Cap-and-Trade Is Whack-A-Mole Until Everyone's Bound By The Cap

It may not be news, but now it's scientifically documented:  when we export manufacturing to China and import the resulting goods back here, the net result is to increase greenhouse gas emissions.  See the June 2007 paper by Carnegie Mellon University engineers Christopher L. Weber and Scott H. Matthews, published in the journal Environmental Science and Technology.  Here's a link to a press release about the paper:  http://www.eurekalert.org/pub_releases/2007-06/cmu-cmr061407.php.

This phenomenon is likely to accelerate as less-than-global cap-and-trade schemes are enacted. 

--Brian

CCX announces formation of California Climate Exchange

The Chicago Climate Exchange has announced that it is forming a California-specific exchange to handle any trading scheme that may develop under AB 32. Here's the press release:

http://www.chicagoclimateexchange.com/news.jsf?story=1401

Morgan

Climate Change & CEQA

The California Attorney General has urged local officials to reject the Environmental Impact Report (EIR) for the Yuba Highlands development project because the EIR failed to address greenhouse gas emissions. The Attorney General asserted that this failure constituted a violation of the California Environmental Quality Act (CEQA).

http://www.appeal-democrat.com/news/yuba_48418___article.html/county_letter.html

Chief Energy Officer?

According to a report by Hill & Knowlton, 82 percent of senior technology leaders from around the world said they "closely monitor" global warming news, but only 35 percent have an energy strategy to deal with it. The report suggests the creation of a corporate Chief Energy Officer position.

http://www.greenbiz.com/news/news_third.cfm?NewsID=35038

Morgan

More on the Climate Registry

Following up on yesterday's news, here is the Climate Registry's press release on its new members:

http://www.theclimateregistry.org/The_Climate_Registry_Press_Release.pdf

Morgan

Led by California, 31 states with over 70% of the U.S. population
announced a nearly-national greenhouse gas registry today.

http://www.latimes.com/news/local/la-me-greenhouse9may09,0,3341341.story
?coll=la-home-headlines

Morgan

Media coverage of climate change report

Today's International Panel on Climate Change (IPCC) report, "Mitigation of Climate Change," outlines ways to mitigate global warming. http://www.ipcc.ch/

Wednesday's USA Today story previewing the report is headlined "Fixing climate carries big costs." http://www.usatoday.com/tech/science/environment/2007-05-02-climate-fix-cost_N.htm. As a result, many may resist taking action to fix climate change because they believe the costs are big.

What is missing from the headline, however, is any consideration of the costs of not taking action. As the report's "Summary for Policymakers" states, "The projected mitigation costs do not take into account potential benefits of avoided climate change." http://www.ipcc.ch/SPM040507.pdf, p. 10. Moreover, available evidence, notably the Stern report, indicates that "the benefits of strong and early action far outweigh the economic costs of not acting." http://www.hm-treasury.gov.uk/media/999/76/CLOSED_SHORT_executive_summary.pdf.

To be fair, USA Today's story beneath the headline went on to say, "The report will underline the environmental and financial benefits of quick action to cut emissions." But the headline is an example of how incomplete analysis can paint a misleading picture.

--Brian

Toward a US Cap And Trade System

David Hayes, former Deputy Secretary of the Interior, has an interesting report on the Public Policy Institute's website on how the US should structure a carbon cap and trade system, and the benefits to the US of setting up a market now. Hayes argues that the US's failure to join the Kyoto parties has put the US behind in an important developing market, and he identifies lessons that the US should learn from the development of carbon markets to date.

On that note, the World Bank reports that the global carbon market tripled from $11 billion to $30 billion in 2006, with the EU accounting for about 75 percent of that amount. http://www.iht.com/articles/2007/05/02/business/carbon.php.

