Sustainability

Native Village of Kivalina Files Its Petition for Certiorari - A Five-Year Climate Change Litigation Marathon That Has Yet to Start

March 15, 2013 08:54
by J. Wylie Donald

One day short of five years since the case was originally filed, on February 25, 2013 the plaintiffs in Native Village of Kivalina v. ExxonMobil Corp. attempt once more to get out of the starting blocks, this time with a petition for certiorari  to the United States Supreme Court.  This follows dismissal by the Northern District of California in 2009, affirmance of the dismissal by the Ninth Circuit last September, and denial of a petition for rehearing en banc in November.   To be trite, it’s a marathon, not a sprint.  The response, if any, is due on April 3.  We can expect a decision on the petition a few weeks after that. 

The substance of the petition was easily predicted.  The tension between Middlesex County Sewerage Authority v. National Sea Clammers Ass’n, 453 U.S. 1 (1981), and Exxon Shipping Co. v. Baker, 554 U.S. 471 (2008), and mentioned by the concurrence (Judge Pro, sitting by designation on the Ninth Circuit) is the center of the argument.  Indeed it is the only issue behind the question presented:  “Whether the Clean Air Act, which provides no damages remedy to persons harmed by greenhouse gas emissions, displaces federal common-law claims for damages.”

According to the petitioners, the starting point for the analysis is the Court’s 1981 decision in Milwaukee v. Illinois, 451 U.S. 304 (1981) (“Milwaukee II”), where Illinois sought to enjoin Milwaukee’s federally permitted Clean Water Act discharges using the federal common law of nuisance.  Petition at 7.   In rejecting Illinois’s claim, the Court “focused carefully on whether the statutory scheme ‘spoke directly’ to the plaintiff’s ‘problem,’ and whether the statute gave the plaintiff a means ‘to protect its interests.’”  Id. at 8. 

The same year, however, the Court also, according to petitioners, issued Middlesex, a decision sharply diverging from Milwaukee II. In Middlesex, fishermen aggrieved by ocean dumping were found to have no federal common law remedy because “’the federal common law of nuisance in the area of water pollution is entirely pre-empted by the more comprehensive scope’ of the [Clean Water Act].” Id. at 10.

These two threads came together 27 years later in Exxon Shipping, where the Court “departed from any broad reading of Middlesex and returned to the more pragmatic and careful analysis of Milwaukee II.”  Id. Or maybe not.  Kivalina in candor also acknowledged:

To be sure, it is possible to read Middlesex narrowly so as to reconcile the decision with Exxon Shipping.  Given Exxon Shipping’s statement that Middlesex is limited to situations where “plaintiffs’ common law nuisance claims amounted to arguments for effluent-discharge standards different from those provided by the CWA,” then it appears that a federal common law damages claim is displaced only where it is so inextricably intertwined with claims for injunctive relief that it amounts to second-guessing of the prospective statutory standards.  Id. at 11-12.

Petitioners tied up their arguments with reference to American Electric Power v. Connecticut, 131 S. Ct. 2527 (2011) (“AEP”), the case that established that greenhouse gas claims were displaced by the Clean Air Act.  AEP, it was asserted, “pointedly did not follow Middlesex in concluding that the whole 'federal common law of nuisance is entirely' displaced by a 'comprehensive' regulatory scheme, which would have made for a much shorter, and very different, AEP opinion.” Petition at 12.  Instead, the gravamen of AEP was that the displaced claims were those that would have interfered with EPA’s authority.  Id. at 13.

In sum, “Milwaukee II, Middlesex, Exxon Shipping and AEP cannot all be correctly decided, yet all of them are viewed as good law – a conundrum that Judge Pro acknowledged in his opinion concurring in the result and that ultimately led him, and the other members of the panel, to a result in this case that is at odds with the fundamental rationale for displacement and with basic fairness.”  Id. Stated differently, Exxon Shipping permitted common-law damages even though the Clean Water Act displaced claims for injunctive relief.  This was to be contrasted with Middlesex, which “held that  a federal common-law damages claim was displaced by the Clean Water Act.”   Id. at i.  We expect that the Kivalina defendants will have a different point of view.

The second part of the petition is the analysis of why the case is so important that the Court should hear it.  Kivalina gave four reasons:

1.  Climate change is an extremely important subject.  In a pointed salvo, petitioners cited to the petition for certiorari in AEP, where some of the same defendants stated “’The questions presented by this case are recurring and of exceptional importance to the Nation.’”
2. Displacement presents a fundamental question of boundaries between the legislative and judicial branches.
3. GHG emissions claims are “inherently important because of the extraordinary nature of global warming.” 
4. Kivalina’s very existence is at stake.

Notwithstanding all that, the odds of the petition being granted are long.  The Court only accepts between 100-150 of the more than 7,000 cases it is asked to review each year.  That is less than a 2% chance, all things being equal.   Greenhouse gas emissions were on the Court’s docket in 2007 (Massachusetts v. EPA) and again in 2011 (AEP v. Connecticut).  While we agree that climate change cases are important; we are skeptical that this narrow issue (displacement of damages, when the Court has already ruled on displacement of injunctive relief) justifies a place at the finish line, marathon or no.

Climate Change Litigation | Greenhouse Gases | Sustainability

A Tale of Two Credibilities: Hurricane Sandy and Recent Extreme Weather Reports

October 27, 2012 08:20
by J. Wylie Donald

It was the best of times.  It was the worst of times.  In North America, anyway.  As Hurricane Sandy looms over the Eastern seaboard, we thought it would be worthwhile to take a look at two recent reports about extreme weather.  Ceres, the investor focused “advocate for sustainability leadership,” issued in September its report:  Stormy Future for U.S. Property/Casualty Insurers:  The Growing Costs and Risks of Extreme Weather Events.  Munich Re, one of the world’s leading reinsurers, followed in early October with Severe Weather in North America.  If you want to read Severe Weather in full, it will cost you $100. If an executive summary will do, that only costs an email address.  

