Environmental Law ReSource : Environmental Lawyer & Attorney : Reed Smith Law Firm : Climate Change, Sustainability

This post was written by Nicolle Snyder Bagnell and Ariel Nieland.

Two new Marcellus Shale laws are currently in the works in Pennsylvania. The first, known as the Mineral Rights Act (House Bill No. 1436), which passed "first consideration" muster in the Pennsylvania House of Representatives earlier this summer, provides for the reassignment of abandoned mineral rights on privately owned lands. According to State Representative Jesse White (D-46), one of the bill's proponents, the law would promote Marcellus Shale activity in the state by providing procedural guidelines for resolving legal disputes over title to subsurface property.  Any mineral interests that have not been utilized, transferred, sold, leased or mortgaged for a period of ten years would be subject to a claim by the surface owner to have the property declared abandoned. The rightful owners of any mineral interest deemed abandoned would then have three years to file a claim of interest to preserve their rights for an additional ten years, after which time the mineral rights would be declared abandoned if left unused.  The goal of the proposed bill is to fill in gaps in ownership of subsurface mineral rights while ensuring that the rights of current mineral owners are protected.

The second Marcellus Shale-related law, for which House Representatives Gergely (D-35) and Everett (R-84) are currently seeking co-sponsorship, is entitled the "Conservation Pooling Act." This legislation seeks to enhance conservation efforts while simultaneously protecting landowners impacted by natural gas drilling. Some of the most important features of the law include limiting the number of well pads allowed to be constructed on drilling units, enhancing royalty owners' ability to maximize the economic benefit of their Marcellus Shale leases, and providing for no surface trespass rules and fair compensation for non-mineral interest owners who are pooled into a unit.
 

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This post was written by Larry Demase, Jennifer Smokelin and David Wagner.

Although an energy bill is now on the Senate floor, it is limited to energy conservation and issues related to the oil spill. It does not include a price on carbon in the form of cap and trade for any sector, and we are unlikely to see comprehensive climate legislation in September or later this year. So now what? Congressional failure to act now or later in 2010 means that, on the federal level, the U.S. Environmental Protection Agency ("USEPA") will step in and use its authority under the Clean Air Act to regulate greenhouse gases ("GHGs") from the utility, transportation and industrial sectors, and there is a small possibility that such regulation by USEPA will include a cap-and-trade program. To be sure, USEPA has already taken several steps to regulate GHGs. 

The following post discusses what will likely come out of Congress and USEPA's ongoing efforts to enact measures that regulate GHGs.

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This post was written by Nicolle Snyder Bagnell and Ariel Nieland.

Reed Smith joined an audience of 1,200 attendees at last night's "Opportunity for Stakeholder Input on Criteria for Selecting Case Studies for Consideration in USEPA's Hydraulic Fracturing Research Study" meeting in Southpointe, PA, just outside of Pittsburgh. The standing-room only event marked the largest turnout yet in this series of public hearings sponsored by the U.S. Environmental Protection Agency (USEPA). Approximately 600 people attended the first hearing in Fort Worth, Texas on July 8, while nearly 350 attended in Denver, CO on July 13. The last hearing in the series of four will take place in Binghamton, NY on August 12.

USEPA has explained that the purpose of the hearings is to solicit input from community and industry stakeholders on the design of USEPA's upcoming study of the potential impact of hydraulic fracturing ("hydro-fracking")­—which involves pumping large volumes of water mixed with frac fluid and sand into geologic formations to extract natural gas—on groundwater and drinking water. To facilitate this goal, USEPA welcomed members of the community to register for two-minute slots of speaking time during which they could address their thoughts on the scope and design of the study, as well as on the potential costs and benefits posed by Marcellus Shale natural gas production in Pennsylvania.

It became clear from the comments of the 130 or so speakers that public concern over the potential adverse environmental and health impacts of hydro-fracking has reached fever pitch. Some concerned community members advocated for a moratorium to be placed on all Pennsylvania natural gas drilling, similar to the one currently in effect in New York state, until USEPA completes its hydro-fracking study (expected sometime in late 2012). Industry supporters expressed fears that over-regulation could chill the significant increases in job opportunities and government revenue expected in Pennsylvania as a result of Marcellus Shale natural gas development and production.

According to USEPA, the study is scheduled to begin in early 2011, with preliminary study results expected in 2012. In addition to conducting the series of four public hearings, USEPA is also soliciting comments from the public via email at hydraulic.fracturing@epa.gov on the following inquiries: (1) where should USEPA prioritize its efforts?; (2) where are gaps in current knowledge?; (3) is there data and information already in existence that USEPA should be aware of?; and (4) are there potential candidate sites or case studies that would be useful for the study?

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This post was written by Nicolle Snyder Bagnell and Ariel Nieland.

On July 21, 2010, Pennsylvania's Environmental Quality Board (EQB) amended the public meeting schedule for proposed regulations that aim to improve the safety of state oil and gas wells and protect the state’s water resources from contamination. According to the EQB's press release, the public meeting schedule is as follows:

• July 21, 2010 - 7:00 p.m. - Lycoming College, Helm Science Center Bldg., Rm G-11, 700 College Place, Williamsport
• July 22, 2010 - 7:00 p.m. - DEP Northwest Regional Office, 1st Floor Conference Rm, 230 Chestnut Street, Meadville
• July 22, 2010 - 7:00 p.m. - DEP Southwest Regional Office, Waterfront Conf. Rm A & B, 400 Waterfront Dr., Pittsburgh
• July 26, 2010 - 7:00 p.m. - DEP Southwest Regional Office, Waterfront Conf. Rm A & B, 400 Waterfront Dr., Pittsburgh

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This post was written by Nicolle Snyder Bagnell and Ariel Nieland.

On July 10, 2010, the Pennsylvania Environmental Quality Board (EQB) published its proposed rulemaking measures to update existing state requirements for drilling, casing, cementing, testing, monitoring and plugging of oil and gas wells. The proposed rulemaking, originally adopted by the EQB in May, is now open for public comment until August 9, 2010. Once the period for public comment is over, the proposal will go before the Pennsylvania Independent Regulatory Review Commission for review and final publication.

According to the EQB, a large portion of the updates contained in the proposal are already employed as part of best management practices among operators. However, the new regulations are said to further decrease any risk of gas migration from well sites to neighboring water supplies. The proposed rulemaking was prompted, in part, by public concern over the potential impact that the increasing number of Marcellus Shale wells could have on groundwater and drinking water supplies. Although the Pennsylvania Department of Environmental Protection's review of current well site construction and operation practices revealed that "many, if not all, Marcellus well operators met or exceeded the current well casing and cementing regulations[,] . . . the current regulations were not specific enough" in detailing guidelines for proper well construction or requirements for operators to respond to complaints over gas migration. The current updates would provide for more specificity in these areas, as well as establish a requirement that well operators conduct quarterly inspections of the structural integrity of all wells in operation. 

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This post was written by David Wagner.

If you missed Reed Smith's Quarterly Report on Climate Change, feel free to listen to an audio recording of the event. In addition, the slideshow presentation is available here. The report covered a lot of information and featured:

• A status report on Congressional action on comprehensive climate regulation;
• A summary of issues regarding the GHG cap-and-trade scheme under AB 32 in California;
• An overview of the legal issues related to carbon capture and storage; and
• A discussion of offset projects in the United States.

