With a new president of the United States and new Environmental Protection Agency (U.S. EPA) administrator, the changes in environmental priorities and policies have been a major point of emphasis during the first couple of months of 2017. Republicans not only control the Executive Branch but also both Houses of Congress. As of the date this article was drafted, we have seen:
an Executive Order requiring U.S. EPA to commence a new rulemaking on the "Waters of the United States" under the Clean Water Act (CWA) and a related Notice of Proposed Rulemaking;
Presidential Memoranda requiring expedited review of the Dakota Access and Keystone XL Crude Oil Pipeline projects;
the "Two-for-one" Executive Order requiring that every proposed "significant" regulation must identify two existing regulations to be repealed (although regulations required by statute or judicial order are exempt);
an Executive Order requiring the Council on Environmental Quality Chair to coordinate with other federal agencies and expedite environmental reviews of High Priority Infrastructure projects; and
use of the Congressional Review Act to repeal the Department of Interior's Stream Protection Rule.
There is little doubt that other significant policy developments or rule changes are forthcoming. These changes may affect cases, rulemakings and policies discussed in this Review. For example, the Administration has publically stated that its intent to "repeal" the Clean Power Plan, the prior Administration's signature effort to reduce/control greenhouse gas emissions from fossil fuel-fired
AMERICA ASIA PACIFIC EUROPE
Sidley and Sidley Austin refer to Sidley Austin LLP and affiliated partnerships as explained at www.sidley.com/disclaimer.
Sidley Austin provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Attorney Advertising - For purposes of compliance with New York State Bar rules, our headquarters are Sidley Austin LLP, 787 Seventh Avenue, New York, NY 10019, 212.839.5300; One South Dearborn, Chicago, IL 60603, 312.853.7000; and 1501 K Street, N.W., Washington, D.C. 20005, 202.736.8000.
Notwithstanding these changes, there were noteworthy rulemakings, court decisions and policy developments during 2016 and this Review highlights those decisions and developments. Issues relating to shale gas and hydraulic fracturing are covered in Sidley's Shale and Hydraulic Fracturing blog.
Election Impacts on Ongoing Litigation. Two of the Obama Administration's most controversial U.S.
EPA rulemakings -- the Clean Power Plan and the Waters of the United States Rule -- are both slated for rescission or revisions by the Trump Administration. Both cases, however, endured long enough to make their impressions on future environmental and regulatory litigation.
The D.C. Circuit denied a bid in late January 2016 to stay the Clean Power Plan until the pending petitions for review were resolved. Recognizing the rule's importance, however, the court agreed to expedite review and scheduled oral arguments for June 2, 2016. West Virginia v. EPA, 15-1363 (D.C. Cir.) (and consolidated cases). The U.S. Supreme Court upset that schedule by unexpectedly issuing its own stay of the Clean Power Plan in early February 2016, just days before Associate Justice Antonin Scalia passed away. The unprecedented Supreme Court stay inspired the D.C. Circuit to undertake a rare move of its own. It rescheduled oral arguments for September 2016 before an en banc panel of 10 judges, bypassing the usual three judge panel.
Although the Supreme Court stay was initially thought to all but doom the Clean Power Plan, the Supreme Court nomination of Judge Merrick Garland (who subsequently recused himself from the en banc panel) was widely thought to be a possible fifth vote to preserve the rule on any appeal from the D.C. Circuit's decision. With six of the 10 judges on the en banc panel nominated by Democratic presidents, the February stay looked like it would become little more than Supreme Court trivia. The grueling seven-hour oral argument, however, left observers with little understanding of how the D.C. Circuit would ultimately rule. Among the arguments raised were issues related to U.S. EPA's regulation beyond the actual statutory sources subject to New Source Performance Standards, the potential prohibition on regulating sources under both Sections 111(d) and 112 of the Clean Air Act (CAA), an obscure discrepancy between House and Senate bills, and constitutional limits on U.S. EPA regulating each state's overall mix of electricity generation sources. Each side trumpeted the judges' skepticisms and support for various arguments, but overall, nobody can safely predict the ultimate result. The complexity of the issues may not even allow for a clear majority opinion, possibly leaving the Supreme Court to sift through a series of plurality opinions, concurrences and dissents.
Litigation over the Waters of the United States Rule kicked off almost immediately after its June 2015 release, with 18 states filing suit in Texas district court, 13 states filing suit in North Dakota district court, and dozens of other states and industry groups filing suit in courts around the country. Overall, more than 70 parties filed 14 petitions for review in the U.S. Courts of Appeals and 10 complaints in the U.S. District Courts. After rounds of briefings on stays and consolidations (with the Judicial Panel on Multidistrict Litigation declining to assign all the challenges to a single judge), the only court that really mattered was the Sixth Circuit which issued a nationwide stay in October 2015. The Sixth Circuit published a fractious 2-1 opinion in February 2016 finding the jurisdictional rule was an "other limitation" under Section 509(b)(1) of the CWA, placing jurisdiction in the Circuit Courts of Appeal. In re United States Dep't of Defense & United States Envt'l Prot. Agency Final Rule, Case No. 15-3751 (6th Cir.).
Despite the Sixth Circuit issuing a stay of the rule, U.S. EPA, the U.S. Army Corps of Engineers (Corps), and environmental groups supporting the rule gained a jurisdictional victory as opponents preferred suits to proceed in the district courts. Opposing states and industry groups reacted to the decision by petitioning the Sixth Circuit for en banc review (which it declined in April 2016) and moving other courts to revive challenges that were previously
Sidley Austin LLP Page 2
stayed. A petition for certiorari was filed in September 2016 on the jurisdictional question. In the meantime, the Sixth Circuit heard substantive briefing. There the parties advanced their arguments in Goldilocks fashion, with industry groups and most states arguing that the Waters of the United States Rule exceeded prior Supreme Court limits on jurisdiction, environmental groups arguing that it did not go far enough, and the government arguing that it was just right.
The cliffhanger ending for both of these cases must wait until later this year. To preview, the Supreme Court will hear the case against Sixth Circuit jurisdiction while the Sixth Circuit holds the case on the merits in abeyance, but there is no guarantee that either case will ever see a ruling. On February 28, 2017, President Trump signed an executive order requiring U.S. EPA and the Corps to "review" the Waters of the United States Rule and issue a proposed rulemaking "rescinding or revising" it to be consistent with both economic growth and Justice Scalia's plurality opinion in Rapanos v. United States. What this means for the Supreme Court and Sixth Circuit cases has yet to be determined.
A similar executive order instructing U.S. EPA to "review," and almost certainly rescind, the Clean Power Plan is expected soon. U.S. EPA Administrator Scott Pruitt represented Oklahoma in challenging both rules as the State's Attorney General. Although he will formally recuse himself from the process, U.S. EPA's ultimate decision is somewhat predictable. The D.C. Circuit's en banc panel likely heard oral arguments thinking that their colleague, Judge Garland, would be the fifth vote to uphold the Clean Power Plan on the near-certain appeal to the Supreme Court. Now, their ultimate opinion (or collection of opinions) may be reviewed by the new Supreme Court nominee, Tenth Circuit Judge Neil Gorsuch, assuming the rule lives long enough to reach the Supreme Court. As with the Waters of the United States Rule, future review by the U.S. EPA could ultimately moot the outcome.
Startup, Shutdown and Malfunction Emission Litigation. In March 2016, briefing began for a
challenge by utilities, industry groups, and 19 states to a U.S. EPA rulemaking requiring 36 states to revise State Implementation Plan (SIP) regulations exempting emissions from startup, shutdown and malfunction (SSM) events. Walter Coke, Inc. v. EPA, 15-1166 (D.C. Cir.). At its heart, the challengers claim that U.S. EPA previously approved state regulations permitting exemptions for SSM emissions but unlawfully agreed to reverse its interpretation of whether these exemptions are allowed under the CAA in a settlement with environmental groups. Further, in demanding revisions, U.S. EPA found only that the SIPs were "substantially inadequate" because they failed to correlate with U.S. EPA's new interpretation of the CAA, but not "substantially inadequate" to meet National Ambient Air Quality Standards. U.S. EPA and environmental groups argued that it was forced to demand the revisions after the D.C. Circuit prohibited SSM exemptions under Section 112 of the Act in Natural Resources Defense Council v. EPA, 749 F.3d 1055 (D.C. Cir. 2014), holding that they rendered emission limitation violations unenforceable. Industry groups countered that this view of SSM exemptions is not only absent from Section 110 of the CAA, but contrary to its plain meaning. Briefing concluded on October 31, 2016, and oral argument is scheduled for May 8, 2017.