Ceres’ report sets up the financial climate facing insurance companies today:  historically low investment returns, a sluggish economy,  and lagging economic performance as measured by return on equity.  It then recounts the vicissitudes of recent extreme weather.  In 2011 the insurance industry suffered more than $32 billion in losses, and “suffered the most credit downgrades in a single year since 2005.”  The federal government issued a record 99 disaster declarations. To get specific:

Losses from excessive precipitation during 2008-2011 were the highest on record.
Average annual winter storm losses have nearly doubled since the 1980s.
Since 1980, wildfires burned the highest amount of acreage in 2005, 2006 and 2007; and in 2010, wildfires caused over $1 billion in damage (and in 2012 record setting wildfires occurred in Colorado and other parts of the West.).
Losses from low precipitation (drought) during 2012 will be the highest since 1988.

These cap a 30-year trend of increasingly extreme weather.  The effect of all this is, according to Ceres, a grave threat to insurers and those that rely on them.  Ceres goes on and asserts that climate change “likely” will exacerbate the effects of extreme weather.  Nevertheless, Ceres plays it cautiously:  “Connecting the linkages and impacts between rising temperatures and extreme events remains a highly technical exercise fraught with uncertainty.”  But notwithstanding the uncertainty, the cause of the potential economic problem for insurers is “increasing concentrations of insured assets, along with a changing global climate.”  Ceres' recommendations include calling for insurance companies to encourage customers to lower their carbon emissions footprint and to encourage "policymakers to take steps to reduce carbon emissions."  Is this unsupported advocacy or prudent business advice?  We conclude the former.

We start with one of the central themes of Stormy Future:  the costs of extreme weather have been rising steadily over the last 30 years.  But as the report acknowledges, some part of the increase is due to the fact that there are more people, more infrastructure, and more buildings and other property than there were 30 years ago.  Even without any new extremes of weather the costs of weather-related disasters would have increased.  But Ceres offers no more than an acknowledgment.  There are no details to flesh out the relative contribution of extreme weather as compared to the contribution of increasing coastal populations and increasing property values.

We discerned one hint.  In the last twenty years state subsidized insurance plans (so-called “residual” plans or state insurers of last resort) have expanded from $55 billion to $885 billion.  There would be no need for residual plans if people weren’t migrating to areas of higher risk, which for-profit insurers shun.   So with barely any data from Ceres, we went looking.  Professors Howard Kunreuther and his colleagues at the Wharton School had some interesting analysis in their 2009 work, At War with the Weather. Id. at 11.    When hurricanes from 1900 to 2004 are normalized for wealth (i.e., evaluating each hurricane’s impact if it had hit in 2004), the five hurricanes with the most impact occurred in 1926, 1992, 1900, 1915 and 1944. Hardly a trend for increasing extreme weather.  If Hurricane Katrina had been included, it likely would have topped the list, but that would have meant that the top five were 2005, 1926, 1992, 1900 and 1915, and still no extreme weather trend pops out.  Another researcher, Roger Pielke, Jr. has concluded similarly that there is no trend toward increasing extreme weather in the form of tornadoes.  It seems to us that Ceres should have assessed the impact of wealth concentration and population increase so that readers can reasonably conclude that climate-change-induced extreme weather is becoming an increasing substantial contributor to loss and not be forced to take Ceres at its word.

Munich Re does better.  Severe Weather relies for its data on Munich Re’s NatCatService, which contains more than 30,000 records on natural catastrophe loss.  Based on a comprehensive review Munich Re concluded that extreme weather in North America has nearly quintupled in the last 30 years.  In Asia the increase is 4 times, 2.5 in Africa, 2 in Europe and 1.5 in South America.  This has resulted in increased losses. 

Unlike Ceres, Munich Re recognized the importance of addressing the contribution of increasing concentration of wealth and population on rising losses.  The press release heralding Severe Weather  states:  “Up to now, however, the increasing losses caused by weather related natural catastrophes have been primarily driven by socio-economic factors, such as population growth, urban sprawl and increasing wealth.”  But the release goes on: 

For thunderstorm-related losses the analysis reveals increasing volatility and a significant long-term upward trend in the normalized figures over the last 40 years. These figures have been adjusted to account for factors such as increasing values, population growth and inflation. A detailed analysis of the time series indicates that the observed changes closely match the pattern of change in meteorological conditions necessary for the formation of large thunderstorm cells. Thus it is quite probable that changing climate conditions are the drivers. The climatic changes detected are in line with the modelled changes due to human-made climate change.

Munich Re concludes that this is the “ initial climate-change footprint” in US loss data from the last four decades. “Previously, there had not been such a strong chain of evidence.”  There it is:  losses are increasing independently of increases in wealth and population and climate change is a cause.

As noted above, others disagree with this conclusion.  In fact, Munich Re has been slammed in the press and in the blogosphere for over-hyping the risk in the search for profits.   What the criticism misses is that Munich Re is putting its information out into the marketplace.  Consumers are free to accept or reject it.  Those choices ultimately end up being reflected in the bottom line. 

This is our fundamental point about climate change and economic activity. Substantially all business decisions are made with some uncertainty.  Why would those involving a changing climate be any different?  The question to be asked is whether there is enough information to guide action.  Climate change is having effects.  We know this.  Why?  Simply because it is occurring.  And we also know it because of the mountains of evidence.  Prudent business people must think about how those changes will affect them.  Munich Re gives some answers.  

