Law and the Environment

Governor of Texas Announces New Commissioner for the Texas Commission on Environmental Quality

The following is an announcement of the naming of a new commissioner on the Texas Commission on Environmental Quality.

AUSTIN - Gov. Rick Perry today appointed Dr. Bryan W. Shaw of Bryan to the Texas Commission on Environmental Quality for a term to expire Aug. 31, 2013. The commission establishes, oversees and implements clean air, clean water and other environmental policies for the State of Texas.

“Bryan Shaw is a nationally respected scientist with the experience and expertise to oversee our state’s environmental policies,” Perry said. “Under his leadership Texas will continue developing policies and making decisions based on solid science that protect our natural resources while helping to meet the challenges of a rapidly growing state.”

Shaw is an associate professor in the Biological and Agricultural Engineering Department of Texas A&M University (TAMU) with many of his courses focused on air pollution engineering. The majority of his research at TAMU concentrates on air pollution, air pollution abatement, dispersion model development and emission factor development. Shaw is associate director of the Center for Agricultural Air Quality Engineering and Science, and formerly served as Acting Lead Scientist for Air Quality and Special Assistant to the Chief of the U.S. Department of Agriculture Natural Resources Conservation Service.

Shaw is a member of several committees for the U.S. Environmental Protection Agency (EPA) Science Advisory Board including the Environmental Engineering Committee, Committee on Integrated Nitrogen, and Ad Hoc Panel for review of EPA’s Risk and Technology Review Assessment Plan. Additionally, he is a member of the U.S. Department of Agriculture - Agricultural Air Quality Task Force.

He received a bachelor’s and master’s degree in agricultural engineering from TAMU and a doctorate degree in agricultural engineering from the University of Illinois at Urbana-Champaign. He replaces Kathleen White of Valentine whose term expired.

Air Permit for Coal-Fired Power Plant Denied in Kansas as a Result of Greenhouse Gas Emissions

For what appears to be the first time in the United States, an air emissions permit has been denied on the basis of greenhouse gas emissions in Kansas.  The Kansas Department of Health and Environment citing carbon dioxide emissions rejected an air permit for a proposed coal-fired power plant.  The agency stated that the greenhouse gas threatens public health and the environment.  See Washington Post article.

Al Gore and the UN Intergovernmental Panel on Climate Change Win Nobel Prize

Former Vice President Al Gore and the United Nations Intergovernmental Panel on Climate Change won the 2007 Nobel Peace Prize for their efforts to build and spread knowledge about man-made climate change, and to lay the foundations for programs to reduce greenhouse gas emissions. See Wall Street Journal article.

Bankrutpcy Judge Appoints Mediator to Address Asbestos Claims in the Asarco Bankruptcy Proceeding

As the Asarco bankruptcy continues to generate issues in the environmental-bankruptcy interface, the bankruptcy court judge in Corpus Christi, Texas has appointed Louisiana bankruptcy judge to mediate in the long-standing alter ego dispute over asbestos-related

personal injury claims that bankrupt mining behemoth Asarco LLC has been fending off for years.

Asarco's subsidiaries face over 95,000 asbestos-related claims. Some of those claims, however, have been made against Asarco directly.  In an attempt to reduce its liability, Asarco filed an adversary complaint against its also-bankrupt subsidiaries seeking a declaratory judgment that it was not liable to them for the asbestos or other claims, according to court documents. The plaintiffs have alleged that Asarco is the alter ego of its subsidiaries.

To handle the alter ego dispute and asbestos claims, Asarco had submitted its own proposal last week for a mediator.  With his Thursday order, however, Schmidt rejected that suggestion, and appointed the Louisiana bankruptcy judge as mediator over these claims.

Asarco has until November 12th of this year to file its plan, and until January 14 to solicit approval from its creditors.

