Category: Environmental Law

The Carbon Tax Checklist

Many stakeholders have called for the United States to adopt a carbon tax. Such a tax could raise billions of dollars in annual revenue while simultaneously reducing greenhouse gas emissions. Several carbon tax proposals were introduced in the last Congress (2019-2020 term), and it is likely that several more will be introduced in the new Congress. Several conservative economists have endorsed the idea, as has Janet Yellen, President Biden’s Secretary of the Treasury. But the details of a carbon tax matter—for revenue generation, emissions reductions and fairness. Because Congress is likely to consider several competing carbon tax proposals this year, this article provides a way to compare proposals with a checklist of 10 questions to ask about any specific legislative carbon tax proposal, to help understand that proposal’s design and implications.

1. What form does the tax take: Is it an emissions tax, a fuel tax or a production tax?

The point of a carbon tax is to reduce greenhouse gas emissions by imposing a price on those emissions. But there is more than one way to impose that price. Critically, the range of options depends, to a very large degree, on the type of greenhouse gas the tax is trying to address.

The most ubiquitous greenhouse gas is carbon dioxide (CO2) and the largest source of CO2 emissions is the combustion of fossil fuels. Those emissions can be addressed by imposing a fee on each individual emission source or by taxing the carbon content of the fuel—because carbon content is a reliable predictor of CO2 emissions across different combustion circumstances. Most carbon tax proposals are fuel tax proposals; they impose a tax on fuel sales, corresponding to the amount of CO2 that will be emitted when the fuel is burned.

For CO2 emissions, the fuel tax approach has one significant advantage over the emissions fee approach. The fuel tax can be imposed “upstream,” rather than “downstream,” thereby reducing the total number of taxpayers and the overall administrative burdens associated with collecting the tax. A tax imposed on petroleum products as they leave the refinery, for example, is a way to address CO2 emissions from motor vehicles without the need to tax every individual owner of a gasoline-powered car. Most CO2-related carbon tax proposals work that way—they are upstream fuel taxes rather than downstream emissions taxes.

But not all greenhouse gas emissions can be addressed through a fuel tax, because not all greenhouse gas emissions come from fossil fuel combustion. Methane, for example, is released in significant quantities from cows, coal mines and natural gas production systems. A carbon tax directed at those emissions is likely to take the form of an emissions fee imposed on the owner or operator of the emission source. Many carbon tax proposals, however, simply ignore methane emissions or expressly exempt agricultural sources.

Fluorinated gases are yet another type of greenhouse. If they are subjected to a carbon tax, that tax is likely to take the form of a production tax, which would be imposed at the point of production and/or importation into the United States. (Fluorinated gases are used in a variety of refrigerant and cooling applications and contribute to global warming when they leak out of those applications). However, the prospect of such a tax is less likely now because Congress recently adopted legislation imposing a phase-down of domestic hydrofluorocarbon gas production over the next 15 years.

2. Which greenhouse gases are covered? Which sources (if any) are exempt?

The answer to this question dictates, to a large degree, which particular form a carbon tax takes. Legislative proposals that address more than one type of greenhouse gas will very likely include more than one type of tax mechanism. Just as important, the range of greenhouse gases covered by a proposal is relevant to evaluating the proposal’s environmental and economic impacts. A carbon tax that addresses only CO2 emissions from fossil fuel combustion will cover the largest segment of US greenhouse gas emissions but will still omit several other significant greenhouse gas sources. Sources omitted from a federal carbon tax may become targets for other types of regulation.

3. Who pays the tax?

Most carbon tax proposals address CO2 emissions through an upstream fuel tax—a tax that is based on the carbon content of the fuel and that is imposed at the refinery (for petroleum products), the coal mine (for coal) and the compressor station (for natural gas). But that still leaves the question of who pays the tax. Some carbon tax proposals dictate exactly who pays. They specify, for example, that the taxable event is the delivery of crude oil to the refinery and that the taxpayer is the refinery operator. Other proposals specify only the taxable event (such as the first sale of natural gas extracted from a well) without saying which person or entity (the seller or buyer) is responsible for paying the tax. If Congress enacts a carbon tax that specifies the taxable event but not the taxpayer, it will likely fall to the Treasury Department to make that decision, through rulemaking.

4. How much is the tax, how is it set and how does it change over time?

One potential approach is to link the tax rate to the “social cost of carbon,” a dollar figure intended to express the harm associated with emitting one ton of CO2.** But the more fundamental question to ask of any carbon tax proposal is whether the tax rate (or “carbon fee,” as some proposals call it) is linked to any specific environmental goals or metrics. Many proposals set an initial tax rate (such as $50 per ton of CO2 emitted) and increase that rate every year until a specific level of emissions reduction has been achieved (such as a 90% reduction in domestic CO2 emissions compared to 2005 levels). Other proposals base the yearly tax increases (or decreases) on inflation or other economic measures, rather than environmental measures.

**The Obama administration published social cost of carbon (SCC) figures. The Trump administration did not and actually disbanded the interagency task force that had previously been charged with developing the SCC. The Biden administration has re-established that task force and directed it to publish new SCC figures by no later than January 2022.

5. How is the revenue used?

A carbon tax could raise billions of dollars for the federal government every year. In 2018, fossil fuel combustion in the United States produced more than five billion metric tons of CO2 emissions. A carbon tax of $50 per ton would have raised $250 billion that year, assuming emissions held steady (although the point of a carbon tax is to drive emissions down). What should the government do with the money?

Many commentators have argued for a “carbon dividend”—that is, that the revenue should be returned to American citizens in the form of a quarterly or annual rebate. (The Climate Leadership Council, of which Janet Yellen was a founding member, has called for such an approach.) Congress will not necessarily take that approach. Some alternatives for the revenue include: using it to reduce income taxes, spending it on social justice initiatives of various kinds and funding career transition services for oil and gas industry workers. Another approach is to use the revenue to fund green infrastructure, such as electric vehicle charging stations along interstate highways. Some proposals call for a combination of these approaches.

