Jenner & Block Wishes Bon Voyage to Gay Sigel as She Starts Her Next Adventure with the City of Chicago
As Gay Sigel walked through the doors at One IBM Plaza in Chicago, fresh out of law school and ready to launch her career as an attorney at Jenner & Block, she could not have envisioned the tremendous impact she would have on her clients, her colleagues, and her community over the next 39 years. Gay started her legal career as a general litigator, but Gay and Bob Graham were quick to realize how the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) was creating a new and exciting area of the law that was increasingly important for the firm’s clients: Environmental Law. Gay and Bob saw an opportunity to specialize in that area and founded Jenner & Block’s Environmental Health and Safety Practice. Gay has been an ever-present force in the EHS community ever since.
Over her 39-year career at Jenner & Block, Gay has worked on some of the most significant environmental cases in the country for clients ranging from global Fortune 50 corporations to environmental organizations to individuals. For more than a decade, she taught environmental law at Northwestern University, helping shape the next generation of environmental lawyers. She has worked on issues of global impact, like those affecting climate change, issues of local impact like those related to combined sewer overflows to the Chicago River, and issues of individual impact like those involving employee safety and health. No matter the subject, Gay has always been a tireless advocate for her clients. We often describe her as the Energizer Bunny of environmental lawyers: she is the hardest working attorney we have ever met.
Gay’s true passion is to make this world a better, more just place for others. So, throughout her career as an environmental, health, and safety lawyer, Gay has devoted her time, energy, and emotional resources to innumerable pro bono cases and charitable and advocacy organizations. Her pro bono work includes successfully protecting asylum applicants, defending criminal cases, asserting parental rights, and defending arts organizations in OSHA matters. Among her many civic endeavors, Gay was a founding member of the AIDS Legal Council of Chicago (n/k/a as the Legal Council for Health Justice); she was the Secretary and active member of the Board of Directors for the Chicago Foundation for Women; and she was on the Board of the New Israel Fund. Gay continues to promote justice wherever she sees injustice, including as an advocate for women’s rights, particularly for women’s reproductive rights.
In both her environmental, health, and safety practice as well as her pro bono and charitable work, Gay is a tremendous mentor to younger (and even older) attorneys. She is curious, committed, exacting, fearless, and demanding (though more of herself than of others). We all give Gay much credit for making us the lawyers we are today.
Gay is leaving Jenner & Block to embark on her next adventure. She is returning to public service as Corporate Environmental Counsel for the City of Chicago. The City and its residents will be well served as Gay will bring her vast experience and unparalleled energy to work tirelessly to protect the City and its environment. We will miss working with and learning from Gay on a daily basis, but we look forward to seeing the great things she will accomplish for the City of Chicago. We know we speak for the entire firm as we wish Gay bon voyage—we will miss you!
Steven M. Siros, Allison A. Torrence, Andi S. Kenney
Inflation Reduction Act: Is the U.S. Finally Poised to Tackle Climate Change?
By Allison A. Torrence
In a compromise move many months in the making, on August 7, 2022, the Senate passed a spending bill dubbed the Inflation Reduction Act of 2022, which contains provisions aimed at lowering drug prices and health care premiums, reducing inflation, and most notably for our readers, investing approximately $369 billion in energy security and climate change programs over the next ten years. The Inflation Reduction Act, which is the Fiscal Year 2022 Budget Reconciliation bill, passed on entirely partisan lines in the Senate, with all 50 Democratic senators voting in favor, all 50 Republicans voting against, and Vice President Harris breaking the tie in favor of the Democrats. The bill is currently pending before the House of Representatives, where it is expected to be hotly contested but ultimately pass.
According to Senate Democrats, the Inflation Reduction Act “would put the U.S. on a path to roughly 40% emissions reduction [below 2005 levels] by 2030, and would represent the single biggest climate investment in U.S. history, by far.” There are a wide variety of programs in this bill aimed at achieving these lofty goals, including:
- Clean Building and Vehicle Incentives
- Consumer home energy rebate programs and tax credits, to electrify home appliances, for energy efficient retrofits, and make homes more energy efficient.
- Tax credits for purchasing new and used “clean” vehicles.
- Grants to make affordable housing more energy efficient.
- Clean Energy Investment
- Tax credits to accelerate manufacturing and build new manufacturing plants for clean energy like electric vehicles, wind turbines, and solar panels.
- Grants and loans to retool or build new vehicle manufacturing plants to manufacture clean vehicles.
- Funding for EPA, DOE and NOAA to facilitate faster siting and permitting of new energy generation and transmission projects.
- Investment in the National Labs to accelerate breakthrough energy research.
- Reducing Carbon Emissions Throughout the Economy
- Tax credits for states and electric utilities to accelerate the transition to clean electricity.
- Grants and tax credits to reduce emissions from industrial manufacturing processes like chemical, steel and cement plants.
- Funding for Federal procurement of American-made clean technologies to create a stable market for clean products—including purchasing zero-emission postal vehicles.
- Environmental Justice
- Investment in community led projects in disadvantaged communities, including projects aimed at affordable transportation access.
- Grants to support the purchase of zero-emission equipment and technology at ports.
- Grants for clean heavy-duty trucks, like busses and garbage trucks.
- Farm and Rural Investment
- Funding to support climate-smart agriculture practices and forest conservation.
- Tax credits and grants to support the domestic production of biofuels.
- Grants to conserve and restore coastal habitats.
- Requires sale of 60 million acres to oil and gas industry for offshore wind lease issuance.
