Throughout the past decade, analysts and policymakers have promoted electric vehicles (EVs) as the cars of the future, highlighting their potential to provide effective, environmentally friendly transportation for individual and business purposes alike. Pure EV sales in the United States rose from just over 10,000 in 2011 to nearly 500,000 in 2021, and the country is expected to add 1 million new EVs to its roads in 2023, aided by government subsidies. However, over the past year, the EV market has been struggling with price cuts and rising inventories; in August 2023, it took about twice as long to sell an EV in the U.S. as it did the previous January. Given the expectations for an EV takeover of the automotive industry, it is important to understand what is driving this slowdown, and how it may affect individuals and businesses in the years to come.
The Transportation of Tomorrow
Though fuel-powered motors were traditionally preferable due to their superior energy storage and range, concerns over their environmental impact in the late 20th century propelled people to consider electricity-powered substitutes. Hybrid EVs, which use electric motors alongside internal combustion engines, became more widespread starting in the 1990s, while fully battery-powered electric cars, which only use energy stored in on-board batteries, have increasingly become practical options in the consumer market starting in the 2010s, though their recharging requirement remains a sore spot. Given the efficiency gap between fuel-powered motors and contemporary battery technologies, as well as typically higher costs for EV production, governments have often stepped in to offer economic incentives for EV purchasing and manufacturing, attempting to guide long-term automotive supply and demand toward sustainable transport options.
Government incentives for EV adoption have grown steadily over the past three decades, with large markets like the U.S. and EU commencing efforts in the 2000s, later followed by developing economies such as China and India. For years, the U.S. federal government and state governments have offered tax credits for producers and consumers adopting qualified electric drive motor vehicles, with states like California going even further by offering HOV lane access for EVs operated by a single occupant. President Biden designated increased EV adoption as a substantial element of his Investing in America agenda, setting a goal for 50% of all new vehicle sales in the U.S. to be electric by 2030. However, despite increasing environmental awareness and policy pressures, consumer demand has not always followed suit.
Wavering Consumer Demand
Currently, there is an oversupply of electric vehicles in the industry, reflecting continued automaker and government investment against slowing consumer demand. While most American consumers view adopting EVs as an inevitability, their anxieties relating to the range that the battery can produce and a lack of public charging infrastructure still induce uncertainties over dependability. During the COVID-19 pandemic, shelter-in-place orders reduced the need for frequent personal transportation, allowing consumers greater flexibility to adopt EVs. However, now that pandemic restrictions no longer present a substantial external variable and more workers are required to return to the office, vehicles powered by internal combustion engines remain preferable as the most reliable transport option. This is supported by the changing profile of the EV consumer – the percentage of EV shoppers trading in a vehicle they already own has doubled over the past decade, indicating that many EV consumers do not rely on them as their primary mode of transport. Amplifying the charging concern, a Pew Research Center survey from July found that Americans have low levels of confidence that the U.S. will build necessary EV infrastructure, including critical charging ports, dampening enthusiasm that the Biden administration’s EV goals will be met on time.
On the other hand, pricing continues to be another hurdle for greater EV adoption. According to Cox Automotive, the average transaction price for a vehicle in the U.S. was around $48,000 in September 2023; for EVs, the number was between $53,000 and $60,000. The higher price tag for EVs tends to be a result of manufacturing costs remaining more expensive than they would be for producing gasoline-powered vehicles, given the auto industry’s substantially longer experience making internal combustion engines compared to EV technologies and the still-inflexible EV supply chain. High interest rates render borrowing money for car payments more expensive, along with inflation reducing consumer purchasing power and global supply chain disruptions contributing to the issue as well. According to S&P Global Mobility, while 86% of U.S. car buyers were considering an EV in 2021, the number fell to 67% in 2023. Despite government tax credits, investing in a relatively more expensive EV purchase is a hefty request for many American consumers concerned about short-term costs in today’s economy.
Effects on the Auto Industry
The auto sector is facing the classic problem for a sector in transition, i.e., growing supply to pace with developing demand. The current market condition is not a problem of declining demand but supply outpacing demand and the auto industry is already making corrections. Ford, having opened reservations for its fully electric F-150 Lightning model in May 2021, closed them by the end of the year due to excess supply, and by September 2023, announced it was ramping up production of its hybrid F-150s in response to lowered than anticipated sales of the Lightning. Lucid, a high-profile luxury EV brand, has seen two consecutive quarters of weaker than expected demand, most recently delivering 600 fewer of its Air luxury sedans than Wall Street had expected in the second quarter of 2023. Tesla’s aggressive price cuts have hindered the growth of competition in the EV industry, with two-thirds of all EVs sold by the Elon Musk-owned automotive giant, as consumers find it difficult to afford suitable alternatives. At the end of the second quarter of 2023, several automakers announced their decision to move to the Tesla charging standard, stranding many vehicles on factory floors with an obsolete charging outlet, thus further exacerbating the dilemma.
Pushback against public sector efforts to mandate EV adoption may also reshape expectations for how the auto industry will move forward in the coming decade. On November 8, the U.S. Senate voted 50-48 to overturn Biden’s decision to waive some “Buy America” requirements for government-funded electric vehicle charging stations. Western lithium and graphite miners have started charging the EV supply chain higher prices to reduce dependence on Chinese supply of these materials. Owing to anxieties over cheap Chinese-manufactured EVs flooding the American market as has happened in Europe and a potential Chinese monopoly of rare earth minerals critical in EV production, these protectionist moves on an already inflexible EV supply chain are likely to further delay progress toward the administration’s vehicle electrification aims. EV adoption also remains inconsistent across U.S. regions, being significantly lesser in states like Texas where gas prices and home energy rates are lower, compared to others like California where the opposite is true. Nonetheless, there are reasons to remain optimistic about the long-term growth of EV sales in the auto industry – an S&P study in 2023 showed that people were willing to accept charging times of less than an hour and less range on an EV compared to a gasoline equivalent, and while the number of EV buyers fell from 2021 to 2023, it was still higher than in 2019. Understanding that a gradual shift towards electricity-powered vehicles is still probable, individuals and businesses alike should note that it will likely occur over a longer period than analysts and policymakers predict. Meanwhile, greater hybrid vehicle production and purchasing could generate a slew of new opportunities in the short to medium term.
This article was authored by William Samir Simpson.
November has been a big month for methane policy, featuring announcements of new international, domestic, and private sector initiatives. A common thread across all of the new initiatives is the aim of achieving more ambitious, credible, and internationally consistent standards for measurement, monitoring, reporting, and verification (MMRV) of methane emissions from the oil and gas sector. Below is a review.
China’s Methane Pledge. China is the world’s largest emitter of methane, accounting for 14% of the global total, and, for the first time, the government made an international announcement about methane policy. At a November summit held in Sunnylands, California, President Joe Biden and Chinese President Xi Jinping announced a new agreement to address climate change. Previous Chinese pledges had only targeted carbon dioxide, but the new agreement includes a first-ever commitment by the country to tackle non-CO2 emissions, including methane. Just prior to the Sunnylands summit, the Chinese government issued an action plan outlining goals to curb flaring and to develop a methane MMRV program.
EU Methane Regulation.The European Union (EU) also broke new ground on methane policy this month. After all-night talks, the EU’s governing entities finalized a new Methane Regulation, which targets not only domestic sources of methane but also emissions attributable to imports of natural gas into the Continent—including from the United States. For imports, the Regulation establishes phased requirements. The first phase focuses on data collection coupled with a mechanism for detecting and rapidly addressing large leaks. The second phase will condition imports on application of prescribed, uniform MMRV measures. Starting in 2030, importers will be subject to a limit on their methane “intensity”—a metric that measures methane emissions per unit of gas throughput. The methane intensity limit will apply across the entire value chain, from pre-production through final delivery. The Regulation requires the EU Commission to promulgate the intensity standard by 2027.
