Law and the Environment

Recent Appellate Court May Expose Companies for Disclosures in Title V Deviation Reports

The U.S. Fifth Circuit Court of Appeals recently (May 27, 2016) reversed a federal district court in a citizen’s suit that sough hundreds of millions of dollars in civil penalties under the federal Clean Air Act for alleged thousand of violations.  In the case Environment Texas Citizen Lobby, Inc. v. ExxonMobil Corp., the district court had ruled that only 94 of the allegations were actually violations, and that no penalty was in order.  In reversing this decision, the Fifth Circuit may have opened the door to civil penalties for all of the statements in Title V Deviation Reports that indicate a violation of the Title V permit or regulations have occurred.  This raises significant issues as companies are required to make deviation reports every year, and in most, cases, it is difficult to avoid any deviations in such reports.

 

Scott Deatherage Quoted in Environmental Law 360 on New Ozone NAAQS Standard

I was quoted today in Environmental Law 360 in an article entitled Industry Has Edge Over Enviros To Fight EPA Ozone Rule.  The new standard was set at 70 parts per billion (ppb) down from the prior 75 ppm standard set a few years ago.  That standard was challenged in court, but was upheld by the relevant courts.  The new standard has been attacked by industry as being too low and environmental groups as being too high.  Expect legal challenges from both sides.  The trouble for both sides is that the courts tend to defer to EPA and other governmental agencies in making scientific analysis and reaching science-based decisions.  

One challenge, particularly for places like the Tyler-Longview-Marshall, Texas area is that the background level of ozone is at or near at the 70 ppm standard.  The natural and human emissions from other areas that blow in make it difficult to meet the new standard.  One question is how does an area like this challenge the standard and/or the designation as a non-attainment area for ozone and all the heightened  regulatory and permitting restrictions that could hurt local industry and the local economy.

Client Receives Greenhouse Gas Permit for $1.2 Billion Natural Gas Power Plant in West Texas

EPA Region 6 just issued the following press release for a permit granted to our client governing green house gas emissions.

 

Permit allows construction of $1.2 billion natural-gas fired plant; will add hundreds of construction jobs and over 30 permanent jobs                                     

DALLAS – (April 29, 2014) This week, the U.S. Environmental Protection Agency (EPA) issued a final greenhouse gas (GHG) Prevention of Significant Deterioration (PSD) construction permit to FGE Power for the FGE Texas project near Westbrook, Texas. The permit allows the company to build a new natural-gas fired combined-cycle electric generation plant.   

“This facility will bring clean-burning electricity to the people of Texas,” said EPA Regional Administrator Ron Curry. “The FGE plant is an example of how electricity providers can meet customer demand while reducing harmful greenhouse gas emissions.”

“We look forward to putting people to work and helping to power Texas’ economic future,” said FGE Power’s CEO, Emerson G. Farrell. “EPA’s thorough review and thoughtful findings demonstrate that new technology, combined with a fresh approach to developing clean energy and sustainable infrastructure, can make a positive difference on our economy and the environment.”

The facility, in West Texas between Midland and Abilene, will generate 1,620 megawatts of gross electric power. The facility will operate almost entirely on clean-burning natural gas, with some emergency equipment using diesel fuel.

In June 2010, EPA finalized national GHG regulations, which specify that beginning on January 2, 2011, projects that increase GHG emissions substantially will require an air permit.

EPA believes states are best equipped to run GHG air permitting programs. Texas is working to replace a federal implementation plan with its own state program, which will eliminate the need for businesses to seek air permits from EPA. This action will increase efficiency and allow for industry to continue to grow in Texas.

This permit is the 36^th GHG permit EPA has issued in Texas. The agency has proposed an additional five permits and has 19 more in development.

“Know when to hold ‘em, know when to fold ‘em”: When to Disclose All in an Environmental Criminal Investigation

Kenny Rogers sang a song years ago with the lines “Know when to hold ‘em, know when to fold ‘em.” While referring to a poker game and a life lesson, I was reminded of the song in a recent criminal investigation a client was facing.  In these investigations, you always have to decide how much you will volunteer versus waiting on specific requests from environmental criminal investigators or attorneys.Making the decision on how much to volunteer is a true judgment call.

In some cases, like the one I just worked on, you have to decide if the facts demonstrate a clear lack of criminal intent or knowing violation in the case of most state and environmental statutes.  Some are based on strict liability or negligence, but most are “knowing” violations.  The line between civil and criminal enforcement is often largely a matter of enforcement discretion by environmental agencies or attorneys, prosecutors, agency attorneys, or district attorneys.

Evaluating the facts and circumstances, and how they may be perceived by the individuals involved is critical.  Different people will see matters differently.  One sees something as a mistake, others as an intentional, knowing act.

