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April 17 2017
With a new president and Environmental Protection Agency (EPA) administrator, the changing environmental priorities and policies have been a major point of emphasis during the first few months of 2017. Republicans not only control the Executive Branch, but also both houses of Congress. To date, there has been:
There is little doubt that other significant policy developments or rule changes are forthcoming, which may affect cases, rulemakings and policies discussed in this update. For example, the administration has publicly stated that its intent to repeal the Clean Power Plan– the prior administration's signature effort to reduce and control greenhouse gas emissions from fossil fuel-fired power plants.
Notwithstanding these changes, this update highlights the noteworthy rulemakings, court decisions and policy developments of 2016.
Impact of election on ongoing litigation
Two of the Obama administration's most controversial EPA rulemakings – the Clean Power Plan and the Waters of the United States Rule – have both been slated for rescission or revisions by the Trump administration. However, both cases endured long enough to make their impressions on future environmental and regulatory litigation.
The DC Circuit denied a bid in late January 2016 to stay the Clean Power Plan until the pending petitions for review were resolved. However, recognising the rule's importance, the court agreed to expedite review and scheduled oral arguments for June 2 2016.(1) The US Supreme Court upset that schedule by unexpectedly issuing its own stay of the Clean Power Plan in early February 2016, just days before Associate Justice Antonin Scalia died. The unprecedented Supreme Court stay inspired the DC Circuit to undertake a rare move of its own: it rescheduled oral arguments for September 2016 before an en banc panel of 10 judges, bypassing the usual three-judge panel.
Although the Supreme Court stay was initially thought to all but doom the Clean Power Plan, the nomination of Judge Merrick Garland (who subsequently recused himself from the en banc panel) was widely thought to be a possible fifth vote to preserve the rule on any appeal of the DC Circuit's decision. With six of the 10 judges on the en banc panel nominated by Democratic presidents, the February stay looked like it would become little more than Supreme Court trivia. However, the gruelling seven-hour oral argument left observers with little understanding of how the DC Circuit would ultimately rule. Among the arguments raised were issues relating to:
Each side trumpeted the judges' scepticisms and support for various arguments, but, overall, the ultimate result cannot be predicted. The complexity of the issues may not even allow for a clear majority opinion, possibly leaving the Supreme Court to sift through a series of plurality opinions, concurrences and dissents.
Litigation over the Waters of the United States Rule kicked off almost immediately after its June 2015 release, with:
Overall, more than 70 parties filed 14 petitions for review in the appeals courts and 10 complaints in the district courts. After rounds of briefings on stays and consolidations (with the Judicial Panel on Multi-district Litigation declining to assign all of the challenges to a single judge), the only court that mattered was the Sixth Circuit, which issued a nationwide stay in October 2015. The Sixth Circuit published a fractious two-to-one opinion in February 2016 finding that the jurisdictional rule was 'another limitation' under Section 509(b)(1) of the Clean Water Act, placing jurisdiction in the circuit courts of appeal.(2)
Despite the Sixth Circuit issuing a stay of the rule, the EPA, the US Army Corps of Engineers (Corps) and environmental groups supporting the rule gained a jurisdictional victory as opponents preferred suits to proceed in the district courts. Opposing states and industry groups reacted to the decision by petitioning the Sixth Circuit for en banc review (which it declined in April 2016) and moving other courts to revive challenges that had previously been stayed. A petition for certiorari was filed in September 2016 on the jurisdictional question. In the meantime, the Sixth Circuit heard substantive briefing in which:
The cliffhanger ending for both of these cases must wait until later in 2017. As a preview, the Supreme Court will hear the case against Sixth Circuit jurisdiction while the Sixth Circuit holds the case on the merits in abeyance, but there is no guarantee that either case will ever see a ruling. On February 28 2017 President Trump signed an executive order requiring the EPA and the Corps to review the Waters of the United States Rule and issue a proposed rulemaking "rescinding or revising" it to be consistent with both economic growth and Scalia's plurality opinion in Rapanos v United States. What this means for the Supreme Court and Sixth Circuit cases has yet to be determined.
A similar executive order instructing the EPA to review, and almost certainly rescind, the Clean Power Plan is expected soon. EPA Administrator Scott Pruitt represented Oklahoma in challenging both rules as the state's attorney general. Although he will formally recuse himself from the process, the EPA's ultimate decision is somewhat predictable. The DC Circuit's en banc panel likely heard oral arguments thinking that their colleague Judge Garland would be the fifth vote to uphold the Clean Power Plan on the near-certain appeal to the Supreme Court. Now, their ultimate opinion (or collection of opinions) may be reviewed by the new Supreme Court nominee, Tenth Circuit Judge Neil Gorsuch, assuming the rule lives long enough to reach the Supreme Court. As with the Waters of the United States Rule, future review by the EPA could ultimately moot the outcome.
Start-up, shutdown and malfunction emission litigation
In March 2016 briefing began for a challenge by utilities, industry groups and 19 states to an EPA rulemaking requiring 36 states to revise State Implementation Plan (SIP) regulations exempting emissions from start-up, shutdown and malfunction (SSM) events.(3) Essentially, the challengers claim that the EPA previously approved state regulations permitting exemptions for SSM emissions, but unlawfully agreed to reverse its interpretation of whether these exemptions are allowed under the Clean Air Act in a settlement with environmental groups. Further, in demanding revisions, the EPA found only that the SIPs were substantially inadequate because they failed to correlate with the EPA's new interpretation of the act, and not that they were substantially inadequate to meet National Ambient Air Quality Standards. The EPA and environmental groups argued that they were forced to demand the revisions after the DC Circuit prohibited SSM exemptions under Section 112 of the act in Natural Resources Defense Council v EPA,(4) holding that the exemptions rendered emission limitation violations unenforceable. Industry groups countered that this view of SSM exemptions is not only absent from Section 110 of the Clean Air Act, but contrary to its plain meaning. The matter briefing concluded on October 31 2016 and oral argument is scheduled for May 8 2017.