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This post was written by Nicolle Snyder Bagnell and Ariel Nieland.

The Pennsylvania Public Utility Commission issued a proposed rulemaking today that adopts applicable federal regulations and brings its safety regulations in line with the Federal Pipeline Safety Program. The proposed amendment will increase the PUC's enforcement and safety capabilities in regulating hazardous materials and liquid fuels. Public comments will be accepted for 30 days after publication of the proposed changes in the Pennsylvania Bulletin.

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This post was written by David Wagner.

Seeking to gain public and regulator confidence in carbon capture and storage (CCS), in late June two Canadian standards organizations announced plans to develop the first industry-wide standard for the underground storage of captured carbon emissions. CSA Standards, a certification firm, and the International Performance Assessment Centre for Geologic Storage of Carbon Dioxide will work together to develop a CCS standard. The two groups said that the completed standard with technical and safety guidelines will be submitted to the Standards Council of Canada for recognition, and would be the world's first formally recognized CCS standard for underground storage. CSA Standards said that it hoped the new standard would also be used as the basis for an international standard endorsed through the International Organization for Standardization (ISO).

CCS technology can reduce carbon dioxide emissions from power plants and carbon emission-intensive industries, and a formally recognized national or international standard will work to improve public confidence in the safety of the long term storage of carbon dioxide. In particular, a carbon dioxide storage standard would help to ensure risks are identified and then addressed. A standard should also remain flexible to address site-specific characteristics and improvements, especially given that technical CCS expertise is still evolving.

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This post was written by Nicolle Snyder Bagnell and Ariel Nieland.

According to a press release this week by the Pennsylvania Department of Environmental Protection, the "Pennsylvania State Police placed 250 commercial vehicles out of service" earlier this month as part of an effort to enforce various environmental and traffic safety laws in areas that have seen an increase in heavy truck traffic as a result of Marcellus Shale drilling operations. Of the 1,137 trucks inspected, waste water trucks received the highest proportion of citations and written warnings. Commissioner Frank E. Pawlowski explained in a June 23 announcement that because hydro-fracking requires substantial volumes of water to be delivered to and from well sites, the number of waste water trucks, in particular, on Pennsylvania roads has increased significantly.

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This post was written by Nicolle Snyder Bagnell and Ariel Nieland.

Starting in July, the U.S. Environmental Protection Agency (USEPA) will begin holding a series of public information meetings to discuss a newly proposed study of the potential adverse effects of hydro-fracking on drinking water, including one scheduled at the Hilton Garden Hotel in Southpointe, Pennsylvania on July 22 from 6 p.m. to 10 p.m. Other meetings are in Fort Worth, Texas on July 8; Denver, Colorado on July 13; and Binghamton, New York on August 12. The purpose of the meetings is to provide the public with information about the study itself, which is still in its initial planning stages, as well as to solicit comments on its design and scope. According to USEPA, "[n]atural gas plays a key role in our nation’s clean energy future and hydraulic fracturing is one way of accessing this vital resource." However, due to the "serious concerns" that have been raised about the possible impact of hydro-fracking on human health and the environment, the relationship between the fracking technique, which involves the pumping of frac fluid (water and chemicals) and sand into shale formations to create fractures through which natural gas can flow to production wells, and its effects on water supplies needs to be better understood.

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This post was written by David Wagner.

For the application of pesticides, the U.S. Environmental Protection Agency (USEPA) is taking a new position – it now aims to bring pesticide applicators under the Clean Water Act’s (CWA) permitting program. Earlier this month, USEPA released a draft CWA National Pollutant Discharge Elimination System (NPDES) pesticide general permit for point source discharges from the application of pesticides to waters of the United States. Under the Bush Administration, USEPA had issued a rule stating that these Clean Water Act permits were not required for applications of pesticides to U.S. waters. An appeals court decision vacated the rule in April 2009 and triggered the development of this proposal.

USEPA estimates that the court’s decision will require approximately 365,000 pesticide applicators nationwide, including farmers, land managers and other entities, to obtain NPDES permits by April 2011. The draft pesticide general permit covers applicators of biological pesticides and chemical pesticides that leave a residue in four categories of pesticide uses:

• Mosquito and other flying insect pest control
• Aquatic weed and algae control
• Aquatic nuisance animal control
• Forest canopy pest control

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This post was written by David Wagner.

Indicating growing federal interest in carbon capture and storage, the U.S. Department of Energy (DOE) is seeking public comment on proposals to capture and store carbon dioxide emissions from electric power plants in Texas and West Virginia. In a June 2 notice, DOE announced that it intends to prepare an environmental impact statement on a plan to provide about $350 million for the Texas Clean Energy Project, a proposed combined power and chemical plant near Odessa, Texas, through the Clean Coal Power Initiative. The environmental impact statements will help the Department determine whether to provide funding for the project.

According to a another notice published on June 7, DOE intends to produce an environmental impact statement on a plan to provide up to $334 million for a West Virginia plant, about half of the total cost. The West Virginia project involves fitting the existing Mountaineer coal-fired power plant, operated by American Electric Power near New Haven, with carbon dioxide capture and storage. As with the proposed Texas project, the Department would provide funding for the project through the Clean Coal Power Initiative, a program to provide partial financing for new technologies that can help utilities reduce their emissions of sulfur dioxide, nitrogen oxide, mercury, and greenhouse gases from power plants.

Information on public meetings and comment submission deadlines is available in the notices.

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This post was written by David Wagner.

Pennsylvania’s Department of Conservation and Natural Resources (DCNR) recently posted two reports concluding that, with substantive changes to laws governing subsurface ownership rights and long-term liability issues, Pennsylvania’s geology could store carbon dioxide in a cost-competitive and manageable way. The reports also concluded that another key step is to identify specific storage areas.

A carbon capture and storage (CCS) network would collect carbon dioxide from coal-fired electricity generating plants and other industrial sources, compress it into a liquid, and then transport it through pipelines deep underground where it would be injected into the rock formations or other suitable geologic features.

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This post was written by Ariel Nieland.

The Wyoming Oil and Gas Conservation Commission voted unanimously yesterday to pass two new regulations that require energy companies to disclose all chemicals used in the fracking process as well as to identify all groundwater sources and state-licensed wells in proximity to well heads. One of the major industry concerns over such disclosure requirements is the protection of trade secrets, i.e. what chemicals comprise each company's frac fluid and in what proportion. To address this concern, the regulations impose confidentiality requirements on state regulators in possession of proprietary information. The disclosure requirement is the first of its kind in the nation; however, other states, including Pennsylvania have proposed similar regulations.

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This post was written by Christopher Risetto, Henry King and Robert Helland.

In May, the U.S. Department of Energy (DOE) announced the availability of more than $171 million in grants, cooperative agreements, and technology-investment agreements "to expand and accelerate the development, commercialization, and use of solar and water power technologies throughout the United States". This funding continues a strong emphasis in the DOE, since the passage of the Recovery Act, on projects that promote alternative energy development, sustainability, and green jobs. The goal is to further the development of "evolving technologies," i.e., those that are not existing commercial technologies. In this Client Alert, Reed Smith provides key details behind the two major initiatives included within these announcements, particularly what information is necessary to complete a competitive application.