We would submit that business planning based on Ceres’ report would not be prudent – Ceres leaves out a fundamental analysis:  what is the effect of increasing concentrations of wealth and population on the increasing loss trends from extreme weather?  Munich Re’s report, on the other hand, gives a decision-maker a tool that addresses that uncertainty.  One chooses not to listen at one’s peril.  Hurricane Sandy is the 18th named storm of this hurricane season.  If it lives up to its hype, it will be long-remembered.  But even if it does not, that does not change the business imperative:  plan with the best information available.  We would submit that climate change should be part of that planning. 

Climate Change | Climate Change Effects | Insurance | Sustainability

Rio+20 Disappoints But Does Renewable Energy Need an International Treaty to Move Forward?

June 23, 2012 17:34
by J. Wylie Donald

Rio+20 wrapped up yesterday.  The moniker derives from the twentieth anniversary of the Earth Summit, the 1992 United Nations Conference on Sustainable Development, which was held in Rio de Janeiro.  This reprise was billed as “an historic opportunity to define pathways to a safer, more equitable, cleaner, greener and more prosperous world for all.”  The conferees focused on two themes:  “How to build a green economy to achieve sustainable development and lift people out of poverty, ... and how to improve international coordination for sustainable development." The agenda was dense, ranging from jobs to  energy, sustainable cities to food security and sustainable agriculture, and water and oceans to disaster readiness.  Some criticized this “all things to all people” approach.  We take a more pragmatic view:  “whatever works.”

Unfortunately, it does not appear that much is working.  All that was agreed was that there would be more discussion in the future.  Criticism of the conference was uniform.  NPR panned it as “one of the biggest duds.”  The New York Times captured the disappointment of CARE (a political charade), Greenpeace (a failure of epic proportions) and the Pew Environment Group (a far cry from success). Even Sha Zukang, Secretary-General of the conference, could muster little positive to say:  "This is an outcome that makes nobody happy. My job was to make everyone equally unhappy,"

If the goal was another international agreement filled with platitudes that would accomplish nothing, that was not achieved.  But we would like to suggest that something positive may be coming.  We would like to focus on just one of the initiatives, Sustainable Energy for All (SE4ALL).  Conducted under the auspices of the United Nations, SE4ALL has three objectives:

1. Universal access to electricity
2. Increased use of renewable energy
3. Increased energy efficiency

Over 1.3 billion people in the world do not have access to electricity for their homes and work. Electricity is enabling.  Whether for studying after dark, pumping irrigation water, eliminating wood/charcoal/dung stoves, or refrigerating medicine, the benefits of electricity are immediate and life-changing.  The program calls for innovation and investment, and policy choices that enhance innovation and investment.

Renewable energy is part of the program for many of the reasons raised in this country:  job creation, reduction of greenhouse gas and pollutant emissions, insulation from price volatility, and increased energy security.  A justification not common to the domestic debate about renewable energy is also put forth.  Renewable energy can cut balance-of-payment imbalances, The program’s goal is to double the share of renewable energy in the world energy use portfolio by 2030.

“Of the three objectives of Sustainable Energy for All, improving energy efficiency has the clearest impact on saving money, improving business results, and delivering more services for consumers.”  Thus efficiency improvements are the easiest point of entry for lifting more people out of energy deprivation for less money.  The program’s goal is to double the current rate of efficiency improvement by 2030.

Is this all pie in the sky?

Two vantage points suggest it is not.  First, the investment community very much supports the renewable energy sector.  Michael Liebriech, the CEO of Bloomberg New Energy Finance gave an interview at Rio+20 and made the point that he’s seen $1 trillion pour into the sector globally since 2004.  “My clients really don’t necessarily care about what’s happening in the negotiations. They’re concerned about what’s right in front of them. What would you rather trust, a decades-long process that hasn’t resulted in a whole lot of progress, or a trillion dollars in investment?”  Diplomats and governments should listen.

Second, UN Secretary-General Ban Ki-Moon, who grew up without electricity, has explained why SE4ALL is a program worth putting forward:  "Widespread energy poverty condemns billions of people to darkness, to ill health and to missed opportunities ....”  

One can imagine him continuing:  “I had seen first-hand the grim drudgery and grind, which had been the common lot of … generations of … farm women. I had seen the tallow candle in my own home, followed by the coal-oil lamp. I knew what it was to take care of the farm chores by the flickering, undependable light of the lantern in the mud and cold rains of the fall and the snow and icy winds of winter. … I could close my eyes and recall the innumerable scenes of the harvest and the unending punishing tasks performed by hundreds of thousands of women, growing old prematurely, dying before their time, conscious of the great gap between their lives and the lives of those whom the accident of birth or choice placed in the towns and cities.”  

Except that is not the Secretary General, it is Senator Frank Norris, the champion of the Rural Electrification Act of 1936, which literally turned the lights on across much of rural America.  Rural electrification was a good idea then, as millions can attest.  And it is a good idea now.  The trick today is how to wed the developing renewable energy sector, with the billions of dollars of investment being made, to an electrification program for 1.3 billion people.  A distinction here that will make electrification easier than it was in the 1930s, is that many renewable energy sources (solar, wind, tidal) by their nature can be utilized without investment in large power distribution networks.  If SE4ALL is about innovation and investment, it seems eminently achievable.

Climate Change | Legislation | Renewable Energy | Solar Energy | Sustainability

Clash of the (Electric Vehicle Charging Station) Titans: ECOtality v. NRG

May 28, 2012 00:29
by J. Wylie Donald

What do you get when the beneficiary of “the largest public/private federal transportation electrification grant provided by the U.S. Department of Energy” concludes that “one of the country’s largest power generation and retail electricity businesses” is not playing fair?  What you get is quite an interesting lawsuit filed in the California Court of Appeal.  See ECOtality, Inc. v. California Public Utilities Comm’n, et al., Verified Petition for Writ of Mandate (attached).  ECOtality, the project manager of The EV Project, filed suit last Friday seeking to upset a settlement NRG Energy, Inc. has entered into with the California Public Utilities Commission arising from the “California Energy Crisis” of 2000-01.  You didn’t think ECOtality even existed back then.  You would be wrong (it was formed in 1989), but you would be right in concluding that its present lawsuit has nothing to do with what NRG (actually its predecessor) did or didn’t do back in 2000.  The present lawsuit is all about who will dominate the electric vehicle infrastructure marketplace in California in 2012 and beyond.

