Climate Change and Trends in Global Finance

On December 12, French President Emmanuel Macron, joined by President of the World Bank Group, Jim Yong Kim and the Secretary-General of the United Nations, António Guterres, hosted the One Planet Summit highlighting public and private finance in support of climate action. The summit’s focus centered on addressing the fight against climate change and ensuring that climate issues are central to the finance sector.

The summit’s most notable event was perhaps the announcement that insurance giant Axa would be dumping investments in and ending insurance for controversial U.S. oil pipelines, quadrupling its divestment from coal businesses, and increasing its green investments fivefold by 2020. Axa’s plans echo those of BNP Paribas, who, in mid-October, announced that it would terminate business with companies whose principal activities involve exploration, distribution, marketing, or trading of oil and gas from shale or oil sands. The bank also ceased financing projects that are primarily involved in the transportation or export of oil and gas. These moves themselves follow controversy over the Dakota Access pipeline in the U.S. from mid-March that resulted in ING’s $2.5 billion divestment in the loan that financed the pipeline.

These measures prefigure what might be a more conspicuous trend of large institutional investors moving more rapidly away from fossil fuel investments and into green investments. In mid-December, the World Bank said it would end all financial support for oil and gas exploration by 2019. Around the same time, New York Governor Andrew Cuomo revealed a plan for the state’s common retirement fund, with over $200 billion in assets, to cease all new investments in entities with significant fossil-fuel related activities and to completely decarbonize its portfolio. Recently, HSBC pledged $100 billion to be spent on sustainable finance and investment over the next eight years in an effort to address climate change. Additionally, JP Morgan Chase committed $200 billion to similar clean-minded investments, Macquarie acquired the UK’s Green Investment Bank, and Deutsche Bank and Credit Agricole both made exits from coal lending. As the landscape of global finance shifts, it will be important to monitor how funds, banks, and insurers address the issues related to climate change.

 

©1994-2017 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

President Trump Announces Withdrawal from Paris Agreement on Climate Change

President Trump announced on Thursday his intention to initiate a formal withdrawal of the United States from the Paris Agreement, a global agreement designed to address climate change by reducing greenhouse gas (“GHG”) emissions. The President indicated that the United States would move forward with the pull-out and possibly attempt to re-negotiate the agreement in order to get “terms that are fair to the United States.”  President Trump frequently discussed pulling out of the Paris Agreement while on the campaign trail, citing concerns regarding its potential impact on the American economy, particularly the energy sector.

While the President’s intentions are clear, the path forward is less obvious. The U.S. cannot immediately exit the Paris Agreement and several nations, including Germany, France, and Italy, announced in a joint statement that “that the Paris Agreement cannot be renegotiated.”  In addition to announcing withdrawal from the Paris Agreement, President Trump also indicated that the U.S. would immediately halt the remaining $2 billion of the $3 billion in aid to developing countries pledged by President Obama as a part of the Green Climate Fund, which also is a component of the UNFCCC.

The Paris Agreement’s formal processes does not allow for a notice of withdrawal to be submitted until November 4, 2019, after which it will take one year for such notice to become effective. Assuming adherence to this process, the earliest the U.S. can formally withdraw from the Paris Agreement is November 5, 2020, one day after the next presidential election.  Because the Agreement’s only binding obligations are certain reporting requirements, the withdrawal is viewed by some as a symbolic gesture, since any federal GHG reduction measures resulting from the Paris Agreement would still need to be pursued through domestic legislation or regulatory action.  As a practical matter, irrespective of the Paris Agreement the administration can—and likely will—take steps to alter federal climate change policy.

Paris Agreement Background

The Paris Agreement builds on the United Nations Framework Convention on Climate Change (UNFCCC), a treaty signed by President George H. W. Bush and ratified by the United States Senate in 1992. The Paris Agreement was adopted in December 2015 as part of the twenty-first session of the Conference of the Parties (COP21) to the UNFCCC.  Following its initial adoption, President Obama ratified the Paris Agreement as an “executive agreement” on September 3, 2016.  The Paris Agreement was ultimately signed by 195 parties, ratified by 146 nations and the European Union, and entered into force on November 4, 2016.

The Paris Agreement directs signatory nations to develop voluntary GHG reduction measures, known as “Intended Nationally Determined Contributions,” which convert to “Nationally Determined Contributions” (NDCs) after a nation ratifies the Paris Agreement.  The Paris Agreement further provides for periodic updates to NDCs in order to continually “enhance” emission reductions targets.  The Paris Agreement’s only binding provisions are reporting obligations largely governed by the UNFCCC and “global stocktakes” that occur every five years.  These reporting measures were designed to help track total carbon emissions and progress towards meeting each NDC.  However, actual attainment of an NDC is voluntary and the Paris Agreement has no legally binding enforcement mechanism. The Paris Agreement also directs wealthier nations to help developing nations reduce GHG emissions and adapt to the impacts of climate change, but again these actions would be taken on a voluntary basis.

What happens next?

The UNFCCC made a formal statement in response to President Trump’s announcement that it “regrets” the decision of the United States to withdraw from the Paris Agreement, and that it remains open to discussion of the rules and modalities currently being negotiated for implementation of the Paris Agreement.  At the same time, the UNFCCC stated that the Paris Agreement has been “signed by 195 Parties and ratified by 146 countries plus the European Union [and] cannot be renegotiated based on the request of a single Party.”  Based on this statement and similar statements from France, Germany, Italy, and other nations, it appears that any near-term renegotiation of the Paris Agreement is unlikely.

Regardless of whether the United States is a party to the Paris Agreement, multinational corporations will still be subject to GHG reduction programs in other nations as those nations attempt to fulfill their NDCs. In addition, France and other nations have indicated the possibility of imposing a carbon tax on American imports from certain industries if the United States does formally withdraw from the Paris Agreement.

