Category: Environmental Law

What 2014’s Continued IPO Surge Means for Clean Tech and Renewable Energy Companies

Mintz Levin Law Firm

The year 2014 is on track to be the most active IPO marketin the United States since 2000, with the mid-year total number of IPOs topping last year’s mid-year total by more than 60%.[1] There were 222 US IPOs in 2013, with a total of $55 billion raised, and 2014 has already seen 151 US IPOs, for a total of $32 billion, completed by the mid-year mark. The year 2000 (over 400 IPOs) was the last year of a 10-year boom in US IPOs that reached its peak in 1996 (over 700 IPOs).

What does this mean for emerging energy technology andrenewables companies that might be looking to the capital markets? As of mid-year 2014, there have been six cleantech/renewables IPOs, while there were a total of seven in all of 2013. In both years, these deals have represented a relatively small percentage of total IPOs and still do not match the level of activity in the more traditional energy and oil & gas sector.  In 2014, IPOs were completed by a range of innovative companies, including Aspen Aerogels, TCP International and Opower.

Two unambiguously positive developments for clean energy in 2013 and the first half of 2014 have been the strong market for follow-on offerings and YieldCo IPOs. As was the case in 2013, several larger energy tech companies that are already public completed follow-on offerings to bolster cash for growth in 2014. Following in the footsteps of Tesla, SunEdison, First Solar, and other companies who completed secondary offerings in 2013, Jinko Solar (January 2014), Pattern NRG (May 2014), Plug Power (January and April 2014), Trina Solar (June 2014), and several other public companies capitalized on the continued receptiveness of clean-tech capital markets.

Following on successful YieldCo IPOs in 2013 (NRG Yield, Pattern Energy), there have already been three YieldCo IPOs in 2014: Abengoa Yield, NextEra Energy Partners, and, most recently, Terraform Power. The continued growth of YieldCo deals as well as the growing dollar amount of such offerings is an extremely encouraging sign for the energy and clean-tech sector as a whole, signaling a longer-term market acceptance of the ongoing changes in domestic and global energy consumption. The successful public market financings of these companies – whose strategy typically involves the purchase and operation of existing clean, energy-generating assets – should result in increased access to capital for renewable energy generation assets, as well as related technologies and services across the sector.

If the first half of this year is any indication, 2014 should prove to be a strong year for clean-tech and renewable energy companies opting to pursue the IPO path. The IPOs, follow-on offerings, and YieldCo successes that we’ve seen so far should improve the prospects for forthcoming clean-energy IPOs in the second half of 2014 and beyond.  I expect to see more renewable/clean energy companies follow the IPO route and make the most of the market’s continued receptiveness.

[1]  Please note that there will be some variance in the statistics for IPOs generally. This is because most data sets exclude extremely small initial public offerings and uniquely structured offerings that don’t match up with the more commonly understood public offering for operating companies. The data above is based on information from http://bear.warrington.ufl.edu/ritter/IPOs2012Statistics.pdf and Renaissance Capital www.renaissancecapital.com.

ARTICLE BY:

Sahir Surmeli
OF:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C

New Supreme Court Ruling On EPA Authority Over Greenhouse Gases (GHGs) – Little Clarification on the 111(d) Regulations

Lewis Roca Rothgerber

Last week, the United States Supreme Court issued a significant decision in Utility Air Regulatory Group v. EPA, that substantially restricts the authority of the U.S. Environmental Protection Agency (EPA) to regulate greenhouse gas emissions (GHGs) from stationary sources under the Clean Air Act’s Prevention of Significant Deterioration (PSD) and Title V permitting programs. The Supreme Court’s decision holds that EPA may not impose permitting requirements on facilities based solely on their emissions of GHGs, but may regulate GHG emissions under the PSD and Title V programs, only if a facility is otherwise subject to major source permitting requirements.

Background

EPA interpreted the Clean Air Act to require stationary sources to obtain construction and operating permits under the PSD and Title V programs whenever a facility emits GHGs above certain threshold levels. The threshold levels EPA chose were different than the levels established by Congress in the Clean Air Act, because the statutory levels when applied to GHGs were too low (as compared to criteria pollutant thresholds), and applying those levels to GHG emissions would lead to “absurd results” by subjecting millions of small sources such as shopping malls, hospitals and churches to major source permitting requirements. These thresholds were established in what is known as the “Tailoring Rule.”

The Tailoring Rule triggered regulatory review for two different source categories (for purposes of GHG emissions): sources that were already subject to major source review under the Clean Air Act because of emissions of criteria pollutants in excess of the major source thresholds (so-called “anyway” sources) and those sources that would trigger major source review for the first time based solely on emissions of GHGs in excess of the “tailored” thresholds set by EPA.

Holding

The Supreme Court’s divided 5-4 decision, authored by Justice Scalia, held that EPA’s rulemakings setting “tailored” thresholds for GHGs were invalid. The Court, however, stopped short of holding that GHGs could not be regulated at all under the PSD and Title V programs.

Specifically, the Supreme Court upheld EPA’s approach of requiring “best available control technology” (BACT) standards for GHGs for those sources otherwise required to obtain a PSD permit (the “anyway” sources). The Court emphasized, though, that it was not approving EPA’s current approach to BACT regulation of GHGs, or of any future approach that EPA might adopt. The Supreme Court categorized this aspect of the holding as having only a small impact on the regulated community, stating that 85 percent of all GHG major sources are “anyway” sources, while only an additional 3 percent would be major sources under the GHG tailoring trigger.

The Supreme Court also reaffirmed its decision in Massachusetts v. EPA, which held that GHGs qualify as an “air pollutant” for purposes of the term’s general definition in the Clean Air Act.