Three notable 2016 decisions examined the criteria necessary to bring and defend against a citizen claim under the Clean Air Act, clarifying issues of statutory bars, timing and standing to bring such lawsuits.
The Third Circuit affirmed the dismissal of a citizen suit in January 2016, holding that a coke plant's prior consent decree met the 'diligent prosecution' bar of the Clean Air Act citizen suit provision. In Group Against Smog and Pollution v Shenango, Inc, (3rd Cir, Jan 6 2016), a citizen group sued a Pennsylvania coke plant for alleged opacity limit violations. Before the lawsuit, the company had entered a consent decree with the EPA, the Pennsylvania Department of Environmental Protection and the Allegheny County Health Department addressing the same alleged violations, and the court had retained jurisdiction in order to enforce the consent decree. The district court found that this consent decree qualified as diligent prosecution and removed the court's jurisdiction to hear the citizen suit under the Clean Air Act. The Third Circuit affirmed, but not on jurisdiction grounds. Instead, the appellate court found that a regulator's enforcement action bars a citizen suit regardless of whether the enforcement action has concluded. The Third Circuit's decision follows a line of cases in the First, Fourth, Seventh and 10th Circuits that take a similar position.
In March 2016 the 10th Circuit dismissed Sierra Club's lawsuit against Oklahoma Gas & Electric Co alleging prevention of significant deterioration violations under the Clean Air Act relating to the company's modification of a boiler at its power plant. The alleged modifications took place in March and April 2008. The parties had agreed that penalties for claims before April 1 2008 were time barred based on the act's five-year statute of limitations, but disagreed on whether Sierra Club could maintain a claim for penalties after that date. The Tenth Circuit affirmed the district court decision dismissing the claim, finding that any alleged violation related to failure to obtain a prevention of significant deterioration permit accrued when the project began, in this case before April 1 2008. The court also rejected the argument that continued operation of the unit constituted an ongoing violation, finding that the project was not a series of repeated violations, but rather a single violation that had accrued on the day on which the modification had begun. Thus, because the claim had accrued in March 2008, the cause of action for alleged violations in April fell outside the five-year statute of limitations.
In Natural Resources Defense Council v Illinois Power Resources, the US District Court for the Central District of Illinois held that the owner and operator of a coal-fired power plant was liable for particulate matter emission violations of the Clean Air Act. The decision is notable for its discussion of whether the plaintiffs — the Natural Resource Defence Council and other citizen groups — have standing to sue under the act's citizen-suit provision. The court held that they do and, specifically, that all that is required to establish injury is an "identifiable trifle". Generally, organisations must demonstrate standing by showing that:
The case turned on whether the individual plaintiffs would have standing on their own and, specifically, on their demonstration that they had suffered an injury in fact. The court found that plaintiffs need present only limited evidence of concern that demonstrates a reasonable perception of fear of being harmed by the plant's emissions. Defendants in environmental citizen suits will have an increasingly difficult time challenging plaintiffs' standing if more judges embrace this court's low standard.
Mixed media claims
2016 saw a spotlight on environmental suits that seemed, according to some, to extend environmental laws beyond their traditionally understood areas of focus. Two of the more impactful suits, Pakootas v Teck Cominco Metals Ltd (Pakootas II)(5) and Sierra Club v BNSF Railway Company(6) are discussed here. These are not isolated cases, but the decisions do seem, for the time being, to open the door for plaintiffs to push for analyses of environmental statutes beyond the conventional.
The initial Teck suit was brought in 2004 by the Confederated Tribes of the Colville Reservation (with the state later joining as plaintiff-intervenor) against Teck Cominco, which owns a smelter in British Columbia, Canada.(7) The suit was brought under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) – a statute that has traditionally been applied to the spread of contaminants on land or water by deliberate human interference. It was based on the admitted discharge by Teck of slag into the Columbia River, which had washed downstream into the United States and landed in the Upper Columbia River Superfund Site. The case continued through various motions and appeals and in March 2014 the plaintiffs amended their complaint with claims arguing that CERCLA also applied to air emissions originating from the Teck smelter, which had drifted into Washington and deposited into the Upper Columbia River Superfund Site.(8) More specifically, the plaintiffs argued that Teck was liable as an 'arranger' under CERCLA for the 'deposit' of air pollutants into the Upper Columbia River. The focal point of Teck's argument was not whether it was an 'arranger', but that there was no 'disposal' under CERCLA, which, it insisted, addressed only emissions deposited directly on land or water. The court recognised the novelty of the question of whether air emissions qualified as 'disposal' for CERCLA liability purposes and certified the question for interlocutory appeal.(9)
On appeal, the Ninth Circuit noted that CERCLA does not define 'disposal' and began with a discussion of a similar case, Center for Community Action and Environmental Justice v BNSF R Co,(10) in which the court evaluated the definition of 'disposal' under the Resource Conservation and Recovery Act. The Center for Community plaintiffs argued that diesel particulate matter emitted from the defendant's rail yards had been transported by the wind and ultimately disposed of on land and water in violation of the Resource Conservation and Recovery Act, a statute traditionally thought to address the disposal of solid and hazardous waste. The court determined that:
The court in Pakootas II also discussed Carson Harbor Village, Ltd v Unocal Corp(11) in which the court had determined that:
Based on Center for Community and Carson Harbor, the Pakootas II court determined that 'disposal' does not include "the gradual spread of contaminants without human intervention". The court noted that the plaintiff had not presented any arguments to distinguish its case from Carson Harbor or Center for Community, which was key to its decision. Although finding in the defendant's favour, the Ninth Circuit clearly and carefully acknowledged that the plaintiffs had presented an "arguably plausible construction of 'deposit' and 'disposal'". The Ninth Circuit specifically noted that the Center for Community interpretation of 'disposal' for Resource Conservation and Recovery Act purposes does not absolutely foreclose a different interpretation for CERCLA purposes. Rather, it was only that the court had found the textual analysis in Center for Community compelling. Further, the Pakootas II court did not think that the Carson Harbor decision necessarily compelled rejection of the plaintiff's aerial deposition theory insofar as Carson Harbor had focused on former owner liability and not arranger liability. Instead, the decision was based on the fact that the plaintiff had not offered any compelling reason to interpret 'deposit' differently with regard to the former owner and arranger sections of CERCLA. Therefore, in the end, the Ninth Circuit appears to have left the door open for future plaintiffs to bring similar claims with the potential for success.
