On May 25, 2023, the Supreme Court of the United States (“SCOTUS”) issued a decision, Sackett v. EPA, which dramatically curtailed the Environmental Protection Agency’s (“EPA”) authority to regulate certain wetlands under the Clean Waters Act (“CWA” or the “Act”).
The CWA, enacted in 1972, has been the primary federal law regulating water pollution in the United States for over half a century. The Act is generally enforced by the EPA and the Army Corps of Engineers and has indisputably been effective in regulating water pollution in the United States.
The Act prohibits the discharge of pollutants into “navigable waters,” which it defines as “the waters of the United States, including the territorial seas.” 33 U.S.C. §§ 1311(a), 1362(7), (12)(A) (2018 ed.). However, since the Act’s inception, the meaning of this definition has been ambiguous and constantly evolving. Moreover, the Act broadly defines “pollutants” to include not only traditional notions of pollutants, but also more mundane materials like rock, sand, and dirt. 33 U.S.C. § 1362(6). The penalties for violating the CWA, negligently or knowingly, are often very severe, and include criminal charges or civil fines of over $60,000 per day for each violation.
The international dialogue about climate change and the “net zero” world now includes a focus on hydrogen as an abundant source of energy useful in myriad ways (refining, fertilizer production, motive power, etc.) with potentially zero climate-harmful emissions. For those of us who took Chemistry 101 in high school, we know that hydrogen is by far the most abundant element in the Universe, representing an estimated 70 to 75 percent of all known matter. While that is an awesome number (giving rise to the common student question “How do we know that?”), the fact is that, here on Earth, hydrogen does not exist as a “free” gas—it is present here only in combination with other elements, notably oxygen, carbon, and nitrogen. Thus, to capture hydrogen for use in multiple applications, it must be separated from the paired substances (most commonly water (H2O) and natural gas (CH4)).
In the discourse around capturing hydrogen as a free gas, a color-coding terminology has emerged that rivals a paint store. I call it the “hydrogen color wheel” and it is the source of much confusion. While each of the color “codes” involves a somewhat detailed explanation, my goal in this post is to keep the detail short and within understandable limits.
A leader in stringent auto emission regulations, the State of California recently took additional steps in its effort to further protect the environment. On August 25, 2022, the California Air Resources Board (“CARB”) voted to require all new cars and light trucks sold in the state to be “zero-emission” by 2035. The plan, officially known as the CARB Advanced Clean Cars II rule, was originally introduced via executive order by Gov. Gavin Newsom nearly two years ago.
The plan mandates that “[i]t shall be a goal of the State that 100 percent of in-state sales of new passenger cars and trucks will be zero-emission by 2035. It shall be a further goal of the State that 100 percent of medium- and heavy-duty vehicles in the State be zero-emission by 2045 for all operations where feasible and by 2035 for drayage trucks. It shall be further a goal of the State to transition to 100 percent zero-emission off-road vehicles and equipment by 2035 where feasible.”
After seven years, three presidential administrations, and two appearances before the Supreme Court, the Obama Administration’s “Clean Power Plan” (“CPP”)—a Clean Air Act regulation designed to limit carbon emissions from existing coal-fired power plants (and later revised by the Trump-era “Affordable Clean Energy” (“ACE”) rule)—was struck down by the Supreme Court on June 30, 2022. SeeWest Virginia et al. v. Environmental Protection Agency et al., No. 20-1530.
Relying on Section 111(d) of the Clean Air Act (“CAA”), the Environmental Protection Agency’s (“EPA’s”) CPP set a carbon emission limit that was essentially unattainable for existing coal-fired power plants. Consequently, EPA determined that the “best system of emission reduction” for carbon from these plants was to cause a “generation shift” from higher carbon emitting coal-fired sources to lower-emitting sources, such as natural gas plants or wind or solar energy facilities. Compliance with the CPP would have required a plant operator to: (1) reduce the amount of electricity the plant generated to reduce the plant’s carbon emissions; (2) build a new natural gas plant, wind farm, or solar installation, or invest in someone else’s existing facility and increase generation there; or (3) purchase emission allowances as part of a cap-and-trade regime. SeeWest Virginia at 8.
On July 2, 2021, the Department of Energy’s Office of Fossil Energy (“DOE/FE”) issued a Notice of Intent (“Notice”) to Prepare a Supplemental Environmental Impact Statement (“SEIS”) for the Alaska LNG Project (“Project”). DOE/FE will evaluate potential environmental impacts of upstream natural gas production on the North Slope of Alaska, and will conduct a life cycle analysis to calculate greenhouse gas (“GHG”) emissions for liquefied natural gas (“LNG”) exported from the Project.