Takeaways and Import of This Case on 111(d) Regulations:

1)      GHG Emissions Alone Do Not Trigger Major Source Permitting Obligations – The principal legal holding of the decision is also considered the most significant from a practical perspective. Stationary sources cannot, under the Court’s ruling, be subject to permitting requirements based solely on their emissions of GHGs. The Court’s math on the number of sources impacted by this core aspect of the decision is questionable, and there is suspicion that many potentially major sources were specifically planning facilities to avoid major source permitting review by designing facilities to avoid the tailoring trigger for GHGs. In short, the impact of this decision is potentially very significant for the regulated community.

2)      Greenhouse Gas Emissions Are an “Air Pollutant” Subject to Regulation under the Clean Air Act. While the decision holds that GHGs are not an “air pollutant” for purposes of triggering PSD and Title V permitting requirements, it stops short of holding that GHGs are not an “air pollutant” for other purposes. To the contrary, the Court affirmed its prior holding in Massachusetts v. EPA, that the term “air pollutant,” as generally defined in the Clean Air Act, includes GHGs.

3)      Mixed Signals About EPA’s Authority to Issue NSPS Regulations Under 111(d). The Supreme Court was careful to note that EPA’s authority to regulate GHG emissions under the New Source Performance Standards (NSPS)  were not at issue and did not need to be addressed (that is, the Court specifically did not address the proposed 111(d) rules).

a)      As noted above, the Supreme Court reinforced that GHGs may be regulated as an air pollutant under other aspects of the Clean Air Act (just not PSD or Title V). Though the Supreme Court found that EPA was right to determine that the statutory thresholds for major source review would lead to “absurd results” in the PSD and Title V context for major source triggers, the Court said nothing about EPA’s authority to regulate under the NSPS provisions of Section 111(d). One way to interpret the decision is that it cloaks EPA with apparent authority to address GHGs as an “air pollutant” under Section 111(d).

b)      On the other hand, the Supreme Court took a stern tone in admonishing EPA for over-stepping its bounds. As an example, the Court warns EPA: “[W]hen an agency claims to discover in a long-extant statute an unheralded power to regulate ‘a significant portion of the American economy,’ we typically greet its announcement with a measure of skepticism.” That statement was directed at EPA’s attempt to regulate GHGs in the PSD and Title V programs, but the same argument might be made in the 111(d) context.

Conclusion

There are still many questions to be answered surrounding the 111(d) regulations proposed by EPA. This decision clarifies the overall picture of GHG regulation slightly, but does little to provide a clear boundary on EPA’s authority over GHGs. No doubt, this decision will be cited by both those in favor and those against the 111(d) regulations.

Article By:

Adam DeVoe
Of:
Lewis Roca Rothgerber LLP

Threatened and Endangered Species Listings Likely to Increase Under New U.S. Fish & Wildlife Service Policy

Beveridge Diamond National Law Review

On July 1, 2014, the U.S. Fish and Wildlife Service and National Marine Fisheries Service (both referred to herein as “FWS”) published a “Notice of Final Policy” interpreting the phrase “significant portion of its range” (“SPR”) in making listing decisions under the Endangered Species Act (“ESA”).  79 Fed. Reg. 37578 (July 1, 2014).  Beginning on July 31, 2014, FWS will use the new SPR Policy to list entire species as “endangered” or “threatened” when the species has experienced impacts in only a fraction of its range.  Though FWS avers that new listings based on the SPR policy will be “relatively uncommon,” in practice this significantly broadened agency discretion will have far-reaching impacts for project proponents and other regulated individuals.  For example:

  • A FWS finding of threatened or endangered status in one particular area now may result in listing nationwide.  This will create new delays and restrictions for activities, ironically even more so in areas where the species is more abundant.
  • FWS has lowered its threshold for determining that a portion of range is “significant.”  No minimum percentage is specified; rather, FWS relies on any of several “biological” factors or perceived risks which are undefined and thus difficult to challenge.  In turn, FWS may find that more activities on or near newly “significant” areas present a risk warranting listing of the species in its entirety.  Conservation efforts throughout much of a species’ range also may not obviate an ESA listing if FWS finds that a single portion is significant and remains unaddressed.
  • The species’ “range” includes any area used anytime in the species’ life, even if not used regularly.  While lost historical range itself cannot be SPR, it may increase the likelihood that FWS will deem a portion of the reduced range as SPR.
  • Increased listings under the SPR Policy may result in even broader application of the FWS’ pending proposals to expand its “critical habitat” jurisdiction.

This new avenue for ESA listings comes on the heels of two recent proposals and a draft guidance document on designation of critical habitat and a court-entered settlement for FWS to remedy a backlog of hundreds of species listing determinations.  Individually or collectively, these actions demonstrate FWS’s current trajectory towards more species listings and greater species protection, with consequently increased restrictions for surrounding projects, large or small, on either public or private lands.  As a result, entities in various sectors should ensure they are actively involved in these administrative proceedings, fully understand the proposed changes, and plan their projects accordingly.

Background

FWS must list a species as “endangered” if it is found to be “in danger of extinction throughout all or a significant portion of its range.”  16 U.S.C. §§ 1532(6), 1533(a).   Similarly, it must list a species as “threatened” if it is “likely to become endangered within the foreseeable future throughout all or a significant portion of its range.”  Id. §§ 1532(20), 1533(a).  But neither the statute nor regulations define what constitutes a “significant portion of [a species’] range.”  As a result, for years FWS simply interpreted that phrase on a case-by-case basis, resulting in inconsistent interpretations, confusion for the agency and the regulated community, and ultimately litigation.

