Environmental Alert
(By Jean Mosites and Amanda Brosy)
On August 16th, President Joe Biden signed the Inflation Reduction Act of 2022 (the Act) into law. The Act, as part of a larger budget reconciliation package, provides roughly $370 billion in investments in energy and climate reform geared towards lowering greenhouse gas emissions by 40 percent, based on 2005 levels, by 2030.
Among other things, the Act resurrects a long-expired Hazardous Substance Superfund Trust Fund (Superfund) excise tax on oil and petroleum products, effective as of January 1, 2023. In 1980, Congress had established the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). CERCLA is commonly referred to as “Superfund”. It allows EPA to clean up contaminated sites. It also requires the parties responsible for the contamination to either perform cleanups or reimburse the government for EPA-led cleanup work. When there is no viable responsible party, Superfund gives EPA the funds and authority to clean up contaminated sites.
The purpose of the petroleum excise tax is to replenish the Superfund, which provides the federal government with resources to respond to environmental threats related to hazardous substances not otherwise addressed by responsible parties. The petroleum excise tax applies to crude oil received at a U.S. refinery (which tax must be paid by the operator of the refinery) and to petroleum products entering the U.S. for consumption, use, or warehousing (which tax must be paid by the person importing the product into the U.S. for any of those purposes). In addition, if any domestic crude oil is used in or exported from the U.S., and before such use or exportation no tax was imposed on such crude oil at the refinery (as described above), then a separate tax is imposed. That tax would be paid by the person using or exporting the crude oil, as the case may be.
The tax rate is 16.4 cents per barrel on crude oil and petroleum-product imports, indexed to the inflation rate. This is an increase from the rate of 9.7 cents that applied the last time this petroleum excise tax was effective over 25 years ago. It is estimated that the tax will raise $11.7 billion in revenue over 10 years, until the tax is set to expire on December 31, 2032.
The reinstatement of the Superfund excise tax on oil and petroleum products marks the resumption of two of the three original Superfund taxes that were allowed to expire in 1995 (the third was an environmental income tax). As previously reported by Babst Calland, a separate Superfund excise tax on chemical feedstocks was reinstated with the adoption of the federal Infrastructure Bill last November. The reinstatement of these Superfund taxes, with attendant revisions and new provisions, has raised and will raise a multitude of tax implications, questions and uncertainties that are beyond the scope of this alert. The IRS has issued and will continue to issue guidance regarding the applicability of the tax to taxable substances.
Babst Calland’s environmental attorneys continue to track Superfund developments and their implications for industry as developments occur in the coming months. If you have questions or need additional information, please contact Jean Mosites at (412) 394-6468 or jmosites@babstcalland.com or Amanda Brosy at (202) 853-3465 or abrosy@babstcalland.com.
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Firm Alert
(By Jim Curry, Sean McGovern, Gina Falaschi and Varun Shekhar)
On August 16, 2022, President Joe Biden signed the Inflation Reduction Act (the Act) into law, calling it “one of the most significant laws in our history.” The United States House of Representatives passed the Act on August 12 along party lines. This vote followed the Senate’s August 7 passage of the bill, also along party lines, with Vice President Kamala Harris casting the tiebreaking vote. In addition to $369 billion in energy security and climate investments, the bill also includes $64 billion to expand Affordable Care Act subsidies for two years and various tax measures, including a corporate alternative minimum tax of 15% and $80 billion to increase enforcement efforts at the Internal Revenue Service (IRS).
The vast majority of the $369 billion allocated for energy security and climate investments in the Act comes in the form of tax credits. The biggest portion of these is for clean energy tax credits ($161 billion). Some of these are modifications or extensions through 2024 of existing tax credits, such as electricity production from renewable resources. In particular, the current Section 45 production tax credit would be enhanced for renewable electricity production projects using domestic steel and other components. The Act also includes significant tax credits for carbon capture and sequestration (CCS) and clean energy production. The Act extends and increases the tax credit under Section 45Q of the IRS code for CCS, creates a new tax credit under Section 45V for the production of clean hydrogen (up to $0.60 per kg, depending on the GHG emissions associated with production), and creates a new tax credit under Section 45U for production of zero-emission nuclear power. The Act also establishes a new technology-neutral tax credit under Section 45Y for facilities producing electricity with net-zero-GHG emissions, placed in service after December 2024.
The Act further allocates substantial funding for clean energy manufacturing tax credits. This includes the manufacture of both clean energy equipment (e.g., the production of domestic manufacture of solar panels, wind turbines, batteries, and critical mineral processing equipment) as well as for the construction of clean technology manufacturing facilities.
Regarding air and greenhouse gas emissions, the Act appropriates funding to support EPA regulatory programs targeting hydrofluorocarbons (HFCs), as well as reductions of other greenhouse gases (GHGs) under Section 115 of the Clean Air Act (CAA) (relating to international air pollution). The Act would also create the “Greenhouse Gas Reduction Fund” to provide grants to states, local agencies, and tribal authorities for deployment of zero-emission technologies. In addition, the Act appropriates funding for numerous grant programs administered by EPA, including, among others, air toxics fenceline air monitoring, and expanding criteria pollutant monitoring networks. These programs could eventually have significant impacts on the stringency of regulation under the CAA potentially through revisions to National Ambient Air Quality Standards or National Emission Standards for Hazardous Air Pollutants through residual risk and technology reviews.
The Act further appropriates nearly $1 billion to EPA for facilitating regulatory programs associated with methane emissions monitoring and reducing methane emissions from petroleum and natural gas systems. In addition, the Act establishes a fee on excess waste methane emissions over a defined threshold based on the amount of natural gas or oil set to sail from a facility. The fee is assessed at a $900 per ton rate, applicable to many industries, including oil and gas production, gas processing and compression, underground natural gas storage, and onshore gas gathering and transmission. This fee increases by $300 in subsequent years.
Clean vehicle funding includes $1 billion to the EPA to award grants and rebates for medium and heavy-duty vehicles with zero-emission vehicles and $60 million in funding to EPA for grants, rebates, and loans to reduce diesel emissions in low-income and disadvantaged communities. The Act also provides $2 billion to retool existing auto manufacturing facilities to manufacture clean vehicles.
A focus area of the Act is environmental justice. The Act appropriates nearly $3 billion in block grants to community-based nonprofit organizations in disadvantaged communities for various climate-based projects, including but not limited to investing in low- and zero-emission technologies, community-based air pollution monitoring, and mitigating risks from climate change. In addition, the Act makes further tax credits available for qualifying electricity generating projects placed in environmental justice communities. The Act’s expansion of criteria pollutant monitoring networks is also designed to focus on low income and disadvantaged communities.
The Act also reinstates a Superfund tax on certain crude oil received at U.S. refineries and imported petroleum products, amending the tax from 9.7% to 16.4%, and indexing the tax for inflation.
The Act is the latest in a series of developments at the federal level that both enhance and curtail climate change efforts. The passage of the Act comes in the wake of the Supreme Court’s June 30th ruling in West Virginia v. EPA, which held that the EPA did not have authority to impose a regulatory scheme that requires shifting power generation from coal to natural gas and renewable or other zero-emitting sources. The Court’s ruling held that Congress would have needed to grant this authority specifically to an agency. Here, Congress is taking a more direct approach at climate action and renewables at the legislative level with tax credits, direct funding, and other incentives for clean energy.
The Act also joins the SEC’s March 2022 proposed rule, The Enhancement and Standardization of Climate-Related Disclosures for Investors, which includes a new subpart to Regulation S-K of the SEC’s regulations (17 C.F.R. Part 229) that would require a registrant to disclose climate-related risk information in its registration statements and periodic reports. 87 Fed. Reg. 21334. These disclosures would include material effects of climate-related risk on the company, the company’s process for identifying and managing climate-related risk, information regarding publicly set climate-related targets or goals, and the company’s greenhouse gas emissions. Id. While the stated purpose of the proposed rule is to provide standardized and material information regarding climate risks to investors, in practice, the proposed rule will incentivize greenhouse gas emissions reductions. The SEC’s proposed rule and the Act both highlight the emerging trend towards an approach to climate change outside of the confines of EPA regulation, where such efforts have historically been undertaken. This approach is consistent with President Biden’s “Whole-of-Government Approach” to the climate crisis espoused in the first days of his presidency in Executive Order 14008 Tackling the Climate Crisis at Home and Abroad. 86 Fed. Reg. 7619.
While the Act is a significant step towards funding climate change and clean energy efforts at the federal level, the long-term implications of this legislation are still unclear. The programs authorized and funded by this legislation will be developed by the various federal agencies over the coming years, and Babst Calland will continue to monitor these developments. Please contact Jim Curry at (202) 853-3461 or jcurry@babstcalland.com, Gina Falaschi at (202) 853-3483 or gfalaschi@babstcalland.com, Sean McGovern at (412) 394-5439 or smcgovern@babstcalland.com, or Varun Shekhar at (202) 975-1390 or vshekhar@babstcalland.com if you have any questions or need assistance.