6. Does the tax include a border adjustment?

One concern frequently raised about a carbon tax is that unless other countries also impose a tax, certain domestic manufacturing activities may move overseas to areas without a tax, reducing domestic US employment without reducing overall global emissions. A border adjustment is one way to address that concern.

A border adjustment would apply a carbon tariff to imported goods and, very likely, exempt exported goods from the US carbon tax (i.e., by providing a tax credit or refund to exporters). Most, if not all, carbon tax proposals introduced in Congress to date have included some form of border adjustment. The details of the border adjustment can be critical, with the export provisions posing a particularly tricky set of issues. Exempting exports may protect US competitiveness but it also means that some emissions are not taxed, thereby undermining the tax’s environmental goals. Exempting exports also requires a mechanism for refunding, or crediting, exporters.

7. Does the tax modify or replace existing carbon-related tax credits?

Section 45Q of the US tax code currently provides a substantial tax credit for qualifying carbon capture and sequestration activities. The tax code also includes tax incentives for investing in solar energy, producing wind energy and blending biodiesel into diesel fuel. An important question for any legislative carbon tax proposal is whether it adjusts, modifies, expands or repeals any of those other carbon-related tax provisions.

8. Does the tax replace or preempt existing greenhouse gas regulations?

If domestic greenhouse gas emissions are addressed through a carbon tax, it may not be necessary to regulate those emissions under the federal Clean Air Act and other statutory programs. Indeed, the Climate Leadership Council, a leading proponent of enacting a carbon tax, has expressly called for the tax to replace federal regulation of CO2 emissions (albeit while retaining the Clean Air Act’s greenhouse gas reporting rule). A critical question for any legislative carbon tax proposal is whether it addresses other federal regulatory programs or is silent about those programs, leaving debate over their fate for another day. A closely related question is whether the proposal addresses state regulatory programs. Some of those programs, such as California’s cap-and-trade program and the northeast’s Regional Greenhouse Gas Initiative, have reduced emissions substantially while raising billions of dollars for renewable energy and energy efficiency programs. A federal proposal that preempted those programs might encounter substantial opposition from state officials and other stakeholders.

9. How transparent is the legislative language?

There is a robust academic (and advocacy) literature about carbon taxes. But that does not mean that any specific federal legislative proposal is well designed, easy to understand or easy to implement. An important question to ask of any legislative carbon tax proposal is whether the specific language is clear enough to be implemented efficiently and effectively. Is it clear what gets taxed? Is it clear who actually pays the tax and files the tax forms? Is it clear how the tax rate is set and how that rate relates to emission reduction goals? Is it clear whether any emission sources are exempt? Is it clear to what extent other carbon-related tax provisions and regulatory programs are impacted? Is it clear how the tax will work based on the legislative language alone, or will it be necessary for the Treasury Department to issue regulations or guidance explaining the legislation? If regulations are required, will those regulations be implemented by the Treasury Department alone, or will the Department of Energy and/or the Environmental Protection Agency also be involved?

10. What does the modeling show?

Finally, what impact will the tax actually have on greenhouse gas emissions and the economy? This is not so much a question to ask of the legislative language but of the modeling that will almost certainly accompany it—modeling done by the Congressional Research Service, the Treasury Department, other federal agencies and/or the proposal’s advocates and opponents.

© 2020 McDermott Will & Emery

ARTICLE BY Jacob Hollinger, Heather Cooper and
Carl J. Fleming of McDermott Will & Emery
For more, visit the NLR Environmental, Energy & Resources section.

Snowy Owls and Constituted Authorities

On January 27, 2021, a snowy owl was seen in New York City’s Central Park for the first time in 130 years.  Nine days later, on February 5, 2021, something almost as rare occurred – the Internal Revenue Service released a private letter ruling dealing with Section 103 of the Internal Revenue Code.[1]  In PLR 202105007, the IRS determined that a nonprofit corporation that amended its articles of incorporation to change its purposes and come under the control of a city became a “constituted authority,” within the meaning of Treas. Reg. 1.103-1(b), of the city that could issue tax-exempt bonds on behalf of the city.

The coincidence of these infrequent events involving ornithology and quasi-governmental entities calls to mind the field guide Johnny Hutchinson prepared on the tax classifications of various species of the latter, which was an homage to Roger Tory Peterson’s Field Guide to Birds, a seminal work in the canon of the former.  February is a good time to brush up on both.      

[1] of 1986, as amended.

© Copyright 2020 Squire Patton Boggs (US) LLP

ARTICLE BY Michael A. Cullers of Squire Patton Boggs (US) LLP
For more, visit the NLR Tax section.

Legal Ramifications of Flouting Mask Rules by Members of Congress

During the invasion of Congress on January 6, 2021, members of Congress were forced to take shelter for a few hours with a large group of their colleagues. Several Democratic members of Congress—Reps. Bonnie Watson Coleman (N.J.), Pramila Jayapal (Wash.), and Brad Schneider (Ill.)—have revealed that they have tested positive for COVID-19 after sheltering with colleagues who refused to wear masks. There have been rules in place since July 2020 that require masks in House office buildings and on the floor of the House, but those rules have not been consistently enforced. A number of House Republicans did not wear masks during the emergency sheltering and refused to accept masks offered by Rep. Lisa Blunt Rochester (Del.). House leadership has committed to enforce the rules more stringently going forward and impose fines starting at $500 on members who do not wear masks on the House floor. Democratic Representatives Debbie Dingell (Mich.) and Anthony Brown (Md.) have introduced legislation that would go farther, imposing fines of $1,000 per day on House members who do not wear masks on the Capitol grounds.

But do representatives who have contracted COVID-19 have any legal remedy for holding the House or other individual House members liable for their having contracted the virus?

