Regulatory Documents Can Be Contracts: The Wetlands Mitigation Bank Example

Posted in Federal Regulation

For the second time in a year, a wetlands mitigation bank “instrument” executed between a landowner and a federal agency has been held by a court to be a binding contract that could be enforced against the agency when it tried to alter the terms of the instrument to the detriment of the landowner/mitigation bank operator.  These rulings demonstrate that regulatory “approval” documents issued by federal agencies can rise to the level of binding contracts where the elements of contract formation are present.

On November 21, 2014, in Pioneer Reserve, LLC v. United States, the U.S. Court of Federal Claims agreed with that Court’s December 2013 ruling in a similar case that a document setting forth the terms and conditions governing Pioneer’s operation of wetland mitigation bank constitutes a contract with the U.S. Army Corps of Engineers, the terms of which the Corps was bound to honor.  The mitigation bank instrument executed by the parties provided for hundreds of mitigation credits, but the Corps later unilaterally reduced the number of credits to 16, which Pioneer claims cost it more than $12 million in lost revenues from sale of the mitigation credits.  The Court’s ruling allows Pioneer to proceed with its breach of contract claim seeking to recover those damages.

Under regulations administered by the Corps, Pioneer needed a permit to operate the mitigation bank, and in connection with its permit application Pioneer and the Corps negotiated the terms of the mitigation bank instrument and ultimately signed the document.  The Corps argued that the instrument reflected a mere “regulatory approval” of the mitigation bank, but the Court found that the elements of a binding contract with the government were present:  1) mutual intent to contract, 2) an exchange of consideration, 3) lack of ambiguity in offer and acceptance, and 4) authority of the Corps to bind the government in contract.  The Court rejected the Corps’ argument that it had nothing to exchange in return for its approval of the mitigation bank, concluding instead there was a bargained for exchange between the parties:  Pioneer promised to preserve certain wetlands for mitigation purposes, and in return the Corps agreed to award Pioneer credits which it could sell to third parties.  In the December 2013 case, Davis Wetlands Bank, LLC, the Court reached a similar conclusion for essentially the same reasons.

In many cases regulatory approvals, permits and licenses granted by federal agencies can be revised or even withdrawn without legal consequence.  But these two recent decisions show that in some cases, even though private parties negotiate with agencies in a regulatory context, the resulting agreements can be deemed binding contracts that can be enforced against the agencies.

EPA Delays Finalization of 2014 Renewable Fuel Standards

Posted in Energy, EPA, Renewables

Last Friday, November 21, the U.S. Environmental Protection Agency (“EPA”) said it will defer its 2014 applicable percentage standards under the Renewable Fuel Standard program. The proposed standards rule, issued by EPA in November 2013, requires U.S. refiners to add 15.2 billion gallons of renewable fuels to the nation’s fuel supply in 2014. EPA noted that it received myriad public comments to the proposed rule and, because of the “ongoing consideration of the issues presented by the commentators,” will not be able to issue the rule by the end of the year. In the interim, the Renewable Fuel Standard program remains the topic of heated debate, not only within the petroleum and ethanol industries, but on Capitol Hill. As it stands, the refining industry is not required to comply with the proposed rule but should anticipate complying once EPA takes final action. EPA noted that it will adjust reporting requirements to enable retroactive compliance.

For more information on the deferment of the proposed standards rule please see Notice of Delay in Issuing 2014 Standards for the Renewable Fuel Standard Program and EPA Puts Off 2014 Renewable Fuel Standard to 2015.

 

Maryland Proposes Contamination Reporting Rules Triggered by Concentration (not Quantity): Routine Transactional Due Diligence Could Pose a Problem

Posted in Brownfields

On October 31, the Maryland Department of the Environment (“MDE”) published a proposed regulation calling for reporting of hazardous substances found in the environment — that is, site contamination.  A routine investigation of real estate could trigger this obligation because the reporting thresholds would be concentrations of hazardous substances, not quantities.