Drilling down on some of these many provisions, the clean vehicle consumer tax credit has already sparked controversy due to the requirement that certain manufacturing or components be sourced in North America. The Inflation Reduction Act would maintain the existing $7,500 consumer tax credit for the purchase of a qualified new clean vehicle. The Act would get rid of the previous limit that a single manufacturer could only offer up to 200,000 clean vehicle tax credits—a limit that many manufacturers were hitting. However, under the new bill, that tax credit is reduced or eliminated for electric vehicles if the vehicle is not assembled in North America or if the majority of battery components are sourced outside of North America and if a certain percentage of the critical minerals utilized in battery components are not extracted or processed in a Free Trade Agreement country or recycled in North America. Manufacturers have indicated these battery sourcing requirements are currently difficult to meet, and may result in many electric vehicles being ineligible for this tax credit in the near term.
Another controversial point in the Act is the handling of oil and gas rights vis-à-vis wind farm projects. The Act would allow the sale of tens of millions of acres of public waters to the oil and gas industry as part of an overall plan to require offshore oil and gas projects to allow installation of wind turbines. A group of 350 climate groups, including Senator Bernie Sanders, criticized this and other provisions they saw as favorable to the oil and gas industry in the Act. Despite his criticism of certain aspects of the Inflation Reduction Act, Senator Sanders ultimately voted for the bill.
The House is expect to vote on the Inflation Reduction Act very soon and if it is passed by the House, President Biden will sign it into law. We will continue to track the Act’s progress and its impact on the regulated community. You can follow the Corporate Environmental Lawyer Blog for all of the latest developments.
West Virginia v. EPA: The Major Questions Doctrine Arrives to Rein in Administrative Powers
By Allison A. Torrence and Tatjana Vujic
On the final day of its 2022 term, the Supreme Court issued its highly-anticipated opinion in the case of West Virginia v. EPA, 579 U.S. __ (2022), addressing EPA’s authority to regulate greenhouse gases (“GHGs”) under the Clean Air Act (“CAA”), but having much broader implications for the authority of all administrative agencies. The opinion signals a significant shift in the standards used to review administrative actions. Chief Justice Roberts wrote the opinion for the Court, joined by Justices Thomas, Alito, Gorsuch, Kavanaugh and Barrett. Justice Gorsuch filed a concurring opinion, in which Justice Alito joined, and Justice Kagan filed a dissenting opinion, in which Justices Breyer and Sotomayor joined.
Major Questions Doctrine Has its Day in the Sun
In a significant yet long-predicted move, the six-to-three opinion rejected EPA’s approach to regulating GHG emissions under the Obama Administration’s Clean Power Plan (“CPP”), under which EPA intended to regulate existing coal-and natural-gas-fired power plants pursuant to Section 111(d) of the CAA. Of greater significance, however, the Court took the opportunity to fully embrace the “major questions doctrine,” a standard several Justices had endorsed but which had not yet been fully unveiled by the Court. The doctrine now requires agencies, in instances in which a regulation will have major economic and political consequences, to point to clear statutory language showing congressional authorization for the power claimed by the agency. In particular, in “extraordinary cases” in which “the history and the breadth of the authority that the agency has asserted and the economic and political significance of that assertion” is significant or major, courts have “a reason to hesitate before concluding that Congress meant to confer such authority.” Slip op. at 17. In such extraordinary cases, the Court will not read into ambiguous statutory text authority that is not clearly spelled out. Instead, “something more than a merely plausible textual basis for the agency action is necessary”; specifically, “[t]he agency instead must point to clear congressional authorization for the power it claims.” Slip op. at 19.
As support for the adoption and application of the major questions doctrine, the Court cited numerous cases in which agency authority was curtailed because of extraordinary circumstances that it determined required a clear congressional directive. The cases included the FDA’s attempt to regulate tobacco (FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000), the CDC’s effort to issue an eviction moratorium during the COVID-19 pandemic (Alabama Assn. of Realtors v. Dept. of Health & Human Servs., 594 U.S. __ (2021)), EPA’s assertion of permitting authority over millions of small sources like hotels and office buildings (Utility Air Regulatory Group v. EPA, 573 U.S. 302 (2014)), and OSHA’s endeavor to require 84 million Americans either obtain a COVID-19 vaccine or undergo weekly testing (National Federation of Independent Business v. OSHA, 595 U.S. __ (2021)), all of which, according to the Court, involved an agency overstepping its authority to act in situations not dissimilar from the extraordinary circumstances presented in West Virginia v. EPA. The dissent, on the other hand, regarded the majority’s use of the major questions doctrine to be without precedent, observing that “[t]he Court has never even used the term ‘major questions doctrine’ before.” Dissent at 15.
As discussed below, when the Court determines that the major questions doctrine applies, even if the administrative action arguably fits within what may seem like a broad grant of statutory authority, it is not necessarily enough to authorize the agency to act. Rather, if the court finds that the administrative rule is an “extraordinary case”, i.e., will have a significant economic or political impact, the agency must base its action on very clear congressional authorization to justify the power it is attempting to assert.
Clean Power Plan is Out But Regulating GHGs Still OK
Turning back to the regulation at issue in West Virginia, the Court reviewed the Clean Power Plan, which dates back to the Obama Administration’s EPA. At that time, EPA promulgated the CPP pursuant to its authority under the New Source Performance Standards (“NSPS”) in Section 111(d) of the CAA. The Court’s review thus centered on Section 111(d), which gives EPA authority to select the “best system of emission reduction” for existing sources of pollution, like power plants. 42 U.S.C. § 7411(d). Under the CPP, the Obama Administration’s EPA used the NSPS to set GHG emission standards for existing power plants which would require many operators to shut down older coal-fired units and/or shift generation to lower-emitting natural gas units or renewable sources of electricity. The Court viewed EPA’s CPP, which would have required power producers to significantly change the generation mix, as an “extraordinary case” because it would have a major impact on the economy and was a “transformative expansion in [EPA’s] regulatory authority” based on “vague language” in the CAA. Slip op. at 20. In addition, the Court noted that EPA was using an “ancillary provision” in the CAA to regulate GHGs and stated that “the Agency’s discovery [of Section 111(d)]”—which the Court described as a “gap filler”—"allowed it to adopt a regulatory program that Congress had conspicuously and repeatedly declined to enact itself.” Slip op. at 20.