Asarco Asks Bankruptcy Court to Dismiss $68 Million Claim Filed by State of Texas

From EnergyLaw360

By Christine Caulfield , christine.caulfield@portfoliomedia.com

Wednesday, Sep 19, 2007 --- Bankrupt copper mining company Asarco LLC has urged a bankruptcy court to quash a $68 million claim by Texas officials for environmental damage to the state's coast, a claim it argues was filed too late.

In an objection lodged with the court on Friday, Asarco said the damage claim filed in July 2006 by the Texas attorney general on behalf of the state's natural resource trustees was barred by the statute of limitations.  The claim, just one of scores against the bankrupt copper producer for environmental damage, relates to the company's Corpus Christi facility, which processed mineral ore in the production if zinc.

The Tucson, Ariz.-based company, which no longer operates the facility, argues the state was aware of the release of toxins from the site more than three years before making a claim to the court.  Claims under the Comprehensive Environmental Response, Compensation and Liability Act, otherwise known as Superfund, have a three-year statute of limitations, and that statute begins to run on discovery of a possible claim, Asarco told Judge Richard Schmidt.

“The Trustees had knowledge of the alleged release and losses well before July 14, 2003, three years prior to filing a claim,” the company said.  The state's knowledge was outlined in the attorney general's own proof of claim and expert report, Asarco told the court, both of which contained surveys, notices, memoranda and orders from the state warning the site was releasing dangerous metals into the Corpus Christi harbor and bay.

“It is undisputed that the state possessed knowledge of the alleged loss and its connection the alleged releases of hazardous substances at the site long before 2003,” said Asarco.

Even assuming the court were to rule that the claim was not time-barred, all portions of the state's claim relating to damage that occurred before the December 1980 effected date of Superfund were barred, the company added.  Last month, Judge Schmidt approved a $31 million settlement between Asarco and the federal government over cleanup at its hazardous California Gulch smelter site in Leadville, Colorado.

The settlement resolved a $200 million lawsuit brought by U.S. environment officials and the state of Colorado more than 20 years ago. The site, which encompasses the entire town of Leadville and an 11-mile stretch of the Arkansas River, was added to the U.S. Environmental Protection Agency's national priority list as a hazardous wasteland in 1983.  In approving the settlement, Judge Schmidt ignored the protests of Asarco's parent company, Asarco Inc., which earlier this month asked the court for an order forcing the company to seek its consent before entering into settlements “over the parent's strong protest.”

The company had slammed Asarco's haste in settling the California Gulch claims, saying the debtors had entered into an agreement despite expert analysis showing the claims were highly inflated.

“Alarmingly, the California Gulch settlement may be just the first of many settlement seeking to resolve the environmental claims that are the subject of the ongoing estimation proceeding and that are asserted in the aggregate amount of over $6.77 billion,” said the company, which lost power over Asarco in December 2005, when the court approved a corporate governance stipulation which shook up the board of directors and effectively excluded it from participation in governance matters.

Asarco, which has been active in mining, smelting and refining for over a century, still faces environmental claims at nearly 100 other sites. Those claims have been asserted by the federal government, state governments, Indian tribes and private parties.  The company also faces more than 95,000 asbestos-related personal injury claims, court documents have revealed, with the total value of all claims estimated to be potentially as high as $25 billion.  Asarco filed for Chapter 11 protection on Aug. 9, 2005, listing assets and liabilities in excess of $100 million.

Climate Change Disclosure Heats Up: Environmental Groups and State Pension Funds File Petition with SEC for Greater Climate Change Disclosure

Perhaps these two events were coordinated, but within a short time after the Attorney General of New York sent subpoenas under a New York securities statute to five utilitiy companies seeking information on climate change disclosure by those companies, particularly with respect to coal-fired power plants, CERES and various environmental groups and state pension funds filed a petition with the SEC seeking a rulemaking requiring greater climate change disclosure.   The press release from CERES is set forth below.