NRG is settling the PUC’s claim to resolve price-gouging allegations of nearly $1 billion.  Payment of $122,500,000, combined with an earlier payment of almost $300 million “captures significant value for California under circumstances where contentious and expensive litigation would otherwise have continued for many years and with uncertain results,” according to California PUC Commissioner Mike Florio

ECOtality sees things differently.  “If the [settlement] Agreement stands, it will permit NRG, subsidized by the value of the California ratepayers’ released claims, to establish itself and its subsidiary company, eVgo … into a controlling market position for electric vehicle (“EV”) charging facilities in California. The consequence is that NRG will not only be permitted to pursue monopolistic pricing to the injury of California consumers, but also effectively destroy its competitors – including Petitioner ECOtality – in this nascent marketplace, utilizing a rate-payer subsidy.”  Petition at 4.  ECOtality charges the PUC failed to follow proper process, ignored legislative directives, acted ultra vires its authority and unlawfully failed to restore overcharges to the ratepayers.  Petition at 27-31.

What are you to make of this?  On the one hand is NRG.  According to ECOtality, NRG is a colossus delivering over 2 gigawatts of power to over 2 million customers in 16 states.  Its subsidiary, eVgo, “created the nation’s first comprehensive, privately funded electric vehicle infrastructure of home charging stations and public fast charging stations, ensuring that EV drivers have complete confidence they will never run out of power on the go.” Petition ¶ 11.  NRG’s and eVgo’s websites confirm all this.  More specifically, for $89 per month on a three-year agreement, eVgo will install a home charging station and give you non-peak electricity to charge your car at home, and anytime at eVgo network stations.  But you can only do this in Dallas-Forth Worth and Houston at about 5 dozen built and planned stations.  eVgo isn’t operational anywhere else.

On the other hand is every other business interested in electric vehicle infrastructure.  ECOtality’s Petition identifies a number of them, like Better Place, Car Charging Group, Inc., Coulomb Technologies, Aloha Systems, Incorporated, Tesla Motors, TechNet, City CarShare, and Evercharge, each of  “whose business includes participation, either presently, or in the future, in the California marketplace for electric vehicle charging services.“  Petition at 2.  And it includes ECOtality, whose residential charging operations in California include 1245 in the Bay Area, 729 in the San Diego area, and 418 in the Los Angeles area, and whose commercial facilities include 159 stations in the San Diego area (447 planned) and 177 in the Los Angeles area (214 planned).  Petition ¶ 6.

ECOtality is also the data gatherer for the Department of Energy’s EV Project, which is collecting information on the use of electric cars in a half dozen states (California, Oregon, Washington, Arizona, Texas, and Tennessee, as well as the District of Columbia).  The EV Project numbers don’t reflect total regional or national sales or production.  But they do give some information on the penetration of electric cars in the market.   As of the end of March California users had logged over 12 million miles.  See Q1 2012 EV Project Report at 6 (attached).  Texas users trailed every other state, at 575,000 miles barely doubling the miles put on by District of Columbia drivers.

So what bothers ECOtality about the NRG-PUC settlement?  Under the agreement, NRG is set to become a major player in California.  One aspect of the agreement is the payment of $20 million “cash consideration” to the PUC.  Another aspect is the construction and operation of 200 fast charging stations that will be available for use by the general public, at a cost of $50,500,000.  Then there is the development, funding and implementation of pilot programs for EV-related technology and EV car sharing. But all of that is nothing when compared with the massive involvement NRG is mandated to make in the California market as set out in the Joint Offer of Settlement:  “the installation of infrastructure to support ten-thousand privately-owned chargers at a total of one-thousand multi-family, workplace and public interest sites (e.g., public university).”  In the language of the settlement, NRG is providing 1000 Make-Ready Arrays, which will provide 10,000 Make-Ready Stubs, to which property owners can attach charging stations. 

This is to cost $40 million over four years with minimum numbers of facilities specified in various areas.  NRG has discretion to complete the build-out both geographically and by site-type (e.g., multi-family, retail) in the manner most advantageous to it.  If NRG builds along the lines of the minimum distribution mandated by the settlement, that translates to 5500 chargers in Los Angeles, 2750 in San Francisco and 1000 in San Diego. NRG has exclusive rights to provide service to the Make-Ready Stub for 18 months after the stub is ready for operation. In other words, ECOtality’s market dominance in California will be challenged.  Specifically, “By giving NRG an 18 month head start, subsidized by ratepayers, the Agreement permits NRG to “cherry pick” 1,200 of the most favorable California real estate locations for [electric vehicle charging stations] in a manner that will not only saturate the market, but permanently disadvantage its competitors, including Petitioner, by relegating them to much less valuable secondary locations.”  Petition ¶ 40.

Our take on all this is that this is all about timing.  Get there fustest with the mostest is poor English, out-of-context and ahistorical, but nevertheless apt. Stated differently, keep the other fellow from getting there with anything. When the cavalry is unavailable, try a lawsuit.  As the market for electric cars cranks up (ECOtality’s website reports 28 million miles driven so far in the EV Project), the difference between success and failure may come down to location, brand recognition, and market access.  The battle is joined on all three in California.  We will not be surprised by variations on this theme elsewhere.