Citizen Suits. Three notable 2016 decisions examined the criteria necessary to bring and defend against a
citizen claim under the CAA, clarifying issues of statutory bars, timing and standing to bring such lawsuits.
The Third Circuit affirmed the dismissal of a citizen suit in January 2016, holding that a coke plant's prior consent decree met the "diligent prosecution" bar of the CAA citizen suit provision. In Group Against Smog and Pollution (GASP) v. Shenango, Inc., (3rd. Cir. Jan. 6, 2016), a citizen group sued a Pennsylvania coke plant for alleged opacity limit violations. Prior to the lawsuit, the company had entered a consent decree with U.S. EPA, the Pennsylvania Department of Environmental Protection and the Allegheny County Health Department addressing the same alleged violations, and the court had retained jurisdiction in order to enforce the consent decree. The district court found that this consent decree qualified as diligent prosecution and removed the court's jurisdiction
Sidley Austin LLP Page 3
to hear the citizen suit under the CAA. The Third Circuit affirmed but not on jurisdiction grounds. Instead, the appellate court found that a regulator's enforcement action bars a citizens suit regardless of whether the enforcement action has concluded. The Third Circuit's decision follows a line of cases in the First, Fourth, Seventh and Tenth Circuits that take a similar position.
In March 2016, the Tenth Circuit dismissed Sierra Club's lawsuit against Oklahoma Gas & Electric Co. alleging Prevention of Significant Deterioration (PSD) violations under the CAA related to the company's modification of a boiler at its power plant. The alleged modifications took place in March and April 2008. The parties had agreed that penalties for claims prior to April 1, 2008 were time-barred based on the CAA's five-year statute of limitations but disagreed on whether Sierra Club could maintain a claim for penalties after that date. The Tenth Circuit affirmed the district court decision dismissing the claim, finding that any alleged violation related to failure to obtain a PSD permit accrued at the time the project began, in this case before April 1, 2008. The court also rejected the argument that continued operation of the unit constituted an ongoing violation, finding that the project was not a series of repeated violations but instead a single violation that accrued on the day the modification began. Thus, because the claim accrued in March 2008, the cause of action for alleged violations in April fell outside of the five-year statute of limitations.
In Natural Resources Defense Council et al. v. Illinois Power Resources, et al., the United States District Court for the Central District of Illinois held that the owner and operator of a coal-fired power plant was liable for particulate matter emission violations of the CAA. The decision is notable for its discussion of whether plaintiffs -- the Natural Resource Defense Council and other citizen groups -- have standing to sue under the CAA's citizen-suit provision. The court held that they do and specifically that all that was required to establish injury was an "identifiable trifle." Generally, organizations must demonstrate standing by showing (a) one of their members would have standing, (b) the interests at stake in the litigation are connected to the purpose of the organization, and (c) an individual member of the organization is not required to participate directly. The case turned on whether the individual plaintiffs would have standing on their own and specifically on their demonstration that they had suffered an injury in fact. The court found plaintiffs need only put forth limited evidence of concern that demonstrates a reasonable perception of fear of being harmed by the plant's emissions. Defendants in environmental citizen suits will have an increasingly difficult time challenging plaintiffs' standing if more judges embrace this court's low standard.
Mixed Media Claims. 2016 saw a spotlight on environmental suits that seemed, according to some, to
extend environmental laws beyond their traditionally understood areas of focus. Two of the more impactful suits, Pakootas v. Teck Cominco Metals Ltd., 830 F.3d 975 (9th Cir. 2016) (Pakootas II) and Sierra Club v. BNSF Railway Company, 2016 WL 6217108 (W.D. Wash. Oct. 25, 2016) are discussed here. Although the focus is on Pakootas II and BNSF, these are not isolated cases, but the decisions in these two cases do seem, for the time being, to open the door for plaintiffs to push for analyses of environmental statutes beyond the conventional.
Pakootas v. Teck Cominco Metals Ltd.
The initial Teck suit was brought in 2004 by the Confederated Tribes of the Colville Reservation (with the State later joining as plaintiff-intervenor) against Teck Cominco, which owns a smelter in British Columbia, Canada. See Pakootas Complaint, 2004 WL 2646770 (E.D. Wash.) The suit was brought under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) -- a statute that traditionally has been applied to the spread of contaminants on land or water by deliberate human interference -- based on the admitted discharge by Teck of slag into the Columbia River, which washed downstream into the United States, landing in an area known as the Upper Columbia River Superfund Site. The case continued through various motions and appeals, and in March 2014, plaintiffs amended their complaint with claims arguing that CERCLA also applied to air emissions originating from the Teck smelter, which drifted into Washington and then were
Sidley Austin LLP Page 4
deposited into the Upper Columbia River Superfund Site. See Pakootas v. Teck Cominco Metals, Ltd., 2014 WL 12480262, at *1 (E.D. Wash. July 29, 2014) (Pakootas I). More specifically, plaintiffs argued that Teck was liable as an "arranger" under CERCLA for the "deposit" of air pollutants into the Upper Columbia River. The focal point of Teck's argument was not on the idea that it was or was not an "arranger," but upon the idea that there was no "disposal" under CERCLA, which, it insisted, addressed only those emissions deposited directly on land or water. The court recognized the novelty of the question as to whether air emissions qualified as "disposal" for CERCLA liability purposes, and certified the question for interlocutory appeal. Pakootas v. Teck Cominco Metals, Ltd., 2014 WL 7408399(E.D. Wash. Dec. 31, 2014), rev'd and remanded, 830 F.3d 975 (9th Cir. 2016).
On appeal, the Ninth Circuit noted that CERCLA does not define disposal and began with a discussion of a similar case, Center for Community Action & Environmental Justice v. BNSF R. Co., 764 F.3d 1019 (9th Cir. 2014), in which the court evaluated the definition of "disposal" under the Resource Conservation and Recovery Act (RCRA). The Center for Community plaintiffs argued that diesel particulate matter emitted from defendant's rail yards was transported by the winds and ultimately disposed of on land and water in violation of RCRA, a statute traditionally thought to address the disposal of solid and hazardous waste. The Center for Community court determined that based on RCRA's text, "disposal" required solid or hazardous waste first to be placed into or on any solid land or water (and thereafter be emitted into the air ); and, air emissions were not first placed anywhere but rather emitted into the air.
The Pakootas II court also discussed Carson Harbor Village, Ltd. v. Unocal Corp., 270 F.3d 863 (9th Cir. 2001). The court there determined that the term "deposit" -- the term on which the Pakootas' plaintiffs had centered their air emissions theory of CERCLA liability -- is "akin to `putting down' or placement" by some entity and that nothing in the context of CERCLA suggested Congress meant to include "passive migration" within the meaning of disposal.
Based on Center for Community and Carson Harbor, the Pakootas II court determined that disposal did not include "the gradual spread of contaminants without human intervention." The Pakootas II court noted that the plaintiff had not brought forth any arguments to distinguish its case from Carson Harbor or the Center for Community, which was key to the court's decision. Indeed, although finding in favor of defendant, the Ninth Circuit clearly and carefully acknowledged that the plaintiffs presented an "arguably plausible construction of `deposit' and `disposal.'" The Ninth Circuit specifically noted that the "Center for Community interpretation of disposal for RCRA purposes does not absolutely foreclose a different interpretation of `disposal' for CERCLA purposes," rather, it was only that the court had found the textual analysis in Center for Community compelling. Nor did the Pakootas II court think that the decision in Carson Harbor necessarily compelled rejection of plaintiff's "aerial deposition" theory in so far as Carson Harbor focused on former owner liability and not arranger liability. Instead the decision was based on the fact that plaintiff had not offered any compelling reason to interpret "deposit" differently between the former owner and arranger sections of CERCLA. Therefore, in the end, the Ninth Circuit appears to have left the door open for future plaintiffs to bring similar claims with the potential for success.
