Brexit: Environmental Law Implications for the Chemicals Sector

Posted in Air, Climate Change, Contamination, Energy, Environment, EU, GT Alert, International, Manufacturing, Waste, Water

This note addresses the possible legal impact of Brexit on the chemicals sector.  It is one of a series of GTM Alerts designed to assist businesses in identifying the legal issues to consider and address in response to the UK’s referendum vote of 23 June 2016 to withdraw from the European Union.   While Brexit has the potential to impact significantly upon the regulatory environment within which companies in the chemical sector operate, it is too early to determine with any certainty the precise nature of that impact.  It is important to note, however, that the UK will remain a member of the EU, and all existing and future EU laws will apply in the UK, until the date of the UK’s exit.  UK-established companies will continue to be subject to EU law at least until the UK’s formal withdrawal from the EU is complete.  This will take some time, for the reasons set out below.

The Implementation of the Brexit Result

There is presently little doubt that the UK will eventually exit the EU.  The referendum result itself was only advisory – it produced a political, as opposed to legal, obligation for the UK to leave the EU – but it seems clear that the UK government continues to be committed to honouring the wishes of the British electorate.    Before exiting, the UK needs to go through the exit procedure set out in Article 50 of the Treaty on European Union, starting with notification to the European Council of its decision to leave the EU.  The new UK Prime Minister, Theresa May, appointed on 13 July 2016, has clearly stated that, while “Brexit means Brexit,” there should be no rush to serve the Article 50 notification.  She and David Davis, the Secretary of State for the new government department in charge of managing Brexit, have supported the view that notification should not take place before the end of 2016.  The situation remains fluid, with the EU institutions and the remaining 27 EU Member States increasing the pressure for formal negotiations to commence swiftly.  However, it is likely that notification will be delayed for some time to allow consideration of the UK’s preferred exit terms and model for its future relationship with the EU, and also to resolve three court actions aimed at ensuring that the government does not serve the Article 50 notification without first giving Parliament the opportunity to vote on it.
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Coscia Gets 3 Years in Prison: The Criminalization of Trading Commodities?

Posted in Court Cases, Energy, GT Alert

Sarao, Coscia, and now the Berkshire Power Company, each charged with crimes – spoofing, fraud, false information – relating to commodity trading. Commodity traders likely have incorporated into their compliance regimes the general risk that allegations of criminal fraud could arise. These criminal matters no longer appear to be isolated instances and, instead, counsel for vigilance to maintain a robust compliance, risk management, internal auditing, and surveillance regime.

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EPA Issues Environmental Justice Technical Guidance

Posted in Environmental Justice, EPA, Regulatory

In June 2016, the EPA issued its final version of the Technical Guidance for Assessing Environmental Justice in Regulatory Analysis. EPA has defined the concept of Environmental Justice (or “EJ”) as “the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies.” The guidance, which is intended for use by federal agencies proposing regulations or preparing environmental assessments, highlights potential EJ issues that contribute to the uneven distribution of environmental health risks across population groups, and offers qualitative and quantitative assessment methods for investigating these concerns to best integrate them when planning a Human Health Risk Assessment (“HHRA”) or conducting regulatory analyses.

“The technical guidance presents key analytic principles and definitions, best practices, and technical questions to frame the consideration of environmental justice in regulatory actions,” EPA Administrator Gina McCarthy states in her introduction. “It also includes recommendations that are designed to enhance the consistency of our assessment of potential environmental-justice concerns across all regulatory actions.”

The analysis for EJ concerns focuses on three key questions:

  1. Are there potential EJ concerns with environmental stressors affected by the regulatory action for population groups of concern in the baseline (defined as the “the best assessment of the way the world would look absent the proposed action”)?
  2. Are there potential EJ concerns associated with environmental stressors affected by the regulatory action for population groups of concern for the regulatory option under consideration?
  3. For the regulatory option under consideration, are potential EJ concerns created or mitigated compared to the baseline?

To answer these questions, analysts should characterize differential impacts for different population groups to determine if there are discernible differences in impacts or risks to minority, low-income, or indigenous populations that may result from the proposed regulatory action. Key factors for assessing EJ concerns include proximity of sources to these population groups of concern, unique exposure pathways, and history of EJ concerns associated with the pollutant being regulated. This analysis is useful when planning HHRAs and conducting regulatory analyses.

The EJ Technical Guidance stresses that the evaluation of EJ concerns be integrated into an HHRA or regulatory action early on, rather than evaluated separately, to best account for differential health risks for population groups of concern. This guidance also explains how to assess whether a regulatory action raises potential EJ concerns to determine if a more in-depth analysis is necessary.