(Washington - September 18, 2007) -- A broad coalition of investors, state officials with regulatory and fiscal management responsibilities, and environmental groups today filed a full petition asking the Securities and Exchange Commission (SEC) to require publicly-traded companies to assess and fully disclose their financial risks from climate change. Also today, the coalition formally asked the Commission's Division of Corporation Finance to immediately begin "[c]losely scrutinizing the adequacy of registrants' climate disclosures" under existing law.

In addition to Environmental Defense and Ceres, the 22 petitioners include leading institutional investors in the U.S. and Europe managing more than $1.5 trillion in assets. The signers include the California State Treasurer Bill Lockyer, Florida Chief Financial Officer Alex Sink, Maine State Treasurer David G. Lemoine, New York State Comptroller Thomas P. DiNapoli, North Carolina State Treasurer Richard Moore and Oregon State Treasurer Randall Edwards, as well as New York State Attorney General Andrew M. Cuomo.

The first-of-its-kind petition cites unequivocal scientific evidence, far-reaching regulatory developments and extensive business recognition that the risks and opportunities many corporations face in connection with climate change are material to shareholder investment decisions and must be disclosed under existing law.

"Smart companies know that profits and jobs come from solving problems, not ignoring them. Investors have a right to know who is paying attention," said Fred Krupp, president of Environmental Defense.

"The SEC needs to do more to protect investors from the risks companies face from climate change, whether from direct physical impacts or new regulations," said Mindy S. Lubber, president of Ceres and director of the Investor Network on Climate Risk. "Shareholders deserve to know if their portfolio companies are well positioned to manage climate risks or whether they face potential exposure."

"Our marketplace cannot properly function, our retirees' pensions cannot be protected, unless investors' right to know is fully enforced," said California State Treasurer Bill Lockyer, a board member of California's Public Employees' Retirement System (CalPERS) and State Teachers' Retirement System (CalSTRS), which collectively manage more than $400 billion in assets. "We're asking the SEC to vindicate that right so investors can ensure their portfolios reflect the risks and benefits related to climate change."

"Action by the SEC on this petition would result in better, more informed decisions for Florida's investors," said Florida Chief Financial Officer Alex Sink, who serves on the board of the Florida retirement system which has $140 billion in assets.

Climate change can affect corporate performance in ways ranging from physical damage to facilities and increased costs of regulatory compliance, to opportunities in global markets for climate-friendly products or services that emit little or no global warming pollution.Those risks fall squarely into the category of material information that companies must disclose under existing law to give shareholders a full and fair picture of corporate performance and operations, the petition says.

The petition asks SEC to clarify that, under existing law, companies must disclose material information related to climate change. Depending on the circumstances, this obligation may require disclosure of the following information:

• Physical risks associated with climate change that are material to the company's operations or financial condition;
• Financial risks and opportunities associated with present or probable greenhouse gas regulation;
• Legal proceedings relating to climate change.

Despite a groundswell of demand from investors for more information in climate risks, corporate disclosure has been scant and inconsistent. Exxon Mobil Corporation, the world's largest petrochemical enterprise, included only one cursory reference to climate change in its entire 2006 annual filing with the SEC. Allstate Corporation, which insures 1 in 8 homes in the U.S. and reported over $4 billion in losses from Hurricanes Katrina and Rita, did not mention climate change at all in its latest annual filing. A January 2007 study published by Ceres and the Calvert Group, an asset management firm, found that more than half of the companies in the S&P 500 Index are doing a poor job disclosing climate change risks to their investors. Companies in sectors with low greenhouse gas emissions, including insurance companies and banks, had especially poor disclosure.

Poor disclosure prevents investors from getting the full story. Full disclosure by Texas utility TXU on its potential exposure from climate change-related risks would have revealed the extensive financial exposure resulting from the company's proposal to build 11 new coal- fired power plants without limitations on the extensive global warming pollution. TXU's business plan would have increased carbon dioxide emissions 78 million tons annually, and invested considerable capital in long-term high-polluting resources. Investors are entitled to a rigorous assessment of regulatory and financial risks related to climate change so they can evaluate which business plans are reckless and which
are prudent in managing these risks.