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Environmental Alert
(By Varun Shekhar and Gina Falaschi)
On the final day of its 2021-2022 term, the United States Supreme Court released its 6-3 ruling in West Virginia v. EPA that narrows the EPA’s authority to regulate greenhouse gas emissions from power plants.
A coalition of states and power and coal companies led by West Virginia’s Attorney General Patrick Morrisey petitioned the Supreme Court to review a 2021 decision from the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit).[1] That decision struck down the Trump administration’s 2019 Affordable Clean Energy (ACE) rule, which had replaced the Obama administration’s 2015 Clean Power Plan. Specifically, the petitioners asked the Supreme Court to revisit the D.C. Circuit’s holding that EPA’s ACE rule, and simultaneous repeal of the Clean Power Plan, was based on a “mistaken reading of the Clean Air Act”—namely, that the “generation shifting” scheme employed by the Clean Power Plan cannot be a “system of emission reduction” under Section 111 of the Clean Air Act.
Under the Clean Power Plan, EPA calculated rate-based (amount of carbon dioxide emitted per megawatt hour generated) and mass-based (total amount of carbon dioxide emitted per year) targets for each state through application of three “building blocks” that were deemed to constitute the “best system of emission reduction…adequately demonstrated” (BSER). These “building blocks” include: (1) improvements to heat rates (a measure of heat input to power output efficiency) achieved at individual power generation facilities; (2) shifting power generation to natural gas-fired or combined cycle (NGCC) facilities; and (3) increased power generation from renewable and zero-emitting sources. The latter two “building blocks” constituted the Clean Power Plan’s “generation shifting” scheme, such that the EPA determined that the BSER included restructuring the nation’s overall mix of electricity generation, to transition from 38 percent from coal-fired sources to 27 percent from coal-fired sources by 2030.
The Supreme Court’s grant of certiorari in this case came as a surprise, as the Biden administration had said it would not enforce the Clean Power Plan and would propose its own regulation, meaning that the Supreme Court was reviewing a regulation that had never and would likely never take effect.
Ultimately, the Supreme Court reversed and remanded the D.C. Circuit’s ruling in an opinion authored by Chief Justice Roberts finding first, that the petitioners had standing because the Clean Power Plan harmed the states, and second, that the case was not moot because voluntary cessation, in this case the Biden administration’s promise not to enforce the Clean Power Plan does not moot a case unless it’s “absolutely clear wrongful behavior could not reasonably be expected to recur.” Because the EPA could reimpose the generation shifting emissions limits in another form, the court did not dismiss the case as moot.
On the merits, the majority found that EPA had exceeded its authority under the federal Clean Air Act because Congress did not clearly authorize a generation shifting regulatory scheme to constitute a BSER under Section 111, pursuant to the “major questions” doctrine. The “major questions” doctrine says that if Congress intended agencies to make sweeping, economy-wide changes with their regulations, the relevant legislation must say so “specifically and clearly.” Here, the majority found it “highly unlikely that Congress would leave” to “agency discretion” the decision of how much coal-based generation there should be over the coming decades. The majority rejected EPA’s argument, saying the language found in Section 111(d), “best system of emission reduction,” did not give the agency the authority needed to employ the generation shifting approach because “the word [system] is an empty vessel” and “[s]uch a vague statutory grant is not close to the sort of clear authorization required by our precedents.”
Justice Neil Gorsuch filed a concurring opinion, in which Justice Samuel Alito joined. Justice Elena Kagan filed a dissenting opinion, in which Justices Stephen Breyer and Sonia Sotomayor joined.
EPA is expected to propose a new power plant regulation in the coming months. Regarding the anticipated proposed rule, during a Senate Environment and Public Works Committee hearing on April 6, 2022, EPA Administrator Michael Regan said, “we want to be sure that the rule that we design will fall within where the Supreme Court will land” and that the agency will be “ready to go as soon as the Supreme Court rules.”
Babst Calland is closely tracking this development and future climate change-related rulemakings. Please contact Varun Shekhar at (202) 975-1390 or vshekhar@babstcalland.com, Gina Falaschi at (202) 853-3483 or gfalaschi@babstcalland.com, or Marley Kimelman at (202) 853-3464 or mkimelman@babstcalland.com if you have any questions or need assistance.
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[1] American Lung Assn. v. EPA, 985 F. 3d 914 (CADC 2021).
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Environmental Alert
(by Robert Stonestreet and Kip Power)
Two recent developments depict the frustration with regulatory roadblocks and concern with future costs that project developers often cite in working through Endangered Species Act (ESA) issues with the U.S. Fish & Wildlife Service (FWS). One illustrates the extraordinary delays that ESA permitting can create. The other is indicative of the ever-broadening scope of FWS authority.
On June 1, 2022, West Virginia-based Allegheny Wood Products, Inc. (AWP) filed a federal lawsuit against FWS and its Director, as well as the Secretary of the Interior, seeking a court order directing FWS to take action in an ESA permitting process that began 16 years ago and still remains pending. Allegheny Wood Products, Inc. v. U.S. Fish and Wildlife Service, Civil Action No. 2:22-cv-007 (N.D. W.Va.) (assigned to Judge Thomas Kleeh). According to the Complaint, AWP (one of the largest producers of Eastern U.S. hardwoods) began the process to obtain an Incidental Take Permit from the FWS in 2006 for a proposed project in Tucker County, West Virginia. Consistent with guidelines published by FWS, AWP started the process by submitting a draft Habitat Conservation Plan (“HCP”; a prerequisite to submission of a permit application) to FWS for review. Largely in response to comments from the agency, AWP had to revise the HCP many times, including at least 10 revisions in just the last three years. AWP contends that most of those revisions were in response to FWS comments that sought changes “to sections [of the HCP] that were previously agreed upon” or “foundational changes that should have been raised earlier.” Complaint, ¶28. As an example of the kinds of delays it has experienced, AWP notes that the FWS offered no response to its March 2013 draft HCP until March 2016.
Concerned that the FWS was intentionally refusing to advance the review process to the next stage, in December 2017 AWP unilaterally decided it was time to submit an Incidental Take Permit application, including the most recent version of its HCP. AWP also paid the required application fee and supplied an administrative “Environmental Assessment,” as required by the National Environmental Policy Act (NEPA). Four years later, AWP’s application remains pending with no end in sight. FWS has reportedly failed to comply with the deadlines set forth in its own timeline provided to AWP on August 4, 2020 to govern the completion of its review. Alleging violations of the federal Administrative Procedures Act, the Council on Environmental Quality’s NEPA regulations, and the FWS Planning and Incidental Take Permit Processing Handbook, AWP has asked the court to issue an order requiring that FWS complete its review of the AWP application by a date certain, retain jurisdiction over the case to oversee compliance with that order, and award AWP its costs and attorney’s fees in bringing the action.
AWP is not alone in its frustration over lack of action by FWS. On May 18, 2022, West Virginia Senator Shelley Moore Capito questioned FWS Director Martha Williams during a Senate hearing on the agency’s proposed 2023 budget (click here to access). Senator Capito inquired about significant delays in ESA permitting actions associated with highway development in West Virginia that have been pending before FWS since 2014. Rather than expand the agency’s budget to hire additional staff, FWS proposed that the State of West Virginia should pay FWS nearly $800,000 per year to fund additional staff to handle the State’s projects. Private businesses have also entered into similar agreements with FWS to pay the agency money in exchange for the assignment of staff dedicated to certain projects. In essence, both the states and private industry have to fund FWS to do its job in a timely fashion or else be stuck in perpetual regulatory limbo.
While FWS apparently lacks sufficient funding to handle its current workload, the agency recently proposed to expand its regulatory reach ever further. On June 7, 2022, FWS published a proposal to revise its regulations to authorize the agency to create populations of threatened or endangered species in areas where those species have never been known to exist. Historically, FWS has authority to re-introduce listed species into geographic areas within the species’ probable historical range, which are known as “experimental populations.” In other words, if the agency has evidence that a listed species once existed in an area, FWS can release the species to that area in an attempt to re-establish a population. FWS now seeks to expand the scope of eligible geographic areas to include locations outside of the species’ known historical range. FWS cites the impact of climate change on species and their habitats as justification for the proposed rule change. Under the proposed revised regulation, property owners and developers could face significant delays, or even outright cancellation, of projects in areas where FWS has chosen to attempt to establish a population of listed species. Comments on the proposed rule are due by August 8, 2022.
For questions about the Endangered Species Act and other environmental compliance issues, please contact Christopher B. (Kip) Power at (681) 265-1362 or cpower@babstcalland.com, or Robert M. Stonestreet at (681) 265-1364 or rstonestreet@babstcalland.com.
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Environmental Alert
(by Matt Wood and Mackenzie Moyer)
On May 18, 2022, the U.S. Environmental Protection Agency (EPA) added five per- and polyfluoroalkyl substances (PFAS) to its Regional Screening Level (RSL) and Regional Removal Management Level (RML) lists, increasing the total number of PFAS chemicals from one to six. The five added PFAS chemicals EPA are:
- Hexafluoropropylene oxide dimer acid and its ammonium salt (HFPO-DA, a/k/a GenX);
- Perfluorooctanesulfonic acid (PFOS);
- Perfluorooctanoic acid (PFOA);
- Perfluorononanoic acid (PFNA); and
- Perfluorohexanesulfonic acid (PFHxS).