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This post was written by Phil Lookadoo and Jennifer Smokelin.

The future of greenhouse gas (GHG) regulation in the United States, as well as the future mix of electric power generation sources, is linked to the fate of climate and energy legislation in Congress. With all eyes on the Senate recently released Kerry-Leiberman comprehensive climate and energy legislation and what by most accounts is its slim chances for passage, let’s consider the possibility that Congress will fail to pass climate or energy legislation.

If that is the case, this does not mean no regulation of greenhouse gases and no energy reform. It simply moves the discussion to another government branch, namely, the Executive Branch, and in particular the U.S. Environmental Protection Agency (USEPA) and the Federal Energy Regulatory Commission (FERC). In other words, if Congressional climate and energy legislation fails to pass, executive branch initiatives gain in importance, and these initiatives will proceed apace regardless of Congressional inaction.

A Shift to USEPA Regulation of GHGs

USEPA can be expected to move forward with regard to regulating GHGs from stationary sources. On December 7, 2009, in compliance with the US Supreme Court’s decision in Massachusetts v. EPA, 549 U.S. 497 (2007), USEPA issued its Endangerment Finding, opening the door to USEPA regulation of GHGs under the existing Clean Air Act (CAA). Although the Endangerment Finding is currently being challenged in the Federal Circuit, challenges to the Endangerment Finding will not likely impede further EPA action to regulate GHGs under the CAA. However, challenges to these USEPA further actions are likely.

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This post was written by Nicolle Snyder Bagnell and Ariel Nieland.

The Pennsylvania Environmental Quality Board approved two regulations this week to address concerns over the potential for Marcellus Shale fracking operations to lead to groundwater and drinking water contamination. The first measure aims to limit the amount of "total dissolved solid," a measure of combined chemical substances dissolved in water, allowed to reenter streams and other bodies of water by requiring operators to treat all "frac water" containing over a certain amount of the pollutant before releasing it. The second measure would impose a requirement on all new Marcellus Shale developments to have 150-foot "buffer zones" separating them from high-quality streams. These new measures are now en route to the environmental committees of the Pennsylvania House and Senate for further review. The Independent Regulatory Review Commission, along with environmental and gas industry officials will also have an opportunity to provide comments.

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This post was written by Nicolle Snyder Bagnell.

In a unanimous opinion authored by President Judge Leadbetter, the Commonwealth Court affirmed the Environmental Hearing Board's opinion last week in Foundation Coal Resources Corp. v. DEP, No. 619 C.D. 2009, ---A.2d --- (Pa. Commw. April 27, 2010), in a case involving objections filed by a coal owner to an oil and gas producer's natural gas well permit application. The Board had held that the coal company, Foundation, did not have standing to bring an objection under Section 202 of the Oil and Gas Act, which allows owners of "projected and platted but not yet operating" coal mines to object to the proposed location of a producer's well. The Commonwealth Court agreed that where a coal company owned the mine, but where the mine was not "projected and platted" it did not have standing to to make such an objection.

Foundation also challenged the Department of Environmental Protection's decision to issue permits to the gas producer without imposing five "special conditions" that the coal company had proposed. The Board had previously determined that the conditions were beyond the scope of the Department's authority to impose where they tried "to rewrite the Oil and Gas Act under the guise of necessary special conditions to ensure safety..." EHB's Adjudication at 54. The Commonwealth Court agreed, finding that while the Department has the authority to impose conditions "where it has been shown to be necessary for the safe operation of a particular mine, it has no obligation to do so where such necessity has not been shown."

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This post was written by Nicolle Snyder Bagnell and Ariel Nieland.

According to an announcement this week by John Hanger, Secretary of the Pennsylvania Department of Environmental Protection (DEP), the DEP plans to hold a meeting on May 13, 2010 with oil and gas companies who have drilling permits in the Marcellus Shale to discuss preventive measures for protecting against gas migration from wells. The DEP is concerned that gas migration from wells can lead to groundwater and drinking water contamination. In addition to facilitating discussion about the issue among the various stakeholders, Mr. Hanger stated that the DEP is also proposing an increase in oversight, as well as "tougher regulations to meet the growing demand and new drilling technologies including improving well construction standards to protect from gas migration.”

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This post was written by Nicolle Snyder Bagnell and Ariel Nieland.

In a statement released yesterday, John Hanger, Secretary of the Pennsylvania Department of Environmental Protection, championed the proposal of new rules aimed at keeping Pennsylvania streams, drinking water, and rivers free from a pollutant known as "total dissolved solid" (TDS), which is a measure of chemical substances dissolved in water. In addition to natural gas drilling, sources of TDS include abandoned mine drainage, agricultural runoff, and discharges from industrial or sewage treatment plants. Mr. Hanger's hope is to establish the necessary regulations now that will prevent TDS from becoming a source of contamination later. In the press release, Mr. Hanger focused on the high TDS concentrations related to natural gas drilling, stating that “Marcellus drilling is growing rapidly and our rules must be strengthened now to prevent our waterways from being seriously harmed in the future.”

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This post was written by Nicolle Snyder Bagnell and Ariel Nieland.

During a Marcellus Shale public forum meeting held last week near Scranton, Pennsylvania, the Pennsylvania Department of Environmental Protection (DEP) proposed a new regulation to be added to the most recent draft of proposed legislation regulating well construction. Under the proposed regulation, gas drilling companies would have to provide information about chemical usage on a well-by-well basis. This new proposal would require each company, upon completion of well construction, to disclose in a report a list containing all the names and total volume of chemicals used in the hydraulic fracturing process. The new proposal will be presented at a Pennsylvania Environmental Quality Board meeting for discussion on May 19, 2010. Scott Perry, director of DEP's Bureau of Oil and Gas Management, explained that this proposed regulation was drafted in response to a growing desire by the public for increased transparency with respect to well site development.

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This post was written by Ariel Nieland.

On March 31, 2010, the Pennsylvania Department of Environmental Protection (DEP) held a Marcellus Shale regulatory requirements training seminar in Harrisburg, PA, and Reed Smith was there. The general message of the DEP seemed to be that conscientious well site planning and operation at the outset on the part of operators will be met with a willingness on the part of regulatory authorities to promote development and production of the resource.

The seminar covered a range of environmental topics associated with Marcellus Shale development. The segment on protecting streams and wetlands addressed the general permitting requirements for well sites located within 100 feet of streams, springs, or other bodies of water. The next segment, covering spill reporting requirements, underscored the importance of establishing a "Preparedness, Prevention and Contingency" plan, a requirement for well operators under the Clean Streams Law, that sets forth guidelines for waste disposal and emergency response measures. The session on water management plans provided an overview of the requirements for identifying water sources -- including public water supplies, surface or groundwater, wastewater, and frac flowback -- to be used in Marcellus Shale development as well as best management practices for water use. The seminar next focused on dam safety permit requirements for centralized impoundment areas in Marcellus Shale gas well sites, including the best management practices for the construction of impoundment areas, use of synthetic liners, and impoundment site management. The segment on chemical analysis of residual waste addressed submission requirements for identifying specific chemicals contained in well site waste (including flowback water, brines, muds, and cuttings), the reporting, monitoring, and recordkeeping requirements for that residual waste, and waste transportation guidelines. Finally, the session on erosion and sediment control provided an overview of best management practices for constructing site access roadways, waterbars, sediment barriers and channels, and culverts in order to meet the DEP's general permitting requirements.

