The Environmental Protection Agency and the Army Corps of Engineers recently announced a revised and final rule amending the definition of Waters of the United States (WOTUS) following the Supreme Court decision in Sackett v. EPA that invalidated the agencies’ previous definition. The revised rule took effect immediately upon its publication in the Federal Register on September 8.
The definition of “waters of the United States” is significant because it sets the jurisdictional limits of the Clean Water Act (CWA). Under the CWA, EPA and the Army Corps have the power to regulate, among other things, the discharge of pollutants to navigable water from a point source (33 U.S.C. § 1362(12)) and the discharge of dredged or fill material into navigable waters (33 U.S.C. § 1344). “Navigable waters” are defined in the CWA as “the waters of the United States, including the territorial seas.” 33 U.S.C. §1362(7). “Waters of the United States” is not defined further under the CWA, so the agencies have been left to try to craft a definition.
Since the Supreme Court’s 2006 decision in Rapanos v. United States, the agencies have relied on a “significant nexus” standard to include nearby wetlands and ephemeral waterways in the WOTUS definition. A “significant nexus” was established if the body of water “either alone or in combination with similarly situated wetlands in the region, significantly affect the chemical, physical, and biological integrity of other covered waters more readily understood as navigable.”
In January of this year, the agencies published a “Revised Definition of ‘Waters of the United States’”, which incorporated both a “relatively permanent” standard and a “significant nexus” standard. However, in May 2023, the Supreme Court decision in Sackett v. EPA rejected the “significant nexus” test, instead holding that bodies of water must have a “continuous surface connection” to a traditional navigable water to be a covered wetland (read our analysis of the Sackett decision here).
In consideration of the Sackett ruling, the agencies have again revised their final rule to conform with the Supreme Court’s decision. Under the new rule, “interstate wetlands” are no longer covered, and the “significant nexus” standard is no longer applicable in defining WOTUS. Instead, to be jurisdictional water, a wetland must be “relatively permanent, standing or continuously flowing…” and must have “a continuous surface connection” to a traditional navigable water.
The Council on Environmental Quality recently published the “Bipartisan Permitting Reform Implementation Rule,” the second in a two-phase approach to revising National Environmental Policy Act (NEPA) implementation regulations. An accompanying White House Fact Sheet highlights the proposal’s objectives to accelerate environmental reviews, encourage community engagement, accelerate clean energy advancements, strengthen energy security, and advance environmental justice.
From an environmental justice perspective, the proposed revisions will require agencies, where appropriate, to incorporate mitigation measures that will avoid or reduce a proposed action’s significant adverse health and environmental effects that disproportionately and adversely affect communities with environmental justice concerns. The proposal generally embeds the term “environmental justice” throughout the NEPA regulations, making a facility’s location a determining factor in the degree of review an agency gives a specific proposal, or whether the agency approves the project at all. Agencies must also, “to the fullest extent possible,” encourage and facilitate public engagement in decisions affecting the quality of the human environment, including meaningfully engaging communities with environmental justice concerns.
The revisions require agencies to consider the needs of affected communities when developing outreach and notification strategies. Notably, the proposal replaces the term “public involvement” with “public engagement,” emphasizing that interaction and collaboration is required between agencies and impacted communities, versus simply posting a public notice. That engagement must begin early in the process to seek input on proposals from impacted communities. Agencies are also required to provide sufficient notification to the community, which means making relevant documents accessible for community review. The proposal emphasizes that agencies must respond to public comments, removing a revision under the Trump Administration that an agency “may” respond to public comments. Further, agencies will be required to identify a “Chief Public Engagement Officer” that will be responsible for facilitating the agency’s community engagement. Overall, these processes are intended to make federal agency decisions more accessible and transparent to interested community members.
Besides encouraging early community engagement, the proposed rule also seeks to enhance engagement by removing what it described as “detailed and onerous” requirements that the prior administration imposed on public comments for them to be considered by an agency. These included requirements such as producing supporting information on a position or obtaining an expert to provide certain levels of detail. The proposal also removes a qualifier that the public comment should indicate what specific economic or employment impacts it is addressing. Generally, the expectation is that public comments will increase and more comments will be considered in agency decision-making.
The CEQ is currently holding public meetings on the proposal, with public comments due by September 29, 2023. Interested parties can submit their comments, identified by docket number CEQ–2023–0003, here. Additional information on the public hearings is located here. The first phase received almost 95,000 written comments, and it’s anticipated that this second phase will equally receive significant public attention.
Through this proposal, the Biden Administration is continuing its “whole of government” approach to embracing environmental justice initiatives. While not stated in the revisions, the regulated community should be mindful of these enhanced community engagement and cumulative impact provisions potentially entering future permit application requirements. We will continue to monitor CEQ’s proposed revisions and other environmental justice developments on the Corporate Environmental Lawyer blog.
By Steven M. Siros, Co-Chair, Environmental and Workplace Health & Safety Law Practice
U.S. EPA released the first set of data collected by public water systems (PWS) pursuant to the Fifth Unregulated Contaminant Monitoring Rule (UCMR 5). UCMR 5 required PWS serving more than 10,000 customers to sample for 29 specific per- and polyfluoroalkyl substances (PFAS), including perfluorooctanoic acid (PFOA), perfluorooctane sulfonic acid (PFOS), and hexafluoropropylene oxide dimer acid (GenX). The key take-aways from this newly released data (which represents about seven percent of the data that U.S. EPA expects to receive from the UCMR 5 sampling) are as follows:
- PFOA and PFOS were identified above their minimum reporting levels (above 4 ppt) in 8.5% and 7.8% of the PWS, respectively;
- GenX was found in only one PWS (representing 0.5% of the PWS) above its health advisory level;
- Detectible concentrations of nine other PFAS were identified above their minimum reporting levels (U.S. EPA has not set health advisory levels for these nine PFAS); and
- Sixteen PFAS were not detected above their respective minimum reporting levels.
With respect to PFOA and PFOS, because U.S. EPA’s controversial health advisory levels for these compounds are set below the minimum reporting levels, any detectible concentration of PFOA and PFOS is by definition in excess of its health advisory level.
In the press release that accompanied the data drop, U.S. EPA’s Assistant Administrator for Water, Radhika Fox stated “PFAS are an urgent public health issue facing people and communities across the nation. The latest science is clear: exposure to certain PFAS, also known as forever chemicals, over long periods of time is linked to significant health risks. That’s why the Biden-Harris Administration is leading a whole-of-government approach to address these harmful chemicals. As part of this commitment, EPA is conducting the most comprehensive monitoring effort for PFAS ever, at every large and midsize public water system in America, and at hundreds small water systems.”
We will continue to monitor subsequent UCMR 5 data releases at the Corporate Environmental Lawyer blog.
By Steven M. Siros, Co-Chair, Environmental and Workplace Health & Safety Law Practice
On August 14, 2023, a Montana state court found that a Montana environmental review statute (the Montana Environmental Policy Act or MEPA) that limited (and as amended in May 2023, precluded) consideration of greenhouse gas (GHG) emissions and corresponding impacts of those emissions on the climate in connection with environmental reviews was violative of Article IX, Section 1 of the Montana constitution that requires that “[t]he state and each person maintain and improve a clean and health environment in Montana for present and future generations.”
The court’s ruling was almost entirely focused on the evidence presented by the plaintiffs in significant part because the defendants began and rested their defense on the same day, arguing primarily that the case presented an issue that should rightly be decided by the legislature and not the judiciary.
In its 103-page order, the court found that plaintiffs had standing, noting that although plaintiffs’ mental health injuries directly resulting from state inaction or counterproductive action on climate change did not establish a cognizable injury, plaintiffs’ mental health injuries stemming from the effects of climate change on Montana’s environment, were cognizable injuries. The court also found redressability, presuming that if the court declared MEPA unconstitutional, that would somehow compel Montana to deny future permits for fossil fuel activities thereby reducing the levels of GHG emissions in the state.
In finding portions of the MEPA statute to be violative of the Montana constitution, the court stated that [b]y prohibiting consideration of climate, GHG emissions, and how additional GHG emissions will contribute to climate change … the MEPA Limitation violates Plaintiffs’ right to a clean and healthful environment and is facially unconstitutional”.
Montana’s attorney general has already indicated the state intends to appeal the court’s ruling, noting that this “same legal theory has been thrown out of federal court and the courts in more than a dozen states.” What impact this ruling might have, if any, on Juliana et al. v. United States—which is pending in federal court in Oregon and involves claims that the actions of the federal government are violative of the federal constitution remains to be seen, especially since the U.S. constitution doesn’t contain similar language regarding the right to a clean environment as is contained in the Montana state constitution.
In any event, we will continue to provide timely updates on breaking environmental, health and safety issues at the Corporate Environmental Lawyer blog.
On July 21, 2023, the Environmental Protection Agency published a final rule eliminating an affirmative defense for Clean Air Act permit emissions violations caused by
“Major sources” (i.e. sources with actual or potential emissions above certain emission thresholds) are required under Title V of the Clean Air Act to obtain operating permits. When the EPA originally promulgated rules implementing Title V, the proposed rules did not include an emergency affirmative defense provision. However, the EPA included the provisions in its final rule following requests from commenters. Specifically, 40 C.F.R. Parts 70.6(g) (state operating permit program) and 71.6(g) (federal operating permit program) contained identical affirmative defense provisions whereby a source could avoid liability for an emission violation if the violation was caused by an emergency “arising from sudden and reasonably unforeseeable events beyond the control of the source.” This included “acts of God, which situation requires immediate corrective action to restore normal operation, and that causes the source to exceed a technology-based emission limitation under the permit, due to unavoidable increases in emissions attributable to the emergency.” In such circumstances, a source could demonstrate an emergency affirmative defense by providing evidence that:
- An emergency occurred and the cause was identified;
- The facility was at the time being properly operated;
- The facility took all reasonable steps to minimize emission level exceedances and permit requirements during the emergency; and
- The permittee submitted notice of the emergency to the permitting authority within two working days.
The EPA’s attempt to remove the Title V emergency affirmative defense has been around since an initial rule proposal in 2016. However, later administrations did not pursue the proposal until a revised version was introduced in 2022. According to the EPA, the affirmative defense is “inconsistent with the EPA’s interpretation of the enforcement structure of the Clean Air Act in light of prior court decisions.” In one of those court decisions, Natural Resources Defense Council v. EPA, 749 F.3d 1055 (D.C. Cir. 2014), the D.C. Circuit Court of Appeals vacated a Title V permit provision that specified an affirmative defense for unavoidable malfunctions. The court held that the EPA exceeded its authority, as only the courts have the authority to decide whether to assess penalties for civil suit violations. The 2014 ruling was upheld in 2016, when the D.C. Circuit in U.S. Sugar Corp. v. EPA, 830 F.3d 579 (D.C. Cir. 2016), reaffirmed that the EPA’s affirmative defense provision at issue intruded on the judiciary’s role in determining Title V permit violation penalties. Similarly, the D.C. Circuit in a 2008 case, Sierra Club v. EPA, 551 F.3d 1019 (D.C. Cir. 2008), vacated an EPA rule exempting emission standards requirements during startup, shutdown or malfunction, finding such exemption in violation of Clean Air Act requirements. These decisions led EPA to revisit similar affirmative defense provisions, resulting in the latest rule.
The EPA states that the provisions’ removal is consistent with other EPA actions, specifically referencing removal or omission of similar affirmative defenses for New Source Performance Standards, emission guidelines for existing sources, and regulations for National Emission Standards for Hazardous Air Pollutants (NESHAP). According to the EPA, the latest action “would harmonize the EPA’s treatment of affirmative defenses across different [Clean Air Act] programs.”
As described in the rule summary, “any impermissible affirmative defense provisions within individual operating permits that are based on a Title V authority and that apply to federally-enforceable requirements will need to be removed.” The EPA has therefore instructed “any states that have adopted similar affirmative defense provisions” in operating permit programs to remove those provisions from their programs within twelve months of the rule’s August 21, 2023 effective date. The EPA expects the same revisions by local and tribal permit programs. Existing Title V operating permits “will eventually need to be revised” to remove language regarding affirmative defense provisions. These changes will likely occur during permit renewals or revisions.
The EPA does not believe the revisions will have a significant impact on sources, noting in the final rule that the Title V emergency defense provisions “have rarely, if ever, been asserted in enforcement proceedings.” Instead, sources more often assert affirmative defenses based on malfunctions, which were not addressed in this rule. In response to the potential chilling effect the rule may have on sources operating to provide vital services during an emergency, the EPA emphasized the enforcement discretion of oversight authorities, as well as accounting for emergency situations in determining remedies. The EPA further stated that the revisions will not restrict a source’s “ability to defend itself in an enforcement action” and that sources will still be able to seek the reduction or elimination of monetary penalties “based on the specific facts and circumstances of the emergency event.”
The proposed rule received significant comments, and legal challenges are likely to be forthcoming. We will continue to track this and other Clean Air Act developments on the Corporate Environmental Lawyer.