Sierra Club v BNSF Railway Company
Sierra Club v BNSF Railway Company,(12) presents another case in which the plaintiffs sought what appears to be a more novel, or perhaps simply less traditional, application of an environmental statute. Sierra Club filed suit against BNSF Railway alleging violations of the Clean Water Act by BNSF rail cars and trains based on the discharge of coal particles and windblown coal emissions into US waters. The coal particles had allegedly been discharged into waters "through holes in the bottoms and sides of the rail cars and by spillage or ejection from the open tops of the rail cars and trains" while the rail cars or trains were travelling. The plaintiffs specifically argued that since BNSF had never obtained a National Pollution Discharge Elimination System (NPDES) permit to allow for its discharge of coal particles from the trains and railcars, such unpermitted coal discharge had violated the Clean Water Act.
During the summary judgment arguments, the defendant asserted that coal discharges from its travelling trains and rail cars were not the type of discharge covered under the Clean Water Act, which generally covers (and requires NPDES permits for) point source discharges. A 'point source' is defined under the Clean Water Act as "any discernible, confined, and discrete conveyance" from which pollutants are discharged. Point sources have traditionally been understood to include items such as pipes, wells, ditches and other similar objects directly channelling pollutants to water, although, as the plaintiff pointed out, 'rolling stock', such as BNSF trains, are identified as possible point sources within the act. The defendant countered that regardless of whether its rail cars and trains, as rolling stock, may be considered point sources, the trains did not qualify as a discrete conveyance from which pollutants were discharged to water as required by the act's definition of a 'point source'.
The court ultimately agreed with the defendants that, in relation to releases of coal pollutants to land and from land to water, the rail cars and trains were not point sources because the Clean Water Act requires that for it to be a point source, an object must discharge directly to water. However, the court came to a different conclusion in relation to windblown coal dust emissions. While the court clarified that under the act "coal dust deposited in the navigable water from BNSF trains is not a point source discharge unless there is a discrete conveyance", it did find that coal particle discharge from rail cars and trains travelling directly over or adjacent to navigable waters provided such discrete conveyance.
Ultimately, because this decision was issued in relation to motions for summary judgment, plaintiffs must still prove instances of actual discharge (versus speculative discharge based on the fact that the trains often run with open tops) in order to succeed. Regardless, the BNSF decision on discreet conveyance has left yet another door open for plaintiffs seeking a less traditional application of an environmental statute; it has already been cited by plaintiffs in another matter – Sierra Club v Dominion Virginia Power(13) – to support their own Clean Water Act claims that groundwater serves as the necessary method of discrete conveyance of coal ash (that travels through groundwater) to surface water.
CEQ guidance on GHG emissions and climate
On August 1 2016 the Council on Environmental Quality (CEQ) released GHG Guidance, its final guidance document for federal agencies to use when considering greenhouse gas (GHG) emissions and climate change impacts in their reviews under the National Environmental Policy Act. After the change of administration on January 20 2017, some have speculated on the fate of this guidance, especially in light of the Trump administration's stated intention to repeal the Obama administration's Climate Action Plan.
The GHG Guidance was the culmination of a discussion CEQ began in 1997 when it informed agencies that National Environmental Policy Act compliance required them to consider whether federal actions could affect or be affected by climate change. Thereafter, CEQ released new draft guidance on the subject in 2010, followed by further draft guidance in 2014. The GHG Guidance calls on agencies to consider GHG emissions in several aspects of the National Environmental Policy Act process, including:
To date, no action has been taken by the Trump administration with respect to the GHG Guidance. This is not a prime candidate for attention because established National Environmental Policy Act case law already contains these obligations. Thus, unlike changes to the Climate Action Plan or other Obama administration initiatives, revocation of this guidance is unlikely to have a significant impact.
GHG developments: oil and gas NSPS
On June 3 2016 the EPA published new source performance standards (NSPS) to control methane and volatile organic compound (VOC) emissions from new, reconstructed and modified sources in the oil and gas sector.(14) The final rule, issued under Section 111(b) of the Clean Air Act, expanded on the EPA's prior regulation of this source category by adding:
While in many cases the methods for controlling methane are similar to those already in place to control VOCs, the inclusion of additional sources marks a significant expansion of the oil and gas NSPS. In particular, the EPA included a new fugitive emissions monitoring programme for well sites and compressor stations that is designed to identify and repair methane and VOC leaks. In addition, the EPA expanded the existing NSPS for the oil and gas sector to include hydraulically fractured wells and downstream gas processing sources.
