The Federal Court of Appeals (2nd Circuit) issued a major decision in the ever growing debate regarding action on climate change.  The court is allowing states to proceed with a suit against power companies that calls for a court order to reduce emissions of greenhouse gases which  contribute to global warming.

Eight states (California, Connecticut, Iowa, New Jersey, New York, Rhode Island, Vermont and Wisconsin), New York City and three land trust organization had filed a suit alleging major power plants caused a nuisance by emitting greenhouse gases that contribute to climate change.  The Appeal Court decision follows a lower court which dismissed the case on an interesting rule of law- the "political question doctrine."  In essence the lower court found the nuisance claim to raise a very complicated political question that was best left to the Executive and Legislative branches of government.  That questions was the balance between:

1) Reducing greenhouse gases to eliminate or mitigate societal impacts that flow from climate change

– versus-

2) The negative impact on the economy caused by the regulations and the societal impacts that would result

The Appeals Court ruled that the States did not need to wait for Congress to act by passing legislation.  The Court also ruled that EPA’s authority to regulate greenhouse gases under the Clean Air Act does not displace nuisance claims.  The Court noted that the mere issuance of a proposed endangerment finding by EPA was not enough to displace judicial relief under federal common law nuisance theories.

Other significant findings in the Appeals Court decision include:

  • The Court found the States are experiencing current "injury in fact" due to impacts from climate change, including melting California snow pack and erosion on the Massachusetts shoreline
  • Emitters of greenhouse gases face potential nuisance liability by contributing to climate change.  The Court rejected the notion there must be a direct causation between the sources of emissions and global warming.

The decision will certainly increase pressure on those who have resisted passage of climate change legislation.  Those who stand in the way of legislation must face the prospect of either: a) EPA regulations under the Clean Air Act; or b) Court ordered caps on emissions through multiple nuisance claims.  Either result would be far worse that the legislative option.  Both would result in even more complex regulatory schemes, less certainty and more regulation of smaller sources.

Perhaps there will be a renewed sense of urgency to pass climate change legislation.  American Electric Power, one of the utilities sued, was quoted in the N.Y. Times asserting the need for climate change legislation: 

At American Electric Power, Pat D. Hemlepp, a spokesman, said the company’s lawyers had not decided whether to appeal. But he added: “We don’t feel that litigation is a proper avenue to address climate concerns. In our view, it’s a policy issue.”

“Legislation would be the best approach, and that’s happening now,” Mr. Hemlepp said, referring to a bill that has passed the House and that the Senate may take up this year. 

UPDATE 9/24/09:  Another wrinkle that I did not discuss regarding this decision is that it will open up the floodgates of climate change litgation.   As appropriately acknowledged on Stoel Rives LLP Renewable + Law Blog, private parties now have been recognized to have standing to bring federal nuisance claims:

The court recognized that the Supreme Court had never addressed this question, but concluded that private parties should be able to proceed with federal nuisance claims related to climate change when they invoke an overriding federal interest or federalism concerns. By holding that private parties can bring federal nuisance suits and by recognizing that climate change is of overriding federal interest, the court potentially cleared the way for federal lawsuits against all types of companies that emit material levels of greenhouse gases.

The Obama Administration announced it would review the revised ozone standard of .75 ppb that was previously established by the Bush Administration.   The Obama Administration has said if they decide to revise the ozone standard below .75 ppb they will announce it by December of 2009 and finalize the standard by August 2010. 

As reported in the article, other actions make it appear almost certain that U.S. EPA will revise the standard lower. 

The Justice Department, in a brief filed Wednesday in a federal appeals court, went further, saying that the EPA believes the revision made by the Bush administration does not adhere to federal air pollution law. The brief is part of a lawsuit by environmental groups against the Bush-era rule.

The news of a much tighter ozone standard follows great news for Northeast Ohio that it had achieved the original 8-hour standard of .85 ppb (see, Improving Air Quality Great News for Cleveland Business)  This past week U.S. EPA announced it was granting Ohio’s request to redesignate Northeast Ohio Counties (Ashtabula, Cuyahoga, Geauga, Lake, Lorain, Medina, Portage and Summit) attainment . 