Biden Administration Seeks Public Comment on Expanding Environmental Justice Initiatives to Ocean-Related Activities
By: Daniel L. Robertson, Associate Attorney
On June 8, 2023, the Council on Environmental Quality, on behalf of the Ocean Policy Committee (OPC), published a Federal Register request for information seeking public input on the development of a new “Ocean Justice Strategy.”
The OPC is a Congressionally mandated interagency body tasked with coordinating ocean science, technology and management policy across Federal agencies in order to maximize the effectiveness of Federal investments in ocean research and ocean resource management. Codified by the 2021 National Defense Authorization Act, the Committee falls within the National Oceanic and Atmospheric Administration and is led by the Director of the White House Office of Science and Technology Policy and the Chair of the Council on Environmental Quality. The OPC currently consists of at least 25 members, including the Secretary of State, Secretary of Defense, Attorney General, and the Administrator of the Environmental Protection Agency.
In Thursday’s announcement, the Council states that the new ocean justice strategy will “aim to identify barriers and opportunities to fully integrate environmental justice principles into ocean-related activities of the Federal Government.” The strategy will further “propose equitable and just practices to advance safety, health, and prosperity” for communities near oceans and the Great Lakes. Through its request, the OPC is seeking public input “on what the vision and goals of the Ocean Justice Strategy should be and how the Federal Government can advance just and equitable access to, and management and use of, the ocean, the coasts, and the Great Lakes.” The notice provides examples of environmental justice concerns including inequitable placement of polluting infrastructure such as ports and landfills, and inadequate responses to natural hazards like storms and typhoons.
In addition to a general request for any considerations in developing the strategy, the OPC is specifically seeking public input on the following areas:
- How ocean justice is defined;
- Barriers and key challenges to realizing ocean justice;
- What elements, activities and components the strategy should include, including injustices that the federal government should better address;
- Research and knowledge gaps the federal government should address;
- How the federal government can harness existing tools (such as the Climate and Economic Justice Screening Tool and EJScreen) to address ocean justice, and what new tools or practices are necessary; and
- Where and how can the federal government partner with external stakeholders, and what solutions should be led by non-federal entities.
The strategy will further expand the federal government’s advancement of environmental justice initiatives, and follows President Biden’s recent executive order clarifying the administration’s “whole of government” approach to addressing environmental justice, which we previously discussed here. The notice also gives indication as to areas that the OPC may be looking to address, stating that communities have not shared an equitable benefit and burden in ocean-related activities including “climate change, sea level rise and coastal flooding, increased storm intensity, pollution, overfishing, loss of habitat biodiversity, and other threats.”
Public comments are due on or before July 24, 2023, and can be submitted through the federal rulemaking portal located here by referencing docket number CEQ-2023-004. We will continue to monitor environmental justice developments on the Corporate Environmental Lawyer.
Avoiding Default and Streamlining NEPA—Can the Fiscal Responsibility Act of 2023 Accomplish Both Objectives?
Hiding in plain sight in the Fiscal Responsibility Act of 2023 (FRA)--which is intended to extend the nation’s debt limit into 2025 in order to avoid a federal default--are provisions that seek to amend the National Environmental Policy Act (NEPA) for the first time in over 40 years. Although the FRA’s provisions greenlighting the federal permitting process for the Mountain Valley Pipeline have garnered the most attention, the FRA contains a number of other provisions meant to streamline environmental reviews of major federal actions. While many laud streamlining the NEPA process as a necessary step to bolster efficiency, several environmental groups and democratic legislators caution that these amendments significantly roll back NEPA’s regulatory reach.
The FRA incorporates many of the provisions that were previously in Representative Garret Graves’ “Building United States Infrastructure through Limited Delays and Efficient Reviews (BUILDER) Act of 2023” that was included in its entirety in the House Republicans’ original debt ceiling bill passed in April 2023.
Specifically, the FRA proposes the following amendments to NEPA:
- Substantial Federal Control and Responsibility. Defines “Major Federal Action” as “an action that the agency carrying out said action determines is subject to substantial Federal control and responsibility.” By adding “substantial,” the FRA emphasizes that for federal actions to trigger NEPA review, the actions don’t just need to be subject to Federal control and responsibility; the control and responsibility must be “substantial.”
- No Extraterritorial Activities or Decisions. Excludes from the definition of “Major Federal Action” extraterritorial activities or decisions, which means agency activities or decisions with effects located entirely outside of the jurisdiction of the United States. This is a more restrictive standard than has been adopted by some courts that have been called upon to evaluate the scope of NEPA.
- Categorical Exclusions. Expands the use of categorical exclusions by allowing agencies to rely on other agencies’ categorical exclusions to avoid the preparation of a NEPA environmental assessment (EA) or environmental impact statement (EIS).
- Reasonably Foreseeable Effects. Narrows agency considerations by only requiring review of “reasonably foreseeable” environmental effects.
- Streamlining. Seeks to streamline the NEPA process by requiring the designation of a “lead Federal agency” for projects that involve two or more participating Federal agencies. Imposes page limits of 75 pages for EAs and 150 pages for the majority of EISs. Imposes specific deadlines for the completion of environmental reviews, with a two-year limit on the completion of an EIS and a one-year limit on the completion of an EA, as well as a mechanism to seek judicial review for alleged failures to comply with these deadlines.
- Division of Responsibilities. Requires lead agencies to prescribe procedures to allow project sponsors to prepare EAs or EISs under the supervision of the agency. The lead agency is still required to independently evaluate the environmental document and must take responsibility for its contents.
- Narrows Alternatives, Negative Impacts of No Action. Narrows agency considerations of the alternatives to a “reasonable range . . . that are technically and economically feasible and meet the purpose and need of the proposal,” and requires “an analysis of any negative environmental impacts of not implementing the proposed agency action in the case of a no action alternative.”
Although these amendments will likely result in fewer projects requiring an EIS and should streamline the NEPA review process, it is important to consider what the FRA does not change. For example, the BUILDER Act sought to significantly limit an agency’s consideration of cumulative impacts and those modifications did not carry through into the FRA. The FRA also does not explicitly limit or otherwise address an agency’s obligation to consider climate change impacts of federal projects.
If these NEPA revisions survive in the final FRA, they are likely to require the White House’s Council on Environmental Quality (CEQ) to recalibrate its ongoing efforts to revise NEPA’s implementing regulations. CEQ had sent a draft of its Phase 2 NEPA revisions to the Office of Management and Budget (OMB) for review and the draft Phase 2 revisions had been expected to be published for comment in June 2023. The statutory changes to NEPA will need to be incorporated into the Phase 2 rules, which will certainly derail CEQ’s proposed June release date.
We will continue to provide updates on the final language in the FRA and CEQ’s ongoing NEPA rulemaking activities at the Corporate Environmental Lawyer.
The U.S. Supreme Court has issued its opinion in the landmark Clean Water Act (“CWA”) case of Sackett v. EPA, No. 21-454 (May 25, 2023). This decision delivers a significant change in terms of the reach and jurisdiction of the CWA, and supplies some harsh critiques between the Justices that all agreed in the judgement but were fiercely divided on how to get there.
The question presented to the Court was, seemingly, straightforward: “Whether the Ninth Circuit set forth the proper test for determining whether wetlands are 'waters of the United States' under the Clean Water Act, 33 U.S.C. § 1362(7).” But, this question has wide-reaching implications. The definition of “waters of the United States” (“WOTUS”) sets the jurisdictional limits of the CWA. Under the CWA, the U.S. Environmental Protection Agency (“EPA”) and the U.S. Army Corps of Engineers (“Army Corps”) have the power to regulate, among other things, the discharge of pollutants to navigable water from a point source (33 U.S.C. § 1362(12)) and the discharge of dredged or fill material into navigable waters (33 U.S.C. § 1344). “Navigable waters” are defined in the CWA as “the waters of the United States, including the territorial seas.” 33 U.S.C. §1362(7). “Waters of the United States” is not defined further under the Act, so the agencies have been left to try to craft a definition.
The Army Corps and EPA first proposed a WOTUS definition in 1977 and it has faced revisions and legal challenges ever since. The most controversial aspect of the WOTUS definition throughout its history has been the inclusion of wetlands and other non-navigable waters. The WOTUS definition has faced Supreme Court review in three previous cases:
- U.S. v. Riverside Bayview, 474 U.S. 121 (1985)
- Solid Waste Agency of Northern Cook County v. U.S. Army Corps of Engineers, 531 U.S. 159 (2001)
- Rapanos v. U.S., 547 U.S. 715 (2006)
Which brings us to the Sackett case. Justice Alito authored the majority opinion for the Court, joined by Chief Justice Roberts, and Justices Gorsuch and Barrett. All of the other Justices also concurred in the judgment, but joined in separate concurring opinions. The case involved a residential property owned by the Sacketts located near Priest Lake in Idaho. The property was designated by EPA as a wetland, and when the Sacketts started backfilling their property to begin constructing a house, they received a compliance order from EPA. EPA determined that the Sackett’s wetlands were WOTUS because they were adjacent to a tributary to Priest Lake and they were part of a larger wetland that had a significant effect on Priest Lake.
In evaluating this case, Justice Alito discussed the history of the CWA and the WOTUS definition. Alito acknowledged that the statutory context of the CWA shows that some wetlands qualify as WOTUS. That is because in 1977, Congress amended the CWA to add §1344(g)(1), which includes language that refers to navigable waters “including wetlands adjacent thereto”. Thus, Alito saw the Court’s task as “harmoniz[ing] the reference to wetlands in §1344(g)(1) with ‘the waters of the United States’”. (Slip Op. at 19.) Ultimately, the Court held that:
the CWA extends only to those wetlands that are as a practical matter indistinguishable from waters of the United States….This requires the party asserting jurisdiction over adjacent wetlands to establish first that the adjacent body of water constitutes waters of the United States (i.e., a relatively permanent body of water connected to traditional interstate navigable waters); and second, that the wetland has a continuous surface connection with that water, making it difficult to determine where the ‘water’ ends and the ‘wetland’ begins.
Slip Op. at 22 (internal citations omitted).
Interestingly, Justices Kagan, Sotomayor, Kavanaugh and Jackson all concurred in the judgment—they all agreed the ruling of the lower court should be reversed—but they strongly disagreed with the majority’s adoption of the “continuous surface connection” test for wetlands. Thus, the concurring opinions written by Justice Kagan and Justice Kavanaugh read like dissents and sharply criticized Justice Alito’s majority opinion. Both Justices argued that the majority’s test disregards the ordinary meaning of “adjacent” and narrows the CWA to exclude wetlands the Act has covered since 1977. That is because “adjacent” does not mean adjoining or contiguous; it can mean nearby. Thus, these concurring Justices would have adopted a test, consistent with agency practice, that “a wetland is “adjacent” to a covered water (i) if the wetland is adjoining—that is, contiguous to or bordering—a covered water—or (ii) if the wetland is separated from a covered water only by a man-made dike or barrier, natural river berm, beach dune or the like.” (Kavanaugh Concurring Op. at 4.)
Justice Thomas also concurred with the majority opinion, but wrote a separate opinion, with which Justice Gorsuch joined. Justice Thomas’s concurrence did not address the textual arguments that were the focus of the other opinions; instead he provided a detailed history of water regulation and stated that the CWA jurisdiction should be limited to truly navigable waters. He also included a section discussing his views on the court’s Commerce Clause jurisprudence and his belief that many environmental laws are not sufficiently related to interstate commerce to pass Constitutional muster.
While there was strong debate between the Justices, the definition of WOTUS appears to be settled at long last. A wetland will NOT be considered a WOTUS (and therefore not under the jurisdiction of the CWA) unless it has a continuous surface connection with a traditional navigable water. As we previously reported, EPA and the Army Corps recently updated the WOTUS rule in early 2023. That definition is not consistent with the Sackett ruling, and will likely be further revised by the agencies. EPA has not indicated yet how or when it will be revising the rule, or whether it will have enforcement guidance or leniency in the interim. We will be monitoring those developments and provide the latest updates on the Corporate Environmental Lawyer Blog.
Earth Week 2023 brought with it two significant environmental justice developments. The week began with New Jersey Governor Phil Murphy announcing the adoption of regulations aimed at reducing pollution in historically overburdened communities and those disproportionately impacted by health and environmental stressors. President Biden then capped the week off by issuing an Executive Order on Revitalizing Our Nation’s Commitment to Environmental Justice for All which further embeds environmental justice initiatives throughout the federal government (read our analysis of that order here). These actions display the heightened emphasis on environmental justice that has led to these and other significant developments at the federal and state levels.
The United States Environmental Protection Agency (USEPA) defines environmental justice as “the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income, with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies.” With increased funding provided by the Inflation Reduction Act, the Infrastructure Investment and Jobs Act, and the American Rescue Plan Act, federal agencies are investing at unprecedented levels to advance environmental justice.
The Biden administration also developed the Justice40 Initiative, with a goal of ensuring that 40% of the overall benefits of certain federal investments flow to “disadvantaged communities that are marginalized, underserved, and overburdened by pollution.” The Climate and Economic Justice Screening Tool geospatially identifies such disadvantaged communities, which include federally recognized Tribes and Alaska Native villages.