 

20120525 ECOtality v California Public Utilities Commission et al, Verified Petition for Writ of Mandate.pdf (286.06 kb)

Q1 2012 EV Project Report, ECOtality.pdf (8.31 mb)

Regulation | Sustainability | Utilities

Travails of A123, Fisker and Ener1 Don't UnPlug Nissan CEO Ghosn at New York Auto Show

April 5, 2012 10:05
by J. Wylie Donald

 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.

Carbon Dioxide | Sustainability

Plugging in Electric Vehicles May Raise IQs

November 12, 2011 00:22
by J. Wylie Donald

It's not Gone with the Wind or Harry Potter, but an article just published in the public health journal, Health Affairs, is worth picking up, if only to start you thinking.  In Six Climate Change–Related Events In The United States Accounted For About $14 Billion In Lost Lives And Health Costs, the authors (two senior scientists at the NRDC, two professors and a law student) grapple with the health costs of climate-change related events.   In the authors' words:  "The objective of this study was to provide a cost calculation of health effects associated with events related to climate change over the past decade. Similar events can reasonably be expected to occur more frequently in the future." 

The report looked at six events (ozone pollution, heat waves, hurricanes, infectious disease outbreaks, river flooding, and wildfires) between 2000 and 2009 and estimated that the total health costs exceed $14 billion. It acknowledges that the individual events cannot be linked definitively to climate change and that the relationship between climate change and health is complex and variable.  The report's value, it is asserted, is that it provides information on "the types of health impacts that are projected to worsen under climate change."  Interestingly, it reports health linkages that are generally overlooked.  Increases in carbon monoxide poisoning are associated with hurricanes as a result of power outages and the use of generators.  Wildfires result in increases in asthma.

While the report is a good start, in our view it attempts too much.  We have no doubt that everyone will agree that hurricanes and wildfires cost money and threaten health.  But just providing a sample of one hurricane season in one locale and one state's experience with heat waves hardly advances the ball (particularly when it is acknowledged that the studied event was a "high-end, but not extreme, event").  Much more useful would be to explain the variables that affect those health expenditures in each of the subject areas.  Still, one has to start somewhere and other researchers can pick up where this leaves off.

The report acknowledges that it did not consider the health benefits of climate change.  We would like to point out one that may soon be more well-known:  the health benefits of the electric car.  And we are not talking about the benefits to your inner ear and auditory canal from the quiet.  Rather, the electric car may be the vehicle for making the nation smarter.  

Many years ago engineers figured out that bonding a few organic molecules to a lead atom and adding it to gasoline could eliminate "knocking" in a car's engine. A billion dollar industry was born. Unfortunately, after the anti-knocking job was done, the lead continued on out the exhaust pipe and ended up on the side of the road. That was the end of it until public health specialists drew the connection between retarded cognitive development and other maladies and the use of leaded gas. It took the USEPA only 15 years (including an appeal to the D.C. Circuit) to achieve a total ban on lead in motor vehicle fuel in 1986.

Now we are twenty-five years later. Lead is long gone from automobile fuel but health researchers are again focusing on the connections between retarded cognitive development and a host of other maladies and automobile exhaust.  This story is set forth this past Monday in a Wall Street Journal article, The Hidden Toll of Traffic Jams, by Robert Lee Hotz.  Mr. Hotz surveys the scientific literature from across the country and around the globe and points out the correlations scientists are finding between high levels of exhaust and lower IQs, anxiety, memory loss, attention deficits, and premature births.  This time the culprit cannot be lead. In fact, no one knows the identity of the specific etiologic agents.  But even without that information, one solution would be to knock down exhaust levels across the board. Enter climate change. Or more specifically, enter a response to climate change:  the electric car.   It is touted (somewhat misleadingly) as a zero emission vehicle. It has no tail pipe. Even when its emissions are acknowledged (those that go up the power plant stack), however, power plants are far more efficient and much cleaner than internal combustion engines. Hence there are far fewer emissions per mile traveled and the maladies correlated to exhaust invariably will decrease.

Will this health benefit drive the adoption of electric cars? Certainly not by itself. Will it be a factor?  Only time will tell, but if leaded gas is any indicator, we will soon see health advocates pushing for charging stations and plug-n vehicles, and some of us will be smarter for it.

Climate Change Effects | Sustainability

Renewable Fuels Take Off - Algae Arrives and Certiorari Denied

November 8, 2011 11:41
by J. Wylie Donald

Yesterday was a good day for renewable fuels enthusiasts and not because someone figured out how to make ethanol cocktails from pond scum.  In Houston American renewable fuel use literally took off on its maiden flight and in Washington the Supreme Court denied certiorari in a suit brought by the oil industry challenging the USEPA's regulations promulgating a revised renewable fuels standard.

In National Petrochemical Refiners Association and the American Petroleum Institute v. EPA, the plaintiffs asserted the EPA's final rule, Regulation of Fuels and Fuel Additives: Changes to Renewable Fuel Standard Program, 75 Fed. Reg. 14,670 (Mar. 26, 2010), was invalid because it "violate[d] statutory requirements setting separate biomass-based diesel volume requirements for 2009 and 2010; [was] impermissibly retroactive; and it violate[d] statutory lead time and compliance provisions."  630 F.3d 145, 147 (D.C. Cir. 2010).  From those arguments, one might justifiably conclude that watching paint dry would be far more exciting than this opinion; we will leave it to others to explicate.  E.g., see the case comment in the Texas Journal of Oil, Gas and Energy Law Blog. In any event, the court of appeals denied all of petitioners' arguments and left EPA's rulemaking completely intact.  The Supreme Court saw no reason to step in. 