Sierra Club v. BNSF Railway Company
Sierra Club v. BNSF Railway Company, 2016 WL 6217108 (W.D. Wash. Oct. 25, 2016), presents another case in which plaintiffs seek what appears to be a more novel, or perhaps simply less traditional, application of an environmental statute. Sierra Club filed suit against BNSF Railway alleging violations of the CWA by the BNSF rail cars/trains based on discharges of coal particles and windblown coal emissions into the waters of the United States. The coal particles were allegedly discharged into waters "through holes in the bottoms and sides of the rail cars and by spillage or ejection from the open tops of the rail cars and trains" while the rail cars or trains were travelling. Plaintiffs specifically argue that since defendant BNSF never obtained a National Pollution Discharge
Sidley Austin LLP Page 5
Elimination System (NPDES) permit to allow for its discharges of coal particles from the trains and railcars, such unpermitted coal discharges violate the CWA.
During summary judgment argument, defendant asserted that coal discharges from its travelling trains and rail cars were not the type of discharges covered under the CWA, which generally covers (and requires NPDES permits for) "point source" discharges. A "point source" is defined under the CWA as "any discernible, confined, and discrete conveyance" from which pollutants are discharged. Point sources have traditionally been understood to include items such as pipes, wells, ditches or other similar objects directly channeling pollutants to water, although, as plaintiff pointed out, "rolling stock" such as BNSF trains are identified as possible point sources within the CWA. Defendant countered that regardless of whether its rail cars and trains may be point sources as "rolling stock," the trains did not qualify as a discrete conveyance from which pollutants were discharged to water as required by the CWA point source definition.
The court ultimately agreed with defendants in relation to releases of coal pollutants to land, and from land to water, in the case of such releases, the rail cars and trains were not point sources because the CWA requires that to be a point source an object must discharge directly to water. However, the court came to a different conclusion in relation to windblown coal dust emissions. While the court made clear that under the CWA "coal dust deposited in the navigable water from BNSF trains is not a point source discharge unless there is a discrete conveyance," it did find that coal particle discharges from any rail cars and trains travelling directly over or directly adjacent to navigable waters provided such discrete conveyance.
In the end, because this decision was issued in relation to motions for summary judgment, plaintiffs must still prove instances of actual discharge (versus speculative discharge based on the fact that the trains often run with open tops) in order to ultimately succeed. Regardless, the BNSF decision on discreet conveyance has left yet another door open for plaintiffs seeking a less-traditional application of an environmental statute. Indeed, the BNSF decision has already been cited to by plaintiffs in another matter -- Sierra Club v. Dominion Virginia Power, No. 2:15-cv-00112 (E.D. Va.) -- to support their own CWA claims that groundwater serves as the necessary method of "discrete conveyance" of coal ash (that travels through groundwater) to surface water.
RULEMAKING AND POLICY DEVELOPMENTS
Council on Environmental Quality Guidance on GHG Emissions and Climate. On August 1,
2016, the Council on Environmental Quality (CEQ) released its Final Guidance document for federal agencies to use when considering greenhouse gas (GHG) emissions and climate change impacts in their reviews under the National Environmental Policy Act (NEPA) (GHG Guidance). After the change of Administration on January 20, 2017, some have speculated on the fate of this guidance, especially in light of the Trump Administration's stated intention to repeal the Obama Administration's Climate Action Plan.
The GHG Guidance adopted last year was the culmination of a discussion CEQ began in 1997 when it informed agencies that NEPA compliance required them to consider whether federal actions could affect or be affected by climate change. Thereafter, CEQ released new draft guidance on the subject in 2010, followed by further draft guidance in 2014. The GHG Guidance calls on agencies to consider GHG emissions in several aspects of the NEPA process, including consideration of alternatives that could mitigate GHG emissions, quantifying direct and indirect impacts of GHG emissions and identifying measures that could mitigate a federal action's GHG impacts.
To date, no action has been taken by the Trump Administration with respect to the GHG Guidance. This is not a prime candidate for attention because established NEPA case law already contains these obligations. Thus, unlike changes to the Climate Action Plan or other Obama Administration initiatives, revocation of this guidance would not be likely to have a significant impact.
Sidley Austin LLP Page 6
GHG Developments: Oil and Gas NSPS. On June 3, 2016, U.S. EPA published new source
performance standards (NSPS) to control methane and volatile organic compound (VOC) emissions from new, reconstructed, and modified sources in the oil and gas sector. 81 Fed. Reg. 35,824 (June 3, 2016). The final rule, issued under Section 111(b) of the CAA, expanded upon U.S. EPA's prior regulation of this source category by adding methane controls for the first time and by adding sources that were not previously regulated. While in many cases the methods for controlling methane are similar to those already in place to control VOCs, the inclusion of additional sources marks a significant expansion of the oil and gas NSPS. In particular, U.S. EPA included a new fugitive emissions monitoring program for well sites and compressor stations that is designed to identify and repair methane and VOC leaks. In addition, U.S. EPA expanded the current NSPS for the oil and gas sector to include hydraulically fractured wells and downstream gas processing sources.
Fifteen states and 24 industry trade associations filed nine separate petitions for review of the final rule in the U.S. Court of Appeals for the District of Columbia Circuit. North Dakota v. EPA, D.C. Cir. Case No. 16-1242 (and consolidated cases). Those cases were also consolidated with petitions of review of U.S. EPA's prior NSPS for the oil and gas sector, which had not yet been litigated. A number of states, municipalities and NGOs intervened in the petitions in support of U.S. EPA. Petitioners are expected to raise both threshold legal issues involving U.S. EPA's authority to regulate methane emissions and U.S. EPA's authority to regulate certain sources within the oil and gas sector, as well as a number of implementation-based issues. No briefing schedule has been set for the cases. In addition, a number of petitioners also filed administrative petitions for reconsideration and requests for stay with U.S. EPA. U.S. EPA has not acted on those petitions for review.
If they remain in effect, these regulations will have a significant impact on oil and gas development and on U.S. EPA's regulation of GHG emissions as a whole. While U.S. EPA previously imposed similar requirements on a smaller subset of sources through VOC emissions limits in prior rulemakings, the scale of these regulations is significantly larger. Given the large number of sources that will be covered by the regulation, it may be difficult for sources to fully comply with the rules by the deadlines U.S. EPA has proposed. This is particularly true for fugitive emissions monitoring, where new equipment and newly trained professionals will be needed to conduct monitoring. Implementation would also be complicated by the remote locations of many upstream oil and gas sources, which makes equipment upgrades, monitoring and repair more difficult.
Separately, in November 2016, U.S. EPA sent information collection requests (ICRs) to owners and operators in the oil and gas sector seeking information about methane emissions from existing sources. The ICR was intended to be an initial step toward regulation of methane emissions from existing sources under Section 111(d) of the CAA. Because of the large number of existing sources, such regulation could have a much more significant impact on the oil and gas sector than the NSPS for new sources. However, in response to a letter submitted by eleven states, U.S. EPA Administrator Pruitt withdrew the ICR, stating that U.S. EPA needed more time to assess the need for collecting the requested information. While U.S. EPA has not signaled an intention to take similar action to revise or withdraw the NSPS for new sources, this action does suggest a willingness on the part of U.S. EPA Administrator Pruitt to re-evaluate U.S. EPA's regulation of the oil and gas sector under the Obama Administration.