First, it is important to note that no one can say with certainty when, where, or how they contracted the virus. Representative Schneider has acknowledged directly that he does not know that he contracted the virus during the insurrection, but that his exposure during the shelter in place was the greatest exposure he has experienced during the pandemic. He surmises that the fact that three people (thus far) have tested positive points to the forced sequestering with unmasked colleagues as the probable source of infection. There has been no reporting on whether the Republican members who refused to wear masks have tested positive for the virus, making the proof of the source of the infection more challenging.

Second, even assuming the newly infected Representatives could establish they contracted the virus from unmasked colleagues on January 6, their legal remedies are extremely limited. While employees in the private sector could complain to the Occupational Safety and Health Administration (OSHA) about unsafe working conditions, the Occupational Safety and Health Act (29 U.S.C.§ 654) does not apply directly to the U.S. Congress. Under the Congressional Accountability Act (CAA), 2 U.S.C. § 1341, the legislative branch is required to comply with OSHA standards mandating that the workplace be free from recognized hazards likely to cause death or serious injury. Under the CAA, a member of Congress or a staff person can request that the General Counsel of the Office of Congressional Workplace Rights (OCWR) conduct an inspection of unsafe working conditions. If the inspection determines there are unsafe working conditions, the OCWR General Counsel can issue a citation or notice of violation. If the violation has not been corrected after that notice, the General Counsel may file a complaint to be submitted to a hearing. Currently, even without a formal complaint to the OCWR, Congress has taken steps to more rigorously enforce its rule requiring masks in congressional workplaces.

Third, assuming a member of Congress who contracted COVID-19 could prove he or she was infected by a specific colleague who was not wearing a mask, legal recourse against that colleague would likely be barred by the terms of the Speech or Debate Clause of the U.S. Constitution, contained in Article I, Section 6. This clause states that members of both Houses of Congress “shall not be questioned in any other Place” about any speech or debate and shall be “privileged from Arrest” during attendance at a session of Congress. The limitation on questioning a member of Congress about speech or debate is intended to protect them from efforts by members of the Executive branch or members of the public to interfere with their exercise of their legislative duties. The refusal to wear a mask might not be seen as an aspect of legislative debate, but at least one Republican who refused to take the mask offered by Representative Rochester was heard to say she did not want to make this “political,” and those who refuse to wear masks may assert that they do so for political reasons.

If the Speech or Debate Clause did not bar a suit by one Representative against another, the legal claim would likely be one for tort damages related to an intentional assault, which requires proof that an individual deliberately acted to cause another to fear imminent harm. There have been numerous tort cases filed against cruise ships, nursing homes, and entertainment venues by people exposed to COVID-19. Suits against individuals are rare, but might follow the theories advanced by individuals exposed to the Human Immunodeficiency Virus (HIV). HIV cases ordinarily involved battery claims because of the means of transmission through close bodily contact, but because COVID-19 is transmitted through airborne particles, liability would not necessarily be predicated on physical contact but merely the apprehension of contracting the airborne virus.

Establishing liability for COVID-19 infection is difficult in any workplace. As in many other areas of employment and tort law, imposing liability on members of Congress is even more challenging. In the absence of targeted legislation, members of Congress may have little recourse against colleagues who expose them to a greater risk of infection by their refusal to comply with basic health and safety practices during the pandemic.

ARTICLE BY Carolyn Wheeler of Katz, Marshall & Banks, LLP
For more, visit the NLR Coronavirus News section.

EPA Releases Late-Term “Secret Science” Rule

Regulated industries pay close attention to how regulators use scientific data, because the stakes are high. While scientific knowledge may evolve rapidly, regulatory processes — and the business decisions that rely on them — tend to proceed more deliberately. As a result, the regulated community has long pushed the U.S. Environmental Protection Agency (EPA) to base its decisions only on scientific information that is present in the public domain and thus subject to greater scrutiny.

On January 6, 2021, EPA finalized its long awaited anti-“secret science” rule, which requires EPA both to disclose the science on which significant regulatory actions are based and to assign weight to scientific evidence in part on whether underlying data is available. EPA frames this rule as an incremental, internal process-oriented step toward the transparency that is an essential part of the scientific method. Businesses in the regulated community should not expect to be able to point to this rule to control evidence coming into site-specific rulemaking, but may benefit from increased investor confidence that EPA actions with industry-wide impact will be based on data available for independent validation.

Scope of the Rule

The rule, entitled “Strengthening Transparency in Pivotal Science Underlying Significant Regulatory Actions and Influential Scientific Information”, applies to the two categories of EPA actions indicated in the title: the promulgation of significant rules, such as those that have nationwide impact, and the dissemination of scientific information likely to have nationwide policy- or decision-making impacts. Furthermore, the rule targets EPA’s analysis of only one type of scientific evidence, dose-response data, which are facts that characterize the relationship between the amount of an exposure to a substance and the observation of an effect.

How EPA Will Evaluate Dose-Response Data

The key provision of the rule is a three-step funneling process to winnow the universe of “convincing and well-substantiated evidence” relevant to making a decision about relationship between exposure to a substance and an effect:

  • First, EPA must identify a subset of the universe of evidence from which it could “characterize a quantitative relationship” between exposure and effect.
  • Second, EPA must designate as “pivotal science” the particular studies on which it could rely to reach its own conclusion about the quantitative relationship between exposure and effect.
  • Third, EPA must identify whether those particular studies allow for reanalysis of results (actual validation is not required). While EPA may consider all studies available to it, the rule requires it to give greater consideration to those studies that can be independently validated. For those studies at the end of the funnel whose data cannot be readily reanalyzed, the rule sets out factors EPA must consider when determining how much weight to assign their results.

The rule also requires EPA to identify the science that serves as the basis for significant regulatory action and to state the reasons for relying on any studies based on dose-response data that is not available for reanalysis.

A Lasting Move Toward Transparency?