The $38.7 billion Project includes a proposed gas treatment plant on the North Slope of Alaska, 800-mile pipeline, and a liquefaction facility with a planned liquefaction capacity of 20 million metric tons per year. The Federal Energy Regulatory Commission (“FERC”) has issued an order approving the construction and operation of the Project. On August 20, 2020, DOE/FE authorized Alaska LNG Project LLC’s (“Alaska LNG”) request to export LNG to any country with which the United States has not entered into a free trade agreement (“FTA”) requiring national treatment for trade in natural gas (“Non-FTA countries”) in a volume equal to the Project’s planned liquefaction capacity (equivalent to roughly 929 Bcf per year or 2.55 Bcf per day).
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The energy industry has been at the forefront of the 2020 election, and energy development is an issue that polarizes Americans and our businesses and political leaders in choosing the path for the future. Energy developments are inextricably linked to our economy and national security, and the decisions and policies that will be implemented over the next four years are critical to the nation and our participation and role in world affairs.
Stakeholders in the U.S. infrastructure industry should note that ongoing litigation and new court decisions issued in the first half of 2020 are reshaping the development of energy projects.
Energy developers should carefully review the impact of new rulings that have interpreted environmental analyses required for Clean Water Act (“CWA”) permitting as greenhouse gas emissions (“GHG”) on the complex regulation of infrastructure projects. At the same time, several other recent proceedings have raised questions about practices and procedures of the Federal Energy Regulatory Commission (“FERC” or “Commission”) regarding natural gas infrastructure.
Status of Nationwide Permit 12. In Northern Plans Resource Council v. U.S. Army Corps of Engineers, the Montana District Court vacated the U.S. Army Corps of Engineers’ Nationwide (“Corps”) Permit 12 disrupting permitting and enforcement under the CWA. The court later clarified that the ruling applies to new projects and not existing pipeline projects and the Ninth Circuit recently denied a request to stay the implementation of the order pending appeal.
Navigable Waters Protection Rule. Significant litigation is expected to challenge a new restrictive rule of what constitutes “waters of the United States” under the CWA. Infrastructure projects will also be impacted by the Supreme Court’s recent decision in County of Maui v. Hawaii Wildlife Fund.
National Environmental Policy Act GHG Review. The District of Montana ruled in Wildearth Guardians et al. v. U.S. Bureau of Land Management, that the Bureau of Land Management must consider cumulative GHG impacts of oil and gas lease sales. Litigation is expected to challenge whether the Corps has adequately considered GHG for Section 404 permits.
Climate Change Litigation. Many state and local governments continue to file common law lawsuits against oil and gas companies seeking damages for climate change mitigation measures. The 9th and 4th Circuits have rejected arguments that federal law applies to these disputes and similar cases are pending in the 1st, 2nd, and 10th Circuits. Also, in v. Exxon, the District of Massachusetts ruled that a suit alleging Exxon violated state fraud statutes should be litigated in state court.
Precedent Agreements as Evidence of Market Need. In a 2019 case, City of Oberlin v. FERC, the D.C. Circuit held that FERC failed to adequately explain why it is lawful to consider a proposed pipeline’s precedent agreements with foreign shippers serving foreign customers as evidence of market need for the pipeline. FERC recently addressed City of Oberlin and explained why precedent agreements between a proposed pipeline and LNG terminal were lawfully credited as evidence of market need for the pipeline.
FERC’s Tolling Order Practice. In Allegheny Defense Project v. FERC, the D.C. Circuit granted en banc rehearing over whether FERC violated the Natural Gas Act (“NGA”) and landowners’ due process by issuing tolling orders to extend the time to consider rehearing requests of FERC’s pipeline approval, while allowing a pipeline to begin construction and exercise eminent domain. On June 9, FERC issued a final rule to preclude natural gas projects under sections 3 and 7 of the NGA from proceeding with construction until FERC issues a decision on the merits of any request for rehearing.
Pipeline Right-of-Ways (“ROWs”) through the Appalachian Trail. In February, the U.S. Supreme Court heard oral argument over a 4th Circuit ruling that the U.S. Forest Service lacks authority to grant a pipeline ROW across the Appalachian Trail. On June 15, the Supreme Court ruled 7-2 that the Forest Service had authority to issue the pipeline ROW through the Appalachian Trail.
FERC Authority over Pipeline Transportation Service Agreements (“TSAs”) in Bankruptcy. Several pipelines recently have filed petitions for declaratory orders, requesting FERC to declare it has concurrent jurisdiction with bankruptcy courts over natural gas pipeline TSAs and that FERC approval is required to in order to modify or reject such contracts in bankruptcy. We are continuing to follow this area for developments.
We invite you to read, watch, and share the below resources from our recent webinar for further details. Contact any of us if you have questions about the impact of recent cases, decisions, and regulations on your energy project(s).
Please click here for the presentation materials and here to listen to the recording.
Two recent cases have the potential to dramatically alter the state of permitting and enforcement under the federal Clean Water Act (“CWA”) with far reaching implications to energy infrastructure project proponents and the regulated community.