The program was an abridged version of a two-day comprehensive training program on Marcellus Shale regulatory requirements offered at Pennsylania State University in January 2010.

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This post was written by Ariel Nieland.

On March 22, 2010, Governor Rendell signed Senate Bill 297 into law in the Commonwealth of Pennsylvania. This bill, originally proposed by Senator Yaw in February of 2009, provides for increased record-keeping and reporting requirements including requiring Marcellus Shale well operators to submit annual and semi-annual reports specifying, among other things, "the amount of production on the most well-specific basis available" and the status of each well. The bill also requires the DEP to post Marcellus Shale well data online. This new requirement will significantly impact the availability of natural gas producers' production information, which was previously kept confidential for five years.
 

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This post was written by Kevin Abbott and Nicolle Snyder Bagnell.

The Pennsylvania Supreme Court issued a much-anticipated opinion interpreting Pennsylvania's Minimum Royalty Act, 58 P.S. 33, today, holding that royalties should be calculated "at the wellhead, as provided by the net-back method in the Lease…" The case, as well as 70 others filed in Pennsylvania, were brought by lessors unhappy with their leases because the recent interest in natural gas in the Marcellus Shale resulted in some of their neighbors getting better lease terms. The Plaintiffs argued that the Act requires a guaranteed minimum royalty on the gross proceeds of the sale of the natural gas and, as a result, any contractual agreement to share in post-production costs necessarily reduces the royalty that the lessor receives. They sought an interpretation of the Act which would result in the invalidation of tens of thousands of leases entered into since 1979. Such a result would have crippled the revival of the natural gas exploration industry in the Commonwealth. The defendants and the industry argued that the plain language of the Act does not prohibit lessors and lessees from agreeing to share in post-production costs. The sole purpose of the Act, as evidenced by its companion provision in 58 P.S. § 34, was to prohibit lessees from paying a flat rate for production -- a common practice prior to the Act’s passage in 1979 -- and to instead require a minimum royalty of one-eighth of the gas produced. The Court's opinion today resolves that issue squarely in favor of the oil and gas industry. Not only did the Court decline to invalidate the leases at issue, but also determined that post production expenses could be permissibly deducted under the Act.

Kevin Abbott and Nicolle Bagnell of Reed Smith represented the Industry Amicus, the Pennsylvania Oil and Gas Association, the Independent Oil and Gas Association and Chesapeake Appalachia LLC.

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This post was written by Nicolle Snyder Bagnell.

The U.S. Environmental Protection Agency (USEPA) officially announced its plans today to initiate a study of hydraulic fracturing and its potential impact on water quality and public health. USEPA is re-allocating $1.9 million for this comprehensive study in 2010 and seeks additional funding for 2011. Hydraulic fracturing has gained the attention of Congress this year in large part due to the increased scrutiny of its use in the development of the Marcellus Shale in Pennsylvania, New York, West Virginia and other Appalachian states. USEPA is still in the early stages of designing the study and is seeking input from its Science Advisory Board. Click here for more information.

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This post was written by Nicolle Snyder Bagnell.

Pennsylvania Department of Environmental Protection's Secretary John Hanger announced today that the Department plans to open a new office of its Oil and Gas Management division in Scranton, Lackawanna County, Pennsylvania. Although the exact location has not yet been decided, the purpose of the office will be to decrease travel time and locate regulators closer to the oil and gas wells they regulate, particularly the new Marcellus Shale wells planned in that part of the state. You can find the Department's press release here.

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This post was written by Nicolle Snyder Bagnell.

On January 8, 2010, West Virginia's Department of Environmental Protection (WVDEP) finalized its industry guidance for oil and gas drilling in the Marcellus Shale. The guidance focuses on large water volume fracture treatments and addresses the use and disposal of frac fluids. As discussed in the guidance, horizontal drilling, coupled with large volume hydraulic fracture treatments, is becoming a common exploration technique. Large amounts of water mixed with sand and other additives are pumped into the shale formation under high pressure to fracture the rock around the well to create a permeability conduit to the well bore. Water used in the hydraulic fracturing process, often referred to as “frac fluid,” must be processed in one of three ways. It can be injected in permitted disposal wells, treated to remove generated pollutants then disposed of properly, or reused.

The WVDEP also added a "Well Work Permit Application Addendum" as part of its natural gas drilling permit application requirements.

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This post was written by Nicolle Snyder Bagnell.

Last week the U.S. Environmental Protection Agency (USEPA) launched its new "Eyes on Drilling" tipline. The toll free number and email address were created by USEPA to help address growing public concern about oil and natural gas drilling in the Marcellus Shale. In particular, they are asking citizens to report illegal disposal of wastes or other suspicious activity related to oil and gas drilling. Information about the tipline, as well as what the agency is asking citizens to include in their report, can be found here.

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This post was written by Nicolle Snyder Bagnell.

Pennsylvania's Department of Environmental Protection (DEP) has just made available its proposed draft regulations for public comment. Comments must be received by the DEP by March 2, 2010. A copy of the regulations can be found here.

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This post was written by Nicolle Snyder Bagnell.

In a move described as an "Aggressive Action to Protect Public, Environment as Marcellus Drilling Operations Expands," Pennsylvania's Governor Ed Rendell directed the Pennsylvania Department of Environmental Protection ("DEP") to hire 68 new staff members today to work on natural gas well inspections and related oil and gas regulation. The additions will be made despite a moratorium on hiring at the DEP and will be funded entirely from the higher permit fees instituted last year for oil and gas drilling permits. In addition, Rendell commented on the DEP's proposed amendments to the current oil and gas regulations, which will be available for public comment beginning tomorrow, January 29, 2010, saying that the new regulations will:

• Require the casings of Marcellus Shale and other high-pressure wells to be tested and constructed with specific, oilfield-grade cement;
• Clarify the drilling industry’s responsibility to restore or replace water supplies affected by drilling;
• Establish procedures for operators to identify and correct gas migration problems without waiting for direction from DEP;
• Require drilling operators to notify DEP and local emergency responders immediately of gas migration problems;
• Require well operators to inspect every existing well quarterly to ensure each well is structurally sound, and report the results of those inspections to DEP annually; and
• Require well operators to notify DEP immediately if problems such as over-pressurized wells and defective casings are found during inspections.

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This post was written by Larrry Demase, Jennifer Smokelin, Todd Maiden and David Wagner.

In this client update, Reed Smith attorneys (including COP15 delegates Larry Demase and Jennifer Smokelin) reflect on what transpired in Copenhagen and offer some advice regarding what regulated entities should do next.

