Most lawyers are aware that the United States has not approved the Kyoto Protocol and has no other statutory scheme in place mandating reductions in greenhouse gas emissions. However, it is less well-known that many state governments are actively seeking to fill the regulatory void created by the federal government’s inaction. In addition, a number of lawsuits have been filed seeking either to require the federal government to regulate greenhouse gases or to encourage reductions in greenhouse gas emissions through the threat of private causes of action. After a brief discussion of the federal government’s approach to climate change, this article describes the various state proposals for greenhouse gas regulation and explores the more significant lawsuits currently pending in the courts.
The Kyoto Protocol, produced by the United Nations Framework Convention on Climate Change (UNFCCC), calls for a five percent reduction in emissions of greenhouse gases (from 1990 levels) in industrialized countries between 2008 and 2012. The Protocol became effective for signatory countries on February 15, 2005. Although the United States participates in the UNFCCC and has signed the Protocol, the Protocol was never presented to the Senate for ratification. The Senate had previously resolved, by a vote of 95 to zero, not to ratify any agreement that would seriously harm the economy or that did not require the participation of developing nations.1 The Protocol is therefore not binding on US domestic industries. Congress has not otherwise acted to impose controls on greenhouse gas emissions, thus leaving the United States without federal legislation on the matter.
The federal government has not been completely inactive on this front, however. In addition to sponsoring continuing research on global warming, the Bush administration has established a goal of reducing the country’s “greenhouse gas intensity” (the ratio of greenhouse gases to gross domestic product) by 38 million metric tons per million dollars GDP by 2012. It has opted to pursue this goal by establishing a number of strictly voluntary initiatives that encourage businesses to unilaterally reduce their greenhouse gas emissions. Those initiatives include Climate Leaders, under which 103 companies in the manufacturing, utilities and chemical sectors have voluntarily pledged to
reduce their greenhouse gas emissions, and Climate VISION, a similar partnership of business associations and trade groups representing 14 energy intensive industrial sectors.
There are also bills pending in both chambers of Congress seeking to require regulation of greenhouse gases (S. 3698 and H.R. 5642). However, with the Democratic Party’s slim majority in the Senate and the President’s opposition to mandatory reductions in greenhouse gas emissions without similar restrictions in developing countries, such bills seem unlikely to become law any time soon. Given the recent change in control of the Congress, and an upcoming presidential election, the federal government’s approach to regulation of greenhouse gases is likely to be the subject of significant additional debate in the next two years.
California Legislation and Regulations
In the absence of federal mandates, individual state governments have begun taking action to address greenhouse gas emissions. California was the first state to do so. Its actions are significant, since California has the world’s tenth largest economy and is the twelfth largest emitter of carbon dioxide. It thus stands to influence regional, national and international approaches to managing greenhouse gas emissions.
In 2002, California passed legislation to regulate greenhouse gas emissions from mobile sources (i.e., automobiles and trucks). The Pavley Law, signed by former governor Gray Davis, directed the California Air Resources Board (CARB) to promulgate regulations to achieve the maximum feasible and cost-effective reduction of greenhouse gas emissions from passenger cars and light trucks sold in California.2 In 2004, CARB adopted regulations that require 2009 and later model year vehicles to achieve an approximately 30 percent reduction in greenhouse gas emissions by 2016.3 In 2005, several other states, including New York, Connecticut, Massachusetts, Vermont, New Jersey, Pennsylvania, Oregon and Washington, adopted similar regulations or announced their intention to do so.
The legality of the Pavley Law and its implementing regulations is being challenged in the US District Court for the Eastern District of California by a group of plaintiffs that includes the Alliance of Automobile Manufacturers.4 They seek declaratory and injunctive relief on the basis that the California regulations violate and are preempted by federal law. On October 21, 2005, the court denied a motion by the State for judgment on the pleadings,5 and the case is currently in discovery.
In addition to the Pavley Law, in September 2006 California governor Arnold Schwarzenegger signed the California Global Warming Solutions Act of 2006. The legislation requires CARB to establish statewide standards to reduce California’s greenhouse gas emissions by 25 percent by 2020.
