Category: Administrative & Regulatory

Investigation Spurs Launch of Puerto Rico and U.S. Virgin Islands (USVI) Environmental Crimes Task Force

The U.S. Department of Justice (DOJ) recently announced the launch of a new Puerto Rico and U.S. Virgin Islands (USVI) Environmental Crimes Task Force. The DOJ’s announcement, on May 11, 2023, coincided with its announcement of the grand jury indictments of two individuals in Puerto Rico who are accused of committing environmental crimes between 2020 and 2022.

As noted by the DOJ, its formation of the Puerto Rico and U.S. Virgin Islands (USVI) Environmental Crimes Task Force also comes one year after the Department’s formation of an Office of Environmental Justice within its Environment and Natural Resources Division. This suggests that the DOJ is engaging in a long-term strategy to combat environmental crime, with particular emphasis on combating environmental crime in Puerto Rico and the USVI.

For companies and individuals doing business in Puerto Rico and the USVI, this is cause for concern. Even compliance won’t necessarily prevent an investigation; and, in the event of an investigation, insufficient documentation of compliance can present risks regardless of the underlying facts at hand. As a result, companies and individuals doing business on the islands need to prioritize environmental compliance (and adequately documenting their compliance), and they need to have strategies in place to deal effectively with the DOJ’s Puerto Rico and U.S. Virgin Islands (USVI) Environmental Crimes Task Force if necessary.

Puerto Rico and the U.S. Virgin Islands. By announcing the formation of its new task force on the same date that it announced two grand jury indictments, it is also sending a clear message that it will not hesitate to pursue criminal charges when warranted.

The DOJ’s Puerto Rico and U.S. Virgin Islands (USVI) Environmental Crimes Task Force: An Overview

To be prepared to deal with the DOJ’s Puerto Rico and U.S. Virgin Islands (USVI) Environmental Crimes Task Force, companies and individuals doing business on the islands need to have a clear understanding of the task force’s composition and law enforcement priorities. Here is an overview of what we know so far:

Federal Agencies with Personnel on the DOJ’s Task Force

While the Puerto Rico and U.S. Virgin Islands (USVI) Environmental Crimes Task Force falls under the DOJ’s law enforcement umbrella, it includes personnel from several federal agencies. Each of these agencies is likely to have its own set of enforcement priorities—setting the stage for wide-ranging investigations in Puerto Rico and the USVI.

As identified by the DOJ, the federal agencies with personnel on the Puerto Rico and U.S. Virgin Islands (USVI) Environmental Crimes Task Force include:

  • Army Criminal Investigation Division (Army CID)
  • Army Corps of Engineers
  • Department of Agriculture Office of Inspector General (DOA OIG)
  • Department of Commerce Office of Inspector General (DOC OIG)
  • Department of Homeland Security Homeland Security Investigations (DHS HSI)
  • Department of Transportation Office of Inspector General (DOT OIG)
  • Environmental Protection Agency Criminal Investigation Division (EPA CID)
  • Environmental Protection Agency Office of Inspector General (EPA OIG)
  • Federal Bureau of Investigation (FBI)
  • Food and Drug Administration Office of Criminal Investigations (FDA OCI)
  • Housing and Urban Development Office of Inspector General (HUD OIG)
  • IRS Criminal Investigation (IRS CI)
  • National Oceanic and Atmospheric Administration Office of Law Enforcement (NOAA OLE)
  • U.S. Coast Guard – Sector San Juan (USCG San Juan)
  • U.S. Coast Guard Investigative Service (USCG IS)
  • U.S. Fish and Wildlife Service (FWS)

The DOJ’s press release announcing the formation of the task force also notes that its personnel will work closely with local authorities on both islands. This includes the Puerto Rico Department of Natural Resources, Puerto Rico Department of Justice, U.S. Virgin Islands Department of Planning and Natural Resources, and U.S. Virgin Islands Attorney General’s Office.

The Task Force’s Enforcement Priorities in Puerto Rico and the USVI

The DOJ’s press release also identifies several areas of enforcement that are priorities for the Puerto Rico and U.S. Virgin Islands (USVI) Environmental Crimes Task Force. As of the date of its launch, the task force’s priorities will include:

  • Air and water quality violations involving agriculture, construction, transportation, and other industries
  • Fraud, waste, and abuse affecting government programs (including, but not limited to, EPA programs)
  • Harm to wetlands, navigable waters, and wildlife (including harm caused by pesticide misuse)
  • Hazardous material spills and transportation violations
  • Marine environmental violations and harm to federal marine resources
  • Public corruption involving environmental compliance and risks
  • Violations involving medications, foods, cosmetics, and other biological products
  • Violations involving workplace and housing conditions affecting residents working in the islands’ protected environments

As you can see, not all of these violations are strictly related to environmental compliance. This reflects the task force’s composition as well as the DOJ’s general disposition to investigate and prosecute all crimes, regardless of the impetus for a particular inquiry. Environmental crime investigations in Puerto Rico and the USVI will present risks for conspiracy, money laundering, tax evasion, wire fraud, and other federal criminal charges as well—and targeted companies and individuals could potentially face these charges even if they are ultimately cleared of any alleged environmental law violations.

Oberheiden P.C. © 2023
For more Environmental Law news, click here to visit the National Law Review.

European Commission Aims to Tackle Greenwashing in Latest Proposal

On March 22, the European Commission unveiled a proposal, the Green Claims Directive (Proposal), aimed at combating greenwashing and misleading environmental claims. By virtue of the Proposal, the EC is attempting to implement measures designed to provide “reliable, comparable and verifiable information” to consumers, with the overall high-level goal to create a level playing field in the EU, wherein companies that make a genuine effort to improve their environmental sustainability can be easily recognized and rewarded by consumers. The Proposal follows a 2020 sweep that found nearly half of environmental claims examined in the EU may be false or deceptive. Following the ordinary legislative procedure, the Proposal will now be subject to the approval of the European Parliament and the Council. There is no set date for entry into force at this time.