As companies face increased scrutiny all along the supply chain, including from regulators, customers, investors, and the public, one thing is clear: failure to consider environmental justice implications of corporate activities can significantly hinder the advancement of corporate objectives, including the achievement of climate targets, the effects of which are quite significant. By way of example, in September 2022, a company’s air permits to build a $9.4 billion plastics manufacturing complex were vacated in part because the state Department of Environmental Quality’s environmental justice analysis was found to be arbitrary and capricious, and therefore failed to uphold the “public trust doctrine” of Louisiana’s constitution.
The increased scrutiny and risks associated with failing to consider environmental justice issues is causing some companies to reevaluate corporate policies and develop business practices that embrace environmental justice and community stakeholder initiatives. In this client alert, our team explains how embracing environmental justice and community stakeholder concerns can advance corporate objectives.
A Recent History of Environmental Justice Developments
While the concept of environmental justice has long had its roots in American civil rights history, President Biden brought the topic to the forefront of federal governance as part of the administration’s “whole-of-government” approach to addressing health and environmental impacts on disproportionately affected communities. Through various executive orders, the Biden administration has put its policy of prioritizing environmental justice initiatives and directing federal agencies to make achieving environmental justice a part of their missions into practice. Federal developments thus far have taken the form of plans, new offices and positions, grant programs, mapping tools, reviews of existing legal authority, permitting guidance, and enforcement policies.
Federal, state, and local developments that are particularly relevant to the regulated community are reviewed below.
USEPA’s Legal Authorities to Advance Environmental Justice
USEPA published a May 2022 report, followed by a January 2023 addendum, that reviewed the agency’s legal authority to advance environmental justice and take steps to mitigate the cumulative impacts of federal actions taken under its various programs. The takeaway is that USEPA has existing legal authority to advance and address these topics in decision-making. This authority encompasses the full breadth of the agency’s activities, including its oversight of state programs.
USEPA also has the authority to advance environmental justice through civil rights laws. Title VI of the Civil Rights Act of 1964, for instance, prohibits recipients of federal financial assistance from intentionally discriminating on the basis of race, color, or national origin (including limited English proficiency) in their programs or activities.
USEPA’s implementing regulations also prohibit recipients of federal financial assistance from taking actions that have a discriminatory effect. The regulations offer a mechanism for a person who believes they have been discriminated against to file a complaint with any USEPA office, as well as authorize USEPA’s Office of Civil Rights to periodically conduct compliance reviews. If a recipient is found to be noncompliant, the recipient may elect to take corrective actions to mitigate the risk of losing financial assistance.
USEPA recently issued interim guidance for addressing environmental justice and civil rights during permitting, as well as specific guidance for addressing environmental justice concerns specific to air permitting. The guidance emphasizes that compliance with federal environmental laws does not necessarily provide a shield against allegations of non-compliance with federal civil rights laws.
For example, in Chicago, the city allegedly agreed to permit a scrap metal recycling facility’s relocation from a predominantly White neighborhood into a predominantly Black and Hispanic neighborhood. After a two year investigation, the US Department of Housing and Urban Development found the city in violation of the Civil Rights Act and the Housing and Community Development Act, stating that the city’s involvement in the relocation of the facility, approval of the new site, and methods used to achieve these objectives were shaped by the race and national origin of the residents of each neighborhood.
Therefore, even beyond what is legally required by the applicable permitting statute and regulations, companies should consider taking steps throughout the permitting process to ensure that environmental justice and civil rights concerns are being sufficiently analyzed and adequately addressed, as well as ensuring sufficient community engagement.
As outlined in USEPA’s Fiscal Year 2022-2026 Strategic Plan, new environmental justice-focused enforcement policies emphasize increased inspections in communities with environmental justice concerns, prioritizing enforcement in overburdened communities, and identifying remedies for noncompliance that offer tangible benefits to those communities. USEPA also emphasized acting through emergency orders to secure early relief where possible. Enforcement remedies include increased or additional fence-line monitoring, public availability of monitoring data, and encouraging supplemental environmental projects that are tied to addressing adverse environmental impacts on local communities.
State and Local Developments
In addition to various states that have enacted or are in the process of enacting environmental justice-related legislation, New York recently joined Montana and Pennsylvania by explicitly including a “right to clean air and water, and a healthy environment” in the New York Bill of Rights. Several other states have proposed ballot initiatives to incorporate environmental rights into their constitutions.
At the local level, the focus on environmental justice has propelled some municipalities to address the topic in similar as well as different ways. As a 2019 report prepared by the Tishman Environment and Design Center indicates, municipalities have addressed environmental injustice through various land use measures, including bans on polluting facilities; policies that incorporate environmental justice goals and considerations into municipal activities; environmental review processes; and proactive planning, zoning, and public health codes.
For example, in 2020, Washington, DC amended its comprehensive plan to incorporate environmental justice objectives. Among other things, the plan states that environmental justice principles should inform public policy decisions on the siting of municipal and industrial facilities.
Embracing Environmental Justice as Part of a Company’s Corporate Culture
Considering the heightened focus on environmental justice outcomes, companies would be well served to ensure that their environmental, health, and safety programs adequately consider potential environmental justice issues and concerns and are designed in ways that strengthen community and stakeholder relationships, such as by incorporating environmental justice commitments into a company’s environmental, social, and governance (ESG) goals. Below, we outline some recommendations and best practices.
Keep Abreast of Environmental Justice Developments that May Affect Your Operations
Track environmental justice issues. Not all environmental justice issues will apply to a specific business. However, being aware of national and local developments will allow a company to minimize regulatory, permitting, and community concerns and challenges that may otherwise catch it off-guard, including potential risks of objections to permits and litigation.
Understand your geographical area. By taking steps to better understand the communities in the areas where a company operates or may operate, a company can evaluate risks and make better informed business decisions. For example, companies can take advantage of resources such as USEPA’s EJScreen Mapping Tool, which provides demographic, socioeconomic, and environmental information for chosen geographic areas. Other mapping tools, such as the Council on Environmental Quality’s Climate and Economic Justice Screening Tool and state-specific tools are also available.
Companies with current or future operations in areas with higher percentiles of socioeconomic or environmental quality factors should prepare for the potential legal risks this may pose, including increased government and public scrutiny, and consider how to mitigate potential issues ahead of time. The tools can also be used to aid a company in analyzing health, social, and economic effects of a specific project.
Build a Proactive Environmental Plan
Create an environmental policy or revise an existing one. The rise of corporate accountability has resulted in companies revising their business plans to incorporate ESG criteria into their decision-making. A way to ensure that environmental justice is included in a company’s ESG plan is to make environmental justice part of a company’s social objectives.
In particular, as we discussed in a prior client alert, a company may wish to organize its social criteria objectives so that environmental justice commitments are treated as under the company’s direct control, much like scope 1 greenhouse gas emissions are under the direct control of the company. Companies should also consider developing a public involvement plan as part of their social criteria. Environmental justice can be measured by the amount and quality of direct community engagement and community service. In this way, companies that develop robust engagement plans that further environmental justice objectives of the local community can fold those plans into the social criteria aspects of a greater ESG policy.
Perhaps the most important takeaway is that companies should be cognizant of the interconnectedness of their environmental goals to environmental justice and social/stakeholder concerns. A good environmental justice policy means a good social policy which means a more robust and effective environmental policy and greater chance of meeting environmental objectives.
Develop a robust compliance plan. Enforcement and litigation risk will be higher for companies with operations in communities with environmental justice concerns. Therefore, it is especially important that these companies have robust compliance programs in place. As we previously discussed here, companies can benefit from consistently monitoring their operations and considering the availability of advanced monitoring technologies and methodologies (such as monitoring by aircraft and satellite) that may catch violations and prevent ongoing ones.
Companies should also strictly comply with all applicable monitoring, recordkeeping, and reporting requirements, and consider voluntary disclosure policies. USEPA’s Audit Policy provides several major incentives, including reduction of 100% of gravity-based penalties, for regulated entities to voluntarily discover and fix federal environmental violations. Moreover, the US Department of Justice, Environmental Crimes Section’s Voluntary Self-Disclosure Policy offers beneficial treatment to companies that disclose potentially criminal environmental violations.
Review suppliers and other entities with which the company contracts. In a prior client alert, and as mentioned above, we discussed how a company can define the social aspect of its ESG plan to assist in developing a baseline standard against which a company can measure itself. This includes a company taking steps to establish a standard by which it expects those with which it contracts to behave, reviewing its supply chains to identify any potential areas of inequity against such a standard, and subsequently holding suppliers and other entities with which it transacts accountable, while being particularly mindful of actions that could be tied back to the company.
Use Existing Tools and Resources to Assist in Siting and Permitting Decisions
Be aware of evolving siting and permitting requirements. As discussed above, companies making siting or permitting decisions should consider that projects in or near communities disproportionately burdened by pollution will receive scrutinized attention. Therefore, companies should ensure that environmental justice and civil rights concerns are being proactively evaluated and sufficiently addressed under environmental, civil rights, and environmental justice laws and seek out any available guidance to rectify such concerns. Failure to do so may result in unforeseen project hurdles, wasted resources, and an eventual siting or permit denial. We previously discussed how USEPA incorporates these concerns into the permitting process. Considering recent USEPA guidance on this topic, companies should develop their own best practices for permitting oversight, which should include the following:
- Use available screening tools to assess the existence of environmental justice or civil rights concerns early in the permitting process.
- Perform an appropriately scoped environmental justice analysis or disparate impact analysis (which should consider cumulative impacts) where concerns exist.
- Know what questions to ask, such as who is being affected by the action? How, and by how much? Compared to whom? Can we mitigate the effects and, if so, how?
- Develop a public involvement plan and engage communities and tribes to ensure that their views are accounted for (discussed further below).
Failure to take these measures as part of the project scoping process may result in significant hurdles to project development. This includes the possibility of pressure being exerted on state and local regulators to change their course of action with respect to a proposed project. In the Chicago example discussed earlier, the city denied a scrap metal recycling facility’s permit to begin operating an $80 million facility after USEPA issued a letter raising health impact concerns in the surrounding community. The city’s decision, which is currently the subject of a lengthy and ongoing appeal, followed an alleged agreement between the facility operator and city that would have allowed the operator to move to the site.
This also includes active opposition to a project, which may turn into litigation. For example, developer Air Products recently sued Livingston Parish after the parish attempted to restrict the company’s proposed hydrogen/carbon capture and storage project through a moratorium. Ultimately, the parties came to a resolution, whereby the parish agreed that the moratorium was invalid and unenforceable, and the parties agreed that each would bear its own fees and costs related to the litigation.
Review existing permit conditions. Companies with existing facilities that will be applying for permit renewals should be prepared for the possibility of new and more stringent permit obligations being imposed by regulators at the time of their permit renewal. The recently enacted New Jersey environmental justice regulations, for example, set forth a step-by-step process for reviewing future permit applications, including specifically stating that existing permit holders may be subject to additional permit conditions to reduce health and environmental impacts.
More stringent requirements of which companies should be mindful may include, among other obligations: additional monitoring, recordkeeping, and reporting requirements; additional pollution controls and/or more stringent limits; and the inclusion of enforceable work practices, operating plans, and/or best practices for minimizing emissions and/or discharges.
Companies should address environmental justice-related concerns sooner than later, by taking advantage of the existing tools discussed above, to avoid unforeseen complications arising during the permit renewal process. For example, if particulate emissions are a specific concern in your area (e.g., EJScreen shows a particularly high EJ Index percentile for particulate matter 2.5), taking proactive measures to mitigate any increased particulate emissions may streamline the permit renewal process.
Engage the Local Community
Be proactive in engaging the community. Governmental environmental justice policies typically entail expectations of robust engagement with the local community and opportunities for community actors to provide input into company decisions that will affect their communities. Companies may want to similarly engage with the local community prior to taking steps to expand or modify existing operations. This is particularly true for the permitting process; however, companies are well served by engaging with communities and local tribes as a vehicle for making more informed business decisions generally.
This can include learning from a community about a company’s impact, creating strategic partnerships within the community, and collaborating with the community to advance shared goals and establish outcomes that will benefit the community overall. For example, a company can help communities finance environmental justice initiatives or help eligible applicants apply for available grants and help formulate how these community-driven initiatives will take shape.
Being proactive will better prepare a company for what issues, if any, a governmental agency may uncover during its own public engagement process. Ultimately, by strengthening its bond with the local community, companies are better situated to identify community concerns early and take appropriate action that will satisfy both company and community needs while building trust into the future.
Review existing community relationships. The community engagement discussed above should include a review of existing community relationships, specifically where potential environmental justice concerns may not have previously been addressed. To stay on track with such engagement and to ensure the maintenance of strong relationships, making periodic reviews and assessments of existing community relationships could be incorporated into a company’s ESG criteria.
Engage internal stakeholders. Community engagement goes beyond external forces at a specific facility. A company should also cultivate internal discussions with workers, unions, and other stakeholders affected by the company’s actions. Initiatives to consider include informational meetings, listening sessions, and trainings. Environmental health and safety managers should also engage upper management to ensure leadership buy-in for environmental justice initiatives. This guarantees that all levels of the company are aware of and striving towards the same goals.