Although the statute creates deadlines by which CARB must take certain actions, the details as to how to effectuate the emissions reductions are left to CARB to establish over the next few years. For instance, by July 1, 2007, CARB must identify certain “early action” measures that can be implemented prior to the final emissions standards, and adopt regulations to put those measures into effect on or before January 1, 2010. However, the statute does not indicate what those measures are likely to be. Similarly, by January 1, 2009, CARB must create a plan for achieving emission reductions from “significant sources of greenhouse gases” and enact applicable regulations by January 2011 that will achieve the required reductions by January 2020. But again the statute does not identify those sources or mandate any particular regulatory programs to achieve those reductions.
Because the statute leaves a significant amount of discretion to CARB, it is too early to identify which industries will be most affected by the upcoming regulations. The emissions reduction plan due January 1, 2009 will not only identify the affected industries, but also recommend a de minimis threshold of greenhouse gas emissions
below which emission reduction requirements will not apply, which will likely exclude certain industries from regulation altogether. Based on the current state of knowledge of the industries that are most greenhouse gas intensive, however, it is likely that the regulations will apply at least to the utility and transportation industries, and possibly chemical, steel, aluminum and other heavy industries.
Mid-Atlantic and New England States— Regional Greenhouse Gas Initiative
The Regional Greenhouse Gas Initiative (RGGI) is a cooperative effort among New England and Mid-Atlantic states to collectively reduce carbon dioxide emissions. Although the initiative itself is not binding law, the governors of the states of Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York and Vermont have all executed a “Memorandum of Understanding” (MOU) under which they have pledged to propose for legislative approval a program requiring emissions reductions from power plants that generate more than 25 megawatts of electricity. Thus, in the very near future those states will be formally proposing legislation and/or regulations limiting carbon dioxide emissions from certain power plants. Under the MOU, each signatory state commits to seek to have the program in place and effective by December 31, 2008.
RGGI proposes a regional “cap-and-trade” program, similar to programs currently in place to reduce emissions of pollutants that cause acid rain and smog. Under this program, the total amount of carbon dioxide produced by power plants of 25 megawatts or greater in all of the participating states will be capped at approximately 1990 levels, beginning in 2009. Each state is allocated its proportionate share of those emissions, which it then distributes among its power plants by issuing emissions “allowances.” Each allowance permits a power plant to emit one ton of carbon dioxide. The cap will be further reduced between 2015 and 2018, decreasing the number of available allowances (and thus the amount of carbon dioxide each plant is allowed to emit).
The “trade” part of the cap-and-trade program refers to the creation of a public market for allowances. Facilities that emit less carbon dioxide than they are entitled to can sell their allowances on the market. Those that cannot operate within the amount of their allowances must make up the deficit by either purchasing allowances or sponsoring other projects that have the effect of reducing carbon dioxide emissions (such as renewable energy projects). This market-based system encourages reductions in carbon dioxide emissions where they can be made most efficiently—companies that can easily reduce their emissions will promptly do so in order to profit from their excess allowances, and those that cannot will be forced to pay for additional allowances (although that payment is likely to be less than what it would be required to pay in order to reduce emissions under a more traditional “command-and-control” approach to air emissions regulation).
On August 16, 2006, the participating states finalized a “model rule” for the implementation of RGGI at the state level. Each of the states is expected to enact that rule (or some variant thereof) as legislation or regulations in order to have the program in place by December 31, 2008. Although the MOU was only signed by the governors of the states listed above, Massachusetts and Rhode Island participated in the design and development of the program and are expected to join in the near future. In addition, both Pennsylvania and Maryland participated in the planning of the program as “observers,” and Maryland is expected to become a participating state by the summer of 2007. The MOU also expressly states that the signatories’ goal is to encourage more states to join the program. In fact, Governor Schwarzenegger recently announced an executive order, which, among other things, directs the California Secretary for Environmental Protection to cooperate with the states enacting RGGI to build a single, integrated carbon emissions trading market.6
It bears repeating that RGGI only applies to power plants with nameplate capacity greater than 25 megawatts, and thus it does not affect other industries. Nevertheless, it establishes a framework for reductions of carbon dioxide emissions into which other industries could be added in the future.