Best System of Emission Reduction
Notably, the Court acknowledged that “as a matter of definitional possibilities, generation shifting can be described as a system” (and thus a “best system of emission reduction”), but nevertheless determined that the CAA’s grant of authority was too vague. Slip op. at 28. According to the Court, almost anything could be described as a “system”, and therefore the CPP was based on a vague grant of authority and did not pass the major questions doctrine test. Slip op. at 28. The majority found such a broad grant of authority questionable, particularly because climate change legislation has been debated in Congress for years with no action, signaling that EPA could not exercise such broad authority when Congress had clearly declined to take such action itself.
By contrast and contrary to the majority’s narrow reading of “best system of emission reduction,” the dissent argued that the generation shifting prescribed by the CPP was precisely the type of “system” of emission reduction permitted under the CAA. In particular, the dissent contended that the term “system” is not vague (which Justice Kagan defined as unclear, ambiguous or hazy) but intentionally expansive to allow for such system-wide programs. Thus, the crux of the disagreement between the majority and dissent is that the dissent saw the CAA as having bestowed broad authority on EPA to regulate complex and important issues of air pollution—including and especially climate change, particularly considering the severity of the problem—in the manner that EPA determines is most appropriate, while the majority required further scrutiny for large-scale administrative endeavors like the CPP, which it held require very clear and specific authorization.
In terms of the implications of West Virginia, what is clear is that the major questions doctrine is here to stay and EPA’s ability to regulate GHG’s under Section 111(d) of the CAA may be curtailed but has not been rejected. In fact, the Court specifically endorsed EPA’s authority to regulate GHGs. So, what does this mean, not only for GHG regulation but also for agency rulemaking in general?
First, while the ruling marks a significant setback for EPA, it does not shut the door on the agency’s ability to regulate GHGs. The CPP rules at issue raised the specter of the major questions doctrine because the regulation would have required generation shifting across the entire energy industry—an action viewed by the Court as having a significant impact on the national economy. The Court, however, declined to opine on “how far our opinion constrains EPA,” indicating that EPA’s authority had not been disallowed. Slip op. at 31, fn5. In fact, the opinion unequivocally states that it is within EPA’s purview to set a specific limit on GHG emissions. Slip op. at 6 (“Although the States set the actual rules governing existing power plants, EPA itself still retains the primary regulatory role in Section 111(d). The Agency, not the States, decides the amount of pollution reduction that must ultimately be achieved.”) Nothing in the opinion suggests that EPA cannot choose to regulate GHGs at power plants with more traditional technology-based requirements. Indeed, an inside-the-fence-line regulation that requires technology like carbon-capture would likely be within EPA’s traditional expertise and less likely to implicate large swaths of the economy like generation switching, and hence not be struck down.
Looking beyond EPA and GHG regulation, additional fallout from the Court’s embrace of the major questions doctrine is sure to occur. In addition to the Court’s explicit adoption of the major questions doctrine, Justice Gorsuch—a longstanding proponent of the doctrine—used his concurring opinion to lay out what he saw as the appropriate elements to consider when evaluating administrative rules under the doctrine. While Justice Gorsuch’s concurrence is not binding, future courts and administrative agencies likely will look to both the Court’s majority opinion and the Gorsuch concurrence for guidance. Administrative regulations will face increased challenges and heightened judicial scrutiny thanks to the major questions doctrine, and we can expect to see not only the number of challenges increase but also the number of successful challenges rise. Additionally, administrative agencies may proactively rein in regulatory actions they were planning to promulgate—keeping the rules more modest or tailored in an attempt to avoid challenges based on the major questions doctrine.
Undoubtedly, this will not be the last word on EPA regulation of GHGs or the use of the major questions doctrine. EPA will issue new GHG regulations, which certainly will invite future litigation. The decision will also certainly trigger many more challenges of agency authority under the newly minted major questions doctrine.
 Notably, the CPP was revoked by the Trump EPA, and the Biden EPA has stated that it intends to promulgate new GHG regulations different from the previous rules under past administrations. Nevertheless, the Court held that the parties had standing to proceed and the case was not moot. Slip op. at 14, 16.
Earth Week Series: The Future of Environmental Regulation
By Allison A. Torrence
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%.
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. 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.
 Jenner & Block filed an Amicus Curiae brief in this case on behalf of Former Power Industry Executives in support of EPA.
Earth Week Series: Imagine a Day Without Environmental Lawyers
By Gabrielle Sigel, Co-Chair, Environmental and Workplace Health and Safety Law Practice
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. 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.
“The first thing we do, let’s kill all the lawyers.” William Shakespeare, Henry VI, Part 2, Act Iv, Scene 2 (circa 1591).
The SEC’s Proposed Climate-Related Disclosure Rules: Are They the “Core Bargain,” a “Watershed Moment,” or “Undermin[ing] the Existing Regulatory Framework”?
By Alexander J. May, Charles D. Riely, Gabrielle Sigel, Michael 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.
• 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. 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, 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.
 Proposed Item 1501 of Regulation S-K.
 SEC Amends Disclosure Requirements for Business, Legal Proceedings, and Risk Factors Sections of Registration Statements and Periodic Filings.
