today can easily be solved, nor do I suggest that only lawyers can provide the solution. Instead, let’s take hope from the fact that in fewer years than the average for human life expectancy, there have been significant environmental improvements in our air, land, and water, and our collective focus on preserving the planet has been ignited.

These past efforts have improved the environment – not perfectly, but demonstrably. The legal structure that helped make these improvements happen has worked – not perfectly, but demonstrably. Hopefully, we will continue to work on these issues, despite their seeming intractability, under a system of national laws and global agreements. The alternative is too painful to contemplate.

Closing on a personal note, our firm’s Environmental Law Practice lost one of the best environmental lawyers in the profession, when Stephen H. Armstrong passed away last week. Steve was one of the first in-house environmental counsel I had the opportunity to work with when I began my focus on environmental law in the 1980s. He demonstrated how to respect the science, embrace the legal challenges, fight hard for your client, and always act with integrity. Although I was a young woman in a relatively new field, he consistently valued my opinions, supported my professional development, and with his deep, melodious laugh and sparkle in his eye, made working together feel like we shared a mission. And a ”mission” it was for him; I have never met any lawyer who cared more or wrestled harder about their clients’ position, while always undergirded by a deep reverence for doing the right thing. Once he joined our firm more than a decade ago, he continued being a role model for all of us. Our firm’s Environmental Law Practice, and all those who worked with him, will miss having him as a devoted colleague, friend, and mentor. Our earth has been made better for his life on it.

 

[1]“The first thing we do, let’s kill all the lawyers.” William Shakespeare, Henry VI, Part 2, Act Iv, Scene 2 (circa 1591).

CATEGORIES: Air, Cercla, Climate Change, Contamination, Emerging Contaminants, Greenhouse Gas, Groundwater, NEPA, RCRA, Sustainability, TSCA, Water

PEOPLE: Stephen H. Armstrong, Allison A. Torrence, Gabrielle Sigel

April 15, 2022 U.S. EPA’s Addition of 1-BP to CERCLA Hazardous Substance List Likely Precursor to Similar Actions on PFAS

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BSteven M. Siros, Co-Chair, Environmental and Workplace Health & Safety Law Practice

Epa

On April 8, 2022, U.S. EPA added the industrial solvent 1-bromopropane (1-BP) to its list of CERCLA hazardous substances; this listing was triggered by U.S. EPA’s decision to add 1-BP to the Clean Air Act’s list of hazardous air pollutants in January 2022. The addition of 1-BP to the Clean Air Act’s list of hazardous air pollutants may have come as a bit of a surprise since U.S. EPA hasn’t added a new pollutant to the hazardous air pollutant list since the list was originally promulgated in 1990. However, once on the Clean Air Act list of hazardous air pollutants, the pollutant automatically falls with the CERCLA definition of “hazardous substances”. In addition to adding 1-BP to the list of hazardous substances in Table 302.4 in the Code of Federal Regulations, U.S. EPA set a CERCLA reportable quantity for 1-BP at one pound (the CERCLA statutory default).

The manner in which U.S. EPA treats 1-BP at CERCLA sites may be illustrative as to how U.S. EPA will treat PFOS and PFOA, two PFAS compounds that are currently under consideration for listing as CERCLA hazardous substances. Will U.S. EPA add 1-BP to the CERCLA required analyte list at all Superfund sites or will U.S. EPA adopt a more selective approach by relying on Toxics Release Inventory (TRI) data to identify nearby sites or manufacturing facilities that may have used the industrial solvent? The more likely scenario is that U.S. EPA will utilize some screening criteria to determine whether to sample for 1-BP but how wide of a  1-BP net that U.S. EPA decides to cast remains to be seen.

1-BP is also a volatile substance so U.S. EPA could also rely on the new listing to reopen and investigate sites for potential vapor intrusion concerns. However, it is unlikely that a site would be reopened solely on the basis of 1-BP vapor intrusion risks.

We will continue to track how U.S. EPA elects to address 1-BP at Superfund sites in an effort to gain insight as to how U.S. EPA may approach future hazardous substance designations at the Corporate Environmental Lawyer.

CATEGORIES: Air, Cercla, Climate Change, Contamination, Emerging Contaminants, Hazmat, Sustainability

PEOPLE: Steven R. Englund, Steven M. Siros

March 25, 2022 The SEC’s Proposed Climate-Related Disclosure Rules: Are They the “Core Bargain,” a “Watershed Moment,” or “Undermin[ing] the Existing Regulatory Framework”?