Fifteen states and 24 industry trade associations filed nine separate petitions for review of the final rule in the US Court of Appeals for the District of Columbia Circuit.(15) Those cases were also consolidated with petitions of review of the EPA's prior NSPS for the oil and gas sector, which had not yet been litigated. A number of states, municipalities and non-government organisations intervened in the petitions in support of the EPA. Petitioners are expected to raise:
No briefing schedule has been set for the cases. A number of petitioners also filed administrative petitions for reconsideration and requests for stay with the EPA. The EPA has not acted on those petitions for review.
If they remain in effect, these regulations will have a significant impact on oil and gas development and the EPA's regulation of GHG emissions as a whole. While the EPA previously imposed similar requirements on a smaller subset of sources through VOC emissions limits in prior rulemakings, the scale of these regulations is significantly larger. Given the large number of sources that will be covered by the regulation, it may be difficult for sources to comply fully with the rules within the deadlines proposed by the EPA. This is particularly true for fugitive emissions monitoring, where new equipment and newly trained professionals will be needed. Implementation would also be complicated by the remote locations of many upstream oil and gas sources, which makes equipment upgrades, monitoring and repairs more difficult.
Separately, in November 2016 the EPA sent information collection requests (ICRs) to owners and operators in the oil and gas sector seeking information about methane emissions from existing sources. The ICRs were intended to be an initial step towards the regulation of methane emissions from existing sources under Section 111(d) of the Clean Air Act. Due to the large number of existing sources, such regulation could have a more significant impact on the oil and gas sector than the NSPS for new sources. However, in response to a letter submitted by 11 states, Pruitt withdrew the ICRs, stating that the EPA needed more time to assess the need for collecting the requested information. While the EPA has not signalled an intention to take similar action to revise or withdraw the NSPS for new sources, this action does suggest a willingness on the part of Pruitt to re-evaluate the EPA's regulation of the oil and gas sector under the Obama administration.
GHG developments: aircraft emissions.
Developments relating to restricting GHG emissions from commercial aviation occurred on two separate fronts in 2016. Most relevant to manufacturers, in July 2016 the EPA issued the requisite endangerment finding under the Clean Air Act that GHG emissions from certain classes of aircraft engines contribute to climate change. The EPA's findings cover carbon dioxide (CO2), methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride, all of which are generated primarily from engines used on large commercial jets. A petition for reconsideration of the finding was denied in December 2016. The endangerment finding clears the way for the EPA to develop regulations imposing specific emission limits for commercial aircraft. International initiatives to regulate GHG emissions from aviation, largely led by the European Union, have been underway since 2009, but applicability to flights arriving or departing from airports outside the European Union was postponed to provide the International Civil Aviation Organization (ICAO), a UN body, an opportunity to reach agreement on a global approach for international aviation. In February 2016 the ICAO issued a proposed performance standard imposing fuel efficiency requirements and CO2 reduction targets for new commercial and business aircraft delivered after January 2028, with a transition period for modified aircraft starting in 2023. While the generally agreed on goal is for uniform standards, the endangerment finding would allow the EPA to develop more stringent requirements if it determines going forward that the ICAO standards are not sufficiently protective.
More critical to carriers, the ICAO agreed to develop a global market-based measure to limit carbon emissions from international aviation operations. In October 2016 the ICAO passed a resolution establishing the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). CORSIA aims to ensure carbon neutral growth from aircraft operations starting in 2020. Beginning in 2021, aircraft operators will be required to purchase offsets for CO2 emissions for any annual increase in total CO2 emissions from international civil aviation above 2020 levels. The first phase of CORSIA will apply to ICAO member states that volunteer to participate, with the programme becoming mandatory in 2027 for all member states that have an individual share of international aviation activities above the designated threshold. The United States, under the Obama administration, agreed to participate in the first phase, thus obligating US-based carriers to participate in the programme.
SEC environmental disclosure developments
While there were no specific rule changes during 2016, the existing disclosure requirements set out in Regulation S-K are being re-evaluated. Specifically, in April 2016 the Securities and Exchange Commission (SEC) published a comprehensive concept release seeking public comment on modernising and improving the business and financial disclosure requirements in Regulation S-K that serve as the foundation for disclosure in periodic reports and Securities Act 1933 registration statements. Among the areas for which comments were sought were:
In addition to the traditional areas of environmental disclosure, the concept release sought comments on whether mandated reporting on sustainability, including climate change, should be required and, if so, in what form. The comment period ended in July 2016. Speaking broadly, the comments submitted largely followed expected policy positions, with environmental advocacy groups urging greater and more detailed disclosure – particularly on climate change issues – and comments from regulated industry and SEC registrants urging continued adherence to materiality principles, rather than issue-oriented disclosures. The comments received are reviewable on the SEC's website. The SEC is under no specific timetable to act in response to the comments received.
In 2016 the EPA released a long-awaited proposal to update the Accidental Release Prevention rules set out in 40 CFR Part 68, which implement the risk management planning (RMP) programme set out in Section 112(r)(7) of the Clean Air Act. At present, there are approximately 12,500 facilities in the United States that are subject to the RMP programme, a substantial number of which will be affected by this amendment package – the most significant changes since the programme's initial implementation.