Among other issues, the update discusses how to position your GHG-intensive business to minimize compliance costs in a carbon-constrained economy. It also addresses how to position your GHG emission reduction credits to serve as an asset. For example, regulated entities should make sure they have documented and verified all of the GHG credits to which they are entitled. One group of potential GHG credits that comes to mind after the economic downturn last year are credits available as a result of reduced GHG emissions. Consider: Have your facilities reduced GHG emissions in the past year, because of plant idling or reduced production capacity? Have you reduced your carbon footprint measurably and permanently? Or are you beginning to reduce your GHG emissions to improve efficiency? If so, some of these reductions in GHG emissions may be eligible for credits. These credits, which must be properly documented and verified, could potentially be sold or traded on various mandatory and voluntary markets (EU-ETS and/or the Chicago Climate Exchange, for example), or banked for compliance with the inevitable domestic cap-and-trade program.

In short, there may be opportunity here. Reed Smith can work with you to determine which GHG reductions at your facilities are eligible for credits, and help plan how to maximize the potential opportunities, or even how to profit from these credits.

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This post was written by Larry Demase and Jennifer Smokelin.

As they return from two weeks at the COP in Copenhagen, Reed Smith lawyers Lawrence Demase and Jennifer Smokelin reflect on what transpired and offer some advice regarding what to look for in the future:

The Copenhagen Accord, negotiated by only five countries and outside of the UN process, lays out the high-level agreements in principle of the largest emitters that are not party to the Kyoto Protocol: China, the United States, and India. The most significant outcome is the agreement with regard to greenhouse gas (GHG) reduction by non-Kyoto parties, particularly China and the United States. With China's use of oil increasing at an incredible rate, even modest commitments (like a decrease in GHG intensity), could be a significant undertaking. The impact of the Copenhagen Accord may be felt more in the price of oil than in the reduction of emissions of GHG.

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This post was written by Larry Demase.

Just like our Day 1 report from Copenhagen, we are back to a bunch of “C” words. This time they include: commitments, cost, China, closed door meetings, and, of course, confusion. We will certainly post a COP-15 recap and try to explain “what it all means.”

As of this 22:00 GMT posting, it is being reported that “developed and developing countries have now agreed to listing their national actions and commitments, a finance mechanism, to set a mitigation target of 2 degrees Celsius and to provide information on the implementation of their actions through national communications, with provisions for international consultations and analysis under clearly defined guidelines.”

It remains to be seen how this agreement compares to the last (and fourth) draft of the “Copenhagen Accord”. The fourth draft had called for global GHG emissions to be cut by 50% from 1990 levels by 2050, with Annex I Parties (industrialized nations except the United States) committing to reductions of 80% by the same time. Other nations would “implement mitigation actions”, in the form of national action plans, that would be updated every two years. The fourth draft also acknowledged the scientific view that nations need to keep emissions below a level that stops the global average temperature exceeding a 2 degrees Celsius increase above pre-industrialized levels.

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This post was written by Larry Demase.

Prior to being replaced, Connie Hedegaard analogized the last minute nature of the COP to procrastinating elementary school students, stating, “It’s just like schoolchildren. If they have a very long deadline to deliver an exercise they will wait for the last moment…. It’s basically as simple as that.” With one full day left, COP-15 is in countdown mode and we’ll see if the parties finish their homework on time.

Underscoring the urgency, political heavyweights are here and making the rounds, including Prime Minister Gordon Brown, US Secretary of State Hillary Clinton, former Vice President Al Gore, and Senator John Kerry. In a plenary session, Prime Minister Brown stated that there was no insurmountable obstacle to an agreement in Copenhagen which could be turned into a binding treaty in 6-12 months. He called for (a) long term goal of 2 degree temperature increase; (b) immediate (ok, year 2012) aid of $10 billion to developing countries; (c) $100 billion in long term financing to developing countries; and (d) a commitment by all countries to reduce emissions to a degree consistent with their “highest ambition”.

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This post was written by Larry Demase.

In addition to the official proceedings, much of the activity at and around the COP centers on what is not said or said unofficially or (hearsay notwithstanding) just heard from other delegates. For example:

• At a side event this morning hosted by the International Energy Agency, the Swedish Deputy Prime Minister, who was the keynote speaker, did not discuss the resignation of Connie Hedegaard, the Danish chairwoman in charge of COP-15. Lars Lokke Rasmussen, the Danish Prime Minister took over for her purportedly because he was not happy with pace of negotiations. That is in contrast with the official statement that the takeover was planned. Regardless, there is buzz among delegates that the Danish Prime Minister is trying to politically hijack the conference.

• A Japanese negotiator lamented that he stayed up all night to negotiate and was depressed over prospects – although he said he thought there was still a chance for a political agreement. 

• The European Union wants a reduction based on 1.5 degree (C) in temperature but there has been significant discussion among delegates that this level of reduction is unworkable.

Scuttlebutt, protests and general chaos aside, where does that leave us? For the next two days, the COP is left to focus on the deadlock in the negotiations over payment to the developing countries and the level of emission target reductions. 

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This post was written by Larry Demase.

It’s time to add a corollary to our earlier statement that it’s not just what you know and who you know but what you are called. Our corollary is that it’s also what kind of credentials you have.  The Bella Centre was a mob scene this morning and it turned away thousands of registrants. Still, for the 20,000 registrants who didn’t get in, it’s hard to say what they missed. 

The high level negotiations between countries have reached a critical point with various alliances being formed on a number of issues. Nonetheless, the possibility of a broad based agreement may be fading. Of course, things may change but the Kyoto Protocol parties (along with the United States) are likely to leave with an agreement to finish their work either at a June meeting or at the next annual U.N. conference in late 2010 in Mexico City.  

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This post was written by Larry Demase.

After a relatively quiet weekend (in which we took a two-day blogging break), tempers flared as today was a day of protest at the COP.

First, observer-delegate protests. Protestors - including a group of activists dressed as polar bears urging the talks to “save the humans” - inside the Bella Center delayed registration and attendance: five thousand delegate hopefuls were queued up outside the Bella Center trying to get in at 2 p.m., most having waited in the weather since 7:30 a.m. this morning.

Then, party-delegate protests. For five hours today (Monday), just four days before world leaders are due to forge a deal in Copenhagen, African countries backed by 135 developing countries including China and India staged a boycott of negotiations claiming rich nations are trying to avoid new, legally binding promises by ditching the Kyoto Protocol; the boycott ended when rich nations assured the Africans they were willing to discuss Kyoto commitments However, precious time was lost – in a week where there was already no time to spare (see blog posts from last week re key negotiators’ lament for “more time”).

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This post was written by Jennifer Smokelin.

Overtaking the position from American golf star Tiger Woods, “Copenhagen” (as in COP-15) is now the number one search query on the world’s leading internet search engine Google, according to Treehugger.com.  And the numbers continue to add up: 113 heads of state are scheduled to arrive next week, the most at any Conference of the Parties (COP).  There have been over 35,000 registrants for an event center that can only hold 15,000. By comparison, Kyoto, where the Protocol was agreed to, had 11,000 registrants. Now, in a move never seen before at a COP, the UNFCCC has resorted to implementing a secondary badge system to restrict access, mostly for non-governmental organizations, next week.  That certainly underscores the unprecedented convergence of public opinion and politics on this issue.