 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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PFAS Linked to Climate Change According to Environmental NGO
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By Steven M. Siros, Co-Chair, Environmental and Workplace Health & Safety Law Practice
In the latest attack on per- and polyfluoroalkyl substances (PFAS), a recent report issued by the environmental group, Toxic-Free Future (TFF), seeks to link PFAS utilized in the manufacture of food packaging to the release of greenhouse gases. The report focuses on the use of PFAS in food packaging, and more specifically, releases of chlorodifluoromethane (HCFC-22 or R22) in connection with the manufacture of PFAS for use in food packaging. HCFC-22 is an ozone depleting substance with a global-warming potential estimated at more than 1,800 times that of carbon dioxide. HCFC-22 has been phased out in the United States in accordance with the Montreal Protocol and as of January 1, 2020, can no longer be produced, imported or used in the United States (except for continued servicing needs of existing equipment).
According to the TFF report, however, because HCFC-22 is produced as an intermediate (a substance formed as part of a larger chemical reaction but that is then consumed in later stages of the production process) during the manufacture of PFAS, it is not subject to the above-referenced use prohibitions. As such, according to the TFF report, facilities that are manufacturing these PFAS compounds are releasing significant amounts of HCFC-22 into the environmental (notwithstanding being classified as "intermediates") in contravention of the prohibitions in the Montreal Protocol. Because of this loophole, the TFF report argues for “class-based” limits on PFAS chemicals at the federal and/or state level.
U.S. EPA continues to assess regulation of PFAS compounds through a variety of regulatory regimes, including setting an MCL under the Safe Drinking Water Act and designating some or all PFAS-compounds as “hazardous substances” under CERCLA. Efforts to link PFAS production to climate change will only increase the pressure on U.S. EPA to move forward with these regulatory efforts. We will continue to provide timely updates with respect to these efforts on the Corporate Environmental Lawyer blog.
The Need to Be Green: Focus on Environmental Sustainability Can Inure to Bottom Line for Cannabis Industry
By Steven M. Siros, Co-Chair, Environmental and Workplace Health & Safety Law Practice
A recent article published in Politico highlights some of the potential impacts of cannabis production on the environment. As the production of cannabis accelerates across the United States, it is becoming increasingly likely that the environmental impacts of cannabis production will become more regulated especially in the areas of energy use and water reliance. Cannabis companies would be well served to ensure that they have effective environmental management strategies in place to not only ensure continued compliance but also to reduce the companies’ environmental footprint that could in turn result in significant cost savings.
For example, according to the article, a typical growing operation can consume up to 2,000 watts of electricity per square meter for indoor growing operations as compared to 50 watts of electricity for growing other leafy greens such as lettuce. According to a recent study, at least one expert estimates that cannabis production accounts for about one percent of electricity consumption in the United States. Depending on the source of electricity, greenhouse gas emissions may be generated in the course of energy production that could be attributable to the cannabis operation’s carbon footprint. President Biden is focused on reducing greenhouse gas emissions and one the key focus industries for President Biden is the agricultural industry. Implementing an energy efficiency program with a focus on renewable energy sources may allow cannabis companies to be better positioned to comply with future regulations while at the same time reducing overall energy costs.
Although not discussed in the article, cannabis production can be a fairly water intensive process with some studies estimating usage as high as six gallons per plant. A recent study concluded that by 2025, total water use in the legal cannabis market is expected to increase by 86%. As water scarcity issues become more prevalent especially in light of the changing climate, ensuring adequate sources of water will be critical to ensuring the ability to continue to grow cannabis plants. At the same time, adopting effective water conservation procedures will allow facilities to reduce their environmental footprint with resulting cost savings.
For more detailed insight on these issues, please click here for an article that was recently published in the Cannabis Law Journal.
Oil Industry Scores Big Win in Second Circuit Greenhouse Gas Litigation
By Steven M. Siros, Co-Chair, Environmental and Workplace Health & Safety Law Practice
Breaking from the pack and potentially creating a circuit split, the Second Circuit’s decision in City of New York v. Chevron, et al. dismissing New York’s City’s climate change lawsuit is a significant victory for the oil and gas industry. The unanimous ruling from the Second Circuit affirmed a district’s court decision dismissing New York’s common law claims, finding that issues such as global warming and greenhouse gas emissions invoked questions of federal law that are not well suited to the application of state law.
Taking a slightly different tact than state and local plaintiffs in other climate change lawsuits, the State of New York sued five oil producers in federal court asserting causes of action for (1) public nuisance, (2) private nuisance, and (3) trespass under New York law stemming from the defendants’ production, promotion and sale of fossil fuels. New York sought both compensatory damages as well as a possible injunction that would require defendants to abate the public nuisance and trespass. Defendants filed motions to dismiss that were granted. The district court determined that New York’s state-law claims were displaced by federal common law and that those federal common law claims were in turn displaced by the Clean Air Act. The district court also concluded that judicial caution counseled against permitting New York to bring federal common law claims against defendants for foreign greenhouse gas emissions.
The Second Circuit agreed with the district court, noting that the problems facing New York can’t be attributed solely to greenhouse gas emissions in the state nor the emissions of the five defendants. Rather, the greenhouse gas emissions that New York alleges required the City to launch a “$20 billion-plus multilayered investment program in climate resiliency across all five boroughs” are a byproduct of emissions around the world for the past several hundred years.
As the Second Circuit noted, “[t]he question before it is whether municipalities may utilize state tort law to hold multinational oil companies liable for the damages caused by greenhouse gas emissions. Given the nature of the harm and the existence of a complex web of federal and international environmental law regulating such emissions, we hold that the answer is ‘no.’”