May Riely Sigel Greubel Kim

By Alexander J. MayCharles D. RielyGabrielle SigelMichael R. Greubel, and TaeHyung Kim

Earlier this week, the Securities and Exchange Commission (“SEC”) approved the issuance of proposed new disclosure rules [cited as “PR, p. __”], titled The Enhancement and Standardization of Climate-Related Disclosures for Investors, that would require both domestic and foreign public companies to provide certain climate-related information in their registration statements and annual reports and certain ongoing updates in their quarterly reports. The long-awaited proposed rules are the SEC’s most direct move yet to transform disclosure requirements related to Climate and ESG issues and passed only after what appears to have been significant internal debate. The SEC’s lone Republican Commissioner, Hester M. Peirce, dissented from the proposed rule, and the Chair and the other two Democratic commissioners released statements in support of the proposed rules. Their accompanying statements previewed the wide range of debate—in the courts, political sphere, and public discussion—destined to accompany these rules through the likely lengthy administrative process before (or if) they become final. 

This Client Alert previews the disclosure obligations for public companies if the proposed rules are ultimately adopted, summarizes the ongoing debate about the wisdom of the proposed changes and previews the potential legal challenges to the proposed rule. For additional details regarding the proposed amendments, the SEC has posted a press release summarizing the proposal and public comment period, a fact sheet, and the text of the proposed amendments.

I. Summary of Proposed Disclosure Requirements

The SEC emphasized that its goal in proposing the rules was to enhance and standardize climate-related disclosures for investors. To do so, the SEC would impose a number of new and enhanced disclosure requirements for public companies. These new proposed disclosure requirements include information about a company’s climate-related risks (and opportunities) that are reasonably likely to have a material impact on its business or consolidated financial statements, as well as disclosure of the company’s Scopes 1 and 2 (direct and indirect) greenhouse gas (“GHG”) emissions, regardless of their materiality, and Scope 3 GHG emissions if material or relied upon by the company. The SEC also proposed new rules that would require companies to disclose certain climate-related financial metrics in their audited financial statements and information about the company’s internal governance with respect to climate-related issues. 

A. Climate-Related Disclosures

The proposed new Item 1500 of Regulation S-K would require registrants to disclose certain climate-related information ranging from governance, business strategy impact and risk management of climate-related risks, to GHG emissions and climate-related goals and targets. “Climate-related risks” are defined as “the actual or potential negative impacts of climate-related conditions and events on a registrant’s consolidated financial statements, business operations, or value chains, as a whole.”  PR, p. 61. Those risks include both acute and chronic “physical risks,” such as extreme weather events and longer-term decreased availability of water supply, as well as “transition risks,” defined as “risks related to a potential transition to a lower carbon economy.” PR, pp. 61-62. The disclosure required by Item 1500 of Regulation S-K must be included in the domestic company’s registration statements and annual report on Form 10-K, and material updates are required to be provided in Form 10-Q. Broadly, the categories of required information include:

Governance and oversight: Board of directors’ oversight of climate-related risks and, if applicable, opportunities; management’s role in assessing and managing climate-related risks and if applicable, opportunities.[1]

Strategy, business model, and outlook: 

- Climate-related risks (and opportunities) reasonably likely to have a material impact, including on the company’s business or consolidated financial statements and business activities, which may manifest over the short, medium, and long term, with each registrant defining how many years are encompassed within each of those terms.

- Actual and potential impacts of any climate-related risks on the company’s strategy, business model, and outlook, including the time horizon of such impact.

- Whether and how any such impacts are considered as part of the company’s business strategy, financial planning, and capital allocation.

- Whether and how any identified climate-related risks have affected, or are reasonably likely to affect, the company’s consolidated financial statements.

- Information on the company’s internal carbon price, if available, but the use of a carbon price is not required.

- Resilience of the company’s business strategy considering potential future changes in climate-related risks. If the registrant utilizes a scenario analysis to assess the impact of climate-related risks on its business and financial statements, and to support the resilience of its strategy and business model, companies must disclose the scenarios considered, providing both qualitative and quantitative information.

Risk management: 

- The company’s processes for identifying, assessing, and managing climate-related risks (and opportunities).

- Whether and how any such processes are integrated into the company’s overall risk management system or processes.

- The company’s transition plan as part of its climate-related risk management strategy, if applicable.

Targets and goals: If the company has set any targets or goals related to GHG emissions reduction, or any other climate-related target or goal, it must provide information on the scope of activities and emissions included in the target, unit of measurement, time horizon, baseline targets, interim targets, and strategy for meeting the target or goal. 

- If carbon offsets or renewable energy credits (“RECs”) have been used as part of the company’s plan to achieve climate-related targets or goals, the company must disclose certain information including carbon reduction from such offsets or RECs and related costs.

