I learned the other day that for $3995 I can download nearly a 1000 page report on the climate change industry.  The Ah Hah moment was at hand.  The President’s promise at his inauguration and then again at the State of the Union was upon us.  Here it would be revealed what the small group of lawyers focused on climate change law were looking for:  where is the legal work?  But I am a cautious consumer.  The publisher anticipated my skepticism and offered the table of contents for my review for free.  I didn’t even have to give my email address.  It was an offer hard to turn down.

The TOC was extensive.  Pages and pages chronicled the following industry segments:  Solar Energy, Wind Energy, BioEnergy, Geothermal Energy, Wave & Tidal, Carbon Capture & Storage, Energy Efficiency & Demand Response, Energy Storage, The Green Building Industry, Carbon Markets, Adaptation, Climate Change Consulting, and Transportation.  And under each of these segments one can find pages of company "profiles", presumably businesses with expertise in Wind Energy or Adaptation or Green Buildings.  Even lawyers were able to claim a niche.  Seven firms filled out “Law Firms and Climate Change Practices.”

But as we all know, saying you’re doing something, and actually doing it, can be two entirely different things.  Here’s a different measure:  how many clients attend climate change legal seminars?  I have a bird’s eye view on this topic:  I gave one at the end of last month, Climate Change and Insurance:  Recent Litigation and Regulatory Developments.  The attendance was astounding:  2 insurance companies, 29 law firms (but including none of those "profiled" – maybe that should tell us something), and NO ONE ELSE. 

Could it be that most insurers and all non-insurers have all the climate change related insurance issues already figured out?  Would they get 100% on this little quiz:

What is the atmospheric public trust doctrine and how is it being used to address regulation of greenhouse gas emissions?
Are there any decisions in support of finding that carbon dioxide is not a pollutant within the meaning of a pollution exclusion in a general liability policy?
How do building height restrictions affect rebuilding after Superstorm Sandy?
Do pollution exclusions negate coverage for improper climate change disclosures?
Does a title policy insure against rising sea levels?
Are insurers of last resort (wind pools, beach pools) increasing market share and what are the implications of that?

Anecdotally, I know that most, if not all, would struggle merely to get a C.  But so what?  One can’t sell ice in the wintertime or neckties in a nudist colony.  As lawyers we provide a service to clients with the need for that service.  It is not what we want to sell, but rather what they want to buy.  And there is the secret.  Thomas Kuhn wrote a magnificent work explaining how scientific paradigms shift (think the change from a Ptolemaic universe (the sun revolves around the earth) to a Copernican one (the earth revolves around the sun)).  Presently, the received wisdom is that while climate change is happening (I acknowledge that some still have not received even this idea), it is incidental to the larger issues and can be addressed accordingly. 

I submit that that is, like Ptolemy’s world-view, a paradigm that can be improved.  For example, if one is intent on acquiring property at the Shore, one can buy in fee simple, take a ground lease, or take a shorter term commercial lease.  If one is not actively considering the implications of sea level rise in the fundamental choice of the form of the transaction, one is at risk of finding oneself literally under water with no succor. If in contract documents one is making representations and warranties identifying all releases  of “hazardous materials” (broadly defined to be any substance regulated under environmental laws (a common approach)), without scheduling one’s HVAC systems, one is almost assuredly making inaccurate warranties because virtually all entities are emitting carbon dioxide.  If one relies on a flood plain map for planning purposes, without recognition that all flood plain maps are flawed because they only look backward (i.e., they assume the past accurately predicts the future, which is emphatically not the case in a world of climate change), one is again assuming a large risk.  I could go on. 

The point is that the risks and possibilities of climate change are ubiquitous.  Our job as advocates and wise counsel to our clients is to assist the change to a perspective Copernicus might have adopted, one that incorporates climate change in the larger view.  As demonstrated by the attendance at my seminar, we have a long way to go in that regard.

One of the shibboleths of those following climate change litigation is the idea that new legal theories will be surfaced, fired in the furnace of litigation and then forged as the vehicle for addressing climate change in the courts.  The public trust doctrine is being hammered out in that direction.

Last month in Butler v. Brewer an appellate panel in Arizona considered a claim based on the theory that the atmosphere is subject to the public trust doctrine and that, therefore, the State of Arizona was obligated to take steps to address greehnouse gases and combat climate change.  Although the court affirmed the trial court’s dismissal of the suit, before reaching that conclusion it specifically rejected Arizona’s argument that greenhouse gas issues are non-justiciable under the doctrine.

Butler is one of a slew of cases and regulatory petitions against the federal and state governments orchestrated by Our Children’s Trust, a public interest organization based in Oregon.  We have commented on OCT previously.  Its success has not been overwhelming, or even any.  Not one court has concluded that a state or the federal government can be compelled to do anything. Yet, if the measure of success is whether one’s theory is more well-formed than previously, and whether one can cite more legal precedent supporting it, then OCT is moving its ball forward.  By our count, OCT has positive rulings on its atmospheric trust theory from Texas, New Mexico and now Arizona.

In Butler, the appellant raised only one issue:  "[w]hether the [public trust doctrine] in Arizona includes the atmosphere.”  The State of Arizona engaged that argument head on:  “the Doctrine does not include the atmosphere.”  Arizona also raised defenses of displacement, standing, and political question, among others. 

The court considered prior Arizona and federal precedent to set forth the scope of the doctrine:

First, that the substance of the Doctrine, including what resources are protected by it, is from the inherent nature of Arizona's status as a sovereign state. Second, that based on separation of powers, the legislature can enact laws which might affect the resources protected by the Doctrine, but is it up the to judiciary to determine whether those laws violate the Doctrine and if there is any remedy. Third, that the constitutional dimension of the Doctrine is based on separation of powers and specific constitutional provisions which would preclude the State from violating the Doctrine, such as the gift clause.

