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

1. Offshore Wind Power Generation (Robert Vilter, New York)

The Obama Administration is pursuing the development of 10 gigawatts of offshore wind-generating capacity by 2020, and 54 gigawatts by 2030. This would produce enough energy to power 2.8 million and 15.2 million homes, respectively. However, because of complicated and overlapping federal and state regulations, it takes anywhere from seven to 10 years to receive approvals and to fully permit an offshore wind project – more than double the amount of time it takes to permit an offshore oil or natural gas platform. The U.S. Department of the Interior has announced a “Smart from the Start” wind energy initiative to facilitate siting, leasing and construction of new projects in an effort to shorten this time line. Keep in mind that offshore wind farms, such as Cape Wind, also face local hurdles to development, oftentimes in the form of opposition by well-funded citizen groups.

2. Renewable Energy Incentive Programs (Arnold Grant, Chicago)

The cash grant program enacted under Section 1603 of American Recovery and Reinvestment Act in order to help renewable energy developers has expired except for projects that (i) began construction before January 1, 2012, and (ii) are placed in service before a specified date. The date varies depending on the type of project. The major remaining federal tax benefits are the energy tax credit under IRC Section 48, the production tax credit under IRC Section 45, and accelerated tax depreciation under IRC Section 168. Various structures are available to help renewable energy developers monetize these incentives.

3. Hydraulic Fracturing Regulation (Larry Demase, Pittsburgh)

Hydraulic fracturing or “fracking” is a practice of stimulating and maximizing production of natural gas in shale formations that has been in use in the United States for more than 50 years, but which has recently gained public attention. It involves pumping, under high pressure, a mixture of very large quantities of water and very small quantities of chemicals and proppants to create fissures in the shale and to hold fissures open so that gas will flow in greater quantities to the well bore. The controversy over its use concerns the amount of water being withdrawn from ground and surface resources, alleged contamination of drinking water from the fracking fluid and the disposal and treatment of waste water. In 2011 the U.S. Environmental Protection Agency (EPA) announced it will study the impacts of hydraulic fracturing on drinking water resources. The results of EPA’s study are intended to provide decision makers with some answers to fundamental questions about the effect of fracking on drinking water. The results will also no doubt be the impetus for regulatory and policy changes that could have a significant impact on the shale gas industry. A panel of experts will analyze the effect of fracking using reported cases of alleged groundwater contamination, laboratory studies, toxicological assessments of chemicals used in hydraulic fracturing, their degradation and/or reaction products, and naturally occurring substances that may be released or mobilized as a result of fracking.

There will be two reports resulting from EPA’s study with the first to be completed in 2012. An additional report based on long term study projects is to be issued in 2014. In the meantime, look for states to address these issues in various ways.

4. Aggregation (Larry Demase, Pittsburgh)

As we’ve discussed in previous posts, aggregation is the process of determining whether emissions from multiple operations should be aggregated into a single source for air permitting purposes. A significant issue related to oil and gas operations is whether emissions from individual operations, such as wells, processing plants and compressor stations, should be combined so that they become major sources for permitting purposes, subject to Title V requirements and New Source Review.

In 2011, a number of public interest groups challenged air permits issued by the Pennsylvania Department of Environmental Protection (DEP) on the grounds that DEP should have included multiple sources of emissions in those permits so that they would be considered “major” permits. The Clean Air Council, Group Against Smog and Pollution, and Citizens for Pennsylvania’s Future have asserted before the Pennsylvania Environmental Hearing Board and the United States District Court for the Middle District of Pennsylvania, that DEP failed to properly apply the three-part test for deciding whether sources should be “aggregated” together for permitting purposes. One case asserts that the permittee should be penalized for failing to submit an “aggregated” permit application. Decisions in these cases could result in precedents that will impact development of the shale gas industry in Pennsylvania.

Initial decisions in all three cases are expected in 2012, but final results could be extended if the losing parties seek appeals.

5. Greenhouse Gas Litigation (Jennifer Smokelin, Pittsburgh)

Regarding greenhouse gas (GHG) litigation, there are two main areas to watch in 2012: (i) the United States Supreme Court (and the Ninth Circuit) in the aftermath of American Electric Power v. Connecticut (AEP), and (ii) four consolidated cases in the D.C. Circuit challenging the endangerment finding slated for argument at the end of February.