An "attainment" status has significant benefits to a community trying to re-build its economy.   It is much easier for businesses looking to relocate or expand to obtain the air permits they will need. Unfortunately, if the standard is reset to something like .70 ppb, Northeast Ohio brief attainment window will close and it will be facing a tremendous obstacle to see an "attainment" status anytime in the near future. 

The above chart is the monitoring data from Ohio EPA’s air pollution control plan submitted to U.S. EPA.  It shows the Ashtabula monitor is averaging 84.3 ppb, just slightly below the .85 ppb current standard.  But very, very far away from a possible .70 ppb.  As the Ashtabula monitor goes, so does all the counties in Northeast Ohio.  All eight counties will be in non-attainment if the Ashtabula monitor is not below .70 ppb.

Rather than focus on the economic costs of a revised standard or the difficulty of obtaining that standard, the Cleveland Plain Dealer focused on the future of E-check:

But it doesn’t mean that you won’t have to E-check your car anymore. Ohio has renewed its contract with Envirotest Systems to conduct the unpopular – though free to drivers – emission tests through June 2011.
 

Such a limited focus fails to recognize the wider implications of the tighter ozone standard.  Businesses that are located outside "non-attainment counties" should pay attention as well. In what has become a re-occurring theme on this blog, tighter ozone standards will have a dramatic impact on the cost of electricity for coal dependent states. 

Roughly 1/3 of all ozone causing pollutants are attributable to coal-fired power plants.  In fact, the progress in achieving the old standard was in large part attributable to federal control programs requiring reductions of these pollutants (NOx SIP Call and CAIR).  To achieve much tighter ozone standards, U.S. EPA will be forced once again to look to tightening emission requirements for coal plants.  Tighter emission requirements translates to higher compliance costs passed on to utility customers.

Ohio really needs to focusing intently on diversifying its energy portfolio to mitigate these increases.  Otherwise, businesses will be looking toward escalating operating costs making Ohio businesses non-competitive.  If you are a business who has opportunities to generate your own power, it would be a strategic advantage to give serious consideration to those plans.

 

Small businesses are deeply concerned with the economic impacts of the proposed cap-and-trade legislation currently pending in Congress.  Although small businesses will not be covered by the cap, if a price is placed on carbon, small businesses will feel the economic impact through energy price increases.  This is particularly true in the Midwest which is heavily reliant on carbon intensive coal power for its electricity generation.

With the hot national debate over cap-and-trade,  it is understandable that everyone is focused on the potential impacts of climate legislation on the economy.  However, I think this ignores the broader reality.  As discussed on this blog before there are other factors at work driving energy prices higher. (See, Cap and Trade: Job Killer or Call to Action for Coal States)  These include:

  • A new program requiring control of mercury emissions from coal fired power plants
  • Ever tightening federal ozone and fine particle pollution standards that will result in additional compliance costs for utilities
  • A revamped cap-and-trade program for utilities in light of the Court decisions regarding the Clean Air Interstate Rule
  • Potential tighter regulations on ash ponds and other utility wastes

If commodity prices rebound as a result of the economic recovery, price increases will be compounded.

For small businesses who are not prepared, high energy prices could force them out of business.

So, how can small businesses meet this threat through strategic action?  I would submit that any small business that is even moderately energy intensive should aggressively consider adopting energy efficient practices.

Today, the National Small Business Association released a report assessing the value of one practice, called "on-bill financing", that shows tremendous promise in reducing energy usage by small businesses.  According to the report, energy-efficiency programs such as on-bill financing can help the average small business save $4,932—and oftentimes more—every year on its energy bills.

