On September 10, 2013, the Environmental Protection Agency (“EPA”) released draft rules titled “Standards of Performance for Greenhouse Gas Emissions from New Stationary Sources: Electric Utility Generating Units,” which for the first time proposes to set new carbon emission standards for newly constructed power plants. The new rule proposes to limit carbon dioxide (“CO2”) emissions from fossil fuel and natural gas fired power plants constructed after the rule goes into effect. It will only apply to power plants that sell more than one-third of their potential electric output and more than 219,000 megawatt-hours (“MWh”) net-electrical output to the grid on a three year rolling average basis. (EPA, “Regulatory Impact Analysis for the Proposed Standards of Performance for Greenhouse Gas Emissions for New Stationary Sources: Electric Utility Generating Units” p. 1-1) (“Regulatory Impact”).

Newly constructed fossil fuel fired power plants would have two options to comply with the proposed rule. They could limit their CO2 emissions to 1,100 lb CO2/MWh per year, or phase in the reductions over a seven year period if they can meet a rolling average of between 1,000 and 1,050 lb CO2/MWh per year. (Regulatory Impact, p. 1-3). In order to comply with the new standards, fossil fuel fired power plants would likely have to employ a technology known as carbon capture and sequestration (“CCS”) which “scrubs carbon dioxide from their emissions before they reach the plant smokestacks. The EPA predicts that the proposed rule will provide an incentive for the research and development of this new technology that will lead to greater CO2 emission reduction and more cost effective technology. (Regulatory Impact, p. 1-3, 1-4)

New natural gas power plants also would have two options.  If a plant had a heat input rating greater than 850 million British Thermal Units per hour (“MMBTU/hr”), it would have to limit its emissions to 1,000 lb CO2/MWh per year. If the plant had a heat input rating less than 850 MMBTU/hr, it would have to limit its emissions to 1,100 lb CO2/MWh per year. According to EPA, existing natural gas power plants would be able to satisfy the proposed standard without adding new technology. (Regulatory Impact, p. 1-3).

EPA projects that the proposed regulation will have a negligible economic impact. It concludes that even without the proposed rule, no new coal fired plants would be built over the next eight years without CCS technology in place. In addition, it projects that market factors have made non-coal energy sources such as natural gas and renewable resources the technology of choice for new generating capacity. Consequently, EPA predicts that companies will choose to build new natural gas power plants in place of coal power plants for the foreseeable future. (Regulatory Impact, p. 2-3).

The proposed rule will soon face a 60-day public comment period which commences once the rule is published in the Federal Register. There will also be a public hearing on the proposed rule at an undetermined date. Extensive public comment is expected.  The proposed rule is actually a revision and rescission of a rule previously proposed on April 20, 2012, which received over 2.5 million comments, the most comments ever made on an EPA rule proposal. (Regulatory Impact, p. 1-3, 1-4). 

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It was reported on February 20, 2013, that President Obama appears to have selected federal air regulator, Gina McCarthy, to take over for Lisa Jackson as head of the EPA.  The news indicates that the executive branch intends to build upon the agency’s recently-validated efforts to regulate greenhouse gas (GHG) emissions, in the face of persistently anemic congressional action on the issue.

The likelihood of increased regulatory, as opposed to legislative, involvement is further evidenced by the reactions of various legislators who oppose GHG controls.  For example, Sen. David Vitter (R-La.) was quoted as saying, “[t]he administration should be looking for someone who will end the standard of ignoring congressional requests, undermining transparency and relying on flawed science…Instead, it looks like they may double down on that practice.”  “Obama Expected to Tap McCarthy for EPA, Moniz for DOE,” http://www.law360.com/articles/417045.

In other words, if President Obama is going to make climate change a legacy issue for his second term—which seems to be the case based upon statements made in his inaugural  and State of the Union addresses—he is going to have to revisit his previously-stated aversion to doing so primarily through top-down regulation.  But how is he going to go about doing that?  The issue of climate change was conspicuously absent from the topics discussed during the 2012 presidential campaign, and any increased attention it has received in recent months might deservedly be credited in significant part to Hurricane Sandy.  Nor does it help that the administration has offered up few, if any, real details about its future climate-change-related regulatory agenda (see, e.g., http://www.whitehouse.gov/energy/climate-change).