From those principles the court had no difficulty responding to Arizona’s argument that the doctrine did not apply to the atmosphere:  “we reject the Defendants' argument that the determinations of what resources are included in the Doctrine and whether the State has violated the Doctrine are non-justiciable.”  Further, “While public trust jurisprudence in Arizona has developed in the context of the state's interest in land under its waters, we reject Defendants' argument that such jurisprudence limits the Doctrine to water-related issues.” (Note, however, Presiding Judge Gemmill concurred separately and stated:  "the atmosphere is not subject to the public trust doctrine.")

Thus, “For purposes of our analysis, we assume without deciding that the atmosphere is a part of the public trust subject to the Doctrine.”  Unfortunately for the appellant, this was as far as the court was willing to go.  Appellant did not point to any violation of the Arizona Constitution or statutory law.  Such a violation was mandatory for the claim to succeed.

 Additionally, in 2010 Arizona’s legislature took strong steps to ensure that the regulation of greenhouse gases remained in its bailiwick, rather than any administrative agency’s.  A.R.S. 49-191 provides:

A. Notwithstanding any other law, a state agency established under this title or title 41 shall not adopt or enforce a state or regional program to regulate the emission of greenhouse gas for the purposes of addressing changes in atmospheric temperature without express legislative authorization.

Absent a ruling that A.R.S. 49-191 was unconstitutional, there was no order the court could issue that would be able to implement the relief appellant sought.  Accordingly, appellant had no standing.

Rome wasn’t built in a day.  The atmospheric public trust doctrine hasn’t been either.  But construction continues. 

Left open by the Supreme Court’s decision in American Electric Power Co. v. Connecticut, 131 S. Ct. 2527  (2011), was the question of whether state law nuisance claims for the emission of carbon dioxide were viable in the face of the Clean Air Act.  That question continued to be answered in the negative with the decision of the Western District of Pennsylvania last month in Bell v. Cheswick Generating Station, GenOn Power Midwest, L.P. (W.D. Penn. Oct. 12, 2012) (attached), which was appealed to the Third Circuit the Friday before Thanksgiving.¹   

In Bell, plaintiffs, neighbors to defendant’s coal-fired electricity generating plant, filed suit alleging:

that the [defendant’s] atmospheric emissions fall upon their properties and leave a film of
either black dust (i.e., unburned coal particulate/unburned coal combustion byproduct) or white
powder (i.e., fly ash). According to the Plaintiffs, those discharges require them to constantly
clean their properties, preclude them from full use and enjoyment of their land, and “make
[them] prisoners in their own homes.”  Order at 2. 

Plaintiffs further alleged that defendant did not use best available technology and was damaging the plaintiffs' properties, an outcome not permitted by defendant’s Permit to Operate.  Id. at 3.  As to legal theories, plaintiffs alleged nuisance, negligence and recklessness, trespass and strict liability.  Id.

Defendant moved to dismiss, asserting, among other things, that the claims were preempted by the Clean Air Act.  Id. at 5.  The court agreed. 

Plaintiffs had attempted to distance themselves from their complaint, which had criticized defendants for failing to comply with their Clean Air Act permit and sought injunctive relief.  They asserted in their papers that “[t]he Defendant is allowed to emit whatever millions of pounds of emissions the [EPA] has decided for Defendant but Defendant is not allowed by those emissions granted [to] it by the [EPA] to damage private property.”  Id. at 8.

The court was not buying:  “A review of the Complaint reveals that the allegations of Plaintiffs, as pleaded, assert various permit violations and seek a judicial examination of matters governed by the regulating administrative bodies. … Thus, the Court reads the Plaintiffs’ Complaint, including its common law claims, as necessarily speaking to and attacking emission standards."  Id. at 10.

The court specifically noted that the Supreme Court, in American Electric Power Co. v. Connecticut, had held that “the Clean Air Act preempted federal common law nuisance claims as a means to curb emissions from power plants.”  Id. at 12 (citing 131 S. Ct. at 2540).  It also noted, however, that the Court had not ruled on state law nuisance claims.  Those claims would depend “on the preemptive effect of the federal Act.” Id. (citing 131 S. Ct. at 2540).

Did the Clean Air Act preempt state law nuisance claims?  The court had little doubt and turned for authority to the Fourth Circuit’s decision in N. Carolina, ex rel. Cooper v. Tennessee Valley Auth., 615 F.3d 291 (4th Cir. 2010), cert. dismissed, 132 S. Ct. 46
(2011)).  In finding that “public nuisance claims were preempted because they threaten to scuttle the comprehensive regulatory and permitting regime that has developed over several decades,” Order at 12-13, the Fourth Circuit held: 

A field of state law, here public nuisance law, would be preempted if a scheme of federal regulation is so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it. Here, of course, the role envisioned for the states has been made clear. Where Congress has chosen to grant states an extensive role in the Clean Air Act's regulatory regime through the SIP and permitting process, field and conflict preemption principles caution at a minimum against according states a wholly different role and allowing state nuisance law to contradict joint federal-state rules so meticulously drafted. Id. at 13, quoting Cooper. 615 F.3d at 303 (citations, quotation marks and alterations in original omitted).

Accordingly, because the “specific controls, equipment, and processes to which the Cheswick Generating Station is subject to are implemented and enforced by [state and federal regulators]  Plaintiff’s Complaint, as pled, would necessarily require this Court [the Western District] to engraft or alter those standards, and judicial interference in this regulatory realm is neither warranted nor permitted. To conclude otherwise would require an impermissible determination regarding the reasonableness of an otherwise government regulated activity.”  Id. at 14.  Thus, plaintiffs’ claims were pre-empted.