Finding that New York’s state common law claims were displaced by federal common law, the Second Circuit then considered whether the Clean Air Act displaced these federal common law claims. The Second Circuit noted that the Supreme Court in Am. Elec. Power Co. v. Connecticut (AEP) (2011) had previously held that the “’Clean Air Act and the EPA actions it authorizes displace any federal common-law right to seek abatement’ of greenhouse gas emissions.” As to the State’s damage claims, the Second Circuit agreed with the Ninth Circuit’s reasoning in Native Vill. Of Kivalina v. Exxonmobil Corp. (9th Cir. 2012) that the “displacement of federal common law does not turn on the nature of the remedy but rather on the cause of action.” As such, the Second Circuit held that “whether styled as an action for injunctive relief against the Producers to stop them from producing fossil fuels, or an action for damages that would have the same practical effect, the City’s claims are clearly barred by the Clean Air Act.
The Second Circuit was careful to distinguish its holding from the holdings reached by the First, Fourth, Ninth and Tenth circuits in prior climate change cases, noting that in those other cases, the plaintiffs had brought state-law claims in state court and defendants then sought to remove the cases to federal courts. The single issue in those cases was whether defendants’ federal preemption defenses singlehandedly created federal question jurisdiction. Here, because New York elected to file in federal as opposed to state court, the Second Circuit was free to consider defendants’ preemption defense on its own terms and not under the heightened standard applicable to a removal inquiry.
Whether the Second Circuit’s decision has any impact on BP PLC, et al. v. Mayor and City Council of Baltimore, a case that has now been fully briefed and argued before the Supreme Court remains to be seen. The Baltimore case was one of the state court cases discussed above that was removed to federal court. The defendants had alleged a number of different grounds for removal, one of which is known as the “federal officer removal statute” that allows removal to federal court of any lawsuit filed against an officer or person acting under that office of the United States or an agency thereof. The limited issue before the Supreme Court was whether the appellate court could only consider the federal-officer removal ground or whether it could instead review any of the grounds relied upon in defendants’ removal petition.
Some commenters have noted that the Second Circuit’s decision creates a circuit split that may embolden the Supreme Court to address these climate change cases in one fell swoop. The more likely scenario, however, is that the Supreme Court limits its opinion to the narrow issue before it and leaves resolution of whether state law climate change nuisance actions are preempted by federal law for another day.
EPA Finalizes Rollback of Obama-Era Methane Regulations for the Oil and Natural Gas Industry
By Allison A. Torrence
On August 13, 2020, EPA issued two final rules that will have a significant impact on methane emissions, a potent greenhouse gas. The final rules were issued under the Clean Air Act’s New Source Performance Standards (“NSPS”) for the oil and natural gas industry and rescind Obama-era rules issued in 2012 and 2016. EPA categorized the two new rules as (1) Policy Amendments and (2) Technical Amendments.
Key provisions from these two rules include the following:
- Policy Amendments:
- Removes the natural gas transmission and storage segment of the oil and natural gas industry from regulation.
- Rescinds methane and volatile organic compounds (“VOCs”) emissions standards for the natural gas transmission and storage segment of the oil and natural gas industry.
- Rescinds methane emissions standards for the production and processing segments of the oil and natural gas industry and finds that EPA is no longer required or authorized to issue emission guidelines for methane from existing sources in the industry’s production and processing segments.
- Finds that the Clean Air Act requires, or authorizes, EPA to make a “significant contribution finding” as a predicate to regulating any air pollutant that was not considered when EPA first listed or regulated an industry “source category.”
- Technical Amendments:
- Reduces the frequency of required fugitive emissions monitoring for gathering and boosting compressor stations from quarterly to twice a year and exempts low-production wells from fugitive monitoring requirements altogether.
- Reduces the recordkeeping and reporting requirements of the fugitive emissions program.
- Changes include allowing owners and operators to determine the best means to ensure all components are monitored, rather than having to include a site map and an observation path in the monitoring plan.
- Updates fugitive emissions repair requirements.
- Provides additional technical updates covering fugitive emissions monitoring and repairs, alternative means of emissions limitations, pneumatic pumps, engineer certifications for closed vent systems, and storage vessels.
As we discussed on this Blog previously, these rules were originally proposed on August 28, 2019. EPA held public hearings on the proposed amendments, and received nearly 300,000 written comments on the Policy Amendments and more than 500,000 written comments on the Technical Amendments.
According to EPA’s analysis:
The Regulatory Impact Analysis (RIA) for the two rules estimates that, combined, the two actions will yield $750 to $850 million in net benefits over the period from 2021-2030, (7 percent and 3 percent discount rates, respectively), the annualized equivalent of nearly $100 million in net benefits a year.
EPA also estimates that from 2021-2030, the combined rules will result in an increase in 850,000 short tons of Methane emissions and 140,000 tons of VOC emissions.
Environmental groups, liberal states and other interest groups are all but certain to sue to try to block implementation of the new rules, with Earthjustice staff attorney Tim Ballo recently making the following statement:
The Trump administration is once again putting industry interests over people and public health by gutting these common-sense emission standards. The rollback would only further exacerbate a climate crisis that is already near a point of no return. We cannot afford to go back. We’ve successfully sued the Trump administration in their attempt to dismantle methane emission standards in the past, and we’ll sue again to keep these standards in place.
More information about these rules is available at EPA’s website. The rules will take effect 60 days after they are published in the Federal Register.
Trump Administration Issues Final Rule Substantially Modifying NEPA Regulations
By Matthew G. Lawson
On Wednesday, July 15, 2020, the Trump Administration announced the publication of comprehensive updates to federal regulations governing the implementation of the National Environmental Policy Act (NEPA). The updated regulations—issued by the Center on Environmental Quality (“CEQ”)—are provided in the agency’s final rule titled “Update to the Regulations Implementing the Procedural Provisions of the National Environmental Policy Act” (the “Final Rule”), which is expected to be published in a forthcoming Federal Register publication. The Final Rule significantly overhauls the responsibilities of federal agencies under NEPA, and represents the first major overhaul to NEPA’s regulations in over 30 years. During his announcement, President Trump promised that the overhaul would remove “mountains and mountains of bureaucratic red tape in Washington, D.C.” and speed up the approval and construction of major projects such as interstate highways and pipelines.