Section 103 of the federal Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9603, requires a person in charge of a facility to report a release of more than a reportable quantity of a hazardous substance.  A “reportable quantity” is just that — a quantity.  40 C.F.R. pt. 302 sets out a reportable quantity for each listed hazardous substance in pounds and kilograms.  Thus, if one observes a release of a knowable or calculable mass of material, one may have a duty to report.  Just finding a few parts per million in a small sample of soil or a few parts per billion in a sample of groundwater, however, does not necessarily result in knowledge of (a) a release at any particular time or (b) the quantity released.

MDE would set reporting thresholds in concentrations.  So, a soil sample containing more milligrams per kilogram or a groundwater sample containing more micrograms per liter of the hazardous substance would trigger the requirement to report the analytical result to MDE.

“Responsible persons” would have the reporting obligation.  “Responsible persons” under section 7-201 of the Environment Article are essentially the familiar four categories of responsible persons under CERCLA:  current owners and operators, owners and operators at the time of disposal, arrangers, and transporters.  A seller of real estate who learned of a test result might have to report it.  The purchaser probably would not if the purchaser did not close the transaction; after the closing, of course, the purchaser would be a “responsible person.”

The rule proposal appears at 41 Md. Reg. 1337 (Oct. 31, 2014), and would amend COMAR 26.14.02.  You can read a copy here.

The proposed reporting thresholds are not published in the Maryland Register, but appear in a June 2014 guidance document posted on the MDE website here.

The comment period on this proposal closes on December 1, 2014.

Environmental Regulation and Investor State Dispute Settlement Clauses – OceanaGold and El Salvador

Posted in Environment, International

Investor state dispute settlement (“ISDS”) clauses in bilateral and regional investment treaties enable foreign corporations to sue a host country regarding regulations, policies, or court decisions. ISDS clauses were originally included in trade agreements and investment treaties in order to protect businesses that invest in foreign jurisdictions where legal and political systems are not robust. The clauses were included so that investors would have international redress in the event of an unforeseen adverse impact on their business due to political instability.

However, ISDS clauses have been utilized for a wider variety of disputes than anticipated. Most recently, ISDS clauses are being called upon by investors facing environmental regulation. One dispute, between OceanaGold and El Salvador, is currently before the International Court of Settlement of Investment Disputes (“ICSID”) and brings up interesting environmental and jurisdictional issues. Pac Rim Cayman LLC v. Republic of El Salvador (ICSID Case No. ARB/09/12).

Pacific Rim, a Canadian company, originally discovered a gold mine site (“El Dorado”) along the Lempa River in 2002. The investor-friendly Salvadoran government (since voted out of power) allegedly encouraged the company to apply for a permit. However, public concern regarding El Dorado’s impact on El Salvador’s compromised water supply slowed the process. Pacific Rim filed a complaint in 2009 against El Salvador under the ISDS clause of the Dominican Republic-Central American Free Trade Agreement (“CAFTA”). While Canada is not a member of CAFTA, Pacific Rim created a United States subsidiary in 2009. The United States is a member of CAFTA.

In 2012, ICSID ruled that the arbitration could continue due to a provision in El Salvador’s investment law. That provision has since been amended to prevent future disputes of this kind. In November 2013, the Australian company OceanaGold purchased Pacific Rim. As of today, the El Dorado mine project is banned by the Salvadoran government. Salvadoran officials state that Pacific Rim failed to get government approval for its Environmental Impact Study, did not submit a required feasibility study, and did not meet land title and permission-to-mine requirements. From September 15-22, 2014, ICSID held a hearing regarding whether El Salvador must issue a gold mining license to OceanaGold. OceanaGold seeks either a green light for the El Dorado mine project or approximately US$300 million in compensation from the Salvadoran government. An ICSID decision is anticipated in early 2015.