Plaintiffs had one slim hope.  The Clean Air Act contains a “savings clause”, which provides “[n]othing in this section shall restrict any right which any person (or class of persons) may have under any statute or common law to seek enforcement of any emission standard or limitation or to seek any other relief (including relief against the Administrator or a State agency).” 42 U.S.C. § 7604(e).  This too had been considered in Cooper and rejected.  Order at 14, citing 15 F.3d at 303-04.  Further, the Supreme Court had spoken on savings clauses as well:  “As we have said, a federal statute’s saving clause cannot in reason be construed as allowing a common law right, the continued existence of which would be absolutely inconsistent with the provisions of the act.”  Id. at 14, quoting AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1748 (2011).  Thus, the court found that “Based on the extensive and comprehensive regulations promulgated by the administrative bodies which govern air emissions from electrical generation facilities, the Court finds and rules that to permit the common law claims would be inconsistent with the dictates of the Clean Air Act.”  Id. at 15. 

Accordingly, notwithstanding the suggestion by the Supreme Court in American Electric Power that state law nuisance claims for carbon dioxide liability might be viable, if the Western District’s analysis is correct and applicable to carbon dioxide, such claims will not survive for very long.

 

¹Comer v. Murphy Oil USA, Inc., 839 F. Supp. 2d 849, 865 (S.D. Miss. 2012), also relied on American Electric Power and found state law nuisance claims displaced by the Clean Air Act.  That court had first found that plaintiffs’ claims failed due to res judicata and estoppel, and half a dozen other reasons, and its analysis of the displacement and preemption issue is not extensive. See Dismissed Means Dismissed: Comer v. Murphy Oil, the First Climate Change Liability Damages Suit, Is Tossed Again.

20121012 Bell v. Cheswick Generating Station, Order of Dismissal & Notice of Appeal.pdf (694.83 kb)

In litigation concerning liability for the emission of greenhouse gases, the federal common law of nuisance is displaced by the Clean Air Act.  This is not news.  It was established by the Supreme Court over a year ago in American Electric Power v. Connecticut, 131 S. Ct. 2527 (2011). This morning, the Ninth Circuit Court of Appeals acknowledged the rule and applied it to the plaintiffs in Native Village of Kivalina v. ExxonMobil Corp. ("Opinion") and affirmed the dismissal by the Northern District of California.  See Native Vill. of Kivalina v. ExxonMobil Corp., 663 F. Supp. 2d 863 (N.D. Cal. 2009).

In a nutshell, a native Alaskan village on the shores of the Chukchi Sea brought suit against electric utilities, oil companies and one coal company.  The complaint asserted the defendants are responsible for excess emissions of greenhouse gases, which have led to global warming, which has resulted in delayed formation of arctic sea ice and early melting of the ice, which has accelerated the erosion caused by winter storms.  The plaintiffs sought damages for the cost of relocating their village.  See Opinion 11648-49. 

The Court of Appeals dutifully explained the federal common law of nuisance and the doctrine of displacement.  Plaintiffs had hoped to avoid the application of American Electric Power by arguing that it was a case about injunctive relief.  Kivalina was different:  the plaintiffs there sought damages.  The Court was unmoved.  It stated simply:  “under current Supreme Court jurisprudence, if a cause of action is displaced, displacement is extended to all remedies.”  Opinion at 11655.  It did not matter that EPA had not acted before the damage was incurred; "Congressional action, not executive action, is the touchstone of displacement analysis.”  Opinion at 11656.  Nor did it matter that the Court’s decision would be applied retroactively.  Id. 

The concurrence (Judge Pro of the District of Nevada, sitting by designation) was not as unequivocal as the Court, and explicated a tension between the Supreme Court’s rulings in Middlesex County Sewerage Authority v. National Sea Clammers Ass’n., 453 U.S. 1, 4 (1981), and Exxon Shipping Co. v. Baker, 554 U.S. 471 (2008).  Middlesex expressly stated that “where a federal common law nuisance claim for injunctive relief is displaced, a federal common law nuisance claim for damages claim likewise is displaced”, but, according to Judge Pro, Exxon’s “overall holding suggests that severing rights and remedies is appropriate as between damages and injunctive relief in some circumstances.” Opinion at 11663, 11665. In the end, however, Judge Pro agreed that the doctrine of displacement shuts the door on federal common law claims for nuisances allegedly caused by greenhouse gas emissions whatever remedy is sought.

More interesting and of more moment we think are two points made by the concurrence; the first will give heart to greenhouse gas plaintiffs, while the second may empty their sails.

Judge Pro acknowledged that the Supreme Court’s decision and the 9th Circuit’s decision did nothing to affect the plaintiffs’ state law nuisance claims.  He wrote:

Once federal common law is displaced, state nuisance law becomes an available option to the extent it is not preempted by federal law. AEP, 131 S. Ct. at 2540 (“In light of our holding that the Clean Air Act displaces federal common law, the availability vel non of a state lawsuit depends, inter alia, on the preemptive effect of the federal Act.”). The district court below dismissed Kivalina’s state law nuisance claim without prejudice to refiling it in state court, and Kivalina may pursue whatever remedies it may have under state law to the extent their claims are not preempted.  Opinion at 11671.

We predicted this next phase when the case was argued back in November of last year.  Accordingly, the Kivalina case is not dead yet.

However, judicial skepticism of climate change plaintiffs’ current liability theories is expanding.  Judge Guirola, in Comer v. Murphy Oil USA Inc in the Southern District of Mississippi, was dubious of the causation story:  “the tenuous nature of the causation alleged is readily apparent at the pleadings stage.”  Judge Pro went one further:

Kivalina has not met the burden of alleging facts showing Kivalina plausibly can trace their injuries to Appellees. By Kivalina’s own factual allegations, global warming has been occurring for hundreds of years and is the result of a vast multitude of emitters worldwide whose emissions mix quickly, stay in the atmosphere for centuries, and, as a result, are undifferentiated in the global atmosphere. Further, Kivalina’s allegations of their injury and traceability to Appellees’ activities is not bounded in time. Kivalina does not identify when their injury occurred nor tie it to Appellees’ activities within this vast time frame. Kivalina nevertheless seeks to hold these particular Appellees, out of all the greenhouse gas emitters who ever have emitted greenhouse gases over hundreds of years, liable for their injuries.  Opinion at 11675. 