The genesis of this rulemaking effort was the West Texas ammonium nitrate warehouse explosion and fire in April 2013. Shortly after that incident, Obama issued Executive Order 13650, which provided that:
"the Administrator of EPA and the Secretary of Labor shall review the chemical hazards covered by the Risk Management Program (RMP) and the Process Safety Management Standard (PSM) and determine if the RMP or PSM can and should be expanded to address additional regulated substances and types of hazards."
The EPA is responsible for RMP and the Occupational Safety and Health Administration is responsible for the PSM. The EPA proposed significant changes in the following key areas:
The rule was finalised on January 13 2017.
For incident investigation and accident history requirements, the new rule:
Another major change to the existing RMP programme is the new requirement that certain facilities conduct independent third-party compliance audits when:
Third-party audits have never been mandatory before under the programme.
The EPA's safer technology and alternatives analysis (STAA) requirement applies to certain facilities in the petroleum and coal products manufacturing, chemical manufacturing and paper manufacturing sectors, but does not require follow-up implementation. The current hazard analysis process for these facilities must include an STAA analysis component, with consideration of inherently safer technology (IST) or inherently safer design (ISD). The STAA must be followed with an evaluation of the feasibility of implementing any IST or ISD considered. The EPA has specifically stated that no facility is required to implement an IST or ISD.
The new rule also:
An owner or operator must develop and submit to local emergency planning committees or local emergency response officials a variety of summary information, which must then be updated annually.
Although the EPA made some changes, primarily to the information sharing provisions, in response to numerous comments received that were critical of the proposal, it finalised the rule right before the Obama administration ended. Soon after Trump's inauguration, the industry called on the EPA to pull back the proposal and Pruitt, while still Oklahoma attorney general, criticised the proposal in a letter to the EPA. It remains to be seen what the agency will do with regard to implementing and enforcing the new rule. In addition, petitions to have the rule revoked have been filed under the Congressional Review Act in the House of Representatives and the Senate.
PHMSA and crude transport
The federal transportation funding bill passed in December 2015 (the Fixing America's Surface Transportation (FAST) Act) mandated further efforts by the Department of Transportation's Pipeline and Hazardous Materials Safety Administration (PHMSA) to improve hazardous materials transportation safety. As noted in the 2015 update (for further details please see "2015 environmental year in review"), in May 2015 the PHMSA issued a final rule imposing new tank car standards, speed limits and braking standards for high-hazard flammable trains (HHFTs). In that rule, 'HHFTs' were defined as single trains with:
In August 2016 the PHMSA, in coordination with the Federal Railroad Association, promulgated another final rule in response to certain FAST Act mandates, including expanding on the May 2015 rule and extending the requirement to use enhanced tank cars for shipping all flammable liquids, regardless of the length of the train. The new rule also requires that new tank cars be equipped with a thermal protection blanket and that older tank cars retrofitted to the new standard be equipped with top fittings protection and a thermal protection blanket. The FAST Act also requires a modified phase-out schedule for older DOT Specification 111 tank cars, such that older tank cars are phased out faster if they carry highly flammable, unrefined petroleum products.
Separately, since 2011, the PHMSA has been engaged in a rulemaking relating to pipeline safety regulations, including whether to extend the integrity management programme requirements to additional types of facility, such as gathering pipelines and related facilities. In March 2016 the PHMSA published a proposed rulemaking that would expand integrity management requirements and impose new pressure testing requirements on presently regulated pipelines. The proposal would also significantly expand the regulation of gathering lines, subjecting previously unregulated pipelines to requirements regarding:
Dakota Access Pipeline – Corps permitting
In July 2016 the Standing Rock Sioux Tribe, joined by the Cheyenne River Sioux Tribe, sued the Corps to invalidate the agency's approval of the Dakota Access Pipeline, a 30-inch, 1,200-mile pipeline intended to transport 570,000 barrels of Bakken crude oil a day from North Dakota to Patoka, Illinois. Although 99% of the right-of-way passed through private land, the Corps was responsible under the Clean Water Act for administering its Nationwide Permit Programme, as applied to 204 wetlands crossed by the project, as well as for an easement under Lake Oahe and, thereby, for the application of both the National Environmental Policy Act and the National Historic Preservation Act to these limited federal actions. When this suit was filed, the Corps had:
However, the Corps had not completed its review of an application for an easement that would allow the project to cross under the bed of Lake Oahe, a portion of the Missouri River owned by the United States.
After the district court denied a preliminary injunction against ongoing construction and the court of appeals also declined to halt the project, the government announced that it would conduct a new environmental review of impacts of the pending but as yet unissued easement from the Corps for the pipeline's construction under Lake Oahe. Accordingly, although no injunction had been issued, construction stalled while the government initiated further proceedings under both the National Environmental Policy Act and the National Historic Preservation Act.
However, the Trump administration directed the secretary of the army to terminate the nascent supplemental review under the National Environmental Policy Act and further consultation under the National Historic Preservation Act. On February 8 2017 the Dakota Access Pipeline received its easement from the Department of the Army to cross under the lakebed. Further litigation is likely.
Toxic Substances Control Act
On June 7 2016 Congress passed the Frank R Lautenberg Chemical Safety for the 21st Century Act. The passage of this legislation was significant, as it is the first time that the Toxic Substances Control Act has been substantively amended since its enactment in 1976 and the first significant statutory amendment of federal environmental law since the 1990 Clean Air Act Amendments. The legislation was a product of years of negotiations, first between both parties in the Senate and house and second, in 2016, between the two chambers, which each passed its own version of reform legislation in 2015.