GHG Developments: Aircraft Emissions. 2016 also saw developments relating to restricting GHG
emissions from commercial aviation on two separate fronts. Most relevant to manufacturers, in July, U.S. EPA issued the requisite endangerment finding under the CAA that GHG emissions from certain classes of aircraft engines contribute to climate change. U.S. EPA's findings cover carbon dioxide (CO2), methane, nitrous oxide, hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulfur hexafluoride (SF6), all of which are generated primarily from engines used on large commercial jets. A petition for reconsideration of the finding was denied in December 2016. The endangerment finding clears the way for U.S. EPA to develop regulations imposing specific emission limits for commercial aircraft. International initiatives to regulate GHG emissions from aviation, largely
Sidley Austin LLP Page 7
pushed by the European Union (EU), have been underway since 2009 but applicability to flights arriving or departing from airports outside the EU was postponed to provide the International Civil Aviation Organization (ICAO), a United Nations body, an opportunity to reach agreement on a global approach for international aviation. In February 2016, the ICAO issued a proposed performance standard imposing fuel efficiency requirements and CO2 reduction targets for new commercial and business aircraft delivered after January 2028, with a transition period for modified aircraft starting in 2023. While the generally agreed upon goal is for uniform standards, the endangerment finding would allow U.S. EPA to develop more stringent requirements, if it determines going forward that the ICAO standards are not sufficiently protective.
More critical to the carriers, the ICAO agreed to develop a global market based measure to limit carbon emissions from international aviation operations. In October 2016, the ICAO passed a resolution establishing the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). CORSIA is intended to ensure carbon neutral growth from aircraft operations starting in 2020. Beginning in 2021, aircraft operators will be required to purchase offsets for CO2 emissions for any annual increase in total CO2 emissions from international civil aviation above 2020 levels. The first phase of CORSIA would apply to ICAO member states who volunteer to participate, with the program becoming mandatory in 2027 for all member states that have any individual share of international aviation activities above the designated threshold. The United States, under the Obama Administration, agreed to participate in the first phase, thus obligating the United States based carriers to the program.
SEC Environmental Disclosure Developments. While there have been no specific rule changes
during 2016, the current disclosure requirements set out in Regulation S-K are being re-evaluated. Specifically, in April 2016, the Securities and Exchange Commission (SEC) published a comprehensive Concept Release seeking public comment on modernizing and improving the business and financial disclosure requirements in Regulation S-K that serve as the foundation for disclosure in periodic reports and 1933 Act registration statements. Among the areas for which comments were sought were the environmentally-related disclosure requirements in Regulation S-K 101 -- Description of Business, S-K 103 -- Legal Proceedings and materiality considerations for Management's Discussion and Analysis and Risk Factor disclosures. In addition to the traditional areas of environmental disclosure, the Concept Release sought comments on whether mandated reporting on sustainability, including climate change, should be required and, if so, in what form. The comment period ended in July 2016. Speaking broadly, the comments submitted largely followed expected policy positions, with environmental advocacy groups urging greater and more detailed disclosure, particularly on climate change issues, and comments from regulated industry and SEC registrants urging continued adherence to materiality principles rather than issue-oriented disclosures. The comments received are reviewable through the SEC's website here. The SEC is under no specific timetable to act in response to the comments received.
RMP Rulemaking. In 2016, the U.S. EPA released a long awaited proposal to update the Accidental Release
Prevention rules at 40 C.F.R. Part 68, which implement the CAA Section 112(r)(7) risk management planning (RMP) program. There are currently approximately 12,500 facilities in the United States that are subject to the RMP program, and a substantial number of those will be affected by this amendment package -- the most significant changes since the program's initial implementation.
The genesis of this rulemaking effort was the West Texas ammonium nitrate warehouse explosion and fire in April 2013. Shortly after that incident, President Obama issued Executive Order 13650 which provided that "the Administrator of EPA and the Secretary of Labor shall review the chemical hazards covered by the Risk Management Program (RMP) and the Process Safety Management Standard (PSM) and determine if the RMP or PSM can and should be expanded to address additional regulated substances and types of hazards." U.S. EPA is responsible for RMP; Occupational Safety and Health Administration (OSHA) is responsible for PSM.
Sidley Austin LLP Page 8
U.S. EPA proposed significant changes in four key areas: (1) incident investigation and accident history requirements; (2) third-party compliance audits; (3) safer technology and alternatives analyses; and (4) emergency response and information sharing requirements. The rule was finalized on January 13, 2017.
For incident investigation and accident history requirements, the new rule mandates use of "root cause analysis" (one tool often utilized in accident investigations), imposes deadlines for completion of investigations and reports, and requires broader dissemination of report information.
Another major change to the current RMP program is the new requirement that certain facilities conduct independent third-party compliance audits in two situations: (1) when there has been an accidental release meeting specified criteria; or (2) when an implementing agency determines an audit is needed based on noncompliance, including when a previous third-party audit fails to meet the competency, independence or impartiality criteria. Third-party audits have never been mandatory before under the program.
U.S. EPA's Safer Technology and Alternatives Analysis (STAA) requirement applies to certain facilities in three sectors: petroleum and coal products manufacturing, chemical manufacturing and paper manufacturing, but does not require follow up implementation. The current Process Hazard Analysis process for these facilities must include an STAA analysis component, with consideration of inherently safer technology (IST) or inherently safer design (ISD). The STAA must be followed with an evaluation of the feasibility of implementing any IST or ISD considered. U.S. EPA specifically states that it is not requiring that any facility actually implement IST or ISD.
The new rule also substantially changed the Emergency Response Coordination Requirements, which include significant increases in facility responsibilities in geographic areas, where emergency response capabilities are not sufficiently robust and imposes new information reporting requirements. An owner or operator must develop and submit to Local Emergency Planning Committees or local emergency response officials a variety of summary information, which must then be updated annually.
Although U.S. EPA did make some changes, primarily to the information sharing provisions, in response to numerous comments received that were critical of the proposal, U.S. EPA finalized the rule right before the end of the Obama Administration. Soon after President Trump's inauguration, industry called on U.S. EPA to pull back the proposal. U.S. EPA Administrator Pruitt, when still Attorney General of Oklahoma, criticized the proposal in a letter to U.S. EPA, and it remains to be seen what the agency will do with regards to implementing and enforcing the new rule. In addition, petitions have been filed under the Congressional Review Act in the House of Representatives and the Senate to have the rule revoked.
PHMSA and Crude Transport. The federal transportation funding bill passed in December 2015 (the
Fixing America's Surface Transportation (FAST) Act) mandated further efforts by the Department of Transportation's Pipeline and Hazardous Materials Safety Administration (PHMSA) to improve hazardous materials transportation safety. As noted in last year's update, a final rule imposing new tank car standards, speed limits and braking standards for high-hazard flammable trains (HHFTs) was issued by PHMSA in May of 2015. In that rule, HHFTs were defined as single trains with a continuous block of 20 or more tank cars loaded with a flammable liquid or with 35 or more loaded tank cars carrying a flammable liquid dispersed throughout the train. In August 2016, PHMSA, in coordination with the Federal Railroad Association, promulgated another final rule in response to certain FAST mandates, including expanding on the May 2015 rule and extending the requirement to use enhanced tank cars for shipping all flammable liquids, regardless of the length of the train. The new rule also requires that new tank cars be equipped with a thermal protection blanket and that older tank cars retrofitted to the new standard be equipped with top fittings protection and a thermal protection blanket. The FAST Act also requires a modified phase-out schedule for older DOT Specification 111 tank cars, such that older tank cars are phased out faster if they carry highly flammable, unrefined petroleum products.
Sidley Austin LLP Page 9
Separately, since 2011, PHMSA has been engaged in a rulemaking relating to pipeline safety regulations, including whether to extend the integrity management program requirements to additional types of facilities, such as gathering pipelines and related facilities. In March 2016, PHMSA published a proposed rulemaking that would expand integrity management requirements and impose new pressure testing requirements on currently regulated pipelines. The proposal would also significantly expand the regulation of gathering lines, subjecting previously unregulated pipelines to requirements regarding damage prevention, corrosion control, public education programs, maximum allowance operating pressure limits and other requirements.