Morgan

Biofuels and unintended consequences

As is so often the case in matters of environmental policy, the law of unintended consequences is rearing its problematic head in the much-hyped bio-fuels arena.  Whether and how much bio-fuels may help solve global warming depends on many factors, Mike Corder of the Associated Press reported yesterday:

In the rush to develop biofuels, forests are burned in Asia to clear land for palm oil, and swaths of the Amazon are stripped of diverse vegetation for soya and sugar plantations for ethanol.

http://www.washingtontimes.com/world/20070428-105649-1097r.htm.

Mr. Corder's article goes on to explain that a Dutch commission has developed a framework designed to ferret out whether a given bio-fuel production process is doing more harm than good.

--Brian

British Columbia Reported To Join Western Region Climate Initiative

Reuters reported on April 25 that British Columbia has joined California and five other states in the Western Region Climate Initiative, a carbon trading market promoted by Governor Schwarzenegger.
http://news.yahoo.com/s/nm/20070425/wl_canada_nm/canada_environment_britishcolumbia_ca_col_1

Proposed Early Actions Under AB 32

The California Air Resources Board has issued a report regarding proposed Early Actions under AB 32 to mitigate climate change. The report is one of many resources on CARB's Climate Change page.

There are a number of additional interesting documents, including the Governor's executive orders regarding the Low Carbon Fuel Standard and the Western Regional Climate Action Initiative, on the Governor's energy page.

Climate Change: A New Job

Climate change legislation and regulations (and possibly litigation) will be the most important environmental law trend in the next decade. California passed the first state legislation, Assembly Bill No. 32, to cap and reduce greenhouse gases in 2006. AB 32 by itself will have little direct effect on industry, but it sets in motion a planning and regulatory process that will eventually affect every business that uses energy -- electricity, any type of vehicle besides a bicycle, even potentially a leaf blower. Surprisingly, many lawyers I know, even environmental lawyers, have not read the statute. It's a short, easy read, and here's what it provides in a nutshell:

AB 32 adds a new Division 25.5 to the Health & Safety Code, starting at Section 38500. Part 1, Sections 38500 to 38505, contains a short title (the "California Global Warming Solutions Act of 2006"), findings and declarations, and definitions. The Act defines greenhouse gases to include not only carbon dioxide and methane, but also nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride.

Part 2, Section 38530, authorizes the State Air Resources Board to adopt regulations requiring the reporting and verification of greenhouse gas emissions. The regulations may apply to all "greenhouse gas emissions sources," and the State Board has discretion to determine which sources are significant enough to be regulated. Thus, the statute ducks the question of whether greenhouse gas regulations should apply to sources at the level of leaf blowers and lawn mowers, or just to large industrial users. The statute does require, however, that the State Board "[a]ccount for all electricity consumed in the state."

Part 3, Sections 38550 and 38551, requires the State Board to determine the state's level of greenhouse gas emissions in 1990, set that level as a target for emissions in 2020, and continue reductions after 2020.

Part 4, Sections 38560 to 38565, sets forth the tools that the State Board may use to reduce greenhouse gas emissions. First, the State Board's regulations must be designed to "achieve the maximum technologically feasible and cost-effective greenhouse gas emission reductions from sources or categories of sources." Second, subject to that standard, the State Board shall publish a list by June 30, 2007 -- three months from now -- of "early action" measures that can be implemented in regulations to be adopted by January 1, 2010. Third, by January 1, 2009, the State Board shall prepare a "scoping plan," which will be updated every five years, to reduce greenhouse gas emissions. Fourth, by January 1, 2011, The State Board shall adopt regulations, which will become effective January 1, 2012, to achieve the plan. The Act includes principles to guide the Board in developing regulations (minimizing costs and maximizing benefits), and in particular AB 32 requires in Part 5, Section 38570, that the State Board consider a cap-and-trade emissions system.

Parts 6 and 7 contain enforcement and miscellaneous provisions; the Board is empowered to mpose fees on greenhouse gas sources, and there is an escape clause that allows the Governor to postpone deadlines set by the State Board in one-year increments. There's more detail, but that's the gist of it.