FWS largely had not interpreted the SPR language in the ESA as independently operative.  The real inquiry was whether a species should be listed as endangered or threatened due to its status “throughout all” of its range.  Analysis of certain portions of a species’ range informed the agency’s broader analysis of the species’ status nationwide.  The Ninth Circuit rejected this so-called “clarification” interpretation in Defenders of Wildlife v. Norton, 258 F.3d 1136 (2001), prompting FWS to reconsider its approach.

In 2011, FWS issued a draft policy to standardize its interpretation of SPR.  76 Fed. Reg. 76987 (Dec. 9, 2011).  Under the draft policy, FWS said it would consider a species threatened or endangered if it meets those respective criteria throughout either “all of its range” or only “a significant portion of its range.”  FWS took public comment on the draft and instituted it as an interim policy while it worked to develop a final policy.  Nearly three years later, FWS has issued its SPR Policy which it deems “legally binding.”

Final SPR Policy

FWS asserts that the final SPR Policy merely clarifies its interpretation of “significant portion of its range” by elaborating on the key concepts of what constitutes a species’ “range” and what portions of that range are considered “significant,” as well as explaining how application of the SPR Policy will affect the Service’s listing determinations.  Each of these “clarifications” represents a significant policy interpretation under the ESA.

Species’ “Range”

The final SPR Policy defines “range” as the general geographical area within which the species can be found at the time FWS makes a status determination for listing the species.  Thus, “range” means those areas that a species uses at some point during its life, including areas that the species does not use on a regular basis.  While historical range areas now unoccupied cannot directly be SPR to prompt a listing, the reduced range, or the causes thereof, may affect the likelihood that FWS would find remaining range portions to constitute SPR.  Id. at 37583-84.  Moreover, once a species is listed under the SPR Policy, the geographical areas effectively subject to ESA protections may grow even larger via the FWS’ proposed expansion of designated “critical habitat” for that listed species.

“Significant” Portion of Range

The SPR Policy considers a portion of a species’ range as “significant” if the species is not currently endangered or threatened throughout all of its range, but the portion’s contribution to the viability of the species is so important that, without the members in that portion, the species would be in danger of extinction, or likely to become so in the foreseeable future throughout all of its range.  This substantially lowers the threshold for “significant” compared to the draft policy, which had looked only to whether the species would be in danger of extinction without that portion of its range.  In essence, FWS now may list a species based on SPR not only when FWS finds the species is “endangered” in that SPR, but also when the species is “threatened” in that SPR.  Id. at 37578-79.

FWS will assess the “biological” significance of the portion of the species’ range using viability factors from conservation biology.  Id. at 37592.  FWS will assess whether, without the portion of range in question, the species would have an increased vulnerability to threats to the point that the overall species would become endangered  or threatened.  Id.  In that event, the portion of the range is significant and the analysis moves on to consider the threats to the species absent that range to determine whether the entire species should be listed as endangered or threatened.  Id.  FWS offers the following examples of scenarios in which it might find that a portion of a species’ range is “significant.”  Id. at 37583.

  • If the population in the remainder of the range without the SPR might not be large enough to be resilient to environmental catastrophes or random variations in conditions;
  • If the viability of the species depends on the productivity of the population in the SPR, and the population in the remainder of the range might not be able to maintain a high-enough growth rate to persist in the face of threats without that portion;
  • If without the population in the SPR, the spatial structure of the entire species could be disrupted, resulting in fragmentation that could preclude individuals from moving from degraded habitat to better habitat; or
  • If the population in the SPR contains important elements of genetic diversity without which the remaining population may not be genetically diverse enough to adapt to changing environmental conditions.

How the SPR Analysis Works

FWS provides examples and flow charts within its SPR Policy to illustrate how the analysis will work within the listing decision process.  The first inquiry is whether a species is endangered or threatened throughout its entire range; if so, the entire species is listed, and SPR is irrelevant.  Otherwise, if “substantial information” exists warranting further consideration, FWS examines whether there are any portions of the species’ range that are significant and whether the species is endangered or threatened within that area.  The two inquiries may proceed in either order.  If both conditions are met, again the entire species is listed as endangered or threatened, as appropriate.  If not, the species would not be listed at all.  FWS states that it will continue to list a valid Distinct Population Segment (“DPS”) of the species as a DPS rather than list the entire taxonomic species or subspecies based on SPR.  Id. at 37585-87.

Consequences of SPR Listing

Once FWS decides that a portion of a species’ range is significant and lists the species as endangered or threatened, ESA protections fully apply to all individuals of that species, wherever they are found – not just to the individuals of the species found within the SPR.  Therefore, questions of total range or SPR are relevant only to whether FWS decides to list the species.  Additionally, federal protection extends to all populations and individuals regardless of how the species’ range changes over time.  Thus, in effect, the SPR analysis simply provides another avenue for species listing.  Once listed, all other aspects of the Act, such as designation of critical habitat, promulgation of § 4(d) rules, the § 7 consultation process, the § 9 “take” prohibition, and recovery planning and implementation apply in the same manner that they would for species listed prior to the SPR Policy based on total range.  Id. at 37583.

On one hand, FWS attempts to minimize the impact of its SPR Policy, estimating that it “may list a few more species with important populations that are facing substantial threats.”  Id. at 37579.  FWS opines that the SPR Policy will tend to result in the same status determinations as would have been made without it, except for a few, limited situations.  Id. at 37609.  These effects may be understated.  The policy gives FWS greater latitude to make nationwide listing decisions based on individual portions of a species’ range, which are likely to lead to more targeted, case-by-case protections not otherwise available absent this Policy.  Indeed, FWS acknowledges that threats, population trends, and relative importance of species recovery often vary across the range of species, especially as recovery efforts progress.  Id. at 37610.  Yet, FWS may now make a sweeping listing decision based on a narrower look at a particular area.