By embracing environmental justice, companies minimize environmental oversight risks, are likely to achieve environmental goals more quickly, build community relationships, help reduce inequity and ultimately, create a solid foundation for long-term strength, all of which are accretive to an improved bottom line. As federal, state, and local governments continue embedding environmental justice and related initiatives in their regulations, policies, and programs, companies would be well served to do the same.
Jenner & Block’s Environmental and Workplace Health and Safety and Transitions in Energy and Climate Solutions practice teams are made up of former federal regulatory commissioners, state regulators, regulatory compliance attorneys, and internal counsel and project developers, and are able to help companies achieve environmental justice objectives. Please reach out to a member of one or both of our teams with any questions.
In a Choose Your Own Adventure - Approach, EPA Proposes Greenhouse Gas Emissions Standards for New and Existing Power Plants
Today, the US Environmental Protection Agency released its long-awaited proposal for New Source Performance Standards for Greenhouse Gas Emissions from New, Modified, and Reconstructed Fossil Fuel-Fired Electric Generating Units; Emission Guidelines for Greenhouse Gas Emissions from Existing Fossil Fuel-Fired Electric Generating Units; and Repeal of the Affordable Clean Energy Rule (Proposed GHG Rule). This article provides an overview of the Proposed GHG Rule and identifies some issues that may lie ahead.
I. Basic Architecture of the Proposed GHG Rule
The Proposed GHG Rule includes four parts. First, as a matter of housekeeping, the proposed rule officially rescinds the Affordable Clean Energy (ACE) Rule. The ACE Rule would have set emissions guidelines for states to incorporate into measures to address greenhouse gas (GHG) emissions from existing coal-fired power plants and focused on efficiency improvements. The ACE Rule was promulgated in 2019 to replace the 2015 Clean Power Plan. In 2022, the Supreme Court issued its landmark decision in West Virginia v. EPA, which ruled that the Clean Power Plan exceeded EPA’s authority to regulate GHGs pursuant to the Major Questions Doctrine, an assessment of which can be found in our article West Virginia v. EPA: The Major Questions Doctrine Arrives to Rein in Administrative Power, published in Pratt’s Law Report.
The Proposed GHG Rule then outlines standards of performance and emissions requirements based on the Agency's determination of the best system of emissions reduction (BSER), as required by Section 111 of the Clean Air Act (CAA), for three types of generating units: (A) existing coal-fired power plants, (B) new gas-fired power plants, and (C) existing gas-fired power plants. For each of these categories of generating units, EPA establishes stratified emissions standards and compliance dates dictated by the unit’s anticipated lifespan and capacity factor. Observers may recognize that the targets and dates proposed in the rules are consistent with climate goals already set by many power generators.
II. Operation of the Fuel-Type Subcategory Approach
Within the basic categories of existing coal plants, existing gas plants, and new gas plants, the Proposed GHG Rule applies a schedule for compliance and emissions reduction targets based on an individual plant’s capacity and anticipated lifespan. These standards and subcategories are guided by EPA’s determination of what constitutes the most cost effective and demonstrated technology available, thereby meeting BSER.
- Existing Coal-Fired Generating Unit GHG Emissions Standards
For existing coal plants, EPA created four subcategories based on the projected lifespan of the individual operating unit. They include coal plants that have not committed to a date certain by which to cease operations, coal plants that have voluntarily committed to cease operations by 2040, coal plants that will retire by 2035, and coal plants that will retire by 2032.
(1) Coal Plants Anticipating Ongoing Operations
If a coal steam unit has not committed to ceasing operations, EPA will require it to meet a standard consistent with carbon capture and sequestration at a 90% capture rate.
(2) Coal Plants with a Voluntary Commitment to Cease Operations by 2040
For a coal plant that has committed to voluntary retirement before 2040, the plant must meet a standard consistent with co-firing 40% natural gas.
(3) Coal Plants Retiring By 2035
With respect to a coal plant retiring in the near term, i.e., it plans to discontinue operations by 2035, EPA proposes a more relaxed standard. The more relaxed standard requires, in addition to routine operation and maintenance activities, the plant to accept a capacity limitation of 20% by 2030 and each year of operation thereafter.
(4) Coal Plants Retiring By 2032
For coal plants with an imminent retirement schedule, which means a coal plant that commits to ceasing operations by 2032, no capacity limitations must be taken. The plant need only continue to fulfill routine operation and maintenance requirements.
The underlying message for coal plants is that if retirement looms near on the horizon, then there is not an expectation for significant investments to be made in the plant.
- New Gas-Fired Electric Generating Units
In setting a BSER for GHG emissions from new gas-fired power plants, EPA also uses subcategories to stratify the BSER analysis. In doing so, EPA appears to be striving to strike a balance between a requirement that plants install demonstrated and achievable technology and the observation that infrastructure must exist to support the technology that would make it possible to meet the standards.
The subcategories thus include standards for peaker plants or plants that have a capacity factor of 20% or less, intermediate plants, which include plants with a 20 to an approximately 50% capacity factor (used over a certain amount of time per annum), and baseload plants, which constitute plants with a capacity factor over 50%. The standards are set based on the usage of the plant – the greater the annual operation of the plant, the greater controls and stricter emissions standards required.
(1) New Gas-Fired Peaker Plants / Plants with an Annual Capacity Factor of 20% or Less
Peaker plants include natural gas-fired power plants with a capacity factor of 20% or less. The Proposed GHG Rule would require peaker plants to use clean fuels, which include natural gas, with no other requirements.
(2) New Gas-Fired Intermediate Plants / Plants with an Annual Capacity Factor between 20% and 50%
The intermediate category includes plants with a capacity factor ranging from 20% to approximately 50%. This category generally includes the most efficient simple-cycle plants. By 2032, intermediate plants will be required to meet an emissions standard equal to blending 30% hydrogen by volume into the plant’s fuel stream. The hydrogen must qualify as low GHG hydrogen, which is a standard borrowed from the Inflation Reduction Act’s hydrogen tax credit and is defined in the Inflation Reduction Act as hydrogen generated via a process that results in a lifecycle GHG emissions rate of no more than 4 kilograms of carbon dioxide equivalent (CO2e) per kilogram of hydrogen. In the Proposed GHG Rule, EPA identifies the low hydrogen standard but defers the determination of what constitutes low hydrogen to the Department of Treasury. The Treasury Department is currently developing guidance on the implementation of the production tax credit for clean hydrogen, which includes a decision on how to account for GHG emissions as part of the hydrogen production lifecycle analysis.
(3) New Baseload Gas-Fired Electric Generating Units / Plants with an Annual Capacity Over 50%
For natural gas-fired power plants with an annual capacity factor over 50%, EPA plans to require those plants to employ efficient combined cycle technology in the first phase of operation. This means that when the plant is built, it must implement the most efficient combined cycle technology and meet an emissions standard of 770 lb CO2/MWh-gross standard. Over time, the standard becomes stricter, seemingly to match the anticipated increased availability and advancements in technology in future years, with a choice of one of two pathways. The first pathway requires the increasing use of hydrogen, or an equivalent emissions outcome, and the second pathway would require carbon capture and storage (CCS) or an equivalent emissions outcome.
(3)(a) Hydrogen Pathway for New Baseload Gas-Fired Electric Generating Units
If a baseload plant were to choose to use hydrogen as its path for reducing its GHG emissions, it can anticipate a stepwise timeline. By 2032, the plant will have to reach a level that represents a 30% hydrogen blend by volume or reduce its emissions to an equivalent extent. Then, by 2038, the same plant will need to achieve a 96% blend of hydrogen by volume or reduce its emissions to an equivalent extent. In all instances, the source of hydrogen must meet the standards set for the lowest carbon-emitting hydrogen tax credits, which will be defined by the Department of Treasury.
(3)(b) Carbon Capture and Storage Pathway for New Baseload Gas-Fired Electric Generating Units
If a plant operator were to choose to employ CCS as a means of reducing its GHG emissions, the Proposed GHG Rule would require the plant to reach a 90% capture rate by 2035 or reduce its emissions to an equivalent extent. Note that the 90% capture rate achieves emissions reductions equivalent to a 96% blend of hydrogen in the fuel stream.
- Existing Gas-Fired Generating Units
Finally, the Proposed GHG Rule not only sets standards for new gas-fired generating units, but also for the largest and most frequently used of the existing gas-fired power plants. These plants include those that generate 300 megawatts or more of electricity per year and operate at a 50% or greater capacity factor. Under the proposal, these plants will be required to meet the 2038 hydrogen pathway standard, the 2035 CCS pathway standard, or achieve the equivalent thereof. For existing gas-fired generating units that do not meet the 300MW and 50% annual capacity factor thresholds, EPA is seeking comment on how it should regulate such units.
III. Anticipated Questions and Challenges
In addition to the obvious legal challenges regarding whether the proposed rule implicates the Major Questions Doctrine and whether the technologies and timelines constitute BSER, there remain questions regarding the definition of what constitutes clean or green hydrogen. Are hydrogen and CCS as achievable as EPA contends? Are the target dates correct? Also, the proposed rule’s new gas turbine standards will apply to any plant for which construction commences after the date of publication of the Proposed GHG Rule. This CAA provision is intended to prevent a rush to commence construction on new plants to lock in the old standards. This may lead to an early challenge of this mechanism because it becomes controlling upon the publication of the proposal and prior to the rule’s finalization.
Another question is how will states, which have two years to develop state plans to incorporate the existing source standards, go about implementing the proposed rule. Will states be able to cooperate to achieve emissions reductions, such as through emissions trading regimes, particularly if such cooperative approaches allow states to achieve equivalent or better results? Why has EPA overlooked other significant emissions reduction options, such as renewable natural gas? How will plant operators pay for these upgrades? EPA has considered the Inflation Reduction Act’s many tax incentives and the Bipartisan Infrastructure Law’s incentives and payments in determining what is economically achievable, but how easy will it be to access such funds, and how can those funds be leveraged?
- Immediate Takeaways
An initial review of the Proposed GHG Rule indicates EPA has been careful not to step outside the proverbial fenceline. EPA appears to be taking into account the implied guidance provided by the Supreme Court in West Virginia v. EPA that the Agency’s authority under the CAA to regulate power plants should focus on facilities on a unit-by-unit basis rather than an approach that relies on generation-shifting, which the Court determined exceeded EPA’s statutory authority. The rules also appear to be designed in a way and timed to align with other regulatory requirements for the power sector, such as regulations governing wastewater discharges and ozone and mercury emissions, which may streamline investments made in specific plants as well as across the power generation fleet.
Details on the findings that underlie the emissions standards and timing within the proposal will be well litigated. The ultimate question, however, will be whether the overall approach, which entails setting standards for individual plants while still providing options and flexibility by which plant operators can achieve those standards, can thread the judicial scrutiny needle. As you work through these issues, Jenner’s Transitions in Energy and Climate Solutions Practice and Environmental and Workplace Health and Safety Practice are here to help.
By Daniel L. Robertson, Associate Attorney
On May 4, 2023, the Department of Justice (DOJ) announced a first-of-its-kind Title VI environmental justice interim resolution agreement with the Alabama Department of Public Health (ADPH). The resolution follows an investigation DOJ and the Department of Health and Human Services (DHHS) initiated in November 2021 into whether ADPH violated Title VI of the Civil Rights Act and Section 1557 of the Affordable Care Act. Both laws prohibit discrimination against individuals in programs receiving federal funding.
DOJ’s investigation found that ADPH’s enforcement of sanitation laws threatened residents of Lowndes County with criminal penalties and property loss for sanitation conditions they did not have the capacity to alleviate. Median household income in the county is just under $32,000, and 28.3% of county residents live below the poverty line. As of 2022, 80% of residents did not have reliable sewage systems. The process is complicated in part due to the clay soil in the area being incompatible with regular wastewater systems, causing them to often fail. Residents unable to afford specialized systems, estimated to cost between $6,000 and $30,000, have resorted to a system known as “straightpiping” whereby piping systems or ditches are constructed to draw wastewater away from the home. This often results in these wastes being exposed on the property and increasing related healthcare risks caused by exposure to raw sewage. DOJ’s investigation further found that ADPH engaged in a pattern of inaction and/or neglect concerning the health risks associated with raw sewage, and failed to take meaningful action to address the disproportionate burden and impact of these issues on Black residents of Lowndes County. Approximately 72.5% of county residents are Black.
Under the agreement, ADPH agreed to: suspend enforcing sanitation laws against residents who lack the means to purchase functioning septic systems; measure public health risks from raw sewage exposure of different populations; develop a public health awareness campaign regarding raw sewage exposure; create or supplement education materials for Lowndes County health care providers to provide more information on symptoms and illness related to raw sewage exposure; conduct a comprehensive assessment to determine the appropriate septic and wastewater management systems for Lowndes County homes; and create a plan to improve access to adequate sanitation systems. ADPH is also required to consistently engage community residents, government officials, subject matter experts and environmental justice advocates on each aspect of the agreement. DOJ and DHHS in turn have suspended their investigation as long as ADPH complies with the agreement.