B. GHG Emissions 

In addition to the overall governance, oversight, and risk evaluation disclosures, proposed Item 1504 of Regulation S-K would require all registrants to disclose certain GHG emissions, regardless of their materiality to the company. The proposed rules do not mandate a specific methodology that registrants must use for calculating emissions, with described exceptions including as summarized below. A company’s GHG emissions disclosures must include:

Disclosure period: The applicable GHG emissions from most recently completed fiscal year, as well as the historical fiscal years included in the company’s consolidated financial statements in the filing, to the extent reasonably available. 

GHG categories: Emissions disclosure must be both disaggregated by each of the seven constituent GHGs addressed in the Kyoto Protocol, and in the aggregate, expressed in terms of carbon dioxide equivalents (“CO2e”), including as described in the GHG Protocol.

Scopes 1 and 2 emissions: Scopes 1 and 2 emissions must be disclosed separately and may exclude emissions from certain investments and entities that are not consolidated into the company’s financial statements. 

Scope 3 emissions: Disclose if material, or if the company has set a GHG emissions reduction target or goal that includes its Scope 3 emissions. Smaller reporting companies (“SRCs”) are exempt from the requirement to report Scope 3 emissions.

GHG Intensity:

- Scopes 1 and 2 – disclose GHG intensity based on the sum of Scopes 1 and 2 emissions, in terms of metric tons of CO2e per unit of total revenue and per unit of production.

- Scope 3 – if otherwise disclosed, separately disclose GHG intensity using Scope 3 emissions only.

Attestation of GHG Emissions Disclosures:

In addition to the disclosures discussed above, accelerated filers and large accelerated filers must include an attestation report for Scopes 1 and 2 GHG emissions at a minimum, prepared and signed by a GHG emissions attestation services provider, to be included in a separately captioned “Climate-Related Disclosure” section in the filing. The proposed rules do not have a specific attestation standard for assuring GHG emissions, nor do they require that the attestation service provider be a registered public accounting firm. Instead, the proposed rule includes minimum standards for attestation service providers and scale up over time, specifically:

- “limited” assurance, or the equivalent of a review of the disclosure, for Scopes 1 and 2 emissions disclosure will transition to “reasonable” assurance, or the equivalent of an audit of the disclosure, after a phase-in period;

- minimum qualifications and independence requirements for the attestation service provider (which potentially may limit the ability to use a company’s independent registered public accounting firm in such attestations);

- minimum requirements for the attestation report.

Additionally, companies would have a safe harbor from certain liability for their Scope 3 emissions disclosure, where such disclosure would be deemed not to be a fraudulent statement unless such statement was made or reaffirmed without a reasonable basis or was not disclosed in good faith. 

C. Climate-Related Financial Metrics

The SEC also proposed a new Article 14 to Regulation S-X (“Article 14 of Regulation S-X”), that would require companies to disclose in a note to their financial statements climate-related metrics impacting their consolidated financial statements beyond a one percent threshold. The disclosure required by Article 14 of Regulation S-X is proposed to be required in annual reports and registration statements. The proposed metrics include, for example, the financial impact of severe weather events and other natural conditions, as well as expenditures to mitigate and financial estimates and assumptions impact by such weather events. The rules also propose similar metrics as efforts related to mitigating climate risks and related to transition activities, such as to reflect changes in revenues and costs due to emissions pricing or impacts to the balance sheet due to climate issues. Further, companies would be required to disclose the impact of climate-related risks and opportunities.

D. Phase-In Periods

The proposed rules provide for a phase-in for all reporting companies, with the compliance date depending on each company’s filing status. For example, if the proposed rules were adopted effective December 2022, and the company has a December 31 fiscal year-end, compliance dates would be as follows:

• Large Accelerated Filer: Fiscal year 2023 (filed in 2024)

• Accelerated Filer: Fiscal Year 2024 (filed in 2025)

• SRC: Fiscal Year 2025 (filed in 2026)

Companies subject to Scope 3 disclosure requirements would have an additional year to comply.

E. Addressing Materiality

Finally, we highlight that, notably, the proposed rules do not include a quantitative definition of materiality in any of the disclosure requirements within the climate disclosure framework. The SEC made one reference indicating that it considered including a quantitative materiality standard with respect to Scope 3 emissions, but decided against a bright-line rule, reasoning: “because whether Scope 3 emissions are material would depend on the particular facts and circumstances, making it difficult to establish a “one size fits all” standard.” PR, p. 183. The absence of a clearer definition of materiality in the proposed rules is not unusual for SEC disclosure rules, but will be a challenge to many companies and may affect the SEC’s goals of comparability and consistency in climate-related disclosures.  