On- Bill Financing- How it Works

Despite the benefits of energy efficiency projects, common barriers exist that prevent many businesses from implementing cost saving measures.  As detailed in the report, these include:

Cash flow: With tight margins and relatively small revenues, many small businesses find it challenging to undertake new capital investments, even if they will save money over time.  Fifty-two percent of small-business owners see cash flow as the primary barrier to investing in energy efficiency.

Up-front capital required: A typical energy-efficiency project might cost from $7,500 up to more than $20,000, with some projects costing a bit less and a few costing far more. 

Energy efficiency is only one priority among many: Small-business owners are heavily focused on the business at hand: managing inventory, maintaining payroll, providing health insurance, etc. They rarely have the time to focus on their energy bills, on energy-efficiency measures, or on their greenhouse gas emissions profile.

On-bill financing overcomes these barriers by: 1) identifying projects for the customer; and 2) providing up-front payment for the cost of the project and favorable repayment terms.

How are projects identified? Utilities identify businesses that may benefit from energy efficient project.  The utilities will use specialty trained contractors to perform an energy audit of the business to identify opportunities to reduce usage and save money.  The customers than elects whether to implement the project.  If the business implements the project it gets financed by the utility and repaid over time on the customers bill. 

The cost savings and the ability to reduce the impact of increasing energy prices are tremendously important to the vitality of small businesses.  There are also major environmental benefits as well. The report concludes that small business could collectively reduce greenhouse gas emissions by 259 million tons each year if they improved their energy efficiency by just 25 percent. 

A strong push for robust on-bill financing programs seems warranted. 

While the credit crisis has cooled of the commercial and industrial real estate market, transactions continue to occur at a slower pace.  Allocation of risk and liability for environmental contamination is an important consideration in transactions that involve properties in which manufacturing, transportation or other commercial businesses operated. 

In allocating responsibility for environmental clean up costs and damages, carefully crafted contract language can determine who will be responsible for hundreds of thousands if not millions of dollars in liability.  A federal case from this summer shows Courts will look closely for language demonstrating liabilities are "assumed" during the sale before assigning responsibility for costs or damages to buyers of contaminated property:

Indemnity versus assumption of liability-  Carefully drafted indemnity clauses are important consideration in transactions involving environmental liabilities.  These clauses are used to allocate the risks associated with liability based upon past and future activities that occur on the property.  Recently, the District Court for the Eastern District of Pennsylvania distinguished between indemnity and assumption of liability.  The Court decided their was no direct action available against the purchaser of contaminated property based upon the indemnity clause of a settlement agreement between the seller and buyer Here is what the Court found:

[T]he parties chose to never use the terms "liabilities" or "obligations" and only use the word "assume" in reference to assuming defenses.  There is no language in the settlement agreement that implies that Sunoco agreed to be AR’s legal successor…The contracting parties specifically chose the language "shall defend and hold harmless," and did not elect to include any language regarding assumption of liabilities or successor liability.  United States v. Sunoco, Inc. (No. 05-633) (E.D. Pa 2009)

Based on this finding the Court said the United States could not sue Sunoco directly to compel clean up.  The indemnity clause was only triggered by a suit against AR as a prerequisite. 

Going Beyond a Warranty Disclaimer– Land sale contracts will sometimes include "as is" clauses.  Courts will look to interpret the meaning of the clause based upon the contractual language used in the agreement.  An "as is" clause without language demonstrating the buyer "assumes" all environmental liabilities could be interpreted by Courts to be only a disclaimer of any warranties regarding the condition of the property.  In Niecko v. Emro, the Court found assumption of liability had occurred because the contract included the following language:

[Seller] makes no "warranties or reps" as to soil conditions, and that [buyers] assume all responsibility for any damages caused by the conditions on the property upon transfer of title. Niecko v. Emro 973 F.2d 1296 (6th Cir. 1992)

These cases demonstrate that for an assumption of all environmental liabilities to occur, Courts will expect to see express language demonstrating clear intent to transfer that liability. 