International Working Group on MMRV for Natural Gas Markets. To support not only these emerging governmental policies but also expanding private sector efforts to create a market for “Differentiated Gas,” a multilateral initiative was announced in November—the International Working Group to Establish a Greenhouse Gas Supply Chain Emissions Measurement, Monitoring, Reporting, and Verification (MMRV) Framework for Providing Comparable and Reliable Information to Natural Gas Market Participants (the Working Group). The Working Group’s members consist of the U.S. government, eleven other governments, the European Commission, and the Mediterranean Gas Forum. The Working Group’s objective is to develop a consensus-based, consistent international framework for supply chain MMRV. A consistent framework will make it easier for buyers to demand and suppliers to provide natural gas with a lower greenhouse gas profile. The Working Group will not prescribe emission targets, but it acknowledges that governments may use its work products to inform regulatory processes.
The Working Group has stated that it will draw on input from expert stakeholders. To that end, a consortium of three universities participating in the Energy Emissions Modeling and Data Lab (EEMDL) has convened a group of academic, think tanks, ENGO, and market experts to develop recommendations for MMRV standards for the Differentiated Gas market. (I am a participating expert in the EEMDL initiative.) This month, a subset of the experts group published a paper in Nature Energy outlining the issues.
Financial Institutions Call for Industry Action. Underscoring the increasing private sector demand for Differentiated Gas, two major financial institutions released reports in November calling for industry action. JP Morgan, one of the world’s largest financiers of fossil fuel projects, issued a report underscoring its commitment to achieve a net zero-aligned emission intensity reduction target for its oil and gas sector portfolio. Methane reductions are a key element of its net-zero strategy. To that end, the report identifies and exhorts the industry to adopt best-in-class practices for methane MMRV and mitigation.
In the same week, one of the world’s largest insurance underwriters for the oil and gas sector, Chubb, rolled out a Methane Resource Hub, a digital resource center for its clients. The site provides information on MMRV and mitigation techniques, technologies, studies, and policies.
Waiting for EPA. Also expected in November is EPA’s proposed implementation rules for the “Methane Fee” that was enacted as part of the Inflation Reduction Act (IRA). The IRA provisions apply a per-ton fee to facilities in the oil and gas sector that exceed specified methane intensity limits. To implement the fee, EPA will need to promulgate methods for facility-level methane intensity measurements. A significant issue in the rulemaking is the extent to which EPA will allow affected facilities to use advanced methane measurement technologies to calculate their annual emissions.
2023 has proven to be an extremely busy year for PFAS state AG lawsuits seeking environmental pollution remediation costs from PFAS manufacturers and AFFF manufacturers. We previously wrote that Illinois (February), Maine (April), Kentucky (April), Rhode Island, Arizona, Maryland, Oregon, and Washington (all in May), South Carolina (July), and Tennessee and Washington DC (August) were the latest states seeking hundreds of millions of dollars in PFAS remediation costs. Now, Delaware has joined the fray, bringing the number of state PFAS lawsuits to close to 25 cases, with more expected to be filed. While the lawsuits target a narrowly tailored set of companies, lawsuits in other states have already demonstrated that downstream commerce corporations are at risk of being involved in lawsuits seeking hundreds of millions of dollars.
PFAS State AG Lawsuits
The Delaware Attorney General lawsuit seeks PFAS remediation costs from 3M and various AFFF manufacturers. The lawsuit specifically details the extent to which several types of PFAS are found in groundwater, surface water, drinking water, waste treatment byproducts, and various other environmental impact avenues. There is one unique aspect of the Delaware lawsuit as compared to other state lawsuits in that the Delaware case only specifically mentions PFAS contamination at New Castle County Airport and at the Dover Air Force Base. Other state AG lawsuits have more broadly claimed that PFAS contamination is widespread throughout the states. Delaware is seeking costs “in excess of $1,000,000” related to investigating, cleaning up, restoring, treating, and monitoring the state’s contaminated groundwater, surface water, soil and other natural resources.
Implications For Downstream Manufacturers
While the latest state PFAS lawsuit targets PFAS manufacturers and AFFF manufacturers, companies should not dismiss the lawsuits as events unlikely to impact them in any way. On the contrary, in other states, including California, companies have been directly named as defendants in lawsuits seeking billions of dollars in PFAS remediation costs. Corporations should not ignore the pollution and environmental contamination issues that PFAS pose, as states, federal and state regulatory agencies, and even private citizens are actively seeking damages from companies that they believe placed PFAS into the environment. All companies of all types would be well advised to conduct a complete compliance audit to best understand areas of concern for PFAS liability issues, and ways to mitigate PFAS concerns.
On September 27, 2023, six “Portuguese young people” were heard by the European Court of Human Rights (ECtHR) in a lawsuit against 32 European governments, including all EU member states, alleging that their failure to act fast enough against climate change has violated the applicants’ human rights to life, physical and mental wellbeing. The applicants claim that the respondents are failing to fulfil their obligations under the Paris Agreement to limit global warming.
The original application cites a number of contributions to climate change made by the respondent states: (i) permitting the release of emissions within national territory and offshore areas over which they have jurisdiction; (ii) permitting the export of fossil fuels extracted on their territory; (iii) permitting the import of goods, the production of which involves the release of emissions into the atmosphere; and (iv) permitting organizations within their jurisdiction to contribute to the release of emissions overseas. Taken together, the applicants say, the respondents have contributed to climate change and, while mitigation measures have been adopted, contributions to adverse climate change continues. The applicants are seeking an order from ECtHR requiring the respondent governments to take more ambitious action.
Describing the impact on them, the applicants say that climate change has contributed to harm to human health. In an expert report commissioned to supplement their application, the applicants say that Portugal is already experiencing the impact of climate change, including an increase in mean and extreme high temperatures, with heatwaves becoming more frequent. As a result, the region is also prone to wildfires – 120 people died and 500,000 hectares of land were burned during wildfires preceded by heatwaves. Responding to the application, a lawyer on behalf of Greece claimed that climate change cannot be directly linked to an adverse impact on human health, stating “[the] effects of climate change, as recorded so far, do not seem to directly affect human life or human health.” Lawyers on behalf of Portugal stated that the applicants failed to provide evidence of the specific damages caused by climate change on their lives.
The case was originally filed in September 2020. The September 27 hearing was one of the largest before the ECtHR, with 22 judges and 86 government lawyers, and took place following one of the hottest summers on record in Europe. A decision is expected in 2024.
Taking the Temperature: The claims made in this case echo certain conclusions reached in the United Nations’ first global stocktake on parties’ achievements under the Paris Agreement. The UN acknowledged that although significant progress has been made, there is a crucial need for nations to significantly enhance their clean energy ambitions if they are to achieve their Paris-aligned objectives.
In July 2023, we discussed the Grantham Institute’s report on trends in climate litigation and the types of strategies being employed by claimants. One of these included so-called government framework actions in which plaintiffs focus on a government’s response to climate change and potentially, its failure to implement policies or legislation. The case brought by the six Portuguese young people falls squarely within this category.
In June 2023, we discussed the lawsuit filed by, among others, Greenpeace and 12 Italian citizens against ENI S.p.A. alleging that ENI knew of the detrimental effect of fossil fuel burning since around 1970 but through “lobbying and greenwashing” continued to encourage extraction, thereby contributing to climate change, and violating the citizens’ rights to life, health and private and family life. In March of this year, a group of Swiss citizens accused the Swiss government of infringing on the right to life and health of elderly women via its climate-related policies. The case is pending in the European Court of Human Rights.