Under the Paris Agreement, the United States established its NDC as a goal of reducing GHG emissions 26-28 percent below 2005 levels, by 2025, and to make “best efforts” to reduce emissions by 28 percent. It is important to note that the U.S. is in the first sustained period where greenhouse gas emissions have decreased while economic growth has increased, largely the result of increased reliance on natural gas, improved vehicle fuel economy, state and regional GHG programs, and growth in renewable energy.  These factors are likely to persist even if the U.S. leaves the Paris Agreement.  And even in the absence of U.S. commitments under the Paris Agreement or additional federal action, U.S. GHG emissions are expected to decline by about 15-18 percent below 2005 levels by 2025.

The federal Clean Power Plan was one measure that was expected to further reduce U.S. GHG emissions. However, that program is subject to ongoing legal challenges and has been stayed by the U.S. Supreme Court.  There also are various lawsuits underway seeking to compel the federal government to take action on climate change. See e.g., Juliana v. United States, No. 6:15-cv-01517-TC (D. Or. Nov. 10, 2016).   Apart from litigation, the Trump Administration has indicated a willingness to modify the Clean Power Plan (should it be upheld) and reconsider other federal regulations and programs directed at GHG emissions and climate change, such as motor vehicle emissions standards.  These processes will take time to play out and, in combination with ongoing state-level programs, will ultimately determine the course of climate change policy in the United States for the remainder of the Trump Administration.

This post was written by Brook J. Detterman, Leah A. Dundon and Kristin H. Gladd of Beveridge & Diamond PC.

Trump Order Sets Up Rollback of Obama Energy and Climate Action

President Trump clean power planOn Tuesday March 28, President Donald Trump signed an Executive Order that takes the first step in rolling back executive actions that had been undertaken by the Obama Administration to address climate change and energy resource development.  The far-reaching order directly revokes or rescinds certain presidential and regulatory actions and directs the review and potential subsequent rescission or revision of other key programs and regulations administered by a variety of agencies.  However, it does not go as far as the Trump Administration might have in uprooting the underpinning of the federal government’s climate authority—the Environmental Protection Agency’s (EPA) 2009 endangerment finding—or in walking away from the international process to address climate change as codified in the 2015 Paris Agreement.  Moreover, implementation of the measures outlined in the Executive Order will likely take significant additional time and process to fully implement and will almost certainly be challenged in the courts.

The Executive Order directs EPA to reconsider its climate-related energy sector regulations.

1.  Clean Power Plan

Most prominently, the Executive Order directs EPA to immediately review the Clean Power Plan, a regulation promulgated pursuant to section 111(d) of the Clean Air Act that is intended to limit greenhouse gas emissions from existing power plants.  The Executive Order directs EPA to “as appropriate” initiate rulemaking to suspend, revise or rescind the rule and related actions.  Following the issuance of the Executive Order, EPA Administrator Scott Pruitt signed a Federal Register notice announcing that EPA is reviewing and, “if appropriate, will initiate proceedings to suspend, revise or rescind the Clean Power Plan.”

Importantly, the Executive Order cannot and did not itself rescind the Clean Power Plan.  This must be done by EPA, through the same notice-and-comment rulemaking process used to promulgate the rule in the first place, which could take up to a year.  A final rule rescinding or revising the Clean Power Plan rule will almost certainly be challenged by states and environmental organizations.

The Clean Power Plan is currently subject to challenge in the D.C. Circuit and has been stayed by the Supreme Court.  The Executive Order directs the Department of Justice (DOJ) to inform the D.C. Circuit of EPA’s plans and ask the court to put those challenges on hold while EPA takes action to rescind or revise the rule. Late Tuesday night, DOJ filed a motion requesting that the D.C. Circuit hold its proceedings in abeyance.  This request likely will be challenged by environmental groups, states, and businesses that have supported the Clean Power Plan.

2.  Carbon Pollution Standards Rule

The Executive Order directs EPA to review and, as appropriate, suspend, rescind or revise its Carbon Pollution Standards Rule, which sets emission limits for new, modified and reconstructed power plants.  Most significantly, this rule establishes a limit on carbon dioxide emissions from new coal-fired power plants that is achievable only if such a plant installs carbon capture technology.  Following issuance of the Executive Order, EPA Administrator Scott Pruitt signed a Federal Register notice announcing EPA’s review and intent to suspend, revise, or rescind the Carbon Pollution Standards Rule as appropriate. As with the Clean Power Plan, any revision or repeal of the rule must be done through notice-and-comment rulemaking and will most likely be subject to legal challenge in the D.C. Circuit.

The Carbon Pollution Standards Rule is currently subject to challenge at the D.C. Circuit.  The Executive Order directs DOJ to notify the court of EPA’s plans and ask the court to put the challenges on hold while EPA takes action to reconsider the rule.  Late Tuesday night, DOJ filed a motion requesting that the D.C. Circuit hold its proceedings in abeyance. As with the request related to the Clean Power Plan, this request likely will draw opposition from those entities that have supported the Carbon Pollution Standards Rule.