Regulations issued in the waning hours of a presidential term often can be rescinded by executive action or under the Congressional Review Act (CRA). The CRA allows certain of these regulations to be vacated by a joint resolution of Congress. EPA has taken the position that the CRA does not apply here because this is an internal “housekeeping” regulation. Whether it applies or not is likely to among the potential challenges the “secret science” rule faces in court in rulemakings involving human health. We will keep you posted on how any court challenges progress.

© 2020 Schiff Hardin LLP

ARTICLE BY Matthew H. Griffin and J. Michael Showalter of Schiff Hardin LLP
For more, visit the NLR Environmental, Energy & Resources section.

EPA Revises Lead and Copper Rule for the First Time in Three Decades

On December 22, the U.S. Environmental Protection Agency (“EPA”) finalized long-anticipated revisions to the Lead and Copper Rule—the first major revision since the rule was promulgated in 1991. While the final rule maintains the current lead “action level” of 15 parts per billion (“ppb”) and “maximum contaminant level” goal of zero, it also includes a variety of other revisions that will significantly impact water systems across the nation.

Enhanced Focus on Identifying and Addressing Homes with Lead Service Lines

A major driver behind EPA’s effort to revise the Lead and Copper rule has been identifying and remediating high-risk homes, and in particular, those served with a lead service line (“LSL”). EPA’s final rule thus requires all water systems prepare, and update, LSL inventories. EPA also introduces a requirement to “find and fix” sources of lead in any individual home where a test demonstrates lead levels in excess of 15 ppb. When the “fix” is outside of the water system’s control, documentation must be provided to the state. The final rule further modifies tap sampling procedures and the criteria for selecting homes for sampling to prioritize homes served by LSLs.

Greater Transparency

The final rule also aims to increase transparency by requiring that systems serving greater than 50,000 people post LSL inventories on a publicly-accessible Internet site. In a departure from its initial proposal, EPA reduced the threshold required for water systems to publish their inventory online from 100,000 to 50,000 persons. In addition, the final rule mandates annual notices by water systems to homeowners with LSLs. Certain systems that fail to reach their LSL replacement requirements for a given year must conduct additional outreach in the following year, such as through a townhall meeting. And when any individual tap sample exceeds the lead action level of 15 ppb, systems are now required to notify consumers at the site within 24 hours of learning of the result (instead of the current 30 days).

New Lower “Trigger” for Corrosion Control and Lead Service Line Replacement Actions

The final rule makes changes to the requirements for corrosion control, most notably by establishing a new “trigger” level of 10 ppb. The trigger level is not a health-based standard. At this trigger level, systems that currently treat for corrosion are required to re-optimize their existing treatment, while systems that do not currently treat for corrosion must conduct a corrosion control study. Per EPA’s final rule, water systems must also now conduct outreach and initiate LSL replacement programs when lead levels are above the proposed trigger level of 10 ppb. The final rule requires systems that are above 10 ppb, but at or below 15 ppb, to work with their state to set an annual goal for LSL replacement. Systems that are above the action level of 15 ppb must replace a minimum of three percent of LSLs annually based upon a two-year rolling average.

Testing of Schools and Childcare Centers

EPA’s final rule requires that systems annually test drinking water in 20% of elementary schools and childcare centers in their service areas for a period of five years, and upon request in secondary schools (and elementary schools and childcare centers following the initial five year mandatory testing period). Water systems must provide the results of these tests and information about the actions the school or childcare facility can take to reduce lead in drinking water.

© 2020 Beveridge & Diamond PC
For more, visit the NLR Environmental, Energy & Resources section.

A More Conservative SCOTUS Slated to Hear Remand Question in Baltimore Climate Suit

With the confirmation of Justice Amy Coney Barrett on October 26, the Supreme Court that will review a Fourth Circuit decision affirming the remand of Baltimore City’s ongoing climate suit is significantly more conservative than the Supreme Court that granted certiorari just a few weeks prior.[1] Justice Barrett, a self-proclaimed textualist and a prior clerk to the late Justice Antonin Scalia, is expected to give strong preference to the plain language meaning of federal statutes, regardless of the policy ramifications. This will likely favor Petitioners, whose certiorari petition relied on a plain language reading of the relevant federal statute.

Petitioners—major energy companies—had removed the case to federal court on multiple jurisdictional grounds, including federal officer jurisdiction under 28 U.S.C. § 1442. After the U.S. District Court for Maryland ordered remand, Petitioners appealed to the Fourth Circuit Court of Appeals based on an exception to the federal statutory prohibition on such appeals where removal is based on the federal officer provision. See 28 U.S.C. § 1447(d).  On March 6, 2020, the Fourth Circuit affirmed the district court’s rejection of the federal officer basis for removal but declined to review the other jurisdictional arguments, ruling them outside the purview of the Section 1447(d) exception. Mayor & City Council of Baltimore v. BP P.L.C., 952 F.3d 452 (4th Cir. 2020). The Petitioners sought certiorari on the issue of whether the Fourth Circuit improperly declined to review the other bases for removal. The Supreme Court granted certiorari on October 2, 2020.

The Supreme Court will address a question that has split nine federal circuit courts. The Fifth, Sixth, and Seventh Circuits have found that the Section 1447(d) exception allows for appellate review of all issues subject to an eligible remand order. The Second, Fourth, Eighth, Ninth, and Eleventh Circuits have found review is limited to the jurisdictional issue that forms the basis of the exception for an otherwise non-appealable remand order, i.e., removal based on federal officer jurisdiction or civil rights claims.[2]

While limited to an arcane jurisdictional question regarding the proper scope of appellate review of federal remand orders, the Supreme Court’s review of the case will have significant implications for the dozens of ongoing lawsuits for climate-related damages across the country. As cities and states pursue their claims, there will continue to be procedural battles over whether the cases should be heard in state or federal court, and federal appellate review of remand orders could play a significant role in deciding the proper forum for such suits. In turn, it will be either state or federal judges who review the substantive merit of such claims, including whether federal or state common law should be applied to interstate climate torts and whether federal environmental statutes preempt such tort claims.