For more on international arbitration and environmental damages, see my colleague Thomas Snider’s article “Chad and China’s CNPC Reach Settlement on Alleged Environmental Damages.”

 

TCEQ Becomes Sole Permitting Authority for Greenhouse Gases in Texas

Posted in EPA, Greenhouse Gas, Permitting, Texas

On November 10, 2014, the federal Environmental Protection Agency (EPA) published two actions in the Federal Register that gave the Texas Commission on Environmental Quality (TCEQ) sole authority over greenhouse-gas permitting in Texas:

Previously, permitting for emissions in Texas had followed a two-step system in which the TCEQ issued PSD permits for traditional pollutants, and the EPA issued PSD permits for greenhouse-gas emissions.  Industry groups had found the two-step emission application process to be inefficient, time-consuming, and costly with the major complaint involving the slow response to GHG applications by the EPA.   The State of Texas undertook to remedy the problem on two fronts – (1) challenging the EPA’s GHG permitting program in the court system and (2) working to become the GHG permitting authority in Texas.  As TCEQ Chairman  Bryan Shaw explained, “While the State of Texas continues to disagree with the EPA program to regulate greenhouse-gas emissions, the TCEQ has a system in place to ensure timely permitting that provides stability and predictability to our State’s regulatory framework.”  In June 2013, Section 382.0621 of the Texas Health and Safety Code was amended to regulate GHGs and specifically authorized TCEQ to “adopt rules to implement this section, including rules specifying the procedures to transition to review by the commission any applications pending with the United States Environmental Protection Agency for approval under 40 C.F.R. Section 52.2305.” In October 2013, the TCEQ released draft rules to set up a state permitting system based on federal requirements, which appear in the Texas Administrative Code,  Chapters 39, 55, 101, 106, 116, and 122.  As a result of these efforts, the TCEQ has now become the sole permitting authority for GHGs in Texas.

Industry groups in Texas have been following these regulatory developments closely and will likely be pleased with the outcome.  However, a question of immediate concern is how this change will affect GHG applications already pending before the EPA.   TCEQ and EPA have reportedly been coordinating efforts with respect to the transfer of GHG permitting authority, and both agencies are expected to work together to ensure a smooth transition process for all pending applications. To assist with the process, TCEQ has indicated that it will likely perform the Best Available Control Technology (BACT) reviews for EPA for some of the permits now pending before the EPA. However, it is noteworthy that in recent months some, including TCEQ, have advised industry applicants to submit GHG permit applications to both TCEQ and EPA to expedite issuance.  In the meantime, the EPA has now made available a website showing the status of PSD GHG Permit Applications Transitioning to TCEQ, which can be found at http://yosemite.epa.gov/r6/Apermit.nsf/AirP#A.

 

 

 

CERCLA Preemption of State Law Contribution Claims under Pennsylvania HSCA

Posted in Articles, Environment, Litigation, Pennsylvania

The federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) allows private parties that incur cleanup costs to reallocate those costs to others through a cost recovery claim under section 107(a)(1-4)(B) or a contribution claim under section 113(f)(1) or (3)(B).  So do some state statutes and state common law.  There can only be one allocation — one list of numbers that adds up to the whole liability.  Which law governs?

The federal courts have fairly uniformly said that CERCLA preempts state law contribution or cost recovery claims, other than contract claims.  That seems obvious when the claim is among parties liable under federal law and state law to reallocate costs that are recoverable under both federal and state law.  The shares determined under CERCLA should govern.

What about claims to reallocate costs that are recoverable under state law, but not under federal law?  In Pennsylvania, think about remedies selected and implemented under the Land Recycling and Environmental Remediation Standards Act (“Act 2″); Act 2 was explicitly constructed so that the cumbersome process under the National Contingency Plan (“NCP”) would not impede prompt cleanups, so those costs are often not incurred consistently with the NCP and therefore not recoverable under CERCLA.  Typically, those costs would be recoverable under the Pennsylvania Hazardous Sites Cleanup Act (“HSCA”).  Yet, the federal courts seem to hold that costs that could be recoverable under CERCLA but that are not recoverable by reason of inconsistency with the NCP are also not recoverable under state law.