To be sure, the Supreme Court approved an action by various States to challenge EPA’s failure to regulate greenhouse gases.  See Massachusetts v. EPA, 549 U.S. 497 (2007).  But “[i]t is quite another [thing] to hold that a private party has standing to pick and choose amongst all the greenhouse gas emitters throughout history to hold liable for millions of dollars in damages.”  Opinion at 11676. Judge Pro would have dismissed the case on standing grounds as well.

Finally, notwithstanding our foresight above, it is rarely worth getting out the crystal ball to predict the outcome of a case or cases.  If we could do that with any reliability, we wouldn’t be sitting at this keyboard.  So rather than a prediction, we think offering some context is appropriate.  Will states be receptive to climate change liability suits as currently cast?  We are skeptical.  The environmental organization, Our Children’s Trust, orchestrated over a dozen lawsuits seeking to force state regulators to address greenhouse gas emissions.  With only one exception (New Mexico), those cases have been dismissed in jurisdiction after jurisdiction (Alaska, Arizona, Colorado. Minnesota, Montana, Oregon, Texas, Washington and the District of Columbia).  And even in the case that is moving forward, all the court permitted was an action to pursue whatever recourse was in place under current law, which is no more than the Supreme Court ruled in Massachusetts v. EPA. 

After a string of defeats at the regulatory agencies and state and federal courts, Our Children's Trust finally notched two victories last month in its quest to use the public trust doctrine to implement carbon dioxide emission regulations.  Our Children's Trust, an environmental organization based in Oregon,  began its campaign in May 2011 when it oversaw the filing of nearly two score regulatory petitions and a dozen lawsuits seeking to force individual states to take action to restrict carbon dioxide emissions.   OCT's trademark feature is to include as plaintiffs "youth activists".  Up to the beginning of July it had not had any success.  But then, maybe, the tide began to turn. 

First, on July 9 Texas District Court Judge Gisela Triana partially overrode the Texas Commission on Environmental Quality's decision rejecting a petition for rulemaking on the public trust doctrine.  Petitioners appealed the decision in Bonser-Lain v. TCEQ.  Petitioners had sought, relying on the public trust doctrine, to force the TCEQ to act to preserve the atmosphere by regulating carbon dioxide.  The TCEQ had concluded that in Texas the public trust doctrine applies solely to water.  Furthermore, according to the Commission, it was precluded from acting by the federal Clean Air Act, which preempted more restrictive state action. 

Judge Triana made short shrift of both arguments.  Relying on Article XVI of the Texas Constitution she ruled:  "The Court will find that the Commission’s conclusion, that the public trust doctrine is exclusively limited to the conservation of water, is legally invalid. The doctrine includes all natural resources of the State.”  As to the preemption idea, the federal Clean Air Act "is a floor, not a ceiling, for the protection of air quality, and therefore the Commission's ruling on this point is not supported by law."  The court did find, however, that because of other pending litigation, the TCEQ did properly exercise its discretion in refusing to entertain the petition. 

Second, on July 14, New Mexico District Court Judge Sarah Singleton refused to dismiss  a case asserting the State of New Mexico had an obligation to protect the atmosphere under the public trust doctrine.  The 18-line decision would hardly merit discussion except that this was the first decision allowing one of these cases to move forward.  Like the petitioners in Texas, the plaintiffs in New Mexico sought  to establish the public trust doctrine as a vehicle to control carbon dioxide emissions.  In a nutshell, Judge Singleton ruled that the suit, Sanders-Reed v. Martinez, could go forward insofar as it alleged that the State of New Mexico was not in compliance with laws passed by the New Mexico Legislature.  Specifically, the "Motion [to Dimiss] is DENIED to the extent that Plaintiffs have made a substantive allegation that, notwithstanding statutes enacted by the New Mexico Legislature which enable the state to set state air quality standards, the process has gone astray and the state is ignoring the atmosphere with respect to greenhouse gas emissions."  The motion was successful, however, where the court dismissed claims "based on the New Mexico Legislature's failure to act with respect to the atmosphere." 

These cases may or may not be important in the climate change arena.  To be sure, they upset an unbroken stream of victories for state regulators over OCT plaintiffs and will undoubtedly serve as a rallying point for the remaining cases as well as to-be-filed cases.  But the comments in  Bonser-Lain are only dicta and that Sanders-Reed survived a motion to dismiss says nothing about the merits.  But the mass-filing strategy by Our Children's Trust bears watching because it is not unique and may surface elsewhere.  Indeed it has.

Following the filing of a class action against Thomas Jefferson Law School in California over alleged misrepresentations in law school placement data, a team of lawyers coordinated by two attorneys in New York, David Anziska and Jesse Strauss, put together a mass-filing strategy similar in some respects to that followed by OCT.  Twelve apparently is the magic number.  The law school placement team brought suit against a dozen law schools in jurisdictions across the nation.  Although another twenty suits are theoretically teed up as information from prospective plaintiffs is collected, those suits were promised for Memorial Day but have not yet materialized. 

A big filing day is mandatory to maximize press coverage.   As were the atmospheric trust cases, the law school placement cases were nearly all filed on the same day.  Both litigation teams have sought public exposure throughout the course of the litigation.