The Proposal complements a March 2022 proposal to amend the Consumer Rights Directive to provide consumers with information on products’ durability and repairability, as well as to amend the Unfair Commercial Practices Directive by, among other things, banning “generic, vague environmental claims” and “displaying a voluntary sustainability label which was not based on a third-party verification scheme or established by public authorities.” The Proposal builds on these measures to provide “more specific requirements on unregulated claims, be it for specific product groups, specific sectors or for specific environmental impacts or aspects.” It would require companies that make “green claims to respect minimum standards on how they substantiate and communicate those claims.” Businesses based outside the EU that make environmental claims directed at EU consumers will also have to respect the requirements set out in the Proposal. The criteria target explicit claims, such as “T-shirt made of recycled plastic bottles” and “packaging made of 30% recycled plastic.”

Pursuant to Article 3 of the Proposal, “environmental claims shall be based on an assessment that meets the selected minimum criteria to prevent claims from being misleading,” including, among other things, that the claim “relies on recognised scientific evidence and state of the art technical knowledge,” considers “all significant aspects and impacts to assess the performance,” demonstrates whether the claim is accurate for the whole product or only parts of it, provides information on whether the product performs better than “common practice,” identifies any negative impacts resulting from positive product achievements, and reports greenhouse gas offsets.

Article 4 of the Proposal outlines requirements for comparative claims related to environmental impacts, including disclosure of equivalent data for assessments, use of consistent assumptions for comparisons and use of data sourced in an equivalent manner. The level of substantiation needed will vary based on the type of claim, but all assessments should consider the product’s life-cycle to identify relevant impacts.

Pursuant to Article 10, all environmental claims and labels must be verified and certified by a third-party verifier before being used in commercial communications. An officially accredited body will carry out the verification process and issue a certificate of conformity, which will be recognized across the EU and shared among Member States via the Internal Market Information System. The verifier is required to be an officially accredited, independent body with the necessary expertise, equipment, and infrastructure to carry out the verifications and maintain professional secrecy.

The Proposal is part of a broader trend of governmental regulators, self-regulatory organizations, and standard setters across industries adopting a more formalized approach toward greenwashing. For example, as we recently reported, the UK’s Advertising Standards Authority (ASA) published rules on making carbon neutral and net-zero claims. Instances of enforcement actions over greenwashing allegations have also been on the rise. The Securities and Exchange Board of India recently launched a consultation paper seeking public comment on rules to prevent greenwashing by ESG investment funds, and the European Council and the European Parliament reached an agreement regarding European Green Bonds Standards aimed at, among other things, avoiding greenwashing.

Article By Sukhvir Basran and Rachel Rodman of Cadwalader, Wickersham & Taft LLP

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© Copyright 2023 Cadwalader, Wickersham & Taft LLP

The EU’s New Green Claims Directive – It’s Not Easy Being Green

Highlights

  • On March 22, 2023, the European Commission proposed the Green Claims Directive, which is intended to make green claims reliable, comparable and verifiable across the EU and protect consumers from greenwashing
  • Adding to the momentum generated by other EU green initiatives, this directive could be the catalyst that also spurs the U.S. to approve stronger regulatory enforcement mechanisms to crackdown on greenwashing
  • This proposed directive overlaps the FTC’s request for comments on its Green Guides, including whether the agency should initiate a rulemaking to establish enforceable requirements related to unfair and deceptive environmental claims. The deadline for comments has been extended to April 24, 2023

The European Commission (EC) proposed the Green Claims Directive (GCD) on March 22, 2023, to crack down on greenwashing and prevent businesses from misleading customers about the environmental characteristics of their products and services. This action was in response, at least in part, to a 2020 commission study that found more than 50 percent of green labels made environmental claims that were “vague, misleading or unfounded,” and 40 percent of these claims were “unsubstantiated.”

 

This definitive action by the European Union (EU) comes at a time when the U.S. is also considering options to curb greenwashing and could inspire the U.S. to implement stronger regulatory enforcement mechanisms, including promulgation of new enforceable rules by the Federal Trade Commission (FTC) defining and prohibiting unfair and deceptive environmental claims.

According to the EC, under this proposal, consumers “will have more clarity, stronger reassurance that when something is sold as green, it actually is green, and better quality information to choose environment-friendly products and services.”

Scope of the Green Claims Directive

The EC’s objectives in the proposed GCD are to:

  • Make green claims reliable, comparable and verifiable across the EU
  • Protect consumers from greenwashing
  • Contribute to creating a circular and green EU economy by enabling consumers to make informed purchasing decisions
  • Help establish a level playing field when it comes to environmental performance of products

The related proposal for a directive on empowering consumers for the green transition and annex, referenced in the proposed GCD, defines the green claims to be regulated as follows:

“any message or representation, which is not mandatory under Union law or national law, including text, pictorial, graphic or symbolic representation, in any form, including labels, brand names, company names or product names, in the context of a commercial communication, which states or implies that a product or trader has a positive or no impact on the environment or is less damaging to the environment than other products or traders, respectively, or has improved their impact over time.”

The GCD provides minimum requirements for valid, comparable and verifiable information about the environmental impacts of products that make green claims. The proposal sets clear criteria for companies to prove their environmental claims: “As part of the scientific analysis, companies will identify the environmental impacts that are actually relevant to their product, as well as identifying any possible trade-offs to give a full and accurate picture.” Businesses will be required to provide consumers information on the green claim, either with the product or online. The new rule will require verification by independent auditors before claims can be made and put on the market.

The GCD will also regulate environmental labels. The GCD is proposing to establish standard criteria for the more than 230 voluntary sustainability labels used across the EU, which are currently “subject to different levels of robustness, supervision and transparency.” The GCD will require environmental labels to be reliable, transparent, independently verified and regularly reviewed. Under the new proposal, adding an environmental label on products is still voluntary. The EU’s official EU Ecolabel is exempt from the new rules since it already adheres to a third-party verification standard.