Although currently California’s Global Warming Solutions Act and RGGI are the only initiatives that require real-world reductions in emissions of greenhouse gases from existing sources, many other states are currently studying their greenhouse gas emissions and investigating ways of effectively reducing such emissions, and/or requiring emissions reductions from new sources. A brief synopsis of those initiatives is as follows:
West Coast Global Warming Initiative: In collaboration with California, in 2003 Washington and Oregon established the West Coast Global Warming Initiative, which is a coordinated effort to develop policy recommendations for reducing greenhouse gas emissions.7 The initiative eventually produced a report recommending four actions with the greatest promise for reducing levels of greenhouse gases, including adopting comprehensive state and regional goals for greenhouse gas emissions reductions; adopting standards to reduce greenhouse gas emissions from vehicles; developing a regional market-based carbon allowance program; and expanding the markets for renewable energy and alternative fuels. In response, in addition to the California initiatives discussed above, both Washington and Oregon have enacted carbon dioxide restrictions on emissions from new power plants,8 although neither state currently requires reductions from existing sources.
Western Governors’ Association’s Clean and Diversified Energy Initiative: In 2004, the Western Governors’ Association (WGA) (consisting of the governors of Texas, Kansas, Nebraska, Arizona, Colorado, Wyoming, Montana, Idaho, Utah, Nevada and Arizona) created the Clean and Diversified Energy Initiative, which adopted a resolution that established three goals for the West: development of an additional 30,000 megawatts of clean energy by 2015, a 20 percent increase in energy efficiency by 2020, and securing a reliable transmission grid for the next 25 years. The WGA commissioned a Clean and Diversified Energy Advisory Committee, which in 2006 issued a report identifying a number of recommendations for actions to meet those goals, focusing on incentive-based, non-mandatory approaches. Among the committee’s recommendations is the establishment of regional trading mechanisms for “environmental attributes as agreed upon by the participants,” which could include greenhouse gases.
Powering the Plains: “Powering the Plains” (PTP) is a collection of representatives from the Dakotas, Iowa, Minnesota, Wisconsin and Manitoba, seeking to develop and implement strategies and initiatives that address climate change while also developing the region’s economy. PTP’s objectives are to develop regional goals for energy efficiency and clean energy development, to implement policies and initiatives to reach those goals, and to design and support demonstration projects. The group has developed a set of “scenarios” that would allow the region to reduce its carbon dioxide emissions by 80 percent from 1990 levels by 2055. The group is also calling for the creation of a renewable energy credit tracking system that would lay the foundation for trading in emissions credits.
Southwest Climate Change Initiative: In February 2006, the governors of New Mexico and Arizona created the Southwest Climate Change Initiative. Both governors have also created climate change advisory groups tasked with making recommendations for reducing greenhouse gases in their respective states. Those groups have recently issued reports setting forth various policy options that they believe will allow Arizona and New Mexico to significantly reduce greenhouse gas emissions in the future, and action could be taken on those policy options at any time.
Given this flurry of recent activity, industries that are greenhouse gas intensive need to pay careful attention to developments at the state level. In fact, concerns about piecemeal regulation of greenhouse gas emissions by the states is one factor that has led certain companies to begin seeking federal regulation of such emissions.9 It will remain to be seen what the impact of state regulation will ultimately have on the federal government’s approach to this issue.
Proponents of greenhouse gas regulation have also taken to the courts. A number of cases have been filed either seeking to require government regulation of greenhouse gases, or looking to leverage the threat of liability under the US tort system to encourage companies to reduce their greenhouse gas emissions voluntarily. The more significant cases are discussed below.