 

A discussed in prior posts, the Environmental Review Appeals Commission (ERAC) has taken an aggressive respond to deadlines imposed by the Ohio Legislature compelling ERAC to render decisions in 339 appeals in a matter of months.  It issued orders in all pending appeals canceling prior hearings and establishing an expedited hearing format that consists of the following:

  • one hour hearings- split between the sides equally
  • no presentation of witnesses
  • five page briefs
  • no meaningful discovery (depositions, document production, etc.)

My prior posts resulted in an interview with Gongwer regarding the ERAC deadlines and corresponding orders for expedited hearings.  In the article, Gongwer quoted ERAC Chairwoman Lisa Eschleman who said:

Limits on hearings were necessary to comply with new deadlines for ERAC to issue rulings, which were included in the biennial budget bill (HB 1).
Under the new deadlines, the commission must issue final decisions in 339 appeals by Dec. 15, she said, noting hearings were scheduled through Dec. 1.

"We took 339, divided it by the number of days, minus the number of holidays. It means we had to do six de novo hearings a day," she said. "Physically we had to put a limit on the amount of the time the people can have."

Previously, average de novo hearings at ERAC lasted about five days, she said.

The deadlines imposed in the Budget Bill were not opposed by the business community, only environmental groups sought a veto from Governor Strickland.  However, now that ERAC has responded to the deadlines with its expedited hearings, businesses are scrambling to address the issue.

A lawsuit was filed in the 10th Appellate Court on behalf of over a dozen companies with forty appeals pending before ERAC.  The lawsuit (called a Writ of Mandamus) seeks the Appellate Court to issue an order to compel ERAC to comply with due process requirements.  The suit states:

A writ is necessary because the Commission has embarked upon a process of scheduling hearings de novo in over three hundred pending appeals that limit appellants, including the Relators, to not more than one-half hour to present evidence in support of their appeals, as more fully described below. Such a patent deprivation of Relators’ right to a hearing de novo that adheres to the most basic requirements of due process can only be adequately addressed through issuance of the requested writ.

While such a lawsuit was inevitable, even if successful, it will not on its own address the other two hounded and ninety appeals that also received orders.  Nor will address the hundreds of appeals that are still pending after the initial December 15th deadline. 

Clearly, a broader fix is necessary.  While quicker decisions is an admirable goal, mandated deadlines such as this result in unanticipated consequences.  The real answer to this problem is difficult to implement in tough budget times- more money for ERAC.  The Commission is grossly understaffed and has outdated technology to handles the several hundred cases it has pending. 

Perhaps there is even the need for appointment of more Commissioners to hear all these appeals.  ERAC has three Commissioners and all three hear every appeal.  Appellate Courts have more judges than sit on any one panel for a case, why not ERAC?

Its still clear this problem will become worse without some kind of legislative fix either

  • giving the money ERAC needs
  • increasing its staff and/or Commissioners or
  • simply removing the deadlines and tolerating longer appeals.

The New York Times reported on the controversy surrounding the energy performance of LEED certified buildings.  Studies have shown that many LEED building receiving certification actually poorly perform when it comes to energy efficiency. 

The Article points to a federal building in Youngstown, Ohio which would have failed to obtain U.S. EPA’s Energy Star rating even though it was LEED certified:

The building’s cooling system, a major gas guzzler, was one culprit. Another was its design: to get its LEED label, it racked up points for things like native landscaping rather than structural energy-saving features, according to a study by the General Services Administration, which owns the building.

As documented, the latest version of LEED starts taking a major step toward addressing these two major issues:

  1. Energy Performance- Should all LEED building perform to a certain standard
  2. Decertification–  Should LEED plaques be removed from buildings if they fail to demonstrate performance over the life of the building

My reaction is that perhaps there is too big of a focus on the energy performance of a building.  As mentioned in the article, the building actually achieved its LEED status by performing in other areas. 