Companies based outside the EU that make green claims or utilize environmental labels that target the consumers of the 27 member states also would be required to comply with the GCD. It will be up to member states to set up the substantiation process for products and labels’ green claims using independent and accredited auditors. The GCD has established the following process criteria:

  • Claims must be substantiated with scientific evidence that is widely recognised, identifying the relevant environmental impacts and any trade-offs between them
  • If products or organisations are compared with other products and organisations, these comparisons must be fair and based on equivalent information and data
  • Claims or labels that use aggregate scoring of the product’s overall environmental impact on, for example, biodiversity, climate, water consumption, soil, etc., shall not be permitted, unless set in EU rules
  • Environmental labelling schemes should be solid and reliable, and their proliferation must be controlled. EU level schemes should be encouraged, new public schemes, unless developed at EU level, will not be allowed, and new private schemes are only allowed if they can show higher environmental ambition than existing ones and get a pre-approval
  • Environmental labels must be transparent, verified by a third party, and regularly reviewed

Enforcement of the GCD will take place at the member state level, subject to the proviso in the GCD that “penalties must be ‘effective, proportionate and dissuasive.’” Penalties for violation range from fines to confiscation of revenues and temporary exclusion from public procurement processes and public funding. The directive requires that consumers should be able to bring an action as well.

The EC’s intent is for the GCD to work with the Directive on Empowering the Consumers for the Green Transition, which encourages sustainable consumption by providing understandable information about the environmental impact of products, and identifying the types of claims that are deemed unfair commercial practices. Together these new rules are intended to provide a clear regime for environmental claims and labels. According to the EC, the adoption of this proposed legislation will not only protect consumers and the environment but also give a competitive edge to companies committed to increasing their environmental sustainability.

Initial Public Reaction to the GCD and Next Steps

While some organizations, such as the International Chamber of Commerce, offered support, several interest groups quickly issued public critiques of the proposed GCD. The Sustainable Apparel Coalition asserted that: “The Directive does not mandate a standardized and clearly defined framework based on scientific foundations and fails to provide the legal certainty for companies and clarity to consumers.”

ECOS lamented that “After months of intense lobbying, what could have been legislation contributing to providing reliable environmental information to consumers was substantially watered down,” and added that “In order for claims to be robust and comparable, harmonised methodologies at the EU level will be crucial.” Carbon Market Watch was disappointed that “The draft directive fails to outlaw vague and disingenuous terms like ‘carbon neutrality’, which are a favoured marketing strategy for companies seeking to give their image a green makeover while continuing to pollute with impunity.”

The EC’s proposal will now go to the European Parliament and Council for consideration. This process usually takes about 18 months, during which there will be a public consultation process that will solicit comments, and amendments may be introduced. If the GCD is approved, each of the 27 member states will have 18 months after entry of the GCD to adopt national laws, and those laws will become effective six months after that. As a result, there is a reasonably good prospect that there will be variants in the final laws enacted.

Will the GCD Influence the U.S.’s Approach to Regulation of Greenwashing?

The timing and scope of the GCD is of no small interest in the U.S., where regulation of greenwashing has been ramping up as well. In May 2022, the Securities and Exchange Commission (SEC) issued the proposed Names Rule and ESG Disclosure Rule targeting greenwashing in the naming and purpose of claimed ESG funds. The SEC is expected to take final action on the Names Rule in April 2023.

Additionally, as part of a review process that occurs every 10 years, the FTC is receiving comments on its Green Guides for the Use of Environmental Claims, which also target greenwashing. However, the Green Guides are just that – guides that do not currently have the force of law that are used to help interpret what is “unfair and deceptive.”

It is particularly noteworthy that the FTC has asked the public to comment, for the first time, on whether the agency should initiate a rulemaking under the FTC Act to establish independently enforceable requirements related to unfair and deceptive environmental claims. If the FTC promulgates such a rule, it will have new enforcement authority to impose substantial penalties.

The deadline for comments on the Green Guides was recently extended to April 24, 2023. It is anticipated that there will be a substantial number of comments and it will take some time for the FTC to digest them. It will be interesting to watch the process unfold as the GCD moves toward finalization and the FTC decides whether to commence rulemaking in connection with its Green Guide updates. Once again there is a reasonable prospect that the European initiatives and momentum on green matters, including the GCD, could be a catalyst for the US to step up as well – in this case to implement stronger regulatory enforcement mechanisms to crackdown on greenwashing.

Article By Bruce White of Barnes & Thornburg LLP

For more environmental legal news, click here to visit the National Law Review.

© 2023 BARNES & THORNBURG LLP

Sexual Harassment Prevention Training Deadline Approaches for Chicago Employers

As a reminder to employers in Chicago, anti-sexual harassment training is required by Chicago’s Human Rights Ordinance and must be completed by July 1, 2023.  This requirement applies to all Chicago employers, regardless of size or industry.

The training consists of one (1) hour of anti-sexual harassment training for all non-supervisory employees and two (2) hours of anti-sexual harassment training for supervisory employees.  Regardless of supervisory status, all employees must also undergo one (1) hour of bystander training.  Employers must provide training on an annual basis.  Additional information about training requirements can be found here. Employers who fail to comply may be subject to penalties.

Article By Audrey H. Shinn of Vedder Price

© 2023 Vedder Price

Health Care Immigration: Alleviating the U.S. Nursing Shortage

The nursing shortage has been a persistent problem in the United States for decades, with experts predicting it will only worsen in the coming years. Many factors contribute to the nursing shortage, including an aging population, the retirement of experienced nurses, and an increasing demand for healthcare services. One potential solution to the shortage is immigration law, which can help bring in qualified nurses from other countries to work in the United States.

The nursing shortage is a complex issue that affects the entire healthcare system. Nurses play a crucial role in providing high-quality care to patients, and their absence can have serious consequences for patient outcomes. According to McKinsey, the United States may have a gap of between 200,000 to 450,000 nurses available for direct patient care by 2025. This shortage is not limited to registered nurses; there is also a shortage of licensed practical nurses, nurse practitioners, and other healthcare professionals.