Before the Supreme Court ruled in Massachusetts v. EPA, certain states sued the nation’s five largest coal-fired electric power corporations in the Southern District of New York under federal and state common law, charging AEP and other defendants with contributing to the public nuisance of global warming and seeking an injunction to cap and reduce their carbon dioxide emissions. The AEP Court voted unanimously that federal common law had been “displaced” by the Clean Air Act (and the Obama Administration’s efforts to regulate emissions), and thus states cannot use federal common law to restrict greenhouse gas emissions. The AEP ruling leaves open the question of (i) whether states can sue under state law, and (ii) whether climate change victims can seek damages through the courts. The issues are likely to be litigated in 2012 in a case, Kivalina v. Exxon Mobil.

Following the decision in Massachusetts v. EPA, but before AEP was decided in the U.S. Supreme Court: (i) EPA published two endangerment findings under the Clean Air Act, triggering a mandatory duty for EPA to adopt regulations to control emissions from power plants, industries, motor vehicles, and other sources; (ii) EPA issued tailpipe emission standards for new cars and trucks under the Clean Air Act; and (iii) EPA issued Best Available Control Technology (BACT) guidance for new sources and New Source Performance Standards (NSPS) for existing sources of GHG emissions under the Clean Air Act. Four cases are consolidated in the D.C. Circuit that challenge EPA’s Endangerment Findings. The cases are Coalition for Responsible Regulation Inc., et al. v. EPA, case numbers 09-1322, 10-1092 and 10-1073; and American Chemistry Council v. EPA, case number 10-1167, in the U.S. Court of Appeals for the District of Columbia Circuit. Argument will take place February 28 and 29, 2012. This is a very complex series of cases that will affect not only utilities but many other industries as well, since the fundamental underpinning to all GHG regulation under the Clean Air Act is essentially up for review.

6. California’s Cap-and-Trade Program (Todd Maiden, San Francisco)

In October 2011, the California Air Resources Board approved final regulations implementing a “cap-and-trade” program under the state’s climate law (more commonly referred to by its legislative bill number, “AB 32”). These regulations became effective January 1, 2012, and many consider California a possible test case for similar programs in other parts of the country. Regulated entities under the first phase of this program include utilities and large industrial facilities (i.e., emitters of greater than 25,000 metric tons of CO2 equivalent per year). The regulations trigger two 2012 auctions for buying and selling rights to emit, and requires entities to comply with a series of progressively stringent emission caps beginning January 2013.

7. California's Green Chemistry Initiative (Todd Maiden, San Francisco)

In October 2011, California’s Department of Toxic Substances Control (DTSC ) released revised “informal” draft regulations of its Green Chemistry initiative titled the “Safer Consumer Products Regulation.” DTSC’s new informal draft makes substantial changes, specifically in the areas of timeframes, the prioritization of chemicals and products, alternative assessment compliance, and exemptions. The informal draft also significantly broadens the chemicals that will initially be regulated to include an estimated 3,000 Chemicals of Concern without limits on which product categories may initially be considered. These draft regulations are highly controversial, yet DTSC is projecting that it will likely finalize these regulations – or something close to them – in spring 2012.

In a related development, California’s Office of Environmental Health Hazard Assessment recently finalized separate regulations that regulate the hazard traits in chemicals of concern. While finalized, these regulations remain controversial within the regulated community, and we anticipate administrative or litigation challenges to these regulations as well.

8. New Mercury Standards for Coal and Oil-Burning Power Plants (Douglas Everette, Washington, D.C.)

The final version of EPA's Mercury and Air Toxics Standards, or MATS rule, was signed December 21, 2011. For the first time in history, power plants will have to reduce all of their air toxic emissions, not just mercury, arsenic and lead – but a wide range of toxic chemicals. For coal-fired generators, the MATS rule sets emissions limits for mercury, particulate matter (a surrogate for toxic metals), and hydrogen chloride (a surrogate for acid gases). For oil-fired units, limits are set for particulate matter, hydrogen chloride and hydrogen fluoride. Also revised are new source performance standards for power plants to address emissions of particulate matter, sulfur dioxide and nitrogen oxides. According to EPA, approximately 1,400 existing coal and oil-fired units are affected. Existing sources are required to comply within three years of the effective date of the MATS rule, with case-by-case extensions up to five years beyond the effective date for documented electric reliability issues. These extensions are not offered to new or reconstructed sources. Vigorous debate centers on the practical implementation of the MATS rule deadlines and whether the electric grid will have enough capacity to avoid outages stemming from coal power plant retirements.