3.  Oil and Gas Sector Methane Emission Limits

The Executive Order directs EPA to review and, as appropriate, suspend, rescind or revise a 2016 rule establishing new source performance standards limiting methane emissions from new, modified, and reconstructed sources in the oil and gas sector.  That rule covers equipment, processes, and activities in the onshore production, gathering, transmission, and storage segments of the sector, and also expands upon a 2012 regulation directed at limiting emission of volatile organic compounds (VOCs). Among other things, the rule requires performance of a rigorous protocol for leak detection and repair (LDAR) on a periodic basis.  The rule is currently being challenged in the D.C. Circuit, and the Executive Order directs DOJ to request the case be suspended pending reconsideration of the regulation.  The Order also directs EPA, “if appropriate” and “as soon as practicable,” to suspend, rescind, or revise “any rules and guidance issued pursuant to” its oil and gas methane rule.  The impact this directive will have on EPA’s voluntary Methane Challenge Program and Control Technique Guidelines for VOC emissions from the oil and gas sector—policies that were included in the Obama Administration’s Methane Strategy (which the Executive Order also rescinds, as discussed below)—is uncertain.  For more details about the oil and gas methane new source performance standards, see our VNF alert here.

The Executive Order directs the Department of the Interior to reconsider specific energy-related regulations and policies.

1.  Coal Leasing Program Review and Coal Leasing Moratorium

The Executive Order directs the Department of the Interior (DOI) to amend or withdraw Secretarial Order 3338, which called for the Bureau of Land Management (BLM) to prepare a programmatic environmental impact statement (PEIS) to analyze potential leasing and management reforms to the federal coal leasing program.  Among other topics, the PEIS was to address the process, timing, and location of leasing; whether existing bonus bid, rent, and royalty payment policies provide a fair return to the United States; and the climate change and other impacts of coal development and use. The BLM published a scoping report in January 2017 summarizing the issues raised in meetings and public comments during the scoping period that began in March 2016, and the issues, including preliminary reform options, to be considered in the PEIS.

The Executive Order further directs DOI to suspend a moratorium that the Obama Administration BLM had placed on the leasing of new coal development on federal land while the agency reconsidered the coal leasing program. Unlike some of the other actions specifically identified in the Executive Order, the coal leasing moratorium and environmental review of the coal leasing program can be suspended without going through notice-and-comment rulemaking.

Recognizing “the critical importance of the Federal coal leasing program to energy security, job creation, and proper conservation stewardship” and “finding that the public interest is not served by halting the Federal coal program for an extended time” and that a PEIS is not necessary to consider potential improvements to the program, on March 29, Secretary of the Interior Ryan Zinke issued Secretarial Order 3348 revoking Secretarial Order 3338, halting further activity on the PEIS, and reopening the coal leasing program. Simultaneously, DOI established a Royalty Policy Committee to regularly advise the Secretary on the fair market value of, and collection of revenues from, energy and mineral resource development on federal and Indian lands.

2.  Fracking Rule

The Executive Order directs DOI to review and, if appropriate and as soon as practicable, suspend, revise, or rescind BLM’s March 26, 2015 final rule entitled “Oil and Gas; Hydraulic Fracturing on Federal and Indian Lands.”   The final rule imposed certain requirements related to well integrity, surface waste water management, and disclosure of details regarding the composition of hydraulic fracturing fluids.  The final rule had been vacated by the U.S. District Court for the District of Wyoming, but that decision is currently on appeal in the U.S. Court of Appeals for the Tenth Circuit.  Wyoming v. Jewell, No. 15-8134 (10th Cir. filed June 24, 2016).  The Executive Order directs DOJ to inform the court of this order and seek “appropriate relief,” such as requesting that the case be suspended or otherwise stayed pending DOI’s reconsideration of the regulation.

3.  Waste Prevention Rule

The Executive Order directs DOI to review and, if appropriate, suspend, revise, or rescind BLM’s final rule on the prevention of waste of natural gas from venting and flaring.  On November 18, 2016, BLM issued a final rule, entitled “Waste Prevention, Production Subject to Royalties, and Resource Conservation,” intended to reduce natural gas waste and air pollution resulting from onshore flaring, venting, and leaks by oil and gas production on federal and tribal lands, and to provide a beneficial return on public resources for states, tribes, and federal taxpayers.  The final rule, among other things, prohibits the venting of natural gas except in limited circumstances; requires operators to capture most of their gas after accounting for specified volumes of allowed flaring; and imposes rigorous LDAR protocols for limiting equipment leaks.   The final rule took effect January 17, 2017, after an unsuccessful attempt by several states and industry groups to enjoin implementation of the rule in federal court in Wyoming.   Western Energy Alliance et al. v. Jewell, No. 2:16-cv-00280 (D.Wyo. filed Nov. 15, 2016).  However, litigation concerning the final rule is ongoing, and the Executive Order directs DOJ to seek appropriate relief from the court, such as requesting the case be suspended pending reconsideration of the regulation, which the agency had already done.

Additionally, the House of Representatives has passed, but the Senate has not yet taken up, a joint resolution of disapproval under the Congressional Review Act that would rescind this rule and limit BLM’s authority to issue a substantially similar regulation in the future.

4.  Non-Federal Oil and Gas Rights Rules

The Executive Order calls for DOI to review and, as appropriate, suspend, rescind or revise two final rules related to non-federal oil and gas rights on National Park Service (NPS)-managed lands and Fish and Wildlife Service (FWS)-managed refuges.

The first rule, issued by NPS on November 4, 2016, and entitled “General Provisions and Non-Federal Oil and Gas Rights,” updated the regulations (called the “9B regulations”) that govern private and state-owned oil and gas rights in the National Park System, which had not been updated since being promulgated more than 37 years ago.  The final rule, which took effect December 5, 2016, eliminated provisions that previously exempted more than 300 oil and gas operations and requires all operators, except those in Alaska, to comply with the 9B regulations.  The final rule also eliminated the cap on financial assurances, and strengthened enforcement authority by incorporating existing NPS penalty provisions.