Dakota Access Pipeline Corps of Engineers Permitting. In July 2016, the Standing Rock Sioux
Tribe, joined by the Cheyenne River Sioux Tribe, sued the Corps to invalidate the agency's approval of the Dakota Access Pipeline, a 30-inch, 1,200-mile pipeline intended to transport 570,000 barrels of Bakken Crude oil per day from North Dakota to Patoka, Illinois. Although 99 percent of the right-of-way passed through private land, the Corps was responsible under the CWA for administering its Nationwide Permit Program as applied to 204 wetlands crossed by the project, as well as for an easement under Lake Oahe, and thereby, for the application of both NEPA and the National Historic Preservation Act (NHPA) to these limited federal actions. When this suit was filed, the Corps had completed an Environmental Assessment and Finding of No Significant Impact under NEPA, had concluded the consultation process required by the NHPA, and had issued letters verifying the project's entitlement to apply Nationwide Permit #12 at 204 wetland sites. However, the Corps had not completed its review of an application for an easement that would allow the project to cross under the bed of Lake Oahe, a portion of the Missouri River that was owned by the United States.
After the District Court denied a preliminary injunction against ongoing construction, and the Court of Appeals also declined to halt the project, the United States announced that it would conduct a new environmental review of impacts of the pending but as-yet unissued easement from the Corps for the pipeline's construction under Lake Oahe. Accordingly, although no injunction had been issued, construction stalled while the government initiated further proceedings under both NEPA and NHPA.
However, the Trump Administration directed the Secretary of the Army to terminate the nascent supplemental review under NEPA and further consultation under the NHPA. On February 8, 2017, the Dakota Access Pipeline received its easement from the Department of the Army to cross under the lakebed. Further litigation is likely.
TSCA. On June 7, 2016, Congress passed the Frank R. Lautenberg Chemical Safety for the 21st Century Act.
The passage of this legislation was significant as it is the first time the Toxic Substances Control Act (TSCA) has been substantively amended since its enactment in 1976. In fact, this Act is the first significant statutory amendment of federal environmental law since the 1990 CAA Amendments. The legislation was a product of years-long negotiations, first between both parties in the Senate and House, and in 2016, between the two chambers, which each passed its own version of TSCA reform legislation in 2015.
The Lautenberg Chemical Safety Act creates a new structure for the evaluation and approval of chemicals by U.S. EPA, and provides U.S. EPA with significant new authority to obtain information about and regulate chemicals in commerce. For the first time, U.S. EPA is required to make a determination as to the safety of every single chemical in commerce. In a nutshell, U.S. EPA is required to first identify all chemicals that are currently in active commerce. Then, U.S. EPA must decide which chemicals are "low priority" and not in need of further review and which are "high priority" and must undergo a risk evaluation. U.S. EPA must then perform risk evaluations of high priority chemicals, and if U.S. EPA concludes that the chemical is not "safe," U.S. EPA must regulate the use of the chemical or ban it. Accordingly, there are a host of new compliance obligations that will impact a large swath of industry. U.S. EPA has already selected 10 chemicals to undergo the risk evaluation process, and the evaluations must start by June 2017. Furthermore, to implement the newly authorized program,
Sidley Austin LLP Page 10
U.S. EPA is required to promulgate a number of rules within a rather short period of time. U.S. EPA has already noticed three rules for comment, for which the comment period closes in mid-March. Those rules must be finalized by June 2017.
In early 2016, U.S. EPA announced that it would exercise its risk management authority under TSCA to regulate the use of two chemicals. It was the first time that U.S. EPA took such action since it attempted unsuccessfully to ban asbestos in the 1990s. U.S. EPA has proposed to ban the use of trichlorethelyene in certain degreasing and dry cleaning applications and N-Methylpyrrolidone and methylene chloride in paint and coating removal. Comments on these proposed rules are due in April 2017.
BP Settlement. A district court in April 2016 gave final approval to a consent decree that resolves the
government's enforcement claims against BP for the 2010 Deepwater Horizon oil spill in the Gulf of Mexico. The consent decree requires BP to pay up to $20.8 billion in civil penalties and natural resource damages under the CWA and the Oil Pollution Act. The agreement assigned $5.5 billion to civil penalties under the CWA, $7.1 billion to natural resource damages under the Oil Pollution Act, $4.9 billion to Gulf states and up to $1 billion to local governments.
Although the settlement resolves BP's liability to the government for the spill, BP continues to pursue an appeal of the district court rulings in a separate admiralty action. BP's appeal is pending before the United States Court of Appeals for the Fifth Circuit. Under other settlements and claims processes, BP has also resolved numerous other claims related to the spill, and BP has spent over $62 billion through the end of 2016 on cleanup claims and litigation payments related to the spill.
VW Defeat Device Proceeding. The Volkswagen "defeat device" proceeding was the dominant
environmental enforcement case involving vehicles emissions in 2016. The scandal broke publicly in September 2015, when U.S. EPA issued a Notice of Violation (NOV) alleging that VW cars equipped with 2.0 liter engines were programmed to meet emission standards under laboratory test conditions but bypassed emission control systems in actual use, emitting (by U.S. EPA's estimate) pollutants at levels up to 40 times promulgated standards. Two months later, U.S. EPA issued a second NOV alleging use of defeat devices in VW, Audi and Porsche vehicles equipped with 3.0 liter engines. NOVs from the California Air Resources Board mirrored U.S. EPA's actions, and environmental regulators world-wide brought their own enforcement actions against the company.
Among the significant developments in the United States in 2016, multiple class actions brought by consumers, VW dealers, and States were consolidated with the U.S. EPA action in federal district court for the Northern District of California. Former FBI Director Robert Mueller mediated the cases, resulting in a partial settlement approved by the court in October 2016. Valued at nearly US$15 billion, the settlement included a buy-back program for car owners, payment by VW of US$2.7 billion for environmental mitigation projects, and investment of another US$2 billion in clean-emissions infrastructure. The settlement only covered 2.0 liter vehicles and did not resolve civil or criminal penalties or sanctions.
In January 2017, VW pled guilty to three felony counts and agreed to pay criminal and civil penalties of US$2.8 and US$1.5 billion, respectively. In February 2017, VW agreed to a civil settlement mandating a recall of the 3.0 liter vehicles.
Mitigation/SEP Policy Update. As an outgrowth of three recent U.S. EPA policies/initiatives, 2016 saw a
significant increase in the number of settlement agreements that included requirements beyond the more traditional monetary penalties and injunctive relief (e.g., installation of controls to achieve compliance) provisions
Sidley Austin LLP Page 11
that are typical in civil settlements. Increasingly, settlements with U.S. EPA appear to be additionally including mitigation provisions, Next Gen projects, and Supplemental Environmental Projects (SEPs) consistent with the following policies.
U.S. EPA's November 2012 Mitigation Policy
In November 2012, U.S. EPA issued a policy (Mitigation Policy) "strongly encouraging" the agency to "maximize the redress of harm" resulting from noncompliance by seeking mitigation in civil enforcement cases wherever appropriate. Unlike other injunctive relief that is targeted to ensuring a defendant comes into and remains in compliance with applicable laws, mitigation focuses on remedying, reducing or offsetting past (and potentially ongoing) harm. Unlike a SEP (which is voluntary), mitigation is "action the government believes a court could order as injunctive relief if a case were litigated." Because its purpose is to restore the status quo, a close connection must exist between the mitigation and the harm it is intended to redress. Significantly, a defendant who agrees to perform mitigation is not entitled to any civil penalty reduction. Examples of mitigation projects include addressing impacts on human health or the environment from excess emissions or discharges, limiting the amount of future emissions or discharges, cleaning up illegally emitted or discharged pollutants, and monitoring "designed to determine, and inform the community about, the level and extent of pollution emitted or discharged from a facility."