II. Next Steps, Potential Implications and Considerations 

The controversial proposed rules signify a substantial change to existing law and have wide-ranging implications with respect to companies’ approach to climate change disclosure. In recent years, the SEC has moved toward reducing and simplifying disclosure burdens on public companies.[2] The proposed rules would impose a series of new obligations and are the most sweeping disclosure requirements since Dodd-Frank in substance, cost, and potential liability. We would expect a significant number of comments from a broad range of stakeholders and interested parties that the SEC will be required to consider in crafting final rules. Similar to other rules that were perceived to be beyond the scope of the SEC’s mandate of protecting investors and regulating markets,[3] we would expect legal challenges to the rules once they are promulgated in final form and in particular the attestation requirements for GHG emissions. 

To frame the comments and set the discussion for the final rule, the lone Republican Commissioner and the Democratic Commissioners both have advocated for their respective positions. In connection with the announcement of the rule, the Commission emphasized that the proposed rules, if adopted, would “provide investors with consistent, comparable, and decision-useful information for making their investment decisions, and it would provide consistent and clear reporting obligations for issuers.” Echoing the notion that climate-related disclosure within the proposed framework should be (a) useful for investors and easily comparable and (b) establish clear-cut reporting obligations for issuers, the SEC indicates throughout the proposed rules that the disclosure framework is based on the existing and globally-accepted Task Force on Climate-Related Financial Disclosures (“TCFD”) framework, with the justification for this manner of implementation being that relying on an already widely-accepted framework could help relieve the compliance burden on issuers and improve the comparability and usefulness of the climate-related disclosures for investors. Notwithstanding that justification, it is clear from the sheer breadth of the disclosure obligations outlined in the proposed rules that companies’ compliance burdens will generally be, at some level, increased. 

In addition, Chairman Gensler stated that, with respect to the SEC’s reliance on the TCFD framework, “Today’s proposal draws on our existing rules…as well as from the [TCFD], an international framework that many companies and countries have already started to adopt, including Brazil, the European Union, Hong Kong, Japan, New Zealand, Singapore, Switzerland, and the United Kingdom.” From this statement, among others, it appears that the SEC has taken an expansive, international view of climate-related disclosure obligations by indicating that the U.S. will, and should, be aligned with the countries that have already adopted the TCFD framework. 

Another key message in the statements of Chairman Gensler, and Commissioners Lee and Crenshaw is that the necessity of the proposed climate-disclosure framework is driven by demand from investors themselves. Specifically, Chairman Gensler implicated the concept of materiality as a justification for the proposed rules—with the implicit idea being that investors have widely demanded issuers to disclose their climate risks, and, thus, climate-related disclosure is material and should be substantially incorporated in issuers’ SEC-filed statements. Similarly, Commissioner Crenshaw invoked materiality in stating, “As a Commissioner, it is not my job to decide for millions of investors what information is material to them. Rather, it is my job to listen and engage with investors and the markets.” 

In response, Commissioner Peirce released a dissenting statement, bluntly entitled, “We are Not the Securities and Environment Commission - At Least Not Yet”. Her statement included the following arguments against the proposed rules:

• The existing SEC rules already require companies to disclose material climate-related risks. Notably, Peirce expresses concern that, as a result of the proposed rules, companies will dispense with thoughtful consideration of what is financially material in their unique circumstances in favor of “ticking off a preset checklist based on regulators’ prognostication of what should matter….” 

• The proposed rules include some disclosure requirements that dispense with a materiality qualifier altogether, and other requirements that distort the SEC’s traditional approach to materiality. 

• The proposed rules will not lead to comparable, consistent, and reliable disclosures, due to, for example, the assumptions and speculation required to meet the disclosure requirements related to physical risks and transition risks. 

• In contrast to the notion that relying on the TCFD framework (described above) will reduce the compliance burden on companies, the implementation of the proposed rules will be costlier than the SEC Commission anticipates. 

• The proposed rules will hurt the economy and investors because a company’s financial performance will likely suffer if its executives are focused on climate initiatives instead of financial metrics. In addition, the SEC itself will be harmed because the agency does not have expertise in the area of climate change, and the proposed rules go beyond the SEC’s statutory authority (discussed in more detail below). 

III. Potential Legal Challenges 

Given the broad-reaching nature of the disclosure framework in the proposed rules, there is a substantial likelihood that the proposal, if adopted, would be challenged on the basis that the SEC exceeded its statutory authority. 