The second rule, issued by FWS on November 14, 2016, and entitled “Management of Non-Federal Oil and Gas Rights,” updated the regulations governing the exercise of non-Federal mineral rights located outside of Alaska within the National Wildlife Refuge System (NWRS), which had not been updated since being promulgated more than 50 years ago.  The final rule, which took effect December 14, 2016, instituted a permitting process for new operations; requirements related to well-plugging and reclamation; operating standards; and provisions for fees, financial assurances, and penalties.

Resolutions of disapproval have been introduced in the House of Representatives that would rescind both of these rules under the Congressional Review Act.

The Executive Order directs federal agencies to review regulations that burden domestic energy development.

In addition to directing review of specifically-identified regulations and policies at EPA and DOI, the Executive Order directs all “executive departments and agencies” to review and report on “all existing regulations, orders, guidance documents, policies, and any other similar agency actions” that “necessarily obstruct, delay, curtail, or otherwise impose significant costs on the siting, permitting, production, utilization, transmission, or delivery of” domestic energy resources.  The Executive Order directs agencies to pay “particular attention to oil, natural gas, coal, and nuclear energy resources”; it does not specifically mention renewable energy.  “Executive department and agency” is not defined, and the application of this requirement to independent agencies is not clear.

Specifically, each agency is directed to submit a plan outlining how it will conduct its review to the Office of Management and Budget (OMB) within 45 days.  Draft reports detailing the actions reviewed and including recommendations to address the burdens those actions impose on domestic energy production are due to OMB within 120 days, and final reports are due within 180 days.  Identified regulations that are rescinded can be used by the agency to comply with the President’s Regulatory Review Executive Order (for details on this order see our alert, here).

The Secretary of the Interior already has issued Secretarial Order 3349 commencing DOI’s review, requiring DOI bureaus and offices to submit reports within 21 days identifying regulations, orders, guidance documents, policies, and any other similar agency actions that burden energy development.  DOI has further committed to developing a department -wide plan within 35 days.

The Executive Order directs the Council on Environmental Quality to rescind guidance incorporating climate change into environmental reviews.

The Executive Order directs the Council on Environmental Quality (CEQ) to rescind its final guidance encouraging federal agencies to consider impacts from greenhouse gas emissions and climate change in environmental reviews pursuant to the National Environmental Policy Act (NEPA).  The final guidance, issued August 5, 2016, characterized climate change as a “fundamental environmental issue” and recommended that federal agencies consider the potential effects of a proposed action and related activities on climate change, using reasonably foreseeable, direct and indirect greenhouse gas emissions as a “proxy” for assessing impacts.  Although not binding or otherwise legally enforceable, federal agencies typically strive for compliance with NEPA guidance documents, and courts may afford greater weight to interpretations and guidance issued by CEQ.

This guidance can be revoked without having to go through notice or comment or other administrative procedures.  However, the Executive Order does not preclude federal agencies from continuing to consider the impacts of federal action on climate change in order to mitigate litigation risk when conducting environmental reviews.

The Executive Order rescinds the Interagency Social Cost of Carbon Guidance.

The social cost of carbon is a metric for quantifying the costs of greenhouse gas emissions and the benefits of policies that reduce greenhouse gas emissions.

The Obama Administration convened an Interagency Working Group, led by OMB, to implement a uniform range of values for agencies to use when quantifying impacts of carbon dioxide emissions and emission reductions—the “Social Cost of Carbon for Regulatory Impact Analysis” (SCC).  Similar guidance documents have been developed for two other greenhouse gases: methane, and nitrous oxide.  The SCC has largely been used to comply with executive orders requiring agencies to analyze impacts of regulations.  In some instances, agencies have used the SCC to set the stringency of regulatory actions in order to comply with statutory obligations.

The Executive Order disbands that Working Group and rescinds the uniform SCC guidance and related documents.  Based on court precedent, at least some agencies will likely still be required to consider the quantified benefits of greenhouse gas reduction in their rulemakings. See Ctr. for Biological Diversity v. NHTSA, 538 F.3d 1172 (9th Cir. 2008); High Country Conservation Advocates v. U.S. Forest Serv., 52 F. Supp. 3d 1174 (D.Colo. 2014).

The Executive Order directs agencies to instead rely on long-standing cost-benefit analysis guidance outlined in OMB Circular A-4 when quantifying the costs of greenhouse gas emissions or benefits of greenhouse gas emission reductions.  Whereas the cost ranges required under the interagency SCC guidance included the impacts of greenhouse gas emissions on a global basis, OMB Circular A-4 directs agencies to primarily evaluate a rule’s costs and benefits only as they impact the United States.  This different direction, along with a number of other important technical changes, will likely result in agencies attributing much lower monetized benefits to actions that reduce greenhouse gases, if such quantification is performed at all.

The Executive Order revokes certain other energy- and climate change-related executive orders, presidential memoranda, and frameworks.

The Executive Order directly revokes the following four executive orders and presidential memoranda signed by President Obama related to energy and climate change.

First, the Presidential Memorandum on Mitigating Impacts on Natural Resources from Development and Encouraging Related Private Investment directed agencies to more fully develop and implement requirements for the mitigation of adverse impacts from development and other activities on land, water, wildlife, and other ecological resources. Among other things, the memorandum established a mitigation hierarchy (avoid, minimize, then compensate); set a “net benefit goal” or, at a minimum, a no net loss goal for natural resources; emphasized large-scale or landscape-level planning and mitigation; and directed a number of agencies to take certain, specified actions to strengthen mitigation policies.  As noted above, following the Executive Order, the Secretary of the Interior issued Secretarial Order 3349 which, in part, revokes Secretarial Order 3330, “Improving Mitigation Policies and Practices of the Department of the Interior,” dated October 13, 2013, and directs a review of all actions taken pursuant to that order and the revoked Presidential Memorandum for possible reconsideration, modification, or rescission. This review will include the U.S. Fish and Wildlife Service’s recent Mitigation Policy, dated November 21, 2016, and Endangered Species Act Compensatory Mitigation Policy, dated December 27, 2016.