The Technical Guidance for Assessing Environmental Justice in Regulatory Analysis provides valuable insight into the EPA’s approach to assessing impacts and promoting equality through regulatory analysis. Moving forward, those engaged in environmental review—whether an agency promulgating a rule or a project sponsor seeking a permit approval—will be required to address these concerns head-on consistent with the approach outlined in this Technical guidance.

Leah Pall* contributed to this blog post.
*Not admitted to the practice of law.



Massachusetts High Court Rules Leaded Gasoline is Not “Oil” Subject to Less Stringent Cleanup Requirements

Posted in Energy, Environment, Litigation, Massachusetts, Oil & Gas

The Massachusetts Supreme Judicial Court (SJC) upheld a statutory interpretation by the Massachusetts Department of Environmental Protection (MassDEP) that the statutory definition of “oil” does not include leaded gasoline. As a result, contamination from leaded gasoline released from a gas station was not eligible for less stringent remediation standards applicable to “oil” releases.  Based on the SJC’s reasoning, this ruling may also be applicable to gasoline containing other additives (such as MTBE).

At issue in Peterborough Oil Co., LLC v. Dept. of Environmental Protection (SJC-11851, June 6, 2016) is the Massachusetts “mini-CERCLA” statute, M.G.L c. 21E, which distinguishes between “oil” and “hazardous materials” when establishing liability for remediating environmental contamination.  Drawing on that statutory distinction, MassDEP revised its cleanup regulations (the Massachusetts Contingency Plan, 310 CMR 40.0000 (MCP)) to impose less stringent cleanup requirements for releases of oil (vs. hazardous materials releases) in so-called Zone II protection areas for public drinking water wells.

MassDEP concluded that the leaded gasoline in the Peterborough case was not “oil” because the lead it contained is separately identified as a “hazardous material” under Chapter 21E.  MassDEP therefore determined that additional remediation was required beyond what the plaintiff had already conducted.  The plaintiff sought judicial review of MassDEP’s determination, and then appealed after the trial court ruled in favor of MassDEP.

The SJC concluded that Chapter 21E was ambiguous on the issue, as it did not specifically address how to classify commingled “oil” and “hazardous materials.” The Court noted that Chapter 21E does not incorporate the “petroleum exclusion” found in the federal Superfund statute, and therefore Chapter 21E creates “greater liability for cleanup of oil spills than does CERCLA.”

After reviewing the legislative history and MassDEP’s rationale for determining that petroleum hydrocarbons containing hazardous materials like lead should be excluded from the definition of “oil,” the Court deferred to the agency’s interpretation. Specifically, the Court concluded that MassDEP’s “interpretation advances its mandate to ensure the cleanup of spills posing a threat to public health and safety, while reasonably permitting less stringent remediation based on the scientific studies it conducted concerning the observed levels of contamination in the public water supply.”

This case not only confirms the SJC’s general willingness to defer to MassDEP on regulatory issues arising under Chapter 21E, but also indicates that gasoline containing other “hazardous material” additives like MTBE, ethanol, and butanol would likewise not be deemed “oil” under Chapter 21E. Parties who own or are redeveloping gasoline-contaminated sites in Massachusetts should evaluate the implications of this decision to their remediation plans.

Food for thought: Florida, Israel can lead the way in agtech

Posted in Agricultural Technology, Environment

By 2050, the global population is expected to increase to 9 billion people — a dramatic increase of more than 35 percent. Given scarce natural resources and the uncertainties of climate change, feeding that growing population means food production will need to increase by 70 percent, according to the Food and Agriculture Organization.

Florida, where agriculture ranks as the second-largest industry, is perfectly positioned to take the lead in combating world hunger through investments in agricultural research. One strategy for doing so involves attracting innovative agricultural technology companies to the market. There is no better ally to enlist in such an effort than the state of Israel, which is known for its innovation in this area. Many of these Israeli food and agricultural technology companies are actively seeking opportunities for U.S. expansion.

Israel has been investing in food and agriculture innovation since its inception 68 years ago. The result: the country is a leader in this area, despite the fact that the geography of Israel is not naturally conducive to agriculture. Israel’s climate, geography and lack of water resources, provide many parallels that would be relevant to Florida. Those success stories include leading Israeli Agtech companies like Kaiima, a genetics and breeding company that utilizes technology to enhance crop productivity. The work of Netafim, a leader in smart drip and micro irrigation solutions, helps to reduce water usage and increase yields. And, Afimilk provides technology that helps dairy farmers increase yields and profitability.