One day following its announcement, DOJ released a statement marking the one year anniversary of the establishment of its Office of Environmental Justice, including a fact sheet of department accomplishments from the prior year. The Office’s actions include supporting the DOJ’s lawsuit to improve safe drinking water access in Jackson, Mississippi, training DOJ attorneys on environmental justice best practices, and developing community-outreach best practices for DOJ departments nationwide. DOJ also highlighted an ongoing investigation into potential discriminatory practices by the city of Houston in how it responds to illegal dumping.
Thursday’s move reinforces the federal government’s emphasis on advancing environmental justice initiatives, following President Biden’s recent Executive Order on Revitalizing Our Nation’s Commitment to Environmental Justice For All. As we discussed in a recent client alert, companies should evaluate and instill best practices to navigate this evolving landscape. We will continue to monitor environmental justice developments on the Corporate Environmental Lawyer.
On May 2, 2023, New York passed its 2024 fiscal year budget, including a prohibition on fossil fuel equipment and building systems in new construction. The policy will go into effect in 2026 for new buildings not more than seven stories tall, except for new commercial or industrial buildings greater than one hundred thousand square feet, and in 2029 for all new buildings.
The ban will not apply to buildings in existence prior to the effective dates. Even after the effective dates, existing buildings will remain unimpacted by the ban in the course of repairs, alterations, additions, relocations, and changes to the occupancy or use of such buildings. Further, existing buildings may install and continue to use and maintain fossil fuel equipment and building systems.
The budget includes exemptions for buildings ranging from hospitals to car washes, keeping some buildings on gas beyond the 2029 deadline. Specifically, fossil fuel equipment may be installed and natural gas may be used:
- for generation of emergency back-up power and standby power systems;
- in manufactured (e., mobile) homes; and
- in a building or part of a building that is used as a manufacturing facility, commercial food establishment, laboratory, car wash, laundromat, hospital or other medical facility, and in other critical infrastructure such as emergency management facilities, wastewater treatment facilities, water treatment and pumping facilities, agricultural buildings, fuel cell systems, and crematoriums.
To curb the use of natural gas in buildings with exemptions, the budget includes additional guardrails. Some buildings will be required to, “to the fullest extent feasible,” limit the use of fossil fuel combusting systems. Further, qualifying exempted buildings will be required to be electrification ready in the areas where the building was permitted to install fossil fuel systems. The budget also expressly states that financial restraints are an insufficient basis on which to determine the feasibility of such requirements.
The budget states that standards for building construction shall be designed to achieve the state’s clean energy and climate agenda as set forth in New York’s Climate Leadership and Community Protection Act (“Climate Act”), signed into law in July of 2019. The Climate Act is part of New York’s ambitious climate strategy to reduce greenhouse gas emissions 40% by 2030 and 85% by 2050 from 1990 levels.
New York becomes the first state to enact this type of emissions prohibition, joining cities and municipalities across the nation with similar prohibitions including San Francisco, Los Angeles, Denver, and Montgomery County, Maryland. By contrast, legal challenges to these policies and the significant number of states passing laws prohibiting cities from banning natural gas means that the nationwide trajectory of natural gas bans and emissions regulations remains undetermined. We will continue to monitor these developments on the Corporate Environmental Lawyer.
By Daniel L. Robertson, Associate Attorney
The Executive Order, titled Revitalizing Our Nation’s Commitment to Environmental Justice for All, expands and provides additional clarity to the Biden Administration’s environmental justice commitment. According to a White House fact sheet distributed on Friday, the order is intended “to ensure that all people – regardless of race, background, income, ability, Tribal affiliation, or zip code – can benefit from the vital safeguards enshrined in our nation’s foundational environmental and civil rights laws.” The order addresses this commitment through various means:
- Embedding the Administration’s “Whole of Government” approach to Environmental Justice.
The Order makes clear that the pursuit of environmental justice should be incorporated into the missions of all executive branch agencies. It also adds agencies to the White House Environmental Justice Interagency Council, a body tasked in part with developing federal agency performance metrics and publishing an annual public performance scorecard (more on that below).
Notably, the Order directs agencies to consider measures that will address and prevent “disproportionate and adverse” impacts on health and the environment, contrasting the prior “disproportionately high and adverse” requirement established by Executive Order 12898 signed by President Clinton on February 11, 1994. The Administration describes this change as “eliminat[ing] potential misunderstanding that agencies should only be considering large disproportionate effects” which will likely lead to increased federal agency scrutiny as projects under their purview meet this lower threshold.
- Enhancing Community Engagement.
The Order requires federal agencies to notify nearby communities in the event of a release of toxic substances from a federal facility. This notification includes holding a public hearing to share information on any resulting health risks or necessary precautions. The Order also directs federal agencies to “actively facilitate meaningful public participation and just treatment of all people in agency decision-making.” This includes Tribal consultation and strengthening nation-to-nation relationships on environmental justice issues.
Federal agencies are also required to submit to the White House Council on Environmental Quality and make available to the public an Environmental Justice Strategic Plan. Agencies will use the plan to set forth goals and actions to advance environmental justice, and identify oversight opportunities to improve accountability and compliance with any statute administered by that agency that affects communities with environmental justice concerns. The Order requires that this plan be submitted no later than 18 months after the date of the Order, and every 4 years thereafter.
- Launching a new White House Office of Environmental Justice.
The new Office of Environmental Justice will be located within the White House Council on Environmental Quality and be led by the Federal Chief Environmental Justice Officer. The office will be tasked with coordinating the implementation of environmental justice policies across federal government agencies.
- Creating a new Environmental Justice Subcommittee within the National Science and Technology Council.
This new subcommittee, led by the Office of Science and Technology Policy, will be tasked with coordinating a strategy for federal agencies to identify and fill gaps in data and research relating to environmental justice in part to aid in advancing cumulative impact analyses. Filling in these data gaps will allow agencies to use science to better address adverse health and environmental impacts. The Committee will be required to update this Environmental Justice Science, Data, and Research Plan every two years.
- Publication of the Inaugural Federal Agency Environmental Justice Scorecard and Draft National Strategy on Preventing Plastic Pollution.
While not part of the Executive Order, the White House unveiled a first-of-its-kind environmental justice scorecard for federal agencies. Developed by the Office of Management and Budget, the Council on Environmental Quality, and the United States Digital Service, the scorecard assesses 24 federal agencies’ environmental justice advancement efforts, including efforts to advance the Administration’s Justice40 initiative. This initiative is designed to ensure that 40 percent of federal funding investments flow to communities that are marginalized, underserved, and overburdened by pollution. Similarly, Friday’s announcement referenced the addition of the Department of Commerce, the National Science Foundation, and the National Aeronautics and Space Administration programs to the Justice40 initiative, bringing the total number of programs covered by the initiative to 470 across 19 federal agencies.
The White House also announced a new Interagency Policy Committee on Plastic Pollution and a Circular Economy, alongside a draft National Strategy on Preventing Plastic Pollution released the same day by the U.S. EPA. The draft strategy plan is intended to address disparate impacts on communities affected by plastic from production to waste. The Committee, meanwhile, will coordinate federal efforts addressing plastic pollution to ensure an equitable distribution of the benefit from these efforts.
In a time when the Biden Administration faces increased scrutiny regarding its environmental efforts, the White House’s announcement also highlights various actions undertaken by executive agencies during the current presidential term. Friday’s action marks the latest installment in the Biden Administration’s advancement of environmental justice initiatives, following Executive Order 13990 signed on President Biden’s first day in office, and Executive Order 14008 signed soon thereafter on January 27, 2021. The White House states that Friday’s Order reflects the goals and recommendations of the White House Environmental Justice Advisory Council, demonstrating the active approach that council continues to take in this area. The Order underscores the Administration’s commitment to developing environmental justice initiatives at the federal level, entrenching those initiatives into the goals of executive agencies, and providing transparency to the public on how those goals are being achieved.
We will continue to monitor this and other federal environmental justice developments on the Corporate Environmental Lawyer.
On Earth Day and every day, companies face increasing pressure to “go green” or be more “sustainable.” When companies heed this call—whether it’s by reducing GHG emissions, investing in renewable energy, or making their products recyclable or compostable—they understandably want to let people know about the positive actions they are taking. But, when a company touts their supposed good deeds, it must carefully craft any public communications. That is because companies—particularly consumer goods companies—face increasing scrutiny and potential litigation liability for “greenwashing” and related false advertising and consumer fraud claims.
At the heart of greenwashing claims is the assertion that a company is making false or misleading statements about its environmental performance in order to engender goodwill and increase sales or support for the company. But sometimes a company may believe that it is making truthful statements and still face greenwashing claims. Terms that might be used, like “sustainable,” are highly subjective and hard to quantify or support. A product might be technically able to be recycled, but recycling facilities may not accept that type of material for recycling. A company might think it is “leading the way” in its green initiatives, while environmental groups are less than impressed. All of these examples could lead to push back from environmental groups or regulators in a variety of forums. There could be public media campaigns, regulatory fines, and/or consumer fraud lawsuits, all around what a company thought was inspirational marketing about its sustainable practices.
So what is a company to do? Communicating a company’s sustainability goals and accomplishments may be important to leadership and investors, and can be a crucial part of finding partners willing and able to help the company achieve those sustainability goals. There is no magic formula that will avoid the pitfalls of greenwashing; but there are some best practices that should be considered.
First, follow the FTC’s Green Guides. The FTC has provided guidance on green advertising statements for decades. For example, according to the Green Guides, “a product or package should not be marketed as recyclable unless it can be collected, separated, or otherwise recovered from the waste stream through an established recycling program for reuse or use in manufacturing or assembling another item.” Companies should qualify recycling claims unless recycling facilities are available to at lease 60% of consumers or communities where the item is sold. As another example, according to the Green Guides, companies “should not make unqualified renewable energy claims, directly or by implication, if fossil fuel, or electricity derived from fossil fuel, is used to manufacture any part of the advertised item or is used to power any part of the advertised service, unless the marketer has matched such non-renewable energy use with renewable energy certificates.”
Notably, in December 2022, FTC announced that is was seeking public comments on potential updates to the Green Guides. FTC is seeking general guidance on the Green Guides, as well as on specific topics, including:
- Carbon offsets and climate change,
- The term “Recyclable”,
- The term “Recycled Content”, and
- The need for additional guidance regarding claims such as “compostable,” “degradable,” ozone-friendly,” “organic,” and “sustainable”, as well as those regarding energy use and energy efficiency.
The comment period remains open until April 24, 2023.
Additionally, while the Green Guides are a great resource, they are not the final word on greenwashing. Courts faced with greenwashing litigation may impose higher or lower standards, depending on the laws of the jurisdiction at issue. Moreover, many greenwashing claims will turn on whether a reasonable consumer was mislead by a company’s statement. As the FTC acknowledged in its recent announcement on the Green Guides, “consumers are increasingly conscious of how the products they buy affect the environment…” These sophisticated consumers are informed about environmental and sustainability issues, and not so easily confused or deceived. Thus companies that advertise to and communicate with sophisticated consumers should provide facts that are supportable and have sufficient context. Avoid broad, sweeping statements that will be hard to substantiate. And while setting goals are often a key part of a company’s sustainability plan, know that environmental groups are watching and holding companies accountable. Down the road, un-met goals may be framed as misleading statements. So, when setting environmental goals, understand how they will be achieved; and if they ultimately aren’t achieved be prepared to explain why.
Companies around the world will be embracing the spirit of Earth Day and talking about the ways they are reducing their environmental impact. If they also want to reduce their likelihood of greenwashing litigation, they need to make sure those communications are thoughtful, supported and provide the appropriate context. With the right planning, companies and go green and talk about it too.
We cannot talk about investing in our planet this Earth Day 2023 without discussing the Inflation Reduction Act of 2022 (IRA). We’ve discussed the IRA previously here and here. In short, this historic piece of legislation directs nearly $400 billion in federal funding to advance a clean energy economy through a combination of tax incentives, grants, and direct loans/loan guarantees while also seeking to prioritize American workers, American businesses, and environmental justice.
Among other tax incentives, the IRA briefly extends existing clean energy production and investment tax credits for renewable resources through 2024 when they sunset in favor of a more general set of technology-neutral, emissions-based clean energy production and investment tax credits with a period of certainty that lasts at least until 2033. A decade of relative certainty for such credits, without the need for frequent or last-minute extenders, should help drive the significant climate investments that are the focus of the IRA. The IRA also creates tax credits for domestic manufacturing and critical mineral processing, provides a clean vehicle tax credit, extends and provides tax credits for low emission fuels, extends and expands the tax credit for carbon capture, utilization, and sequestration (CCUS) projects, and creates a hydrogen production tax credit. To promote employment and environmental justice goals, significant bonus credits are available for taxpayers meeting prevailing wage and apprenticeship requirements in the construction and installation of qualifying energy property; for locating projects in energy communities; for meeting domestic content requirements; and for locating projects in low-income communities.