U.S. EPA's Next Generation Initiative
As previously discussed in Sidley's 2015 Year-in-Review, U.S. EPA has embarked on a Next Generation (Next Gen) initiative to increase compliance using "advances in pollutant monitoring and information technology combined to focus on designing more effective regulations and permits to reduce pollution." Next Gen envisions utilizing various tools or concepts to reach its goals, including: permits and regulations that include built-in compliance mechanisms such as continuous monitors; new monitoring techniques (e.g., fenceline monitors and infrared camera systems); electronic reporting of compliance data; public availability of electronic data; and innovative enforcement that incorporates these concepts. Among other channels, U.S. EPA promotes including Next Gen provisions in civil settlements.
U.S. EPA's March 2015 SEP Policy Update
Most recently, in March 2015, U.S. EPA issued a new SEP Policy (Updated SEP Policy) to update the agency's earlier 1991 and 1998 policies to reflect developments in and clarifications about its approaches to incorporating SEPs in enforcement settlement agreements. Similar to its earlier policies, the Updated SEP Policy requires SEPs to be projects or activities that go beyond what a defendant is legally required to do in order to return to compliance and that provide additional environmental and/or public health benefits. It additionally retains the same SEP categories as prior policies (i.e., public health, pollution prevention, pollution reduction, environmental restoration and protection, assessment and audits, environmental compliance promotion, emergency planning and preparedness, and "other" projects), and requires that a nexus exist between the SEP and the underlying violation being resolved. However, the Updated SEP Policy provides additional guidance on the criteria U.S. EPA will use to evaluate a proposed SEP for acceptability and penalty mitigation. Specifically, it clarifies that the degree of potential penalty mitigation will be assessed based on the degree to which a proposed SEP advances and supports U.S. EPA's mission; namely, the degree to which it: provides "significant, quantifiable benefits to human health and the environment," with a special emphasis on children's health; promotes environmental justice; reflects community involvement in its development; promotes the development or implementation of innovative processes, technologies, and/or methods to advance environmentally beneficial goals; includes multimedia impacts; and/or develops and implements pollution prevention.
Sidley Austin LLP Page 12
Other than reading the labels assigned to the projects after a settlement is complete, given the similarities between the types of projects that meet each policy objective, it can be difficult at times to ascertain under which of the policies a particular settlement provision may fall. Generally reflecting these policies and initiatives as a whole, however, a number of settlements entered into by U.S. EPA in 2016 require defendants to undertake meaningful projects that extend beyond paying monetary penalties and implementing compliance-driven injunctive relief. For example, among others:
Multiple settlements in the refining and chemical manufacturing industries require defendants to monitor operations using gas-imaging; monitor emissions using infrared cameras to identify emissions that may not otherwise be detected; conduct fenceline monitoring; and/or periodically post monitoring data on a publicly available website;
Multiple settlements across various industries require defendants to place continuous emissions/discharge monitoring, SEP and/or other information on a public website on a periodic and/or real-time basis;
Multiple settlements in various industries require defendants to install continuous emissions monitors, release detection monitors and/or audible alarm systems;
At least one settlement requires the defendant to provide funding to replace sewer pipes in a very low income level residential area; and
At least one settlement requires the defendant to acquire a mobile air monitoring van for use by the local emergency planning committee.
At this time, it is not possible to predict with any degree of certainty the potential impact the Trump Administration will have on these trends. Some within U.S. EPA may continue to encourage defendants to voluntarily include similar provisions in settlement agreements and, particularly if receiving penalty mitigation in exchange, some defendants may agree to do so. To the extent such provisions potentially expose a facility to increased liability or have the potential to cause confusion or uncertainty such as by placing data on a public website, however, other defendants may increasingly choose to resist the trend.
Voluntary Self-Disclosure/Audit Policy Changes. U.S. EPA has changed the process for making a
voluntary self-disclosure of environmental violations in an attempt to streamline and automate the process where possible. The new process may make disclosing certain Emergency Planning and Community Right-to-Know Act (EPCRA) violations more attractive given the complete penalty mitigation it can provide when the issues are promptly disclosed and other requirements are met.
On December 19, 2015, U.S. EPA launched its eDisclosure portal (eDisclosure). eDisclosure is an automated, centralized web-based disclosure portal that utilizes U.S. EPA's Central Data Exchange (CDX). The launch does not substantively change existing self-disclosure requirements under U.S. EPA's 2000 Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations Policy (Audit Policy). Rather, eDisclosure changes the logistics of making a self-disclosure. U.S. EPA anticipates that the eDisclosure system will enable faster resolution of self-disclosures.
Under the eDisclosure system, violations are divided into two categories as follows:
Category 1: EPCRA violations that meet all nine of the Audit Policy factors, and EPCRA violations that meet all of the Small Business Compliance Policy (Small Business Policy) conditions. Chemical release reporting violations under EPCRA or CERCLA do not qualify as Category 1 violations, nor do EPCRA violations where the violator received significant economic benefit.
Sidley Austin LLP Page 13
Upon submittal, the eDisclosure system will automatically issue an electronic Notice of Determination (eNOD) confirming that the violation is resolved without payment of a civil penalty provided that the disclosure was accurate and complete.
Category 2: All non-EPCRA violations; EPCRA violations where the violator only meets Audit Policy factors 2 9 (i.e., the discovery was not systematic); and EPCRA and CERCLA violations that do not qualify as Category 1 violations.
Upon submittal, the eDisclosure system will automatically issue an Acknowledgement Letter (AL) indicating U.S. EPA's receipt of the disclosure. If U.S. EPA decides to pursue enforcement for the disclosed violations, U.S. EPA will determine whether the violation qualifies for penalty mitigation and notify the entity accordingly at a later date.
For both Category 1 and 2 violations, eDisclosure submittals must be made within 21 days of discovery of the violation per the Audit Policy. Corrective actions generally must be completed within 60 days of discovery of the violation. Upon completion of corrective actions, the disclosing entity must submit a Compliance Certification in the eDisclosure system, certifying that it has met all of the Audit Policy (or Small Business Policy) factors to qualify for penalty mitigation.
Entities requiring additional time to complete corrective actions (beyond the 60 days provided in the Audit Policy) cannot use the Category 1 disclosure option. For Category 2 violations, entities may submit a request for up to 30 additional days to complete corrective actions without providing an explanation. Such requests are considered approved upon submittal. Entities may also seek additional time, up to 180 days after the date of discovery but must submit a justification for the additional time. Such requests are not automatically granted. Instead, U.S. EPA will consider the request at the time it considers whether to pursue enforcement for the eDisclosure. (For violations reported pursuant to the Small Business Policy, the corrective action deadline is 90 days. Following a similar format, extensions for 90 days or up to 360 days may be requested.)
Note that prior to submitting an eDisclosure, entities must register to file with U.S. EPA's CDX system at http://www.epa.gov/cdx/. Further, eDisclosure is not set up to protect confidential business information (CBI). If a disclosure includes CBI, the disclosing entity must submit a sanitized version of the disclosure using eDisclosure and manually submit the complete disclosure, including the CBI, to U.S. EPA using the procedures of 40 C.F.R. Part 2. Finally, disclosures under U.S. EPA's Interim Approach to Applying the Audit Policy to New Owners (New Owner Policy) cannot be made via eDisclosure. They must still be made manually.
CALIFORNIA REGULATORY DEVELOPMENTS
Proposition 65. The Office of the Attorney General -- the authority which oversees enforcement of
Proposition 65--and the Office of Environmental Health Hazard Assessment (OEHHA )-- the agency which administers the chemical listing and other technical aspects of Proposition 65 -- both adopted major new regulations in 2016. The Office of the Attorney General adopted regulations respecting the form and terms of settlements. Given that the vast majority of Proposition 65 cases settle and trials are extremely rare, the new settlement guidelines have broad effect. Above all, the Attorney General limited citizen plaintiffs' ability to use "out of court settlements." Also, consent judgments now should include provisions which more precisely designate how the citizen enforcer can use certain settlement funds, and the Attorney General is allowed to audit plaintiffs. One aim of the new settlement regulations was to curb so-called "suing for profit," as some plaintiffs collected far more funds for their institutions (sometimes used to fund future litigation) than civil penalties, 75 percent of which are deposited with the state.