9. Fallout from Burlington Northern and Santa Fe Railway Co. v. U.S. (Robert Frank, Philadelphia)

In Burlington Northern and Santa Fe Railway Co. v. United States (BNSF), 556 U.S. 599 (2009), the U.S Supreme Court decided two key issues for parties facing Superfund liability: the standard for establishing “arranger” liability and the standard for establishing divisibility of liability. Since then, more than 100 courts have cited the decision. On arranger liability, including two at the federal appellate level, the cases illustrate that courts are following the Supreme Court’s directive to conduct a fact-intensive inquiry into a defendant’s purported “intent” to dispose of a hazardous substance. It’s fair to say that courts have been more reluctant to establish liability under an arranger theory than in the era preceding BNSF and look for that trend to continue in 2012.

For example, last year, the Ninth Circuit issued its first “arranger” liability decision under CERCLA since being reversed by the Supreme Court in the 2009 Burlington Northern decision.

In Team Enterprises, LLC v. Western Investment Real Estate Trust, 647 F.3d 901 (9th Cir. 2011), plaintiff argued that the requisite "intent to dispose" element necessary to trigger CERCLA arranger liability could be inferred from the fact that the dry cleaning machine was designed in a way that made disposal inevitable. Plaintiff also argued that the fact that the manufacturer exercised control over the disposal process provided a sufficient basis to infer the requisite intent necessary to trigger CERCLA arranger liability. The Ninth Circuit held that a manufacturer of equipment used to recycle wastewater from dry cleaning machines, as a matter of law, had neither the intent nor the control necessary to be held liable as an arranger. The court held that, to sustain an arranger claim against a “company selling a product that uses and/or generates a hazardous substance as part of its operation,” the plaintiff must prove “that the company entered into the relevant transaction with the specific purpose of disposing of a hazardous substance.” The holding underscores the high bar plaintiffs must meet in order to establish CERCLA arranger liability following the BNSF decision.

Regarding divisibility, there have been fewer cases applying the Supreme Court’s divisibility holding in BNSF. Generally, the courts looking at whether a “reasonable basis” for apportionment exists have reviewed the evidence that defendants have submitted to determine whether they have met their burden of proof. These cases have been very fact-intensive and, so far, it is difficult to identify a trend.

10. Final Rules for Conflict Minerals (David Wagner, Pittsburgh)

Section 1502 of the Dodd-Frank Act requires the Securities and Exchange Commission (SEC) to issue disclosure and reporting regulations regarding manufacturers’ use of conflict minerals from the Democratic Republic of Congo (DRC) and adjoining countries. The SEC was required to issue its conflicts minerals rules last year but missed the deadline. Look for the final rules – and plenty of implementation concerns – sometime in 2012. The legislation for conflict minerals is part of a broader multilateral effort to require manufacturers and other users of certain minerals to closely track and publicly disclose where their raw materials originate. It is designed to suppress end-use demand for minerals produced in certain high-risk areas where minerals operations and revenues have been linked to violent and repressive rebel groups.

The law focuses on forcing supply chain transparency for users of certain minerals (which are used primarily in electronic components, engine components, aerospace equipment, jewelry and other industries). It does not directly impose restrictions on mining or metals companies, or create any sort of embargo on the DRC.

CERCLA Background

CERCLA provides two mechanisms to allow private parties to seek costs incurred to remediate a contaminated site: cost recovery under Section 107 and contribution under Section 113. Section 107(a)(4)(B) permits a private party that has voluntarily incurred costs cleaning up a site for which it may be held liable to recover necessary response costs from another liable party through a direct recovery action.

Section 113(f)(1) allows a person to seek contribution from any other person who is liable or potentially liable under Section 107(a) during or following a civil action under Sections 106 or 107. Section 113(f)(3)(B) authorizes “[a] person who has resolved its liability to the United States or a State for some or all of a response action or for some or all of the costs of such action in an administrative or judicially approved settlement” to seek contribution from any person who has not so resolved its liability.