One way to address the nursing shortage is to attract qualified nurses from other countries. The United States has a long history of welcoming immigrants from all over the world, including healthcare professionals.

Employment Immigration Sponsorship to Meet U.S. Nursing Demands

Several immigration options are available for nurses who wish to work in the United States. The most common options are the H-1B visa, the TN visa, and the EB-3 visa:

  • The H-1B visa is a non-immigrant visa that allows employers to temporarily hire foreign workers in specialty occupations. Registered nurses qualify as workers in a specialty occupation, so they are eligible. The H-1B visa is valid for up to three years and can be extended for an additional three years. However, there is a cap on the number of H-1B visas issued each year and the competition for these visas is often high.
  • The TN visa is a non-immigrant visa available to Canadian and Mexican citizens under the North American Free Trade Agreement (NAFTA). Nurses who are citizens of Canada or Mexico and have the necessary qualifications can apply for the TN visa to work in the United States. The visa is valid for up to three years and can be renewed indefinitely.
  • The EB-3 visa is an immigrant visa available to foreign workers in skilled or unskilled positions. Nurses qualify as skilled workers and can apply for the EB-3 visa. The visa requires an employer to sponsor the nurse, who must have a permanent job offer in the United States. The EB-3 visa is subject to a lengthy application process and may take several years to obtain.

In addition to these options, certain state-specific programs allow foreign nurses to work in those states. For example, the Health Professional Shortage Area (HPSA) program allows foreign nurses to work in areas with a shortage of healthcare professionals. The Conrad State 30 program allows foreign nurses to work in certain states for up to three years if they agree to work in underserved areas.

It is important to note that each immigration option has its own set of requirements and limitations. Nurses who are interested in working in the United States and health care providers seeking foreign talent must consult with an experienced immigration attorney to determine the best option for their specific situation.

Overall, immigration law provides options for foreign nurses who wish to work in the United States. As they take advantage of these options, the nursing shortage in the United States can be alleviated, and patients can receive the high-quality care they need and deserve.

Immigration Policy Updates are Critical to Close the Nursing Shortage Gap

While there exist many employment immigration visas that help alleviate the pressure of the ongoing nursing shortage on the health care industry, immigration laws, regulations, and administrative policies can make it difficult for foreign nurses to work in the United States. Strategic updates to these laws, regulations, and administrative policies are critical to permit foreign nurses to enter the nursing labor market.

One change is to streamline the visa process for foreign nurses. Currently, the process of obtaining a visa to work in the United States can be time-consuming and complicated. Many foreign nurses face significant barriers such as language proficiency exams, educational requirements, and visa quotas. By simplifying the visa process and reducing these barriers, the United States could recruit more foreign nurses to work here.

Another change is to provide incentives for foreign nurses to come to the United States. For example, the government could offer financial assistance to help them cover the cost of their relocation and provide support services to help them adjust to their new home. Additionally, employers could offer signing bonuses, tuition reimbursement, and other benefits to attract foreign nurses.

Finally, immigration agencies can develop partnerships with other countries to increase the number of nurses trained abroad. Many countries, particularly developing nations, have large numbers of qualified nurses who are unable to find work in their home countries. By partnering with these countries, the United States could help train more nurses and provide them with opportunities to work in the United States.

The nursing shortage is a serious problem that requires innovative solutions. Immigration law already plays a crucial role in addressing the shortage. This role, however, can grow through streamlining the visa process, providing incentives for foreign nurses to come to the United States, and creating partnerships with other countries.

Article By Raymond G. Lahoud of Norris McLaughlin P.A.

For more immigration legal news, click here to visit the National Law Review.

©2023 Norris McLaughlin P.A., All Rights Reserved

H2 Production: A Shift Towards Electrolysis

Hydrogen production technology, according to the joint EPO-IEA report summarizing patent trends in the hydrogen economy (summarized here), accounts for the largest percentage of patenting activity since 2011 among the three primary stages of the hydrogen value chain (i.e., (i) production, (ii) storage, distribution, and transformation, and (iii) end-use industrial applications). Trends show a shift in hydrogen production from carbon-intensive methods to technologies that do not rely on fossil fuels. The bulk of recent increased patent activity is directed to electrolysis development, while patent activity related to production from biomass and waste has decreased.

Electrolysis

Electrolysis is attractive because it’s a low-emission source, meaning that hydrogen produced through electrolysis creates little to no greenhouse gas emissions. It is possible that water electrolyzers are powered by electricity derived from natural gas or fossil fuels, but unlike most other hydrogen production technology, electrolyzers do not produce greenhouse gas emissions and thereby offer the ability to produce hydrogen with net zero carbon emissions.

In this article, we will first briefly explain electrolysis and conventional concepts using electrolysis. Then, we will give an example of a technology that recently emerged from conventional electrolysis-based solutions. We will close with a brief description of alternative technologies for hydrogen production.

State of the Art

Electrolyzers use electricity to split water into hydrogen and oxygen. Specifically, an electrolyzer cell includes an anode and a cathode separated by a polymer electrolyte membrane. Water reacts at the anode to form oxygen and positively charged hydrogen ions. The hydrogen ions selectively move across the membrane to the cathode, where they combine with electrons from an external circuit to form hydrogen gas. A number of cells are assembled into a cell stack that efficiently produces hydrogen and oxygen. A standard electrolyzer stack includes membrane electrode assemblies, current collectors, and separator or bipolar plates.

Electrolyzers also range in size and type. Electrolyzer sizes range from small, appliance-size units to large-scale, central production facilities. Electrolyzer types include polymer electrolyte membrane (PEM) electrolyzers, alkaline electrolyzers, and solid oxide electrolyzers. Conventional electrolyzer stacks have capacities of 5 MW to 100 MW per stack, depending primarily on the membrane technology.