A defendant's typical response in both sets of cases is a motion to dismiss.  Some throw in everything and the kitchen sink, others are more thoughtful.  There is a danger to the kitchen sink approach; the court may issue a ruling giving the plaintiffs a set of victories as happened with Thomas Cooley Law School in Michigan (see attached) (even though Cooley ultimately prevailed at the trial court).

But this is where the mass filing paradigm falls down.  Both sets of litigation are based on state law.  In the law school placement cases, two California cases have survived demurrers because California consumer protection law includes educational services (see attached), and two have been dismissed because, among other things, Michigan consumer protection law does not reach professional schools and New York law finds law students to be sophisticated consumers.  In the atmospheric public trust cases, notwithstanding case after case rejecting the claims, courts in New Mexico and Texas find under their states' laws that the theory is well-founded. 

The lesson one should take from this is that, like politics, all law is local.  Well-timed press releases and news conferences touting the ineluctable triumph of the plaintiffs, at the end of the day count for very little.  Rather, what matters is the particular law of the particular jurisdiction on the particular facts of the case.  Both plaintiffs and defendants should take note.

20120726 Filing in Florida Coastal of USF and Golden Gate decisions.pdf (366.85 kb)

20120607 Initial Thomas Cooley Law School Order re Motion to Dismissf.pdf (67.07 kb)

Arbitrary and capricious.  Familiar words to anyone involved in regulatory activity.  But also applicable to calendars, which willy-nilly cut off a series of events and ascribe them to one solar cycle, as if the sun gave two hoots.  As we perused the various "Climate Change: Year in Review" reviews that crossed our desk last January, we concluded 365 days are arbitrary and one year capricious in assessing what is important to resurrect and re-discuss.  We further concluded that a 12-month look-back is too long.  So, for what it is worth, here is one of six months.

1.  Cap-and-Trade in the U.S. - On January 1 the Western Climate Initiative (WCI) (or what remains of it) initiated its long-anticipated cap-and-trade program for greenhouse gas emissions.  Notwithstanding the lack of support from other WCI members, California and Quebec are moving forward with a cap-and-trade program.  California's and Quebec's mandated reporting rules applied to stationary sources emitting at or above 25,000 metric tons of CO2e per year.  On May 9 coordination between the two programs was announced  initiating the 45-day public comment period.  The first auction will be held in November and then, on January 1, 2013, enforcement begins when covered entities must participate. It is obviously too soon to tell how successful the California program will be, but when the world's eighth largest economy takes an initiative, it is likely to have impact elsewhere, particularly when it is the only program in the nation.

2.  Greenhouse Gas Liabilities and Insurance Coverage - We didn't think there would be anything to say this year about coverage for GHG liabilities.  After all, in the only case in litigation the Virginia Supreme Court issued its opinion in AES Corp. v. Steadfast Insurance Co. in September 2011 and concluded that there was no "occurrence" triggering coverage made in the allegations pleaded by the Native Village of Kivalina against AES Corporation.  But then the Court granted a motion for reconsideration in January and many puzzled as to what was going on.  Apparently nothing as the Court reiterated its previous conclusions in an April 20, 2012 opinion.  The decision will be significant in Virginia because it may have upset coverage in more conventional cases, as the concurring opinion of Justice Mims suggests.  As for the rest of the nation, it is one decision, on one issue, on one set of facts.  The case is important because it is the first, but we will be surprised if it provides guidance anywhere else.
 
As for greenhouse gas liability that is a story unto itself.  Like something out of a Steven King novel, the Comer v. Murphy Oil case refuses to pass quietly into the night.  This is the case that was dismissed by the Southern District of Mississippi, reversed by the 5th Circuit, vacated by the 5th Circuit en banc when it accepted rehearing and then reinstated as dismissed when the 5th Circuit's quorum dissolved.  Following a denial of a request for a writ of mandamus from the U.S. Supreme Court, the Comer plaintiffs re-filed their complaint against over 100 electric utilities, oil companies, chemical companies and coal companies alleging their GHG emissions were responsible for the ferocity of Hurricane Katrina.  And the Southern District of Mississippi dismissed the plaintiffs again on March 20.  And plaintiffs appealed again.  We don't expect the case to be finally at rest until the Supreme Court denies certiorari, or accepts it (perhaps in order to address the Ninth Circuit's much-anticipated decision in Native Village of Kivalina v. ExxonMobil, which has been pending for over six months since oral argument).

3.  Natural Gas:  The Bridge Fuel - With the combining of two technologies, hydraulic fracturing and horizontal drilling, a resource of unprecedented volume is "changing the game" of energy.  "Annual shale gas production in the US increased almost fivefold, from 1.0 to 4.8 trillion cubic feet between 2006 and 2010. The percentage of contribution to the total natural gas supply grew to 23% in 2010; it is expected to increase to 46% by 2035."  Thus reported the Energy Institute at the University of Texas in February in a 400+ page tome entitled Fact-Based Regulation for Environmental Protection in Shale Gas Development.  Momentously, the UT researchers report "there is at present little or no evidence of groundwater contamination from hydraulic fracturing of shales at normal depths."  The reference to "normal depths" acknowledged that in December 2011 the EPA linked contamination in Pavilion, Wyoming to shallow fracking operations. In March 2012, however, EPA agreed to conduct further testing.  And then in May, a personal injury tort case, Strudley v. Antero Resources Corp. et al., No. 2011-CV-2218 (2d Jud. Dist. Ct. Col. May 9, 2012), brought against fracking operators in Colorado was thrown out because plaintiffs could not muster adequate proofs of specific causation. Despite some intense opposition, fracking is moving forward.  What does all of this have to do with climate change?  Natural gas when burned emits half the carbon dioxide of coal.  Accordingly, some argue that natural gas is the bridge to a low-carbon future.  If so, then fracking builds that bridge.