Second, the Presidential Memorandum on Power Sector Carbon Pollution Standards directed EPA to conduct a rulemaking to regulate greenhouse gas emissions from the power sector.  Rescinding this is consistent with the Executive Order’s direction to suspend, rescind or revise the Clean Power Plan and Carbon Pollution Standards Rule.  It also leaves open the possibility that EPA will only repeal, but not replace, these two rules.

Third, the Presidential Memorandum on Climate Change and National Security established a framework and directed agencies to take actions to ensure that climate change-related impacts are fully considered in the development of national security doctrine, policies, and plans.

Fourth, Executive Order 13653 (Preparing the United States for the Impacts of Climate Change) directed federal agencies to take steps to prepare for climate change impacts and to support state and local resilience efforts, and established a State, Local, and Tribal Leaders Task Force on Climate Preparedness and Resilience.

The Executive Order also rescinds the Obama Administration’s Climate Action Plan, which identified addressing climate change as a priority and established a framework for doing so across federal agencies, and the Obama Administration’s Methane Strategy, a framework for addressing emissions of methane across a number of federal agency programs.  Rescinding these documents will have no independent legal effect and can be done with no further process.

The Executive Order directs agencies to review and, as appropriate, suspend, rescind, or revise regulations, orders, guidance documents, policies, and any other similar agency actions made in furtherance of these executive orders, presidential memoranda, and frameworks.  Such actions may require notice-and-comment rulemaking.  As noted above, DOI already has initiated its review, requiring that departments identify all such actions issued pursuant to them or currently under development within 14 days, identify actions that should be reconsidered, rescinded, or revised within 30 days, and submit to the Deputy Secretary draft revised or substitute actions within 90 days.

The Roads Not Taken

Finally, the Executive Order is notable for two actions that it does not take.

It does not direct reconsideration of, or even discuss, EPA’s 2009 finding that greenhouse gas emissions cause air pollution which endangers public health and welfare (the “endangerment finding”).  This finding was made under the Clean Air Act in response to the Supreme Court’s decision in Massachusetts v. EPA, 549 U.S. 497 (2007) (holding that greenhouse gases are an “air pollutant” under the Clean Air Act) and upheld by the D.C. Circuit, Coalition for Responsible Regulation v. EPA, 684 F. 3d 102 (D.C. Cir. 2012).  The endangerment finding serves as the necessary factual and legal predicate authorizing EPA to adopt greenhouse gas regulations under the Clean Air Act.  Doing so would have called into question not only EPA’s energy-related greenhouse gas regulations targeted for repeal or revision by the Executive Order, but also regulations under Clean Air Act section 202 limiting greenhouse gas emissions from passenger cars and trucks, and heavy duty vehicles and its requirement that large new and modified stationary sources install the best available control technology to limit greenhouse gas emissions pursuant to the Clean Air Act Prevention of Significant Deterioration program.

Second, the Executive Order does not direct the State Department to withdraw the United States from the Paris Agreement or otherwise mention that agreement.  However, this silence cannot be interpreted to mean that the United States will remain and continue to participate in the Paris Agreement in the manner set forth by the Obama Administration.  For example, if the Trump Administration reverses or significantly revises the policies targeted by the Executive Order, it will be difficult, if not impossible, to achieve the level of emission reductions that correspond to the U.S. pledge under the Paris Agreement.  This pledge—referred to as the U.S. “Nationally Determined Contribution” (NDC)—is a 26 percent reduction in greenhouse gas emissions below 2005 levels by 2025, and requires periodic updating of the greenhouse gas emissions reductions pledged under the NDC to assure the achievement of the Paris Agreement’s goals.  Accordingly, the Executive Order might presage a future action by the Trump Administration either to withdraw from the Paris Agreement or to submit a revised NDC with a significantly lower greenhouse gas reduction pledge.

The Executive Order calls for a large number of specific actions from a wide variety of agencies.  How agencies go about implementing those actions and the outcome of the inevitable legal challenges to those actions remains to be seen.

© 2017 Van Ness Feldman LLP

Climate Change Policy Developments in Washington State

climate changeSeveral climate policy initiatives are underway in the Washington State legislature, agencies, and courts.  This alert summarizes these key developments—future alerts will provide greater detail and topical analysis.

1.  Legislative and Ballot Initiatives.

In November of 2016, voters rejected a state carbon tax.  Initiative 732, the Washington Carbon Emission Tax and Sales Tax Reduction, would have established a tax that started at $15/metric ton of carbon dioxide and increased over time.  Following the defeat of I-732, Governor Inslee introduced his 2017-2019 budget, which includes a $25/ton carbon tax that would take effect May 1, 2018.  In addition to the Governor’s budget proposal, the legislature is considering a carbon tax bill and a bill that would substantially tighten the state’s GHG reduction targets.  Depending on the outcomes of this legislative session, environmental groups and climate policy experts may consider a future ballot initiative.

2.  Science Assessments.  

Responses to climate change are informed by science that assists decision-makers on the progression of climate change and its impacts.  The Fourth National Climate Assessment is underway with public meetings in support of the Northwest Region chapter’s drafting.   In addition, based on recent studies on existing climate change and its impacts and costs, the Washington State Department of Ecology (Ecology) recommended a substantial tightening of the state’s GHG reduction targets. This recommendation is noteworthy because the current GHG reduction targets were relied upon to support Ecology’s proposed Clean Air Rule.     

