When a party “cashes out” of its liability to the government under the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), under Environmental Protection Agency (EPA) guidance in place since 1988 the settling party typically pays a premium over what would otherwise be its equitable share. Even though settlements have featured premiums for decades, parties often do not consider issues that they present.
On Nov. 5, 2020, at 11 a.m. CST, join Greenberg Traurig, in collaboration with Rubicon Capital Advisors, for a webinar on the current renewables climate in Latin America, with a focus on Chile and Colombia.
Guest speakers include: Invenergy LLC’s Gabriel Monroy, VP of Finance & Capital Markets; Patricia Tatto, ATA Renewables’ VP of America; and Maria Jose Ugalde, Business Development Manager of Statkraft. GT’s Global Head of Energy Project Finance, Jeff Chester will serve as moderator while GT Shareholder Erick Hernandez will serve as a panelist. Rubicon Capital Advisors Managing Director, Santiago Ortiz Monasterio, will be a co-moderator and Rubicon’s Columbia-based Managing Director, Andres O’Byrne will serve as a panelist.
- Legal Frameworks
- Investment Options
- Predominant Technologies
- Major Trends
The ongoing battle over Supplemental Environmental Projects (SEPs) – environmentally-beneficial, beyond-compliance projects that defendants agree to undertake for potential penalty mitigation in settlement of environmental enforcement actions – heated up last week when an environmental group sued the attorney general and others for violating the Administrative Procedure Act (APA) in issuing a legal memorandum effectively halting the projects.
The last time we discussed SEPs, the United States Department of Justice (DOJ) was challenging a separate agreement entered into between two private parties – that were also parties to a consent decree with the DOJ – that required one of those parties to undertake projects akin to SEPs. That matter is still being briefed (for additional background on DOJ’s new stance on SEPs, see our May 2020 post and September 2019 post).
The United States Environmental Protection Agency (EPA) has supported SEPs since 1984, when the agency issued its first SEP policy. SEPs have enjoyed widespread support from communities and regulated entities alike. But over the past several years, the DOJ has expressed increasing skepticism over the propriety of SEPs, culminating in the issuance on March 12, 2020, of a memorandum entitled, “Supplemental Environmental Projects (“SEPs”) in Civil Settlements with Private Defendants” (SEP Prohibition Memo), prohibiting SEPs in all but a small class of diesel emission reduction projects in mobile source matters. The SEP Prohibition Memo posits that SEPs represent a violation of the Miscellaneous Receipts Act, which provides that a government official “receiving money for the Government from any source shall deposit that money with the Treasury,” subject to certain exceptions.
On Oct. 8, the Conservation Law Foundation (CLF) filed a lawsuit in the United States District Court of Massachusetts (Conservation Law Foundation v. William Barr et al., Case No. 1:20-cv-11827), seeking to vacate the SEP Prohibition Memo and enjoin DOJ and EPA from implementing that policy – as an arbitrary and capricious violation of the APA. In challenging the SEP Prohibition Memo, CLF noted that the EPA and other agencies have long relied on the rationale that because no penalty is owed to the government until a settlement is finalized, including a SEP in settlement agreement does not trade penalties for projects.
The CLF notes that pollution disproportionately harms low income and minority communities, and SEPs have been a tool for reducing those impacts. Jeffrey Clark, the current assistant attorney general of DOJ’s Environment and Natural Resource Division (ENRD) and author of the SEP Prohibition Memo, argues in the memo that despite the safeguards contained within EPA’s SEP policy, SEPs still divert funds that otherwise would have gone to the Treasury to projects benefiting third parties, in violation of the law.
CLF, in its complaint, argues that EPA had implemented robust protocols, through its SEP Policy, to ensure that SEPs met certain criteria to avoid running afoul of the Miscellaneous Receipts Act. That policy, says CLF, has been blessed by the Office of Legal Counsel, as well as by the many courts that have entered consent decrees including SEPs. According to CLF, by misreading the plain language of the Miscellaneous Receipts Act and ignoring the decades of precedent supporting the SEP Policy, DOJ acted arbitrarily and capriciously – and in a manner likely to disproportionately harm low-income and minority communities.