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Supreme Court Allows Immediate Challenges to Army Corps’ Clean Water Act Determinations

Posted in Clean Water Act, Federal Regulation, Permitting, Water, Wetlands

On May 31, 2016, in a unanimous ruling, the United States Supreme Court held that the Army Corps’ determination as to whether “protected waters,” subject to Clean Water Act regulations, are present on a property is subject to judicial review. See United States Army Corps of Engineers v. Hawkes Co., Inc. No. 15-290 (U.S. May 31, 2016). The ruling enables landowners to challenge approved jurisdictional determinations in federal court, rather than require them to complete the often “arduous, expensive, and long” permitting process required by the Clean Water Act and Army Corps regulations. Chief Justice John Roberts, writing for the Court, reasoned that an approved jurisdictional determination, regarding whether federally-regulated “waters of the United States” or “navigable waters” are present on site, qualifies as a “final agency action” that is subject to judicial review under the Administrative Procedure Act. The dispute in Hawkes Co. was sparked when the Army Corps issued a final, approved jurisdictional determination stating that property owned by the company contained wetlands that were regulated by the Army Corps under Section 404 of the Clean Water Act. The Court rejected the federal government’s argument, finding that the permittee need not wait until after the Army Corps brings an enforcement action to contest the Corps’ determination. The decision enables individuals and companies to more easily challenge the federal government’s ability to regulate development of their property. It is but the latest challenge to the jurisdictional scope of the Clean Water Act.

Massachusetts High Court Rules Global Warming Solutions Act Mandates Annual, Declining Restrictions on GHG Emissions

Posted in Environment, Greenhouse Gas, Litigation, Massachusetts, Oil & Gas, Regulatory

In a decision that will have far-reaching consequences for the Massachusetts economy, Massachusetts’ highest court has ruled that the Global Warming Solutions Act (GWSA), passed in 2008, mandates the imposition of annual, declining limits on greenhouse gases (GHG) emissions.  In Kain vs. Dept. of Environmental Protection (SJC-11961, May 17, 2016), the Massachusetts Supreme Judicial Court (SJC) ruled that the regulatory programs that the Massachusetts Department of Environmental Protection (MassDEP) had relied on to comply with the GWSA mandate were insufficient.

At issue in the case was an allegation that MassDEP failed to adopt “regulations establishing a desired level of declining annual aggregate emission limits for sources or categories of sources that emit greenhouse gas emissions.”  M.G.L. c. 21N, § 3(d).  The GWSA required that these regulations be promulgated by January 1, 2012, with an effective date of January 1, 2013.  When MassDEP did not promulgate regulations by the statutory deadline, citizens filed a petition proposing regulations establishing GHG emission limitations.

In response, MassDEP concluded that several existing state programs met the statutory requirement in Section 3(d).  Specifically, MassDEP cited its regulations limiting sulfur hexafluoride leaks, a state low emissions vehicle (LEV) incentive program, and Massachusetts’ ongoing participation in the regional CO2 cap and trade program (known as the Regional Greenhouse Gas Initiative or RGGI).  A lawsuit ensued, resulting in a trial court ruling that deferred to MassDEP’s interpretation regarding its compliance with the statutory mandate in Section 3(d).

The appeal bypassed the intermediate appellate court and proceeded directly to the SJC, the state’s highest court of revew.  The SJC concluded that the statutory language in Section 3(d) was “unambiguous” and rejected MassDEP’s interpretation that the sulfur hexafluoride leak regulations, the LEV program and state participation in RGGI satisfied the statutory mandate.  The Court ruled that MassDEP must promulgate regulations that “address multiple sources or categories of sources of greenhouse gas emissions, impose a limit on emissions that may be released, limit the aggregate emissions released from each group of regulated sources or category of sources, set emission limits for each year, and set limits that decline on an annual basis.”

The adoption of the requisite regulations is undoubtedly a major regulatory task.  The SJC remanded the matter to the trial court to enter a judgment enforcing its ruling.  A significant unanswered question is the amount of time that the trial court will allow MassDEP to comply with this ruling, and whether the trial court will retain jurisdiction over the case until the regulations are promulgated.  Drafting regulations of this complexity, conducting the appropriate stakeholder outreach and public comment process, and finalizing the regulations in the ordinary course could easily take several years.

Another interesting aspect of this case is its timing relative to various ongoing renewable energy policy debates in Massachusetts. After a lengthy and contentious debate, the Legislature recently passed a bill raising the public and private solar net metering caps from 5% of the utilities’ peak load to 8% and from 4% of utilities’ peak load to 7%, respectively.  That bill also establishes a process to gradually reduce the solar industry’s reliance on ratepayer subsidies.

In addition, the Legislature is currently debating a bill filed by the Baker Administration to promote the transmission of Canadian hydro-electric power to Massachusetts for the express purpose of meeting the GHG reduction mandates in the GWSA.  And while the Baker Administration recently concluded that the Commonwealth is on track to meet the GHG reduction goal in the GWSA of 25% by 2020, this determination has been questioned by public interest groups, including those involved in the Kain case.