Comparable cases have also been filed in the U.S. In Montana, 16 residents—ranging from ages 2 to 18—commenced litigation claiming that they “have been and will continue to be harmed by the dangerous impacts of fossil fuels and the climate crisis,” and that the defendants have violated the Montana Constitution by fostering and supporting fossil fuel-based energy policies in the state that led to these conditions. In September this year, the court struck down on state constitutional grounds certain provisions of the Montana Environmental Policy Act (MEPA), which restricted Montana from incorporating the impact of greenhouse gas emissions or other forms of climate change in environmental reviews. Similar constitution-based climate-related suits against state governments are pending in other U.S. states.
First, in early 2023, the United States Environmental Protection Agency (“EPA”) and the United States Army Corps of Engineers (“USACE”)(together, the “Agencies”) revised the definition of “Waters of the United States” (the “2023 Rule”). This definition controls which water resources qualify for federal protection under the Clean Water Act (“CWA”) (see WOTUS Whiplash 4.0 for a description of the 2023 Rule). Second, in May, the United States Supreme Court released its Sackett v. EPA decision. Third (and likely the final WOTUS milestone of the year), the Agencies recently issued yet another revised WOTUS definition in light of Sackett. This article breaks down the Supreme Court’s impactful Sackett decision, the Agencies’ corresponding 2023 Rule revision, and the consequences of such changes for states like North Carolina – which is simultaneously undergoing state environmental statutory changes.
The Regulatory Landscape Pre-Sackett
Before Sackett, the Supreme Court’s Rapanos decision controlled whether wetlands separated from a recognized WOTUS by a natural or man-made barrier fell under CWA jurisdiction. If they did, impacts to those wetlands required a permit from the USACE under Section 404 of the CWA. In Rapanos, the Court failed to reach a coherent majority decision. Justice Scalia drafted the four-justice plurality opinion, holding that WOTUS included: (1) only those waters that are “relatively permanent, standing, or continuous[ly] flowing” such as streams, rivers, and lakes; and (2) only those wetlands that share a continuous surface connection with such waters. But Justice Kennedy, who cast the deciding vote in Rapanos, created a different test. This test, which became the most commonly cited rule for WOTUS, assessed whether a wetland possessed a “significant nexus” to a recognized WOTUS. This “significant nexus” test extended CWA protections to wetlands that “either alone or in combination with similarly situated lands in the region, significantly affect the chemical, physical, and biological integrity of other covered waters . . . .”
In addition, pre-Sackett, the Agencies adopted WOTUS definitions in various rules, manuals and policies that, like Justice Kennedy’s “significant nexus” test, considered “adjacent wetlands” to be jurisdictional—including those that are “separated from other waters of the United States by man-made dikes or barriers, natural river berms, beach dunes and the like.” When the Agencies issued the 2023 Rule, they basically combined Scalia’s Rapanos approach (putting relatively permanent tributaries and streams back under federal jurisdiction through continuous surface connections) with Kennedy’s Rapanos approach (applying the “significant nexus” test to non-navigable tributaries and adjacent wetlands). The Agencies published the 2023 Rule knowing that the Supreme Court would soon thereafter issue an opinion in Sackett, which was argued in October 2022.
Sackett v. EPA
The Sacketts sued the EPA in 2008 over whether they had violated the CWA by backfilling a wetland on their property without a Section 404 permit from USACE. The EPA argued that this wetland shared a significant nexus with Priest Lake, a WOTUS separated from the Sacketts’ property by a 30-foot road. On May 25, 2023, a five-justice majority issued its opinion in Sackett, which greatly limited federal CWA jurisdiction over wetlands nationwide. The Court found that the Agencies’ rules were inconsistent with the CWA’s text and structure and held that the CWA extends only to those “‘wetlands with a continuous surface connection to bodies that are ‘waters of the United States’ in their own right, so that they are ‘indistinguishable’ from those waters.” Writing for the majority, Justice Alito concluded that “the CWA’s use of ‘waters’ encompasses ‘only those relatively permanent, standing or continuously flowing bodies of water ‘forming geographic[al] features’ that are described in ordinary parlance as ‘streams, oceans, rivers, and lakes.'”
Under the 2023 Rule, which was not at issue in Sackett, wetlands without a continuous surface connection to a body of water could still be federally protected WOTUS if the wetland had a “significant nexus” to surface waters. But Sackett rejected the “significant nexus” test in favor of defining covered wetlands as those that are wet or “wet-lands.” Thus, any WOTUS definition using “adjacency” or “adjoining” to define CWA-protected waters is irrelevant. Instead, there must now be a continuous surface water connection between “wet lands” and the open, navigable-in-fact WOTUS for the federal government to claim jurisdiction. Wetlands that qualify as WOTUS must be “indistinguishable” from WOTUS and “have a continuous surface connection to bodies that are” WOTUS.
The Regulatory Landscape Post-Sackett
The Agencies responded to Sackett by announcing they would develop new guidelines for determining federal jurisdiction by September 1, 2023. And they met that unprecedented deadline, taking a scalpel to the 2023 Rule to conform it to Sackett (the “Sackett Rule”). The Agencies removed from the 2023 Rule references to the “significant nexus” test, including deleting from the WOTUS definition interstate wetlands and those tributaries, streams, and wetlands containing a significant nexus to other WOTUS. They also redefined “adjacent” within the 2023 Rule to no longer include those wetlands separated from WOTUS by certain geographic features and limiting the meaning of “adjacent” to those waters “having a continuous surface connection” to another.
Despite these precise revisions, the Agencies did not define a “continuous surface connection” or a “relatively permanent” body of water under the Sackett Rule. Thus, lawyers and consultants must make this initial interpretation by picking through the preamble to the 2023 Rule. And they must wait to see how the Agencies, primarily the USACE, implement the Sackett Rule to wetlands in the field.
Challenges for State Law and Regulation
Although the Sackett Court removed federal protection from wetlands, it acknowledged that the states could provide that protection. Justice Alito pointedly noted that “[r]egulation of land and water use lies at the core of traditional state authority”; because the CWA anticipates a partnership between the states and the federal government, the states “can and will continue to exercise their primary authority to combat water pollution by regulating land and water use.”
And North Carolina exercised its authority to provide greater state protection for its wetlands until June 27, 2023. On that date, the North Carolina General Assembly overrode a gubernatorial veto to pass Senate Bill 582, entitled “An Act to Make Various Changes to the Agricultural and Wastewater Laws of the State” (the “2023 NC Farm Act”). The 2023 NC Farm Act restricts the state definition of “wetlands” to those “that are waters of the United States as defined by 33 C.F.R. § 328.3 and 40 C.F.R. § 230.3,” i.e., only those WOTUS regulated by the Agencies. The General Assembly directed the Environmental Management Commission (“EMC”), the state rule-making authority, to implement this definition of “wetlands” until the EMC formally adopts a permanent rule to amend the existing definition of wetlands. Until then, wetlands in North Carolina are only those the federal government recognizes and protects as WOTUS, unless a state statute (for example, the Coastal Area Management Act) specifically provides otherwise.
The combination of the Sackett opinion, the 2023 NC Farm Act, and the Sackett Rule cast doubt as to whether the state’s isolated wetlands rules remained in effect, despite having a separate regulatory definition that was not by the 2023 Farm Act. The EMC Chair requested the North Carolina Department of Environmental Quality (“NCDEQ”) to advise on the assimilation of federal and state definitions. At the EMC’s meeting in September, the NCDEQ Division of Water Resources (“DWR”) provided an update to the regulated community. It also issued a public notice regarding the implementation of the revised definition of wetlands in the 2023 NC Farm Act, including the following:
Where the USACE and a 404 Permit applicant agree that all features on the property are potentially jurisdictional, DWR will process the related state certification required by Section 401 of the CWA.