If the upcoming election results in a change in administration, a new attorney general could potentially withdraw the SEP Prohibition Memo and perhaps moot the CLF case. In the meantime, however, the SEP Prohibition Memo will continue to bar SEPs in settlements, until withdrawn or deemed illegal.
Hydrogen recently has been touted by various political leaders around the world as a clean panacea to the problem of energy storage or heat or electricity. Hydrocarbons traditionally have served that role and have been stored in above-ground tanks and below-ground caverns or geologic formations. Future use of hydrocarbons, however, in some jurisdictions is not politically favored. Electric batteries are an energy storage alternative, but they are limited in capacity, are costly and eventually must be replaced. What about hydrogen? Hydrogen also can serve as an energy-storage mechanism in the form of a gas, as a liquid formed cryogenically, or within a liquid compound, such as in ammonia. There are, however, technological and economic drawbacks. Continue Reading
On Oct. 6, 2020, the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy (EERE) and the Dutch Ministry of Economic Affairs and Climate Policy (Ministerie van Economische Zaken en Klimaat) issued a statement of intent. The governments aim to jointly stimulate future hydrogen research & development and demonstration activities.
Hydrogen has caught the eye of governments and companies around the world. Through the H2@Scale program, for example, the U.S. government is exploring the potential for wide-scale hydrogen production and utilization. In March 2020 the Dutch government published its ambitious hydrogen agenda. Hydrogen will, according to the agenda, play an essential role in realizing the climate goals of the Dutch government (to reduce CO2 emissions by 49% in 2030 and 95% in 2050). Other Europeans countries such as Germany (in June 2020) and the EU (in July 2020) published hydrogen strategies as well.
Now the U.S. and Dutch governments have decided to work together. Through the collaboration, the U.S. Department of Energy and the Dutch Ministry Economic Affairs and Climate Policy will collect, analyze, and share information on hydrogen production and infrastructure technologies.
Both U.S. and Dutch officials expressed their enthusiasm for the partnership. Daniel Simmons (Assistant Secretary of EERE) stated that “this partnership will help address key hydrogen Research & Development areas, pave the way for at-scale hydrogen demonstrations, and foster new national, regional, and worldwide hydrogen value chains.”
On Sept. 23, 2020, the Dutch government entered into a collaboration with the Portuguese government regarding the export of green hydrogen from Portugal to the Netherlands. These international collaborations are a clear sign that hydrogen is gaining momentum around the world.
Earlier this year New York state, conceding that its previously enacted siting law had not been effective in siting large-scale renewable energy projects, enacted the Accelerated Renewable Energy Growth and Community Benefit Act (codified primarily in N.Y. Executive Law § 94-c; hereinafter, the Act). The Act, effectively a new siting law for renewable projects, created, within the Department of State, an Office of Renewable Energy Siting (ORES) and removed renewable siting for new projects from the cumbersome Article 10 siting process run by the Department of Public Service. That law, however, does not really go into effect until specific regulations are issued for the new office. The Department of State took a big step in getting the ORES up and running when it recently issued proposed regulations to govern the renewable siting office. The regulations, issued for public comment, seek to prescribe the elements and timeframes for ORES’s review of renewable energy siting applications. Almost immediately, local governments reiterated concerns that the law and the proposed regulations would weaken local control over project siting. Less than a week later, Department of Public Service staff proposed a Community Benefit Program, aimed at mollifying municipal opposition with money for host communities.
When the legislature passed the Act in April 2020, we observed that the intent of the law was to accelerate the siting of renewable generation and transmission, but that the law did not offer a panacea for ills of its predecessor, Article 10 of the Public Service Law, which, often in the face of local opposition, had resulted in delayed siting of wind and solar projects. When the Act was signed by Gov. Cuomo in April 2020, many local government advocates criticized New York state for taking away the voice of municipalities in the siting of renewable energy generation. Rightly pointing to the adage that you can’t please all the people all of the time, some suggested that the Act and its proposed regulations offer much hope to renewable developers, at the expense of New York’s tradition of home rule. But, by pairing the bitter with the sweet, New York appears to be aiming to please some of the people some of the time.