NEPA requires federal agencies to quantify and consider the environmental impacts of proposed actions “with effects that may be major and which are potentially subject to Federal control and responsibility.” The federal agency must conduct its NEPA review prior to “any irreversible and irretrievable commitments of resources” towards the proposed action. To fulfill its obligations under NEPA, federal agencies much first complete an “Environmental Assessment” (“EA”) that analyzes whether a proposed action will have a significant impact on the environment. If the EA concludes that an action could have significant environmental impacts, the agency is obligated to take the next step under NEPA and prepare a detailed “Environmental Impact Assessment” (“EIS”) that describes and quantifies the anticipated impacts. Federal agencies are required to undertake an EA and potentially an EIS before commencing public infrastructure projects such as roads, bridges and ports, or before issuing permits to certain private actions that require federal approval, such as the construction of pipelines or commencement of mining operations.
The Trump Administration has repeatedly voiced displeasure with the existing NEPA process, which the President has characterized as “increasingly complex and difficult to manage.” Legal challenges initiated under the existing NEPA regulations have also stalled a number of energy projects publicly supported by the administration, including the Keystone XL, the Dakota Access pipelines. The administration's new regulations are expected to reduce the obligations imposed on federal agencies under NEPA through a variety of measures, including reducing the types of environmental impacts that must be considered during a NEPA review; shortening the permitted time period for reviews; and exempting certain types of actions from the review requirements.
While the Final Rule provides numerous modifications to the language of the existing regulations, three changes expected to have substantial impact on the NEPA process include:
Narrowing of “Effects” that Agencies Must Consider: The Final Rule seeks to narrow the scope of the environmental consequences that must be considered during an agency’s NEPA review by striking from NEPA’s definition of “effects” references to “direct”, “indirect”, and “cumulative” effects. Instead, the new definition provides that federal agencies must only consider environmental “effects” that “are reasonably foreseeable and have a reasonably close casual relational to the proposed action…” According to CEQ, NEPA’s existing definition of “effects” “had been interpreted so expansively as to undermine informed decision making, and led agencies to conduct analyses to include effects that are not reasonably foreseeable or do not have a reasonably close causal relationship to the proposed action or alternatives.” Under the Final Rule’s definition of “effects”, it is unclear whether agencies are ever required to consider a proposed project’s incremental contribution to “global” environment effects, such as Climate Change. Since global effects arguably do not have a “close causal relationship” with any single action, these impacts may now fall outside of NEPA’s purview.
By eliminating the reference to “indirect” emissions and requiring a “close causal relationship” between a project and its environmental effects, the Final Rule also appears to limit federal agencies’ obligation to consider indirect “upstream” and/or “downstream” impacts associated with a project. This issue is of particular significance to the ongoing legal debate regarding the scope of greenhouse gas (“GHG”) emissions that must be considered in NEPA reviews of interstate pipeline projects. Because the volume of GHG emissions caused by the burning of fossil fuels transported by a pipeline often far exceed the emissions directly associated with the pipeline’s construction, litigation can often arise as to whether these subsequent “downstream” emissions must be considered during the pipeline’s NEPA review. Under the Final Rule, it appears that upstream / downstream GHG emissions will often be excluded from NEPA’s requirements unless the emissions have a close relationship with the specific project. Ultimately, the manner in which federal agencies and courts interpret “close causal relationship” in the Final Rule has the potential to significantly reduce the scope of federal agencies’ evaluation of climate change impacts associated with federal projects.
Limitations on Review Period and Report Length: The Final Rule seeks to expedite the NEPA review process by requiring federal agencies to limit all NEPA reviews to a maximum of two years. In addition, the final EIS issued by an agency may not exceed 150 pages of text or, for proposals of unusual scope of and complexity, 300 pages of text. Exceptions from the review period and/or EIS page limitations may only be granted through specific written approval from a senior agency official. The limitations imposed by the Final Rule appear to represent a significant departure from the existing NEPA process. According to a CEQ Report issued on June 12, 2020, the average final EIS is currently 661 pages in length and takes approximately 4.5 years to complete.
Directive for Agencies to Expand Categorical Exclusions of NEPA Requirements for Certain Types of Projects: The Final Rule requires federal agencies to develop a list of actions that the agency does not expect to have a significant effect on the environment. Outside of “extraordinary circumstances,” agencies will not be required to conduct an EA for any projects falling within these categorical exclusions. Furthermore, the Final Rule clarifies that a NEPA review is not required where a proposed action would only have “minimal Federal funding or minimal Federal involvement,” such that the agency cannot control the outcome of the project.
The updated regulations are set to take effect 60 days after the publication of the Final Rule in the Federal Register. CEQ has further clarified that federal agencies may apply the updated regulations to any ongoing NEPA reviews, including environmental reviews started before the effective date of the regulations. However, environmental groups have already publicly stated that they intend to challenge the new rule, claiming at least in part that CEQ failed to respond to the more than one million comments that were submitted in response to the proposed new rules.
The Ninth Circuit Sends Climate Change Cases Back to State Court
By Leah M. Song
On May 26, 2020, the Ninth Circuit agreed with plaintiffs that two climate change lawsuits—County of San Mateo v. Chevron Corp. et al. and City of Oakland v. BP p.l.c. et al.—had been improperly removed to the federal courts, continuing courts’ recent trend of remanding these types of cases back to state court.