In the first case, Northern Plans Resource Council v. U.S. Army Corps of Engineers, No. 4:19-cv-00044-BMM (D. Mont), the Montana District Court last month vacated the U.S. Army Corps of Engineers Nationwide Permit 12 (“NWP 12”) for the Keystone XL Pipeline Project, concluding that the Corps failed to consult under the Endangered Species Act (“ESA”) Section 7 when it reissued NWP 12 in 2017. Although that case involved only the Keystone XL Pipeline Project, the Order enjoined the Corps from authorizing any work under NWP 12 until an ESA consultation is completed, effectively resulting in a nationwide injunction of work permitted under NWP 12. NWP 12 provides a streamlined CWA permitting process for thousands of linear “utility line activities” (i.e., pipelines and electrical or communication transmission lines) that would otherwise be forced to apply for numerous individual CWA permits to complete a single project. The nationwide vacatur of NWP 12 created significant uncertainty for project proponents who were left with three options: 1) apply for other potentially applicable nationwide permits, 2) apply for individual CWA Section 404 permits, or 3) redesign a project to avoid impacts to regulated waters.
Just last week, however, the court clarified and slightly narrowed the scope of the April Order. Specifically, the court clarified that NWP 12 cannot be used for new oil and gas pipelines, but the permit remains otherwise valid for 1) maintenance, inspection, and repair activities on existing pipelines, and 2) non-pipeline constructive activities (i.e., electric, Internet, and other cable lines; certain renewable energy projects). The court reasoned that large-scale oil and gas pipeline projects pose the greatest threat to ESA-listed species, and the public interest in ensuring that the Corps complies with ESA trumps the tax and energy benefits of the new pipelines. The court further reasoned that the potential disruption to pipeline projects is overblown in light of the continued availability of the more cumbersome individual Section 404 permit process.
The court’s clarification provides relief to proponents of linear projects that do not involve the construction of new oil and gas lines. The wind industry, for example, which is heavily reliant on the installation of utility transmission lines, is no longer impacted by the ruling. Thousands of other oil and natural gas pipeline projects, however, remain impacted by the decision.
The second case involves the Supreme Court decision of County of Maui v. Hawaii Wildlife Fund, No. 18–260, __ S. Ct. ____, 2020 WL 1941966 (Apr. 23, 2020), where the Supreme Court created a “functional equivalent test” to analyze when discharges to groundwater require a CWA permit. Only weeks after that decision, we are starting to see the “functional equivalent test” in practice. Last week, in a case where a party was attempting to settle Clean Water Act violations with the United States and the State of Indiana, an intervening party argued that the County of Maui decision renders the current settlement insufficient because the settlement did not include penalties for discharges to groundwater. See U.S. et al. v. U.S. Steel Corp., 2:18-cv-00127 (N.D. Ind., Dkt. No. 74).
The important takeaway here is that parties looking to settle Clean Water Act violations should expand their focus beyond just a “direct” discharge to surface water violation (i.e., from a pipe or trench, etc.), but also ensure that a settlement would include violations for “functionally equivalent” direct discharges (i.e., discharges that may have been to soil or groundwater that eventually travelled to surface water). In practice, this will ensure that settlements attempt to resolve as much liability as possible for a site on the front-end. If these “functional equivalent” discharges are not included, then a party could instead possibly face additional CWA liability—perhaps years later—if groundwater, arguably contaminated by a point source, migrates to a CWA navigable water.
As discussed, both Northern Plans Resource Council and County of Maui cases are going to have immediate impacts on the regulated community, but the full story is far from over. For Northern Plans Resource Council, an appeal to the Ninth Circuit Court of Appeals is already underway. Last week, the government filed an emergency motion for stay pending appeal and requested an immediate administrative stay while the motion was being decided. The Ninth Circuit rejected the government’s request for an immediate administrative stay during the pendency of the motion, but granted an expedited briefing schedule requiring all briefs to be submitted by the end of this week. If granted, the district court’s partial injunction and vacatur of NWP 12 will be stayed while the Ninth Circuit resolves the appeal. On the current briefing schedule, we expect a decision from the Ninth Circuit on the emergency motion on or before May 29. And as we previously wrote about, we anticipate that the EPA may issue guidance to address the “functional equivalent discharge” test. Stay tuned for further developments.
Twenty-two years after the Supreme Court’s ruling in Bestfoods, a government contractor—PPG Industries, Inc. (“PPG”)—comes face to face with one of the most important tenets of that court’s decision: operator liability under Superfund.Although the Supreme Court’s decision in Bestfoods focused on operator liability in the context of a parent and subsidiary relationship, the Third Circuit Court of Appeals in PPG Industries, Inc. v. United States of America et al. relied on the Supreme Court’s analysis of operator liability in determining whether the United States should be held liable under CERCLA as an operator in connection with chromium production during World War II. This case serves as a reminder to private industry: you do not have to be physically operating a plant or facility in order to be liable as an “operator” under Superfund. Rather, you can acquire liability by managing, directing, or conducting activities specifically related to operations involving releases or disposal of hazardous substances, or by engaging in decisions regarding compliance with environmental regulations.