Mirroring the Act, the recently promulgated regulations offer more detailed and prescriptive requirements to govern ORES’s review of applications and timeframes in keeping with the Act’s stated intent. But, pre- and post-application requirements included in the draft regulations, if promulgated, may have the unintended result of needlessly delaying the start of construction. In the pre-application category, extensive environmental review work is required. Pre-application wetlands delineation, project renderings, and threatened and endangered species studies are to be performed as early as possible in order for ORES to reach a completeness determination on an application. A post-application requirement for a notice to proceed with construction suggests that there will be residual risk on the back end, even after ORES approves a project and permits are issued, leaving open the possibility that ORES could withhold its notice to proceed with construction. The notice is to be issued “promptly,” but that term is undefined, leaving timing to staff. This could have the unintended consequence of delaying the build-out of renewable generation that New York needs to meet its statutorily mandated goals under the Climate Leadership and Community Protection Act (CLCPA). While renewable project developers can likely put in the work on the front end for a return on investment of a shorter construction timeframe, the notice to proceed provision on the backend makes little sense where, as here, a project comes out of the ORES process fully permitted.
The draft regulations vastly improve upon existing regulations issued under Public Service Law Article 10, significantly reducing the opportunity for intervenors and project opponents to litigate every aspect of an application. In the proposed regulations, discovery is limited; applicants need not be bogged down in responding to numerous requests when no adjudicatory hearing has been ordered. Nor can project opponents litigate application completeness, a delay that dogged the Article 10 process. Timeframes and public outreach have been reduced, further streamlining the pre-application process and making it look similar to the process to obtain permits under the New York State Department of Environmental Conservation’s Uniform Procedures Act.
Counterbalancing the newly proposed streamlined siting process is the DPS’s Staff Community Benefit Program Proposal, issued less than a week after the draft siting regulations. The proposal arguably compensates local residents for the loss in local governmental control over siting by paying residents for hosting renewable energy projects. Under the proposal, residential utility customers living in host communities receive an annual bill credit for the first 10 years that a project operates in that community. The credit is funded by the owners of the renewable energy project, who pay a $500 per megawatt hour fee for solar and $1,000 per megawatt hour for wind. The fee would be enforced by requiring the New York State Energy Research Authority (NYSERDA) Renewable Energy Credits contracts to make renewable generation owners prove the applicable fees have been transferred to the applicable utility. The utility then provides the bill credit.
Local governments and project opponents may not be pleased with their reduced role under the Act and its implementing regulations. Renewable energy developers may not be enamored with fees deducted from lucrative subsidy contracts. But, overall, the regulations provide a sensible, prescriptive, and rational process for siting renewable energy that will likely result in completed siting review and permitting much faster than Article 10. And, the DPS staff proposal provides compensation to communities that host these projects. Improvements and modifications will no doubt be made to the regulations and compensation program before being promulgated and adopted – public comment on both the regulations and the proposal runs through Dec. 7, 2020 – but the two together are sure to please at least some of the people some of the time.
On Sept. 14, 2020 the Dutch minister of Economic Affairs and Climate informed the Dutch Parliament that the EU Commission does not consent to the granting of subsidies for the environmentally friendly production of hydrogen through sustainable energy (so-called ‘green hydrogen’) under the Dutch SDE++ scheme in the form requested by the Dutch government. State-aid rules require that the EU Commission provides its consent before any subsidies are granted.
This is a setback for the Dutch government and its plans to reduce greenhouse gas emissions by means of hydrogen. These plans were laid out in the Dutch hydrogen vision presented to the Parliament as recently as March 30, 2020. The minister has announced that the available subsidy for green hydrogen under the SDE++ scheme will remain available but will be reduced as a result of the discussions with the EU Commission (by limiting the operating hours that can be subsidized). Other Dutch subsidy schemes may be available for green hydrogen projects as well.