Emerging Technologies

EvolOh is a California-based startup planning to build the world’s largest hydrogen manufacturing plant in Massachusetts this year to manufacture its anion-exchange membrane (AEM) electrolyzers. The plant will be used for fabrication and assembly of the AEM electrolyzer stacks for producing green hydrogen1. These compact and high-power density electrolyzer stacks should allow for high-speed manufacturing using low-cost materials based on domestic supply chain and no precious metals. With anticipated power ratings of up to 5 MW for a single stack and 50 MW for a single module, EvolOH’s stacks are intended to be designed for large-scale facilities.

As disclosed in EvolOH’s IP, its electrolyzer stack features a bipolar plate assembly including a bipolar plate, a hydrogen seal, a water seal, and a fluid distribution frame. The fluid distribution frame serves multiple purposes within the electrolyzer stack, including containing a cathode flow field, distributing water flow from one water delivery window to a leading edge of the anode flow field, collecting water and oxygen flow from the anode flow field and distributing the flows to oxygen collection windows, and engaging and curing hydrogen seal between the frame and a bipolar plate adjacent to the cathode flow field and a water seal between the frame and a bipolar plate adjacent to the anode flow field.2 In contrast to conventional bipolar plates that include simple flow distribution channels, the bipolar plate assembly of the EvolOH electrolyzer stack is intended to provide for a scalable electrolysis cell that can be utilized in a variety of electrolyzer types.

Also as described in EvolOH’s IP, its electrolyzer stack includes a compression system having a lower wrap and an upper wrap connected at a joint to form a continuous vertical tension boundary around the cell stack and its end units while providing access to opposite lateral ends of the stack.3 Conventional electrolyzer stacks may apply a compressive load on the cell stack using end structural plates drawn together by tie rods and adjustable elements such as screws, nuts, and springs. Unlike the conventional tie rod compression, the compressive system of EvolOH’s electrolyzer stack is intended to maintain adequate compression on the stack over a range of temperatures taking into account thermal expansion and compression.

EvolOH is among many companies focused on the development of electrolyzer technology to scale-up hydrogen to reach a broader market. For example, Air Liquide and Siemens Energy recently teamed up to form a joint venture last year to produce large-scale hydrogen electrolyzers in Europe. Set to open in 2023, they intend to produce a large-scale electrolyzer with an intended capacity of 100 MW that may reduce costs per kW by 33% by 2030. The EPO-IEA study finds that Siemens is one of the leading applicants in electrolyzer patent families since 2011 and that Air Liquide is a top applicant in patent families directed to established hydrogen production technologies as well as hydrogen storage and distribution technologies.

Alternative Hydrogen Production Options

In addition to electrolysis, hydrogen can be produced from other methods such as biomass or waste via gasification or pyrolysis, recovery of by-product hydrogen from chlor-alkali electrolysis, and methane pyrolysis. Hydrogen can be produced from natural gas through methods such as steam reforming, which emits carbon dioxide in the process. Widespread natural gas infrastructure makes hydrogen production from natural gas appealing, and developments in carbon capture, utilization, and storage technology may make this option even more appealing.

In our next post on the EPO-IEA’s report, “Hydrogen Patents for a Clean Energy Future: A Global Trend Analysis of Innovation Along Hydrogen Value Chains,” we will dive into the second technology segment of the hydrogen value chain—hydrogen storage, distribution, and transformation.

Article By Jason A. Engel, Dr. Benjamin Fechner, and Clare Frederick of K&L Gates

For more energy and environment legal news, click here to visit the National Law Review.

Copyright 2023 K & L Gates

President Biden’s FY 2024 Budget Includes Additional Funding for TSCA and Funding to Address PFAS Pollution

On March 9, 2023, President Biden released his fiscal year (FY) 2024 budget. According to the U.S. Environmental Protection Agency’s (EPA) March 9, 2023, press release, the budget requests over $12 billion in discretionary budget authority for EPA in FY 2024, a $1.9 billion or 19 percent increase from the FY 2023 enacted level. Highlights of the FY 2024 budget include:

  • Ensuring Safety of Chemicals for People and the Environment: The budget provides an investment of $130 million, $49 million more than the 2023 enacted level, to build core capacity to implement the Toxic Substances Control Act (TSCA). Under TSCA, EPA has a responsibility to ensure the safety of chemicals in or entering commerce. According to EPA, in FY 2024, it “will focus on evaluating, assessing, and managing risks from exposure to new and existing industrial chemicals to advance human health protection in our communities.” EPA states that “[a]nother priority is to implement [the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA)] to ensure pesticides pose no unreasonable risks to human health and the environment.”
  • Tackling Per- and Polyfluoroalkyl Substances (PFAS) Pollution: The budget provides approximately $170 million to combat PFAS pollution. This request allows EPA to continue working toward commitments made under EPA’s 2021 PFAS Strategic Roadmap, including: increasing its knowledge of PFAS impacts on human health and ecological effects; restricting use to prevent PFAS from entering the air, land, and water; and remediating PFAS that have been released into the environment.

EPA states that it will release the full Congressional Justification and Budget in Brief materials “soon.”

Article By Lynn L. Bergeson and Carla N. Hutton of Bergeson & Campbell, P.C.

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©2023 Bergeson & Campbell, P.C.

The EPA and Army Corps’ “Waters of the U.S.” (WOTUS) Rule to Become Effective on March 20

In January of 2023, the federal Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (USACE) published in the Federal Register (see Federal Register/Vol. 88, No. 11, January 18, 2023) new rules that define which water bodies are classified under the Clean Water Act (CWA) as “waters of the U.S.” (WOTUS). While this may not appear to be significant, the adoption of these rules will have major implications for how federal agencies will identify the types of water bodies that are subject to jurisdiction under the CWA. The January 18th Federal Register publication provides that these new rules will become effective on March 20, 2023.