Here in summary is the time-table:

• June 30, 2007: Identification of early action measures
• January 1, 2009: State Board to prepare scoping plan
• January 1, 2010: Early action measure regulations to be adopted
• January 1, 2011: Adopt regulations to achieve scoping plan
• January 1, 2012: Regulations become effective

Some companies have already begun to incorporate greenhouse gas planning into their business decision-making, but most businesses seem to think this process will happen to someone else. It's possible that some small businesses may not be much affected, but every large business should be following the regulatory process and identifying those key strategic business decisions that may be affected by greenhouse gas emissions regulations. If you're in environmental law, especially if you work in California, this is likely to be your new job.

Environmental Enforcement Through Strict Liability

My year 2006 was mostly consumed with a trial and post-trial briefing in City of Modesto v. Dow. As a result, this blog has been dormant. I do intend, however, to resume posting in 2007.

One of the trends in the late 1990's and early 2000's that we have seen in our practice is the use of state product liability tort claims as an enforcement tool for municipalities to address environmental contamination. In City of Modesto, for example, the City sued product suppliers for PCE contamination in Modesto. These claims beg the question whether strict liability was ever intended to encompass claims for environmental contamination by a public entity. They also raise a host of questions regarding the policy bases on which the strict liability doctrine was founded -- for example, should the strict liability doctrine apply outside the context of a commercial sale of a product -- i.e., when the product is still in the product "pipeline"?

In Nelson v. Exxon Mobil, the trial court was convinced that strict liability should not apply to a product that was still in the product pipeline:

“While California law permits bystanders injured by a product, in certain circumstances, to recover under strict product liability, it has apparently only been when that injury was attendant to the use or consumption of the product, not while the product was still possessed and stored by a participant in the stream of commerce.”

The California Court of Appeal reversed, holding that sale of the product to an "ultimate consumer" is not required for the imposition of strict liability:

"In short, there is no basis for a narrow construction of the class of 'user' that supports imposition of strict liability. Our conclusion is consistent with caselaw recognizing, in other contexts, that there are reasonably foreseeable incidental and attendant uses of a product, such as storage and disposal."

The court also stated that "California provides broad, protection to bystanders and does not limit strict liability to situations occurring after sale of the product or equivalent transaction."

Nelson suggests that at least on the issue of whether strict liability applies to pre-consumer use, the courts may apply the strict liability doctrine broadly. But it does not address the policy issues that arise when a public entity plaintiff employs strict liability as an environmental enforcement tool. In Nelson, the plaintiffs were the owners of a private water company, and thus the court had no occasion to consider whether the policies supporting strict liability would support a claim that is in essence environmental enforcement. That issue has yet to be addressed.

Agency Supervision Does Not Necessarily Satisfy Public Participation Requirement

In Carson Harbor Village v. Unocal, decided January 12, 2006, the Ninth Circuit addressed one of those oft-repeated but largely untested assumptions of environmental law: that agency supervision of a cleanup is sufficient to meet the public participation requirement of the National Contingency Plan for the purposes of recovering CERCLA response costs. The Ninth Circuit held that Regional Board oversight of the cleanup in Carson Harbor was not sufficient to meet the public participation requirement. The court left open whether greater involvement would have been sufficient, but from the opinion it appears that the Board's supervision in this case was typical of Board involvement in voluntary cleanup cases.

Proposition 65 Safe Harbor Warnings Upheld

In Environmental Law Foundation v. Wykle Research, Inc., the California Court of Appeal affirmed a decision awarding summary judgment to Wykle Research, which used one of Proposition 65's "safe harbor" warnings to warn of lead in dental amalgam. ELF challenged the warning, which used the safe harbor language verbatim, on the grounds that it was not likely ever to reach the ultimate consumer. The court acknowledged that, as many dentists are not subject to Proposition 65's warning requirements, it was possible that some consumers would never receive the warning. But it concluded that the safe harbor warnings were designed to provide certainty to product sellers and that this purpose would be frustrated by holding that a manufacturer must use not just a safe harbor warning, but also the best possible warning. Proposition 65's warning requirements are often difficult to interpret for specific sellers, and any decision that brings greater certainty to Proposition 65's requirements is welcome.