What does the standard mean in the real world?  It is huge.  Among other things, according to the EPA's website it raised the mandated volume of renewable components in motor vehicle fuel from 9 billion gallons in 2008 to 36 billion gallons by 2022.   And it "appl[ied] lifecycle greenhouse gas performance threshold standards to ensure that each category of renewable fuel emits fewer greenhouse gases than the petroleum fuel it replaces."  In other words, if one measures all the greenhouse gases emitted in the production of, for example, one gallon of corn-derived ethanol, fewer gases would be emitted than in the production of one gallon of gasoline.

But the standard is not huge for airlines.  It only applies to motor vehicle fuel. 42 U.S.C. § 7545(o)(1)(C)(i).  Nevertheless, airlines are starting to line up for renewable fuels.  A case in point is the news story in yesterday's Houston Chronicle, Algae helps power flight to Chicago.  The gist of the story is that a United Airlines Boeing 737 lifted off from George Bush Intercontinental Airport for Chicago with a fuel tank filled with a blend derived from algae and conventional aviation fuel.  Passengers noted nothing different despite participating in history.  As stated by United:  "the first U.S. airline to fly passengers using a blend of sustainable, advanced biofuel and traditional petroleum-derived jet fuel."  More details are provided in the press releases from Solazyme (the biofuel manufacturer) and United. The blend was 40/60 algae to conventional fuels, complied with the ASTM D7566 specification for aviation fuel, and is a "drop-in replacement[] for petroleum-based fuel, requiring no modification to factory-standard engines or aircraft."  Tomorrow Alaska Airlines takes off with used cooking oil product in its tanks. The price for this "green" fuel?  One internet source puts it at between $17 and $26 per gallon. 

Is this cutting edge?  For the United States, yes, for Europe not at all. Lufthansa flies 8 flights daily to and from Hamburg and Frankfurt using 50% biofuel in one engine. The press release goes on to explain the single engine:  "next to reducing CO2 emissions, the main aim of this long-term operational trial, [is] to examine the effects of biofuel on the maintenance and lifespan of aircraft engines."  That is, the two engines will be torn down to the last o-ring at the next overhaul and compared, providing valuable data for future operations.

Both United and Lufthansa emphasize the role renewable fuel has in their sustainability initiatives.  Good public relations and potential competitive advantage may be reason enough to incorporate biofuels.  But besides green-ness can $17 per gallon be justified? It might be if it could reduce costs elsewhere, and faithful readers have already figured out where that might be. As we reported recently, the EU will start imposing carbon emission fees on flights originating or terminating in the European Union. Bio-fueled flights can get credits and reduce their fees.  With that, a little innovation, some economies of scale, and some luck, we might soon find ourselves enjoying a little pond scum at 30,000 feet.

Green Marketing | Greenhouse Gases | Regulation | Renewable Energy | Sustainability

Damascus Citizens for Sustainability Attack Marcellus Shale Gas

August 29, 2011 00:10
by J. Wylie Donald

No, this is not jihad or the last gasp of a d esperate despot.  Instead, it is a citizens group taking on the government and seeking to compel the completion of environmental impact statements (EISs) prior to the promulgation of regulations for the development of shale oil wells in the Delaware River Basin.  If they are successful, they will certainly delay the drilling of hundreds if not thousands of wells.  And as part of that success, the role of natural gas as a "bridging" fuel to ease us into a carbon-free world may be substantially diminished.

Taking a page from the playbook of past environmental challenges, Damascus Citizens for Sustainability, Inc. filed suit earlier this month against the Army Corps of Engineers, Fish and Wildlife Service, National Park Service, Department of the Interior, EPA and Delaware River Basin Commission (DRBC), as well as various officers in their official capacities to block hydraulic fracturing ("fracking") activities in the Delaware River Basin. The gravamen of the complaint (attached) is that the agencies have violated federal law by failing to require the completion of an environmental impact statement before promulgating regulations allowing natural gas development within the Basin.  Plaintiff seeks declaratory and injunctive relief. 

DCS is a non-profit conservation group whose members "live, work and recreate" in the Basin. Complaint ¶ 11.  Members of DCS include organic farmers, bird watchers, hunters and fishermen. Id. ¶ 12.  Some will take offense at the disengagement of some of the plaintiff's members who "escape on weekends and vacations to their refuge in the Upper Delaware Basin where they can commune with nature in the bucolic setting of the Basin."  Id.  As summarized by the complaint, "For each member of DCS, the Basin's unspoiled resources are his or her own Walden Pond."  Id.

Defendants are government agencies responsible in one way or another for the watershed.  As such, effects from fracking (which, according to the complaint, will result in between 15,000 and 18,000 natural gas wells in the Basin, id. ¶ 62) fall under their jurisdiction.

A substantial hurdle in plaintiff's suit is whether the National Environmental Policy Act (NEPA) (which requires EISs) even applies to an interstate commission such as the DRBC. As the complaint acknowledges, "DRBC has stated that it is not subject to NEPA, noting that four of the five commissioners are appointed by states.  DRBC thus refuses to comply with NEPA."  Id. ¶ 32.  There is support in the case law for this position:  "That DRBC is a federal agency for purposes of NEPA is very doubtful."  Delaware Water Emergency Group v. Hansler, 536 F. Supp. 26, 35 (E.D. Pa. 1981).  DCS argues that, among other things, the DRBC is a federal agency as it was established by federal legislation, publishes its regulations in the Code of Federal Regulations, publishes its activities in the Federal Register, is listed as a U.S. Government Agency by USA.gov and is viewed as a federal agency by the Council of Environmental Quality, which oversees the federal government's compliance with NEPA.  Complaint ¶¶ 26, 28, 29.