3.  Rule-making and Implementation.

On January 1, 2017, Ecology’s Clean Air Rule (CAR) went into effect. The CAR initially imposes emission limits on “covered parties” that Ecology deems responsible for at least 100,000 metric tons of carbon dioxide annually—including not only owners of stationary sources such as power plants and factories—but also entities that sell, distribute, or import petroleum and natural gas.  Covered parties in these categories must reduce their emissions by 1.7%/year (until 2036) from an organization-specific baseline determined by Ecology.

The CAR provides special treatment to covered parties that are in sectors for which higher energy costs could result in competitive disadvantages.  These “energy-intensive, trade-exposed industries” are not subject to program until 2020, and have emission reduction pathways set by a different methodology.

A covered party can comply with its emission limit by directly reducing its emissions or by purchasing and using credits (termed “ERUs”) available from in-state mitigation projects, renewable energy credits, or allowances from certain out-of-state climate programs.  Ecology is currently developing policies for developers of emission mitigation projects that want to generate ERUs.

4.  Litigation.

a.  Rule challenges:  The new CAR was challenged through suits filed in state and federal court. The state court cases (Ass’n of Wash. Bus. v. Dep’t of Ecology and Avista Corp. v. Dep’t of Ecology) have been consolidated in Thurston County Superior Court, and the federal case (Avista Corp. v. Dep’t of Ecology) is stayed pending final adjudication of the state court matter. The state case includes allegations that the CAR exceeds Ecology’s authority under the Washington Clean Air Act because it regulates natural gas and petroleum distributors that are not “sources” of emissions in the meaning of the statute.

b.  Citizen Suits and Children’s Lawsuit:  A group of eight Washington children brought suit against Ecology for the agency’s failure to regulate carbon dioxide emissions and for failing to protect the children from climate change impacts.  In 2015, the trial court held that climate change affects public trust resources in the state, but that the state was fulfilling its public trust obligations by engaging in the rulemaking. This rulemaking ultimately resulted in adoption of the CAR and the case is now on appeal regarding whether Ecology’s finalization of the CAR resolves all claims. However, the parties continue to make arguments to the trial court regarding whether the children should be permitted to amend their complaint so that they “can show evidence and argue that their government has failed and continues to fail to protect them from global warming.” (Foster v. Dep’t of Ecology, No. 14-2-25295-1 SEA and COA 75374-6-I.)

5.  State Hearings Boards and Local Hearing Examiners.

State and local agencies are exploring their authority to control GHG emissions and impose mitigation for climate impacts.  For example, the Washington Growth Management Act and the Shoreline Management Act contain provisions requiring agencies to consider the public interest and protection of the environment when implementing these statutes.

In furtherance of this general mandate, agencies and local governments might conduct their own analyses of GHG emissions and climate impacts, or require permit applicants to do so to satisfy these generalized permit criteria, and might claim authority to impose mitigation outside the specific scope of the state agency rules described above.

Appeals challenging agency decisions under those statutes are heard by the Growth Management Hearings Board, Shoreline Hearings Board, and Pollution Control Hearings Board, all housed in the state’s Environmental Hearings Office.  These boards are becoming a forum for arguments regarding authority to impose GHG limitations or mitigation, and the adequacy of the underlying analysis under the State Environmental Policy Act.

In addition, local government codes sometimes contain provisions requiring consideration of GHG emissions and provide guidelines for calculations of emissions and impacts. Local land use decisions applying those provisions are subject to review before local hearing examiners, potentially subjecting matters in those venues to similar climate change and GHG arguments and challenges.  This body of local decisions and appellate review is just beginning to take shape and has the potential to establish precedent for climate impact review and mitigation throughout the state.

6.  SEPA Guidance.

The State Environmental Policy Act (SEPA) directs local and state agencies to identify and evaluate the environmental impacts of their actions. Unless an action is “categorically exempt,” SEPA review is triggered when a proposal requires a governmental agency to make a decision or fund an action that may significantly affect the quality of the environment.

In 2011, Ecology, as the lead agency, issued agency guidance on consideration of climate change under SEPA. Other SEPA lead agencies have followed Ecology’s guidance.  In late 2016, Ecology removed the guidance from its website and indicated it (1) had begun planning its first periodic update of the guidance, and (2) is gathering information about new methods that local, state, and federal agencies are using to evaluate GHG emissions and climate change impacts.

In the meantime, agencies have been requiring such information from project proponents.  SEPA determinations and related documents have been subject to challenge and appeal.  There is growing Washington case law on the treatment of GHG emissions and the impact of climate change.

7.  Adaptation and Increasing Resilience to Climate Change Impacts.

Recognizing Washington’s vulnerability to climate impacts, the state published the Washington State Integrated Climate Change Response Strategy  to help prepare for climate change impacts and protect Washington’s communities, natural resources, and economy from the impacts of climate change.   Throughout Washington, city and county officials, Tribal leaders, and other stakeholders are planning for more climate-resilient communities.  For example, the City of Olympia is “developing a Sea Level Response Plan that will balance risks, uncertainty, and both private and public costs.”

Supreme Court Stays Clean Power Plan

On February 9, 2016, the U.S. Supreme Court issued a 5-4 decision staying implementation of the Clean Power Plan until the D.C. Circuit rules on challenges to the Plan. The Court left open the possibility that it would review the D.C. Circuit’s ultimate decision.

The decision delays President Obama’s Climate Action Plan. The Clean Power Plan is its key climate change rule. It requires states and utilities to reduce carbon dioxide (CO2) emissions by generating less electricity from coal, and more from lower carbon-emitting sources like natural gas, or zero-carbon sources like solar and wind. The Plan has an ambitious goal: to reduce CO2 emissions 32% below 2005 levels by 2030.