Supreme Court Agrees to Review Three Clean Water Act Cases

The Supreme Court is taking a rare excursion into environmental law to review three Clean Water Act decisions. See the AP article here. These cases will give the Supreme Court an opportunity to decide the scope of federal power in environmental cases. The decisions may also determine the reach of the Commerce Clause in other, non-environmental contexts.

After Aviall, and with possibly two new justices on the Court, almost nothing that the Supreme Court might decide in these cases would suprise me. It will be an interesting year.

Regulatory Activity Related to Air Emissions from Petroleum Refineries

By Brett S. Henrikson

Starting October 1, 2005, Bay Area refineries face new wastewater collection and reporting requirements. Regulation 8, Rule 8 of the Bay Area Air Quality Management District was adopted on September 15, 2004, to reduce air emissions from wastewater collection systems by focusing on transportation and separation equipment. The Rule is found here: http://www.baaqmd.gov/dst/regulations/rg0808.pdf BAAQMD has issued an advisory to assist refineries in meeting the upcoming deadlines. The Advisory is available at:
http://www.baaqmd.gov/enf/compliance_assistance/advisories/adv_091405_refinery_wastewater.pdf
Rule 8-8 is not the only recent regulation on Bay Area refineries. Just 2 months ago, BAAQMD issued a new rule regulating emissions from refinery flaring. Petroleum refineries use flaring for the safe disposal of gases generated during the refining process. BAAQMD originally identified refinery flaring as a potential regulatory target in the San Francisco Bay Area 2001 Ozone Attainment Plan. New Regulation 12, Rule 12 governing refinery flaring can be found here: http://www.baaqmd.gov/dst/regulations/rg1212.pdf and further regulatory history, including the BAAQMD Staff Report and Environmental Impact Report, can be found here: http://www.baaqmd.gov/pln/ruledev/regulatory_public_hearings.htm The Bay Area 2001 Ozone Attainment Plan can be found here http://www.baaqmd.gov/pln/plans/ozone/2001/index.htm.
Air emissions from petroleum refineries will also be the target of federal regulators in the coming months. As part of a proposed Consent Decree, U.S. EPA has committed to update the New Source Performance Standards for petroleum refineries. Section 111 of the federal Clean Air Act (42 U.S.C. § 7411) requires U.S. EPA to establish initial NSPSs for certain industrial classes that contribute significantly to air pollution. http://www4.law.cornell.edu/uscode/html/uscode42/usc_sec_42_00007411----000-.html U.S. EPA generally must also review an existing NSPS every 8 years to determine if updates are necessary. U.S. EPA has not reviewed the NSPS for petroleum refineries since 1974. Under the terms of the settlement agreement, EPA must propose revisions to the NSPS (40 CFR Part 60, Subpart J) within 18 months, with the final rule due within 30 months. http://www.access.gpo.gov/nara/cfr/waisidx_05/40cfr60_05.html
The lawsuit leading to the settlement is Our Children's Earth Foundation, et al. v. U.S. EPA, Case No. C05-00094 (N.D. Cal.). The settlement agreement was published in the Federal Register on August 29, 2005 (70 Fed. Reg. 51040).

SBREFA

Have any of you had any experience using the Small Business Regulatory Enforcement Fairness Act (SBREFA) as a tool in settlement negotiations with federal agencies? The act has a provision regarding civil penalties that states:

Each agency regulating the activities of small entities shall establish a
policy or program within one year of enactment of this section to provide
for the reduction, and under appropriate circumstances for the waiver, of
civil penalties for violations of a statutory or regulatory requirement by a
small entity. Under appropriate circumstances, an agency may consider
ability to pay in determining penalty assessments on small
entities.