The petitioners today also called on the Commission to take immediate action on corporate climate disclosure as it develops the new guidance. The petitioners called on the SEC's Division of Corporation Finance to devote close attention to the adequacy of climate risk disclosures under existing regulations. Because the obligation to disclose climate related risks and opportunities exists under current law, the Division of Corporation Finance "need not and should not wait" in immediately increasing "its scrutiny of the adequacy of climate risk disclosures in corporate filings."

The petitioners were as follows:

California State Controller, John Chiang
California Public Employees' Retirement System
California State Teachers' Retirement System
California State Treasurer, Bill Lockyer
Ceres
Environmental Defense
F&C Management
Florida Chief Financial Officer, Alex Sink
Friends of the Earth
Kentucky State Treasurer, Jonathan Miller
Maine State Treasurer, David G. Lemoine
Maryland State Treasurer, Nancy K. Kopp
The Nathan Cummings Foundation
New Jersey State Investment Council, Orin Kramer, Chair
New York City Comptroller, William C. Thompson, Jr.
New York State Attorney General, Andrew M. Cuomo
New York State Comptroller, Thomas P. DiNapoli
North Carolina State Treasurer, Richard Moore
Oregon State Treasurer, Randall Edwards
Pax World Management Corporation
Rhode Island State Treasurer, Frank Caprio
Vermont State Treasurer, Jeb Spaulding

New York Attorney General Subpoenas Utilities over Climate Change Disclosure

According to the New York Times, the Attorney General of New York, Andrew M. Cuomo, has opened an investigation of five major utility companies regarding whether their plans to build coal-fired power plants pose undisclosed financial risks that should be disclosed to investors.  The investigation is based on the same New York securities law used by former New York AG and now Governor Elliot Spitzer.  The AG sent subpoenas to AES Corporation, Dominion, Dynegy, Peabody Energy, and Xcel Energy. 

This is apparently one of if not the first securities investigations into climate change disclosure by public companies.  The letter stated, "Any one of the several new or likely regulatory initiatives for CO2 emissions from power plants--including state carbon controls, E.P.A.'s regulations under the Clean Air Act, or the enactment of federal global warming legislation--would add significant cost to carbon-intensive coal generation."

The letter also asserted, "Selective disclosure of favorable information or omission of unfavorable information concerning climate change is misleading."  The subpoenas were issued under New York securities laws.

The article reports that a group of environmentalists and state officials from the Northeast and the West Coast, including California and New York, are working on a nationwide "anti-coal" effort.  Mr. Cuomo is quoted as saying, "The concept here is using the securities laws to investigate whether the economic risks are being disclosed--the economic risks which are dovetailing with the environmental concerns."

Demanding greater mandatory and voluntary environmental disclosure is a growing trend as environmental groups or non-governmental organizations (NGOs) seek to impact corporate activities, and have joined with large institutional investors such a public pension funds.  Environmentally concerned investors have been filing shareholder resolutions seeking climate change disclosures by many utilities and other carbon-intensive industries, such as oil and gas companies, oil refineries, cement plants, chemical plants, metals producers, and other large consumers of fossil fuels or electricity.  CERES an environmental NGO has been calling for more and more environmental and climate change disclosure for several years.

The disclosure pressure in some ways has become a surrogate for attempting to change corporate behavior, as environmentalists have found it to be tough going in Congress and the White House to marshal any new environmental laws, particularly when it comes to climate change and greenhouse gas emission limitations.  The actions by the New York Attorney General may be the first of other suits alleging failure to disclose current and potential future climate change regulatory impacts on their business.

Care should be taken in advising clients about environmental disclosure in securities filings and voluntary disclosures such as sustainability reports or corporate social responsibility reports.  We have advised clients on these issues and have recommended changes to their securities filings in terms of climate change disclosure. 