But will the COP be successful? That depends, of course, on how you define success. Todd Stern, the top US climate negotiator said “absolutely I think there is a deal to be done here”. But what are the terms? Let’s consider an easier question: are the negotiators making progress? At the early morning plenary COP/MOP (Meeting of the Parties), chairs of the key working groups KP and LCA put forth drafts that seemed at least to Executive Secretariat of the UNFCCC Yvo de Boer to set forth the beginnings of a framework for meaningful action.   Some experts state that the negotiations are precisely where they need to be before heads of state step in: all issues open but the choices sharpened. But Mr. de Boer admitted that now, going in to the weekend (not waiting until midweek), was the time to focus on the “big picture” items, e.g., whether the world should seek to keep global temperatures from rising beyond a ceiling of either 2.7 or 3.6 degrees Fahrenheit above pre-industrial levels and what countries should commit to with regard to short term and long term financial aid. On the latter issue, the European Union stepped up and pledged $3 billion in climate aid to poor countries. Let’s see the United States match that.

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This post Is written by Jennifer Smokelin.

It’s Day 4 of the Conference of the Parties (COP) and there is still some confusion among non-governmental groups (NGOs) – and let’s hope not among the Parties – as to the differing responsibilities of the two working groups at the COP: the Ad Hoc Working Group on Long-Term Cooperative Action under the Climate Convention (AWG-LCA) and the Ad Hoc Working Group on Further Commitments for Annex I Parties under the Kyoto Protocol (AWG-KP) [see Day 2 post for details]. 

At today’s AWG-KP civil society briefing, a question from the floor asked how the AWG-KP working group was progressing with regard to the Nationally Appropriate Mitigation Actions (NAMAs) and certain financing issues.  After consultation with the KP committee chairs on the dais, Chair John Ashe (Antigua and Barbuda) carefully explained that the question from the floor got it wrong:  this was the briefing for the “good guys” - you know, the ones who have already made commitments - and that questions regarding NAMAs and financing were being discussed by the AWG-LCA (by implication, the not so good guys).  Care to take a guess where the United States falls? 

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This post is written by Jennifer Smokelin.

As I think back on last evening’s buzz and today’s speeches, including remarks by USEPA Administrator Lisa Jackson at the Conference of the Parties (COP), the loud speaker system at the nearby United States’ pavilion blares an old Marvin Gaye song: “it takes two, baby. Me and you, just takes two.”  And one wonders whether the US delegation has resorted to delivering a subliminal musical message to industrialized countries (Annex I parties) and developing countries (Annex II parties) when it comes to greenhouse gas (GHG) emission reductions. 

Last evening and into today, much of the buzz at the Bella Centre in Copenhagen focused on a “Danish Text” for a political agreement on climate change. It’s been criticized as favoring industrialized countries by seeking to preserve their economic dominance. Another text believed to be drafted by China favored, not surprisingly, developing countries. The Chinese text, for example, made no mention of specific commitments by developing countries. Also weighing in today was Todd Stern, the top U.S. climate negotiator. He emphasized that any international climate change agreement must include commitments from developing, especially fast-growing, countries such as China. This takes us back to what we mentioned in our Day 1 posting, namely, that the four issues capturing the most attention in Copenhagen center on industrialized targets, commitments to and by developing countries, financing and the legal shape of the agreement.   So to address climate change in a meaningful way, just sing along: “To make a dream come true, it just takes two.”

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This post was written by Jennifer Smokelin.

Here in Copenhagen, it’s not just what you know and who you know but what you are called. In addition to the government negotiating teams, the delegates are categorized by acronyms: BINGOs, RINGOs, ENGOs, YUNGOs, and several others. As delegates for the Environmental Markets Association, my colleague Larry Demase and I are BINGOs: Business and Industry Non-Governmental Organizations. (RINGOs are Research-oriented and Independent NGO, ENGOs are Environmental NGOs and YOUNGOs are Youth NGOs). In addition to observing the negotiations, these additional groups organize side events and daily briefings with negotiators to ensure that all key issues are considered and addressed in the climate negotiations.

And to follow the climate negotiations, there are a few more acronyms to learn. In 2007, the Conference of the Parties adopted the Bali Action Plan and Bali Roadmap. The key negotiating groups under the Bali Action Plan and Roadmap are the Ad Hoc Working Group on Long-Term Cooperative Action under the Climate Convention (AWG-LCA) and the Ad Hoc Working Group on Further Commitments for Annex I Parties under the Kyoto Protocol (AWG-KP). The names for both groups are fairly self-explanatory. The AWG-LCA focuses on long-term cooperation including mitigation, adaptation, finance and technology/capacity-building. The AWG-KP focuses on emission reductions by Annex I countries (i.e., developed countries) beyond 2012. The road for both of these groups is supposed to end with reports for the larger Conference of the Parties (COP-15) to consider in Copenhagen at the end of this week.

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This post was written by Jennifer Smokelin.

As you know, the United Nations climate conference began today in Copenhagen, Denmark. And Reed Smith is here. Actually it’s the 15th conference of its kind and it is properly known as Conference of the Parties or COP-15 under the United Nations Framework Convention on Climate Change (UNFCCC). COP-15 may not yield a new global climate treaty with every minor detail in place. But hopefully it will close with agreements on four political essentials, thereby creating some clarity the world – not least the financially struck business world – needs. Stay tuned to this site to find out, day by day, how close the parties some on these issues.

Four issues to follow are:

1. How much are industrialized countries willing to reduce their emissions of greenhouse gases? 
2. How much are major developing countries such as China and India willing to do to limit the growth of their emissions? 
3. How is the help needed by developing countries to engage in reducing their  emissions and adapting to the impacts of climate change going to be financed?
4. How is that money going to be managed?

As crowds of people arrive in Copenhagen, and amid an assortment of climate-related side events such as Hopenhagen Live, COP-15 opened today. Speakers focused on a lot of “C” words: how the conference marks the culmination of a two-year negotiating process to enhance international climate change cooperation, how countries and the negotiations must be constructive, and how there was hope for consensus. 

Much of the news for the day, it seems, was back in the United States. The U.S. Environmental Protection Agency (USEPA) announced its final endangerment finding that concludes greenhouse gas emissions endanger public health and welfare. The finding does not include any proposed regulations, but it will pave the way for several pending EPA rules. For example, USEPA will be able to finalize draft regulations to impose the first-ever federal tailpipe standards for greenhouse gases and to require the largest industrial sources to install the best available control technology to curb their emissions. EPA is expected to finalize both of those rules by March 2010.

The determination is expected to add to the Obama administration’s bargaining power in the absence of comprehensive U.S. energy and climate legislation. Also, President Obama shifted his visit to the Copenhagen talks from this week to the last day, indicating an increase in the administration’s commitment to, and hopes for, a successful outcome. The President also indicated that there appears to be an emerging consensus for developed nations to mobilize $10 billion a year by 2012 to support climate change adaptation and mitigation in developing countries.

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This post was written by David Wagner.

The final rule implementing USEPA's Mandatory Greenhouse Gas Reporting Program was published in the Federal Register on October 30, 2009, and the rule will become effective on December 29, 2009.  For more information and an analysis of the rule, please review our earlier posting.

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This post was written by Nicolle Bagnell and Stephanie Hadgkiss.