4.  Innovative Climate Change Legal Theories - Last spring the sound and the fury were intense as the environmental organization Our Children's Trust unleashed several dozen regulatory petitions and a dozen lawsuits across the nation.  The goal:  establish the public trust doctrine as applicable to the atmosphere and use it to implement greenhouse gas regulation.  It appears that all of that is signifying nothing. Over two dozen petitions were denied in 2011 and two lawsuits were dismissed (Montana and Colorado).  It did not get any better in 2012.  The first six months of this year delivered only bad news to OCT.  State courts dismissed lawsuits in Alaska, Arizona, Minnesota, Oregon, and Washington.  The federal court in the District of Columbia did the same.   Plaintiffs took a voluntary dismissal in California.  To be sure, OCT has filed appeals (the one in Minnesota is scheduled to be argued on July 18).  Having failed to convince a single court so far, we think we are safe in predicting an uphill battle.

5.  Power Plant Performance Standards - On April 13, 2012, a scant seven months before the presidential election, the EPA published in the Federal Register standards of performance for all new fossil fuel-fired electricity-generating units requiring them to meet an electricity-output-based emission rate of 1,000 lb of carbon dioxide for every megawatt-hour of electricity generated.  The only plants that can meet this standard without implementing costly carbon capture and storage technology are natural gas plants.  Thus, the administration took a strong stand against coal-based generation.  Or it is all smoke and mirrors.  As EPA notes in the proposed rule, because of the glut of natural gas made available by fracking, there is little likelihood of a new coal-powered plant before 2030.  Notwithstanding, industry groups have filed a half-dozen lawsuits seeking to derail the rule.

6.  EPA's Greenhouse Gas Regulatory Program - Less than a week ago USEPA and its GHG program got a firm "thumbs up" from the D.C. Circuit.  Inundated with over two dozen appeals of various USEPA GHG regulations, the Endangerment Finding, the Tailpipe Rule, the Tailoring Rule and the Timing Rule (for citations see The DC Circuit Locks in USEPAs GHG Regulations Sort Of). The court turned away every challenge, sometimes on the merits and sometimes on procedural grounds such as standing.  There is much that deserves comment not the least of which are the differences between the states with California, Connecticut, Delaware, Illinois, Iowa, Maine, Maryland, Massachusetts, New Hampshire, New Mexico, New York, North Carolina, Oregon, Rhode Island, Vermont, and Washington, lining up on one side, and Alabama, Florida, Indiana, Kansas, Kentucky, Louisiana, Nebraska, North Dakota, Oklahoma, South Carolina, South Dakota, Texas, Utah, and Virginia lining up on the other.  To focus more on legal matters, several challenges were turned away on standing.  For example, neither states nor industry groups could challenge the Tailoring Rule as they did not allege the requisite injury.  Because the Tailoring Rule benefits small businesses (who are not required to comply with certain GHG emission requirements), it would appear that the door may remain open for parties who allege competitive injury (i.e., non-regulated entities gain a competitive advantage). In the meantime, do not expect Congress this election year to touch the issue.  

 

It took a little over five years but USEPA's greenhouse gas regulation program is now firmly established - for the moment anyway.  The D.C. Circuit today rejected every challenge by numerous petitioners and intervenors to the whole raft of USEPA rules that followed from the critical Supreme Court decision, Massachusetts v. EPA, in 2007.  In Coalition for Responsible Regulation, Inc. v. Environmental Protection Agency (attached), the D.C. Circuit considered arguments against the validity of

The Endangerment Rule, Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(s) of the Clean Air Act, 74 Fed. Reg. 66,496 (Dec. 15, 2009),

The Tailpipe Rule, Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards, 75 Fed. Reg. 25,324 (May 7, 2010)

The Tailoring Rule, Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule, 75 Fed. Reg. 31, 514 (June 3, 2010), and

The Timing Rule, Reconsideration of Interpretation of Regulations That Determine Pollutants Covered by Clean Air Act Permitting Programs, 75 Fed. Reg. 17,004 (Apr. 2, 2010), 

as well as a general challenge to the USEPA's implementation of the Clean Air Act.  Each argument was rejected.  The Endangerment and Tailpipe Rules are not arbitrary and capricious, no petitioner (whether from industry or a state) had standing to attack the Timing and Tailoring Rules, and the USEPA's interpretation of the relevant Clean Air Act provisions "is unambiguously correct."

The blogosphere is overwhelmed with commentary and analysis.  Rather than repeat what others have already said, we want to focus on just one small segment (pages 45-50) of the 82 page opinion:  standing for the National Association of Home Builders (NAHB) and the National Oilseed Processors Association (NOPA).  The court singled out the NAHB and the NOPA because they were the only industry petitioners that had standing to challenge the "result of the Tailpipe Rule, which had the effect of expanding the [Prevention of Significant Deterioration] PSD program to never-regulated sources." 

A little background is in order.  Massachusetts v. EPA established that greenhouse gases could be regulated as air pollutants (within the meaning of the Clean Air Act) by USEPA.  The Endangerment Finding concluded that six "well-mixed" greenhouse gases emitted from motor vehicles contributed to the "climate change problem" and thus were "reasonably anticipated to endanger public health and welfare."  As a result, USEPA issued the Tailpipe Rule, which set GHG emission standards for cars and light trucks.

Two sections of the Clean Air Act, the PSD program and the state permitting requirements under Title V, are triggered by the emission of "any air pollutant" (which USEPA has interpreted to mean: any regulated air pollutant).  Accordingly, once GHGs were regulated anywhere under the Clean Air Act (such as from tailpipes of motor vehicles), GHGs constituted an "air pollutant" within the meaning of the Act and stationary sources that emitted GHGs became subject to PSD and Title V permitting requirements.  The proverbial camel's nose was in the tent, and the camel followed post-haste. This approach to regulation was long-standing and had been relevant to rules promulgated in 1978, 1980 and 2002.  Since the Act provided for a basis for review only within 60 days of the promulgation of national regulations, challenges to USEPA's approach were very much time-barred, but with one very significant exception: "if such petition is based solely on grounds arising after such sixtieth day, ..." 42 U.S.C. 7607(b)(1).