The CWA is the law that provides federal agencies the authority to prohibit or limit various activities that can impact WOTUS, such as the regulation of industrial and municipal wastewater discharges to navigable waters, the dredging or filling of wetlands, and the requirement to prepare “Stormwater Pollution Prevention Plans” (SWPPP) for industrial facilities. It also is the basis for much State law water regulation.

Applicability of the CWA

To be classified as a WOTUS, a water body must be considered to be “navigable,” but this term is more arcane than it might at first appear. Navigable waters as defined by the CWA includes, “waters of the United States,” and has been further defined by regulation to include those waters that “are subject to the ebb and flow of the tide and/or are presently used, or have been used in the past, or may be susceptible for use to transport interstate or foreign commerce.” This approach to navigability has led some states to adopt a “saw log test” as to whether the body of water could float a saw log for commercial purposes. In other states, such as Wisconsin, the test for navigability is whether the body of water can on a recurring basis – even if intermittent – support navigation by the smallest recreational craft, such as a canoe or kayak. Therefore, navigable waters not only can include larger lakes, rivers and streams, but can also include less obvious smaller water types such as wetlands adjacent to navigable waters, and even in some instances, ditches that hold water. While the CWA provides federal jurisdiction over WOTUS, the CWA does not actually define the term WOTUS; rather, it provides authority for EPA and the USACE to define WOTUS in regulations, which since the 1970s, the agencies at various times have done.

The Rapanos Decision and Competing Rationales

Further, the definition of what constitutes WOTUS has been reviewed in several U.S. Supreme Court cases, but the most significant case on this subject is the 2006 case of Rapanos v. United States, 547 U.S. 715 (2006), in which the Supreme Court interpreted the definition of WOTUS using two separate tests. In a four-justice plurality opinion written by Justice Scalia, WOTUS was defined as “only those relatively permanent, standing or continuously flowing bodies of water forming geographic features that are described in ordinary parlance as streams[,] … oceans, rivers, [and] lakes,” and “wetlands with a continuous surface connection” to a “relatively permanent body of water connected to traditional interstate navigable waters.” However, Justice Kennedy applied a different approach in a concurring opinion and stated that WOTUS must possess a “significant nexus” to waters that are or were navigable in fact or that could reasonably be so made.” He added that adjacent wetlands could possess a significant nexus if the wetlands “either alone or in combination with similarly situated lands in the region, significantly affect the chemical, physical, and biological integrity of other covered waters more readily understood as ‘navigable.'”

Regulatory Attempts to Define WOTUS Following Rapanos

Following Rapanos, the agencies have at various times developed guidance for implementing the WOTUS definition. For example, in 2015, under the Obama administration, the agencies amended their regulations defining WOTUS as part of the “Clean Water Rule, which expanded the definition of which water bodies were defined as WOTUS, and included the use of the “significant nexus” test. Again, in 2020, under the Trump administration, another rule was adopted, known as the “Navigable Waters Protection Rule” (NWPR), which limited the types of water bodies that were considered WOTUS under the previous 2015 Clean Water Rule. However, in 2021, in Pasqua Yaqui Tribe v. EPA, (Case No. 4:20-cv-00266), the U.S. District Court for the District of Arizona vacated implementation of the NWPR nationwide. The new rules published in the January 2023 Federal Register represents the Biden administration’s effort to rewrite the WOTUS rules following the vacation of the NWPR, allowing the agencies the ability to use both Justice Scalia’s “relatively permanent” test or Justice Kennedy’s “significant nexus” test in determining whether they have jurisdiction over water bodies.

WOTUS under the New Rule

Use of the “relatively permanent” test or the “significant nexus” test is apparent in the new rule’s definition of WOTUS. The 2023 rules identify the following waters as WOTUS:

  • Traditional navigable waters, the territorial seas, and interstate waters;
  • Impoundments of waters otherwise identified as WOTUS;
  • Tributaries of navigable waters, territorial seas, interstate waters, or impoundments if the tributaries meet the relatively permanent test or the significant nexus test;
  • “Adjacent wetlands,” which includes wetlands adjacent to navigable waters, wetlands adjacent to and with a continuous surface connection to relatively permanent impoundments, wetlands adjacent to tributaries that are relatively permanent, and wetlands adjacent to impoundments or tributaries which meet the significant nexus test; and
  • Intrastate lakes and ponds, streams, or wetlands not listed above which meet the relatively permanent test or the significant nexus test.

The 2023 rules specifically exclude the following from the WOTUS definition, though some activities may still be subject to Wisconsin rules:

  • Prior converted cropland;
  • Waste treatment systems;
  • Ditches (including roadside ditches) excavated wholly in and draining only dry land, and that do not carry a relatively permanent flow of water;
  • Artificially irrigated areas that would revert to dry land if the irrigation ceased.
  • Artificial lakes or ponds created by excavating or diking dry land, that are used exclusively for stock watering, irrigation, settling basins or rice growing;
  • Artificial reflecting pools or swimming pools, and other small ornamental water bodies created by excavating or diking;
  • Waterfilled depressions in dry land incidental to construction activity and pits excavated in dry land for obtaining fill, sand or gravel unless the construction is abandoned and the water body meets the definition of WOTUS; and
  • Swales and erosional features that are characterized by low volume, infrequent, or short duration flow.

Where is this Going?

While these new WOTUS rules become effective on March 20, 2023, the future of these new rules is in question as the U.S. Supreme Court is reviewing a case (Sackett v. EPA, 142 S. Ct. 896 (2022)) in which the legal sufficiency of the “significant nexus” test, in the context of wetland permitting, is under review. The Court’s opinion is expected to be issued after the 2023 rules becomes effective. Therefore, depending on the Court’s opinion related to the “significant nexus” test, it is possible that the 2023 rules may need to be revised. Further, in early March, a federal Congressional Committee (the House Transportation and Infrastructure Committee) approved a joint resolution to overturn the 2023 rules. In addition, several industry groups have filed suits to overturn the 2023 rules. These definitions have always been politically and scientifically contentious and we expect that to continue.