A growing form of climate change litigation in the United States consists of lawsuits filed by states or municipalities against private industry, and more specifically, the fossil-fuel industry. States, cities and other units of local government have filed lawsuits alleging state common law theories, including nuisance, trespass, failure to warn of the known impacts of climate change, and unjust enrichment. The outcome of these cases thus far has hinged on whether or not the fossil fuel companies are able to successfully remove the litigation to federal court where they stand a much greater chance of getting the litigation dismissed. Generally, plaintiffs (including states, units of local government, and non-governmental organizations) asserting climate change claims against corporations prefer to be in state court where they can take advantage of perceived plaintiff-friendly common law or state statutes. On the other hand, defendants inevitably seek to remove such cases to federal court where they have had a higher level of success securing dismissals on the grounds that the issue is preempted by the Clean Air Act and/or addresses a “political question” which is better left to the discretion of Congress. See City of N.Y. v. BP P.L.C.. 325 F. Supp. 3d 466 (S.D.N.Y. 2018).
In County of San Mateo v. Chevron Corp. et al., six California municipalities and counties sued more than 30 fossil-fuel companies in California state court. The plaintiffs brought a variety of claims under state common law including nuisance, negligence, failure to warn, and trespass. In City of Oakland v. BP p.l.c. et al., the Cities of Oakland and San Francisco sued five fossil-fuel companies in state court under a theory of nuisance. The fossil-fuel companies removed both cases to federal court. The San Mateo district court remanded the case back to state court while the Oakland district court refused to remand the case back to state court, finding that plaintiffs’ public nuisance claims were governed by federal common law, but then proceeding to dismiss the lawsuit. Both cases were appealed to the Ninth Circuit.
On May 26th, the Ninth Circuit joined the Fourth Circuit (Mayor and City Council of Baltimore v. BP P.L.C., et al., No. 19-1644 (4th Cir. Mar. 6, 2020)) in concluding that these climate change cases alleging only state-common law claim belonged in state court. In County of San Mateo v. Chevron Corp. et al., the Ninth Circuit emphasized its limited authority to review an order remanding a case back to state court under 28 U.S.C. § 1447(d). The Ninth Circuit therefore limited its review to determining whether the district court erred in holding that the federal court lacked subject matter jurisdiction under the federal-officer removal statute.
In order to determine whether the district court erred in holding that it did not have subject matter jurisdiction, the Ninth Circuit examined whether the companies were “acting under” a federal officer’s directions. The companies argued that they were “persons acting under” a federal officer based on several agreements with the government. However, the Ninth Circuit concluded that the companies’ activities under these agreements did not give rise to a relationship where they were “acting under” a federal officer. Accordingly, the Ninth Circuit court held that the fossil fuel companies failed to meet their burden for federal-officer removal and therefore affirmed the district court’s remand order.
In City of Oakland v. BP p.l.c. et al., the Ninth Circuit considered whether “the district court erred in determining that it had federal-question jurisdiction under 28 U.S.C. § 1331” and ultimately held that plaintiffs’ state common-law public nuisance claims did not arise under federal common law. The court acknowledged that there are exceptions to the well-pleaded complaint rule for claims that arise under federal law, but concluded that none of those exceptions applied here.
The court reasoned that “[t]he question whether the Energy Companies can be held liable for public nuisance based on production and promotion of the use of fossil fuels and be required to spend billions of dollars on abatement is no doubt an important policy question, but it does not raise a substantial question of federal law for the purpose of determining whether there is jurisdiction under § 1331.” Furthermore, evaluation of the public nuisance claim would require factual determinations which are “not the type of claim for which federal-question lies.” The fossil fuel companies argued that the plaintiffs’ public nuisance claim was completely preempted by the Clean Air Act, but the court was not persuaded.
In response to defendants’ argument that by amending their complaint to assert a federal common law claim, the district court properly had subject matter jurisdiction under 28 U.S.C. § 1331, the Ninth Circuit noted that plaintiffs only amended their complaint in response to the district court’s statements that plaintiffs’ claims were governed by federal common law. Moreover, the Ninth Circuit noted that since a party violates § 1441(a) “if it removes a cases that is not fit for federal adjudication, a district court must remand the case to state court, even if subsequent action conferred subject-matter jurisdiction on the district court.”
Notwithstanding these conclusions, the Ninth Circuit noted that the district court had not addressed alternative bases for removal raised by defendants and therefore remanded the case back to the district court. However, the Ninth Circuit specifically noted that if the district court concludes that there are no valid bases for federal jurisdiction, the case should be remanded back to state court.
Although these rulings did not address the merits of plaintiffs’ common-law claims, these cases will certainly pose challenges for defendants seeking to remove these types of cases to federal court, and will likely affect plaintiffs’ and defendants’ strategies in climate change litigation moving forward. Jenner & Block’s Corporate Environmental Lawyer will continue to update on those matters, as well as other important climate change litigation cases, as they unfold.
New York Bans PFAS Chemicals in Firefighting Foam as Industry Fights for Exemptions
By Matthew G. Lawson
On December 23, 2019, New York Governor Andrew M. Cuomo gave conditional approval to a state ban on firefighting foams containing per- and polyfluoroalkyl substances (known as “PFAS”). PFAS, commonly referred to as “forever chemicals” due to their ongoing persistence in the environment, are a family of man-made chemicals commonly found in a variety of products, including food packaging, cookware, stain-resistant clothing, and, in the case of perfluorooctane sulfonic acid (PFOS), many types of firefighting foams. According to the U.S. EPA, PFAS chemicals are not only “extremely persistent in the environment,” but have also been linked to numerous health conditions including cancer in humans.
The legislation (“A445A”) requires the New York Office of Fire Prevention and Control to promulgate regulations that will provide guidance for state agencies and local government to avoid the purchase of firefighting foams containing PFAS compounds and outright prohibits the manufacture of PFAS containing firefighting foams within two years of the effective date of the bill. As a condition to his approval, Governor Cuomo noted that an amendment to the current legislation was needed to allow discretionary use of firefighting agents containing PFAS where no other viable options exist. On the basis of an agreement with the New York legislature to implement these amendments, the Governor conditionally approved the bill.