At the same time, FWS affirmatively claims its SPR Policy will result in positive changes and improve conservation of species.  According to FWS, listing a species when it is endangered or threatened throughout a SPR before it is at risk throughout all of its range may allow FWS to protect and conserve species and ecosystems upon which they depend before large-scale decline occurs.  Id. at 37609.  FWS further believes the Policy will result in greater consistency, saving the agency time, money, and resources.  Id. at 37581.  Whether these benefits occur, as opposed to simply more listings, remains to be seen.

The SPR Policy will officially take effect on July 31, 2014, 30 days after its publication.

Article By:

James M. Auslander
W. Parker Moore
Sara L. Vink
Of:
Beveridge & Diamond PC

What Does Regulation of Greenhouse Gas Emissions as Described by EPA in the “Tailoring Rule” have to do with the Clean Air Act?

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UARG v. EPA: Tailoring Rule Litigation

On June 23, 2014 Justice Scalia delivered the opinion of the U.S. Supreme Court on the question of whether EPA motor vehicle greenhouse gas regulations necessarily automatically triggers permitting requirements under the CAA for stationary sources that emit greenhouse gases. The statements in the opinion concerning EPA’s assertions of power are quite provoking. If read carefully, this opinion launches a warning to EPA about its future regulatory actions relative to greenhouse gases. The text of the opinion can be found here. The following quotes are offered as examples of that warning.

“EPA’s interpretation is also unreasonable because it would bring about an enormous and transformative expansion in EPA’s regulatory authority without clear congressional authorization. When an agency claims to discover in a long-extant statute an unheralded power to regulate “a significant portion of the American economy,” Brown & Williamson, 529 U.S. at 159, we typically greet its announcement with a measure of skepticism. We expect Congress to speak clearly if it wishes to assign to an agency decisions of vast “economic and political significance.” Id., at 160; See Also MCI Telecommunications Corp. v. American Telephone & Telegraph Co., 512 U.S. 218, 231 (1994); Industrial Union Dept., APL-CIO v. American Petroleum Institute, 448 U.S. 607, 645-646 (1980) (plurality opinion). Slip op at 19.

“. . . in EPA’s assertion of that authority, we confront a singular situation: an agency laying claim to extravagant statutory power over the national economy while at the same time strenuously asserting that the authority claimed would render the statute “unrecognizable to the Congress that designed” it. “ Slip op at 20.

“We are not willing to stand on the dock and wave goodbye as EPA embarks on this multiyear voyage of discovery. We reaffirm the core administrative-law principle that an agency may not rewrite clear statutory terms to suit its own sense of how the statute should operate.” Slip op at 23.

In a step wise fashion the opinion presents and answers the following:

1.  The question before the Court was “. . .whether it was permissible for EPA to determine that it motor-vehicle greenhouse-gas regulations automatically triggered permitting requirements under the Act for stationary sources that emit greenhouse gases.” Slip op at 2.

First we decide whether EPA permissibly interpreted the statute to provide that a source may be required to obtain a PSD or Title V permit on the sole basis of its potential greenhouse-gas emissions. Slip op at 10.

“It is plain as day that the Act does not envision an elaborate, burdensome permitting process for major emitters of steam, oxygen, or other harmless airborne substances. It takes some cheek for EPA to insist that it cannot possibly give “air pollutant” a reasonable, context-appropriate meaning in the PSD and Title V context when it has been doing precisely that for decades.” Slip op at 12.

“Massachusetts does not strip EPA of authority to exclude greenhouse gases from the class of regulable air pollutants under other parts of the Act where their inclusion would be inconsistent with the statutory scheme.” Slip op at 14.

“In sum, there is no insuperable textual barrier to EPA’s interpreting “any air pollutant” in the permitting triggers of PSD and Title V to encompass only pollutants emitted in quantities that enable them to be sensibly regulated at the statutory thresholds, and to exclude those atypical pollutants that, like greenhouse gases, are emitted in such vast quantities that their inclusion would radically transform those programs and render them unworkable as written.” Slip op at 16.

2.  . . . we next consider the Agency’s alternative position that its interpretation was justified as an exercise of its “discretion” to adopt “a reasonable construction of the statute.” Tailoring Rule 31517. We conclude that EPA’s interpretation is not permissible.” Slip op at 16.

“EPA itself has repeatedly acknowledged that applying the PSD and Title V permitting requirements to greenhouse gases would be inconsistent with – in fact, would overthrow – the Act’s structure and design.” Slip op at 17.

“A brief review of the relevant statutory provisions leaves no doubt that the PSD program and Title V are designed to apply to, and cannot rationally be extended beyond, a relative handful of large sources capable of shouldering heavy substantive and procedural burdens.” Slip op at 18.

3.  “We now consider whether EPA reasonably interpreted the Act to require those sources to comply with “best available control technology” emission standards for greenhouse gases.” Slip op at 25.

“EPA argues that carbon capture is reasonably comparable to more traditional, end-of-stack BACT technologies, . . . and petitioners do not dispute that.” Slip op at 26. “. . . it has long been held that BACT cannot be used to order a fundamental redesign of the facility.” “. . . EPA has long interpreted BACT as required only for pollutants that the source itself emits; accordingly, EPA acknowledges that BACT may not be used to require “reductions in a facility’s demand for energy from the electric grid.” Slip op at 27.