Where there are questions regarding the jurisdictional status of the wetlands, the USACE will evaluate those wetlands under the Sackett Rule. DWR will move forward on these projects once it has a decision from USACE.
Isolated wetlands and non-jurisdictional wetland permits will not be necessary for properties that have received Approved Jurisdictional Determinations from the USACE confirming the wetlands are not under the Sackett Rule.
Questions remain as to the specifics of North Carolina’s regulatory jurisdiction of wetlands as State waters. The 2023 NC Farm Bill was introduced before the Sackett opinion was released. And given the breadth of Sackett, the Bill’s proponents may not have intended the resulting consequences. The filling of unregulated wetlands may result in reduced floodwater mitigation and stormwater filtration, affecting surface water quality and other ecological functions. Counties bearing the brunt of storm impacts increasingly caused by climate change have made gains in resiliency planning. But those gains may be reduced or eliminated if policymakers do not address the potential loss of wetlands in those counties.
Navigating Uncharted WOTUS
Despite the uncertainty cast over wetlands by Sackett, the 2023 NC Farm Act, and the Sackett Rule, it’s important to remember that the CWA has four other categories of protected waters. And several state laws continue to apply to activities impacting wetlands even if CWA Section 404 permit requirements do not. These include the Sedimentation and Pollution Control Act with respect to enforcement actions for land-disturbing activities and the Coastal Area Management Act for development activities in coastal counties. Since the 2023 Rule was not before the Sackett Court, the conforming Sackett Rule may be exposed to challenges. Expect to see more guidance from the Agencies as the USACE makes jurisdictional determinations in the field. Landowners will need to identify the water features on their property to understand what federal and state regulatory programs are at play beyond Section 404 of the CWA. Strategies to manage uncertainty include working with a professional team to consider: preliminary versus approved jurisdictional determinations; state and local requirements; avoidance opportunities; and development plans with built-in flexibility.
In October 2023, the United States Environmental Protection Agency (EPA) finalized two separate but analogous rulemakings – one under the Toxic Substances Control Act (TSCA), and one under the Emergency Planning and Community Right to Know Act (EPCRA). Both rulemakings pertain to per- and polyfluoroalkyl substances (“PFAS”), commonly referred to as “forever chemicals.” PFAS are manmade chemicals that have been widely used in industry and consumer products since their inception in the late 1930s. PFAS are most known for their resistance to tricky substances such as grease, water, and oil and have been commonly used in a variety of products like cleaning products, water and stain resistant fabrics, nonstick cookware, medical devices, firefighting foam, beauty products, and even things like microwave popcorn bags and pizza boxes.
These rulemakings are significant because they place broad recordkeeping and reporting requirements on facilities that may not have previous experience with either environmental statute. Under the new TSCA rule, any entity that manufactures or has manufactured (including import or previously imported) PFAS or PFAS-containing articles in any year since January 1, 2011, must now report certain information to EPA. Additionally, under the new EPCRA rule, facilities that use more than 100 pounds of PFAS annually must comply with Toxics Release Inventory (“TRI”) reporting obligations and provide downstream businesses with notifications that products may contain PFAS.
Broad PFAS Reporting under TSCA
Considered one of the most significant rulemakings of the year, on October 11, 2023, EPA finalized a rule under TSCA Section 8(a)(7) requiring any person that manufactures (including import) or has manufactured (including imported) PFAS or PFAS-containing articles in any year since January 1, 2011, to electronically report information regarding “PFAS uses, production volumes, byproducts, disposal, exposures, and existing information on environmental or health effects” through EPA’s agency-wide Chemical Data Exchange (“CDX”) portal. The new rule, effective November 13, 2023, triggers specific reporting dates and deadlines depending on the entity’s size and previous and/or current usage of PFAS.
The first of the reporting dates under the new rule applies to any entity, including small entities, that have manufactured and/or currently manufacture (including imported or currently import) PFAS in any year since January 1, 2011. These entities will have 18 months from the effective date of the rule to report PFAS data to the EPA. The second reporting date applies to “small manufacturers” as defined under 40 CFR 704.3 whose reporting obligations are exclusively from article imports. Entities meeting this definition will have 24 months from the effective date of the rule to report PFAS data to EPA. These dates are estimated to fall in May 2025 and November 2025, respectively.
This rule is likely most applicable to those in the electronics, food packaging, and automotive industries, but will also likely ripple to many other types of industries, including those that manufacture and/or import items such as textiles, circuit boards, wires, cables, and pharmaceuticals.
If you believe you may be impacted by this new rule, we recommend developing a strategy immediately to determine whether your company has manufactured or imported PFAS since January 1, 2011. Additionally, if your company has acquired another company since January 1, 2011, we also recommend reviewing that company’s documentation to determine whether there may be any additional reporting requirements triggered.
PFAS Reporting to the Toxics Release Inventory under EPCRA
On October 20, 2023, just a week after the TSCA PFAS rulemaking was finalized, EPA finalized a second PFAS rulemaking under EPCRA. This rule revised the TRI program to impose two new sets of reporting obligations related to 189 specified PFAS. Scheduled to go into effect on November 30, 2023 (and for annual reporting purposes beginning January 1, 2024), the new rule now requires:
An annual reporting obligation to EPA for facilities that use more than 100 pounds of PFAS annually, and
A requirement for business-to-business downstream notifications of the presence of PFAS in certain products
These new requirements are significant because the previously applicable de minimis exception that exempted products containing less than 1% of PFAS (or 0.1% for PFAS qualifying as carcinogens, such as PFOA) from being considered for either reporting or notification purposes, is now removed. Now, under this new rule, any quantity of the 189 specified PFAS counts towards the 100-pound threshold and triggers the downstream notification obligation. While the new rule only applies to 189 specified PFAS, EPA retains the authority to add additional PFAS in the future.
This rule is significant as it could result in numerous products being newly identified as containing PFAS throughout the supply chain. Companies that manufacture, process, or otherwise use PFAS in their operations should immediately develop a strategy to better understand this new rulemaking and determine whether the TRI reporting requirements may be triggered. Additionally, companies that supply PFAS-containing products to downstream business purchasers should evaluate whether additional notifications of the presence of PFAS in the products they supply may be required.
Conclusion
These rulemakings are complex and will have significant impacts on those in the industrial and manufacturing industries. These rules are also likely just the beginning of the PFAS regulatory iceberg.
On November 16, 2022, the U.S. Environmental Protection Agency (EPA) published a much-anticipated supplemental notice of proposed rulemaking (SNPRM) to modify and supplement its 2021 proposed rule that would amend the 2018 Toxic Substances Control Act (TSCA) fees rule. 87 Fed. Reg. 68647. EPA states that “[w]ith over five years of experience administering the TSCA amendments of 2016, EPA is publishing this document to ensure that the fees charged accurately reflect the level of effort and resources needed to implement TSCA in the manner envisioned by Congress when it reformed the law.”
What Action Is EPA Taking?