These join perfluorobutanesulfonic acid (PFBS), which EPA added to the RSL and RML lists in 2014 (and revised in 2021 with an updated toxicity assessment). The RSLs and RMLs are not cleanup standards; they are risk-based values used to identify contamination and inform whether additional actions may be necessary at a given site to protect human health and the environment. Specifically, EPA utilizes RSLs to identify whether contaminated media at a given site should be further investigated (e.g., if a constituent’s concentration exceeds the RSL, it likely requires additional investigation; concentrations below the RSL generally do not). RMLs are one of many factors EPA uses to support a decision whether to conduct a removal action at a site. The updated RSL tables are available here and the RML tables are available here.
More broadly, these updates are among many PFAS-related steps EPA has taken or intends to take in the coming months and years. They follow three actions, described below, that EPA took in April 2022 to address PFAS in water.
- To better investigate and analyze PFAS in water, EPA published its Draft Method 1621, a screening method capable of measuring aggregated concentrations of chemicals with carbon-fluorine bonds at the parts per billion level, i.e., it measures concentrations of PFAS, as well as non-PFAS fluorinated compounds, such as pesticides and pharmaceuticals. EPA intends this method to be used to broadly screen for the presence of fluorinated compounds, with more sensitive methods, e.g., Draft Method 1633, utilized to identify specific PFAS compounds. Both of these methods are progressing through the validation processes.
- To address some discharges of PFAS, EPA issued a memorandum titled, “Addressing PFAS Discharges in EPA-Issued NPDES Permits and Expectations Where EPA is the Pretreatment Control Authority.” The memorandum includes monitoring provisions, analytical methods, pollution prevention, and best management practices to reduce PFAS discharges by applicable industrial direct dischargers (including, but not limited to, organic chemicals, plastics and synthetic fibers; metal finishing; electroplating; electric and electronic components; landfills; pulp, paper, and paperboard; leather tanning and finishing; plastics molding and forming; textile mills; paint formulating; and airports). Although the memorandum specifically focuses on EPA-issued permits and authority, EPA intends to publish similar guidance to state permitting authorities in 2022.
- To protect aquatic life from PFAS contamination, EPA proposed Clean Water Act freshwater aquatic life ambient water quality criteria for PFOA and PFOS. If finalized, states and authorized tribes can consider the criteria in developing their own water quality standards. The proposals are open to public comment through July 2, 2022 and a fact sheet summarizing the criteria is available here.
In addition to these examples, EPA continues to move toward accomplishing other PFAS-related goals, many of which are summarized in the agency’s “PFAS Strategic Roadmap: EPA’s Commitments to Action 2021–2024,” available here. Among its targets for 2022, EPA intends to propose national primary drinking water regulations for PFOA and PFOS (fall 2022), which would require monitoring of public water supplies (and further action if PFOA and/or PFOS are found to be present in concentrations above their respective maximum contaminant levels (MCLs)). EPA also intends to propose a rule to designate PFOA and PFOS as CERCLA hazardous substances (spring 2022), which would require facilities to report PFOA and PFOS releases above applicable reportable quantities and authorize EPA to use additional enforcement and cost recovery authority, including potentially “reopening” previously remediated Superfund sites. Final rules for each of these proposals are expected in 2023.
Between now and 2024, EPA also plans to collect data and develop PFAS Effluent Limitations Guidelines (ELGs) to be incorporated into direct discharger NPDES permits to limit pollutants from entering the nation’s waters. ELGs establish national technology-based regulatory limits for specific pollutants in wastewater discharges into surface water and into municipal sewage treatment facilities. EPA aims to publish proposed rulemakings for ELGs for the organic chemicals, plastics and synthetic fibers industries (summer 2023) and the metal finishing and electroplating industries (summer 2024). EPA intends to complete studies of electrical and electronic component facilities, textile mills, and landfills and data reviews of other industries, including leather tanning and finishing, plastics molding and forming, and paint formulating, to inform whether to initiate future related rulemakings. EPA released its Preliminary Effluent Guidelines Program Plan 15 in September 2021, available here, the final version of which is targeted for publication in fall 2022 and will address whether future regulatory actions are needed for other industries.
While the federal government focuses on it goals, some of which may implicate state requirements, many states continue to implement their own actions with respect to PFAS. Pennsylvania, for example, is progressing toward finalizing MCLs for PFOA and PFOS, the first time the commonwealth has set such regulations for any contaminant. In February 2022, the Environmental Quality Board (EQB) published a proposed rule to establish MCLs for PFOA and PFOS of 14 parts per trillion (ppt) and 18 ppt, respectively, which are similar to standards set in other states. EQB held five virtual public hearings on the proposed rule and accepted public comments through April 27, 2022 (comments are available here). If the rule is finalized as proposed, it will set initial compliance monitoring requirements beginning January 1, 2024, for community and nontransient noncommunity water systems serving a population greater than 350 persons and all bottled, vended, retail and bulk systems, and January 1, 2025, for systems serving fewer than 350 persons.
As the federal government and state governments move to address PFAS at their respective paces, in some cases working on the same issues (e.g., drinking water regulations), it remains to be seen how these efforts will or will not mesh. Regardless, Babst Calland attorneys will continue to track PFAS developments at the federal and state level and are available to assist you with PFAS-related matters. For more information on these developments and other remediation matters, please contact Matthew C. Wood at (412) 394-6583 or mwood@babstcalland.com, Mackenzie Moyer at (412) 394-6578 or mmoyer@babstcalland.com, or any of our other environmental attorneys.
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Environmental Alert
(by Sean McGovern and Evan Baylor)
On March 12, 2022, the Pennsylvania Department of Environmental Protection (Department) shared an updated draft of the Environmental Justice Policy (Draft EJ Policy) for public comment. Among the many changes, the Draft EJ Policy expands the role of the Office of Environmental Justice (OEJ), creates new requirements for unconventional oil and gas, and creates new enforcement priorities for the Department. The Department is accepting comments on the Draft EJ Policy through May 11th.
Pennsylvania’s Environmental Justice Policy
The OEJ oversees environmental justice initiatives and policies in the state. The primary goal of the OEJ is to increase communities’ environmental awareness and involvement in the Department’s permitting process. In 2004, the Department created the Environmental Justice Public Participation Policy (EJ Policy) to provide citizens in environmental justice communities enhanced public participation opportunities during certain Department permit application processes. The EJ Policy is a critical part of the Department’s environmental justice initiatives, providing guidelines for the Department’s approach to public engagement for permit application reviews in environmental justice areas as defined under the current EJ Policy.
In 2018, the Department circulated a draft revision to the current EJ Policy for public comment. Ultimately, the Department withdrew the proposed draft revisions after public comments were received, and the current 2004 version of the EJ Policy remained in effect. The Department continued to evaluate revisions to the EJ Policy and, in 2021, the Department proposed to update the policy by incorporating, refining, and expanding upon the withdrawn 2018 revisions. On March 12, 2022, the Department released the Draft EJ Policy for a 60-day public comment period with several public meetings and informational webinars.
Significant Revisions and Additions to the Draft EJ Policy
The Draft EJ Policy proposes to make significant changes to the current EJ Policy. Below are some of the most significant changes recommended by the Department:
- Incorporation of PA Executive Order on EJ
The Draft EJ Policy cites and incorporates the requirements Governor Tom Wolf ’s Executive Order on Environmental Justice (Executive Order 2021-07), which was issued in October 2021 and formally established the OEJ. This contextualizes the Draft EJ Policy into the broader effort to address environmental justice across the state executive agencies and federal EJ initiatives. The Draft EJ Policy has been altered throughout to ensure OEJ will meet the requirements of the Order. For more information on the Executive Order, please read our November 2021 Environmental Alert: Governor Wolf’s Executive Order and Pennsylvania Legislature Emphasize Environmental Justice.
- OEJ Expanded Roles and Responsibilities
The Draft EJ Policy describes the purpose and responsibilities of the OEJ, which was formally established by the recent Executive Order. The Draft EJ Policy gives the Department new roles and responsibilities and dictates how OEJ will engage with stakeholders and communities going forward. This marks a large expansion of the responsibilities of the OEJ, including coordinating an interagency council on environmental justice for the Commonwealth. By way of example, OEJ will provide training to Department staff, maintain and reassess every two years the EJ Area Viewer, issue an annual report, develop strategic plans every five years, and help create and implement a Language Access Plan for the Department.