Commissioner Peirce previews one potential basis for such a challenge in her statement, reasoning that the disclosure framework may violate First Amendment limitations on compelled speech. Specifically, Peirce describes that Congress’ mandate to the SEC is “for us to regulate in the public interest and for the protection of investors is to protect investors in pursuit of their returns on their investments, not in other capacities.” Accordingly, if the SEC enacts disclosure mandates that go beyond information that would be considered material to financial returns, then it may be compelling speech in violation of the First Amendment. Commissioner Peirce’s overall message, which she reflects in the title of her statement, is that the SEC is not the agency charged by Congress with regulating the environment and, as a result, it is possible that the proposed rules may not pass muster. 

Commissioner Peirce also foreshadows that the proposed rules, issued without specific statutory direction like Dodd-Frank, will be subject to the same type of challenge that recently felled the Occupational Safety and Health Administration’s COVID-19 vaccination/test emergency temporary standard (“ETS”). In Nat’l Federation of Independent Business v. Dep’t of Labor, OSHA, 595 U.S. ___, Nos. 21A244 and 21A247 (Jan. 13, 2022), the U.S. Supreme Court found that OSHA’s ETS was a “significant encroachment into the lives – and health – of a vast number of employees.” (Slip op. at 6.)  Given the Court’s finding that the ETS had such vast impact, the Court applied the rule that: “We expect Congress to speak clearly when authorizing an agency to exercise powers of vast economic and political significance.” Alabama Assn. of Realtors v. Department of Health and Human Servs., 594 U. S. ___, ___ (2021).” Id. (internal quotation marks and citations omitted). The Court granted a stay of the ETS because OSHA was unlikely to show that Congress had clearly authorized the agency to issue the ETS as written. Similarly, Commissioner Peirce’s statement contains the same quoted language when she finds that the climate disclosure rules stem from “an unheralded power to regulate ‘a significant portion of the American economy,’” without having Congress “speak clearly” to authorize the rules. 

IV. Concluding Thoughts

In the short term, the proposed rules may lead companies to take a harder look at their existing disclosures. While the rules are not final and there are applicable carve-outs for SRCs, the rules may give pause to companies who do not now wish to comply with the administrative burdens of GHG reporting and attestation. Given that some form of the proposed rules may well be adopted, companies may decide to incur these costs now.  

Companies are in various states on their climate-related journey. For companies that have yet to fully consider GHG emissions in their risk model, board governance and oversight, those topics will be ripe for consideration. In addition, for companies considering various climate-related goals, such as net zero emissions or similar targets, the proposed rules provide a framework for evaluating the cost and impact of setting those goals. 

Jenner & Block is pleased to counsel its clients on this complex and highly controversial proposal, through the public comment process and thereafter.

[1] Proposed Item 1501 of Regulation S-K.
[2] SEC Amends Disclosure Requirements for Business, Legal Proceedings, and Risk Factors Sections of Registration Statements and Periodic Filings.
[3] See, e.g., Statement by Chairman Clayton available at: https://www.sec.gov/news/public-statement/clayton-resource-extraction-2020-12-16.

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CATEGORIES: Climate Change, Greenhouse Gas, Sustainability

PEOPLE: Gabrielle Sigel

March 23, 2022 U.S. EPA Releases “ECHO Notify” to Increase Public Awareness of Enforcement Related Information

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BSteven M. Siros, Co-Chair, Environmental and Workplace Health & Safety Law Practice

Echo

On March 22, 2022, U.S. EPA released a new web tool designed to ensure that information regarding environmental violations and enforcement actions is more readily available to the public. The new tool, called ECHO Notify, allows users to sign up for weekly emails when new information is available with respect to violations of environmental statutes or enforcement actions in a specific geographic area or with respect to a particular facility. 

ECHO Notify provides information on both state and federal enforcement and compliance activities under the following programs: Clean Air Act (stationary sources), Clean Water Act (point sources), Resource Conservation and Recovery Act (hazardous waste handlers), and Safe Drinking Water Act (public water system). The tool provides U.S. EPA-specific enforcement-related information with respect to other environmental statutes. 

In a press release that accompanied the release of the new tool, U.S. EPA Administrator Michael Regan stated that “EPA is committed to empowering communities with the information they need to understand and make informed decisions about their health and environment.” Administrator Regan went on to state “EPA has developed ECHO Notify so that finding updates on environmental enforcement and compliance activities is as easy as checking your email.” 

This new tool is another example of U.S. EPA’s continued focus on environmental justice communities and its desire to ensure that information regarding environmental compliance and enforcement activities is readily available to those communities. We will continue to provide updates regarding U.S. EPA initiatives at the Corporate Environmental Lawyer.