After establishing fees under TSCA Section 26(b), TSCA requires EPA to review and, if necessary, adjust the fees every three years, after consultation with parties potentially subject to fees. The SNPRM describes proposed changes to 40 C.F.R. Part 700, Subpart C as promulgated in the 2018 Fee Rule (83 Fed. Reg. 52694) and explains the methodology by which EPA determined the proposed changes to TSCA fees. The SNPRM adds to and modifies the proposed rulemaking issued on January 11, 2021 (2021 Proposal) (86 Fed. Reg. 1890). EPA proposes to narrow certain proposed exemptions for entities subject to the EPA-initiated risk evaluation fees and proposes exemptions for test rule fee activities; to modify the self-identification and reporting requirements for EPA-initiated risk evaluation and test rule fees; to institute a partial refund of fees for premanufacture notices (PMN) withdrawn at any time after the first ten business days during the assessment period of the chemical; to modify EPA’s proposed methodology for the production volume-based fee allocation for EPA-initiated risk evaluation fees in any scenario where a consortium is not formed; to expand the fee requirements to companies required to submit information for test orders; to modify the fee payment obligations to require payment by processors subject to test orders and enforceable consent agreements (ECA); to extend the timeframe for test order and test rule payments; and to change the fee amounts and the estimate of EPA’s total costs for administering TSCA Sections 4, 5, 6, and 14. More information on the 2018 Fee Rule is available in our September 28, 2018, memorandum, and more information on the 2021 Proposal is available in our December 30, 2020, memorandum.
The SNPRM includes the following summary of proposed changes to TSCA fee amounts:
Fee Category
2018 Fee Rule
Current Fees1
2022 SNPRM
Test order
$9,8002
$11,650
$25,000
Test rule
$29,500
$35,080
$50,000
ECA
$22,800
$27,110
$50,000
PMN and consolidated PMN, significantnew use notice (SNUN), microbial commercial activity notice (MCAN) and consolidated MCAN
Manufacturer-requested risk evaluation on a chemical included in the 2014 TSCA Work Plan
Initial payment of $1.25M, with final invoice to recover 50 percent of actual costs
Two payments of $945,000, with final invoice to recover 50 percent of actual costs
Two payments of $1,497,000, with final invoice to recover 50 percent of actual costs
Manufacturer-requested risk evaluation on a chemical not included in the 2014 TSCA Work Plan
Initial payment of $2.5M, with final invoice to recover 100 percent of actual costs
Two payments of $1.89M, with final invoice to recover 100 percent of actual costs
Two payments of $2,993,000, with final invoice to recover 100 percent of actual costs
1
The current fees reflect an adjustment for inflation required by TSCA. The adjustment went into effect on January 1, 2022.
2
In the 2018 final rule, the fees for TSCA Section 4 test orders and test rules were incorrectly listed as $29,500 for test orders and $9,800 for test rules. The 2021 Proposal proposes to correct this error by changing the fees for TSCA Section 4 test orders to $9,800 and TSCA Section 4 test rules to $29,500.
Why EPA Is Taking the Action
EPA states that the fees collected under TSCA are intended to achieve the goals articulated by Congress by providing a sustainable source of funds for EPA to fulfill its legal obligations under TSCA Sections 4, 5, and 6 and with respect to information management under TSCA Section 14. According to EPA, information management includes collecting, processing, reviewing, and providing access to and protecting from disclosure as appropriate under Section 14 information on chemical substances under TSCA. In 2021, EPA proposed changes to the TSCA fee requirements established in the 2018 Fee Rule based upon TSCA fee implementation experience and proposed to adjust the fee amounts based on changes to program costs and inflation and to address certain issues related to implementation of the fee requirements. According to the SNPRM, EPA consulted and met with stakeholders that were potentially subject to fees, including several meetings with individual stakeholders and a public webinar in February 2021. EPA is hosting a December 6, 2022, webinar to hear from stakeholders on the proposed TSCA fees. This engagement and the previous stakeholder outreach will inform EPA’s final rule.
According to EPA, based on comments received in response to the 2021 Proposal, adjustments to EPA’s cost estimates, and experience implementing the 2018 Fee Rule, EPA is issuing this SNPRM and is requesting comments on the proposed provisions and primary alternative provisions described that would add to or modify the 2021 Proposal. EPA notes that TSCA allows it to collect approximately but not more than 25 percent of its costs for eligible TSCA activities via fees. EPA states that fee revenue has been roughly half of the estimated costs for eligible activities than EPA estimated in the 2018 Fee Rule, however. According to EPA, the shortfall was, in part, due to EPA’s use of cost estimates based on what it had historically spent on implementing TSCA prior to the 2016 amendments, not what it would cost to implement the Frank R. Lautenberg Chemical Safety for the 21st Century Act (Lautenberg Act). In the first four years following the 2016 Lautenberg Act’s enactment, EPA also did not conduct a comprehensive budget analysis designed to estimate the actual costs of implementing the amended law until spring 2021. In the SNPRM, EPA proposes to revise its cost estimate to account adequately for the anticipated costs of meeting its statutory mandates, which are based on the comprehensive analysis conducted in 2021. EPA states that these proposed revisions are designed to ensure fee amounts capture approximately but not more than 25 percent of the costs of administering certain TSCA activities, fees are distributed equitably among fee payers when multiple fee payers are identified by revising the fee allocation methodology for EPA-initiated risk evaluations, and fee payers are identified via a transparent process.
Estimated Incremental Impacts of the SNPRM
EPA evaluated the potential incremental economic impacts of the 2021 Proposal, as modified by this SNPRM for fiscal year (FY) 2023 through FY 2025. The SNPRM briefly summarizes EPA’s “Economic Analysis of the Supplemental Notice of Proposed Rule for Fees for the Administration of the Toxic Substances Control Act,” which will be available in the docket:
Benefits. The principal benefit of the 2021 Proposal, as modified by this SNPRM, is to provide EPA a sustainable source of funding necessary to administer certain provisions of TSCA.
Cost. The annualized fees collected from industry under the proposed cost estimate described in the SNPRM are approximately $45.47 million (at both three percent and seven percent discount rates (EPA notes that the annualized fee collection is independent of the discount rate)), excluding fees collected for manufacturer-requested risk evaluations. EPA calculated total annualized fee collection by multiplying the estimated number of fee-triggering events anticipated each year by the corresponding fees. EPA estimates that total annual fee collection for manufacturer-requested risk evaluations is $3.01 million for chemicals included in the 2014 TSCA Work Plan (based on the assumed potential for two requests over the three-year period) and approximately $2.99 million for chemicals not included in the 2014 TSCA Work Plan (based on the assumed potential for one request over the three-year period). EPA analyzed a three-year period because the statute requires EPA to reevaluate and adjust, as necessary, the fees every three years.
Small entity impact. EPA estimates that 29 percent of Section 5 submissions will be from small businesses that are eligible to pay the Section 5 small business fee because they meet the definition of “small business concern.” EPA estimates that the total annualized fee collection from small businesses submitting notices under Section 5 is $666,810. For Sections 4 and 6, reduced fees paid by eligible small businesses and fees paid by non-small businesses may differ because the fee paid by each entity would be dependent on the number of entities identified per fee-triggering event and production volume of that chemical substance. EPA estimates that average annual fee collection from small businesses for fee-triggering events under Section 4 and Section 6 would be approximately $103,574 and $2,896,351, respectively. For each of the three years covered by the SNPRM, EPA estimates that total fee revenue collected from small businesses will account for about six percent of the approximately $52 million total fee collection, for an annual average total of approximately $3 million.
Environmental justice. Although not directly impacting environmental justice-related concerns, EPA states that the fees will enable it to protect better human health and the environment, including in helping minority, low-income, Tribal, or indigenous populations in the United States that potentially experience disproportionate environmental harms and risks, and supporting the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation and enforcement of environmental laws, regulations, and policies involving TSCA. EPA notes that it “identifies and addresses environmental justice concerns by providing for fair treatment and meaningful involvement in the implementation of the TSCA program and addressing unreasonable risks from chemical substances.”
Effects on state, local, and Tribal governments. The SNPRM would not have any significant or unique effects on small governments, or federalism or Tribal implications.