- The Department Maintains Broad Discretion on Opt-In Permits
While listed trigger permits automatically trigger the application of the current policy, the Department maintains the broad discretion to apply the requirements of the Draft EJ Policy to any permits they believe “warrant special consideration,” even if beyond the area of concern. The Draft EJ Policy provides additional guidance to what permits the Department will likely consider an opt-in permit, including a list of permits in Appendix A. However, the Draft EJ Policy further specifies that projects with permit applications that warrant special consideration based on their “reasonably anticipated significant adverse cumulative impacts” may trigger the application of the policy. The Department uses the phrases (1) “reasonably anticipated significant adverse cumulative impacts,” (2) “reasonably anticipated cumulative impacts,” and (3) “anticipated cumulative impacts” in the Draft EJ Policy. None of these three iterations of “cumulative impacts” are defined by the Department in the Draft EJ Policy. The Department has indicated that it has evaluated federal and other state environmental justice law and policy in scoping this Draft EJ Policy. Notably, the Department evaluated the recent New Jersey Environmental Justice Law, which became effective on September 18, 2020 (NJ EJ Law). Under the NJ EJ Law, applications that may “cause or contribute to adverse cumulative environmental or public health stressors” shall be denied a permit. The NJ EJ Law does not define “cumulative environmental or public health stressors.” Without a definition of “cumulative impacts” in the Draft EJ Policy, or under Executive Order 2021-07, it is unclear whether the Department will interpret that phrase similar to the NJ EJ Law. However, the Department’s broad discretion under a subjective standard (“warrant special consideration”) and an undefined cumulative impacts standard make the applicability of the opt-in permit process hard to predict.
- Updated Definitions of “EJ Area” and “Area of Concern”
EJ Area
Under the current EJ Policy, an EJ Area was defined as census tract with 30 percent or greater minority population or 20 percent or greater population below the poverty line. The Draft EJ Policy defines an EJ Area as “the geographic location where Department’s EJ Policy applies.” Further, it states that the methods for identifying EJ Areas will be specific outside the policy for easier amendment. Because the definition of an EJ Area will live outside the policy, it will be more frequently amended to reflect recent data and definitions used in other agencies and community groups. Thus, the Draft EJ Policy’s application and scope are not clearly defined or entirely predictable.Area of Concern
The Draft EJ Policy simplifies the current definition. The Area of Concern is defined as the area within a half-mile of the proposed permit activity. The Draft directs applicants to use the new EJ Area Viewer mapping tool to determine if whether a project is in an EJ Area and the project’s Area of Concern.
- Unconventional Oil and Gas Now Included
Oil and gas unconventional well permits (and change in use) are now considered trigger permits and the Draft EJ Policy includes new, specific provisions for unconventional oil and gas public engagement. Under the Draft EJ Policy these permits will automatically trigger the policy requirements. Unconventional well permits are included in the Draft EJ Policy’s list of trigger permits, at Appendix A. While permits listed in Appendix A trigger Sections II (“Permit Review Process”) and III (“Community Input”) of the Draft EJ Policy, unconventional well permits will only trigger the application of Section IV (“Oil and Gas Public Engagement”). The Draft EJ Policy’s Section IV proposes unique public participation requirements for unconventional oil and gas operations. The requirements of Section IV will apply retroactively to unconventional well permits already issued by the Department and create continuing obligations such as annual reports on active and anticipated drilling operations—even though such operations are not subject to an actual permit application submitted to the Department.
- EJ Areas Viewer Mapping Tool
The Draft EJ Policy requires the use of the new EJ Areas Viewer, which is available at: pa.gov/EJViewer. The EJ Areas Viewer is an interactive mapping tool that contains environmental and demographic indicators, which can be updated and modified by the Department at any time based on new environmental justice related data. Along with other mapping tools, the Department should use the EJ Areas Viewer to assist in decisions regarding all aspects of environmental justice, including determining if a potential opt-in permit should fall under the Draft EJ Policy. Overall, the use of this and other mapping tools will allow the Department and OEJ to consider much more data—environmental, demographic, health, etc.—than under the existing policy.
- Climate Initiatives
New requirements will push OEJ and the Department to harmonize the environmental justice initiatives with climate change initiatives. This focus will cut across the Department: programs; rulemaking; policies; and enforcement. The Department commits in the Draft EJ Policy to ensure climate-related initiatives will consider and prioritize communities disproportionately impacted by climate change. The Department will also ensure the Climate Action Plan addresses environmental justice and the impact of climate change on EJ Areas. Further, the Department will implement strategies for outreach and engagement with environmental justice and climate change vulnerable communities.
What’s Next?
As stated above, the Department will be accepting written comments on the Draft EJ Policy until May 11, 2022 and conducting three public hearings in April. For more information on this public comment period, visit the Department’s website.
Babst Calland will be tracking the Draft EJ Policy as the Department responds to comments and moves to finalize the policy this year. If you have any questions about the environmental justice developments described in this Alert, please contact Sean McGovern at 412-394-5439 or smcgovern@babstcalland.com or Evan Baylor at 202-868-0538 or ebaylor@babstcalland.com.
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Pipeline Safety Alert
(by Keith Coyle and Chris Kuhman)
On April 8, 2022, the Pipeline and Hazardous Materials Safety Administration (PHMSA) published a final rule in the Federal Register introducing new valve installation and rupture detection requirements for certain onshore gas, hazardous liquid, and carbon dioxide pipelines (the Final Rule). PHMSA issued the Final Rule in response to National Transportation Safety Board recommendations and congressional mandates from the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 (2011 PIPES Act), as well as related studies prepared by the Government Accountability Office and Oak Ridge National Laboratories. Below is a summary of the key changes that the Final Rule makes to PHMSA’s regulations.
Rupture Mitigation Valves
The Final Rule prescribes new rupture mitigation valve (RMV) installation requirements for certain onshore gas and hazardous liquid transmission and gathering pipelines. An RMV is defined as an automatic shut-off valve (ASV) or remote-control valve (RCV) “that a pipeline operator uses to minimize the volume of gas released from the pipeline and to mitigate the consequences of a rupture.”
Operators are required to install RMVs on certain pipeline segments with diameters of six inches or greater that are constructed or “entirely replaced” after April 10, 2023. “Entirely replaced” is defined for these purposes as replacing two or more miles, in the aggregate, of any contiguous five miles of pipeline during a 24-month period. However, the RMV installation requirements only apply to entirely replaced pipelines if the addition, replacement, or removal of a valve is part of the replacement project. The RMV installation requirements also do not apply to any gas pipeline segments in Class 1 or Class 2 locations that have a potential impact radius (PIR) of 150 feet or less.
An alternative equivalent technology can be used to satisfy the RMV installation requirements if it provides an equivalent level of safety, and if the operator obtains authorization from PHMSA by using the 90-day notification and no-objection process. Operators can also use the no-objection process to request an extension of a compliance deadline for installing an RMV. An operator requesting use of manual valves as an alternative equivalent technology must include in the notification submitted to PHMSA a demonstration that installation of an RMV would be economically, technically, or operationally infeasible.
Valve Spacing
The Final Rule prescribes new valve spacing requirements for gas and hazardous liquid and carbon dioxide pipelines. An exception from the existing valve spacing requirements is provided for replacements of gas transmission and regulated gas gathering lines if the distance between each point on the replaced pipeline and the nearest valve does not exceed certain class-location-based mileage thresholds. Newly constructed or “entirely replaced” hazardous liquid and carbon dioxide pipelines installed after April 10, 2023, are also subject to new valve spacing requirements of 15 miles for segments located in or that could affect high consequence areas (HCAs) and 20 miles for non-HCA segments.
A more stringent, 7.5-mile valve spacing requirement applies to highly volatile liquid (HVL) pipelines in a high population area or other populated area that are constructed or entirely replaced after April 10, 2023. Operators can use PHMSA’s 90-day notification and no-objection process to increase the maximum valve spacing requirement for covered HVL pipelines by 1.25 times, or up to 9.375 miles, subject to a lifetime recordkeeping requirement.
Class Location Changes
The Final Rule includes new valve spacing requirements for class-location-related gas pipeline replacements that are necessary to comply with PHMSA’s maximum allowable operating pressure (MAOP) requirements. For class location changes that occur after October 5, 2022, and which result in the replacement of two or more miles of pipe, in the aggregate, within any five contiguous miles during a 24-month period, operators are required to comply with the valve spacing and RMV installation requirements. For replacements of less than two miles within five contiguous miles during the 24-month period, however, operators have the option of complying with the valve spacing requirements or installing RMVs or equivalent technologies to protect the replaced segment. The latter requirements do not apply to pipeline replacements that are less than 1,000-feet within any single continuous mile during any 24-month period.
Valve Shutoff Requirements for Rupture Mitigation
The Final Rule prescribes new valve shut-off requirements for certain new or “entirely replaced” onshore pipeline segments with diameters of six inches or greater that are installed after April 10, 2023. The valve shut-off requirements apply to covered gas transmission and gathering line segments in high-consequence areas (HCA) or Class 3 or Class 4 locations, except for segments in Class 1 or Class 2 locations that have a PIR of 150 feet or less, and to covered hazardous liquid or carbon dioxide pipeline segments that are located in or which could affect an HCA. Operators of covered segments are required to make RMVs or alternative equivalent technologies operational within 14 days of placing of a new or replaced pipeline into service. Additional requirements for maximum spacing between RMVs or alternative equivalent technologies also apply, as well as provisions for using manual valves or alternative equivalent technologies to meet the shut-off requirements.