Morrison Enterprises’ Response Costs

The District Court had determined that Morrison could not use Section 107(a) to recover response costs for removing TCE at Well D because Morrison was a liable party that had been subject to a Section 107 enforcement action as evidenced by three administrative orders and a consent decree. These agreements also obligated Morrison to operate Well D to remove TCE and other hazardous substances.

Morrison argued that the District Court erred in finding Morrison could not bring a cost-recovery action because, in Morrison’s view, it “voluntarily” cleaned up TCE contamination for which Dravo was legally liable. Denying any causal connection to releases of TCE anywhere in the Superfund Site, Morrison attempted to analogize its compelled removal of TCE at Well D to the plaintiff’s voluntary clean-up of hazardous substances in Atlantic Research. According to Morrison, “[b]y ‘voluntarily,’ the Supreme Court [in Atlantic Research] meant actions taken ‘without any establishment of liability to a third party,’ such as through a judgment or court order.” See Atlantic Research, 551 U.S. at 139.

The Circuit Court determined that Morrison’s understanding of Atlantic Research and its application here was incorrect. It found that Morrison ignored the terms of its administrative orders. Unlike the voluntary plaintiff in Atlantic Research, which had never been subject to an action under Sections 106 or 107, Morrison was sued under Section 107 for releases and potential releases of hazardous substances and entered administrative settlements to resolve its liability. The court added that, notwithstanding Morrison’s assertions to the contrary, one of the administrative orders specifically obligates Morrison to operate Well D to remove TCE from contaminated groundwater as a “liable party” under Section 107(a). After finding that response costs incurred pursuant to administrative settlements following a suit under Section 106 or 107(a) are not incurred voluntarily, the Circuit Court affirmed that Morrison could not maintain a cost-recovery action under Section 107(a).

The City of Hastings’ Response Costs

The city of Hastings likewise did not voluntarily incur response costs operating a well to remediate contamination in the city’s groundwater. The court found that it was subject to enforcement under Sections 106 and 107, and had resolved its liability to the federal government in administrative and judicially approved settlements, including two administrative orders and two consent decrees. The most recent consent decree requires the city to operate Well D to remediate contamination in the city’s groundwater.

The city argued that the District Court erred in focusing on the remedy, Well D, rather than on Dravo’s liability for contamination originating at a different subsite. In asserting that Dravo’s separate subsite is a separate “facility” under CERCLA, the city argued that it was voluntarily cleaning up Dravo’s contamination from a separate facility at Well D.

The Circuit Court disagreed and found that the city’s focus on specific facilities within the overall Superfund Site “is entirely too narrow given CERCLA’s comprehensive remedial purpose and broad reach.” The court determined that once a party is liable under Section 107(a), it is liable for its share, as determined by Section 113(f), of any and all response costs, not just those costs caused by its release. It held that, while some of the releases of hazardous substances for which the city and Dravo are liable may have initially originated at different subsites, both are responsible for the release of TCE into the city’s groundwater within the site. The court affirmed the District Court’s conclusion that the city must use Section 113(f) to apportion responsibility for response costs incurred operating Well D to remove TCE accumulating there.

Dravo Corporation was represented by Reed Smith attorneys Larry Demase, Mark Mustian, Steve Nolan and David Wagner.
 

Factual Background

This part of the decision was based on the alleged release of contaminants from a former manufacturing facility of Dravo Corporation (Dravo) located near the center of Hastings, Nebraska. The City of Hastings sued Dravo for recovery of the full cost of installing a water supply system throughout the entire city. Dravo disputed the extent to which the water supply infrastructure replacement project was attributable to its plant, but that issue was not the subject of its summary judgment motion.

The CERCLA Statute of Limitations

CERCLA contains several distinct statute of limitations provisions; the applicable provision being determined by the type of cleanup being proposed, whether the action is one for cost recovery or contribution, and whether a previous action has been maintained. For cost recovery actions, CERCLA provides that a suit for recovery of the cost of a removal action is three (3) years after completion of the removal action, whereas for a remedial action, the suit must be commenced no later than six (6) years after initiation of physical on-site construction of the remedial action. Finally, for either kind of response action, if a previous suit has been brought, a third statute of limitations provision applies. That provision reads:
 

A subsequent action or actions under section [107] of this title for further response costs at the vessel or facility may be maintained at any time during the response action, but must be commenced no later than 3 years after the date of completion of all response action.
 