Commentary
Bergeson & Campbell, P.C. (B&C®) has anticipated the public release of the SNPRM for some time and is not surprised by the proposed increases in fees. We recognize, however, that many readers may review these proposed fees and truly feel a sense of “sticker shock,” as Dr. Michal Freedhoff, the current Assistant Administrator of EPA’s Office of Chemical Safety and Pollution Prevention (OCSPP), cautioned regulated entities earlier this year. B&C has not evaluated the underlying budgetary analysis, so assumes that EPA’s estimate of its costs is accurate. Given that assumption and EPA’s authority to recover 25 percent of those costs, B&C focuses on other aspects of the proposal.
Taking an optimistic view, the increase may benefit regulated entities. EPA states in the SNPRM that “Collecting additional resources through TSCA fees will enable EPA to significantly improve on-time performance and quality.” The absence of these two metrics, as well as others, has mired EPA’s activities under TSCA Sections 4, 5, and 6 for years. The influx of funding, along with proper leadership, training, and management, will aid EPA with meeting its statutory deadlines under TSCA, and the transparency elements of its Scientific Integrity Policy and the scientific standards under TSCA Section 26. Below, we provide representative examples of how the fees increase will aid EPA with avoiding the repetitious shortcomings that have permeated its decision making under TSCA Sections 4, 5, and 6.
TSCA Section 4
B&C notes that EPA states the following about its intended use of its order authority under TSCA Section 4: “The Agency believes it is reasonable to assume that approximately 75 test orders per year will be initiated between FY 2023 and FY 2025. Approximately 45 of these test orders are expected to be associated with the Agency’s actions on PFAS.” In comparison, EPA has issued 20 TSCA Section 4 test orders on 11 existing chemical substances since March 2020. The issued test orders have, however, suffered from significant lapses in transparency. as well as outcomes that conflict with the scientific standards under TSCA Section 26 and the obligations under Section 4.
These concerns with transparency and EPA’s failure to meet the scientific standards under TSCA Section 26 are likely due in part to EPA’s resource and staffing limitations. Therefore, the increased cost of test orders from $11,650 to $25,000 will enable EPA to develop test orders that are focused on data needs, rather than data gaps, during its prioritization and risk evaluation activities. It will also provide EPA with the requisite funding to ensure that it responds timely to technical inquiries from test order recipients, rather than months and in some cases more than a year later.
TSCA Section 5
B&C has decades of experience reviewing EPA’s assessments on new chemical substances under TSCA Section 5. Of relevance here are our observations since TSCA was amended in 2016. Since this time, we have observed a decrease in transparency in EPA’s risk assessments on new chemical substances. For example, EPA routinely identifies analogs from which it reads across potential hazards for new chemical substances. It is not uncommon, however, for EPA to identify multiple analogs for doing so. What is common is that EPA selects an analog amongst many and does not state the scientific basis for the selected analog. This also applies to analogs identified by submitters that are often dismissed by EPA without a scientific basis for doing so. Furthermore, EPA routinely claims those analogs as confidential business information (CBI) without reviewing whether they are actually still confidential. It is important for EPA to protect legitimate CBI, but the statute also requires disclosure of information that is not actually CBI. Additional resources will allow EPA to update its databases to reflect the current state of CBI claims and to better evaluate whether old CBI claims are still justified.
We also hope that additional resources will enable EPA to rely on fewer “worst-case” shortcuts in its evaluations of PMNs. For example, EPA routinely uses the acute potential dose rate (PDR) as the exposure metric for assessing potential unreasonable risks, even when the hazard is a chronic effect. Evaluating against a PDR is a reasonable first pass calculation — if EPA does not identify risk using a PDR, no further evaluation is necessary. We do not, however, agree with EPA making unreasonable risk determinations on the screening-level assessments without further refinements — it is simply not justifiable scientifically to predict chronic risk using a PDR (as reflected in EPA’s assessments under Section 6). Performing the refined calculation requires additional effort, which the fee rule would help support.
We expect EPA will resolve the above issues with the increased funding that it intends on receiving for new chemical substance notifications (e.g., from $19,020 to $45,000 on PMNs). EPA states that the “Additional funding collected through TSCA section 5 fees will help EPA reduce the backlog of delayed reviews and support additional work for new cases.” These monies will also provide EPA the necessary budget to better justify the selection of analogs. Collectively, we hope these improvements will allow EPA’s risk assessors to exercise their inherently government function of evaluating and approving and/or modifying the contractor-generated work products as EPA-approved work products. This will provide more transparent and timely evaluations on novel chemistries notified to the Agency. This level of transparency will also ensure that EPA is satisfying its requirements under EPA’s Scientific Integrity Policy, which states “At the EPA, promoting a culture of scientific integrity is closely linked to transparency. The Agency remains committed to transparency in its interactions with all members of the public.” In doing so, EPA will additionally be providing risk assessments that clearly document its decision making and how those decisions satisfy the scientific standards under TSCA Section 26. These considerations are critical for submitters, not in the sense that they must agree with EPA’s determinations, but rather that they understand the bases for those determinations.
Unanswered questions about when the increased fees will improve the throughput of new chemicals reviews remain. Hiring and training staff takes time; EPA is currently working to fill open positions and train new staff. Submitters paying substantially higher fees would reasonably expect that EPA improve its performance or, if EPA cannot complete timely its reviews (absent suspensions by the submitter), expect that EPA would refund the submission fee.
TSCA Section 6
B&C views the fee increases for EPA’s administration of TSCA Section 6 as the most controversial, not necessarily because of the intended increased costs, which are substantial (e.g., EPA-initiated risk evaluation from two payments resulting in $2,560,000 to two payments resulting in $5,081,000), but rather because of EPA’s decision making in the risk evaluations and its incorporation of new policy directions into its revised risk determinations. EPA has stated that its revisions to the final risk evaluations on eight of the “first 10” chemical substances and accompanying revised risk determinations are “supported by science and the law.” EPA spent the last year revisiting its risk determinations, with little change other than EPA’s conclusion about the “whole chemical.” EPA has not addressed weakness in the risk evaluations identified by commenters; nor has EPA addressed the weaknesses in EPA’s systematic review process identified by the U.S. National Academies of Science, Engineering, and Medicine’s (NASEM) review of EPA’s “Application of Systematic Review in TSCA Risk Evaluations.” NASEM’s review concluded that “The OPPT approach to systematic review does not adequately meet the state-of-practice [and] OPPT should reevaluate its approach to systematic review methods, addressing the comments and recommendations in this report.” The foregoing issues are troubling and are expected to be contested by regulated entities when EPA proposes its draft risk management rules on the “first 10” chemical substances. EPA did, however, state in the SNPRM that:
Although section 6 cost estimates were informed by risk management and risk evaluation activities for the first 10 chemicals, EPA will not be recovering fees for those chemicals.
Though this may seem like a hollow victory for potentially regulated entities, given EPA’s risk determinations on these substances, the intended fees for the EPA-initiated risk evaluations at least provide a baseline of deferred costs that may be allocated for disputing scientific and legal shortcomings when EPA issues the draft and final risk management rules. Moving forward, we anticipate that EPA will use the intended increased funding from the various risk evaluation costs to ensure that the above issues are addressed in its future risk evaluations on high-priority substances.
Conclusions
B&C recognizes that its position on the proposed fees increase in the SNPRM may not be well received by regulated entities. We note that the increased fees will aid with decreasing uncertainty in EPA’s decision making and its timely completion of evaluations on new and existing chemical substances and improve transparency and documents that meet the scientific standards under TSCA Section 26. There is also no question that EPA has the statutory authority to raise fees to recover 25 percent of its costs. B&C’s view is that commenters should focus on the distribution of the fees among the categories, proposed exemptions, and other aspects of the rule, including when manufacture or import must cease to avoid paying fees, rather than focusing on the magnitude of the fee increase.