The Pennsylvania Department of Environmental Protection has fined Cabot Oil and Gas Corporation $56,650 following three spills which occurred over the course of one week at Cabot's Marcellus Shale natural gas drilling sites in Susquehanna County, Pennsylvania. The fine was assessed as for violations of the Clean Streams law, Solid Waste Management Act and the Oil and Gas Act.

In addition to the fine, from September 24 to October 16, the DEP imposed a three-week halt of hydraulic fracturing performed by Cabot in Susquehanna County. Hydraulic fracturing is a drilling technique being used to maximize natural gas extraction from the Marcellus Shale. A mixture of water, sand and other substances (sometimes referred to as "frac fluid") is forced into tiny fractures in underground shale rock layers at high pressure in order to release trapped natural gas.

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This post was written by Rose Standifer and Jennifer Smokelin.

Mandatory reporting of greenhouse gases (GHG) is now required nationwide. On Tuesday, September 22, 2009, the U.S. Environmental Project Agency (EPA) issued its Final Mandatory Reporting of Greenhouse Gases Rule. The final rule requires mandatory reporting of GHG from most large GHG emissions sources in the United States. The stated purpose of the rule is to collect accurate and timely emissions data to inform future policy decisions. Reporting requirements begin on January 1, 2010. Initial reports, covering emissions during 2010, are due on March 31, 2011.

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This post was written by Indeg Kerr, Siobhan Hayes and Tim Foster.

UK businesses need to know their carbon footprint because in 2010 the Carbon Reduction Commitment Order will apply. Since our CRC posting in December 2008, draft regulations have been published and are now subject to public consultation. This remains a scheme where businesses using a substantial amount of energy will have to report on their energy consumption, buy carbon allowances based on projected carbon emissions for each scheme year then surrender them at the end of each year when energy use is known. A league table will be published by the Environment Agency (EA) who will administer the scheme showing the relative energy efficiency of all those in the program. The best performing businesses will receive a refund of some of the costs of the allowances plus a bonus but the worst performing businesses will pay a penalty.

Some industries are high intensity energy users and already have to comply with the EU’s Emissions Trading System. The CRC scheme will capture lower intensity energy users who used a significant amount of electricity in 2008 and may include large offices, chains of retail outlets, hotels, banks, chains of restaurants as well as industry.
This posting outlines the types of business that may need to comply with the CRC scheme, the basic requirements of the program, some cost issues, and next steps to consider.
 

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This post was written by Nicolle Snyder Bagnell and Stephanie Hadgkiss.

Facing a projected budget deficit of $2.3 billion, Pennsylvania Governor Ed Rendell has proposed a "severance" tax on gas extracted from the Marcellus shale formation, the proceeds of which would go to the General Fund in order to offset revenue shortfalls in the state's budget. This proposal was reported in the Feb. 20, 2009 edition of the Oil and Gas Journal.

According to the article, Governor Rendell proposes to tax producers in the state 5% at the wellhead, plus 4.7 cents per thousand cubic feet of production --an approach identical to that of West Virginia. The tax would be paid monthly to the Pennsylvania Department of Revenue beginning Oct. 1, 2009 and has been projected to raise an estimated $1.82 billion over five years.

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This post was written by Mark Mustian. 

Mountain-top mining has probably generated more controversy in the United States than any other current resource extraction process, and recent USEPA activities have significantly increased attention to the process. Before discussing the regulatory developments, some background information may be helpful. Mountain-top mining is utilized to remove low-sulfur coal from the tops of mountains in the Appalachian region. The mining company timbers the mountain-top and removes the topsoil. The company then uses explosives to remove the overburden rock to expose the coal seams. The overburden is typically pushed into a nearby valley, creating a valley fill. The coal is excavated and washed (creating a significant amount of coal slurry waste), and the top of the mountain is reclaimed and revegetated. The process results in permanent changes to the topography and permanent impacts to the regions streams and water quality.

Mountain-top mining is allowed under section 515(c)(1) of the Surface Mining Control and Reclamation Act (SMCRA). However, in order to deposit the overburden into the valley, and the valley watershed, the mining company must obtain a permit from the U.S. Army Corps of Engineers (USACE). A permit is required under section 404 of the Clean Water Act (CWA) in order to discharge dredged or fill material into the waters of the United States. The permit is issued by the USACE using the guidelines developed by the Environmental Protection Agency (EPA). Under Section 404(c) of the CWA, the EPA has the authority to deny a permit for the discharge of dredged or fill material if it determines that "that the discharge of such materials into such area will have an unacceptable adverse effect on municipal water supplies, shellfish beds and fishery areas (including spawning and breeding areas), wildlife, or recreational areas."

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This post was written by Nicolle Snyder Bagnell.

Pennsylvania's Environmental Quality Board, a 20 member board which includes representatives from 11 state agencies, 5 members from the Citizens Advisory Council, and 4 members from the Pennsylvania Senate and House and is chaired by the Secretary of the Department of Environmental Protection (DEP), voted last month to increase permit fees for oil and gas wells. The new fees increase the base cost for a Marcellus Shale drilling permit from $100 to $900 for wells up to 1,500 feet deep plus a fee of $100 for every additional 500 feet beyond the initial 1500 feet, resulting in potential permit fees of thousands of dollars per well. The fee increases must still be approved by the Independent Regulatory Review Commission and the State Attorney General. If approved, the new permit fees will likely be applied beginning in March or April of 2009 and would be the first increase in oil and gas well permit fees in Pennsylvania in 25 years.
 

As discussed in the DEP's fact sheet, the Marcellus Shale is a rock formation in Pennsylvania and parts of New York and West Virginia that may hold trillions of cubic feet of natural gas. Recent advances in drilling technology and rising natural gas prices have led to new interest in this previously untapped formation.
 

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This post was written by Sara Mo.

The approved Scoping Plan includes measures that expand and strengthen existing energy efficiency programs as well as building and appliance standards. 

The plan establishes new targets for statewide annual energy demand reductions of 32,000 gigawatt hours and 800 million therms from businesses. In addition, the plan sets forth the following energy efficiency strategies:

• Cross-cutting Strategy for Buildings– Construction of “Zero Net Energy” buildings that regulate building energy use over the course of a typical year by reserving surplus energy to a grid and drawing from the grid when additional energy is needed;
• Codes and Standards Strategies– More stringent building codes and appliance efficiency standards; broader standards for new types of appliances and for water efficiency; improved compliance and enforcement of existing standards; voluntary efficiency and green building targets beyond mandatory codes;
• Strategies for Existing Buildings – Voluntary and mandatory whole-building retrofits for existing buildings; innovative financing to overcome first-cost and split incentives for energy efficiency on site, renewables and high efficiency distributed generation;
• Existing and Improved Utility Programs – More aggressive utility programs to achieve long-term savings; and
• Other Needed Strategies – Water system and water use efficiency and conservation measures; local government programs that lead by example and tap into local authority over planning, development, and code compliance; additional industrial and agricultural efficiency incentives; providing real time energy information technologies to help consumers conserve and optimize energy performance.