What this means is that an entity whose claim has recently ripened has standing to challenge the USEPA's approach.  Stated differently, entities that did not have standing in 1978, 1980 or 2002 because "their alleged injuries were only speculative" (such as NAHB and NOPA), may subsequently find they do have standing because their facilities are now regulated.  NOPA asserted that "[prior] to promulgation of the Tailpipe Rule, no member's facility had triggered PSD review by virtue of emissions of a non-criteria pollutant.  Now that greenhouse gases are a regulated non-criteria pollutant, many NOPA members will have to obtain PSD permits as [a] result of their facilities' emissions ..."  NAHB members who likewise were not subject to PSD requirements, were now certain to have to obtain PSD permits sometime in the future.  Accordingly, unlike other industry petitioners, NOPA and NAHB were found to have standing to challenge USEPA's "interpretation of the PSD permitting triggers ..." 

This result is important.  Absent regulations like the Tailoring Rule, GHG regulation will be far-reaching and will bring in entities not previously subject to regulation.  Those entities will be entitled to challenge the regulation, as well as the methods USEPA uses to implement the regulations, even if those methods have been around for decades.  Thus, even though USEPA's GHG program sailed through this set of challenges, the door certainly is not closed to other challenges as GHG regulation expands. 

 

20120626 Coalition for Responsible Regulation, Inc. v EPA (D.C. Cir.).pdf (188.21 kb)

 Imagine an industry.  Let’s make it a high technology industry.  And we’ll make it risky.  It will be a new technology, linked to other new technologies.  We’ll have over a dozen companies in this industry and some of them will partner with their suppliers or their customers, just as established industries do.  And just because it is new technology doesn’t mean that old issues don’t matter.  Each company will still have to satisfy investor expectations, raise money, hope demand stays ahead of supply, beat out their competition (both domestic and overseas) and avoid snafus of all sorts.

And if some of the companies in our imagined industry failed, would that surprise any of us?  And if they got sued in shareholder derivative suits alleging misrepresentations in their 10Ks, that would be par for the course in the United States in the early 21st century, right?

Now hold those thoughts and transport yourself back to reality and listen to Carlos Ghosn, CEO of Nissan, at the New York Auto Show yesterday. His talk was basically an advertising pitch for Nissan, its turnaround and its increasing presence (with its partner Renault) in the world market.  But if you can get to the question and answer session about halfway through you will get some insight into what the third largest car company alliance in the world is thinking about electric cars, and specifically about the Nissan Leaf.  According to Mr. Ghosn by 2020 the Leaf will have ten percent of the market where it is available because Nissan is moving to local production, which will remove a bottleneck.  It has built a quality product as evidenced by the remote monitoring being done by Nissan on every car:  they have no quality problems.  Consumer surveys show people want low carbon vehicles. And last, as the American and world economies get back on their feet, gas prices will continue to rise and the economic incentive to drive an electric vehicle will only become more powerful.

Mr. Ghosn is not alone in his vision.  Nearly every other car company is in, or getting in, to the electric car business.

And nearly every bank was making subprime loans and we know how great an idea that was.  And let’s not forget the train wrecks caused by the internet bubble when everyone could make millions off of companies like iVillage and AOL and it was a verity that bricks and mortar were things of the past.

And if we look at the electric vehicle segment we see lithium ion battery maker A123 and two of its officers subject to suit on March 2 for false and misleading statements where its stock price tanked after A123 disclosed that it was recalling thousands of batteries because of a manufacturing problem.  In February automobile startup Fisker Automotive was sued by an investor upset that he was being forced to put more money into Fisker, which hadn’t met DOE funding milestones nor sales targets and needed millions more in cash.  And in January  Ener1 (parent to battery maker EnerDel) filed for bankruptcy citing increased competition from Korean and Japanese battery makers. 

Some take these as signs of the demise of the industry.  But if we go back to our imaginary industry, we see that none of this is surprising.  Of course there are lawsuits, squabbles over the chase for funding, and bankruptcies.   Wikipedia makes clear, however, that this is a competitive, active industry.  It lists over a dozen battery companies in this new high technology area, joined with another new high technology industry (electric cars).  We list them all below to emphasize the point. The travails of A123, Fisker and Ener1 prove nothing more than that it is a tough marketplace.

 ¹List of Electric Vehicle Battery Manufacturers:  A123Systems, Altairnano, Axeon, Concorde Battery, E-One Moli Energy, Electrovaya, EnerDel, Li-Tec Battery GmbH, NEC, Primearth EV Energy Co., Sanyo, Thunder Sky, XINCHI Li-ion Battery, Valence Technology, LG Chem, SB LiMotive, GS Yuasa.

² List of Plug-In Electric Vehicle Manufacturers: Audi, BMW, Citroen, Ford, General Motors, Honda, Hyundai, Kia, Mercedes, Mitsubishi, Nissan, Opel, Peugeot, Renault, Rolls-Royce, Saab, Subaru, Suzuki, Toyota, Volkswagen, Volvo.

Tuesday EPA issued its proposed rule (see related post) concerning new source performance standards for greenhouse gas emissions for electric power plants.  This all started when EPA refused to address greenhouse gas emissions coming out of cars.  Cars to power plants.  Some may be wondering how the camel got into this tent.

The story begins of course with Massachusetts v. EPA, 549 U.S. 497 (2007), where the Supreme Court held that greenhouse gases emitted in automobile exhaust were "air pollutants" within the meaning of the Clean Air Act.  This meant that EPA had to assess whether they caused or contributed to "air pollution which may reasonably be anticipated to endanger public health."  42 U.S.C. § 7521(a)(1).