What about claims to reallocate costs under state law to parties liable under state law, but not liable under federal law?  An example in Pennsylvania would be an interim owner of real property between the time when hazardous substances were disposed and when a release occurred.  Under CERCLA, that person is not liable.  Under HSCA, that person probably is liable.  The federal courts — to be sure not considering HSCA — have held state law to be preempted in this circumstance as well.

Is anything left, then, of contribution claims under laws like Pennsylvania HSCA?  I consider the question in my column this month in the Pennsylvania Law Weekly.  Read Does CERCLA Preempt Contribution Under the HSCA?, 37 Pa. L. Weekly 1072 (Nov. 11, 2014), by clicking here.

For those specifically interested in HSCA, click here to request a reasonably comprehensive list of reported HSCA decisions.

Stepping Off the Gas Pedal: New York Adds Upper Limit to Proposed LNG Rules

Posted in New York, Oil & Gas

Despite the abundance of natural gas within the state and region, and the reputation of natural gas as the cleanest burning of fossil fuels, New York remains a treacherous political environment for companies seeking to expand the use or extraction of gas. The anti-fracking movement maintains a strong base of support in the state and a de facto moratorium on exploration remains in place at the state level. Pipelines, storage fields, compressor station projects, and the highly controversial offshore Port Ambrose liquefied natural gas (LNG) facility continue to meet with public opposition.

Add to the list of obstacles the fact that New York State has yet to establish an effective regulatory regime for in-state liquefied natural gas (LNG) facilities. LNG, produced by cooling natural gas to -260°F, is easier to contain and to move than methane in its gaseous form, making both trucking and shipping much easier. LNG also can be used as a fuel for heavy trucking, providing a cleaner burning alternative to diesel. However, under the Liquefied Natural and Petroleum Gas Act (ECL §§ 23-1701 et seq.), enacted in response to a large LNG facility explosion in Staten Island in 1973, new LNG facilities cannot be constructed in the absence of DEC regulations.  Up to now, new LNG regulations have not moved forward due to the stringent, if not unworkable, requirements of the statute. Indeed, New York State is the only state in the country that has not adopted standards for the construction of new LNG storage facilities of any kind within the state.

As discussed in our September 18, 2013 blog post, the New York State Department of Environmental Conservation took the first steps toward allowing the state to take advantage of the numerous environmental and economic benefits of LNG by proposing new rules for the regulation and siting of natural gas facilities last year. After receiving public comments, DEC submitted a revised proposal for the rule, addressing concerns over the safety and size of these facilities. See Revised 6 NYCRR 570 (Proposed). These regulations would cover any storage vessel within the state, with exemptions provided for on-board fuel tanks used to power vehicles and facilities in operation before the passage of Liquefied Natural and Petroleum Gas Act in 1976.

Much of the original and proposed rule remains unchanged. Intrastate transportation of natural gas would still be prohibited unless the route has been authorized, applicants would still have to meet all necessary permitting requirements like demonstrating need and a description of possible environmental impacts, and the NFPA standards are still incorporated into the law by reference. The only substantive change to the proposed rule would be the addition of a 70,000 gallon upper limit on the size of a new facility. Under the originally proposed rules, there was no upper limit on the size of a proposed facility, granting DEC discretion in whether or not to approve a given design. The limit comports with a threshold provided by NFPA 59A, over which the necessary siting offsets change dramatically.