[1] Justice Samuel A. Alito Jr. recused himself from consideration of the petition.  Presumably, he will also recuse himself from consideration of the appeal on the merits.

[2] There are currently two exceptions: one for federal officers and one for civil rights claims. See 28 U.S.C. § 1447(d) (citing id. §§ 1442, 1443).

© 2020 Beveridge & Diamond PC
For more articles on environmental litigation, visit the National Law Review Environmental, Energy & Resources section.

Key Environmental Law and Policy Issues to Watch in the Biden Administration

On November 7, Joe Biden was projected to become President-elect. This news alert provides a high-level review of issues to watch and changes to expect in a Biden administration. Although the makeup of the Senate is not yet entirely clear, it seems that there will not be a change in Senate leadership and that the House will remain under Democratic control. The ultimate fate of the Senate majority will be decided on January 5, 2021 with the runoff of the two Georgia Senate Seats. For the Democrats to become the majority, they would need to prevail in both Senate races.

The next few years will see significant shifts in U.S. environmental and natural resource law and policy, as well as changes in political and perhaps some career personnel at the U.S. Environmental Protection Agency (EPA) and other federal agencies that establish and implement U.S. environmental regulation. The next six months look to be especially consequential, as the Trump administration seeks to finalize certain ongoing efforts while the new Biden administration identifies and implements early priorities. Although some form of the stimulus bill may get bipartisan support, and Congress must yet fund the government through the appropriations process, we do not expect any major environmental legislation during the remainder of the Trump administration. The Trump administration, however, still has complete Executive Branch authority and can still issue new rules, pursue enforcement actions, and promulgate significant rules. Similarly, without control of the Senate, a Biden Administration will be unlikely to pass significant environmental legislation, particularly a climate bill, but will be able to direct policy through the Executive Branch.

As events unfold, we will provide updates. Please contact the authors, your usual B&D attorney, or any member of our Election Analysis Task Force (including several former senior EPA and U.S. Department of Justice (DOJ) officials) for more information.

Key Takeaways

The Regulated Community should consider taking the following actions in the short term:

  1. Administrative litigation and rulemakings. Know where you stand with respect to ongoing litigation (which may be stayed in the early days of a new administration) and pending rulemakings, as well as recently-promulgated rulemakings or Executive Orders that may be subject to full or partial reversal.
  2. Climate, environmental justice, clean energy, and vehicles. Anticipate aggressive action by the Biden administration on climate change, environmental justice, and clean energy and vehicle technologies. If Congress remains divided, legislation is unlikely to occur, but much can be done through Executive Order and other executive branch action. The administration will also promote infrastructure reform which could be significant and will require legislation that may be able to get bi-partisan support.
  3. Federal-state coordination. Anticipate renewed state-federal coordination, with exceptions and some “patchwork quilt” effects, as the Biden administration EPA, the U.S. Department of the Interior, and DOJ join forces with progressive states on enforcement and implementation of policy priorities. Many of the environmental statutes are designed to be implemented cooperatively between the state and federal governments. This “cooperative federalism” is a balance that in many but not all cases, Trump officials favored with a more limited federal government role and a narrow interpretation of the scope of federal statutory authority. Expect Biden’s EPA and DOJ to increase federal enforcement, directing the agencies to pursue appropriate cases to the fullest extent permitted by law.
  4. Criminal enforcement. Expect criminal enforcement to be more vigorously pursued.
  5. International engagement. Prepare for renewed engagement on international environmental and waste treaties, as the Biden administration reengages in many of these issues.
  6. New key administration officials. Pay attention to new key officials in the new administration, some of whom will probably be announced in December. Generally speaking, cabinet-level officers are announced first. Below is a list of the cabinet-level officials in the areas of energy, environment, project development, and worker safety and the Senate committee that would review their nomination.

Immediate (Pre-Inauguration) Considerations

Transition Process

President-elect Biden has an established transition team with five co-chairs and a 15-person advisory board. The leaders are as follows:

  • Former U.S. Sen. Ted Kaufman
    Appointed to the U.S. Senate from Delaware on Jan. 15, 2009 and served until Nov. 10, 2010.
  • Jeffrey Zients
    CEO of Cranemere, a private equity firm. Past Director of the National Economic Council and Assistant to the President for Economic Policy, at the White House Feb. 2014-Jan. 2017.
  • Gov. Michelle Lujan Grisham
    Elected Governor of New Mexico in Nov. 2018. Served three terms in the U.S. House.
  • U.S. Rep. Cedric Richmond
    Member of the U.S. House representing LA-2. First elected in Nov. 2010.
  • Anita Dunn
    Senior advisor on the Biden campaign.

President-elect Biden has also indicated that he intends to name the White House Chief of Staff very soon.

Other specific transition steps typically occur. In September, the Office of Management and Budget (OMB) sent a memorandum to all of the federal agencies titled “Guidance on Presidential Transition Preparation.” The memo required each agency to designate a senior career official as in charge of the transition, and outlined its purpose as follows:

“This memorandum provides guidance to agencies on transition preparation requirements and deadlines consistent with the statutory obligations in the Presidential Transition Act of 1963, as amended (3 U.S.C. § 102 note) (the Act) and best practices. In addition to the ongoing work required by the Act, this guidance is intended to ensure the seamless continuity of Federal government operations and services during a transition to a second term of an administration or to a new administration. It also increases the transparency of the transition process. As agencies implement the guidance outlined below, officials should approach the work in ways that are responsive to the ongoing needs of the current administration while balancing the preparations for a potential new administration.”

Biden’s transition team has already signed a memorandum of understanding with President Trump’s General Services Administration to begin planning for a potential handover of power. The document is required under the Presidential Transition Act and formalizes how the federal government will go about assisting Biden’s transition team ahead of Election Day. For the memorandum to be effective, the GSA Administrator Emily Murphy, must sign a letter acknowledging Biden as the President-elect.