Due to the potential flux in which this new rule may ultimately be applied and considered, it will be increasingly important for the regulated public to keep abreast of which water bodies are ultimately determined to be classified as WOTUS, either by the agencies through regulation or guidance, by a U.S. Supreme Court decision in Sackett, and/or other legal or Congressional challenges. We will be tracking the implementation of this new rule by the agencies and related caselaw developments and Congressional challenges and will provide timely future Legal Updates. In the meantime, the extent of regulations of WOTUS – particularly wetlands – will continue to be very challenging.

Article By David P. Ruetz of von Briesen & Roper, s.c.

For more environmental legal news, click here to visit the National Law Review.

©2023 von Briesen & Roper, s.c

Silicon Valley Bank Fails After Run on Deposits

“The Federal Deposit Insurance Corporation took control of the bank’s assets on Friday. The failure raised concerns that other banks could face problems, too.”

Read the New York Times article (Free Subscription Required)

In light of the news this morning that Silicon Valley Bank (SVB) has been closed by the California Department of Financial Protection, which appointed the Federal Deposit Insurance Corporation as SVB’s receiver, it’s fair to ask if this is the beginning of a trend among regional banks or an isolated incident. SVB, while unique in the banking industry, since it would lend against illiquid (pre-IPO) securities, mainly issued by ventured-backed companies, faced challenges in a rising interest rate environment that are not unique and which, many similarly situated regional banks, are still facing.

As the Federal Reserve considers whether to raise interest rates by 0.25% or 0.5%, in order to combat inflation, a key factor in their analysis will be the impact these interest rate hikes have on regional banks and their portfolios. Regional banks, unlike their Fortune 100, multi-national counterparts, derive their value from vast portfolios of bonds, which are very sensitive to interest rate hikes (as interest rates rise, the value of these bonds fall). For instance, the S&P Regional Banks Select Industry Index is down 3.69% today, 19.92% month-to-date, and 13.02% year-to-date.

Therefore, in the coming days, it will be crucial to watch both the Federal Reserve’s Federal Open Market Committee meeting on March 21-22 and whether SVB’s collapse signals a contagion among the regional bank sector. SVB’s closure is the biggest bank collapse since the financial crisis and many start-up/early-stage companies will be very interested to see if it is the last or the first of many.

© 2023 ArentFox Schiff LLP

The Future of Stablecoins, Crypto Staking and Custody of Digital Assets

In the wake of the collapse of cryptocurrency exchange firm FTX, the Securities and Exchange Commission (SEC) has ratcheted up its oversight and enforcement of crypto firms engaged in activities ranging from crypto staking to custody of digital assets. This is due in part to concerns that the historically free-wheeling and largely unregulated crypto marketplace may adversely impact U.S. investors and contaminate traditional financial systems. The arguments that cryptocurrencies and digital assets should not be viewed as securities under federal laws largely fall on deaf ears at the SEC. Meanwhile, the state of the crypto economy in the United States remains in flux as the SEC, other regulators and politicians alike attempt to balance competing interests of innovation and investment in a relatively novel and untested asset class.

Is Crypto Staking Dead?

First, what is crypto staking? By way of background, it’s necessary to understand a bit about blockchain technology, which serves as the underpinning for all cryptocurrency and digital asset transactions. One of the perceived benefits of such transactions is that they are decentralized and “peer-to-peer” – meaning that Person A can transact directly with Person B without the need for a financial intermediary to approve the transaction.

However, in the absence of a central authority to validate a transaction, blockchain requires other verification processes or consensus mechanisms such as “proof of work” (which in the case of Bitcoin mining ensures that transactions are valid and added to the Bitcoin blockchain correctly) or “proof of stake” (a network of “validators” who contribute or “stake” their own crypto in exchange for a chance to validate a new transaction, update the blockchain and earn a reward). Proof of work has come under fire by environmental activists for the enormous amounts of computer power and energy required to solve complex mathematical or cryptographic puzzles to validate a transaction before it can be recorded on the blockchain. In contrast, proof of stake is analogous to a shareholder voting their shares of stock to approve a corporate transaction.

Second, why has crypto staking caught the attention of the SEC? Many crypto firms and exchanges offer “staking as a service” (SaaS) whereby investors can stake (or lend) their digital assets in exchange for lucrative returns. This practice is akin to a person depositing cash in a bank account in exchange for interest payments – minus FDIC insurance backing of all such bank deposits to protect investors.

Recently, on February 9, 2023, the SEC charged two crypto firms, commonly known as “Kraken,” for violating federal securities laws by offering a lucrative crypto asset SaaS program. Pursuant to this program, investors could stake their digital assets with Kraken in exchange for annual investment returns of up to 21 percent. According to the SEC, this program constituted the unregistered sale of securities in violation of federal securities laws. Moreover, the SEC claims that Kraken failed to adequately disclose the risks associated with its staking program. According to the SEC’s Enforcement Division director:

“Kraken not only offered investors outsized returns untethered to any economic realities but also retained the right to pay them no returns at all. All the while, it provided them zero insight into, among other things, its financial condition and whether it even had the means of paying the marketed returns in the first place.”1

Without admitting or denying the SEC’s allegations, Kraken has agreed to pay a $30 million civil penalty and will no longer offer crypto staking services to U.S. investors. Meanwhile, other crypto firms that offer similar programs, such as Binance and Coinbase, are waiting for the other shoe to drop – including the possibility that the SEC will ban all crypto staking programs for U.S. retail investors. Separate and apart from potentially extinguishing a lucrative revenue stream for crypto firms and investors alike, it may have broader consequences for proof of stake consensus mechanisms commonly used to validate blockchain transactions.