CATEGORIES: Air, Climate Change, Contamination, Emerging Contaminants, RCRA, Sustainability, Water

PEOPLE: Steven R. Englund, Steven M. Siros

March 16, 2022 SEC’s Upcoming Proposed Rule for Climate Disclosures: Will It Be as “Decision-Useful” as the Ingredients Label for “Fat-Free Milk”?

Sigel RielyBy Gabrielle Sigel, Partner and Co-Chair, Climate and Clean Technology Practice, and Charles D. Riely, Partner, Investigations, Compliance, and Defense Practice

The Securities and Exchange Commission (“SEC”) is meeting this Monday, March 21, to determine whether to propose amendments to existing law to “enhance and standardize registrants’ climate-related disclosures.” The SEC’s expected proposed rule is more than a decade in the making and would be the SEC’s most visible step yet to pursue disclosure improvements related to Climate and ESG issues. While speculation on what the SEC will announce runs rampant, the SEC itself has given a few clues as to what to expect. This article traces the history of the SEC’s focus on climate related disclosures and highlights the most important recent developments that could highlight a possible approach. As detailed below, the SEC’s goal is to making disclosures “consistent,” “comparable” and “decision-useful.” 

The 2010 Guidance

In early 2010, the SEC issued “Guidance Regarding Disclosure Related to Climate Change.” This interpretive release advised companies of the “existing disclosure requirements” with respect to climate change. The guidance noted that while there were increasing legislative and executive actions with respect to climate, a registrant would be required to file would be governed existing rules and law. With respect to climate-related impacts, companies would be required to disclose “such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading.” The SEC recommended that companies consider the positive and negative impacts of US and international legislation, regulation, and accords and other legal, technological, political and scientific developments, as well as the physical impacts of climate change, such as severe weather events. The guidance concluded by referring further evaluation of this issue to the SEC’s Investor Advisory Committee.

Democratic Commissioners Call for Climate-Related Disclosure in 2019

The issue of mandated climate-related disclosures remained primarily on the sidelines until the two democratic commissioners, Robert J. Jackson Jr. and Allison Herren Lee, raised the issue in 2019. When the Commission as a whole proposed revisions to Regulation S-K (which requires disclosure of specific material, qualitative material) without addressing climate change, Jackson and Lee issued a statement making their views clear. The statement decried the revised amendment’s “absence of [guidance] on the topic of climate risk.” They concluded that “what is clear is that investors of all kinds view [climate] risk as an important factor in their decision-making process, and that “research shows that we are long past the point of being unable to meaningfully measure a company’s sustainability profile.” 

The SEC’s Early 2021 Emphasis on Climate and ESG Issues

After becoming Acting Chair in January 2021, Lee continued to proactively seek additional climate-related disclosures. In February 2021, she directed the SEC staff to review climate-related disclosures, and then in March 2021, she announced a Climate and ESG Task Force as part of the Division of Enforcement to focus on material misstatements or omissions relating to climate risk disclosures, and “beyond climate,” on the “the broader array of ESG disclosure issues.” On March 15, 2021, Acting SEC Chair Lee issued a formal request for public comment on a potential rule, with fifteen “Questions for Consideration,” and soliciting comments on how the SEC can “best regulate climate change disclosure.”  

Recent Developments Highlighting Possible Approach

The SEC’s request for comments generated over 6,000 comments (including many form letters that were re-submitted). In  initial response to the public input, SEC Chair Gary Gensler stressed, in July 2021 and again in September 2021 and December 2021, that climate risk disclosures must be “consistent,” “comparable,” and “decision-useful,” including providing sufficient detail that the investor understands the bases for a company’s disclosure and for investment funds describing themselves as “sustainable” or “green.”

In September 2021, SEC staff in its Division of Corporation Finance published a sample letter that companies may receive based on existing rules and the 2010 Climate Change guidance. This letter would ask the receiving company to explain the lack of climate-related disclosure issues, such as:

  1. An explanation as to why the company provided a “more expansive disclosure in its corporate responsibility report” than in its SEC filings.
  2. The material effects of transition risks related to climate change.
  3. The effects of significant developments in international accords and federal and state legislation and regulation on the business.
  4. To the extent material, the indirect consequences of climate-related regulation or business trends.
  5. The material effect of physical effects of climate change, including severe weather and fires and water availability.
  6. The material effect of purchase or sale of carbon credits or offsets.