Sometimes this may mean federal and state agencies, sometimes two or three.  Occasionally, a local city or county investigator may want to be involved.  In addition to environmental agencies, in Texas EPA and the Texas Commission on Environmental Quality, you may face review by wildlife agencies such as the US Fish and Wildlife Service or the Texas Department of Parks and Wildlife.

In the right case, it can be productive to disclose the facts and make facilities available for tour by the investigators.  It can be effective to avoid a criminal investigation to disclose all and push for a decision that the matter should be referred to civil enforcement representatives, rather than being investigated by the criminal side of the agency house.

Often a rather early meeting and provision of documents and information may gain great confidence from the criminal investigators that the parties under review acted in good faith, but for whatever reason violated the law, even causing environmental damage.  Avoiding the criminal investigation can be more important for reputation of the entity and potentially even stock price.  Criminal environmental investigations tend to gain focus by the media and reverberate through the Internet and social media.  A turn from the criminal to the civil can avoid much of the damaging reputational impact.  For some parties that work with the government, criminal investigations can result in debarment from federal, state, or local contracts—with even greater damage than any fine.

When an event occurs that leads to a criminal investigation, a rapid legal analysis and strategy development is crucial.  Sometimes, it makes a significant difference if the alleged violator acts quickly and presents information and explanation before any subpoena or other request for information is received.  

The pro-active disclosure strategy does not fit every case. Sometimes waiting for any requests for information or documents is the best strategy.  Every instance must be considered based on its unique facts and actions by the entity’s or contractor’s employees.  

You have to “know when to hold ‘em, know when to fold ‘em.” I have found that in the right case, the full disclosure approach can turn a potentially damaging criminal investigation into a civil settlement of a small penalty.  

Supreme Court to Review Narrow, But Critical Aspect of EPA Greenhouse Gas Permitting Rules

On October 15, 2013, the U.S. Supreme Court granted the appeal of various entities challenging the EPA's greenhouse gas permitting rules for stationary sources under the federal Clean Air Act (CAA).  In 2007, in Massachusetts v. EPA, the court ruled that EPA may regulate greenhouse gases as air pollutants under the CAA.  The decision led the EPA to regulate greenhouse gas (GHG) emissions emitted by auto mobiles, and then EPA concluded that once those gases were regulated, the EPA was required to regulate GHGs emitted from stationary sources, such as power plants and refineries. EPA then issued a series of regulations leading to permitting standards for certain very large sources that emit above a certain amound of GHGs when a new plant is constructed or an existing plant is modified.

On appeal, various state and industry groups challenged these rules on the grounds that they were based on an improper construction of the Clean Air Act and are arbitrary and capricious because they are based on an inadequate scientific record.  The DC Circuit Court of Appeals rejected these appeals.  The Supremen Court now has granted review of the EPA regulations, but not as to whether GHGs may be regulated at all, but on a much narrower ground. 

Did the EPA permissibly determine that its regulation of greenhouse gas emissions from new motor vehicles under the Clean Air Act also triggered permit requirements for stationary sources of greenhouse gas emissions?

While narrow, the decision by the Supreme Court is an important one with respect to the EPA's program for regulating GHGs from various stationary sources.  The EPA is in the process of developing standards for new power plants and existing power plants in the near future.  Thus, the decision will be another landmark environmental ruling when issued.

EPA Region 6 Reportedly Reached First Agreement with Company Holding a Disputed Texas Permit

Region 6 of the US Environmental Protection Agency (EPA) reportedly reached agreement with Flint Hills Resources' East Corpus Christi refinery owned by a subsidiary of  Koch Industries Inc.  The details of the arrangement were not known.  A series of companies are fighting the EPA approach, but some companies are seeking resolution of the uncertainty brought on by EPA challenging the flexible permits issued by the Texas Commission on Environmental Quality.

EPA Continues Rejection of Texas Clean Air Act Permitting Programs

The US Environmental Protection Agency continues to disprove of the air emissions permitting program established by the State of Texas under the federal Clean Air Act.  On September 15, 2010, the EPA disapproved the Texas Major and Minor New Source Review programs. 

EPA is disapproving the Major Nonattainment NSR SIP requirements for implementation of the 1997 8-hour ozone national ambient air quality standard (NAAQS) and the 1-hour ozone NAAQS. EPA is disapproving the submitted Standard Permit (SP) for Pollution Control Projects (PCP) because EPA concluded that it does not meet the requirements of the CAA for a minor NSR Standard Permit program.

EPA is also disapproving a submitted severable definition of best available control technology (BACT) that is used by TCEQ in its Minor NSR SIP permitting program.  EPA is not addressing the submitted
revisions concerning the Texas Major PSD NSR SIP, which the agency says will be addressed in a separate action.