“The question before us is whether EPA’s decision to require BACT for greenhouse gases emitted by sources otherwise subject to PSD review is, as a general matter, a permissible interpretation of the statute under Chevron. We conclude that it is.” Slip op at 27.

“We acknowledge the potential for greenhouse-gas BACT to lead to an unreasonable and unanticipated degree of regulation, and our decision should not be taken as an endorsement of all aspects of EPA’s current approach, nor as free rein for any future regulatory application of BACT in this distinct context. Our narrow holding is that nothing in the statute categorically prohibits EPA from interpreting the BACT provision to apply to greenhouse gases emitted by “anyway” sources.” Slip op at 28.

Opinion of Breyer, with whom Ginsburg, Sotomayor and Kagan join, concurring in part and dissenting in part. Rather than exempting certain air pollutants like greenhouse gas emissions from the statute, it makes more sense to read into the statute an exemption for certain sources that were never intended to be subject to PSD.

Opinion of Alito, with whom Thomas joins, comments that Massachusetts v. EPA was wrongly decided at the time, and these cases further expose the flaw with that decision.

 

The Supreme Court’s Greenhouse Gas Permitting Decision – What Does It Mean?

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The U.S. Supreme Court today partly upheld and partly rejected the U.S. Environmental Protection Agency’s federal Clean Air Act permitting regulations governing greenhouse gas (GHG) emissions from stationary sources.  The decision is mostly a victory for EPA, and its narrow scope means that it will almost certainly not disrupt, let alone invalidate, EPA’s ongoing Section 111(d) rulemaking to set GHG emission limits for existing power plants.  At the same time, the decision does not necessarily mean that EPA’s 111(d) proposal is free from legal challenge.  That is because the decision does not address 111(d).

Today’s decision concerns the Clean Air Act’s two stationary source permitting programs – the prevention of significant deterioration (PSD) program and the Title V program.  In 2010, EPA announced that it was including GHG emissions within the scope of both programs.  Various states and industry groups challenged that announcement, and today, the Supreme Court partly agreed and partly disagreed with the challengers.

First, five justices (Scalia, Roberts, Kennedy, Alito and Thomas) held that a source’s GHG emissions, standing alone, cannot trigger the obligation to undergo PSD and Title V permitting.  That part of the decision is a loss for EPA.  But the second part of the decision is a victory for the agency.  Seven justices (Scalia, Roberts, Kennedy, Ginsburg, Beyer, Sotomayor and Kagan) held that EPA canrequire sources that are subject to PSD “anyway,” because they emit other types of pollutants in significantly large quantities, to control their GHG emissions.  In sum, GHG emissions cannot trigger the obligation to undergo PSD permitting, but EPA can use the PSD permitting process to impose source-specific GHG emission limits on facilities that trigger the process for other reasons.

The decision does not address EPA’s authority to impose substantive limits on GHG emissions using other statutory provisions such as Clean Air Act Section 111(d).

Article By:

Jacob Hollinger
Of:
McDermott Will & Emery

Supreme Court Decides CTS Corp. v. Waldburger Evaluating Whether CERCLA Precludes State-Law Statutes of Repose

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On June 9, 2014, the Supreme Court decided CTS Corp. v. Waldburger, holding that a North Carolina statute of repose was not preempted by Section 9658 of theComprehensive Environmental Response, Compensation, and Liability Act (CERCLA).

From 1959 until 1985, CTS Corporation manufactured electronics on a piece of property in North Carolina.  CTS sold the property in 1987.  Owners of both the former CTS property and adjacent property filed state-law nuisance claims in 2011, alleging that they had learned from the United States Environmental Protection Agency (USEPA) in 2009 that their groundwater was contaminated.  A district court relied on N. C. Gen. Stat. §1-52(16), a North Carolina statute which bars property damage claims made “more than 10 years from the last act or omission of the defendant giving rise to the cause of action,” to dismiss the claims, finding that CTS’s last act occurred in 1987, when the property was sold.  Relying on CERCLA Section 9658, the Fourth Circuit re-instated the nuisance claims because it concluded that CERCLA pre-empted the North Carolina statute.

The Supreme Court reversed the Fourth Circuit, holding that the North Carolina statute was not pre-empted and that CERCLA Section 9658 was limited to “statutes of limitations.”  While noting that there is common ground between “statutes of limitations,” which create “time limit[s] for suing in a civil case, based on the date when the claim accrued,” and “statutes of repose,” which “put[] an outer limit on the right to bring a civil action,” “each has a distinct purpose and each is targeted at a different actor.”  The Court found that, when Congress passed Section 9658, the language it chose limited the provision to statutes of limitations.  Additionally, the Court found that CERCLA expressed neither any intent to provide “a general cause of action for all harm caused by toxic contamination” nor a clear intent to supersede traditional police powers of the states.

Two points are worth mention:

First, the CTS decision is not the “usual” CERCLA decision.  The decision does not alter the mechanism under which federal or state agencies investigate, characterize, and remediate properties.  Indeed, based on the case history, the groundwater contamination alleged in the CTS litigation was discovered by EPA in 2009, two years before CTS suit was filed.  In 2012, the involved property was added to EPA’s National Priorities List, a designation reserved for sites EPA has identified as being among its priorities.  Similarly, it does not alter the federal causes of action parties may use to recover costs related to their remediation activities.

Second, the CTS decision appears to be based on a straightforward reading of CERCLA.  The Court held that CERCLA does not preclude a state’s choice to have legislative statutes of repose which apply to certain categories of tort cases.  While a few states have these, the majority of states do not.[1]  Each of the federal environmental statutes – to a degree – seeks to shape state action.  There is no indication in CERCLA that it intended to “trump” state ability to form independent tort-related law for any situation related to contamination.  Had it been Congress’s intent to supersede all state statutes of repose related to actions related to contamination, Congress could have done so.  In the Court’s view anyway, the language Congress chose did not do so here.