In addition to the transition team, “landing teams” will meet with each federal agency to collect information and interview selected individuals to prepare for the new administration. Those landing teams are not agency officials and do not receive confidential or privileged information, but are extraordinarily valuable to the new administration. They report regularly to the incoming White House on the immediate issues facing the administration and provide an important conduit between the incoming President’s team and the executive agencies.

Personnel

While landing and transition teams have already begun work (or will soon increase the pace of their work), the Trump administration still has nearly three months with which to complete its work. Amidst the changeover in political appointed positions, career staff will continue to make decisions and move matters forward. Ensure that your relationships with career officials at headquarters and regional offices are sound, as you will need to rely on them over the next six months and beyond.

It is typical for virtually all of the outgoing administration political appointees to resign before the new administration starts. The exception is often the U.S. Attorneys, who are sometimes held over in their positions. At the beginning of a new administration, political positions are either temporarily filled by political appointees or often with senior career officials.

Ensure that your relationships with career officials at headquarters and regional offices are sound, as you will need to rely on them as appointed positions change over the next six months.

Post-Inauguration Administrative, Legislative, and Judicial Process

Expect the new administration, upon taking office, to immediately issue a directive withdrawing pending regulations that are not yet published in the federal register. This could include final rules that are awaiting publication. This is a standard approach by a new administration.

The new administration will also review executive orders and guidance documents and rescind those that conflict with Biden policy direction. There are over a dozen, maybe two dozen, different executive orders and many, many guidance documents relevant to environmental policy direction. These do not have the force of law but often direct agencies to take specific actions. The Environmental Law Institute and Harvard Law School’s Environmental and Energy Law Program have produced useful references on this subject. Note that rescinding an Executive Order, which can be done immediately, does not rescind implementing actions, such as new regulations finalized in response to the Executive Order.

Without democratic leadership in the Senate, significant environmental legislation is not expected, with the possible exception of a bi-partisan infrastructure bill. Without legislation, Biden will be particularly interested in moving policy forward using Executive Branch tools. A Biden administration will want to issue new executive orders to re-direct the federal government consistent with his policy initiatives, such as environmental justice. For example, he has already pledged to revise and reinvigorate the 1994 Executive Order 12898 (EO 12898) Federal actions to Address Environmental Justice in Minority Populations and Low-Income Populations. In addition, he has pledged that he would rejoin the Paris Accords on the first day of the administration, which can be done by Executive Order.

DOJ will likely seek to stay federal litigation, particularly litigation challenging rulemaking, to allow time to develop new administration positions. The administration would then have the option of supporting the regulation, rescinding it through the Administrative Procedure Act process, and/or replacing it with a new regulation. Currently, litigation is pending on several high profile rules, including the Navigable Waters Protection Rule that defines the scope of Clean Water Act jurisdiction, the National Environmental Policy Act revisions, and the Affordable Clean Energy Rule which regulates greenhouse gases from coal-fired electric generating units. In addition, there is active litigation on the California waiver, which determines whether California will be allowed to continue to set vehicle emission standards.

© 2020 Beveridge & Diamond PC
For more articles on environmental law, visit the National Law Review Environmental, Energy & Resources section.

Amazon Ruling Impacts Prop 65 Issues

The 2020 Prop. 65 Clearinghouse conference marked another year of thought-provoking discussion on the current state of Proposition 65 regulations and litigation.  Although the Act is nearly 35 years old, trends in enforcement litigation and defenses are continuously evolving.  The Prop. 65 Clearinghouse does an excellent job of combining perspectives from the various stakeholders and litigants in the field.

Among the panels at this year’s conference, discussing topics from acrylamide litigation to warnings on marijuana products, was an excellent and lively discussion on the affirmative defense under the compelled speech doctrines of the First Amendment.  Briefly mentioned in that discussion was whether we may see an emergence of other protections from the Constitution invoked as defense to Prop. 65 actions.  Due Process and Commerce Clause were briefly mentioned among those other potential areas where we may see further constitutional defenses.

This discussion brought to mind other areas where federal law may preempt California’s Prop. 65.  In particular, and on the heals of the California Court of Appeal’s August 2020 decision in Bolger v. Amazon, the applicability of the federal Communications Decency Act of 1996.  To be clear, Bolger was not a Prop. 65 case.  However, the decision did briefly touch an area of federal preemption that can be used as a defense to Prop. 65 actions brought against Amazon and other online third-party seller platforms.

In Bolger, a woman was severely hurt following an explosion of a replacement laptop battery she purchased on Amazon from a third-party seller.  Amazon raised a number of defenses, including immunity from liability under title 47 U.S.C. section 230 – part of the Communications Decency Act (CDA).

The CDA is extremely important to the free flow of information on the internet as it shields online content platforms from being held liable as the speaker or publisher of third-party content.  Plaintiffs pursuing lawsuits based on state law “may hold liable the person who creates or develops unlawful [online] content, but not the interactive computer service provider who merely enables that content to be posted online.” (Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc. (4th Cir. 2009) 591 F.3d 250, 254; see also, HomeAway.com, Inc. v. City of Santa Monica (9th Cir. 2019) 918 F.3d 676, 681.)

The Bolger Court found that the CDA did not protect Amazon from strict liability for the battery purchased on its website because speech was not the issue.  Liability was not rooted in a failure to adequately warn, for example.  The Court stated that Amazon’s liability in the case did not turn whether Amazon was classified as a speaker/publisher of content on amazon.com that had been provided by the third-party seller.  Instead, Amazon was found liable in Bolger because of its role in the transaction itself that was more akin to that of a “conventional retailer” and the Court subjected Amazon to strict liability as it would have for any other “conventional retailer.”  (In a future CMBG3 post, we will be discussing the ramifications of that retailer label, as well as the split among courts around the country on the issue.)