The Frank R Lautenberg Chemical Safety for the 21st Century Act created a new structure for the evaluation and approval of chemicals by the EPA and provides it with significant new authority to obtain information about and regulate chemicals in commerce. For the first time, the EPA is required to make a determination as to the safety of every single chemical in commerce. In summary, the EPA must first identify all chemicals that are in active commerce. It must then decide which chemicals are:
The EPA must then perform risk evaluations of high-priority chemicals and if it concludes that the chemical is 'unsafe', it must regulate the use of the chemical or ban it. Accordingly, there are a host of new compliance obligations that will impact a large part of the industry. The EPA has already selected 10 chemicals to undergo the risk evaluation process, which must start by June 2017. Further, to implement the newly authorised programme, the EPA must promulgate a number of rules within a short period. The EPA has already published three rules for comment, for which the comment period closes in mid-March. Those rules must be finalised by June 2017.
In early 2016 the EPA announced that it would exercise its risk management authority under the Toxic Substances Control Act to regulate the use of two chemicals. This was the first time that the EPA had taken such action since it unsuccessfully attempted to ban asbestos in the 1990s. The EPA has proposed to ban the use of trichlorethelyene in certain degreasing and dry cleaning applications and N-Methylpyrrolidone and methylene chloride in paint and coating removal. Comments on these proposed rules are due in April 2017.
In April 2016 a district court gave final approval to a consent decree that resolved the government's enforcement claims against BP for the 2010 Deepwater Horizon oil spill in the Gulf of Mexico. The consent decree requires BP to pay up to $20.8 billion in civil penalties and natural resource damages under the Clean Water Act and the Oil Pollution Act. The agreement assigned:
Although the settlement resolves BP's liability to the government for the spill, BP continues to pursue an appeal of the district court rulings in a separate admiralty action. BP's appeal is pending before the US Court of Appeals for the Fifth Circuit. Under other settlements and claims processes, BP has also resolved numerous other claims relating to the spill and had spent over $62 billion by the end of 2016 on related clean-up claims and litigation payments.
VW defeat device proceeding
The Volkswagen (VW) defeat device proceeding was the dominant environmental enforcement case involving vehicles emissions in 2016. The scandal broke publicly in September 2015, when the EPA issued a notice of violation (NOV) alleging that VW cars equipped with 2.0 litre engines were programmed to meet emission standards under laboratory test conditions, but bypassed emission control systems in actual use, emitting (by the EPA's estimate) pollutants at levels up to 40 times promulgated standards. Two months later, the EPA issued a second NOV alleging use of defeat devices in VW, Audi and Porsche vehicles equipped with 3.0 litre engines. NOVs from the California Air Resources Board mirrored the EPA's actions and environmental regulators worldwide brought their own enforcement actions against the company.
Among the significant developments in the United States in 2016, multiple class actions brought by consumers, VW dealers, and states were consolidated with the EPA's action brought before the Federal District Court for the Northern District of California. Former Federal Bureau of Investigations Director Robert Mueller mediated the cases, resulting in a partial settlement approved by the court in October 2016. Valued at nearly $15 billion, the settlement included:
The settlement covered only 2.0 litre vehicles and did not resolve civil or criminal penalties.
In January 2017 VW pled guilty to three felony counts and agreed to pay criminal and civil penalties of $2.8 and $1.5 billion, respectively. In February 2017 VW agreed to a civil settlement mandating a recall of the 3.0 litre vehicles.
Mitigation/SEP policy update
As an outgrowth of three recent EPA policies and initiatives, 2016 saw a significant increase in the number of settlement agreements that included requirements beyond the more traditional monetary penalties and injunctive relief provisions that are typical in civil settlements (eg, the installation of controls to achieve compliance). Increasingly, settlements with the EPA appear to be including mitigation provisions and Next Generation Initiative projects and supplemental environmental projects (SEPs) consistent with the following policies.
November 2012 Mitigation Policy
In November 2012 the EPA issued a mitigation policy strongly encouraging the agency to "maximize the redress of harm" resulting from non-compliance by seeking mitigation in civil enforcement cases wherever appropriate. Unlike other injunctive relief that is targeted at ensuring that a defendant comes into and remains in compliance with applicable laws, mitigation focuses on remedying, reducing or offsetting past (and potentially ongoing) harm. Unlike an SEP (which is voluntary), mitigation is "action the government believes a court could order as injunctive relief if a case were litigated". Because its purpose is to restore the status quo, a close connection must exist between the mitigation and the harm that it intends to redress. Significantly, a defendant that agrees to perform mitigation is not entitled to any civil penalty reduction. Examples of mitigation projects include:
Next Generation Initiative
As previously discussed (for further details please see "2015 environmental year in review"), the EPA has embarked on the Next Generation Initiative to increase compliance using "advances in pollutant monitoring and information technology combined to focus on designing more effective regulations and permits to reduce pollution" or further Next Generation envisions using various tools or concepts to reach its goals, including:
The EPA promotes including Next Generation provisions in civil settlements, among other channels.