As the Third Circuit explained, chromium production was regulated by the government during both world wars given that chromium chemicals were designated as critical war materials for military use. Chromium distribution was controlled pursuant to orders issued during World War II by the Chemicals Bureau of the War Production Board (“Board”), although chromium production—including the processing of ore and management of waste—were not part of the government’s orders. PPG purchased a facility from a former chromium chemical manufacturer (Natural Products Refining Corporation or “NPRC”) in 1954, and continued to process chromium chemicals until 1963. PPG filed a private cost-recovery claim against the government seeking the recovery of CERCLA response costs that it expended ($367 million, to date), as well as contribution for past and future costs.
PPG’s main contention was that Bestfoods did not apply to its case since that ruling did not involve the government as an operator, and that if Bestfoods was applicable, operator liability should be imposed on those parties having “direction” or “general control” over a facility’s activities. The Third Circuit rejected these arguments and, applying Bestfoods’ definition of “operator” to the wartime operations conducted at the PPG facility, observed that although the government controlled certain aspects of chromium distribution, including pricing and quantities of chromite ore that NPRC could buy and to whom NPRC could sell, as well as what orders had priority, the government did not specifically control operations related to pollution. The Third Circuit considered evidence related to the stockpiling of waste outdoors (which caused the contamination) and rejected the proposition that the government was “directing” PPG to produce more wastes merely because of the government’s knowledge that ramping up chromium production would lead to an increased amount of chromium wastes to be managed. The court also noted that no court has said that the test for determining operator liability depends upon whether a potentially responsible party is a private party or a governmental entity, and cited its 1994 decision in FMC Corp. v. United States Department of Commerce (in which the court found the government liable as an operator based on its active involvement and substantial control of the facility). Further, the court noted that the FMC decision (which PPG argued was a similar case) was distinguishable because the government was directly involved with waste production and regulation at the plant.
The court’s decision and analysis in PPG offers some interesting insights to the concept of operator liability under Superfund and, further, provides instructive guidance to private industry on how to avoid CERCLA liability as an operator. Perhaps the most critical “takeaway” from this case is that operator liability depends on the relationship between the potentially responsible party and the waste-producing facility. “Actual control” of a facility is not necessary; the relevant inquiry will be whether an alleged operator exercises control over “operations having to do with the leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations.” Under this analysis, the relationship between the potentially responsible party and the facility—and not the relationship between the potentially responsible party and the owner of the facility—is the focus of the inquiry. The Third Circuit has just reinforced the Supreme Court’s analysis of CERCLA operator liability as first explained in Bestfoods two decades earlier.
Notwithstanding that the Comprehensive Environmental Response, Compensation, and Liability Act (more commonly known as “Superfund”) has been around for 40 years, and the fact that numerous cases have made their way to the U.S. Supreme Court analyzing liability under the Act, debates continue as to who can be a Superfund “potentially responsible party” or a “PRP.” For those who still do not get the scope and reach of Superfund liability, the Supreme Court has, once again, provided a clear response with respect to liability under the Act in an April 20, 2020, decision, Atlantic Richfield Co. v. Christian et al. In that case, the Court reaffirmed its position set forth in a 2007 case, United States v. Atlantic Research Corp., 551 U. S. 128, 136 (2007), that even parties whose property has been contaminated by others, and who are innocent with respect to the contamination, fall within the broad definition of liable parties under Section 107(a) of Superfund (which uses the term “covered persons”), subject to the third-party defense set forth in Section 107 (b).
Atlantic Richfield involved a group of 98 property owners who filed claims against Atlantic Richfield in Montana state court in connection with the Anaconda Copper Smelter Superfund Site in Butte, Montana, a 300-square-mile site contaminated with arsenic and lead. The property owners’ claims included trespass, nuisance, and strict liability claims under state common law. The landowners sought restoration damages, among other forms of relief, which was the issue before the Court since Atlantic Richfield conceded that Superfund preserves claims for other types of compensatory damages under state law, including loss of use and enjoyment of property, diminution of value, incidental and consequential damages, and annoyance and discomfort. The property owners sought to implement a remedial restoration plan that exceeded the U.S. Environmental Protection Agency’s (“EPA”) selected remedial actions. The question regarding their PRP status was before the Court in the context of determining if they were prohibited from taking further remedial action without EPA’s approval under Section 122(e)(6). Continue reading “The Supremes Weigh in on Superfund and the Clean Water Act”