So should a building that does all the following be deemed not worthy of "green" status:

  • Redevelops a contaminated brownfield property
  • Reduces water use by 50% from basic standards
  • Uses waterless landscaping
  • Uses solar panels for energy
  • Recycled materials from the prior building
  • Purchased regional construction materials
  • Has a plan for tenants to utilize ride-sharing and public transportation
  • Other non-energy related enhancements

Aren’t there significant environmental benefits to a redevelopment project that achieves all of these objectives?  Perhaps we need a different certification for these projects- Leadership in Environmental Design (LED) projects. 

I see the argument that buildings (and the energy they use) are one of the largest sources of greenhouse gas emissions due to their electricity use.  How can you say there is leadership in energy design when buildings don’t actually perform well when energy audits are performed?  

But I come back to the same point- there are multiple ways to have environmental benefit.  Perhaps there needs to be different certifications for buildings that don’t perform as well from an energy usage perspective.  However, stripping buildings of their "green status" when they may have had a host of environmental benefits seems extreme.

More rumblings that EPA may move forward with regulation of greenhouse gases under its existing authority under the Clean Air Act.  It appears EPA has started to rattle its saber in an effort to re-energize the cap-and-trade proposal currently in the Senate.

The San Francisco Chronicle reported that Administrator Lisa Jackson said the "endangerment finding" would be issued in the next few  months.  Here are a few of her key comments:

"Legislation is so important, because it will combine the most efficient, most economy-wide, least costly (and) least disruptive way to deal with carbon dioxide pollution," Jackson said. "We get further faster without top-down regulation."

But Jackson insisted the EPA would continue on a path that began when the Supreme Court ruled in 2007 that greenhouse gases qualified as pollutants and could be regulated if the government determined they threatened the public.

"Two years is a long time for this country to wait for us to respond to the Supreme Court’s ruling," Jackson said.

 

An "Endangerment Finding" is a prerequisite to regulation of greenhouse gases under the Clean Air Act.  In Massachusetts v. EPA, the Supreme Court held that the Administrator must determine whether or not emissions of greenhouse gases from new motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare, or whether the science is too uncertain to make a reasoned decision.

On April 17, 2009, the EPA issued its proposed positive "Endangerment Finding" and now the public comment period has closed.  This means the EPA could move forward with a final rulemaking at any time.

As Administrator Jackson’s comments make clear, the Obama Administration’s preferred course of action is passage of cap-and-trade legislation- the American Clean Energy and Security Act of 2009 (ACES).  However, it appears momentum behind the legislation has waned in the Senate. 

Some business groups and politicians may see EPA’s comments as only bluffing.  That would be a grave mistake.  There is no doubt from the comments made by the Obama Administration the Agency will proceed with regulation under the Clean Air Act very soon if the prospects on legislation dim.  Key members of the Obama Administration not only believe action must be taken regarding climate change, they also believe the Supreme Court made it legally required. 

Furthermore, those who believe EPA regulations pertaining to climate change can simply be overturned, should read the Supreme Court’s decision in Massachusetts v. EPA.  The highest court in the land has left little room for a legal determination that climate change is a hoax or not worthy of regulation.

As reported in BNA and referenced in Foley & Hoag’s blog, EPA is rumored to be moving forward with application of New Source Review requirements to large sources of greenhouse gas emissions.  BNA reported that EPA would likely set a trigger level of 25,000 tons of carbon dioxide or carbon dioxide equivalent emissions (other greenhouse gases converted into CO2 tons).  All sources emitting above this threshold would have to include Best Available Control Technology (BACT) to reduce greenhouse gas emissions.

Congress seems to face stronger head winds on passage of a cap & trade climate legislation.  Organizations like the National Association of Manufacturers (NAM) have started a national advertising campaign targeting vulnerable Senators- such as Sherrod Brown in coal dependent Ohio.  NAM is using their recent study regarding the impact on energy prices of the American Clean Energy and Security Act of 2009 (ACES) legislation to frame the debate as an energy tax increase. 