So, there will be considerable scrutiny focused on MassDEP as it complies with the Kain decision and promulgates regulations imposing annual, declining emissions limitations on GHG sources or categories of sources.  Counterbalancing that legal mandate will be concerns about limiting the economic impacts to businesses in the Commonwealth.  MassDEP will need to identify those sources or categories of GHG sources (e.g., mobile sources, industrial plants, commercial and residential buildings) that must be targeted, and then ensure that the GHG emissions for those sources are reduced over time based on an annual schedule in order to achieve the GHG reduction goals in the GWSA.  This regulatory program will presumably include GHG source monitoring (or an alternative means of compliance verification for regulated sources) and enforcement if those regulated sources fail to meet the promulgated GHG reduction rates.


Taking Another Look at Environmental Indemnity

Posted in Articles, Contamination, Environment, Insurance, Real estate, Risk management

From Grant E. Nichols of GT Philadelphia:

For at least the past 30 years, parties involved in the purchase or sale of properties that contain environmental exposure have had to negotiate environmental indemnity agreements, either to protect assets, transfer liability, or to simply get a deal across the finish line.  However, as more properties have become insured through comprehensive environmental insurance programs, thus fundamentally changing the nature of, and obligations associated with, the environmental risks associated with that property, indemnity agreements often have not kept pace.  As environmental risk management has become more sophisticated and more central to transactions involving environmentally-contaminated real estate, so should negotiations apportioning environmental risks among various stakeholders.  This includes a more nuanced approach which recognizes that parties other than the signatories to an indemnification agreement can incur such risks.

Read more in my Legal Intelligencer/Pennsylvania Law Weekly column here.



Rejecting the Aspire Court Decision, the CFTC Proposes a ‘Private Right of Action’ Amendment to RTO-ISO Order

Posted in CFTC, Commodities, Energy, GT Alert

The RTO-ISO Order

On March 28, 2013, the Commodity Futures Trading Commission (CFTC) issued an Order (the RTO-ISO Order), which exempted certain electric energy transactions conducted in particular regional transmission organizations (RTOs) and independent system operators (ISOs) from the Commodity Exchange Act (CEA) and CFTC Regulations, with the exception of certain enumerated provisions – specifically, CFTC’s general anti-fraud and anti-manipulation authority, and intent-based prohibitions. The exempted transactions specifically enumerated in and defined by the RTO-ISO Order included “Financial Transmission Rights,” “Energy Transactions,” “Forward Capacity Transactions,” and “Reserve or Regulation Transactions” (collectively, Covered Transactions). To qualify, Covered Transactions, among other conditions, had to be offered under the authority of a tariff approved by the Federal Energy Regulatory Commission (FERC) or the Public Utility Commission of Texas. While the RTO-ISO Order set forth the above-referenced surviving CEA authority, it did not address the availability of CEA Section 22, which provides for private rights of action by plaintiffs injured by alleged violations of the CEA.

Because Section 22 was not within the specifically-enumerated sections of the CEA that survived the blanket exemption, many believed that private rights of action for alleged violations of the CEA by the entities covered by the RTO-ISO Order were thereby extinguished. Federal courts agreed.

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Case Analysis: Sierra Club v. Chesapeake Operating LLC

Posted in Court Cases, Oil & Gas

On Feb. 16 the Sierra Club filed a lawsuit in the U.S. District Court for the Western District of Oklahoma against oil and gas drillers Chesapeake Operating LLC, Devon Energy Production Co. and New Dominion LLC.1

The Sierra Club claims that wastewater injection wells have contributed to cause increased earthquake activity in Oklahoma and alleges that, because “no government body is currently taking a holistic or proactive view of waste injection and its potential to induce earthquakes,” a court order is needed to require the establishment of an independent earthquake monitoring and prediction center to determine the amount of production waste that can be injected into specific wells before seismic activity occurs.

The suit also seeks an injunction ordering the three defendants to reduce the amounts of production waste being injected underground “to levels that seismologists believe will not cause or contribute to increased earthquake activity.”

The Sierra Club action followed an earlier lawsuit filed by 14 residents of Edmond, Oklahoma, against a dozen oil and gas companies. The plaintiffs in that suit claimed that saltwater disposal wells were in part to blame for the 4.3 and 4.2 magnitude earthquakes that struck near Edmond on Dec. 20 and Jan. 1.2 Two other cases involving a personal injury and a property damage claim are also making their way through the Oklahoma state courts. Those cases stem from a 5.6 magnitude quake in 2011 near the town of Prague. Continue Reading.