EPA has implemented this statute through a handful of self-reporting policies (see this report), but it seems to me that the statute also expresses a Congressional policy that might be useful in negotiations with EPA or other federal agencies. I would be very interested in anyone's experience in this regard.

Damages for Nothing

Some of the most interesting cases in environmental law arise when contamination does not occur. Two such cases came across my desk recently. In Doyle v. Town of Litchfield, 2005 WL 1342794 (D. Ct. May 31, 2005), Judge Hall held on a summary judgment motion that a property owner may be entitled to recover some CERCLA response costs even though his property had not been contaminated by the defendant's release of hazardous substances. The court cited Artesian Water Co. v. New Castle County, 851 F.2d 643 (3rd Cir. 1988), and Lansford-Coaldale Joint Water Auth. v. Tonolli Corp., 4 F.3d 1209 (3rd Cir. 1993), and concluded that a plaintiff may recover monitoring and evaluation costs under CERCLA, even if no contamination ever occurred.

A similar question was presented in Jaasma v. Shell Oil Co., No. 04-2095 (3rd Cir. June 28, 2005). There the plaintiff owned property that was leased for a service station. When the lessee removed its tanks shortly before the lease expired, some contamination was found in the tank pit and partially excavated. After more than two years of sampling and reporting, the New Jersey Department of Environmental Protection issued a no further action letter, without ordering any further active remediation, which implied that the contamination that remained at the lease expiration (i.e., after the tank removal and excavation) had always been below the level requiring cleanup. The Third Circuit held that despite these facts the lessor was entitled to damages. The lease required lessee to return the property to lessor in its "original state," and, the court held, that there was a question of fact whether lessee was required to obtain a no further action letter in order to satisfy that requirement.

While the Town of Litchfield could not have avoided Doyle's claim, the claim in Jaasma resulted entirely from the language of the lease. While perhaps no one could have anticipated the Third Circuit's ruling, it is something to keep in mind the next time that you are reviewing the environmental provisions of a lease.

The Oldest Question In Environmental Law

The oldest question in environmental law is "how clean is clean?" It's a question that environmental practitioners are tired of discussing, and that quickly leads to glazed eyeballs at any environmental meeting. So I shouldn't be discussing it -- but there is a new development worth notice. Under state law, the Regional Water Quality Control Boards have a two-part cleanup target for contaminated groundwater: clean up to background levels, or to health-based levels, such as the maximum contaminant level (drinking water standard) or public health goal. Which of these goals (background or health) is selected for a particular site is not often an issue of substantial dispute because in practice usually neither of them can be achieved, at least with active remediation in a reasonable time.

In May, however, the State Water Resources Control Board confronted the issue in a context where the issue does have practical consequences: should a "discharger" be required to provide alternate water supplies to persons affected by contamination that is below health standards but higher than the naturally occurring level? The case involved an Olin Corporation site in Morgan Hill, and the chemical was potassium perchlorate, which occurs naturally, if at all, only at undetectable levels. Olin and another discharger were ordered by the Regional Board to provide alternate drinking water supplies to residents whose water contained perchlorate at or above 4 ppb, even when the level of perchlorate was below the new public health goal of 6 ppb established by OEHHA. The PHG is supposed to be a level at which a person may be exposed to a chemical for a lifetime with no deleterious effects.

The State Board decided that in this context the Regional Boards should defer to OEHHA, and should not require a discharger to provide an alternate water supply. The decision includes many caveats, and the State Board expressly limits its opinion to replacement water supply decisions ("This Order applies only to requirements for water replacement and not to groundwater or soil cleanup levels required under State Water Board Resolution 92-49"), but the decision nevertheless seems to mark an important choice. The Board could have required Olin to continue providing alternate drinking water supplies, even without a health-based reason to do so. But it chose instead to conserve societal resources for another day and another threat, a threat supported by scientific evidence.