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.