Notification of Potential Rupture and Response to Rupture Identification
The Final Rule requires operators that are notified, by their own personnel or otherwise, of a potential rupture to take certain actions. “Notification of a potential rupture” is defined as receipt of notification or observation of an unintentional or uncontrolled release of hazardous liquid or gas from a pipeline. This observation may be any of several events, such as an unanticipated pressure loss greater than 10 percent in 15 minutes (with some exceptions), an unanticipated flow or pressure change, or a fire or explosion in the vicinity of the pipeline. An operator’s procedures should establish how and when it receives notice or observes a potential rupture event. Upon notification, the Final Rule requires operators to identify the rupture and isolate the ruptured segment as soon as practicable but within 30 minutes.
Valve Maintenance
The Final Rule requires operators to conduct certain valve maintenance activities. Each RMV, or alternative equivalent technology, must be able to achieve the 30-minute response time. If the 30-minute response time is not achieved, the operator must revise its response efforts as soon as practicable but no later than 12-months after the test. Similarly, if an operator finds that any valve is inoperable, it must repair or replace the valve as soon as practicable but no later than 12 months and designate an alternative valve acting as an RMV within seven calendar days. The rule requires periodic testing, by partial operation, of RMVs on hazardous liquid pipelines at least twice each calendar year and on gas pipelines at least once annually. Some of these requirements may vary depending on whether the RMV is an ASV or RCV. Operators are also required to randomly select a valve serving as an alternative equivalent technology in lieu of an RMV for an annual 30-minute response time validation drill. Operators are not required to close the valve fully during the drill. A minimum 25 percent closure is sufficient to demonstrate compliance. Operators’ written procedures must include the method used to randomly select which alternative equivalent technology is tested.
Integrity Management
For certain new or entirely replaced hazardous liquid and carbon dioxide pipelines six-inches or greater in diameter and placed into service after April 10, 2023, emergency flow restricting devices (EFRD) used to mitigate potential ruptures must meet the RMV requirements in the Final Rule. The Final Rule requires gas transmission operators to conduct a risk assessment and, if that assessment shows that an RMV is an efficient means to protect an HCA, install the RMV. The Final Rule provides several factors to consider in making that determination including timing of leak detection and pipe shutdown capabilities, the type of gas being transported, operating pressure, the rate of potential release, pipeline profile, the potential for ignition, and location of nearest response personnel.
Emergency Response
The Final Rule prescribes new emergency response and post-accident procedures. Operators must establish and maintain adequate means of communication with appropriate public safety answering points (i.e., 9-1-1 emergency call center), investigate failures to minimize the possibility of recurrence, and develop and implement lessons learned following an incident. All operators must amend their procedures to require immediate and direct access to 9-1-1 call centers or coordination with government officials.
If the failure involves the closure of an RMV, or alternative equivalent technology, the operator must conduct an analysis of the factors that may have impacted the release volume and implement measures to minimize the consequences of a future incident. Operators must also develop a post-failure and accident summary within 90 days, signed by a senior executive officer, and kept for the useful life of the pipeline.
Effective Date and Deadlines for Further Review
The effective date of the Final Rule is October 5, 2022. Any interested person may file a petition for reconsideration of the Final Rule with the Associate Administrator for Pipeline Safety within 30 days of publication in the Federal Register, or by no later than May 8, 2022. The deadline for submitting a petition for judicial review of the Final Rule is 89 days from the Federal Register publication date, or July 6, 2022.
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Environmental Alert
(By Kevin Garber and Gina Falaschi)
On April 4, 2022, the Pennsylvania Senate failed by one vote to reach the two-thirds majority vote needed to override Governor Tom Wolf’s January 10th veto of Senate Concurrent Regulatory Review Resolution 1, which was intended to block the Pennsylvania Department of Environmental Protection’s regulation to join the Regional Greenhouse Gas Initiative (RGGI). However, the following evening, April 5, the Commonwealth Court issued a stay preventing the Legislative Reference Bureau from publishing the regulation as a final, immediately-effective rule in the Pennsylvania Bulletin and scheduling a hearing for May 4, 2022 on litigation that DEP initiated in February to force publication of the final regulation.
RGGI is the country’s first regional, market-based cap-and-trade program, designed to reduce carbon dioxide emissions from fossil-fuel-fired electric power generators with a capacity of 25 megawatts or greater that send more than 10 percent of their annual gross generation to the electric grid. Regulated sources must hold allowances equal to their CO2 emissions over a three-year compliance period. Each allowance is equal to one short ton of CO2. Regulated sources may purchase state-issued allowances at quarterly auctions or through secondary markets and can use allowances issued by any RGGI state to comply. Regulated sources may also use offsets awarded for certain environmental projects to meet a maximum of 3.3 percent of their allowances.
If the rule is published in the Pennsylvania Bulletin before July 1, 2022, the partial year emissions cap for Pennsylvania would be 40.7 million tons of CO2 for the remainder of 2022. The total annual emissions cap would gradually decline to 58 million in 2030. Affected units would need to start monitoring emissions on July 1, 2022 to be able to purchase allowances for CO2 emitted on or after that date.
RGGI operates on a three-year compliance schedule whereby only partial compliance is required within the first two years, and then full compliance is required after the end of the third year. The current RGGI three-year compliance period began in 2021, so 2021 and 2022 are interim compliance years while 2023 is a full compliance year. If the regulation is published before July 1, 2022, regulated sources must acquire 50 percent of the necessary CO2 allowances by March 1, 2023 and acquire 100 percent of their allowances by March 1, 2024. The allowance price was $13.50 at the last RGGI auction on March 11, 2022.
Litigation to challenge the regulation is expected after it is published in the Pennsylvania Bulletin, which cannot occur until after the May 4 hearing following the Commonwealth Court’s April 5 stay of publication.
If you would like further information about RGGI, please contact Kevin Garber at 412-394-5404 or kgarber@babstcalland.com or Gina Falaschi at 202-853-3483 or gfalaschi@babstcalland.com.
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Environmental Alert
(by Lisa Bruderly and Mackenzie Moyer)
On March 28, 2022, the United States Environmental Protection Agency (EPA) published a proposed rule to expand the types of non-transportation-related facilities that may need to develop Facility Response Plans (FRPs) under the Clean Water Act (CWA). 87 Fed. Reg. 17890. At present, FRPs are required for certain facilities[1] that are reasonably expected to cause “substantial harm” to the environment by discharging oil into navigable waters. The proposed rulemaking would require FRPs for facilities that could reasonably be expected to cause substantial harm to the environment by discharging CWA hazardous substances to navigable waters.
Background
The proposed rulemaking is in response to judicial challenges related to EPA’s failure to meet the requirements of § 311(j)(5) of the CWA, which requires the president to “issue regulations which require an owner or operator of a tank vessel or facility . . . to prepare and submit . . . a plan for responding, to the maximum extent practicable, to a worst case discharge, and to a substantial threat of such a discharge, of oil or a hazardous substance.” 33 U.S.C. § 1321(j)(5).
In 2019, the Natural Resources Defense Council filed suit in federal court, claiming that the EPA’s failure to issue the regulations required by § 311(j)(5), was a “failure to perform a non-discretionary duty or act in violation of the [CWA].” Complaint for Declaratory and Injunctive Relief, Environmental Justice Health Alliance for Chemical Policy Reform v. EPA, No. 1-19-cv-02516 (S.D.N.Y. Mar. 21, 2019). The plaintiffs and EPA resolved the litigation through the entry of a consent decree requiring EPA, by March 12, 2022, to sign a notice of proposed rulemaking relating to FRPs for CWA hazardous substances. EPA’s proposed rule reportedly satisfies EPA’s first obligation under the consent decree, with EPA’s second obligation being to sign a notice taking final action within 30 months after publication of the proposal.
Applicability of the Proposed Rulemaking
The proposed rule would apply to onshore non-transportation-related facilities “that could reasonably be expected to cause substantial harm to the environment by discharging CWA hazardous substances into or on the navigable waters, adjoining shorelines, or exclusive economic zone.” EPA proposes two screening criteria and four substantial harm criteria.
First, the facility must determine whether the maximum capacity onsite for any CWA hazardous substance meets or exceeds 10,000 times the reportable quantity (RQ) in pounds. EPA has designated a RQ for each of the approximately 300 CWA hazardous substances (i.e., the quantity above which a discharge to a navigable water of a CWA hazardous substance must be federally reported). The RQ is not the same for every CWA hazardous substance. In many instances, the RQ is 5,000 pounds, but for other substances, the RQ may be as low as 10 pounds (e.g., benzene) or even one pound (e.g., PCBs). Facility owners should determine the RQ of CWA hazardous substances on their sites to determine whether their facilities meet the first screening criteria of the proposed rulemaking.