Article By:

J. Michael Showalter
Of:
Schiff Hardin LLP

[1] States with statutes of repose which were identified in the course of the CTS litigation include Connecticut, see Conn. Gen. Stat. § 52-584; Kansas, see Kan. Stat. § 60-513(b); North Carolinia, see N.C. Gen. Stat. § 1-52(16); and Oregon, see Or. Rev. Stat. § 12.115(1).  Alabama has a 20-year common-law statute of repose.  See, e.g., Abrams v. Ciba Specialty Chems. Corp., 659 F. Supp. 2d 1225) (S.D. Ala. 2009).

Supreme Court Finds that CERCLA Does Not Preempt Statutes of Repose – Comprehensive Environmental Response, Compensation, and Liability Act

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On June 9th, the Supreme Court issued its opinion in CTS Corp. v. Waldburger et al., No.13-339 (June 9, 2014) (slip op.) [link], in which it held that CERCLA section 309, 42 U.S.C. § 9658, does not preempt statutes of repose, reversing the Fourth Circuit.  Section 9658(a) preempts state law statutes of limitation for personal injury and property damage claims related to the release of a hazardous substance.  Justice Kennedy, writing for the majority, reaffirmed the oft-repeated “presumption against preemption” in reasoning that Section 9658 does not preempt state statutes of repose.  Statutes of limitations bar claims after a specified period of time based on when the claim accrued, whereas statutes of repose bar suits brought after a specified time since the defendant acted, regardless of whether the plaintiff has discovered the resulting injury.

CTS Corporation (“CTS”) operated an electronics plant in Asheville, North Carolina from 1959 to 1985.  CTS, which manufactured and disposed of electronics and electronic parts, contaminated its property with chlorinated solvents.  CTS sold the facility in 1987, and portions of the property were sold off.  Owners of those parcels, and adjacent landowners, brought suit against CTS in 2011, alleging that they discovered contamination on their properties in 2009.

The District Court found that N.C. Gen. Stat. § 1-52(16), North Carolina’s statute of repose, barred the suit.  That section prohibits a “cause of action [from] . . . accru[ing] more than 10 years from the last act or omission of the defendant giving rise to the cause of action.”  The Fourth Circuit reversed on the basis of CERCLA preemption, finding that section 9658 was ambiguous because it did not explicitly list “statutes of repose.”

The main issue at oral argument before the Supreme Court was whether the distinction between statutes of repose and statutes of limitation actually existed when Congress enacted Section 9658.  As Justice Scalia said, “. . . I used to consider them when I was in law school and even as late as 1986 [when section 1958 was added by Congress], I would have considered that a statutes of limitations.  Now, you think Congress is smarter.  They know the law better.”  Although other justices seemed to agree—and the distinction had only begun to be made in the 1980s—a 1982 Senate Superfund Study Group Report made that distinction and recommended that the few states that have statutes of repose repeal them.  Despite the overlap between statutes of repose and statutes of limitation, the Court found the distinctions important—statutes of repose are not related to the accrual of any cause of action and  cannot be tolled.  Because the Study Report made the distinction between the two, and because section 9658 fails to mention “statute of repose” and is not written in a way to suggest that it is intended to include both, the Court reversed.

The Court cited, as additional support for its conclusion the “well-established ‘presumptions about the nature of pre-emption.’”  The presumption against preemption counsels courts, when interpreting the text of a preemption clause susceptible of more than one possible reading, to “ordinarily accept the reading that disfavors pre-emption.”   The Fourth Circuit failed to mention this presumption (although the dissent relied on it).

This opinion follows recent Superfund cases in the Supreme Court in two respects.  First, the Supreme Court attempts to apply the “natural reading” of the statutory text rather than to reach out to interpret the statute broadly to effectuate its “remedial purpose.”  Indeed, Justice Kennedy explicitly derides that rationale for interstitial lawmaking.  Second, the Supreme Court attempts to preserve ordinary state law principles to the greatest extent possible.  So, for example, United States v. Bestfoods, 524 U.S. 51 (1998), was very respectful of state corporation law, and so too Waldburger is respectful of state tort law.  In this way, one might consider today’s decision to be fairly unremarkable.

The majority does not even address Justice Ginsburg’s dissent in which she and Justice Breyer worry that personal injuries with long latencies—like cancers—will go uncompensated.  But some of the long latencies arise not from the progress of some disease but of slow migration of a hazardous substance, in a groundwater plume for example.  Indeed, to the extent that many environmental toxic tort claims rest on allegations of property damage or diminution in value, the cancer model may be misplaced.

Curbing Greenhouse Gas (GHG) Emissions – Good for the Environment, Bad for Investors?

Bracewell & Giuliani Logo

On June 2, 2014, EPA issued a proposed rule to control greenhouse gas emissions (GHGs) from the electric power generation sector of the United States. EPA’s goal is to obtain a reduction of GHG emissions in 2030 from this sector of 30% from the baseline year 2005. The 2005 baseline allows EPA to take credit for GHG emission reductions that have occurred since that time without any regulatory obligation. The proposal establishes GHG emission targets for each State (expect the District of Columbia and Vermont who do not have goals under the rule). Interim emission targets must be obtained in the 2020-2029 timeframe with final targets obtained by 2030.

The proposal does not suggest any particular emission limit on particular plants, but imposes the obligation on the States to derive a plan to achieve the reductions. The only penalty for noncompliance in the proposal is that EPA would impose an EPA-developed plan within the State if it fails to submit an approvable plan. While EPA has not dictated any particular approach a State may employ, the proposal favors a cap and trade or carbon tax system as the primary manner to obtain GHG emissions reductions.