Some relevant background: On January 21, 2016, the D.C. Circuit refused to stay the Clean Power Plan while litigation is pending before it. Opponents of the rule, including 29 states and state agencies and several industry and trade groups, appealed that decision to the Supreme Court.

The stay will be in place at least until the D.C. Circuit rules on the pending challenges, likely late this year. Briefing deadlines are in April, and oral argument is scheduled in early June. The Supreme Court’s stay order will also remain in effect if the Court decides to review the D.C. Circuit’s decision, which it is expected to do, regardless of the outcome.

What are the implications of the stay? In the short term, the September 6, 2016 deadline for states to either submit their state plans or request a two-year extension will be postponed.

The Supreme Court’s action was unusual. The 5-4 vote suggests that the Court was persuaded that the significant challenges to the rule and the economic consequences of implementing it outweighed EPA’s interests in addressing climate change this year.

© 2016 Schiff Hardin LLP

Before it Adjourns for 2015, Some in Congress Signal Discontentment with Iran and JCPOA

Washington Also Remains Focused on Combatting ISIL; President Obama Heralds the Conclusion of an International Climate Agreement

Congress reconvened last Monday to work on advancing several priority measures – such as an Omnibus spending measure to fund the federal government, a tax extenders package, and the customs bill, among others – in anticipation of adjourning later this week for the year.

San Bernardino Shooting

The Federal Bureau of Investigation continues to investigate the terrorist attack in San Bernardino, California.  Republican presidential front-runner Donald Trump issued a call last week to ban Muslims from entering the country, a moved condemned by many in both parties as un-American.  In his third address to the nation last Sunday, President Barack Obama sought to reassure Americans that proper security measures have been implemented to safeguard the homeland after the attack in California.  In an attempt to broaden the discussion, the President outlined steps the Administration has taken to combat the threat of terrorism, including ISIL.

Combating ISIL

Testifying last week before the Senate Armed Services Committee (SASC) about the U.S. strategy to combat ISIL, Secretary of Defense Ashton Carter said that the United States is “building momentum against ISIL.”  He also agreed with SASC Chairman John McCain’s (R-Arizona) assessment that the terrorist group had not been contained.

Pentagon officials have also reportedly said the Administration is likely to provide Apache helicopters to Iraqi forces looking to retake Ramadi from ISIL and that regional allies are considering deploying special forces to Iraq.  Secretary Carter further suggested that U.S. military advisers could accompany Iraqi forces on the ground in the effort to regain control of Ramadi.  On Friday, the White House released a supplemental consolidated report in accordance with the War Powers Resolution (Pub. L. 93-148), which provides some insight into the Administration’s global military objectives with respect to troop deployments, including countering terrorist groups such as ISIL.

Syrian opposition forces met in Saudi Arabia last week to discuss forming a unified front before proposed peace talks with Assad’s government in Vienna.  Gulf leaders, who were meeting for the annual Gulf Cooperation Council (GCC) summit in Riyadh, also urged the Syrian opposition to find common ground.  The GCC leaders said they “support a political settlement … that guarantees the territorial integrity and independence of Syria.”  Last Thursday, the Syrian opposition groups reportedly agreed to set up a body to lead preparations for the talks with the Syrian government.

On the sidelines of the Paris Climate Conference (COP21) last Wednesday, Secretary of State John Kerry announced that he will travel to Moscow this week.  Secretary Kerry is expected to meet with Russian President Vladimir Putin on 15 December to discuss a political settlement in Syria and the situation in Ukraine.

Russia/Ukraine Crisis

In a speech last Tuesday before the Rada in Kyiv, Vice President Joe Biden focused on the continuing economic reforms in the country and the need to address corruption.  He also reiterated the United States will maintain sanctions on Russia until the Minsk agreements are fully implemented.  The Vice President added, “If Russian aggression persists, the cost imposed on Moscow will continue to rise.”  Meanwhile, the EU postponed a vote on extending EU sanctions to this week.

Iran and the JCPOA Scrutinized

Last Tuesday, Senator Robert Corker (R-Tennessee), Chairman of the Senate Foreign Relations Committee, criticized the lack of a U.S. response to repeated Iranian ballistic missile tests that violate existing U.N. Security Council Resolutions.  Representative Ed Royce (R-California), Chairman of the House Foreign Affairs Committee, also responded to news reports last week that the P5+1 has delivered a draft resolution to the International Atomic Energy Agency (IAEA) Board of Governors to close the investigation into possible military dimensions of Iran’s nuclear program ahead of a vote early next week.  He said the Obama Administration is attempting to “whitewash” Iran’s history of nuclear bomb research by pressuring the International Atomic Energy Agency (IAEA) to formally end its probe into the “possible military dimensions” of Iran’s nuclear activities.

  • On Thursday, 17 December, the Senate Foreign Relations Committee will hold a hearing titled, “The Status of JCPOA Implementation and Related Issues.”

Visa Waiver Program (VWP)

Lawmakers have also increased scrutiny on the VWP, a program that permits citizens from approved countries to enter the United States visa-free for 90 days.  Last Tuesday, the House passed the Visa Waiver Program Improvement Act (H.R. 158), a measure aimed at tightening the program, by a vote of 407 to 19.  The Senate has yet to act on H.R. 158, though it could be folded into the broader omnibus funding bill currently under negotiation.  Meanwhile, at a roundtable discussion convened by the Senate Homeland Security and Governmental Affairs Committee, Senators examined data gaps and sought to determine how much information is being shared by 38 countries that currently participate in the VWP.

COP21 – Agreement Reached

In an attempt to bridge gaps for an international climate change deal, U.S. negotiators reportedly met last week with their Chinese and Indian counterparts in an attempt to find a compromise over remaining disagreements.  A deal was reached on Saturday, with President Obama issuing a statement heralding the international achievement.