Until that plan is made public, outside observers must rely on a review of EPA’s past successes and ongoing initiatives in order to predict what the future has in store.  However, it seems clear that an emboldened EPA will likely pursue all or some of the following initiatives with increased vigor and political support in the coming months and years.

·         New Power Plants:  EPA is expected to finalize a rule, originally proposed in 2012, requiring new fossil-fuel-fired power plants to be constructed with carbon capture and sequestration technology.

·         Existing Power Plants:  Finalization of the rule governing CO2 emissions from new power plants will force EPA to address the same issue with respect to existing facilities.  EPA is expected to address this by requiring each state to adopt its own emission standards pursuant to guidelines issued by the federal agency.

·         Refineries:  The terms of a 2010 settlement agreement required EPA to issue a GHG rule for refineries by November 2012.  The agency did not comply with that deadline and expected to act on the issue this year.

·         Oil & Gas Operations:  EPA finalized emission standards for oil and gas operations in 2012.  Several states subsequently filed a notice of intent to sue the agency for its failure to include provisions that directly regulate methane.  EPA has indicated that it will revise the final rule in 2013.

·         Mobil Sources:  EPA has proposed a rule designed to ensure that transportation fuel sold in the United States contains a minimum volume of renewable fuel.

·         Climate Adaptation Plan:  EPA released its draft Climate Adaptation Plan this month, which discusses the impact of climate change on the agency’s ability to fulfill its mission and describes how EPA will factor climate change adaptation into new regulations.  The public comment period runs through April 9th.

DRI’s Climate Change Task Force will continue to monitor developments in this evolving area of the law, and will submit regular blog postings and articles discussing relevant events.

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On June 26, 2012, the United States Court of Appeals for the District of Columbia Circuit ruled that the United States Environmental Protection Agency (“EPA”) acted properly in moving to regulate the emission of certain greenhouse gases (“GHGs”) under the Clean Air Act (“CAA”).  The court rejected claims made by a variety of petitioners – including states and affected industry groups – that EPA acted arbitrarily, capriciously, and without legal or scientific support when it found that the emission of the GHGs endangered the public health and welfare, and began issuing regulations governing such emissions from mobile and stationary sources.

Case Summary

Coalition for Responsible Regulation, et al. v. EPA, No. 09-1322 (D.C. Cir., Jun. 26, 2012), as joined with three other matters, encompassed over ninety consolidated claims challenging four actions taken by EPA in the wake of Massachusetts v. EPA, 549 U.S. 497 (2007) (holding that EPA was obliged to respond to a rulemaking petition regarding the regulation of GHG emissions from mobile sources).

A. Endangerment Finding

EPA’s Endangerment and Cause or Contribute Findings for Greenhouse gases Under Section 202(a) of the Clean Air Act, 74 Fed. Reg. 66,496 (Dec. 15, 2009) (“Endangerment Finding”) defined as a single “air pollutant” a group of six greenhouse gases and found that motor vehicle emissions of this “pollutant” drive climate change, which in turn is reasonably anticipated to endanger the public health and welfare.  Petitioners challenged the Endangerment Finding on the grounds that EPA failed to consider its economic and political impact, and relied too heavily upon an uncertain and occasionally incorrect scientific record.

The Court disagreed, holding that a plain reading of the CAA shows that EPA was required to exercise scientific judgment, not policy acumen, in determining whether an air pollutant might endanger the public, and if so, whether motor vehicle emissions cause or contribute to the danger.  Moreover, while EPA relied upon a voluminous scientific record in making its finding, it did not substitute that record for its own judgment.  And while the scientific record is in some ways uncertain or incorrect, Congress did not restrict EPA to remedial regulation and any mistakes were inconsequential to EPA’s finding.