Most recently and perhaps most tellingly, Chairman Gensler’s March 3, 2022 appearance on his “Office Hours” YouTube video, explained that he wants investors to understand and be able to compare ESG disclosures as easily as a consumer in a grocery store can understand and compare the ingredients in different brands of fat-free milk. While over-simplifying the issues, the Office Hours video demonstrates that the Chairman is committed to his basic goal of “consistent,” “comparable,” and “decision-useful” disclosures regarding climate impacts. The March 21, 2022 meeting will demonstrate how close he came to these high aspirations.

CATEGORIES: Climate Change, Sustainability

PEOPLE: Gabrielle Sigel

March 15, 2022 EPA Proposes Hazardous Substance Facility Response Plan Regulations; Includes Climate Change and Environmental Justice Considerations

Torrence_jpgBy Allison A. Torrence

1200px-Seal_of_the_United_States_Environmental_Protection_Agency.svgOn March 11, 2022, the U.S. Environmental Protection Agency (“EPA”) announced it was proposing new regulations that would require certain facilities located close to navigable waters create and submit Facility Response Plans for worst case discharges of hazardous substances. These regulations would add to EPA’s existing regulations of worst case discharges of oil, which have been in place since 1994. Adding a new twist in these proposed regulations, EPA would grant Regional Administrators wide discretion to make the Facility Response Plan requirements mandatory at facilities that, in the Regional Administrator’s judgment, were vulnerable to climate change or potentially impacting an environmental justice community, even if the facilities are not near a navigable water.

The Clean Water Act (“CWA”) contains general spill response plan requirements, which require EPA to establish rules “to prevent discharges of oil and hazardous substances from vessels and from onshore facilities and offshore facilities, and to contain such discharges…” 42 U.S.C. § 1321(j)(1)(C). In response to this requirement of the CWA, EPA promulgated its Spill Prevention, Control, and Countermeasure (“SPCC”) Regulations, found at 40 C.F.R. part 112.

The proposed hazardous substance Facility Response Plan rules are being promulgated pursuant to Section 311(j)(5) of the Clean Water Act (CWA), a  slightly more specific provision that was added to the CWA in 1990. Section 311(j)(5)(A) directs EPA to issue regulations that require certain facilities to prepare and submit to EPA “a plan for responding, to the maximum extent practicable, a worst case discharge, and to a substantial threat of such a discharge, of oil or a hazardous substance.” 42 U.S.C. § 1321(j)(5)(A)(i). Specifically, the CWA states that facilities covered by this requirement include, a facility  “that, because of its location, could reasonably be expected to cause substantial harm to the environment by discharging into or on the navigable waters, adjoining shorelines, or the exclusive economic zone.” 42 U.S.C. § 1321(j)(5)(C)(iv).

In 1994, EPA promulgated regulations that require certain facilities that store and use oil to prepare and submit a Facility Response Plan. See 40 C.F.R. §§ 112.20-112.21. However, EPA never issued regulations requiring similar response plans for facilities storing hazardous substances. On March 21, 2019, several environmental groups (the Natural Resources Defense Council, Clean Water Action, and the Environmental Justice Health Alliance for Chemical Policy Reform) sued EPA alleging violations of the CWA and the Administrative Procedures Act for its failure to issue those regulations. The environmental groups and EPA entered into a consent decree on March 12, 2020, that resolved the lawsuit and required EPA promulgate hazardous substance response plan regulations by March 12, 2022.

In the proposed rule, EPA is proposing two initial screening criteria to determine whether a facility could cause substantial harm to the environment from a worst case discharge into or onto navigable water. Those two criteria are:
  1. Whether a facility has the container capacity for a CWA hazardous substance onsite at or above a threshold quantity (threshold quantity is proposed to be 10,000 times the reportable quantity).
  2. Whether the facility is within one-half mile to navigable water or a conveyance to navigable water.

If those two conditions are satisfied, the facility determines whether it meets any of the four substantial harm criteria:

  1. The ability to adversely impact a public water system;
  2. The ability to cause injury to fish, wildlife, and sensitive environments (“FWSE”);
  3. The ability to cause injury to public receptors; and/or
  4. Having had a reportable discharge of a CWA hazardous substance within the last five years.

If any of those substantial harm criteria are met, then the facility must submit a CWA hazardous substance Facility Response Plan to EPA.

EPA is also proposing that each EPA Regional Administrator has the authority to require CWA hazardous substance Facility Response Plans regardless of whether a facility meets the criteria proposed above, if the Regional Administrator determines that site-specific factors warrant requiring the Facility Response Plan. In making such a determination, Regional Administrators are directed to consider a number of additional factors, including potential vulnerability to adverse weather conditions resulting from climate change and potential for a worst case discharge to adversely impact communities with environmental justice concerns.