Customs Bill Update

Speaker of the House Paul Ryan (R-Wisconsin) issued a press release last Thursday in support of passing the customs bill conference report that was released earlier in the week.  The National Retail Federation objected to the conference report over the inclusion of a provision to permanently extend prohibitions on taxing certain Internet-based activities.  House Ways and Means Committee Ranking Member Sander Levin (D-Michigan) is also encouraging his fellow Democratic colleagues to vote no, in part due to the conferees’ decision to not include a Senate-approved provision on currency.  The House passed the customs bill conference report on Friday afternoon by a vote of 256 to 158.

Senate Democrats, however, have reportedly expressed reservations over the inclusion of the Internet tax ban provision in the conference report.  This may complicate any Senate action this week on passing the conference report.

TPP Developments

In an exclusive interview with The Washington Post, Senate Majority Leader Mitch McConnell (R-Kentucky) suggested the Obama Administration should not expect Congress to approve the Trans-Pacific Partnership (TPP) before the November 2016 elections.  While Republicans strongly supported the Trade Promotion Act’s passage in June, Republican Leadership has offered little support since the Obama Administration announced the TPP deal had been reached in October.  Majority Leader McConnell reminded in the interview that the trade authority provided by Congress provides the next president fast-track authority throughout the first term of that Administration.

Meanwhile many interest groups in the United States are remaining silent on their position toward the TPP agreement.  The U.S. Council for International Business (USCIB) and the Emergency Committee for American Trade (ECAT) became the first U.S. business associations to formally express support for the TPP agreement last week, while also acknowledging the need for improvements before Congress can vote on the deal.  The U.S. dairy industry is formally taking a neutral position on the deal; however, it has expressed discontentment with the market access outcome with Japan and Canada.

TTIP Developments

In London last week, U.S. Trade Representative Michael Froman called for accelerated progress in the Transatlantic Trade & Investment Partnership (TTIP) discussions, adding that the current focus is to work with the European Commission and key member states to advance the negotiations.  In a statement issued last Friday, Ambassador Froman and European Union Trade Commissioner Cecilia Malmström said the two sides have made “considerable progress” over the last six months and pledged to work expeditiously to reach an “ambitious, comprehensive agreement.”

After news that the EU Parliament had been granted access by the European Commission to confidential TTIP documents, U.S. Representatives Rosa DeLauro (D-Connecticut), Lloyd Doggett (D-Texas), Dan Kildee (D-Michigan) and Louise Slaughter (D-New York) issued a statement condemning the lack of access by the Obama Administration to the same documents.  The Members also criticized the “secret negotiations” that resulted in the TPP deal, calling for the Office of the U.S. Trade Representative to be more transparent with Congress on the TTIP negotiations and to provide access to the confidential documents.

Looking Ahead

Washington will also likely focus on the following upcoming matters:

  • Next week: Congress adjourns

  • 15 December: Secretary Kerry’s Trip to Moscow

  • 15-18 December: 10th WTO Ministerial Conference to be held in Nairobi, Kenya

  • 12 January 2016:  State of the Union Address

  • 8-9 July 2016: NATO Summit in Warsaw, Poland

Article By Stacy A. Swanson of Squire Patton Boggs (US) LLP

© Copyright 2015 Squire Patton Boggs (US) LLP

EPA Focuses on Methane Leaks as Climate Change Takes Center Stage

EPAIn the September 2015 edition of the US EPA’s Compliance Alert, EPA reported that it and state investigations had identified Clean Air Act compliance concerns regarding significant emissions from storage vessels, such as tanks or containers, at onshore oil and natural gas production facilities. This EPA alert is consistent with the administration’s attention on climate change and coincides with the papal visit, all of which set the stage for international attention on climate change in December at COP 21 in Paris.

The compliance concerns involve an evaluation of whether vapor control systems have been properly designed, sized and operated to control emissions consistent with the regulatory requirements. Storage vessels are regulated because they contain: 1) large quantities of volatile organic compound (VOC s) that contribute to the formation of ground-level ozone- (2) hazardous air pollutants (HAPs) such as benzene, a known carcinogen- and (3) methane, a powerful greenhouse gas.

This compliance alert comes while the oil and natural gas production industry is evaluating EPA’s proposed changes to the regulatory program for air emissions from the oil and gas industry (80 FR 56593 September 18, 2015) in an effort to further reduce methane emissions consistent with President Obama’s Climate Action Plan. During his state of the union address on January 20, 2015, President Obama proclaimed “No challenge poses a greater threat to the future generations than climate change.”

Pope Francis’ historic visit to the U.S. last month provided an opportunity to pontificate his view that the climate change is a global problem disproportionately impacting the poor. He echoed President Obama in proclaiming that climate change “represents one of the principal challenges facing humanity in our day.” Encyclical Letter Laudato Si of the Holy Father Francis: On Care for Our Common Home.

World attention will focus on climate change in December in Paris when the United Nations Framework Convention on Climate Change holds its 21st Conference of the Parties (COP21) with the view that COP21 “will be a crucial conference, as it needs to achieve a new international agreement on the climate, applicable to all countries, with the aim of keeping global warming below 2°C.” http://www.cop21.gouv.fr/en.

As the oil and natural gas industry evaluates the regulatory changes proposed by EPA (comments are due on or before November 17, 2015), representatives of nations across the planet will be preparing to discuss views on an international climate agreement. It will be interesting to see if the parties can agree upon anything but given the fact that the Pope and the President of the leading world superpower agree that climate change poses one of the greatest threats to our planet, it is possible that COP21 will produce an agreement far more reaching than the Kyoto Protocol of COP3 in 1997.

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