Missing in the strong opposition to cap & trade is the alternative- regulation of greenhouse gases under the existing authority of the Clean Air Act.  U.S. EPA has been in a holding pattern seemingly holding their collective breath that legislation will pass thereby avoiding a regulatory nightmare. However, with opposition growing perhaps EPA is starting see that it needs to raise the prospects of alternative regulatory schemes.  The timing of the proposal to included greenhouse gases under New Source Review would appear to support that view.

While the article states that EPA would apply NSR only to the largest sources of greenhouse gases (25,000 tons of CO2), EPA has questionable legal authority to limit application in this fashion.  The current statutory language in the Clean Air Act applies NSR to source emitting more than 250 tons of any pollutant.  EPA has said before it has no intention of setting the threshold that low.  However, that is what the Clean Air Act states is the applicable threshold.  Without legislation it certainly seems very questionable as whether EPA has the authority to alter statutory text through regulation.   

There appears no doubt that if cap & trade dies this fall that EPA will move forward with a positive endangerment finding and start to issue climate change regulations under its existing authority.  Yet the debate in Congress right now seems to be cap & trade versus no regulation.  EPA, businesses and environmental groups supporting ACES need to do a better job of framing the debate as- cap & trade versus command and control regulation under the Clean Air Act.   If more organizations engaged in the debate in a realistic manner, including NAM, the merits of cap & trade seem to be much greater.

As an indication we are still in the denial phase by some, the U.S. Chamber of Commerce wants to put climate change on trial.  As reported on Yale 360:

Facing the prospect that the federal government may soon begin regulating greenhouse gas emissions, the U.S. Chamber of Commerce is proposing a public hearing in which the chamber and allied scientists question whether human-caused global warming is real. William Kovacs, the chamber’s senior vice-president for environment, technology, and regulatory affairs, is asking the U.S. Environmental Protection Agency (EPA) to hold the rare public hearing, complete with witnesses, cross-examinations, and a judge who would rule whether man is indeed warming the planet.

This ignores the fact that we already had that trial in front of the U.S. Supreme Court in landmark case of Massachusetts v. EPA.  The Court found climate change to be real and recognized EPA’s existing authority to regulated greenhouse gases.  This from the syllabus of the decision:

Based on respected scientific opinion that a well-documented rise in global temperatures and attendant climatological and environmental changes have resulted from a significant increase in the atmospheric concentration of “greenhouse gases,”

I wonder when the debate over cap & trade will start to honestly include a discussion of this legal reality?

(Photo: everystockphoto: cjohnson7)

The Ohio General Assembly included in the state budget a series of deadlines for issuing decisions in environmental appeals. (See prior post) The deadlines apply to the Environmental Review Appeals Commission (ERAC) which hears administrative appeals for hundreds of Ohio EPA and other state Agency actions.  Here are the deadlines imposed on ERAC:

The commission (ERAC) shall issue a written order affirming, vacating, or modifying an action pursuant to the following schedule:

(1) For an appeal that was filed with the commission before April 15, 2008, the commission shall issue a written order not later than December 15, 2009.

(2) For all other appeals that have been filed with the commission as of October 15, 2009, the commission shall issue a written order not later than July 15, 2010.

(3) For an appeal that is filed with the commission after October 15, 2009, the commission shall issue a written order not later than twelve months after the filing of the appeal with the commission.

ERAC has responded in a forceful way to the imposed deadlines.  It has been issuing orders for numerous pending appeals that restructure the normal hearing process.  Typical hearings included discovery, motions and multi-day hearings followed by briefs.  In response to the imposed deadlines ERAC has cut out all discovery, limited hearings to one hour and will accept only five page briefs.  (Here is an example ERAC order on one of the many appeals facing the deadline)

For many complicated environmental cases heard by ERAC it is impossible to present the issues in a coherent and supported manner under this structure.  Based upon the limited amount of information provided to ERAC under this structure suggests they will mostly play it safe in rendering decisions by perhaps deferring to the Agency.

Perhaps this is an example of unintended consequences, but it seems almost certain that this will not be the end of the story.  Additional legislative action to tweak or change the budget language almost seems a certainty.