We also hope that regulated entities will welcome EPA’s use of the best available science and weight of scientific evidence in its risk evaluations. As we discussed above, these statutory requirements have not been met in the “first 10” risk evaluations. We recognize that the deadlines for risk evaluations are not necessarily the critical issue for regulated entities, rather it is EPA’s unreasonable risk determinations, which are based on risk evaluations that were developed in a manner inconsistent with TSCA Section 6 and the implementing regulations. The increased fees under TSCA Section 6 should aid with addressing these issues.
Finally, B&C is optimistic that the SNPRM will provide EPA with the requisite funding to ensure its successful oversight of activities under TSCA. Despite our optimism, we do recognize that increased funding alone will not improve EPA’s administration of TSCA. To ensure success, EPA’s leadership will have to manage and lead this program properly. These latter components are critical and if the SNPRM is promulgated as, or as close to as proposed, the expectation on this Administration to produce results will be sky high.
Those of us on the east coast have heard that the Great Salt Lake has receded to the verge of a public health crisis, including because toxins in the sediment that have been underwater for millennia may soon may soon be widely spread air pollutants. Today I had the opportunity to visit the rapidly shrinking Great Salt Lake and hear from leading experts about what might be done about it. Much of what I heard surprised me. More importantly, some of the lessons learned in Utah are generally applicable to our still evolving response to our global climate emergency.
How much has the Great Salt Lake shrunk? In the modern era it has lost 73 percent of its water and 60 percent of its area. Of the 120 saline lakes on the planet, 100 are in decline and on average they have shrunk, on average, 60 percent. That means that as bad as things are at the Great Salt Lake, there are many other places where things are worse.
Contrary to popular belief, while a warming climate is a contributing cause of this decline, it is not the main cause. The main cause is that water has been diverted from the historic tributaries to the Great Salt Lake for other uses, primarily agriculture which is responsible for 72 percent of Utah’s water consumption. Those diversions have been occurring since Brigham Young arrived in Utah in the 19th century.
Why does the shrinking of the lake matter? Well, in addition to the public health threat posed to the southwestern United States by the toxins in the sediment, the increased water salinity that comes with the Great Salt Lake being smaller is toxic to the brine shrimp that are essential to the survival of the tens of millions of migratory birds that make the lake home for part of the year on their way to and from other places in North and South America. The rapidly receding waters also pose a clear and present danger to other economically important activities including mineral extraction and tourism. One example of the broad range of negative impacts of the shrinking lake — snow in the mountains has been proven to melt faster as a result of the deposition of dust from the lake, shortening Utah’s economically important ski season.
I was of the prior impression that people in Utah didn’t appreciate the magnitude of the crisis at hand. I was wrong. The fact is that the Utah Legislature has taken numerous actions in recent years to reverse more than a century of momentum in the wrong direction. As a result of these actions there is cause for real optimism that the level of the Great Salt Lake will continue to rise though it will take decades to make lasting improvements.
And that brings me to the lessons of general applicability that I learned. As one local water law expert said, there is no silver bullet to end the Great Salt Lake crisis but there is silver buckshot. There is no one law that can be passed or one lawsuit that will be litigated that will immediately void the water rights that have resulted in Utah (and all of the other western states) using much more water than can sustainably be used. What the people of Utah have learned is that many interventions are necessary, all at the same time. And they’re implementing that lesson in real time. We all might consider whether we’re acting with the same ingenuity and urgency respecting our environmental challenges.
And I heard another important thing for the second time in a week. The biggest challenge in repairing the Great Salt Lake isn’t identifying what needs to be done. It is getting people to own what it will take to get water into the Great Salt Lake and why that matters. The necessary messaging is complicated because there is no one size fits all message and even if you’re doing it correctly, it isn’t immediately effective. I heard The Nature Conservancy’s Chief Scientist, Dr. Katherine Hayhoe, say something similar about decarbonization and resilience when she was in Boston last week.
The Great Salt Lake crisis became too big for the people of Utah to ignore. But their multifaceted approach to the crisis is impressive and left me wondering what we on the east coast might be able to do about our much different but equally serious environmental challenges, like the need to more quickly build renewable energy infrastructure and improve our resilience to GHG supercharged storm waters, if we acted with the same urgency.
Facilities operating across the country need to be prepared for increased climate-driven enforcement at all levels of federal government—especially at the U.S. Environmental Protection Agency (EPA). With EPA’s Climate Enforcement and Compliance Strategy announcement last week, the Agency has gone all-in on enforcement and compliance programs “to address climate change, wherever appropriate, in every matter within their jurisdiction.” This initiative is consistent with President Biden’s Executive Order 14008, which calls for a government-wide approach to tackling the climate crisis. The strategy also underscores the Agency’s announcement of its first-ever National Enforcement and Compliance Initiative (NECI) on climate change, which targets, among others, methane emissions at oil and gas facilities and landfills, as well as illegal importation of hydrofluorocarbons (HFCs). Companies with exposure to high-Greenhouse Gas (GHG) emissions and related climate risks, both in the Clean Air Act (CAA) and non-CAA context, should be on notice of increased scrutiny moving forward, including climate-focused auditing and inspections by the Agency and GHG-driven injunctive relief.
In the wake of EPA’s announcement of this new enforcement and compliance strategy, watch for the following developments:
EPA will increasingly prioritize enforcement and compliance actions to mitigate climate change, including further scrutiny of high-GHG emitters through information requests, inspections, and formal enforcement. Oil and gas facilities and landfills have been specifically targeted, but any facility with high GHG emissions should expect greater enforcement scrutiny.
Enforcement demands will likely include higher penalties, compared to other non-GHG-driven cases, more GHG-related injunctive relief, as well as more climate adaptation and resilience requirements. This relief could include more fence-line monitoring or flare gas reductions or recovery, among other priorities.
Climate-focused injunctive relief measures will not be limited to CAA. Expect a renewed emphasis on green remediation technologies at Superfund and Resource Conservation and Recovery Act corrective action sites, as well as a push for green infrastructure, resiliency planning, and stormwater management enhancements in Clean Water Act settlements.
Plan for EPA to scrutinize GHG emissions reports more closely. Carefully evaluate these submissions to ensure consistency with reporting regulations.
EPA will be interested in Supplemental Environmental Projects that reduce GHGs. Consider clean and renewable energy projects or other GHG mitigation projects as part of any strategy to resolve an enforcement case, particularly if the penalty demand is large.
Facilities located in Environmental Justice (EJ) communities should particularly expect additional climate-related scrutiny, as EPA has indicated that “[t]hese efforts are particularly necessary in overburdened and marginalized communities that are on the frontlines of the climate crisis.” Facilities will need to engage in more extensive consultation with local communities to evaluate remedy selection, including any climate adaptation efforts, as well as more protracted enforcement negotiations to evaluate community-focused injunctive relief (i.e., climate risk reporting, additional community engagement, etc.).
Finally, be prepared to respond to these issues quickly, including the Biden Administration’s broader EPA enforcement agenda, which is expected to increase enforcement dramatically over the coming months and years. Apart from EPA, broader scrutiny of corporate climate reporting will become more common as the Securities and Exchange Commission looks to finalize its proposed Climate Risk Disclosure Rule, requiring public companies to disclose climate-related risks and emissions data, among other requirements. Facilities should review publicly available information and emissions reporting for consistency and accuracy.