Sidley Austin LLP Page 14
Like the Attorney General, OEHHA adopted major new regulations in 2016. OEHHA fundamentally altered how Proposition 65 warnings can be provided. Commencing in 2018, internet retailers will need to provide warnings, new warning text is mandated for certain types of exposures (e.g., hotels, foods, parking garages, furniture), and for all other types of exposures manufacturers, distributors and retailers will have a choice of using textual warnings or warnings with a symbol (a yellow equilateral triangle with an exclamation point). This is the most consequential change in the form and terms of warnings in over a decade.
Finally, OEHHA adopted a novel warning regime for bisphenol A (BPA) present in canned or plastic food and beverage containers. The warning scheme involves grocery store warnings and a first-ever public website populated by industry submittals as to the foods or beverages they sell which are subject to a BPA warning. Finally, with the election of Attorney General Kamala Harris to the United States Senate in the last election, the Office of the Attorney General is at present vacant. The successor may well have new policy directions and imperatives, which promises to make 2017 an interesting year.
Green Chemistry. CalEPA, Department of Toxic Substances Control (DTSC) continues its slow -- but now
more steady -- implementation of the Green Chemistry law (also called the Safer Consumer Products Regulation). Last year DTSC finally determined the law would apply to three "Priority Products" -- paint stripper with methylene chloride, spray polyurethane foam with unreacted MDI and children's foam padded sleeping products with TDCPP or TCEP. This year DTSC released an updated and more evolved draft form of the "Alternatives Assessment," the roadmap for how to evaluate the so-called "safer alternatives" for chemicals in the Priority Products. While segments of the business community remain sharply critical, some progress and adjustment has dampened some prior criticism.
Water. While the drought affecting California may be easing in early 2017, during most of 2016 it loomed large
on legislators' minds. No fewer than 10 bills addressed urban and industrial water utilization, sparked in part by press reports that some owners of mansions in Beverly Hills and other affluent areas continued to use millions of gallons, while most homeowners cut water use and faced brown lawns and dead trees. The alleged greatest single residential "water abuser" reportedly consumed 12 million gallons. New legislation empowers water authorities to utilize tools to curb urban and industrial excessive use. Additionally, new water authorities were established to continue to address ground water measurement and utilization in agricultural areas. Drought-based water diversions and receding ground water basins have harmed marginal farmers or those without pre-1912 water rights. Not all of these measures likely will be reversed, even if the drought eases. Four new bills further implement the seminal 2014 legislation mandating the regulation of sustainable ground water pumping. The upshot is that ground water will continue to be regulated and pumping restricted in an unprecedented -- and not necessarily predictable -- manner in 2017.
South Coast Air Quality Management District. While the District continues to be among the more
challenging regulatory agencies in the state for the regulated public, the departure of long-time Executive Officer Barry Wallerstein may signal a new era. Mr. Wallerstein was widely perceived as combative, even by supporters of his policy goals; his detractors accumulated over his decades long-tenure. The composition of the Hearing Board of the District also has changed and may result in the District to be more business friendly going forward.
CEQA. The California Environmental Quality Act (CEQA) continues to remain one of the most vexing, and
vexatious (it is the most litigated environmental statute in the state) of California's laws. What is interesting about CEQA is not that it endures but how exemptions and exceptions now arise. Through the Environmental Leadership Act of 2011, projects like the massive Apple, Inc. headquarters in Cupertino and the Golden State Warriors Arena in Sacramento are being constructed with "streamlined" CEQA procedures. Construction of an alternative energy plant likewise was possible with by-passed CEQA provisions. The upshot is that when certain projects gain enough political and local approval due to their appeal on multiple metrics (such as jobs, long-term
Sidley Austin LLP Page 15
economic benefits, support for alternative energy, housing benefits, anti-gridlock measures) these projects proceed. The vast majority of projects remain subject to CEQA, but slowly a realization is building that CEQA cannot result in disproportionate numbers of publicly needed construction projects being delayed excessively or rendered much more expensive than necessary.
Climate Change. Three new bills further the scope of the landmark Global Warming Solutions Act of 1986.
Under SB 32, California now must reduce its GHG emissions 40 percent below 1990 levels by 2030; existing law requires reaching the 1990 levels in 2020. Due to de-industrialization of the state, uses of alternative energy supplies, and other state measures (including, some would argue, the trading of carbon credits in the state), California likely will meet the initial goal of GHG emissions equaling 1990 levels in 2020. In the next phase, however, the state is veering away from more flexible, market-based emissions reduction incentives and returning to its long history of "command and control" caps and mandates. Major GHG emissions sources will be targeted for regulation (e.g., refineries, certain energy plants). Methane and HFC gas emissions also must be cut by 40 percent and anthropogenic black carbon cut by 50 percent. While the organic recycling and dairy industries are major targets for methane emissions reductions, harsher measures seem unlikely after political pressure by the well-connected dairy industry and an absence of feasible measures, combined to slow regulation of this industry. Interestingly, California now will purport to measure the "social cost of carbon," including alleged agricultural impacts, social disruptions, disease outbreaks, resources degradation and other alleged consequences of climate change. How rigorous or scientifically supported such evaluations will be remains to be seen.
Finally, California saw an intersection of climate change and water policy in a series of five bills. The California Water Project, which ships water from the north to the south via pumping and an aqueduct system, now is targeted for GHG emissions reductions. The energy used to move water via this project is, as reported by some, the single greatest use of energy in the state. Hence, the water movement system is being studied with an eye toward enhanced sustainability, energy reduction, engineering improvements and other measures to lessen the consequences of this massive water transfer system. New legislation requires an accounting of GHG emissions arising from water transfers and a plan to begin reductions and promote sustainability. These bills signal the continued evolution of California's environmental regulatory reach -- critical infrastructure is not exempt as a target for study and potentially costly change; it is possible that new mandates will arise, as they have with the major ports in the state (also critical to California's infrastructure and economy), the rail industry, the automobile industry, engine use, fuels, and other fundamental goods and services.
EUROPEAN UNION (EU) ENVIRONMENTAL DEVELOPMENTS
European Commission Proposes Criteria for Identifying Endocrine-Disrupting Properties in Pesticides and Biocides. On June 15, 2016, the European Commission (Commission)
published two draft regulations, an impact assessment and a communication which sets out scientific criteria for determining endocrine-disrupting properties for biocides and pesticides. Revised draft regulations were published on November 15, 2016. The Commission's proposals have been long awaited, and it has received criticism from both the General Court and the Parliament for its inactivity.
Pesticides and biocides which contain endocrine disruptors may only be approved for the EU market under specific circumstances. The 2009 Plant Protection Products Regulation and the 2012 Biocidal Products Regulation both required the Commission to introduce scientific criteria for determining endocrine-disrupting properties. However, until now, the Commission failed to do so. In the meantime, interim criteria for the identification of endocrine-disrupting substances continues to be applied. These interim criteria will be replaced once the Council and the Parliament adopt the draft regulations.
According to the Commission, the scientific criteria in the draft regulations will allow for a more accurate identification of endocrine disruptors. The proposed criteria follow the definition for endocrine disruptor that is
Sidley Austin LLP Page 16
currently used by the World Health Organization, and it specifies how the identification of endocrine disruptors should take place. In advance of the adoption of the draft regulations, the Commission has requested that both the European Food Safety Authority (EFSA) and the European Chemicals Agency (ECHA) assess whether individual substances that are already approved show indications of being endocrine disruptors on the basis of the new scientific criteria that are being proposed. This will allow both authorities to apply the scientific criteria as soon as the draft regulations enter into force. On December 20, 2016, ECHA and EFSA published an outline of the guidance that will be published in 2017 to enable endocrine disruptors to be identified.
Vehicle Emission Developments. Following the VW emissions fixing scandal that was uncovered in the
United States in September 2015, the EU institutions have taken several initiatives to investigate the manipulation of driving emissions and to amend and introduce legislation regarding real driving emissions (RDE) tests.