In addition to tax incentives, the IRA provides various grant and direct loans/loan guarantee opportunities to support projects that advance clean energy, including transmission, and reduce greenhouse gas emissions, with a focus on mobile source emissions, methane emissions from the oil and gas industry, and emissions from certain other emissions-intensive sectors. The IRA also contains opportunities for funding the development of low emission fuels, projects to improve energy efficiency, projects to support sustainable agricultural practices, and projects that stimulate American manufacturing, such as of the clean vehicle supply chain. Finally, the IRA includes opportunities for funding to improve pollution monitoring and tracking. Consistent with the Justice40 Initiative, the IRA emphasizes projects that benefit low-income and disadvantaged communities.
Although dizzying in its breadth, the main takeaway from the IRA is that there are now a multitude of material financial incentives, spanning a broad range of the energy and industrial sectors that eligible entities can take advantage of to reduce greenhouse gas emissions and advance a clean energy economy. Entities that emit greenhouse gases and entities seeking to produce or invest in clean energy or related technologies, develop energy infrastructure, manufacture components along the clean energy or clean vehicle supply chain, produce lower emission fuels, or improve energy efficiency should be evaluating how they can take full advantage of the IRA, including bonus credits for prevailing wage and registered apprenticeship compliance, for projects that meet domestic content requirements, and for projects located in energy and low-income communities.
The IRA is crafted to play an important role in advancing the Biden Administration’s climate goals of a 50-52 percent reduction in greenhouse gas pollution (from 2005 levels) by 2030 and of net zero greenhouse gas emissions by 2050. Whether the IRA will be effective in reaching those goals will depend on how effective the incentives are in driving significant investment in clean energy and related technologies, how quickly and efficiently federal funds are disseminated, and how quickly projects can meet the myriad regulatory hurdles large investments require. This latter recognition is the driving force behind several efforts at regulatory streamlining that may hold the key to whether projects get off the launchpad or remain nascent projects.
As just one example, the lengthy process and associated uncertainty with having to secure siting authorization from multiple state regulatory commissions to develop interstate transmission lines and carbon dioxide (CO2) pipelines for carbon capture and sequestration may jeopardize the effectiveness of the IRA’s provisions encouraging investment in these projects. Similarly, efficient development of transmission and pipeline infrastructure will be necessary to fully utilize solar and wind resources, as well as transport captured CO2 to geological sequestration sites (see our article on CO2 Capture and Storage, CCS, here). Another potential impediment is public opposition, some of which may stem from the perceived impact that IRA-driven projects will have on communities and ecosystems, and some of which may stem from concerns about the efficacy of certain emission reduction strategies.
Notwithstanding potential impediments, the IRA has made Earth Day 2023 an exciting time to invest in our planet. An August 2022 Rhodium Group report suggests the IRA could drive United States greenhouse gas emissions down to 32-42% below 2005 levels by just 2030, compared to 24-35% without these measures. Of course, we must invest smartly, which will require holistic, careful, community-involved planning that allows entities to navigate financing, permitting, and environmental reviews in a way that best minimizes legal risk, maximizes emissions reductions, and addresses community concerns.
We will continue to provide insights on how entities can take full advantage of the IRA, as well as strategically navigate potential impediments to efficient project development, on the Corporate Environmental Lawyer.
 The state-by-state siting of transmission lines may become easier for certain projects once the Federal Energy Regulatory Commission’s proposed rule to revise the regulations governing the Commission’s backstop siting authority is finalized.
Happy Earth Month! In today’s blog, we observe the historic investment opportunity presented by the convergence of efforts to address climate change and spur the energy transition, such as public grant programs, regulatory regimes, and, the biggest lever, tax credits. It’s fair to observe that it’s about time, because many of these initiatives have been attempted in some shape or form for decades, but only now have succeeded. It’s also correct to say it’s about time, meaning there is no time to waste, as meeting the reduction targets in time to stave off the worst effects of climate change is only a few decades away.
Until the summer of 2022, federal efforts to address climate change to the extent and scale capable of achieving the extraordinary results needed to keep our atmosphere in check have been, for the most part, largely elusive. From an economy-wide approach via cap-and-trade, the first attempt at which was made in the early 2000’s, to administrative efforts like the Clean Power Plan, climate change either could not swing the votes or could not survive judicial review.
However, like the 2004 season stands out as the miracle year for the Boston Red Sox (for the younger generation, this was the year the Boston Red Sox won their first World Series since 1918, breaking the famous Curse of the Bambino), the time between November 2021 and August 2022 marks the miracle year for U.S. action to address climate change. This miracle year included the Bipartisan Infrastructure Bill of 2021, the CHIPS Act of 2022, and, finally, the Inflation Reduction Act of 2022 (IRA). Combined, the three statutes will mobilize massive amounts of capital – according to the International Energy Association (IEA), the U.S. is on track to disburse in the realm of $560 B by 2031 – with the intent of decarbonizing our economy. The strategy includes transitioning our energy and transportation systems to cleaner power sources, and creating the domestic manufacturing capability to do so.
If implemented swiftly and successfully, coupled with other regulatory measures such as EPA’s forthcoming powerplant rules for greenhouse gas emissions, EPA’s tailpipe emission standards, and the Securities and Exchange Commission’s requirements for climate risk disclosure, these statutes could set the U.S. on a path to meeting its climate targets. (The United States has committed to an ambitious and achievable goal to reduce net GHG emissions 50-52% below 2005 levels in 2030). In doing so, these efforts would help to keep climate change in check “within around two decades” by, according to the Intergovernmental Panel on Climate Change’s (IPCC’s) most recent Synthesis Report, achieving the “[d]eep, rapid, and sustained reductions in greenhouse gas emissions” that “would lead to a discernible slowdown in global warming … and also to discernible changes in atmospheric composition within a few years.”
The basic strategy underlying these statutes is to incentivize zero and low-carbon energy generation through mechanisms like tax credits while phasing out fossil fuels, avoiding emissions of highly potent greenhouse gases like methane, and locking away carbon dioxide, all the while helping the U.S. regain the dominance it once had with respect to domestic manufacturing in order to secure and support the transition. The suite of legislation also works to build resilience in the face of climate change, including by improving communities and infrastructure’s ability to withstand severe and more frequent weather events brought on by a changing climate, such as droughts, flooding, and wildfires.
While the IRA is mainly focused on tax credits, which tomorrow’s blog will cover, the Infrastructure Investment and Jobs Act includes more than $70B for research, development, and deployment of innovative clean energy technologies, building new and more resilient transmission infrastructure to increase delivery of renewables and cleaner energy to the grid, and more EV charging networks.
Sandwiched between the two was the passage of the CHIPS and Science Act, which is often considered to be focused on helping U.S. manufacturers produce semiconductors to meet growing demand. The CHIPS Act, however, is also heavily focused on climate and the energy transition, authorizing up to $71B for the Departments of Commerce and Energy and the National Institute of Standards and Technology to institute a variety of programs, including the Regional Clean Energy Innovation Partnership, and award grants to public-private consortia that include industry or firms involved in technology, innovation, or manufacturing to “accelerate the pace of innovation of diverse clean energy technologies”. The Department of Energy is authorized to support research, development, and the demonstration of renewable power, electric grid modernization and security, nuclear energy, alternative fuels, and carbon removal.
All of this is good news for the climate and investors because the market signals are appropriately aligning to reward investments in the energy transition, climate mitigation, and clean technology, and bringing that investment back to the U.S. to drive what is being touted as the next domestic industrial movement – think solar panel production, wind turbines, EVs, and EV battery materials, to name just a few. The key will be moving these dollars into action.
Stay tuned for our ideas on how to put this funding to work. And remember - it's about time because it’s about time.
By: Daniel L. Robertson, Associate Attorney
In the 1962 book, Silent Spring, Rachel Carson brought to the forefront of public attention contaminants of emerging concern (CECs). CECs, or emerging contaminants, are chemicals or materials that can be characterized by a perceived, potential or real threat to human health or the environment. These threats typically “emerge” as advances in scientific technologies reveal previously unknown adverse effects of a specific chemical that may already be ubiquitous in the environment. Examples in recent years include 1,4 dioxane, polychlorinated biphenyls (PCBs), ethylene oxide, and per- and polyfluorinated substances (PFAS). Pharmaceuticals and nanomaterials are increasingly being considered as areas of concern that may require further scrutiny in future.
Often by the time adverse impacts are identified, the contaminant is in widespread use. PCBs, for example, were prevalent in coolants and lubricants in a variety of electrical equipment because PCBs are very effective insulators. PFAS were heralded as revolutionary for their effective fire-fighting and coating characteristics and currently are in a multitude of everyday products ranging from food packaging to the clothes we wear.
As we gain a better understanding of the potential effects of these chemicals, regulators face challenges in promulgating appropriate regulations for these CECs. Meanwhile, companies seemingly acting in full compliance with permits and regulatory requirements find themselves targeted by lawsuits seeking to compel remediation of impacted sites and product reformulation. Long dormant sites previously considered remediated may be reopened and additional clean-up required as, for example, may result as a result of U.S. EPA’s pending proposals to designate certain PFAS as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).
As history has shown, and due to ongoing technological advancements, new emerging contaminants will continue to be identified and the process of evaluating potential health and environmental risks will begin anew. There is an ongoing debate as to whether the approach employed by the Toxic Substances and Control Act (TSCA) is the most effective approach to regulating CECs, when contrasted for example with the approach taken by the European Union’s Registration, Evaluation, Authorization, and Restriction of Chemicals (REACH). While both programs are designed to protect human health and the environment through restricting the use of harmful substances, they accomplish this through different means. TSCA requires reporting oversight of a chemical where U.S. EPA demonstrates an unreasonable risk. REACH, on the other hand, obligates manufacturers and importers to register and demonstrate the safe control of a chemical prior to that chemical being placed into the market.
As applied to PFAS, in the United States, U.S. EPA seeks to regulate specific PFAS through a variety of avenues. In August 2022, U.S. EPA proposed designating two PFAS substances as CERCLA hazardous substances, and in April 2023 proposed additional PFAS substance designations. In March 2023, U.S. EPA simultaneously proposed maximum contaminant levels (MCLs) setting drinking water limits for two PFAS compounds and proposed to regulate four additional PFAS through a Hazard Index screening approach that will require site-specific determinations for drinking water concentration. Pursuant to the 2019 PFAS Act, 176 PFAS substances have been added to the Toxic Release Inventory (TRI) chemical database, creating additional reporting liabilities for impacted companies. However, in December 2022, U.S. EPA proposed reclassifying all TRI-listed PFAS to the Chemicals of Special Concern list, which would further increase reporting scrutiny on regulated companies. Each of these practices takes significant resources to implement, and with 10,000 PFAS already identified, could create a significant investment over time.
Contrast this approach with the approach of the European Chemicals Agency (ECHA) that in February proposed a blanket restriction of all 10,000 PFAS substances in the European Union. This itself creates uncertainty for companies where no commonly accepted testing methods exist whereby companies can test for all of these compounds. The approach further restricts PFAS chemicals for which studies on their adverse impacts may not yet exist. It is expected that ECHA will receive a substantial number of comments on its proposal, much like U.S. EPA has received on its proposals discussed above.
While there may not be a single “right” way to address CECs, the risks posed by emerging contaminants will continue to challenge both the regulators and the regulated community to find the appropriate regulatory balance between protection of human health and the environment and the need to continue to manufacture products that we rely upon daily. As demonstrated by the 2016 Lautenberg amendments to TSCA, stakeholders on all sides appear invested to continue striving towards this balance.
Earth Day 2023—A Reflection on the Past and Forward-Looking Opportunities For Investing in Our Future
By Steven M. Siros, Co-Chair, Environmental and Workplace Health & Safety Law Practice
As we prepare to celebrate the 53rd anniversary of Earth Day, it is my pleasure to kick off our Earth Day series of daily blogs penned by my colleagues at Jenner & Block. The theme for this 53rd Earth Day is a continuation of last year’s theme—Invest in the Planet. As I reflect on this year’s Earth Day theme and look back on the past 53 years, I am struck by the tremendous gains that have been realized from our past investments but at the same time, recognize that there is still tremendous work to be done if we are to truly realize the ultimate return on our investment—a vibrant thriving planet for future generations.
Since the early 1970s, we have spent trillions of dollars in the United States alone to remediate environmentally impacted sites, resulting in the removal of millions of pounds of contaminants from soil and groundwater. Again, focusing just on the United States, between 1970 and 2020, the combined emissions of six common pollutants (particulate matter, sulfur dioxide, volatile organic compounds, carbon monoxide, and lead) have dropped more than 77%. Billions of dollars have been spent to prevent the direct discharge of untreated sewage into our rivers and oceans and we have progressed from it being a common occurrence for rivers to catch fire to the Chicago River now actively being used for a variety of recreational purposes, including kayaking and fishing (although I still don’t recommend jumping into the river after a particularly heavy rainstorm). We now see that most Fortune 500 companies have robust environmental compliance programs and generate annual sustainability reports touting their environmental, health and safety accomplishments.
Much has been accomplished since 1970 when it wasn’t unusual for industrial solid waste and raw sewage to be discharged directly into the environment. Now, it is the rare occurrence when we read about these types of direct releases of pollutants into our environment. Notwithstanding, the planet continues to face significant environmental threats. New emerging contaminants threaten our drinking water supplies and greenhouse gas emissions (GHGs) contribute to changing atmospheric conditions impacting the global community.