So here are the two burning questions from the perspective of investors. First, will this rule actually survive in anywhere near this form?  Second, when will affected power projects need to start ramping up investment in order to comply with the rule, i.e., when should investors start to worry about financial capacity?

In terms of a “review for reality,” many industry experts suggest that it is nearly impossible to obtain the proposed 6% efficiency improvement at existing coal-fired power plants without major capital improvements, which could require complex Clean Air Act permitting under other provisions of the law. Other goals can only be achieved through substantial purchases of carbon credits (i.e., offsets) or the implementation of technologies that haven’t yet been proven to be commercially viable. (You’ve likely heard the aspirations to develop carbon capture and sequestration.) EPA also assumes that natural gas-fired power plants will be running at 70% capacity year-round, which may be difficult to achieve in practice. Finally, EPA assumes that energy efficiency improvements at the consumer level will be obtained at a rate of 1.5% every year until 2030 – an ambitious goal.

In terms of a “review for timing,” this is only the beginning of a very long process. After the usual rounds of public comment, EPA has targeted issuance of the final rule by June 1, 2015. Then the lawsuits will start. Then a new President with his/her own views will take office. Plus, even under the EPA’s own best case scenario, the proposed rule allows states until June 2016 to submit plans, with the potential for extension to June 2017. Once a state submits a plan, EPA must approve or disapprove it through notice and comment rulemaking. The proposal allows for EPA to complete the review of the plans within 12 months of the state plan submittal. If a state doesn’t submit a plan or EPA disapproves the plan, EPA must make a plan for the state. State plans must begin to meet an interim goal in 2020 and must achieve their final goal by 2030. Plus, State plans and EPA approval/disapproval present a separate source of litigation and associated delay.

So no need for panic dumping of carbon-intensive investments just yet, but keeping an eye on the process would be wise, including consideration of whether, if your industry investments are large enough, you should participate in, or form/join a group to participate in, the comment-making phase plus working with members of Congress. The earlier the involvement, the greater the opportunity to help shape the results.

Article By:

Jeffrey R. Holmstead
Richard Alonso
Jason B. Hutt
Evan D. Flaschen
Of:
Bracewell & Giuliani LLP

EU Sanctions And The International Oil And Gas Industry

Andrews Kurth

The international oil and gas industry is continuously tasked with adapting to an ever evolving sanction-regulated environment. The level of sanction activity and implementation in recent years has been unprecedented, partly as a result of the political events which gave rise to the Arab Spring and the opposition to Iran’s nuclear programme. The recent crisis in the Ukraine, and associated sanctions against Russia, have sparked further debate around the need for effective, targeted punitive measures and the consequences they may have for Europe.

This article considers the EU’s sanction regime, explores the effect it has on international oil and gas companies and addresses the short-comings of the EU’s decentralised system.

What are sanctions?

Sanctions are political policy instruments used to encourage jurisdictions acting in contravention of international law to adopt standards supported by the wider global community. They impose measures designed to cause damage to the targeted government, non-state entity or individual (“Target”) in order to force it to undertake, or prevent it from undertaking, certain behaviour. They may inhibit the Target from accessing foreign markets for trade or deny it from pursuing financial and other forms of commerce. The professed ultimate objective of a sanction is to preserve or restore global peace and security.

What is the source of EU sanctions?

The UN Security Council imposes sanctions through Security Council resolutions which are binding on the EU. The EU implements all sanctions imposed by the UN Security Council through legislation enacted by the European Council. The process typically results in a European Council regulation which has direct effect in EU member states’ separate legal systems, creating rights and obligations for those subject to them, and overrides national law. Additionally, the EU may decide to impose self-directed sanctions or restrictive measures which go further than a UN Security Council resolution in circumstances in which the EU deems such action to be necessary.

Why do EU sanctions affect international oil and gas companies?

Over the past two decades, the EU has engaged in an active use of restrictive measures in the form of economic and financial sanctions, embargoes and restrictions on admission to a country. Economic and financial sanctions typically take the form of asset-freeze measures which involve the use of funds and economic resources by Targets or persons acting for and on behalf of Targets, and the provision of funds and economic resources to designated Targets. Embargoes may prohibit trade in certain goods, and activities relating to such trade, with Targets (including the flow of arms and military equipment). Visa or travel bans can be imposed preventing certain persons from entering the EU or transit through the territory of EU member states. These sanction measures are part of the EU’s strategy to support the specific objectives of the Common Foreign and Security Policy.

At the time of writing, the EU has announced asset freezes and travel bans against around twenty individuals in Russia and the Ukraine. Companies conducting their business in the oil and gas sector should be particularly vigilant to ensure they act in compliance with EU sanctions, as Ukrainian and Russian entities and individuals who operate in this industry may increasingly become sanction targets.

US sanctions are questionable under international law because they apply extra-territorially to third state parties involved in business activities with the Target. Unlike the US, the EU has refrained from adopting legislation with extra-territorial effect. However, the EU’s recent sanctions against Iran displayed a greater resemblance to those levied by the US than had previously been the case. For example, sanctions were imposed prohibiting the provision of key resources to various parts of the Iranian oil and gas industry, as well as the provision of financial services to that sector. As a result of EU financial sanctions most, if not all, banks and other financial institutions have declined from conducting any business relations with the Iranian regime.