On March 2, 2016, the Parliament set up an inquiring committee to investigate issues with emission measurements in the car industry. At the end of 2016, this committee released its first findings and draft recommendations. The committee finds, inter alia, evidence of the possible use of prohibited "defeat" devices and shortcomings in the enforcement of EU emissions legislation. One of the two co-rapporteurs who prepared the report observed that "Dieselgate would not have happened if the national governments and the European Commission had acted on their legal and administrative responsibilities." In 2017, the inquiring committee has planned more hearings, and the Parliament intends to take a final plenary vote on the committee's findings in April 2017.
The emissions fixing scandal has equally led to several legislative proposals, which are included in four RDE packages:
On March 10, 2016, a new Commission Regulation (first RDE package) amending existing EU legislation as regards emissions from light passenger and commercial vehicles was adopted. The first RDE package introduces requirements for RDE procedures with a portable emissions measurement system that will be connected to the vehicles that are tested. This package adjusts the existing procedures, tests and requirements for type-approval of vehicles in order to ensure that they adequately reflect the emissions that are generated by real driving on the road.
On April 26, 2016, the second RDE package regarding emissions from light passenger and commercial vehicles was published in the Official Journal of the EU. This package establishes quantitative limits for emissions of gaseous pollutants applicable in RDE tests. It also establishes the dates when these quantitative limits will apply to both new models and to new vehicles. The package was only adopted after a compromise agreement. According to this agreement, the RDE will be reduced, but they still allow vehicles to exceed official pollution limits. In exchange, the Commission committed itself to introduce a review clause of the maximum emission values within a precise timeframe.
On December 20, 2016, the Member States agreed on a third RDE package of implementing measures concerning RDE tests for air pollutant emissions by vehicles. This package extends RDE tests to cover particle number emissions. In practice, this means that all petrol direct injection vehicles will have to introduce gasoline particle filters, similar to diesel particle filters which are already installed in modern diesel vehicles. The new rules will apply for all new vehicle types by September 2017 and for all new vehicles by September 2018.
Lastly, a proposal for the fourth RDE package is expected in 2017. This package will concern in-service conformity tests. The main question is whether Member States will agree on surprise tests of in-service vehicles or on prescribed tests which will allow car manufacturers to know what to expect.
Sidley Austin LLP Page 17
EU Court Clarifies Rules on Free Allowances in EU ETS Phase III. The EU Emissions Trading
Directive establishes the EU Emissions Trading System (ETS) for GHG emissions. It requires industrial installations in certain energy-intensive sectors to monitor and report their annual emissions and surrender the corresponding number of emission allowances (EA) on an annual basis.
The EU ETS is currently in its third phase, which runs from 2013 to 2020. A proposal for a fourth phase (2021-2030) is currently being negotiated.
In order to avoid so-called carbon leakage, sectors with strong competition from outside the EU, where less stringent climate legislation applies, receive a higher share of free allowances. Where the quantity of free EAs provisionally allocated by Member States is greater than the maximum number of free EAs determined by the Commission, a uniform cross-sectoral correction factor (CSCF) is applied to make those values equal and to reduce the number of EAs provisionally allocated.
On October 26, 2016, the Court of Justice of the European Union (CJEU) held that the Commission was correct in its decision not to exempt from the application of the CSCF those installations in sectors or subsectors that are deemed to be exposed to a significant risk of carbon leakage. Four operators had argued that they were entitled to additional EAs as they belonged to sectors exposed to significant risk of carbon leakage and because they consumed heat from waste gases produced at sub-installations.
The CJEU's ruling further explained two decisions from earlier in 2016. The CJEU held that the effects of its April 2016 ruling, finding a 2013 Commission decision invalid, was limited so that the invalidity only took effect 10 months after the ruling, which allows the Commission time to adopt new measures. It also found that measures adopted during that period, on the basis of the invalidated provisions, cannot be called into question.
New Revised National Emission Ceilings Directive Enters Into Force. The National Emission
Ceilings Directive (Directive) introduced the current EU regime on the annual capping of national emissions of four air pollutants, namely SO2, NH3, NMVOC and NOx PM2.5, to be achieved by each Member State by 2010 and not to be exceeded thereafter. The Directive aims to limit national totals of atmospheric emissions of multiple pollutants. As part of the Clean Air Policy Package and the EU's international obligations, the Directive has been amended to implement more stringent reductions for the period 2021-2030 and from 2030 onwards.
On December 31, 2016, the new Directive entered into force. The final text introduces, inter alia, capping of national emissions of fine particulate matter (PM2.5), stricter national emission reductions from 2030 onwards, possibility for Member States to follow a non-linear trajectory if this is economically or technically more efficient, and additional flexibility, e.g., to average out annual emissions with those of the preceding and subsequent year in case of exceptional circumstances.
Member States must implement the Directive into national law by July 1, 2018. By February 15, 2017, national laws must have already been amended for Member States to comply with the reporting obligations to the Commission.
Recent Developments in the Implementation of the EU 2030 Climate and Energy Framework. In October 2014, the EU Member States adopted the 2030 Climate and Energy Framework. This
framework set three key targets for 2030: (i) a reduction of GHG emissions (from 1990 levels) of at least 40 percent; (ii) a share of renewable energy of at least 27 percent; and (iii) an improvement in energy efficiency of at least 27 percent.
On July 20, 2016, the Commission presented a package of measures in order to meet the first target and to accelerate the transition to a low carbon economy. The package contains: (i) a draft regulation on binding annual
Sidley Austin LLP Page 18
GHG reductions from 2021-2030 for sectors that are not covered by the EU ETS; (ii) a draft regulation on the inclusion of GHG emissions and removals from land use, land use change and forestry into the 2030 framework; (iii) a communication on a European strategy for low-emission mobility; and (iv) a communication on accelerating Europe's transition to a low carbon economy.
The first draft regulation is directed at Member States and imposes annual GHG reductions for sectors that are not covered by the EU ETS, such as transport, agriculture waste management, land use and forestry. This draft regulation is an essential part of the commitment to reduce GHG emissions by at least 40 percent. Member States are required to adopt national measures to meet the target for non-ETS sectors.
The second draft regulation aims to include the sector of land use and forestry in the 2030 Climate and Energy Framework. A specific regulation will be dedicated to this sector due to the role it plays in both GHG emission and its removal from the atmosphere. The draft regulation seeks, inter alia, to support farmers in developing climatesmart agriculture practices.
Lastly, the strategy on low-emission mobility sets out the initiatives that the Commission is planning for the years to come. The strategy has three main elements: (i) increasing the efficiency of the transport system; (ii) speeding up the deployment of low-emission alternative energy for transport; and (iii) the move towards zero-emission vehicles. An important aspect of the strategy on low-emission mobility is the need to change the ways in which vehicle emissions are measured and verified. In this regard, new "real driving" emission tests will be introduced.
Each of these measures are likely to have an impact on companies doing business in Europe.
If you have any questions regarding this Sidley Update, please contact the Sidley lawyer with whom you usually work, or
David T. Buente Jr. Partner
+1 202 736 8111 firstname.lastname@example.org
Kristina Nordlander Partner
+32 2 504 6449 email@example.com
Judith M. Praitis Partner
+1 213 896 6637 firstname.lastname@example.org
Byron F. Taylor Partner
+1 312 853 4717 email@example.com
SIDLEY ENVIRONMENTAL PRACTICE Our EnvironmentalPractice consists of approximately 40 lawyers who concentrate on environmental and natural resources law. Established more than 35 years ago, our group is now one of the largest environmental practices in the United States, with extensive experience in all aspects of environmental and natural resources law. The depth and range of our practice and the frequency with which we address cutting-edge issues enable us to advise clients quickly and cost-effectively. For further information on our Environmental Practice, please contact David T. Buente (+1 202 736 8111, firstname.lastname@example.org), Byron F. Taylor (+1 312 853 4717, email@example.com) or Judith M. Praitis (+1 213 896 6637, firstname.lastname@example.org).
2017 Sidley Austin LLP
Sidley Austin LLP Page 19