B. Tailpipe Rule

EPA’s Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards, 75 Fed. Reg. 25,324 (May 7, 2010) (“Tailpipe Rule”) was issued pursuant to the CAA requirement that EPA establish motor vehicle emission standards for any air pollutant for which there has been an endangerment finding.  It set GHG emission standards for cars and light trucks beginning January 2, 2011 as part of a joint rulemaking with the National Highway Transportation Safety Administration (“NHTSA”).  Petitioners challenged the Tailpipe Rule on the grounds that EPA should have deferred regulating mobile source GHG emissions until the economic implications of similar stationary source regulations – which would necessarily follow – could properly be addressed.  The Court rejected this argument based upon plain text of the CAA and the opinion issued in Massachusetts, both of which prohibit EPA from withholding action under such circumstances.

C. Timing and Tailoring Rules

EPA interpreted the CAA as requiring additional regulation of stationary GHG emission sources once the Tailpipe Rule was enacted.  This additional regulation falls under the Act’s Prevention of Significant Deterioration of Air Quality (“PSD”) and Title V programs, which require the issuance of permits for the construction and operation of stationary sources that emit certain quantities of “any air pollutant.”  EPA addressed this issue by enacting its Reconsideration of Interpretation of Regulations That Determine Pollutants Covered by Clean Air Act Permitting Programs, 75 Fed. Reg. 17,004 (Apr. 2, 2010) (“Timing Rule”), and its Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule, 75 Fed. Reg. 31,514 (Jun. 3, 2010) (“Tailoring Rule”).

The Timing Rule mandated that stationary emitters must begin employing Best Available Control Technology (“BACT”) for the six GHGs named in the Endangerment Finding as of January 2, 2011, the date the Tailpipe Rule went into effect.  The Tailoring Rule increased the PSD and Title V emissions thresholds for GHGs to allow for a phased application of the rules as they pertained to GHGs, beginning with the largest emitters and gradually capturing other affected entities.  Petitioners challenged these rules on the grounds that EPA improperly extended the PSD and Title V requirements to GHGs.

The Court found in favor of EPA, holding that the terms of the CAA and the Massachusetts decision call for an extension with respect to “any” air pollutant.  Moreover, none of the petitioners had Article III standing to challenge these rules because none of them had suffered a redressable injury-in-fact.  Petitioners are compelled to comply with the PSD and Title V standards by automatic operation of the CAA, not the rules themselves.  Moreover, petitioners failed to show how they had suffered actual harm as a result of the rules and offered little other than speculative scenarios of what injury might occur if the rules were not vacated and Congress had to enact corrective legislation.

Comments

While clearly a blow to industries that are already heavily regulated, this decision is favorable from a litigation perspective.  In AEP v. Connecticut, 131 S. Ct. 2527 (2011), the Supreme Court held that the Congressional delegation of air quality regulation to EPA displaces federal common law nuisance suits seeking judicially-imposed GHG emission caps.  By holding that EPA acted properly in exercising its power, the District of Columbia Circuit made it more likely that displacement will play a role in the outcome of other similar suits. Chief among them is Kivalina v. ExxonMobile, 663 F.Supp.2d 863 (N.D. Ca. 2009), which is currently on appeal to the Ninth Circuit.  As a result, members of affected industries and their counsel are encouraged to continue monitoring developments in this area of the law.

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TODAY at 2:00-3:30 pm EDT, DRI's Climate Change Litigation Task Force will present a webcast regarding Supreme Court arguments in the landmark public nuisance case American Electric Power, et al v Connecticut, et al (10-174) ("AEP").  Interested parties can register on the DRI website.

Summary of presentation:

On Tuesday, April 19, 2011, the United States Supreme Court heard arguments in American Electric Power, et al v Connecticut, et al (10-174) ("AEP"), a case filed by eight states, one city and three land trusts seeking an order requiring five of the nation's largest coal-fired power producers to reduce their emissions for at least a decade.  The suit claims that the defendants' carbon dioxide emissions constitute a public nuisance under federal common law because they contribute to global warming, which in turn causes the climate to change, which ultimately results in damage to the plaintiffs' land and endangers the public welfare. The case was originally dismissed as presenting a non-justiciable political question, but this decision was subsequently reversed on appeal.