Second, the facility owner or operator must determine whether the facility is within one-half (0.5) mile of a navigable water or a conveyance to a navigable water. This is an interesting criterion in that the definition of a “water of the United States” (i.e., a navigable water) has been heavily debated for more than a decade, with the Biden administration recently proposing a new definition and the U.S. Supreme Court expected to opine on the appropriate test to evaluate the existing definition during this term. More information on the definition of “waters of the United States” can be found here.
If these two screening criteria are met, the owner or operator of the facility would be required to determine whether the facility meets any of four substantial harm criteria: (1) the ability to adversely impact a public water system; (2) the ability to cause injury to fish, wildlife, and sensitive environments; (3) the ability to cause injury to public receptors; and/or (4) having a reportable discharge of a CWA hazardous substance within the last five years.
If any of these substantial harm criteria are met, the facility would be required to submit a CWA hazardous substance FRP to the EPA. Existing facilities that meet the criteria on the effective date of the rulemaking would be required to submit a FRP to EPA within 12 months of the effective date.
Environmental Justice and Climate Change Considerations
Consistent with the priorities of the Biden administration, EPA is seeking comments on ways to prioritize the needs of communities with environmental justice concerns and considerations related to climate change as part of this rulemaking. EPA stated that the proposed rulemaking was “inherently a climate change adaptation regulation” because it requires planning for worst case discharges in adverse weather conditions. EPA is also seeking comments on “methodologies to take climate change into account in both applicability criteria as well as response plan requirements.” With regard to communities with environmental justice concerns, EPA is proposing to allow “wide authority” to require CWA hazardous substance FRPs for facilities located in these communities.
The EPA is accepting public comment on the proposed rule until May 27, 2022. More information about EPA’s proposed rule can be found on EPA’s website here.
For more information on how the proposed rule may affect your business operations, please contact Lisa M. Bruderly at (412) 394-6495 or lbruderly@babstcalland.com or Mackenzie Moyer at (412) 394-6578 or mmoyer@babstcalland.com.
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[1] A facility meets the “substantial harm” threshold regarding oil discharges if it: (1) has a total oil storage capacity greater than or equal to 42,000 gallons and it transfers oil over water to/from vessels; or (2) has a total oil storage capacity greater than or equal to 1 million gallons and meets one of the four criteria identified in 40 C.F.R. § 112.20(f).
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Environmental Alert
(By Kevin Garber, Ben Clapp and Joe Yeager)
In an overhaul of reporting requirements 10 years in the making, the Securities and Exchange Commission on March 21, 2022 proposed far-reaching and controversial climate-related disclosure obligations for publicly-traded companies as part of the Biden administration’s emphasis on climate change. The SEC is proposing to force companies to formally disclose their exposure to and management of climate-related risks that are reasonably likely to have a material effect on their business, operations and financial condition. SEC’s goal is to provide investors with “consistent, comparable, and decision-useful information for making their investment decisions.” If finalized, the rule would require publicly-traded companies to provide climate-related financial references as notes to their audited financial statements and disclose their direct Scope 1 greenhouse gas emissions and their indirect Scope 2 GHG emissions. They also may have to disclose their upstream and downstream Scope 3 GHG emissions if they are material to the business or if they have established a GHG emissions target. Reporting obligations would begin in 2024 for large accelerated filers and be phased in for all covered companies by 2026.
Overview of the Proposed Rule
The proposed rule would add a new subpart to Regulation S-K of the SEC’s regulations (17 CFR Part 229) that would require a registrant to disclose climate-related risk information in its registration statements and periodic reports, such as on annual Form 10-K submissions and quarterly Form 10-Q reports. The proposed rule draws heavily from existing disclosure frameworks including the Task Force on Climate-Related Financial Disclosures (regarding climate-related reporting) and the Greenhouse Gas Protocol (regarding accounting standards). Key areas for disclosure include:
- the oversight and governance of climate-related risks by the registrant’s board and management;
- how any climate-related risks identified by the registrant have had or are likely to have a material effect on its business and consolidated financial statements;
- the registrant’s processes for identifying, assessing and managing climate-related risks, and how to integrate those processes into the company’s overall risk management;
- whether the company has adopted a transition plan to deal with climate-related risks and how to measure any physical or transition risks to its operations; and
- the effect of severe weather events and related natural conditions on the registrant’s consolidated financial statements, together with financial estimates and assumptions used in the financial statements.
The proposal requires registrants to disclose information about their Scope 1 and Scope 2 greenhouse gas emissions. Scope 1 refers to direct GHG emissions that occur from sources the registrant owns or controls, such as emissions from fuel combustion in the registrant’s boilers, furnaces, vehicles, and manufacturing activity. Scope 2 emissions are indirect GHG emissions from the generation of electricity, steam, heat, or cooling the registrant buys or acquires and consumes in its operations. Scope 2 emissions physically occur at the offsite point of generation but are accounted for in the registrant’s GHG inventory because they result from its energy use.
A registrant also would be required to disclose its Scope 3 GHG emissions from upstream and downstream activities in its value chain if material or if the registrant has set a GHG emissions target or goal that includes Scope 3 emissions. Scope 3 emissions result from activities and assets the registrant does not own or control but indirectly affects in its value chain, either upstream in the form of raw materials it buys to make its products and downstream as emissions from its customers’ use of its products. Sometimes referred to as “value chain emissions,” Scope 3 emissions often represent the majority of a company’s total GHG emissions. As a safe harbor, a Scope 3 emissions disclosure would not be considered to be a fraudulent statement unless it was shown to have been made without a reasonable basis or disclosed other than in good faith. SEC-defined smaller reporting companies (generally those with less than $100 million in annual revenue) would be exempt from disclosing Scope 3 emissions.
Issues for Comment and Clarification
The SEC is asking registrants to do a top to bottom review of their impact on climate, and while not mandating any changes to behavior, the agency apparently anticipates that by making this information available to investors, companies will attempt to reduce their GHG emissions. The SEC acknowledges that using financial statement metrics to estimate and disclose climate-related uncertainties is driven by judgment and assumptions, similar to other financial statement disclosures. Accordingly, for each type of financial statement metric, the proposed rule would require the registrant to disclose contextual information to enable a reader to understand how it derived the metric, including a description of significant inputs and assumptions used, and if applicable, policy decisions the registrant made to calculate the specified metrics.
The breadth of Scope 3 emissions reporting will be a key issue during the public comment period. Despite the safe harbor, it is unclear how companies should determine whether Scope 3 emissions from their upstream supply chain and from their downstream product life are “material” (and in particular which such emissions are material), and how that determination will align with current SEC requirements to disclose other material risks, defined as information a reasonable investor would consider important. The proposed rule also affects privately-held companies who will be asked by their publicly traded customers to estimate or account for their GHG emissions, something likely to be new to many privately-held organizations. Although intended to drive companies to become greener, the new required disclosures may burden companies with increased compliance costs and discourage private companies from going public.
Public Comment Period
The public comment period will be open for 30 days after publication in the Federal Register (which hasn’t happened as of the date of this Client Alert) or May 20, 2022, whichever is later. There is a phase-in period for all registrants as the rules are currently proposed. Deadlines for filing disclosures including Scope 1 and Scope emissions metrics range from filing year 2024 for FY 2023 (for large accelerated filers) to filing year 2026 for FY 2025 (for smaller reporting companies). Both publicly-traded and privately-held companies should review the SEC’s proposed rule and submit comments asking the SEC to revise or clarify the proposed rule as appropriate.
Babst Calland attorneys are closely following these and other climate-related developments. If you have questions or need additional information about SEC’s proposed rule on disclosure requirements, please contact Kevin Garber at 412-394-5404 or kgarber@babstcalland.com; Ben Clapp at 202-853-3488 or bclapp@babstcalland.com; or Joe Yeager at 412-394-5698 or jyeager@babstcalland.com.
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Environmental Alert
(by Matt Wood and Mackenzie Moyer)
On February 26, 2022, the Environmental Quality Board (EQB) published a proposed rule to amend 25 Pa. Code Ch. 109 (Safe Drinking Water) to regulate certain per- and polyfluoroalkyl substances (PFAS). 52 Pa. B. 1245. Specifically, the rule proposes setting a maximum contaminant level goal (MCLG) and maximum contaminant level (MCL) for both perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS). PFOA and PFOS are two of the most common PFAS, a “family” of thousands of synthetic chemicals that have been used in consumer, commercial, and industrial applications since the 1940s. PFAS have been used to manufacture water-, stain-, and heat-resistant products and have been a common component in some aqueous film forming foams (AFFF) routinely used for firefighting. PFAS have been found in various environmental media like groundwater (including drinking water), plants, animals, and in humans. Because PFAS do not break down naturally in the environment, they have been called “forever chemicals.” Evidence suggests that PFAS exposure can lead to adverse health effects.