On June 22, 2023, the U.S. Fish and Wildlife Service (“FWS”) and the National Marine Fisheries Service (“NMFS”) (collectively, the “Services”) published three proposed rules that would significantly revise their regulations implementing several sections of the Endangered Species Act (“ESA”). Primarily, the Services’ proposals focus on amending or reversing several components of the ESA regulations promulgated in 2019 by the prior Administration, including the implementation of Section 4 (listing of species as threatened or endangered and the designation of critical habitat), Section 7 (consultation procedures); and Section 4(d) (application of the “take” prohibitions to threatened species). In addition, and beyond the scope of the 2019 final rules, the Services are proposing revisions to the Section 7 regulations regarding the scope and application of reasonable and prudent measures (“RPM”) and to the Section 4(d) regulations to include certain exceptions for federally recognized Tribes. Comments on the three proposed rules are due by August 21, 2023.
Background
The species and habitat protected under the ESA extend to all aspects of our communities, lands, and waters. There are almost 2,400 species listed as threatened or endangered pursuant to ESA Section 4. Critical habitat for one or more species has been designated in all regions of the U.S. and its territories. Through the Section 7 consultation process and “take” prohibitions under Sections 9 and 4(d), the ESA imposes species and habitat protection measures on the use and management of private, federal, and state lands and waters and, consequently, on governmental and private activities.
These proposed rules reflect the Biden Administration’s continuing efforts to reform and revise the Services’ approach to ESA implementation that was adopted by the prior Administration. Pursuant to President Biden’s Executive Order 13990, the Services reviewed certain agency actions for consistency with the new Administration’s policy objectives. As part of that review, the Services identified five final rules related to ESA implementation that should be reconsidered. Previously, in 2022, the Services rescinded two of those final rules—the regulatory definition of “habitat” for the purpose of designating critical habitat and the regulatory procedures for excluding areas from critical habitat designations. While these proposed rules reflect the consummation of that initial effort, the Services are currently contemplating additional revisions to other ESA regulations and policies.
Proposed Revisions to the Regulations for Listing Species and Designating Critical Habitat
Section 4 of the ESA dictates how the Services list species as threatened or endangered, delist or reclassify species, and designate areas as critical habitat. The proposed rule would make several targeted revisions to these procedures. Notable changes would include:
Evaluation of the “foreseeable future” for threatened species: The proposed rule would revise the applicable regulatory framework to state that “[t]he term foreseeable future extends as far into the future as the Services can reasonably rely on information about threats to the species and the species’ responses to those threats.” The Services note that this revision is intended to reflect that absolute certainty about utilized information is not necessary, just a reasonable degree of confidence in the prediction. The Services are also considering whether to rescind the framework for interpreting and implementing the “foreseeable future” in its entirety.
Designation of unoccupied critical habitat: The proposed rule would revise the two-step process for determining when unoccupied areas may be designated as critical habitat. proposed rule addresses how specific areas that are unoccupied critical habitats are designated. In part, the Services would remove the requirement that they “will only consider” unoccupied areas to be essential when a designation limited to occupied critical habitat would be inadequate for the conservation of the species. The Services also would remove the provision that an unoccupied area is considered essential when there is reasonable certainty both that the area will contribute to the conservation of the species and that it contains one or more physical or biological features essential to the conservation of the species.
Not prudent determinations for critical habitat designation: The proposed rule would remove the justification for making a not prudent determination when threats to a species’ habitat are from causes that cannot be addressed through management actions in a Section 7 consultation. The Services note that this is intended to address the misperception that a designation of critical habitat could be declined for species impacted by climate change.
Factors for delisting species: The proposed rule would restore language that delisting is appropriate when the species “is recovered.” The Services would also clarify that the delisting analysis is not limited to the same specific factors or threats that led to the listing of the species.
Economic impacts in classification process: The proposed rule would restore the regulatory condition that a species listing determination is to be made “without reference to possible economic or other impacts of such determination.”
Proposed Revisions to the Consultation Regulations
The ESA Section 7 consultation requirement applies to discretionary federal agency actions—including federal permits, licenses and authorizations, management of federal lands, and other federal programs. Federal actions that are likely to adversely affect a listed species or designated critical habitat must undergo a formal consultation review and issuance of a biological opinion evaluating whether the action is likely to jeopardize the continued existence of a species or result in the destruction or adverse modification of critical habitat. The biological opinion also evaluates the extent to which “take” of a listed species may occur as a result of the action and quantifies the level of incidental take that is authorized. The proposed rule would make the following notable changes to the applicable regulations:
Expanded scope of reasonable and prudent measures: The proposed rule would revise and expand the scope of RPMs that could be included as part of an incidental take statement in a biological opinion. In a change from their prior interpretation, and in addition to measures that avoid or minimize impacts of take, the Services would have discretion to include measures as an RPM that offset any remaining impacts of incidental take that cannot be avoided (e.g., for certain impacts, offsetting measures could include restoring or protecting suitable habitat). The Services also would allow RPMs, and their implementing terms and conditions, to occur inside or outside of the action area. Any offsetting measures would be subject to the requirement that RPMs may only involve “minor changes” to the action, must be commensurate with the scale of the impact, and must be within the authority and discretion of the action agency or applicant to carry out.
Revised definition of “effects of the action”: In an effort to clarify that the consequences to listed species or critical habitat that are included within effects of the action relate to both the proposed action and activities that are caused by the proposed action, the proposed rule would add a phrase to the definition to note that it includes “the consequences of other activities that are caused by the proposed action but that are not part of the action.” In addition, the proposed rule would remove provisions at 50 C.F.R. § 402.17, added in 2019, which provide the factors used to determine whether an activity or a consequence is “reasonably certain to occur.”
Revised definition of “environmental baseline”: The proposed rule would revise the definition in an effort to more clearly address the question of a federal agency’s discretion over its own activities and facilities when determining what is included within the environmental baseline. The Services note that it is the federal action agency’s discretion to modify the activity or facility that is the determining factor when deciding which impacts of an action agency’s activity or facility should be included in the environmental baseline, as opposed to the effects of the action. The Services also would remove the term “ongoing” from the definition in an effort to clarify that any continuation of a past and present discretionary practice or operation would be in the environmental baseline.
Clarification of obligation to reinitiate consultation: The proposed rule would remove the phrase “or by the Service” to clarify that it is the federal agency, and not the Services, that has the obligation to request reinitiating of consultation when one or more of the triggering criteria have been met (and discretionary involvement or control over the action is retained).
Proposed Reinstatement of Blanket Protections for FWS Species Listed as Threatened
Pursuant to the ESA, threatened and endangered species are treated differently with respect to what are often called the “take” prohibitions of the Act. In part, ESA Section 9(a)(1) prohibits the unauthorized take—which is defined as an act “to harass, harm, pursue, hunt, shoot, wound, kill, trap, capture, or collect”—of an endangered species. In contrast, under Section 4(d) of the ESA, the Secretary may issue a regulation applying any prohibition set forth in Section 9(a)(1) to a threatened species. Historically, FWS applied a “blanket 4(d) rule” that automatically extended all ESA Section 9(a)(1) prohibitions to a threatened species unless a species-specific rule was otherwise adopted. In 2019, FWS revised its approach to align with NMFS’s long-standing practice, which only applies the ESA prohibitions to threatened species on a species-specific basis. The proposed rule would make the following notable changes to FWS’s approach under Section 4(d):
Reinstate blanket 4(d) rule: The proposed rule would reinstate the general application of the “blanket 4(d) rule” to newly listed threatened species. As before, FWS would retain the option to promulgate species-specific rules that revise the scope or application of the prohibitions that would apply to threatened species.
New exceptions for Tribes: The proposed rule proposed rule would extend to federally recognized Tribes the ability currently afforded to FWS and other federal and state agencies to aid, salvage, or dispose of threatened species. FWS is also considering an additional revision that would extend exceptions to the prohibitions to certain individuals from a federally recognized Tribe’s natural resource agency for take associated with conservation activities pursuant to an approved cooperative agreement that covers the threatened species.