Subsequent or Initial Action

The City contended that this last provision applied. The City noted that, some years earlier, in an action initially brought by the government (U. S. v. Dravo), Dravo had sued the City in a third party action for contribution under §113 of CERCLA (Dravo had alleged that leaks from City pipelines had contributed to the release). The City had counterclaimed, also under §113, for contribution from Dravo for cleanup actions elsewhere in the city. The City’s counterclaim in that action had eventually been dismissed without prejudice.

The City’s position in Morrison was that its counterclaim in U. S. v. Dravo constituted an “initial action”, and that therefore, under Section 113 (g) (2), it could sue for cost recovery at any time until the installation of the water supply system was completed. No court had previously addressed this precise issue.

The court found no difficulty, however, in rejecting the City’s argument. First, it was inconsistent with the text of § 113 (g) (2), which expressly required an initial action under § 107 for a later action under that section to be considered a subsequent one. Second, such an interpretation would do violence to the structure of the statutory scheme because, under the City’s theory, its §113 counterclaim in U.S. v. Dravo would have been both an initial action under § 107, subject to the statute of limitations for § 107 claims and a contribution action under § 113 subject to the statute of limitations for contribution actions. The court therefore found that the City’s suit in Morrison was an initial action.

Remedial or Removal Action

That still left the issue of whether the response action undertaken by the City – the replacement (and expansion) of its water supply system – should be considered a remedial or a removal action. As stated previously, a suit for recovery of the cost of a removal action is three (3) years after completion of the removal action, whereas for a remedial action, the suit must be commenced no later than six (6) years after initiation of physical on-site construction of the remedial action. In Morrison, the event triggering the running of the statute was far more significant than whether the statute was for three years or six. Contamination had been detected in City wells 1983, and physical removal from service of contaminated wells and installation of new wells and pipelines began no later than the mid-1980s. Accordingly, if the response was characterized as a remedial action, the statute had long expired, whereas if the response was a removal action, the picture was less clear cut because ongoing maintenance and expansion of the water supply system had never wholly ceased.

Distinguishing between the two is not always easy. A removal action is defined in the statute to mean “the cleanup or removal of hazardous substances from the environment, such actions as may be necessary to be taken in the event of the threat of release of hazardous substances into the environment … or the taking of such other actions as may be necessary to prevent, minimize, or mitigate damage to the public health or to the environment which may result from a release or threat of release …”

A remedial action is defined as “those actions consistent with a permanent remedy taken instead of or in addition to removal actions in the event of a release or threatened release of a hazardous substance into the environment, to prevent or minimize the release of hazardous substances so they do not migrate to cause substantial danger to present or future public health or welfare or the environment ….”

Both definitions encompass preventive activities, and while they also include some specific examples of measures falling within their scope, those examples were of limited assistance in Morrison because “the provision of alternative water supplies” is expressly included in both definitions.

Notwithstanding the problems caused by the text and by the limited amount of case law, the court was able to conclude that the District Court had been correct to grant summary judgment to Dravo. Based on its own decision in Minnesota v. Kalman W. Abrams Metals, Inc., 155 F.3d 1019 (1998) and the Supreme Court’s holding in Exxon Corp. v. Hunt, 475 U.S. 360 (1986), the Eighth Circuit recognized that the key distinction between the two types of response action is the permanent character (or otherwise) of the remedy. Since the City’s water supply project had been ongoing for over twenty-five years, the court found that it lacked the immediacy and relatively short duration of a removal action.

The court rejected the City’s argument that replacing the water supply “did not prevent or minimize the release of hazardous substances” a phrase found in the definition of a remedial action. The court noted that shutting down contaminated wells and providing alternative water supplies indeed prevented or minimized the release of hazardous substances. Furthermore, the City’s interpretation of the statute would eviscerate the provision including the provision of alternative water supplies within the definition of a removal action. Finding that such a reading was incompatible with the statute, the Court found that the District Court had correctly awarded summary judgment to Dravo and affirmed.

Dravo Corporation was represented by Reed Smith attorneys Larry Demase, Mark Mustian, Steve Nolan and David Wagner.
 

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