March 2015 SEP policy update
In March 2015, the EPA issued a new SEP policy updating the agency's earlier 1991 and 1998 policies in order to reflect developments in and clarifications about its approaches to incorporating SEPs in enforcement settlement agreements. Similar to its earlier policies, the updated SEP policy requires SEPs to be projects or activities that:
In addition, it retains the same SEP categories as prior policies (ie, public health, pollution prevention, pollution reduction, environmental restoration and protection, assessment and audits, environmental compliance promotion, emergency planning and preparedness and other projects) and requires that a nexus exist between the SEP and the underlying violation being resolved. However, the updated SEP policy provides additional guidance on the criteria that the EPA will use to evaluate a proposed SEP for acceptability and penalty mitigation. Specifically, it clarifies that the level of potential penalty mitigation will be assessed based on the degree to which a proposed SEP advances and supports the EPA's mission – namely, the extent to which it:
Other than reading the labels assigned to the projects after a settlement is complete, given the similarities between the types of project that meet each policy objective, it can be difficult at times to ascertain under which of the policies a particular settlement provision may fall. However, generally reflecting these policies and initiatives as a whole, a number of settlements entered into by the EPA in 2016 require defendants to undertake meaningful projects that extend beyond paying monetary penalties and implementing compliance-driven injunctive relief, as follows:
At present, it is impossible to predict with any degree of certainty the potential impact that the Trump administration will have on these trends. Some within the EPA may continue to encourage defendants to include similar provisions in settlement agreements voluntarily and some defendants may do so, particularly if they receive a penalty mitigation in exchange. To some extent, such provisions potentially expose a facility to increased liability or could cause confusion or uncertainty, such as by placing data on a public website. However, other defendants may increasingly choose to resist the trend.
Voluntary self-disclosure/audit policy changes
The EPA has changed the process for making a voluntary self-disclosure of environmental violations in an attempt to streamline and automate the process where possible. The new process may make disclosing certain Emergency Planning and Community Right-to-Know Act (EPCRA) violations more attractive given the complete penalty mitigation it can provide when the issues are promptly disclosed and other requirements are met.
On December 19 2015 the EPA launched its eDisclosure portal, an automated, centralised web-based disclosure portal that utilises the EPA's Central Data Exchange (CDX). The launch does not substantively change existing self-disclosure requirements under the EPA's 2000 Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations Policy (audit policy). Rather, it changes the logistics of making a self-disclosure. The EPA anticipates that the eDisclosure system will enable faster resolution of self-disclosures.
Under the eDisclosure system, violations are divided into two categories. EPCRA violations that meet all nine of the audit policy factors or all of the Small Business Compliance Policy conditions fall under Category 1. Chemical release reporting violations under EPCRA or CERCLA do not qualify as Category 1 violations, nor do violations under the former where the violator received significant economic benefit. On submittal, the eDisclosure system will automatically issue an electronic notice of determination confirming that the violation has been resolved without payment of a civil penalty, provided that the disclosure was accurate and complete.
The following types of violation fall under Category 2:
On submittal, the eDisclosure system will automatically issue an acknowledgement letter indicating the EPA's receipt of the disclosure. If the EPA decides to pursue enforcement for the disclosed violations, it will determine whether the violation qualifies for penalty mitigation and notify the entity accordingly at a later date.
For both Category 1 and 2 violations, eDisclosure submittals must be made within 21 days of discovery of the violation as per the audit policy. Corrective actions must generally be completed within 60 days of discovery of the violation. On completion of corrective actions, the disclosing entity must submit a compliance certification in the eDisclosure system, certifying that it has met all of the audit policy (or Small Business Compliance Policy) factors to qualify for penalty mitigation.
Entities requiring additional time to complete corrective actions (beyond the 60 days provided in the audit policy) cannot use the Category 1 disclosure option. For Category 2 violations, entities may submit a request for up to 30 additional days to complete corrective actions without providing an explanation. Such requests are considered approved on submittal. Entities may also seek up to 180 additional days after the date of discovery, but must submit a justification for the additional time. Such requests are not automatically granted. Instead, the EPA will consider the request when it considers whether to pursue enforcement for the eDisclosure. (For violations reported pursuant to the Small Business Policy, the corrective action deadline is 90 days. Following a similar format, extensions for 90 days or up to 360 days may be requested.)
Before submitting an eDisclosure, entities must register to file with the EPA's CDX system. Further, eDisclosure is not set up to protect confidential business information (CBI). If a disclosure includes CBI, the disclosing entity must submit a redacted version of the disclosure using eDisclosure and manually submit the complete disclosure, including the CBI, to the EPA using the procedures of 40 CFR Part 2. Finally, disclosures under the EPA's Interim Approach to Applying the Audit Policy to New Owners must still be made manually.
The Office of the Attorney General – the authority which oversees the enforcement of Proposition 65 – and the Office of Environmental Health Hazard Assessment (OEHHA) – the agency which administers the chemical listing and other technical aspects of Proposition 65 – both adopted major new regulations in 2016. The Office of the Attorney General adopted regulations respecting the form and terms of settlements. Given that the vast majority of Proposition 65 cases settle and trials are extremely rare, the new settlement guidelines have broad effect. Above all, the attorney general limited citizen plaintiffs' ability to use out-of-court settlements. Further, consent judgments should now include provisions which more precisely designate how the citizen enforcer can use certain settlement funds, and the attorney general is allowed to audit plaintiffs. One aim of the new settlement regulations was to curb so-called 'suing for profit', as some plaintiffs collected far more funds for their institutions (sometimes used to fund future litigation) than civil penalties, 75% of which are deposited with the state.
Like the attorney general, the OEHHA adopted major new regulations in 2016. The OEHHA fundamentally altered how Proposition 65 warnings can be provided. Commencing in 2018, internet retailers will need to provide warnings. Further, new warning text is mandated for certain types of exposure (eg, hotels, foods, parking garages and furniture). For all other types of exposure, manufacturers, distributors and retailers will have a choice of using textual warnings or warnings with a symbol (a yellow equilateral triangle with an exclamation point). This is the most consequential change in the form and terms of warnings in over a decade.