While we must remain diligent so as not to walk back the significant progress that we have already made, it is important that we also proactively identify and implement creative solutions to respond to new environmental challenges. Consistent with the 53rd Earth Day theme—Invest in Our Planet—we must ensure that we focus our investments on those environmental issues that pose the greatest risks to our planet in order to maximize our return on our investment.
Building on this theme, in our weekly series of Earth Day blogs, on Tuesday, we turn our attention to emerging contaminants and the significant challenge these new emerging contaminants pose both in terms of identifying these emerging contaminants and crafting regulations that are appropriately protective of human health and the environment. On Wednesday we observe the historic investment opportunity presented by the convergence of efforts to address climate change and spur the energy transition, such as public grant programs, regulatory regimes, and, the biggest lever, tax credits. Thursday’s blog will discuss some of the financial incentives to encourage mitigation of GHGs found in the recently promulgated Inflation Reduction Act. To close out our blog series, as more and more companies recognize the significant return on investment that can be achieved by investing in our planet, we will provide guidance and best practices to mitigate the liability risks associated with “greenwashing” claims.
We hope that you will find these blogs insightful and thought-provoking. We only have one planet, and it is incumbent on all of us to invest in that planet to ensure its continued viability for future generations.
On April 12, 2023, a federal district court judge in North Dakota issued a temporary injunction blocking implementation of the EPA and Army Corps of Engineers regulations redefining Waters of the United States (“WOTUS”) under the Clean Water Act (“CWA”) (the “2023 WOTUS Rule”). The injunction was issued in a challenge brought by 24 states, and will take effect in those states: Alabama, Alaska, Arkansas, Florida, Georgia, Indiana, Iowa, Kansas, Louisiana, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Utah, Virginia, West Virginia, and Wyoming.
The WOTUS definition is one of the most controversial and highly-litigated aspects of the CWA, if not all environmental law, because it has wide-ranging implications. The definition of “waters of the United States” is so important because it sets the jurisdictional limits of the CWA. Under the CWA, EPA and the Army Corps have the power to regulate, among other things, the discharge of pollutants to navigable waters from a point source (33 U.S.C. § 1362(12)) and the discharge of dredged or fill material into navigable waters (33 U.S.C. § 1344). “Navigable waters” are defined in the CWA as “the waters of the United States, including the territorial seas.” 33 U.S.C. §1362(7). “Waters of the United States” is not defined further under the CWA, so the agencies have been left to try to craft a definition.
The Army Corps and EPA first proposed a WOTUS definition in 1977 and it has faced revisions and legal challenges ever since. The WOTUS definition has faced Supreme Court review in three previous cases, and is currently pending review in a fourth Supreme Court case, Sackett v. U.S. Environmental Protection Agency, 19-35469, on appeal from the U. S. Court of Appeals for the Ninth Circuit.
To Broaden or Not to Broaden--U.S. EPA Solicits Input on Whether to Add Additional PFAS to CERCLA’s List of Hazardous Substances
By Steven M. Siros, Co-Chair, Environmental and Workplace Health & Safety Law Practice
As we await final agency action on U.S. EPA’s pending rulemaking to designate perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS) as CERCLA
hazardous substances, U.S. EPA has just published an advanced notice of proposed rulemaking (ANPR) soliciting public input on whether to add additional PFAS to CERCLA’s list of hazardous substances. When U.S. EPA initially proposed adding PFOS and PFOA to the CERCLA list of hazardous substances, there was significant outcry from environmental groups that argued that the proposed listing didn’t go far enough while industry groups argued that CERCLA was the wrong tool to address PFAS contamination. U.S. EPA’s solicitation of comments on whether to add additional PFAS to the CERCLA hazardous substance list is certain to generate significant input from both groups.
In its ANPR, U.S. EPA seeks input on whether it should designate as CERCLA hazardous substances (1) seven additional PFAS and their salts and structural isomers; (2) precursors of these seven PFAS, plus the precursors of PFOA and PFOS; and (3) categories of PFAS. The seven specific PFAS called out in the ANPR are perfluorobutanesulfonic acid (PFBS), perfluorohexanesulfonic acid (PFHxS), perfluurononanoic acid (PFNA), hexaluoropropylene oxide dimer acid (HFPO-DA, aka GenX), perfluorobutanoic acid (PFBA), perfluorhexanoic acid (PFHxA), and perfluorodecanoic acid (PFDA). U.S. EPA selected these seven PFAS based on the availability of toxicity information previously reviewed by U.S. EPA and other Federal agencies.
In addition to seeking information on these specific seven PFAS, U.S. EPA also seeks comments on whether to add to the list of CERCLA hazardous substances salts and precursors of these seven PFAS (as well as precursors of PFOA and PFOS). Some PFAS can be formed by the degradation of other chemical substances and U.S. EPA’s ANPR solicits input on which substances do in fact degrade into these specific PFAS compounds and the manner in which this degradation might occur.
Finally, the ANPR seeks input on whether U.S. EPA should designate groups or categories of PFAS as CERCLA hazardous substances, noting that PFAS may share similar characteristics such as chemical structure, physical and chemical properties, mode of toxicological action, precursors, degradants, or co-occurrence. U.S. EPA references its 2020 Significant New Use Rule (SNUR) for long-chain perfluoroalkyl carboxylate (LCPFAC) as an example of its regulation of a category of PFAS. Again, environmental groups have long sought to compel U.S. EPA to regulate PFAS as a class while industry groups have argued to the contrary, pointing out the substantial differences in toxicity and physical/chemical characteristics between different PFAS.
Like U.S. EPA’s proposal to designate PFOS and PFOA as CERCLA hazardous substances, U.S. EPA’s latest ANPR is certain to generate input from a broad spectrum of commenters. The comment period currently is set to expire on June 12, 2023 (60 days from the date of publication). We will continue to provide timely updates on U.S. EPA’s ongoing efforts to designate certain PFAS as CERCLA hazardous substances at the Corporate Environmental Lawyer blog.
Incorporating PFAS in Industrial Wastewater Discharge Permits to Minimize Risk or Extent of Future CERCLA Liability
PFAS are being detected in drinking water systems across the United States. Moreover, evolving regulatory developments already require or soon will
require that public water systems sample for and remediate these chemicals (see, e.g., here). When public water systems find PFAS, which is a
significant possibility, public water systems are likely to look to upstream industrial facilities to recoup their remediation costs. And, once PFOA and PFOS becomes CERCLA hazardous substances (likely Summer 2023), public water systems will have a federal cause of action to do so: CERCLA cost recovery.
Among other potential defendants, public water systems may target upstream industrial facilities that have PFOA or PFOS in their wastewater discharges. Indeed, recent U.S. EPA guidance explains that the Clean Water Act’s National Pollutant Discharge Elimination System (NPDES) program, which regulates wastewater discharges, “interfaces with many pathways by which [PFAS] travel and are released into the environment, and ultimately impact water quality and the health of people and ecosystems.”
Industry categories known or suspected to discharge PFAS include: organic chemicals, plastics & synthetic fibers (OCPSF); metal finishing; electroplating; electric and electronic components; landfills; pulp, paper & paperboard; leather tanning & finishing; plastics molding & forming; textile mills; paint formulating; and airports. Of course, this is not an exhaustive list.
While U.S. EPA’s Office of Water is working to revise Effluent Limitation Guidelines and develop water quality criteria to support technology-based and water quality-based effluent limits for PFAS in NPDES permits, there are currently no enforceable limits at the federal level. As an interim measure, recent U.S. EPA guidance describes steps that NPDES permit writers can implement under existing authorities to reduce PFAS discharges, including incorporating monitoring requirements, best management practices, and site-specific limits developed on a best professional judgment basis into permits.
An important question will be whether upstream industrial facilities that have PFAS in their wastewater discharges will be able to rely on the federally permitted release exemption as an affirmative defense to CERCLA liability. This exemption provides that parties are not liable under CERCLA for federally permitted releases. See 42 U.S.C. § 9607(j). The exemption also extends to state permitted releases under federally approved programs. Blankenship v. Consolidation Coal Co., 850 F.3d 630, 638 (4th Cir. 2017).
In the NPDES context, the exemption most notably covers “discharges in compliance with a permit.” See 42 U.S.C. § 9601(10)(A). The limited case law on this issue sheds light on two points. First, the exemption can only cover what a NPDES permit can regulate – the discharge of pollutants into navigable waters from a point source. Second, the exemption does not apply with respect to releases that (1) were not expressly permitted, (2) exceeded the limitations of the permit, or (3) occurred at a time when there was no permit.
In 1995, U.S. EPA offered some guidance as to its interpretation of the scope of this exemption. Specifically, the Agency stated that the exemption would apply if: (1) the source, nature, and amount of the potential release had been identified and made part of the public record during the permitting process, and (2) the permit contains a condition requiring that the treatment system be capable of eliminating or abating the potential release.
Going back further in time, in a 1988 proposed rule that never took effect, U.S. EPA explained that the exemption covers discharges that are in compliance with a permit limit that specifically addresses the discharge in question. To qualify, the permit must either address the discharge directly through specific effluent limitations or through the use of indicator pollutants. In the case of the latter, the administrative record prepared during permit development must identify specifically the discharge of the pollutant as one of those pollutants the indicator is intended to represent.
Industrial facilities that have PFOA or PFOS in their wastewater discharges should evaluate whether their permits have any provisions that address these chemicals. Assuming they do not, which is the most likely scenario at this early stage, it is unlikely that the federally permitted release exemption will apply. However, if there are provisions that address these chemicals, or if the applicable permitting agency seeks to add such provisions through original permit issuance, modification, or renewal, businesses should consider the extent to which this will influence whether the federally permitted release exemption may apply.
Specifically, when negotiating permit conditions, businesses should keep in mind that U.S. EPA guidance suggests that for the exemption to apply, the source, nature, and amount of the potential PFOA or PFOS release must be identified and made part of the public record during the permitting process, and the resulting permit must contain a condition requiring that the treatment system be capable of eliminating or abating the potential release.
Considering this guidance, it is unlikely that the incorporation of mere monitoring requirements and/or best management practices that do not eliminate or abate the potential release of PFOA or PFOS will be sufficient for a discharger to rely on the federally permitted release exemption. However, the incorporation of site-specific limits developed on a best professional judgment basis likely will.
Indeed, it may be in the best interest of businesses to advocate for provisions in their permits that address PFOA and PFOS to minimize their risk or extent of future CERCLA liability. An important consideration will be the cost of eliminating or abating the potential release of PFOA or PFOS now versus the likelihood and associated cost of being sued for CERCLA cost recovery and ultimately having to pay the costs associated with remediating the unpermitted discharges of PFOA or PFOS later.
We will continue to provide timely updates on U.S. EPA’s ongoing efforts to regulate PFAS under the various environmental statutes at the Corporate Environmental Lawyer.
On March 15, 2023, EPA finalized its Good Neighbor Plan under the Clean Air Act (“CAA”), a rule designed to reduce smog-forming nitrogen oxide ("NOx") pollution from power plants and other industrial facilities in 23 upwind states that impact compliance with ambient air quality standards in downwind states. This rule will have a significant impact on power plants emissions in 22 states beginning in 2023, and will impose additional emission limits on certain industries, such as cement manufacturing, mining and solid waste combustion, in 20 states beginning in 2026.
The CAA requires each state to submit State Implementation Plans (“SIPs”) that contain rules, plans and programs that will lead to compliance with the National Ambient Air Quality Standards (“NAAQS”). In these SIPs, states are required to ensure that air pollution sources in the state do not contribute to nonattainment of the NAAQS in other states. This requirement is known as the “Good Neighbor” provision of the CAA. On January 31, 2023, EPA determined that 21 states failed to meet the Good Neighbor requirements by failing to address interstate transport of ozone-creating NOx pollution in their SIPs. That action paved the way for EPA to institute Federal Implementation Plans (“FIPs”) in a total of 23 states to ensure that the Good Neighbor provisions were being addressed.
EPA will ensure that NOx emissions reductions are achieved by issuing FIP requirements for 23 states: Alabama, Arkansas, California, Illinois, Indiana, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New York, Ohio, Oklahoma, Pennsylvania, Texas, Utah, Virginia, West Virginia, and Wisconsin.
By Steven M. Siros, Co-Chair, Environmental and Workplace Health & Safety Law Practice
Almost two years to the date after U.S. EPA issued its regulatory determination for contaminants on the forth Contaminant Candidate List, U.S. EPA has issued its draft rule setting drinking water limits for several PFAS compounds. Specifically. U.S. EPA’s draft rule proposes a four part per trillion (ppt) maximum contaminant level (MCL) for perfluorooctanoic acid (PFOA) and perfluorooctane sulfonic acid (PFOS). According to an U.S. EPA fact sheet that accompanied the proposed rule, the four ppt level is the lowest concentration that can be reliably detected within “specified limits of precision and accuracy during routine laboratory operations conditions”.