On Tuesday, the power company petitioners - who were supported by dozens of amicus filers, including DRI - urged the Supreme Court to overturn the appellate decision, not only on political question grounds, but also matters of standing, displacement and common law. In sum, the Court was told that a decision affirming the circuit court holding would violate the separation of powers and result in a devastating new mass tort that would forever change the way energy is produced, priced and supplied in this country.  Oral arguments provided few hints about how the Court will rule.

This webcast will cover the history of the litigation, the context in which the case is being decided, arguments before the court, and potential outcomes. Anyone who is or represents a member of the energy and/or manufacturing industries is encouraged to attend.

 

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In Connecticut v. American Power, 2009 WL 2996729 (2nd Cir. Sept. 21, 2009), the United States Court of Appeals for the Second Circuit held that a claim filed by eight states, one city and three private land trusts could proceed on the theory that greenhouse gases emitted by five power companies constitute a public nuisance because the emissions contribute to global warming, which in turn poses a past and ongoing threat to persons and property.  The court’s lengthy decision rejected the defendants’ attempts to avoid suit prior to discovery based upon the following key defenses: 

Political Question:  The court held that while this may be a case with political overtones, it does not present a non-justiciable political question.  That is, it does not involve an issue that was constitutionally committed to another branch of government; does not present matters that cannot be resolved through the application of federal common law; and does not require the court to make a decision that will conflict with or frustrate pronouncements made by Congress or the President. 

Standing:  The court held that all plaintiffs could sue in their proprietary capacity as property owners.  In addition, the states could sue parens patriae because they are more than nominal parties and have unique interests in safeguarding the health and well-being of their citizens.  Plaintiffs adequately plead the existence of current and future injuries by making reference to specific environmental changes (i.e. reduced mountain snow pack, coastal erosion) that are caused or contributed to by greenhouse gas emissions, result in damages (i.e. diminished property values, water shortages), and may be reduced or slowed by the relief sought (a cap on greenhouse gas emissions). 

Failure to State a Claim:  The court held that the plaintiffs successfully plead a claim for public nuisance under federal common law by setting forth, in a manner consistent with the Restatement (Second) of Torts, an unreasonable interference with public rights that is ongoing, likely to have a long-lasting effect, and is apparent to the defendants.  The court also held that the land trusts had the right to sue for public nuisance under federal common law because the magnitude of their property interests makes their damages different from those suffered by the general public. 

Displacement:  The court held that plaintiffs’ federal public nuisance claim has not been displaced by federal statutory law.  It rejected the defendants’ argument that the Clean Air Act and five other statutes prove that Congress has legislated comprehensively on the subject because the Clean Air Act does not regulate greenhouse gas emissions at present and the other statutes primarily require the study – but not the regulation – of greenhouse gas emissions.  And, if the EPA does issue final regulations under the Clean Air Act, they will only concern mobile emission sources (i.e. automobiles and light trucks). 

The decision in Connecticut is remarkable because it was the first to permit a climate change public nuisance claim to go forward.  Previously, every court that had heard such a case – including the lower court in Connecticut – dismissed the complaint prior to discovery.  This decision resolved the primary basis for those dismissals (the political question doctrine) as well as several others that appeared to be safe havens for defendants.  In doing so, it reminded defense counsel that the level of specificity required to maintain a claim is much lower at the pleadings stage, clarified federal public nuisance law in the context of pollution cases, applied recent legal and legislative developments to the climate change paradigm (i.e. Massachusetts v. EPA, 127 S. Ct. 1438 (2007)), and provided plaintiffs with guidance on how to frame their claims.  The overall effect was to make climate change public nuisance cases more viable (e.g. Comer v. Murphy Oil USA, Inc., No. 1:05-CV-00436LG (S.D. Miss. Aug. 30, 2007); and Native Village of Kivalina v. ExxonMobile Corp., Civ. No. 08-2095 (N.D. Cal.)).

 

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