Finally, the OEHHA adopted a novel warning regime for bisphenol A (BPA), present in canned or plastic food and beverage containers. The warning scheme involves grocery store warnings and the first-ever public website populated by industry submittals as to the foods or beverages that they sell which are subject to a BPA warning. Finally, with the election of Attorney General Kamala Harris to the Senate in the last election, the office of attorney general is vacant at present. The successor may well have new policy directions and imperatives, which promises to make 2017 an interesting year.
The California EPA Department of Toxic Substances Control (DTSC) continues its slow – but now more steady – implementation of the Green Chemistry Law (also called the Safer Consumer Products Regulation). In 2016 the DTSC finally determined that the law would apply to three priority products:
In 2017 the DTSC released an updated and more evolved draft form of the alternatives assessment, the roadmap for how to evaluate the so-called 'safer alternatives' for chemicals in the priority products. While segments of the business community remain sharply critical, some progress and adjustment has dampened some prior criticism.
While the drought affecting California may be easing in early 2017, during most of 2016 it loomed large on legislators' minds. No fewer than 10 bills addressed urban and industrial water utilisation, sparked in part by press reports that some owners of mansions in Beverly Hills and other affluent areas were continuing to use millions of gallons of water, while most homeowners had cut their water use and were facing brown lawns and dead trees. The alleged greatest single residential water abuser reportedly consumed 12 million gallons. New legislation empowers water authorities to utilise tools to curb urban and industrial excessive use. Further, new water authorities were established to continue to address groundwater measurement and use in agricultural areas. Drought-based water diversions and receding ground water basins have harmed marginal farmers or those without pre-1912 water rights. It is unlikely that all of these measures will be reversed, even if the drought eases. Four new bills further implement the seminal 2014 legislation mandating the regulation of sustainable groundwater pumping. The upshot is that groundwater will continue to be regulated and pumping restricted in an unprecedented – and not necessarily predictable – manner in 2017.
South Coast Air Quality Management District
While the district continues to be among the more challenging regulatory agencies in the state for the regulated public, the departure of long-time Executive Officer Barry Wallerstein may signal a new era. Wallerstein was widely perceived as combative, even by supporters of his policy goals; his detractors accumulated over his decades-long tenure. The composition of the district's hearing board has also changed and may result in the district being more business friendly going forward.
California Environmental Quality Act
The California Environmental Quality Act continues to remain one of the most vexing and vexatious (it is the most litigated environmental statute in the state) of California's laws. What is interesting about the act is not that it endures, but how exemptions and exceptions now arise. Through the Environmental Leadership Act 2011, projects like the massive Apple, Inc headquarters in Cupertino and the Golden State Warriors Arena in Sacramento are being constructed with streamlined California Environmental Quality Act procedures. Construction of an alternative energy plant likewise was possible with bypassed California Environmental Quality Act provisions. The upshot is that when certain projects gain enough political and local approval due to their appeal on multiple metrics (eg, jobs, long-term economic benefits, support for alternative energy, housing benefits and anti-gridlock measures), these projects proceed. The vast majority of projects remain subject to the California Environmental Quality Act, but a realisation is slowly building that the act cannot result in disproportionate numbers of publicly needed construction projects being delayed excessively or rendered much more expensive than necessary.
Three new bills further the scope of the landmark Global Warming Solutions Act 1986. Under SB 32, California must now reduce its 1990 GHG emissions by 40% by 2030; existing law requires reaching the 1990 levels by 2020. Due to deindustrialisation of the state, uses of alternative energy supplies and other state measures (including, some would argue, the trading of carbon credits in the state), California will likely meet the initial goal of having its GHG emissions equal its 1990 levels in 2020. However, in the next phase, the state is veering away from more flexible, market-based emissions reduction incentives and returning to its long history of command and control caps and mandates. Major GHG emissions sources will be targeted for regulation (eg, refineries and certain energy plants). Methane and hydrofluorocarbon gas emissions must also be cut by 40% and anthropogenic black carbon by 50%. While the organic recycling and dairy industries are major targets for methane emissions reductions, harsher measures seem unlikely after political pressure by the well-connected dairy industry and an absence of feasible measures combined with the slow regulation of this industry. California will now purport to measure the social cost of carbon, including:
How rigorous or scientifically supported such evaluations will be remains to be seen.
Finally, California saw an intersection of climate change and water policy in a series of five bills. The California Water Project, which ships water from the north to the south via pumping and an aqueduct system, is now targeted for GHG emissions reductions. The energy used to move water via this project is, as reported by some, the single greatest use of energy in the state. Hence, the water movement system is being studied with an eye towards enhanced sustainability, energy reduction, engineering improvements and other measures to lessen the consequences of this massive water transfer system. New legislation requires an accounting of GHG emissions arising from water transfers and a plan to begin reductions and promote sustainability. These bills signal the continued evolution of California's environmental regulatory reach – critical infrastructure is not exempt as a target for study and potentially costly change; it is possible that new mandates will arise, as they have with the major ports in the state (also critical to California's infrastructure and economy), the rail and automobile industries, engine use, fuels and other fundamental goods and services.
For further information on this topic please contact David T Buente Jr, Judith M Praitis or Byron Taylor at Sidley Austin LLP by telephone (+1 312 853 7000) or email (email@example.com, firstname.lastname@example.org or email@example.com). The Sidley Austin website can be accessed at www.sidley.com.
(14) 81 Fed Reg 35,824 (June 3 2016).
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