From a Prop. 65 perspective, the take-away from seemingly unrelated cases like Bolger and HomeAway.com is that CDA immunity may extend to lawsuits where a plaintiff is seeking to pursue a state law cause of action (i.e., enforcement of California’s Prop. 65) against an online platform for content provided by another.  In other words, the CDA could shield a company like Amazon from content-based lawsuits stemming from the alleged absence or inadequacy of a Prop. 65 warning that the third-party seller either neglected to post on the product page, or failed to provide the proper warning under Prop. 65.

For the third-party seller, not only should this be a reminder to review your obligations under regulations like Prop. 65, but also to read your vendor agreements with Amazon, Etsy, Walmart, Shopify and the like.  To keep the theme on Amazon, the Amazon Business Solutions Agreement includes indemnity provisions and regulatory compliance provisions (that specifically call out Prop. 65 compliance) that every vendor should understand.

©2020 CMBG3 Law, LLC. All rights reserved.
ARTICLE BY Gilliam F. Stewart of CMBG3 Law
For more articles on Prop 65, visit the National Law Review Environmental, Energy & Resources section.

FERC Redefines QF Eligibility Requirements

On September 1, 2020, the Federal Energy Regulatory Commission (“FERC” or “Commission”) issued an order breaking with decades of precedent regarding how it will determine whether a renewable resource is eligible for certification as a qualifying small power production facility (“QF”) pursuant to the Public Utility Regulatory Policies Act of 1978, as amended (“PURPA”).[1]  The result of the Commission’s order is that renewable resources will no longer have the ability to qualify for QF status by voluntarily limiting their output to comply with the 80 MW cap on small power production facilities.  Commissioner Richard Glick dissented and we anticipate that parties to the proceeding will seek rehearing and possibly appeal the order to federal court.  Bracewell will keep you updated on significant PURPA developments.

PURPA and the Commission’s implementing regulations limit a small power production QF’s capacity to a “power production capacity” of 80 MW.[2]  When evaluating whether a facility complied with this requirement, the Commission focused on the “maximum net output of the facility that can be safely and reliably achieved under the most favorable operating conditions likely to occur over a period of several years.”[3]  In practice, the Commission’s focus on the maximum net output of the facility—rather than the installed capacity of the equipment at the site—has meant that developers have been able to qualify for QF status by voluntarily installing control systems or taking other steps to limit the sustainable net output of the generation facility in any given hour to 80 MW or less, even if the installed generation capacity of the facility exceeded the 80 MW cap.

In the proceeding resulting in the September 1 Order, the Commission considered whether a combined solar and storage facility owned by Broadview Solar, LLC complied with the 80 MW cap.  The facility at issue consisted of a 160 MW solar array and a 50 MW battery storage system that would connect to 82.5 MW DC-to-AC invertors.  Because any energy produced by the solar array and battery storage system would need to be converted from DC power to AC power prior to the injection in the grid, the maximum achievable output from the facility in a given hour was 82.5 MW.  Thus, even though the installed capacity of the solar array and storage system exceeded the 80 MW cap, Broadview explained that the net output of the facility, taking into account losses and station load, could never exceed 80 MW.[4]

The Commission rejected Broadview’s arguments, however, and found that Broadview’s facility cannot meet the requirements for QF status.  The Commission acknowledged that previous orders had allowed “facilities with greater power production capacities to be certified as QFs when the net output was no more than 80 MW.”[5] The Commission found, however, that this interpretation was inconsistent with the plain language of PURPA limiting the “power production capacity” of QFs to 80 MW.  While the Commission recognized that the inverters were only capable of converting 80 MW into AC power, the Commission observed that this was merely a “conversion limit” and that the solar array alone had the capability to produce 160 MW of DC power.  According to the Commission, “[u]tilizing inverters to limit the output of an otherwise above-80 MW power production facility to 80 MW is . . . inconsistent with the type of facility that Congress specified can qualify as a small power production facility (i.e., a facility sized 80 MW or less).”[6]  For that reason, the Commission found that Broadview’s facility did not meet the requirements to qualify as a QF.

Recognizing the potential impact of its abrupt change in policy, the Commission explained that its finding would only be applied prospectively.[7]  As a result, the Commission’s order will not affect “QFs that have self-certified [through the submission of FERC Form 556] or have been granted Commission certification prior to the date of” the Commission’s order, even if the self-certification filed by the facility “included adjustments for inverters or other output-limiting devices to calculate its maximum net power production capacity as 80 MW or less.”[8]

The Commission’s order represents a marked departure from Commission precedent that  effectively eliminates the ability of renewable resources to meet the QF certification requirements by limiting the output of their facility so that it does not exceed 80 MW.[9]  Although the Commission indicated that it would only apply this determination prospectively, the Commission’s decision could have significant implications for projects that are in the final stage of development, but have not yet filed a notice of self-certification to FERC.[10]  The Commission emphasized, for example, that the owner of a facility with a legally enforceable obligation could not benefit from “grandfathered” status for the facility in the absence of a self-certification Form 556 submittal or FERC order granting certification before September 1, 2020.[11]  Also, the Commission’s order does not address whether the Commission would be willing to revisit the QF status of facilities that submit a notice of re-certification in order to report a change in the facts reported in its initial certification, including upgrading, modernizing or retrofitting existing facilities.[12]  The Commission did, however, clarify that load and line losses could continue to be factored in when measuring a facility’s 80 MW maximum net power production.

The Commission expressly declined to address how the capacity of an energy storage system should be taken into account for QF purposes – an aspect of the proceeding that many were following.[13]  In a number of recent proceedings, companies developing renewable resources combined with battery storage have taken the position that the capacity of a battery storage system should not be included when calculating the net capacity of the facility on the basis that the storage does not represent an additional source of independent power generation and merely allows the facility to shift the time of production; in those cases, however, the QF certification application was withdrawn before FERC made a substantive determination on the issue.[14]  Broadview took a similar position in this proceeding, arguing that aggregating the combined capacity of the solar array with the energy storage system would artificially inflate the aggregate capacity of the facility components.  The Commission found that it did not have to address that issue in this case because the 160 MW solar array on its own without considering the energy storage facilities was already double the 80 MW cap.[15]

 

[1] Broadview Solar, LLC, 172 FERC ¶ 61,194 (2020).