Massachusetts v. EPA: In 2004, 12 states, as well as New York City, Baltimore, the District of Columbia, and several other parties sued the US Environmental Protection Agency (EPA), seeking to require it to assess properly whether greenhouse gases should be regulated under the mobile source provisions of the Clean Air Act. This suit stems from the EPA’s 2003 determination that greenhouse gases were not “air pollutants” within the meaning of the Clean Air Act, and that, even assuming they were air pollutants, the EPA would not regulate such gases on the grounds that such regulation would not be an appropriate manner of addressing global warming. In 2005, the DC Circuit decided (in a 2–1 decision, with each justice writing a separate opinion) that the EPA’s determination was proper. The petitioners appealed to the US Supreme Court, which held oral arguments on November 29, 2006.
It should be noted that the petitioners in Massachusetts v. EPA seek the limited relief of requiring the EPA to reassess properly the question of whether greenhouse gases should be regulated under the Clean Air Act. In the event the Supreme Court sides with the petitioners, it would not mean that the EPA would then have to regulate greenhouse gases. Moreover, the EPA’s revised analysis would likely take months or years to complete, and would inevitably be followed by further legal challenges. Accordingly, despite the significance of the issues presented by Massachusetts v. EPA, this case is unlikely to give rise to federal regulation of greenhouse gases any time soon.
Connecticut v. American Electric Power Co.: In 2004, eight states, New York City and various environmental agencies brought an action against American Electric Power and four other power companies, claiming that the defendants’ emissions of carbon dioxide constituted a nuisance under federal and state common laws.10 The plaintiffs sought an injunction from the US District Court for the Southern District of New York requiring each of the defendants to abate its contribution to the nuisance by capping its emissions of carbon dioxide and then reducing those emissions by a specified percentage each year for at least a decade.
The court denied the plaintiffs’ request, holding that their claims present “a non-justiciable political question that are consigned to the political branches, not the Judiciary.”11 The case has been appealed to the US Court of Appeals for the Second Circuit, and oral argument was heard on this matter in June of 2006. A decision in this case could be issued at any time, but is not expected for a few more months.
California v. General Motors Corp.: In September 2006, the attorney general of the State of California filed a nuisance claim (similar to that made in Connecticut v. AEP) against the six major domestic and foreign automobile manufacturers.12 Unlike the states in AEP, however, California is seeking monetary damages arising from the nuisance. It alleges that it has spent “millions of dollars to study, plan for, monitor and respond to impacts caused by global warming and impacts likely or certain to incur.” The complaint describes those impacts as reduced snow pack (and resulting reduction of water supplies), flooding, coastline erosion and saltwater infiltration into fresh water drinking supplies in the San Francisco area. The defendants have moved to dismiss the action, but the court has not yet ruled on that motion.
Comer v. Murphy Oil, USA: In 2005, a class action was filed in the US District Court for the Southern District of Mississippi against eight petroleum companies, 21 electric utilities, ten coal companies, three chemical manufacturing companies and their various trade organizations.13 The plaintiffs in this case claim that the defendants’ carbon dioxide emissions have increased the frequency and intensity of hurricanes, and that such emissions were a proximate and direct cause of the increase in the destructive capacity of Hurricane Katrina. The plaintiffs’ complaint alleges causes of action for nuisance, trespass, negligence, fraudulent misrepresentation and concealment, unjust enrichment, as well as civil conspiracy and aiding and abetting claims against the petroleum companies. The complaint seeks damages for the loss of income, property damage and mental anguish caused by Hurricane Katrina. The defendants have moved to dismiss the case, but the court has not yet ruled on the motion.
AEP, California v. GM and Comer all seek to use the tort system as a way of forcing corporations to take steps to reduce emissions in order to limit their liability from such claims. Based on the Southern District of New York’s decision in AEP, initial indications are that the plaintiffs’ claims are unlikely to be successful; however, those cases nevertheless play a role in pressuring governments and industry to address domestic emissions of greenhouse gases.
The fact that the federal government has yet to enact mandatory reductions in greenhouse gas emissions does not mean that US businesses will continue to have a free pass on such emissions. Businesses with greenhouse gas intensive operations should keep a close eye on the state initiatives and litigation described above, and should be proactive about preparing for a future in which greenhouse gases are either subject to regulation or form the basis for tort liability in US courts.