The proposed rule sets MCLGs of 8 parts per trillion (ppt) for PFOA and 14 ppt for PFOS and MCLs of 14 ppt for PFOA and 18 ppt for PFOS. The MCLGs are nonenforceable levels developed solely from health effects data and act as the starting point for determining the MCLs. To develop the enforceable MCLs, the Pennsylvania Department of Environmental Protection (PADEP) considered factors beyond health effects data, including technical limitations and costs that may affect the feasibility of achieving the MCLGs. As part of the rulemaking process, PADEP also considered PFAS other than PFOA and PFOS (i.e., PFNA, PFHxS, PFHpA, PFBS, and HFPO-DA), but proposed not establishing MCLs for these substances at this time, primarily due to a lack of occurrence data and incomplete cost/benefit data and analysis. If finalized, the PFOA and PFOS MCLs will apply to all 3,117 community, nontransient, noncommunity, bottled, vended, retail and bulk water systems in the Commonwealth and may affect other programs (e.g., if they are adopted as Act 2 groundwater cleanup standards).
The proposed rule represents a first for the Commonwealth. PADEP has never before developed and promulgated a state-level MCL for any contaminant, instead relying on federal standards and/or guidance. On PFAS, the federal government has moved relatively slowly. Although the U.S. Environmental Protection Agency (EPA) is currently developing drinking water regulations for PFOA and PFOS, the agency’s only current drinking water guidance is its 2016 Health Advisory Level (HAL) of 70 ppt for PFOA and PFOS combined, which critics have said is outdated, too high to be protective, and should be revised. EPA’s HAL is intended to identify the concentration of PFOA/PFOS in drinking water at or below which adverse health effects are not expected to occur over a lifetime of exposure but is not an enforceable standard or regulation. In Pennsylvania, however, public water systems that detect exceedances of the HAL are required to take certain actions depending on the circumstances, e.g., monitoring, notifying consumers, and installing treatment technologies.
In the absence of federal action, many states over the last few years – Pennsylvania among them – have moved on their own to investigate PFAS and develop their own regulations. In 2018, Governor Tom Wolf signed Executive Order 2018-08 creating the PFAS Action Team, a multi-agency group tasked with developing a comprehensive strategy to identify, research, and eliminate sources of PFAS contamination. In July 2019, PADEP began a sampling effort targeted at public drinking water systems within a half mile of potential PFAS sources like manufacturing, fire training, and military facilities. That effort concluded in March 2021 and the final results were posted to PADEP’s PFAS webpage in June 2021. PADEP’s sampling effort, among other things, informed the proposed rulemaking. Other states have already established MCLs for one or more PFAS, including Massachusetts, Michigan, New Hampshire, New Jersey, New York, and Vermont. Pennsylvania’s proposed rule’s MCLs for PFOA and PFOS fall within the same range as their counterparts established in other states (which are all significantly lower than EPA’s HAL).
At the federal level, EPA’s current effort to develop drinking water regulations for PFOA and PFOS is one of multiple goals and strategies summarized in EPA’s “PFAS Strategic Roadmap: EPA’s Commitments to Action 2021–2024” (Roadmap), released on October 18, 2021. The Roadmap highlights EPA’s “whole-of-agency” approach to addressing PFAS over the next few years, focused through three central directives: (1) Research; (2) Restrict; and (3) Remediate. Through these, EPA intends to address the lifecycle of PFAS. Besides establishing PFOA and PFOS drinking water regulations (which EPA expects to propose in fall 2022, with a final rule in fall 2023), EPA intends to designate PFOA and PFOS as hazardous substances under CERCLA and build the technical foundation to address PFAS in air emissions. The Roadmap and related materials are available on EPA’s website here. Babst Calland reviewed the Roadmap and highlighted many of EPA’s goals in an October 2021 Environmental Alert available here.
Despite EPA’s recent actions and current goals, Pennsylvania’s move to regulate PFOA and PFOS in drinking water makes it one of a handful of states outpacing the federal government’s efforts. The public comment period for Pennsylvania’s proposed rule is currently open and interested parties may submit comments through April 27, 2022 using any of the methods listed in PADEP’s announcement of the proposed rule. The EQB will also be holding five virtual public hearings from March 21-25, 2022 to accept public comments on the proposed rule. More information about how to participate in these meetings is posted on PADEP’s website here.
Babst Calland attorneys will continue to track PFAS developments in Pennsylvania and are available to assist you with PFAS-related matters (including preparing and submitting comments to Pennsylvania’s proposed rule). For more information on this development and other remediation matters, please contact Matthew C. Wood at (412) 394-6583 or mwood@babstcalland.com, Mackenzie Moyer at (412) 394-6578 or mmoyer@babstcalland.com, or any of our other environmental attorneys.
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Employment and Labor Alert
(by Steve Antonelli and Jessica Altobelli)
In a recent show of bipartisanship, both the House of Representatives and the Senate recently passed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (H.R. 4445). President Biden has supported the Bill, urging Congress to pass it, and is expected to sign the Bill into law any day. Like the 2017 prohibition on tax deductions for amounts paid for sexual harassment settlements that are subject to a nondisclosure agreement, this Bill is a product of the “#MeToo” movement that will serve to bring greater transparency to alleged sexual misconduct in the workplace.
If enacted into law, the Bill will amend the Federal Arbitration Act to prevent companies from enforcing mandatory arbitration clauses against parties who bring claims of sexual assault or harassment. Instead, prospective plaintiffs will be given the choice of whether to proceed with arbitration or litigate their claims in the public forum of a federal court. This decision will be available even to plaintiffs who have already signed contracts agreeing to mandatory arbitration, so long as the alleged dispute itself arises after enactment of the law, as the law will apply retroactively to make mandatory arbitration provisions voidable. The law will not, however, allow cases that have already been decided in an agreed upon arbitration to be re-opened or re-litigated.
The Bill will also enable individuals to bring collective actions and it will allow disputes over its application to be made by the federal courts, rather than by an arbitrator. It will also apply to cases filed under federal, state, or local law. Employers that utilize forced arbitration provisions in employment agreements should review their agreements for necessary revisions and be mindful of the fact that, in a few days, the forced arbitration provisions of their existing agreements may be voided by employees alleging sexual assault or harassment.
Babst Calland’s Employment and Labor Group will continue to keep employers apprised of further developments related to this and other employment and labor topics. If you have any questions or need assistance in addressing the above-mentioned area of concern, please contact Stephen A. Antonelli at (412) 394-5668 or santonelli@babstcalland.com or Jessica L. Altobelli at (412) 394-6557 or jaltobelli@babstcalland.com.
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Environmental Alert
(by Robert Stonestreet)
The federal Fourth Circuit Court of Appeals has struck down an evaluation by the U.S. Fish and Wildlife Service of the potential impacts on two endangered fish species presented by stream crossings for the Mountain Valley Pipeline. In its February 3, 2022 opinion, the Court concluded that the Service failed to sufficiently establish the “environmental baseline” conditions for each species, and failed to adequately evaluate how the stream crossings, along with other anticipated activities impacting the streams, will affect the species on a cumulative basis. The Court also faulted the Service for not assuming future negative effects of climate change in its analysis.
In September 2020, the Service published a “Biological Opinion” addressing how the proposed pipeline would likely affect five species listed for protection under the federal Endangered Species Act (ESA) (one plant; two fish; and two bats). The Service concluded that the pipeline would likely affect each species, but would not jeopardize those species, which is the key determination under the ESA for whether other federal agencies may issue permits for a project. The Service also issued an “Incidental Take Statement” that authorized certain levels of “take” of each species associated with construction of the stream crossings, which would otherwise be prohibited by the ESA. For purposes of the ESA, “take” of a species means actions “to harass, harm, pursue, hunt, shoot, wound, kill, trap, capture, or collect, or to attempt to engage in any such conduct.”
A group of organizations opposed to the pipeline, including the Sierra Club, challenged both the Biological Opinion and the Incidental Take Statement with regard to the two fish species (Roanoke Logperch and Candy Darter) and one bat species (Indiana Bat). The Court only squarely addressed the Service’s evaluation of the two fish species, but included a detailed footnote that strongly recommended a second look by the Service at its evaluation of the Indiana Bat.
The opinion explaining the Court’s ruling primarily focuses on how the Service ascertained the environmental baseline for the two fish species and assessed the cumulative impacts of the proposed pipeline along with other anticipated activities. The Court faulted the Service for not gathering site specific data for each stream crossing proposed in areas of the species’ habitat. The opinion states that the Service did not sufficiently identify the existing “stressors” that were negatively impacting the species in the pipeline path. Although the Service observed that a primary driver decreasing the Candy Darter population is “hybridization” – i.e. interbreeding by the Candy Darter with another similar species of darter – the Court concluded that the Service did not adequately consider other factors negatively affecting the Candy Darter, such as increased stream sedimentation.
The Court rejected the Service’s argument that statistical modeling used to prepare both the environmental baseline determination and cumulative effects evaluation sufficiently accounted for conditions within the pipeline path. The Court did so because (1) the Biological Opinion does not indicate a reliance on statistical modeling to establish the environmental baseline or cumulative effects determinations; and (2) the models were not designed to assess environmental conditions on a small-enough scale to evaluate the specific areas to be impacted by the project.