The State of Texas has sued EPA over its prior actions disapproving of permitting programs.  The Sierra Club has filed suit to force EPA to address certain permitting actions it alleges are inconsisent with the Clean Air Act.

EPA Issues Finding That Lays Foundation for Regulating Greenhouse Gas Emissions under the Federal Clean Air Act

In a long expected finding, the U.S. Environmental Protection Agency (EPA) issued a regulatory decision that lays the foundation for EPA to regulate greenhouse gas emissions under the federal Clean Air Act (CAA).  The decision announced on Friday, April 17, 2009 is entitled Proposed Endangerment Finding and Cause or Contribute Findings for Greenhouse Gases  and was published in the Federal Register.  This is a major step by the Obama Administration to attempt to force Congress to pass a climate change bill regulating greenhouse gases.  Time magazine may have said it best in an article entitle EPA's CO2 Finding: Putting a Gun to Congress's Head.  Whilee it was known that EPA was working on and would announce the finding, the actual announcement has gained enormous coverage in the media and serves as the Administration's opening salvo in its ultimate work to try to convince enough senators to vote for a bill to get beyond the 60 votes need to bypass a filibuster.

The EPA regulatory decision follows a U.S. Supreme Court decision two years ago that concluded the EPA under the Bush Administration had failed to articulate why greenhouse gases should not be regulated as emissions from automobiles.  In so doing, the Court indicated that greenhouse gases were pollutants under the Clean Air Act.  Now that EPA is going to issue a final regulatory decision after 60 days of public comment and several public hearings, it is clear that EPA can, and will, take action absent Congressional action.

Regulation under the Clean Air Act is messy and may not include a cap and trade program, but simple command and control in the form of emission reductions without the ability to trade for other facility allowances or domestic or international offsets.  This would not be good for industry.

Certain industry groups have already begun to work to promote their version of a cap and trade program.  The group USCAP, which stands for United States Climate Action Partnership, has issued a document entitled A Blueprint for Legislative Action, providing a general outline of a climate change program based on cap and trade.

The one question that will likely play out is how the world will look if Congress does not pass a bill or passes late next year or even later.  Permits for coal=fired power plants and other greenhouse gas-emitting facilities are already being challenged, and environmental groups and other plaintiffs are challenging the permits in court as not meeting CAA requirements to address all pollutants including greenhouse gases.  If EPA issues a final decision that greenhouse gases are an air pollutant, do these cases then have a much greater change of success?  Will EPA and the states be required to address greenhouse gas emissions in federal Title V permits?  These are the types of questions that will come to the fore relatively quickly.

What about cement kilns, lime plants, refineries, natural gas processing plants, manufacturing plants, will they be challenged as well?  Coal-fired power plants may not be the only plants whose permits are challenged.

One need not look beyond the administrative case of In re Deseret Power Cooperative.  This was a case in which the permit for a power plant in Utah that was challenged because the plant permit did not address CO2 emissions under the Prevention of Significant Deterioration program under the CAA. the challengers argued the plant should implement the Best Available Control Technology or "BACT" to achieve greenhouse gas, largely CO2 emissions. 

The EPA Appeals Board remanded the issue back to the EPA, then under the Bush Administration, not to require such technology or reductions as the Appeals Board concluded that the decision was not supported by the administrative record.  The Appeals Board called on EPA to address the issue of CO2 and other greenhouse gases being pollutants governed by the CAA.

Other cases have been brought against various sources and several petitions have been filed with the EPA to regulate mobile sources and stationary sources.

With the finding by EPA, all such permits, petitions, and proceedings could be affected.  Could this be a snowball effect with EPA and states finding themselves forced to regulate greenhouse gas emissions before Congress makes any final decisions whether to regulate greenhouse gas emissions?  The next year promises to be a challenging time for industry as they face a great deal of uncertainty as to how greenhouse gases will be regulated and how individual facilities and companies will be affected.  It appears more likely that some form of greenhouse gas regulation will be required.  For those companies that may be affected, it is time to develop a corporate strategy to address the risks and any opportunities that greenhouse gas regulation may bring.

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.

Supreme Court Ruling on Greenhouse Gas Regulation Could Have Direct Impact on D&O and Environmental Insurance

After the ruling in Massachusetts v. EPA, corporate officers and directors may be reviewing their corporate strategy on addressing their greenhouse gas emissions and how the case may affect their companies.  In making these decisions, the issue of coverage of potential shareholder claims in any future litigation against the directors and officers and their companies raises a currently much discussed issue--Would any shareholder suits based on climate change and the effect on share prices be covered by director and officer insurance policies?    For further reading you may want to refer to David White's blog on Law and Insurance.