That assessment was completed in December 2009 and EPA concluded in the "Endangerment Finding" that "that six greenhouse gases taken in combination endanger both the public health and the public welfare of current and future generations." 74 Fed. Reg. 66,496 (Dec. 15, 2009).  The Endangerment Finding did not impose any requirements, but it set the stage for regulation.  In September 2009 EPA and the US Department of Transportation issued proposed rules to establish greenhouse gas emission standards for certain motor vehicles.  The final rule was published on May 7, 2010 and went into effect on January 2, 2011.  75 Fed. Reg. 25324 (May 7, 2010).  The camel's nose was in the tent.

And with that, EPA now had the prerequisite to set greenhouse gas emissions limits elsewhere.  At least that is EPA's position.  In a nutshell, stationary sources that emit 250 tons per year of "pollutants" are subject to the Prevention of Significant Deterioration (PSD) program.  One element of the PSD program is that Best Available Control Technology (BACT) analysis is required for "each pollutant subject to regulation" under the Clean Air Act.  42 U.S.C. 7475(a)(4).  When the motor vehicle greenhouse gas regulation kicked in on January 2, 2011, greenhouse gases were subject to regulation, and therefore electric utilities emitting greenhouse gases were required to conduct a BACT analysis.  All of the camel was in the tent.

All of these regulations (and others) were challenged.  Oral argument in those cases was heard before the D.C. Circuit at the end of February.  The regulated community awaits; who knows what the camel is thinking.   

Wow!  Whether one likes the president or not, one must concede he's not afraid of leading. Just a little over seven months from the election he has drawn a line in the sand and proposed a rule that may fundamentally alter America's energy mix and takes a big step toward addressing carbon dioxide emissions.  Or it does nothing at all.  We are talking of course of Tuesday's announcement of new source performance standards for electricity plants.   In EPA's words:

The EPA is proposing standards of performance that require that all new fossil fuel-fired EGUs meet an electricity-output-based emission rate of 1,000 lb
CO2/MWh of electricity generated on a gross basis. This proposed standard is based on the demonstrated performance of natural gas combined cycle (NGCC) units, which are currently in wide use throughout the country, and are likely to be the predominant fossil fuel-fired technology for new generation in the future.  EPA, Standards of Performance for Greenhouse Gas Emissions for New Stationary Sources: Electric Utility Generating Units (proposed rule) at 13 (Mar. 27, 2012) .

So natural gas is in.  And what about the other fossil fuels?  New plants using coal or oil and even IGCC (integrated gas combined cycle) can be built but EPA expects that they will need to use carbon capture and storage (CCS) to meet the standards.  Id.

What brought about this groundbreaking new rule?  We set forth the legal foundation in a companion post.  Suffice to say here that EPA has moved a long way from the days before Massachusetts v. EPA, 549 U.S. 497 (2007), when greenhouse gases were not Clean Air Act "pollutants."  But the non-regulatory drivers were perhaps even more significant.  All are aware of "fracking".  The use of horizontal drilling with hydraulic fracturing in shales a mile beneath the surface has unleashed a torrent of natural gas.  As Forbes reports this month natural gas prices are half of what they were just a few years ago.  And the glut is not seen to be abating.  EPA has seized on this surfeit:  "technological developments and discoveries of abundant natural gas reserves have caused natural gas prices to decline precipitously in recent years and have secured those relatively low prices for the near-future."  Proposed Rule at 15.  As a result, "energy industry modeling forecasts uniformly predict that few, if any, new coal-fired power plants will be built in the foreseeable future."  Id. 

In other words, the proposed regulation will have hardly any effect (even none) on coal-fired generation because no one was going to build those plants anyway.  "Our IPM modeling, using Energy Information Administration (EIA) reference case assumptions, projects that there will be no construction of new coal-fired generation without CCS by 2030. Under these assumptions, the proposed rule will not impose costs by 2030."  Id. at 17.

We have read the commentary that this is the death of coal.  The cost of capturing and storing carbon dioxide, which will be the only way for a new coal plant to meet the new standard, is prohibitive. Accordingly, no coal plants will be built. According to EPA, however, coal-fired production was dead anyway because of the glut of natural gas. 

Crystal balls are notoriously unreliable.  Some may remember that nuclear power was to make electricity too cheap to meter. But that didn't happen.  America built the largest man-made construction the world has ever seen (the interstate highway system) on the assumption that gasoline would always be abundant.  That was in error.  An oil embargo introduced Americans to long lines at the fuel pump and locking gas caps. Most forget that natural gas production peaked in the early 1970s, not to be exceeded again until over twenty years had passed.  The point is:  smart people took their best science and made plans.  But reality somehow did not get the message. 

For what it is worth, here is our crystal ball on the demise of coal.  First, CCS technology is pertinent not only to coal. Combustion of natural gas emits carbon dioxide as well. The regulatory imperative will push natural gas plants to address their CO2, and coal will be able to take advantage of improvements in CCS technology. Second, the United States has been called the Saudi Arabia of coal. To expect that industry to dry up and blow away is naïve. Shale gas went from a vanishingly small fraction of the US energy mix to over 20% in five years or less. Innovation made this possible.  Just as ten years ago we could not imagine today's natural gas industry, we may not be able to recognize our coal resource in another ten years. Third, we thought it was fundamental that energy security depends on a mix of energy sources. It would be foolhardy to rely completely on natural gas.  It will only take one cold winter and a natural gas pipeline calamity to make coal seem like a sensible alternative. 

Whether the proposed rule will actually have an impact depends on numerous factors.  All can agree, however, that climate change has been thrust back on the national agenda.