The limit is not surprising, as the principal focus of this regulatory effort was to permit installation of smaller LNG filling stations to service long haul trucking.  The concern, whether reasonable or not, over much larger LNG facilities and the overall difficult political terrain for natural gas projects makes the permitting of larger LNG in the state much more unlikely.  The revised regulations take these much larger storage facilities off the table and likely will make the proposed regulations less controversial.  The revised proposed rule provides a clear limit on the future construction of LNG facilities in state that should not materially impact the development of natural gas filling stations in New York State. According to the 2011 NYSERDA Promulgation Support Study, the upper limit of 70,000 gallon will be consistent with the vast majority of anticipated projects within the first years of the regulatory scheme.

The Notice of Revised Rule was published today in the State Register. As this is a revision to an already proposed rule, no public hearings will be provided. However, DEC is accepting written public comments through December 12, 2014.

US-China Joint Announcement on Climate Change

Posted in Environment, Greenhouse Gas, International, Policy

from the GT Climate Change Group

You may have read in the press that President Obama and Chinese President Xi Jinping jointly announced an agreement on greenhouse gas emission reduction goals and other climate change measures.  The U.S.-China Joint Announcement on Climate Change and an accompanying fact sheet have been released by the White House.  This perhaps breaks the rhetorical logjam of discomfort among some in the United States to commit to reduce greenhouse gas emissions before China commits to reduce its own.

Some have observed that this development also reinforces Administration efforts to induce manufacturing to “on-shore” to the United States.  Chris Bell of GT Houston points out that “that the U.S. has effectively outsourced a lot of its GHG emissions to Asia/China by outsourcing its manufacturing and then just importing the finished goods back into the U.S.”  A Chinese commitment to reduce emissions makes the GHG playing field somewhat more level when it comes to location decisions for that manufacturing.

 

 

Florida Passed Amendment One. Do you Have Swamp Land to Sell?

Posted in Florida

The overwhelming approval of the Florida Water and Land Conservation Initiative, Amendment 1, by Floridians on the November 4 ballot is a reminder that environmental conservation in Florida is a nonpartisan issue.

As explained in my post of October 24, Amendment 1 will establish a Land Acquisition Trust Fund funded by the document tax to be used for acquisition and protection of a variety of environmentally sensitive areas.  Some estimates show that approval of Amendment 1 could mean maybe $600 million to $1 billion dollars next year for environmental conservation allowing for the purchase of lands to protect wetlands, natural springs, beaches, forests, river beds, and even farms and ranches. The money could also be used for park and trail management.

From a regulatory perspective, land acquisition programs in Florida have a long and successful history dating back to the Land Acquisition Trust Fund in 1963 designed to purchase land for parks and recreational areas.  The Environmentally Endangered Lands (“EEL”) Program of 1972 followed next and it was designed to protect environmentally unique and irreplaceable lands, not necessarily parks.  The EEL program was replaced by the Conservation and Recreation Lands program from 1979-1990. In 1990, the Florid Legislature adopted legislation to create Preservation 2000.  These collective land acquisition programs have been perceived by the public as incredibly successful.  Therefore, the reminder by Floridians that environmental conservation in Florida is a nonpartisan issue is not a surprise for most environmental professionals.

How this money will be spent, and specifically what process will be implemented to choose lands for purchase is the question at hand.  Again with a rich history of land acquisition programs and their accompanying processes to choose from, the State is not starting from scratch in structuring a process by which lands are chosen for purchase under Amendment 1.  Today, the question for land owners to consider is, “Do you have some swamp land to sell?”

2014 Voters Address State, Local Infrastructure Funding Proposals

Posted in Environment, Legislation, Oil & Gas, Policy

Written by Robert S. Brams, Alais L. M. Griffin, Jennifer R. McEwan˘, Jamey L. Tesler and David Veator.

On Nov. 4, 2014, voters across the country addressed a series of state and local infrastructure funding proposals that will have substantial ramifications for transportation and infrastructure finance in many major states. As these results will impact the ability to advance major infrastructure projects in a variety of places in the United States, this Greenberg Traurig Alert provides a brief summary of election day’s ballot questions.

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˘Not admitted to the practice of law.
Not admitted in Washington, D.C. Admitted in Illinois and New York.

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