The proposed rule will be published in the Federal Register in the next few weeks and EPA will accept public comment for 60 days following publication. More information is available at EPA’s website.

 

CATEGORIES: Cercla, Climate Change, Water

PEOPLE: Allison A. Torrence

March 5, 2022 U.S. EPA Announces Plan to Tighten PFAS Reporting Requirements

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BSteven M. Siros, Co-Chair, Environmental and Workplace Health & Safety Law Practice

EpaIn connection with the release of its 2020 Toxics Release Inventory (TRI) National Analysis that evidenced a 10% decline in environmental releases of TRI chemicals between 2019 and 2020, U.S. EPA announced that it intends to initiate a rulemaking that will, among other things, remove the de minimis exemption for reporting the 172 per- and polyfluoroalkyl substances (PFAS) that were added to TRI by the 2020 National Defense Authorization Act. 

The TRI analysis report noted that 38 facilities reported managing 800,000 pounds of PFAS in 2020 but only 9,000 pounds of PFAS were reported as having been released. In response to what U.S. EPA claims to be a “seemingly limited scope of PFAS reporting”, U.S. EPA stated that it intends to “use existing data to generate lists of potential productions and recipients of PFAS waste, and has contacted facilities with potential reporting errors, as well as those that were expected to report but did not.” In addition, U.S. EPA claims that “the elimination of the de minimis exemption will result in a more complete picture of [PFAS] releases and other waste management quantities for these chemicals."

The de minimis exemption, which allows covered facilities to disregard certain minimal levels of listed toxic chemicals in mixtures or trade name products, has been strongly criticized by a number of environmental groups. The de minimis level for perfluorooctanoic acid is 0.1% and for all other TRI-listed PFAS is 1.0%. Litigation is currently pending in the U.S. District Court for the District of Columbia challenging U.S. EPA’s inclusion of the de minimis PFAS reporting threshold and this rulemaking may be an effort by U.S. EPA to respond to that litigation. 

We will continue to provide updates on U.S. EPA’s efforts to strip the de minimis TRI reporting exemption for PFAS as well as other PFAS-related issues on the Corporate Environmental Lawyer blog.

CATEGORIES: Climate Change, Contamination, Emerging Contaminants, Sustainability

PEOPLE: Steven R. Englund, Steven M. Siros

February 9, 2022 Heightened Risk to the Regulated Community: U.S. EPA Overfiling

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BSteven M. Siros, Co-Chair, Environmental and Workplace Health & Safety Law Practice

EpaIn what could portend significant risk to the regulated community, a recent “overfiling” by U.S. EPA in connection with a Clean Air Act (CAA) settlement between the Louisiana Department of Environmental Quality (LDEQ) and a steel plant should at a minimum cause the regulated community to be cautious when entering into settlement agreements with state regulators. On January 24, 2022, U.S. EPA Region 6 filed a Notice of Violation (NOV) alleging that a steel plant in Louisiana was emitting excess hydrogen sulfide, sulfuric acid mist and sulfur dioxide in violation of the plant’s CAA Title V permit. 

Back in October 2021, the Tulane Environmental Clinic had filed a formal request that U.S. EPA exercise its overfiling and supervisory authority pursuant to 42 U.S.C. § 7413(a)(a), (b), and (d) on the basis that the LDEQ settlement agreement imposed insufficient penalties and mitigation measures to ensure future compliance. It is interesting to note that the U.S. EPA NOV does not specifically reference the LDEQ settlement nor directly challenge its provisions. Moreover, the three pollutants identified in the NOV were not specifically called out in the LDEQ settlement, and, in fact, hydrogen sulfide and sulfuric acid mist are not currently part of the plant’s Title V permit.

However, it would be naïve to believe that U.S. EPA’s NOV is unrelated to the request filed by the Tulane Environmental Law Clinic. In fact, U.S. EPA held a number of meetings with the Tulane Environmental Law Clinic and other environmental groups following the overfiling request. U.S. EPA’s decision to overfile may be an indication of more aggressive enforcement oversight over state regulatory agencies, especially in situations involving vulnerable communities. As such, when evaluating whether to enter into settlements with state regulatory entities to address compliance issues with federal environmental statutes, companies should carefully consider the possibility of U.S. EPA overfiling, especially in situations where objections to the settlement have been raised by environmental groups, or in circumstances involving vulnerable communities.   

We will continue to provide updates on U.S. EPA enforcement trends on the Corporate Environmental Lawyer.

CATEGORIES: Air, Climate Change, Toxic Tort

PEOPLE: Steven R. Englund, Steven M. Siros