The Scoping Plan also promotes the use of solar water heating systems and builds on existing legislation, such as the Solar Water and Efficiency Act of 2007, which authorized a ten-year, $250 million incentive program for solar water heaters with a goal of promoting installation of 200,000 systems in California by 2017. In addition, the plan recommends developing combined heat and power systems rather than building new power plants or replacing existing ones.

The Scoping Plan accounts for other innovative approaches that may be used to motivate private investment in efficiency improvements. For example the cap and trade program [link to Cap and Trade], will provide incentives to pursue projects to reduce GHG emissions, such as the bundling of energy efficiency improvements for small businesses. California will also pursue comparable investment in energy efficiency from all retail providers of electricity in California, including both investor-owned and publicly owned utilities.

Click here to return to Scoping Plan overview.

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This post was written by Eric M. McLaughlin and Keisha M. Williams.

In late September, New York became the latest state to give the green light to “green building,” after Gov. David Paterson signed two bills introducing green building performance standards for construction and renovation of New York state government buildings, and a Grants Program for green residential builds. The new laws aim to encourage and incentivize the construction of energy-efficient, sustainable buildings, using recyclable and environmentally friendly materials, and are in line with the governor’s “15 x 15” plan to reduce energy use by 15 percent of expected levels by 2015. New York’s new laws highlight the fact that buildings account for nearly 40 percent of the nation’s greenhouse gas emissions and more than 70 percent of its electricity consumption, and that these impacts can be reduced by regulations governing design and construction.

The State Green Building Construction Act (A. 2005) (State Building Act) will require all new state-owned buildings, and substantial renovations of existing state-owned buildings, to comply with green construction principles set forth in standards to be developed by the Department of Environmental Conservation (DEC) and the New York State Energy Research and Development Authority (NYSERDA). State agencies will also be required to prepare annual building performance reports containing information on their green credentials, including energy consumption, waste reduction, and how indoor air quality compares with set benchmarks. The State Building Act takes effect 180 days after signature, on or about March 25, 2009.

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This post was written by Ruth N. Holzman, James R. Eskilson, Todd O. Maiden, Eric M. McLaughlin, and Jennifer Smokelin.

There’s good news for commercial building owners who have wanted to “go green,” but have been waiting to see whether the tax incentives for green buildings, set to expire at the end of 2008, would be extended. The historic financial rescue bill (H.R. 1424), signed by President Bush on Friday, Oct. 3, 2008, also included the Tax Extenders and Alternative Minimum Tax Relief Act of 2008 (“TEAMTRA”). Among the tax-extenders in TEAMTRA was a five-year extension of the tax incentives for “green” commercial buildings.

Internal Revenue Code Section 179D gives owners of commercial real property a tax break by allowing them to deduct the cost of certain energy-efficient property. It applies to both new construction and to retrofits of existing construction. Prior to TEAMTRA, this tax break only applied to property placed in service on or prior to Dec. 31, 2008. With the extension of this provision to Dec. 31, 2013, property owners now have sufficient time to design, construct and complete projects that will qualify for this tax break. Although numerous bills had been introduced in Congress that would have raised the amount deductible under Section 179D, TEAMTRA did not contain any increase in this amount. The deduction is still limited to the product of $1.80 multiplied by the square footage of the building.

For a brief overview of the Section 179D deduction for “green” buildings, see “New Tax Incentives for ‘Green’ Buildings Have Owners Seeing Green,” in The Critical Path, Fall 2006; for a more detailed discussion, see "New Tax Incentives for 'Green' Buildings Have Owners Seeing Green," in the ABA's The Construction Lawyer, Summer 2007.

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This post was written by Todd O. Maiden and Rose L. Standifer.

On Sept. 12, 2008, the California Public Utilities Commission ("CPUC") and the California Energy Commission ("CEC") released their joint proposed opinion on strategies to help reduce greenhouse gas ("GHG") emissions and meet the goals of AB 32, the California Global Warming Solutions Act of 2006. The Proposed Final Opinion on Greenhouse Gas Regulatory Strategies, prepared jointly by CPUC President Michael Peevey, and CEC Chairman Jackalyne Pfannenstiel and CEC Commissioner Jeffrey Byron, provides recommendations, and outlines a variety of options for the California Air Resources Board ("CARB") to consider in deciding how to design a program to achieve the GHG emission targets in the electricity sector. After public comments, the full CPUC and the full CEC will individually consider adopting the finalized opinion at their respective meetings Oct. 16, 2008.

An "Interim Opinion," adopted in March 2008 by the two Commissions, recommended aggressive regulatory measures that maximize energy efficiency and expand renewable energy development beyond the 20 percent goal, and consideration of a multi-sector cap-and-trade program to capture additional cost-effective reductions of GHG emissions. The Interim Opinion also recommended that the "deliverers" of electricity to the California grid would be responsible for complying with the AB 32 regulations.

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This post was written by James R. Eskilson, Ruth N. Holzman, Todd O. Maiden, and Simon Adams.
 

On July 17, 2008, California adopted a new California Green Building Standards Code that will change future construction standards and costs, and affect all new construction. The code, adopted by the California Building Standards Commission, is the first of its kind on a national level and has been marketed as setting an international precedent for resource preservation and combating global warming. 

The California Green Building Standards Code will affect planning and design of new construction projects; energy efficiency of new construction projects; water efficiency and conservation; material conservation and resource efficiency; and environmental air quality. The goal of the new standards is to reduce energy use by at least 15 percent. They will also reduce the use of toxic substances in new construction projects. These new standards will further California’s goals of reducing greenhouse gases, by 2020, to a level that will be 20 percent below those measured in 2005. Another beneficial result of the new standards is a 50 percent reduction in waste streams from construction sites. 

Beyond water and energy efficiency, compliance with the code will require developers to meet new standards regarding the use of eco-friendly flooring, carpeting, ceiling panels and insulation, among other things. The code also sets new standards for dual plumbing systems, for potable and recyclable water, and for the diversion of construction waste to landfills. While initial construction costs may be higher, supporters of the new code argue that the long-term operation and use of buildings meeting this new standard will result in cost savings. This will require additional due diligence on the part of investors and lenders regarding understanding cost-benefit analysis and predicting returns on investments.

Developers are already lobbying to receive greenhouse gas emission reduction credits for their investment in buildings with lower carbon footprints. How such emission reductions will be calculated and how associated emission reduction credits may be allocated, if at all, may dramatically impact the cost benefit analyses of all parties associated with the construction, lending, and long-term use of affected properties.

Compliance with the new building code is currently voluntary, but will become mandatory in 2010. To encourage developers to follow the new green standards during this period of voluntary compliance, California is looking at potential incentive programs, including tax breaks. 

Some of the federal income tax incentives for installing energy-efficient improvements in buildings expired at the end of 2007, and many more will expire after 2008 if Congress does not act to extend them. Although the House passed a bill this spring that would have extended these tax breaks for as long as five years, the Senate failed to vote on any “tax extender” bill before it recessed July 31. Senate Majority Leader Harry Reid has pledged that the Senate will work to pass an energy and “tax extenders” bill in September. We will continue to follow this issue and keep you updated.

From assistance with basic licensing and registration requirements, to contract negotiations and mechanics' lien matters, to resolution of disputes in virtually any forum, Reed Smith represents clients in all aspects of the construction process.

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