With the enactment of the legislation, New York becomes the third U.S. state to ban PFAS chemicals behind Washington and New Hampshire. In addition, six other states have enacted some form of partial prohibitions on the use of foams containing PFAS chemicals. In response to the recent state legislation, the FluoroCouncil has affirmed that use of firefighting foam containing PFAS “is credited with saving lives and property” and that use of such foams may be essential for extinguishing fires caused by flammable liquids.
Regulation of PFAS chemicals is also being considered at the federal level. As noted in a prior blog by the Corporate Environmental Lawyer, a federal bill is currently being considered that would require the U.S. EPA to promulgate drinking water standards for PFOS as well as perfluorooctanoic acid (PFOA), another common chemical in the PFAS family. According to the Congressional Budget Office (CBO), the estimated cost of implementing these federal standards across the country are likely to exceed “several billion dollars.” The Corporate Environmental Lawyer will continue to update on forthcoming or pending state and federal legislation regarding PFAS chemicals.
International Shipping Industry Plots New Course to Battle Climate Change
In recent years, the global maritime shipping industry has faced pressure to reduce the large quantity of greenhouse gas (“GHG”) emissions associated with international shipping. About 90 percent of the world’s trade goods are transported by ship, and, according to one 2014 study, the shipment of these good via maritime vessels emits approximately 1.9 billion tonnes of GHG annually, or approximately 4% of human-made emissions worldwide. The annual GHG output of the shipping industry has been projected to rise by as much as 250% by 2050 if direct actions are not taken to modify industry practices.
Because of its international nature, global shipping is extremely difficult to regulate on a national basis, and therefore is often addressed through international agreements. To this end, in 2018, the International Maritime Organization (“IMO”), a branch of the United Nations, approved the world’s first broad agreement designed to reduce GHG from worldwide ocean shipping. The agreement reached by the IMO member provides the following target metrics:
(1) Reduce CO2 emissions per “transport work” (product of cargo transmitted and distance sailed) by at least 40% by 2030 and 70% by 2050; and
(2) Reduce total CO2 emissions from shipping by at least 50% by 2050.
The targets were designated to fall in line with the GHG reductions goals set out in the 2015 Paris Climate Accords (the "2015 Paris Agreement"). Though the 2015 Paris Agreement does not include an agreement to reduce GHGs in international shipping, the IMO has stated that it is committed to reducing GHGs in the industry to match the commitment put forward in the agreement.
On December 18, 2019, ship owner associations representing over 90% of the world’s merchant fleets formally presented to IMO their proposed strategy for meeting the international body’s 2018 GHG reduction goals. The industry’s plan proposed the creation of a $5 Billion USD research fund that will be used to research and develop more environmentally friendly fuels and ship propulsion systems. The fund would be fully funded from a $2 per ton tax on marine fuel purchased by shippers over a 10-year period. The associations argued that the fund would be critical to the development of alternative fuels—such as synthetic fuels created by renewable energy sources—which had the potential to drastically reduce the industry’s carbon footprint.
IMO’s environmental goals expand to areas beyond just GHG reduction. For example, in January 2020, the IMO’s new cap on the amount of Sulphur permitted fuel oil will take effect. The effort is aimed at reducing maritime vessel’s emissions of Sulphur oxides (SOx), which are known to be harmful to human health and can lead to acid rain and ocean acidification. on December 10, 2019, the United States Environmental Protection Agency (“USEPA”) enacted a new Final Rule to help refiners comply with the IMO’s new global sulfur standard. As provided by the USEPA, the Final Rule was designed to “ensure that U.S. refiners can permissibly distribute distillate marine fuel up to the 5,000 ppm sulfur limit, which will facilitate smooth implementation of the 2020 global marine fuel standard.”
Dan Brouillette, Acting Secretary of Energy, Confirmed by Senate for Top DOE Spot
By Alexander J. Bandza
The Senate in a 70-15 vote confirmed Dan Brouillette this week as the new Secretary of Energy to succeed Secretary Rick Perry. All 47 Republicans who were present for the vote backed confirmation, as did 22 Democrats, including Joe Manchin III of West Virginia, Tom Udall of New Mexico, and Richard J. Durbin of Illinois, and one Independent, Angus King of Maine.
At his confirmation hearing, Mr. Brouillette stressed the role of the DOE in advancing research, including focusing his tenure on pushing direct air capture, carbon capture and sequestration (CCS), nuclear reactors, and the DOE commercialization work that fosters novel technologies in the private sector. He stated he would “absolutely” devote more DOE resources to researching DAC, and praised ongoing work on CCS and demonstrations of the technology in Wyoming in particular, nothing that he is “very excited about the work I see being done in Wyoming and within DOE writ large.”
Wyoming has become a focal point of the tension as to the future of coal under climate change policies or other environmental laws and the potential opportunity for CCS to resolve this tension. (Wyoming supplies 40% of the United States’ coal to 29 states.) The Wyoming Public Service Commission Chair has recently spoke about the need for a hard look at the benefits of CCS before shuttering coal plants. Also this week, the University of Wyoming announced a partnership with DOE to accelerate research on carbon capture technology at two of the state’s coal-fired power plants. In light of Mr. Brouillette’s extensive comments in support of Wyoming and CCS, we can anticipate much more on this front.
As noted by the New York Times, before becoming deputy energy secretary, Mr. Brouillette was chief of staff to the House Energy and Commerce Committee and was assistant secretary of energy for congressional and intergovernmental affairs in the George W. Bush administration. He also worked as an executive at the United Services Automobile Association, a financial services provider to members of the military, and Ford Motor Company. He once was a member of Louisiana’s State Mineral and Energy Board.