[2] 16 U.S.C. §§ 796(17), 824a-3; 18 C.F.R. § 292.204.

[3] Occidental Geothermal, Inc., 17 FERC ¶ 61,231, at 61,445 (1991).

[4] Id. at P 3.

[5] Id. at P 21.

[6] Id. at P 25.

[7] See id. at P 27.

[8] Id.

[9] See id. at P 27.

[10] Id.

[11] Id.

[12] See id.

[13] Id. at P 21 n. 57.

[14] See, e.g., NorthWestern Corp., 168 FERC ¶ 61,049 (2019).

[15] Broadview, 172 FERC ¶ 61,194, at P 21 n. 57.

© 2020 Bracewell LLP
For more articles on the environment, visit the National Law Review Environmental, Energy & Resources section.

EPA’s Asbestos Problem: Pending Litigation and Draft Risk Evaluation

Multiple States’ Attorneys General and asbestos advocacy groups are suing EPA in the Federal District Court for the Northern District of California[1]. The plaintiffs are seeking judicial intervention concerning EPA “arbitrary and capricious” decision to deny states’ earlier petition that requested EPA collect more data on imported asbestos under the authority granted to EPA in the Toxic Substances Control Act (TSCA).[2]  Under the Arbitrary and Capricious standard, plaintiffs must prove that there was no rational connection between the facts found and the decision made by EPA.[3]  Normally, an agency action is “arbitrary and capricious” if the agency relied on factors that Congress did not intend it to consider, failed to consider an important aspect of the problem, offered an explanation not supported by the evidence, or the implausible decision cannot be explained as a differing viewpoint.[4]  The standard that EPA’s action will be evaluated is not as high as intermediate review and strict scrutiny.

At initial review, there is not a strong challenge EPA’s actions being outside Congress’ intent.  TSCA provides EPA with statutory authority to regulate the manufacturing, importing, processing, and commercial distribution of asbestos.[5]  EPA recently promulgated additional regulations regarding Restrictions on Discontinued Uses of Asbestos; Significant New Use Rule.[6]  Therefore, the States’ Attorneys General will have to develop factual evidence to show EPA’s action was unreasonable.  EPA argues, inter allia, that it did not act arbitrarily or capriciously with regard to its denial of the initial petition given it would not have collected any additional data on asbestos imports given its decision was based on review of data from multiple sources.[7]

For brief background on the mining and importing of asbestos, asbestos mining in the United States steadily declined after it peaked in the mid-1970’s, and mining in the United States completely stopped just after the turn of the millennia.[8]  Likewise, the rate of manufacturing/use of asbestos in the United States also steadily declined during this same period, but manufacturing/use of asbestos has never completely stopped.  Where does the United States get its asbestos now?  The answer is not Canada, which was once home to the largest asbestos mine in the world (i.e., Johns Manville’s Jeffrey Mine).  Currently, all the asbestos imported to the United States is chrysotile from Russia.[9]

As an overlay to the above, the EPA is also in the process to update its Risk Evaluation of asbestos, specifically chrysotile.  The EPA’s Draft Risk Evaluation of Asbestos (“DRE”) was released in March 2020.  Most notably, EPA’s draft findings call into question the long-standing conclusion of the medical and scientific communities that chrysotile asbestos is unequivocally less potent than amphibole asbestos minerals.[10]  EPA is currently evaluating the numerous comments it received from the medical and scientific communities that questioning the EPA’s data and findings in the DRE.[11]  EPA has seemingly created its own paradox by releasing the DRE that finds an increased risk from chrysotile after getting sued for allegedly loosening restrictions on imported asbestos that is all Russian chrysotile.  Notwithstanding and without triggering a political debate, there is always an elephant in the room when discussing the Federal government’s actions that implicate Russia given the current administration.  All these factors considered, should make for an active and interesting discovery period in the pending lawsuits against EPA.

©2020 CMBG3 Law, LLC. All rights reserved.

ARTICLE BY Clifford V. Pascarella II of CMBG3 Law.
For more articles on the EPA, visit the National Law Review Energy, Climate, and Environmental Law News section.

[1] States’ Attorneys General for California, Massachusetts, Connecticut, Hawaii, Maine, Maryland, Minnesota, New Kersey, Oregon, Washington, as well as  Washington DC are plaintiffs; and lead plaintiff for the asbestos advocacy groups is The Asbestos Disease Awareness Organization.  See Asbestos Disease Awareness Organization, et al. v. U.S. Environmental Protection Agency, et al., United States District Court for the Northern District of California, San Francisco Division, Case No. 3:19-CV-008871-EMC; and State of California, by and through Attorney General Xavier Becerra, et al. v. U.S. Environmental Protection Agency, et al., United States District Court for the Northern District of California, San Francisco Division, Case No. 3:19-CV-03807-EMC.

[2] 15 U.S.C. §2601

[3] Motor Vehicle Mfgrs. Assn. of United States, Inc. v. State Farm Mut. Automobile Ins. Co., 463 U.S. 29, 43 (1983) (cited by Michigan v. E.P.A., 576 U.S. 743, 750-751 (2015)

[4] Id.

[5] See 40 CFR 763 (July 12, 1989)

[6] See 84 FR 17345 (April 25, 2019)

[7] United States District Court for the Northern District of California, San Francisco Division, Case No. 3:19-CV-008871-EMC, ECF Document 52, pp. 11-12

[8] https://www.asbestos.com/occupations/mining/

[9] https://www.asbestos.com/news/2020/03/23/us-asbestos-imports-drop/

[10] https://www.epa.gov/sites/production/files/2020-3/documents/1_draft_risk…

[11] https://www.regulations.gov/document?D=EPA-HQ-OPPT-2019-0501-0113;and https://www.epa.gov/assessing-and-managing-chemicals-under-tsca/draft-risk-evaluation-asbestos#docs