If DCS gets past that hurdle then numerous aspects of fracking may come under the microscope.  Allegations include:  highly contaminated return flows of water, gas and other materials, confidential fracking fluid formulas containing "carcinogenic, acutely toxic, chronically toxic and bioaccumulative" materials, methane emissions as greenhouse gases, "systematic evidence of methane contamination of drinking water from gas extraction activities", "large-scale changes in land use and increased water withdrawals," "significant air pollution from truck exhaust emissions," "serious vehicular accidents,"  "significant public health problems" and  permanent change to the rural and scenic character of the area.  Id. ¶¶ 50, 51, 54, 59, 62, 63, 65 and 66.  It is obvious that full development of all these topics will substantially delay the development of the Marcellus shale.

To focus on just one aspect of the allegations, it is worth looking at greenhouse gas emissions.  The conventional wisdom is that because natural gas is composed of lighter, less complex hydrocarbons, and therefore when combusted it emits less carbon dioxide per BTU than other fossil fuels, it is to be preferred over oil and coal.  NaturalGas.org reports on its webpage that "The combustion of natural gas emits almost 30 percent less carbon dioxide than oil, and just under 45 percent less carbon dioxide than coal."  (Particulates, SOx and NOx and mercury are likewise much lower.)  Methane, an even more potent greenhouse gas than carbon dioxide, and a significant component of natural gas, likewise is reported to have better characteristics in natural gas. An EPA/Gas Resources Institute 1997 study concluded "that the reduction in emissions from increased natural gas use strongly outweighs the detrimental effects of increased methane emissions."  Id.  Accordingly, many believe that if one substitutes natural gas for coal and oil, one could continue to grow the economy while at the same time reducing greenhouse gas emissions.

This proposition is under attack.  Citing a 2010 EPA study, DCS pleads that EPA "revised its estimated potential emissions from gas well completions from 0.02 tons of methane per well to 177 tons of methane per well."  Complaint ¶ 63.

We tracked down the EPA study and some additional scholarship.  In Greenhouse Gas Emissions Reporting from the Petroleum and Natural Gas Industry, Background Technical Support Document, the EPA walks away from its earlier study:  "new data and increased knowledge of industry operations and practices have highlighted the fact that emissions estimates from the EPA/GRI study are outdated and potentially understated for some emissions sources."  Background Technical Support Document at 8.  One of those sources is unconventional natural gas production, aka fracking.  Appendix B of the study lays out the sources of the new data and they are thin: four presentations at a 2007 EPA Natural Gas STAR Production Technology Transfer Workshop .  Nevertheless, they may be a game changer.

Cornell researchers Howarth, Santoro and Ingraffea took the new numbers and applied them to the proposition that natural gas should be used "as a transitional fuel, allowing continued dependence on fossil fuels yet reducing greenhouse gas (GHG) emissions compared to oil or coal over coming decades."  Howarth at 2.  They concluded that shale gas has a greenhouse gas footprint substantially larger than previously thought and that, depending on circumstances, the footprint of coal can be superior to that of shale gas (i.e., smaller).  Id. ¶ 8.  Thus, "the large GHG footprint of shale gas undercuts the logic of its use as a bridging fuel over coming decades, if the goal is to reduce global warming."  Id.

One thing that was striking in the EPA study was the acknowledgment of "great variability in the natural gas sector and [that] the resulting emission rates have high uncertainty."   Background Technical Support Document at 86.  EPA also noted that its results do not include reductions due to control technologies.  Id. at 87.  Howarth et al. acknowledge the efficacy of technology and that "methane emissions during the flow-back period in theory can be reduced by up to 90%."  Howarth ¶ 7.  In practice, they assert it does not happen.  If Damascus Citizens for Sustainability has anything to say about it, we will know more.

Damascus Citizens for Sustainability, Inc. v. U.S. Army Corps of Engineers et al, 11-cv-03857 Complaint (Aug. 10, 2011).pdf (828.33 kb)

Gifford v. USGBC - Dismissed (But Not on the Merits)

August 18, 2011 22:55
by J. Wylie Donald

One of the more infuriating things about lawyers is that often, if they do their job right, their client wins and no one else benefits from it. This is what happened Monday before Judge Sand in the Southern District of New York in the closely followed green building case, Gifford v U.S.Green Building Council. The judge, in a short Memorandum & Order barely over seven pages (attached below) dismissed Mr. Gifford's case on procedural grounds. So we are left to wonder about the merits.

Mr. Gifford and his co-plaintiffs are building engineering professionals. They assert that the USGBC's LEED standard is false and misleading and has injured them in their business. Specifically, "LEED-certified buildings are no more energy-efficient than non-LEED certified buildings.  USGBC's own study data on the subject indicate that, on average, LEED buildings use 41% more energy than non-LEED buildings.  There is no objective empirical support for the claim that LEED buildings consume less energy.  LEED buildings are less efficient because the criteria that USGBC purportedly uses to certify buildings do not correlate with energy efficiency."  First Amended Complaint ¶ 4 (attached below); also id. ¶ 32 (providing more detail).  As a result of the LEED claims made by USGBC, customers purchase LEED services rather than plaintiffs' design services.

These injuries, according to plaintiffs, entitled plaintiffs to proceed in court for injunctive relief and damages under the federal Lanham Act for commercial misrepresentations and parallel state law claims.

USGBC defended on the ground that the plaintiffs had no standing to assert Lanham Act injury. The court agreed.  Memorandum & Order at 7.

There are two tests for standing in the Second Circuit. Under the first test, the parties must be competitors.  Id. at 4.  Plaintiffs did not certify green buildings or accredit professionals, as USGBC did. Accordingly, they failed the first test. The second test, the reasonable commercial interest test, was more forgiving. There "a plaintiff must demonstrate (1) a reasonable interest to be protected against the alleged false advertising, and (2) a reasonable basis for believing that the interest is likely to be damaged by the alleged false advertising." Id. (citation omitted). Where the parties are not direct competitors a plaintiff must make a "more substantial showing of injury and causation.".  Id. at 5 (citation omitted).