In ASARCO v. Atlantic Richfield, No. 18-35934 (9th Cir. Sept. 14, 2020), ASARCO entered into a consent decree under which ASARCO agreed to pay $111.4 million. ASARCO then sought contribution from Atlantic Richfield. The district court found Atlantic Richfield to be responsible for 25% of ASARCO’s response costs. The Ninth Circuit upheld the district court’s allocation but rejected the court’s finding that all $111 million could, at present, be considered necessary costs of response recoverable in contribution by ASARCO.
Although certain costs have already been expended, the Ninth Circuit considered whether the full settlement could be considered necessary response costs eligible for contribution. The cleanup method had not been determined. Nevertheless, the district court was “convinced that the balance of the approximate $50 million in the trust will most likely be expended to achieve the mandated remediation results.” Under that reasoning, the district court found all $111 million was eligible to be recovered in contribution by ASARCO.
The Ninth Circuit disagreed. The Court found that the expert opinion offered by ASARCO, which did not identify the final remedy but instead opined that “something at some point is going to have to be done,” was too speculative and based on conjecture to allow a finding that all $111 million were necessary costs of response recoverable – at present – in contribution. Under the Court’s holding, ASARCO is able to recover those necessary costs of response that have been incurred and also is entitled to a declaratory judgment that “establishes liability and an allocation for those costs that have not been incurred yet, but may be incurred in the future.”
As with the Third Circuit opinion we recently posted about, this settlement was in the context of a bankruptcy, and the Ninth Circuit acknowledges that the unique facts here make the holding “a narrow one.” The settlement here was a global settlement for several contaminated sites. In 2005, ASARCO filed a Chapter 11 bankruptcy petition and in 2009, ASARCO, the United States, and the state of Montana reached two settlement agreements and two consent decrees, which resolved ASARCO’s liabilities at several Montana sites, including the one at issue in this case. One of those consent decrees created a custodial trust for the sites, and identified EPA as the lead agency responsible for authorizing all work performed and funds expended from the trust.
Any unused funds from remediated sites are diverted to other sites, so the Ninth Circuit’s concern that not all $111 million would be expended at this site was based on the terms of the settlement itself. In addition, the projected costs of the remediation at the site were based on a pump-and-treat remedy, which “now appears extremely unlikely to come to fruition.” For those reasons, the Ninth Circuit emphasized the narrowness of its holding.
Although the Ninth Circuit’s holding is a narrow one, it emphasizes again the need for specificity in settlement agreements. That may not always be possible in the context of a global settlement like the one in ASARCO v. Atlantic Richfield. This case is another in a long series of cases that demand care in the accounting that supports or defends a CERCLA contribution claim. Parties may want to devote attention early to what costs are at issue, whether those costs are sufficiently concrete to be reallocated, who incurred those costs, and whether the contribution plaintiff has or will incur more than its fair share of those costs under at least someone’s theory of the case.
This week, the Third Circuit issued an opinion in NJDEP v. American Thermoplastics Corp et al., No. 18-2865, which adds a new wrinkle on CERCLA section 113(f)(2), which bars non-settling parties from bringing claims for contribution against settling parties, while also placing new emphasis on CERCLA section 104 cooperative agreements in the context of settlements.
The case involves the Combe Fill Superfund Site, a landfill which operated from 1948 to 1981. From 1978-1981, the landfill was owned by Combustion Equipment Associates (“CEA” n/k/a Carter Day Industries) and run by its subsidiary, Combe Fill Corporation (“CFC”). CFC hired Compaction Systems Corporation to conduct operations at and transport hazardous materials to the landfill. In 1981, the site closed and CFC filed for Chapter 7 bankruptcy. USEPA and NJDEP filed claims, which were each settled for $50,000. In 1980, CEA filed for Chapter 11 protection. NJDEP filed a claim, which the court disallowed because only CFC was liable for the costs for cleaning up the Site under New Jersey law. USEPA did not file a claim. In 1986, Carter Day sought a judgment that USEPA’s and NJDEP’s claims related to the Site were discharged in bankruptcy. The bankruptcy court dismissed the action against USEPA as unripe. The bankruptcy court subsequently approved a settlement entered into between Carter Day and NJDEP by which “all claims of NJDEP against Carter Day with respect to the Combe Fill sites” were discharged, and NJDEP was enjoined “from pursuing any claims against Carter Day with respect to the Combe Fill sites.”