With respect to climate change, the Court acknowledged that the statistical modeling used by the Service takes into account “environmental stochasticity,” which is defined as “unpredictable fluctuations in environmental conditions.” The Court still found that the Service did not adequately consider climate change because the models assumed a constant amount of environmental stochasticity in the future. According to the Court, “the model failed to account for the one thing we know about climate change: that it will get worse over time.” The opinion identifies anticipated increased water temperatures, frequency and intensity of flooding, and increased sedimentation as negative impacts of climate change that were not considered in the statistical models. The court does not cite to any of the materials in the administrative record to support this observation. Other than referencing a description of climate change by the Service as presenting an “increasing threat,” the Court does not offer any guidance on why the Service should assume conditions for the species will necessarily get “worse” over time due to climate change, or how the Service should go about factoring these considerations into its evaluations.
In light of the Service’s shortcomings described in the opinion, the Court concluded that the Service could not have reasonably concluded that the proposed project is unlikely to jeopardize the two fish species. The Court recognized that the ESA does not prohibit approval of projects “solely because baseline conditions or cumulative effects already imperil a species.” However, the ESA does prohibit approval of a project that will likely accelerate the decline of a species. “Put differently, if a species is already speeding toward the extinction cliff, an agency may not press on the gas.”
The Court rejected several additional arguments advanced by the challengers as grounds to set aside the Biological Opinion and Incidental Take Statement. These included claims that the Service (1) arbitrarily limited the scope of the “action area” (i.e. the impact area); (2) erroneously excluded the Blackwater River from its evaluation of the Roanoke Logperch; and (3) the Incidental Take Statement established “unlawfully vague” take limits.
This opinion highlights the importance of Endangered Species Act considerations for energy projects. The Candy Darter was listed as endangered on November 20, 2018, which was over a year after the Federal Energy Regulatory Commission (FERC) authorized the pipeline project. As noted in the “2021 Babst Calland Report,” the Service has drastically accelerated the pace of proposing and adopting species for protection under the ESA. As more species are designated for protection under the ESA, there is an increased likelihood that areas slated for development will trigger a rigorous review by the Service before any federal permit may be issued for a proposed project.
The opinion makes clear that the Service must methodically analyze the specific areas expected to be affected by a proposed project to determine whether the project may jeopardize a listed species. This effectively means that project proponents, through their counsel and consultants, must ensure that the Service adequately evaluates potential impacts on listed species, and more importantly, documents that evaluation correctly. A failure by the Service to do so, or a finding that the project will jeopardize a listed species, can stop a project in its tracks. Even one that is “an already mostly finished Pipeline” as the court observed in this case. As of December 2021, 94 percent of the pipeline had been constructed with approximately 20 linear miles remaining.
If you have any questions about the court’s opinion or the Endangered Species Act in general, please contact Robert M. Stonestreet at rstonestreet@babstcalland.com or 681-265-1364.
To view PDF, click here.
Alert
(by Peter Schnore and Ed Phillips)
At the beginning of 2022, the Pittsburgh Post-Gazette reported that the overall vacancy rate in the Pittsburgh commercial real estate market was 20.8% at the end of 2021, which was an increase from the 19.3% vacancy rate at the end of 2020. [1] But statistics like this tell only part of the story, as they reflect past events, rather than what market participants anticipate will occur in the future. The same article noted that some property owners are offering incentives, such as free rent and higher improvement allowances to retain and attract tenants. The COVID pandemic is having, and will have, a material impact on the value of various commercial property types for quite some time.
Given the trends in increasing vacancy rates and incentives—along with concerns for what long-term effects the pandemic will have on tenants’ future needs—commercial property owners should consider whether the time is right to appeal their commercial real estate assessments. For many commercial property owners, the best approach is to work with an attorney familiar with the appeals process and property valuation through the lens of Pennsylvania assessment law, to best appreciate whether an appeal is likely to be a worthwhile endeavor. In Allegheny County, property owners have until March 31, 2022 to initiate an appeal for Tax Year 2022. For property owners in the remainder of Pennsylvania, annual appeal deadlines fall between August 1 and the first Monday in October, depending on the county.
Each year, Pennsylvania publishes an equalization ratio for each county based on a comparison of the county’s most recent years’ sales data vs. the sold properties’ assessments. In a properly filed appeal, this ratio is applied to the property’s current fair market value to set the assessment. The ratio applicable to Allegheny County for Tax Year 2022 is significantly more favorable to property owners than last year’s ratio. This more favorable ratio makes it a particularly good year to initiate an appeal by the March 31, 2022 deadline. Because counties are not required to regularly reassess, the financial benefits of a decreased assessment may be enjoyed for many years.
Property taxes are often the most significant operating expense for an income-producing property, making it important to evaluate this expense to protect your real estate asset’s bottom line.
If you have any questions about these developments, contact Peter Schnore at 412-394-5692 or pschnore@babstcalland.com or Edward Phillips at 412-394-6553 or ephillips@babstcalland.com.
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[1] Mark Belko, Lingering effects: Pittsburgh office market struggles to overcome the pandemic, Pittsburgh Post-Gazette (January 4, 2022, 6:07 AM).
To view the PDF, click here.
Infrastructure Alert
(By Robert M. Stonestreet, Christopher B. “Kip” Power, Ben Clapp)
State and federal lawmakers are creating economic opportunities for the coal industry and landowners to support production of “critical materials” in high demand for technology products. The term “critical materials” refers to a group of 50 minerals, elements, substances, and materials that the U.S. Department of Energy (DOE) has identified as key components of products that are essential to the economic or national security of the United States, and that are susceptible to supply chain disruption. The federal legislation generally known as the “Infrastructure Bill” allocates more than $1.3 billion to support a number of new and existing DOE initiatives directed toward research, development, and production of critical materials, including substances known as “rare earth elements.”
Rare earth elements are essential for many high-tech products such as smart phones and other sophisticated electronic devices. Rather than being “rare,” these elements exist in many places throughout the United States (and the rest of the world) although generally in very low concentrations that make them difficult to economically recover and process. Relatively greater concentrations of rare earth elements, along with other critical materials, can be found in coal seams and adjacent geologic formations. Even higher concentrations often exist in polluted water flowing from surface and underground coal mines – commonly referred to as “acid mine drainage” or AMD.
Members of the mining industry – not just academic institutions or research foundations – are eligible to apply for large amounts of funding created by the Infrastructure Bill related to the extraction of critical materials generally and rare earth elements specifically. The bill allocates $127 million in grants focused on research to support the recovery of rare earth elements from coal and coal byproducts, such as AMD. Grant funding totaling $140 million has been dedicated toward establishing a feasible full-scale operation to extract, separate, and refine rare earth elements from AMD, mine waste, and other “deleterious material.” $600 million in grant funding is available for projects to establish a sustainable long-term supply of critical materials, including innovations in technologies to diversify commercially viable sources of these materials. $400 million is appropriated to fund pilot projects for the processing, recycling and development of critical materials, at least 30 percent of which must be granted to projects relating to secondary recovery, which includes recovery of critical materials from mine waste piles, AMD sludge, or byproducts produced through legacy mining activities. Finally, another $75 million will fund contracts to support construction of a research facility focused on developing a reliable supply chain for rare earth elements and other critical materials. Opportunities to apply for these grants and contracts through the DOE are expected to open beginning in the fourth quarter of 2022, subject to the development of appropriate policies or regulations to guide the process.
State lawmakers in West Virginia are also taking steps to promote rare earth element recovery associated with coal mining operations. Legislators have recently introduced multiple bills in the 2022 Legislative Session intended to clarify that those who successfully extract rare earth elements from mine drainage may derive a commercial benefit from doing so. These efforts seek to resolve the issue of who owns the substances present in AMD, which historically has been considered a liability rather than an asset due to the costs (and permitting liability) associated with treating it.
What the current legislation fails to acknowledge is that attributing specific volumes of water to specific properties can present difficult challenges. In certain circumstances, such as the direct flow of water from a specific mine, the source of the water may be able to be identified. However, even a single mine can span multiple tracts with many different mineral owners. Water is also, by its very nature, mobile and thus moves through the subsurface in both mined-out voids and unmined geologic formations. Mine drainage can thus be an amalgamation of water flowing from and/or through a number of different underground mines forming one or more underground mine pools. While volumes of water flowing from or through certain mine voids can likely be calculated, estimating what quantity of rare earth elements came from a particular mine void would be challenging to say the least. Technical approaches that have been accepted in similar legal contexts may prove helpful in addressing this question.
These and other legislative actions present substantial opportunities for members of the coal industry to participate in grant programs and otherwise derive revenue from recovery and sale of rare earth elements and other critical materials associated with mining operations. Babst Calland has a team of lawyers following state and federal activities related to rare earth element development opportunities and implementation of the Infrastructure Bill. Please contact any of the following attorneys to learn more: Robert M. Stonestreet at rstonestreet@babstcalland.com or 681.265.1364; Christopher B. “Kip” Power at cpower@babstcalland.com or 681.265.1362; or Ben Clapp at bclapp@babstcalland.com or 202.853.3488.
To view this and other alerts regarding the Infrastructure Bill, click here.
To view the PDF, click here.