It is clear that EU sanctions are wide reaching and their scope has a significant impact on business activities. They will apply to international oil and gas companies in the following situations:

  • within EU territory, including its airspace;
  • on board of aircrafts or vessels under the jurisdiction of an EU member state;
  • to EU nationals, whether or not they are in the EU;
  • to companies and organisations incorporated under the law of a member state, whether or not they are in the EU (this captures branches of EU companies in non-EU countries); and
  • to any business done in whole or in part within the EU.

The corporate behaviour, performance and conduct of international companies are powerful channels through which the objectives of sanctions against Targets are achieved. Since an international oil and gas company has little option but to observe EU sanctions to the extent such company falls within the EU’s jurisdiction, these restrictive measures are likely to play a big part in a company’s commercial decision making processes.

Why are EU sanctions difficult to manage?

A principal reason why EU sanctions are difficult for international oil and gas companies based in various EU member states to manage largely stems from the fact that the European Union lacks a centralised licensing body. Instead, the responsibility for implementing and enforcing EU sanctions is delegated to the relevant competent authorities of the EU member states. The potential for variance and discrepancy is rife in a system where there are twenty-eight EU member states, each with their individual national resource constraints and self-centred policy objectives.

Typically, the competent authorities of EU member states are responsible for:

  • granting exemptions and licences;
  • establishing penalties for sanction violations;
  • coordinating with financial institutions; and
  • reporting upon the implementation of sanctions to the European Commission.

There have been calls for a central EU licensing body which would produce a single licensing and exemption policy for EU member states. Although EU guidelines on sanctions and best practices for the effective implementation of restrictive measures go some way to plug the gap, arguably a more comprehensive regime for implementing sanctions is required to provide a better level of certainty to international businesses operating in the realms of the EU.

Managing the risks

International oil and gas companies have always had to function in politically active climates. As sanctions initiated by multilateral organisations such as the UN and EU become more fashionable, so too does the exposure to political risk that these companies will face. Given the considerable levels of investment that can only be recouped over extended periods of time, and in accordance with pre-determined contractual apportionments, international oil and gas companies need to be able to recognise, assess and manage these political risks effectively.

Oil and gas companies can relieve the risks imposed on them by sanctions through political lobbying, taking pre-emptive measures and by reacting quickly to sanctions once they are implemented. Commercial negotiations will need to focus on the allocation of risk as a result of one party’s failure to perform or withdrawal from the contract on the grounds of applicable sanctions.

International oil and gas companies need to be proactive and consider both the legal solutions and pre-cure safeguards. Time and effort should be spent focusing on drafting and negotiating the relevant contractual documentation, following a careful risk assessment, instead of deferring to dispute resolution provisions. For instance, careful construction of force majeure provisions can allocate each party’s obligations in the circumstance where an event outside of a party’s control causes contractual performance to become impossible. Thus, whilst conventional force majeure clauses relating to physical events afford relief to an affected party from its liabilities under the contract, oil and gas companies should consider expanding such contractual provisions to cover sanctions and other restrictive measures imposed on them by the UN and EU.

To avoid falling foul of existing EU sanctions, oil and gas companies should also consider putting in place comprehensive compliance procedures and systems to implement applicable sanction regimes. Penalties for breach of sanctions can be severe; a person guilty of a sanction-related offence may be liable on conviction to imprisonment and/or a fine. Falling foul of sanctions also means that a transaction can immediately become unlawful.

Conclusion

In view of the economic significance of the EU, the application of economic financial sanctions can be a powerful tool. But like a chain is no stronger than its weakest link, the effectiveness and success of the EU’s sanction regime depends on all EU member states applying, implementing and enforcing EU sanctions in a consistent manner.

The current EU sanction regime warrants a fully integrated approach which would undoubtedly benefit its policy objectives and move some way to reducing the unduly high economic cost that international oil and gas companies face when operating their businesses in the EU.

In voicing the sentiments of Henry Kissinger: “No foreign policy – no matter how ingenious – has any chance of success if it is born in the minds of a few and carried in the hearts of none”, perhaps now, in the dawn of the recent events which have taken place in the EU’s backyard in the Ukraine and Russia, the EU should further global security measures by tightening its ranks and implementing a more centralised, and better monitored, sanction regime.

Article By:

Rebecca Downes
Of:
Andrews Kurth

2nd Conflict Minerals Reporting and Supply Chain Transparency Conference- June 23-25, Chicago, IL

The National Law Review is pleased to bring you information about the 2nd Conflict Minerals Reporting and Supply Chain Transparency Conference, June 24-25, 2014, presented by Marcus Evans.Conflict-Minerals-250-x-250

Click here to register.

Where

Chicago, IL

When

June 24-25, 2014

What

The 2nd Sustaining Conflict Minerals Compliance Conference will break down each SEC filing requirement as well as examine direct filing examples from specific companies. Discussions will tackle key issues including refining conflict minerals teams to create a more successful conflict minerals management program, managing and developing consistent communication within the supply chain, and building an IT program that will continue to secure data from the various levels of the supply chain.

This conference will allow organizations to benchmark their conflict minerals management program against their peers to more efficiently meet SEC expectations and amend their program for future filings. Seating is limited to maintain and intimate educational environment that will cultivate the knowledge and experience of all participants.

Key Topics
  • Scrutinize the Securities and Exchange Commission (SEC) requirements and evaluate external resources for a more efficient conflict minerals rule with Newport News Shipbuilding, Huntington Ingalls Industries
  • Engineer a sustainable conflict minerals program for future filings with Alcatel-Lucent
  • Integrate filings and best practices from the first year of reporting with BlackBerry
  • Maintain a strong rapport with all tiers of your supply chain to increase transparency with KEMET
  • Obtain complete responses moving throughout the supply chain with Global Advanced Metals

Register today!