Mr. Gifford and his co-plaintiffs could not satisfy that test either. The court found the allegation that plaintiffs' professional services would be "subsumed" by USGBC was "speculative".  It commented that  "there is no requirement that a builder hire LEED-accredited professionals at any level, let alone every level, to attain LEED certification, ..." Id. at 6.  (While technically correct, my LEED AP colleagues confirmed that as a practical matter they can't imagine a LEED project would proceed without a LEED AP on the project team.  At the very least, having a LEED AP on the team entitles one to points toward certification.)

As to the specific allegation of misrepresentation regarding building efficiencies, there was no allegation that anyone relied on that statement to decline to hire Mr Gifford. So the plaintiffs lacked standing under the second test too.  Id. at 7.

The absence of standing was fatal to the federal claims, which the court dismissed with prejudice.  Id.  As to the state law claims, it declined to assert supplemental jurisdiction and dismissed those claims as well (but without prejudice).  Id. at 8.

The blogosphere reports that Mr Gifford is considering his appeal.   A press release by USGBC states: "This successful outcome is a testament to our process and to our commitment to do what is right." 

What the rest of us want to know, however, is whether there was any substance to any of Mr. Gifford's allegations. This is important and not only for the decision of whether it is sensible to build a LEED-certified building. One has to think about plans that go awry.  Should a green building project fail and investors and lenders lose money (and it is a statistical certainty that this will happen), the injured parties will cast about looking for a place to lay the blame. Mr Gifford might assert that false hopes raised by USGBC's claims are at the root of the problem.   

20110815 Memorandum & Order (of Dismissal) Gifford v. U.S. Green Building Council (72.00 bytes)

Gifford v U.S. Green Building Council - First Amended Complaint February 7, 2011.PDF (94.75 kb)

Climate Change Litigation | Green Buildings | Sustainability

Predicting Sea Level Rise - The Arctic Council Raises the Ante

May 16, 2011 23:27
by J. Wylie Donald

Last Thursday Secretary of State Hilary Clinton and other prominent diplomats signed the first ever treaty under the auspices of the Arctic Council; specifically, the member nations addressed Arctic search and rescue, made necessary by the increasing traffic in the formerly ice-locked realm caused by the reality of Arctic warming. Less noticed, perhaps, was the release of a report by the Council's Arctic Monitoring and Assessment Program (AMAP).  Among other things, the report, Snow, Water, Ice and Permafrost in the Arctic, forecasts up to a 5-foot rise in sea level by the turn of the century. This is real news because the earlier report in 2007 by the Intergovernmental Panel on Climate Change forecast an increase only one-third as large. We hesitated to report the AMAP conclusions because the last thing a law firm wants to be called is an alarmist, always sounding the air raid siren when a blip appears on the radar.   But, by the same token, counsel's fundamental role is to assist clients in addressing risks. That there are extreme views on almost any subject does not mean that the subject should be ignored. And the views here are not extreme.  Climate change is occurring. Prudence dictates that the effects be considered and addressed.

The AMAP report is a product of the environmental assessment arm of the Arctic Council, an 8-nation group that considers how to promote sustainable development and environmental protection in the Arctic. The report picks up where the IPCC left off, when it forecast a sea level rise of between 7 and 23 inches by 2100. Left out of the IPCC analysis was the effect of the melting Antarctic and Greenland ice sheets because the science was undeveloped.

Four years later, the Arctic Council has filled in that void and reached a startling result. According to the report's executive summary, the warming of the Arctic is having a dramatic effect. "A nearly ice-free summer is now considered likely for the Arctic Ocean by mid-century."  A "Key Finding" was that "global sea level is projected to rise by 0.9–1.6 m by 2100."  Translating, that is a sea level rise of between 3 and 5 feet by the end of the century.

Shipping companies are salivating at the prospect of a straight shot over the roof of the world from Europe to Asia. Investors in the Panama Canal are less enthusiastic.

What does all this mean for those considering their waterfront risks far south of the Arctic Circle?  Quite a bit actually.  The EPA offers some sobering data on its website.

  • A two foot rise in sea level would eliminate almost 10,000 square miles of land (that is, an area exceeding all of Massachusetts).
  • Damage from storms in a world with a 3-foot higher sea level would be 2 or 3 times as large.
  • The salinization of coastal aquifers from salt water intrusion from rising sea levels threatens water supplies in Florida and south Jersey.

It may seem like there is little that can be done if one is unwilling to abandon the shore.  But that would be a very shortsighted view.  Investors, lenders, developers and businesses involved with real estate near the shoreline should be considering the following

1. What interest in land should one acquire - a fee simple or a conventional 30-year lease?  The lessee, without a single additional word in its lease, may be protected from rising sea levels by the covenant of quiet enjoyment. The fee owner, on the other hand, bears all of the risk of a rising mean high water mark.

2. How effective are one's contracts' force majeure clauses?  Will performance be excused if one's facility is submerged?  What about if the local infrastructure goes underwater?  Does a condemnation action by governmental authorities trigger the provision?

3. Where exactly is mean high water?  Where will it be if the predicted rise occurs even in part?  What is the significance of that for the investment expectations of all involved?

4. What is the effect of a state statute that establishes the seaward property line at something other than the sea?  If this sounds nonsensical, it is the law in Florida, as confirmed by the U.S. Supreme Court in Stop the Beach Renourishment, Inc. v Florida DEP.  Florida's statutory "erosion control line" converted many beachfront properties, into beachview properties. And no, there was no compensable "taking."

There are certainly others. The point is not to run about shouting "The sky is falling!". The point is to consider thoughtfully the possibility that the sky may fall and whether there is anything that can be done about it.

Climate Change | Climate Change Effects | Rising Sea Levels | Sustainability


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