NY DFS Targets Stablecoins

In the world of cryptocurrency, stablecoins are typically considered the most secure and least volatile because they are often pegged 1:1 to some designated fiat (government-backed) currency such as U.S. dollars. In particular, all stablecoins issued by entities regulated by the New York Department of Financial Services (NY DFS) are required to be fully backed 1:1 by cash or cash equivalents. However, on February 13, 2023, NY DFS unexpectedly issued a consumer alert stating that it had ordered Paxos Trust Company (Paxos) to stop minting and issuing a stablecoin known as “BUSD.” BUSD is reportedly the third largest stablecoin by market cap and pegged to the U.S. dollar.

The reasoning behind the NY DFS order remains unclear from the alert, which merely states that “DFS has ordered Paxos to cease minting Paxos-issued BUSD as a result of several unresolved issues related to Paxos’ oversight of its relationship with Binance in regard to Paxos-issued BUSD.”2 The same day, Paxos confirmed that it would stop issuing BUSD. However, in an effort to assuage investors, Paxos stated “All BUSD tokens issued by Paxos Trust have and always will be backed 1:1 with U.S. dollar–denominated reserves, fully segregated and held in bankruptcy remote accounts.”3

Separately, the SEC reportedly issued a Wells Notice to Paxos on February 12, 2023, indicating that it intended to commence an enforcement action against the company for violating securities laws in connection with the sale of BUSD, which the SEC characterized as unregistered securities. Paxos, meanwhile, categorically denies that BUSD constitute securities, but nonetheless has agreed to stop issuing these tokens in light of the NY DFS order.

It remains to be seen whether the regulatory activity targeting BUSD is the beginning of a broader crackdown on stablecoins amid concerns that, contrary to popular belief, such coins may not be backed by adequate cash reserves.

Custody of Crypto Assets

On February 15, 2023, the SEC proposed changes to the existing “custody rule” under the Investment Advisers Act of 1940. As noted by SEC Chair Gary Gensler, the custody rule was designed to “help ensure that [investment] advisers don’t inappropriately use, lose, or abuse investors’ assets.”4 The proposed changes to the rule (referred to as the “safeguarding rule”) would require investment advisers to maintain client assets – specifically including crypto assets – in qualified custodial accounts. As the SEC observed, “[although] crypto assets are a relatively recent and emerging type of asset, this is not the first time custodians have had to adapt their practices to safeguard different types of assets.”5

A qualified custodian generally is a federal or state-chartered bank or savings association, certain trust companies, a registered broker-dealer, a registered futures commission merchant or certain foreign financial institutions.6 However, as noted by the SEC, many crypto assets trade on platforms that are not qualified custodians. Accordingly, “this practice would generally result in an adviser with custody of a crypto asset security being in violation of the current custody rule because custody of the crypto asset security would not be maintained by a qualified custodian from the time the crypto asset security was moved to the trading platform through the settlement of the trade.”7

Moreover, in a departure from existing practice, the proposed safeguarding rule would require an investment adviser to enter into a written agreement with the qualified custodian. This custodial agreement would set forth certain minimum protections for the safeguarding of customer assets, including crypto assets, such as:

  • Implementing appropriate measures to safeguard an advisory client’s assets8
  • Indemnifying an advisory client when its negligence, recklessness or willful misconduct results in that client’s loss9
  • Segregating an advisory client’s assets from its proprietary assets10
  • Keeping certain records relating to an advisory client’s assets
  • Providing an advisory client with periodic custodial account statements11
  • Evaluating the effectiveness of its internal controls related to its custodial practices.12

The new proposed, cumbersome requirements for custodians of crypto assets appear to be a direct consequence of the collapse of FTX, which resulted in the inexplicable “disappearance” of billions of dollars of customer funds. By tightening the screws on custodians and investment advisers, the SEC is seeking to protect the everyday retail investor by leveling the playing field in the complex and often murky world of crypto. However, it still remains to be seen whether, and to what extent, the proposed safeguarding rule will emerge after the public comment period, which will remain open for 60 days following publication of the proposal in the Federal Register.

1 SEC Press Release 2023-25 (Feb. 9, 2023).

2 NY DFS Consumer Alert (Feb. 13, 2023) found at https://www.dfs.ny.gov/consumers/alerts/Paxos_and_Binance.

3 Paxos Press Release (Feb. 13, 2023) found at https://paxos.com/2023/02/13/paxos-will-halt-minting-new-busd-tokens/.

4 SEC Press Release 2023-30 (Feb. 15, 2023).

5 SEC Proposed Rule, p. 79.

6 SEC Fact Sheet: Proposed Safeguarding Rule.

7 SEC Proposed Rule, p. 68.

8 For instance, per the SEC, this could require storing crypto assets in a “cold wallet.”

9 Per the SEC, “the proposed indemnification requirement would likely operate as a substantial expansion in the protections provided by qualified custodians to advisory clients, in particular because it would result in some custodians holding advisory client assets subject to a simple negligence standard rather than a gross negligence standard.” See SEC Proposed Rule, p. 89.

10 Per the SEC, this requirement is intended to “ensure that client assets are at all times readily identifiable as client property and remain available to the client even if the qualified custodian becomes financially insolvent or if the financial institution’s creditors assert a lien against the qualified custodian’s proprietary assets (or liabilities).” See SEC Proposed Rule, p. 92.

11 Per the SEC, “[in] a change from the current custody rule, the qualified custodian would also now be required to send account statements, at least quarterly, to the investment adviser, which would allow the adviser to more easily perform account reconciliations.” See SEC Proposed Rule, p. 98.

12 Per the SEC, the proposed rule would require that the “qualified custodian, at least annually, will obtain, and provide to the investment adviser a written internal control report that includes an opinion of an independent public accountant as to whether controls have been placed in operation as of a specific date, are suitably designed, and are operating effectively to meet control objectives relating to custodial services (including the safeguarding of the client assets held by that qualified custodian during the year).” See SEC Proposed Rule, p. 101.

Article By Anjali C. Das of Wilson Elser Moskowitz Edelman & Dicker LLP

For more cryptocurrency and finance legal news, click here to visit the National Law Review.

© 2023 Wilson Elser