These proposed MCLs are higher than U.S. EPA’s previously issued health advisory levels (HALs) of 0.004 ppt for PFOA and 0.02 ppt for PFOS. The reason for the higher proposed MCL levels is due in large part to the fact that U.S. EPA is required to consider available treatment technologies and treatment costs when setting an MCL which it is not required to do when setting a HAL. U.S. EPA’s proposed maximum contaminant level goal (MCLG) for these specific PFAS which doesn’t need to consider technical feasibility of cost is “0”. With respect to its previously issued HALs, U.S. EPA specifically noted that following receipt of public comments and finalization of the PFAS MCL, it will decide whether to update or remove the HALs for PFOA and PFOS.
U.S. EPA’s draft rule also proposes to regulate several additional PFAS, including hexafluoropropylene oxide dimer acid (commonly referred to as GenX), perfluorononanoate (PFNA), perfluorohexanesulfonic acid (PFHxS), and perfluorobutane sulfonic acid (PFBS). Rather than proposing an MCL for these PFAS, U.S. EPA instead seeks to regulate these PFAS utilizing a hazard index which is a screening level approach that provides a risk indicator rather than a risk estimate for a mixture of components.
This hazard index approach is sometimes used by other federal agencies, including the Agency for Toxic Substances and Disease Registry. Under this hazard index approach, U.S. EPA has identified health-based water concentrations (HBWCs) (i.e., the level at which no health effects are expected for that PFAS) for PFHxS (9 ppt); GenX (10 ppt), PFNA (10 ppt) and PFBS (200 ppt). The detected concentration of each PFAS in drinking water is then divided by the HBWC to get a individual hazard quotient (HQ). The hazard index is the summation of each of these HQs—if the hazard index value exceeds 1.0, then that would be an exceedance of the MCL.
The MCLs will become effective three years after they are finalized. At that time, public drinking water systems will be obligated to test for these specific PFAS and take steps to mitigate any exceedances that are identified.
U.S. EPA has proposed a 60-day comment period on the draft rule; however, in light of what are expected to be significant public comments, it is likely that this comment period will be extended.
We will continue to provide timely updates on U.S. EPA’s ongoing efforts to regulate PFAS under the various environmental statutes at the Corporate Environmental Lawyer.
The regulated community should be considering how Earth-observing satellites may enhance regulators’ and non-governmental organizations’ (NGOs’) ability to detect, measure, and monitor pollution. According to the Land Remote Sensing Satellites Online Compendium, a resource developed by the U.S. Geological Survey, there are 295 Earth-observing satellites that are operational, and 59 are under development.
At a basic level, Earth-observing satellites acquire information about the Earth. The data derived can differ in resolution and application depending on a satellite’s sensor and orbit. For example, satellites with a geostationary orbit maintain their position directly over the same place on Earth’s surface, permitting almost continuous coverage of that one area. These satellites may be most useful for targeting facilities with repeated or ongoing environmental violations. Once data derived from Earth-observing satellites are processed, they can be used in a variety of applications.
Notable Earth-observing satellites are set to launch this year. For example, TEMPO (Tropospheric Emissions: Monitoring Pollution) is a geostationary satellite scheduled to launch in April 2023 that will monitor daily variations in ozone, nitrogen dioxide, and other key elements of air pollution during daylight hours across North America. According to the U.S. Environmental Protection Agency (U.S. EPA), one of the anticipated benefits of TEMPO data will be an improved understanding of pollution sources and how their emissions vary throughout the day. Also, in late 2023, a subsidiary of the Environmental Defense Fund is expected to be ready to launch MethaneSAT, a satellite that will find and measure methane emissions with “unparalleled precision.” According to its website, MethaneSAT will, among other things, identify and quantify emissions from large sources and quantify aggregate emissions from smaller sources, as well as large intermittent sources.
Data derived from Earth-observing satellites may also impact businesses at the front-end through the imposition of more stringent pollution-reduction requirements. For example, a 2018 research study illustrates that satellite data can supplement ground-based air quality monitors to improve National Ambient Air Quality Standard compliance designations. This could result in businesses in newly designated areas having to comply with more stringent emission limitations and control measures.
Earth-observing satellite-derived data can be used outside of the air pollution context, too. For example, a 2022 research study illustrates that satellite data can be used to identify Concentrated Animal Feeding Operations engaging in unlawful winter land application. The land application detection system developed by this research was used in partnership with the Environmental Law and Policy Center to investigate several possible instances of unlawful application.
The takeaway is that businesses should ensure that they have robust environmental compliance programs in place that consider advancing Earth-observing satellite capabilities. They should especially consider that regulators and NGOs may be able to quickly and accurately detect, measure, and publicize discharges, leaks, spills, and other activity from even remote facilities.
For example, under U.S. EPA’s proposed methane rules, regulatory authorities and “qualified third parties” will be able to use satellites to identify and notify owners and operators in the oil and natural gas sector of “super-emitter” emissions events, which would require owners and operators to investigate and take appropriate mitigation actions.
And, if regulators and NGOs are detecting environmental violations before businesses, in addition to ensuing public relations issues, businesses will not be eligible for penalty mitigation under U.S. EPA’s Audit Policy. This may also reduce businesses’ ability to take advantage of more favorable resolutions of criminal cases under the U.S. Department of Justice, Environmental Crimes Section’s Voluntary Self-Disclosure Policy.
The impact that advancing Earth-observing satellite capabilities may have on environmental enforcement and litigation should not be overlooked. If you have any questions on how advanced monitoring technologies may impact your business operations and liabilities and how you can get ahead of this, reach out to one of the attorneys in Jenner & Block’s Environmental and Workplace Health and Safety practice.
Existing Clean Power and Eligibility for Hydrogen Production Tax Credits: “Additionality” Doesn’t Add Up
The Inflation Reduction Act promises to transform the energy sector in many ways, but among the most exciting is the hydrogen production tax credit, which provides a production tax credit, over a ten year period beginning with the date a facility is placed in service, of up to 60 cents per kilogram of “clean hydrogen” – that is, hydrogen “produced through a process” with a life-cycle greenhouse gas emissions rate below specified thresholds. 26 U.S.C. § 45V. The credit is enhanced five-fold, up to $3 per kilogram, for clean hydrogen produced at facilities complying with certain prevailing wage and apprenticeship requirements. Clean hydrogen can be used to decarbonize hard-to-electrify sectors, such as steel, cement, and chemical production, that today are responsible for a significant share of the Nation’s carbon emissions.
The Treasury Department is currently reviewing comments on the implementation of the hydrogen tax credit under Section 45V. See IRS Notice 2022-58. Several commenters have urged the agency to limit tax credits to hydrogen production powered by new renewable generation – thus eliminating the ability for hydrogen producers to receive tax credits if they source their electricity from existing renewable or nuclear plants. Similar arguments are being raised at the Department of Energy as it seeks to finalize its Clean Hydrogen Production Standard to guide funding decisions under the Infrastructure Investment and Jobs Act.
The policy rationale for this limitation – which its proponents call “additionality” – is that if existing renewable or nuclear plants are used to produce hydrogen, they will no longer be available to serve the grid, and the result will be increased dispatch of fossil fuel plants to fill the gap, resulting in increased carbon emissions overall. In their view, only “additional” clean generation – generation that would not otherwise exist, but for the electricity demand created by hydrogen production – should be allowed to be used by hydrogen producers claiming tax credits or federal funding.
An “additionality” requirement, however, is simply inconsistent with the statutory scheme. If one is adopted, it is almost certain to be challenged in court – creating uncertainty that will discourage clean hydrogen production. And, for the reasons I describe below, such a challenge is likely to succeed.
First, the text of the Inflation Reduction Act forecloses such a requirement. The statute makes tax credits available to “any qualified clean hydrogen,” 26 U.S.C. § 45V(b)(2)(A), (B), (C), (D) (emphasis added), and defines “qualified clean hydrogen” to focus on the process used to produce the hydrogen – not the indirect effects like the potential for other power sources to be dispatched to serve other load on the electric grid. Thus, hydrogen counts as “clean hydrogen” if it is “produced through a process that results in a lifecycle greenhouse gas emissions rate” below a specified threshold. Id. § 45V(c)(2)(A). Lifecycle greenhouse gas emissions are to be calculated using a model known as “GREET,” developed by Argonne National Labs, and “shall only include emissions through the point of production” as determined by the GREET model. Id. § 45V(b)(1) (emphasis added). In calculating emissions through the point of production, the GREET model makes no distinction between sources of electricity based on whether they are existing or new. Thus, there is no room for an “additionality” requirement in the definitions establishing eligibility for the tax credit.
Second, if Congress had wanted to impose an “additionality” requirement, it knew how to do so. For example, Section 45V contains other vintage-related requirements: a “qualified clean hydrogen production facility” is defined as one that begins construction before 2033. § 45V(c)(3)(C). Vintage requirements also limit which hydrogen production facilities are eligible for the increased credit amounts on account of compliance with certain prevailing wage and apprenticeship requirements. § 45V(e)(2)(A). But there is no vintage limitation on the resources used to provide energy to a clean hydrogen production facility.
Moreover, other provisions in the Inflation Reduction Act make clear that Congress anticipated the use of electricity generated by existing nuclear facilities to produce hydrogen and coordinated other clean energy credits with Section 45V on that assumption. Section 45U, for example, establishes a nuclear production tax credit that is only available to nuclear facilities placed in service prior to enactment of the Inflation Reduction Act. In Section 45U(c)(2), Congress incorporated special rules (set forth in Section 45(e)(13)) that would allow nuclear facilities receiving credits under Section 45U to use the electricity they generate to produce clean hydrogen receiving credits under Section 45V. Congress would not have done so if it intended to limit Section 45V credits to hydrogen produced using energy generated by “additional” resources. Indeed, an “additionality” requirement would make Section 45U(c)(2)’s incorporation of Section 45(e)(13) superfluous, conflicting with a basic principle of statutory interpretation and negating Congress’s intent.
Third, Congress sought to promote new renewable generation directly in the Inflation Reduction Act, through tax credit programs aimed directly at new clean generation, in Sections 45Y and 48E. Especially in light of Sections 45Y and 48E, imposing an “additionality” requirement on Section 45V would be arbitrary. After all, the purpose of Sections 45Y and 48E is to massively increase the amount of new renewable generation. Against the backdrop of that expected influx, there is no reason to believe that new renewable generation providing electricity to hydrogen producers is “additional” just because it is new. Such new renewable generation likely would have come online anyway. And from the standpoint of the grid, such new renewable resources are just as available to serve load as existing renewable and nuclear resources are. Consequently, the main effect of grafting an “additionality” requirement onto Section 45V is simply to favor one group of clean generators that otherwise would be serving load (new generators) over other clean generators that would otherwise would be serving load (existing generators). That would be at odds with the purpose of Section 45V, which is to encourage hydrogen production—not promote new renewable generation. From the standpoint of hydrogen producers, the main effect of an “additionality” requirement is to limit the options available to them in sourcing electricity—and thereby potentially make it more costly to produce clean hydrogen. That is directly contrary to Congress’s objectives in Section 45V.
Imposing an “additionality” requirement under the DOE’s Clean Hydrogen Production Standard, see 42 U.S.C. § 16166, which will guide funding decisions under the Infrastructure Investment and Jobs Act, would face similar legal hurdles. The Clean Hydrogen Production Standard concerns “the carbon intensity of clean hydrogen production that shall apply” to the various hydrogen-related activities carried out under 42 U.S.C. subchapter 8, id. § 16166(a), including the selection of regional clean hydrogen hubs.
An “additionality” requirement has no place there. Section 16166(b) directs that the clean hydrogen production standard should “support clean hydrogen production from each source” listed in Section 16154(e)(2). That provision, in turn, makes no distinction between new energy sources and existing energy sources, but instead lists “diverse energy sources” including “fossil fuels with carbon capture, utilization, and sequestration” and “nuclear energy.” Id. § 16154(e)(2), (2)(A), (2)(D); see also id. § 16166(c) (listing numerous sources to which “the standard” shall apply, but making no distinction among resources based on vintage). Similarly, Section 16166(b) requires “clean hydrogen” to be defined in terms of carbon emissions “produced at the site of production per kilogram of hydrogen produced.” Id. § 16166(b)(1)(B) (emphasis added). In other words, hydrogen’s carbon intensity is to be assessed based on the energy source used to produce the hydrogen—not the indirect effects that using that energy source for hydrogen production may have on the carbon intensity of the grid as a whole. An “additionality” requirement would be inconsistent with this statutory text. What is more, the purposes of the statute are squarely focused on promoting the development and commercialization of hydrogen technology. 42 U.S.C. § 16151. Nothing in those purposes suggest that hydrogen should be pursued only to the extent it can be created by new carbon-free resources.
The Inflation Reduction Act amounts to a once-in-a-generation opportunity to kick-start hydrogen production. It could have a transformational effect on our energy economy. Unless already committed to other uses, existing clean resources should be available to American manufacturers seeking to realize that transformation. It would be unfortunate indeed if the transition to a hydrogen-based economy were delayed or thwarted because of an “additionality” requirement limiting hydrogen producers to electricity procured from new resources that need to be constructed and interconnected. Moreover, an additionality requirement is likely to face litigation that will create significant regulatory uncertainty for this nascent industry. The resulting chilling effect is exactly the opposite of what Congress hoped to achieve.