Federal District Court Upholds Vermont's Adoption of California Greenhouse Gas Controls for Automobiles

A federal district court in Vermont ruled against all of the auto industry challenges and upheld under the Clean Air ACt, Vermont’s adoption of California’s standards for reducing greenhouse gas emission. The opinion can be found here.

ConocoPhillips Multi-Million Dollar Carbon Offset Payments Demonstrate Need for Climate Change Due Diligence

This week ConocoPhillips entered into a settlement with the Attorney General of California to pay around $10 million to offset greenhouse gas emissions (carbon emissions) that will result from expansion of a refinery in California.  Though the California legislation and legislation in other northeastern and western states have not yet come into effect, this case shows that carbon reductions are coming to the United States, in fact they are clearly already here.  In acquiring assets and companies, the acquiring entities should consider the future potential costs for controlling and offsetting greenhouse gas emissions--they should be engaging in climate change due diligence.

It is important for oil and gas, utilities, and other companies to begin, if they have not already, taking stock of their carbon footprints, and making plans to find ways of reducing or offsetting their greenhouse gas emissions in anticipation of climate change regulation.  Based on the ConocoPhillips settlement, it would seem obvious that refineries must be developing contingency plans to manage greenhouse gas emissions.  Such plans will be more pressing depending on in what states the refineries are located. 

As a result of the current and future potential greenhouse gas restrictions, the potential costs that may be incurred by newly acquired assets in coming years may have a significant impact on the value of those assets or the companies that hold the assets.  Future profit streams may be affected by new regulations.  Thus, in addition to planning for potential effects of climate change legislation on currently held assets, companies should conduct due diligence into the greenhouse gas emissions, both direct and indirect, and evaluate the potential effect of future or potential emission restrictions on the profitability of the assets.

As reported in the Wall Street Journal, one utility may suffer a significant drop in profits as a result of greenhouse gas limitations that will come into effect as a result of the Regional Greenhouse Gas Initiative being implemented by several northeastern states.  The utility has several coal-fired power plants in these states.

While Congress has yet to pass any bills creating national carbon restrictions, several states have already passed legislation.  It appears at least probable that more states and perhaps Congress in the next few years will adopt restrictions on carbon emissions.  Careful planning by companies would appear prudent in facing the potential costs that may be incurred by a variety of US industries.

ConocoPhillips May Be First Company in the US Required to Reduce or Offset Greenhouse Gas Emissions at California Refinery

In what may be the first payment for mandatory greenhouse gas emission reduction credits or “carbon credits” in the United States, ConocoPhillips agreed to pay around $10 million to offset greenhouse gas emissions that will be emitted by the expansion of its Bay Area refinery. On Tuesday, September 11, Jerry Brown, the California Attorney General, announced that an agreement had been reached between the State and ConocoPhillips by which the company pay over $7 million for a carbon offset program that includes buying and scrapping older cars that generate more greenhouse gas emissions. The company will donate $2.8 million to reforestation efforts in California, donate $200,000 for restoration of the San Pablo Bay wetlands, and conduct an audit all of its California refineries to identify potential additional greenhouse gas reductions that could be implemented. 

The State has agreed to dismiss its appeal of the approvals that the company was seeking in order to expand it Contra County Refinery.  ConocoPhillips' proposed oil refinery expansion, known as the Clean Fuels Expansion Project, includes a hydrogen plant that will help make an estimated 1 million gallons per day of cleaner-burning gasoline and diesel fuels from the heavy portion of crude oil.

Interestingly, the battle was fought over land use, rather than environmental permits, such as air emission permits.  In September 2005, Contra Costa County prepared an environmental impact report, which was later certified by the county's planning commission. However, the Attorney General challenged the environmental documentation for the project this May, saying it did not adequately address the extra 500,000 to 1.25 million metric tons of carbon dioxide that would be emitted each year.

The agreement comes before the California climate change legislation goes into effect. The legislation will call for reducing greenhouse gas emissions in California to 1990 levels by 2020, a 25% reduction. The agreement with ConocoPhillips will stay in effect until 2012, when that mandatory cap goes into effect.