Compaction, which in 2009 settled with USEPA and NJDEP, brought a section 113(f) CERCLA contribution claim, among other claims, against Carter Day. To determine whether Carter Day’s prior settlement with NJDEP barred Compaction’s claim, the district court and the Third Circuit focused on whether the “matters addressed” in that settlement included both state and federal claims that could have been brought against Carter Day. Under CERCLA section 113(f)(2), “[a] party who has resolved its liability to the United States or a State in an administrative or judicially approved settlement shall not be liable for claims for contribution regarding matters addressed in the settlement.”
The settlement, entered into in the context of a bankruptcy and prior to USEPA’s 1997 guidance that directed settlements to include a “matters addressed” section in settlements, raised the question of whether the language encompassed federal claims, in addition to state claims. The parties agreed that, because it was a judicially-approved settlement that identified all NJDEP claims related to the site, that Compaction could not seek contribution of costs it paid to NJDEP ($1.5 million out of $11 million). The district court reasoned that because the language in the settlement agreement encompassed all of NJDEP’s claims related to the site, and because a settling party receives the same contribution protection whether it settles with a state or the United States, the settlement with NJDEP barred all costs sought in contribution by Compaction.
The Third Circuit reversed. In considering the scope of the “matters addressed,” the Court determined it must “interpret the matters addressed in an agreement narrowly when determining whether the settlement with one sovereign covers the claims of another.” This may be a novel interpretation. That said, the Court determined that, although the settlement broadly covered remedial costs at the site, it was limited to claims by NJDEP. As further support, the Third Circuit noted that the settlement here was essentially just an acknowledgment by NJDEP that its claims were barred by the Carter Day bankruptcy, a case in which USEPA was not involved. In addition, the Court found that it would be inequitable to allow Carter Day to avoid liability, given that “USEPA bore the lion’s share of the Site’s cleanup costs.”
The Third Circuit also had the benefit of documents related to a cooperative agreement entered into by NJDEP and USEPA in 1983, which designated NJDEP as the lead agency for the Site’s cleanup. Compaction only moved to supplement the record with these cooperative agreement-related documents on appeal. Pursuant to that cooperative agreement, USEPA was responsible for 100 percent of the costs of managing and performing the RI/FS and 90 percent of the cost of managing and performing the work in the remedial action, with NJDEP responsible for the other ten percent. The cooperative agreement “negated and denied” the authority of either party to “attempt to negotiate on behalf of the other.” The Third Circuit placed significant emphasis on the cooperative agreement, finding that because that cooperative agreement “reiterates the statutory allocation costs and states that the NJDEP cannot recover funds on behalf of the USEPA . . . [i]t defies reason and the plain language of the Cooperative Agreement that the matters addressed in the NJDEP Settlement with Carter Day could include expenditures incurred—per statute and contract—solely by the United States.”
This decision involves a fairly unique set of facts, but emphasizes the importance of being explicit when identifying the “matters addressed” in a settlement, especially when settling with one of two sovereigns that are incurring costs at a site. Settling private parties should not assume they have complete information about the relationship between sovereigns—and may be unaware of cooperative agreements like the one here. Negotiating a settlement under those circumstances highlights the need to be precise when drafting the “matters addressed.”
Last month, I wrote about the “Environmental Justice for All Act,” a bill that proposes a finding that vulnerable populations are disproportionately burdened by environmental hazards. New Jersey is following the federal environmental justice debate, passing historical environmental justice legislation in both the House and Senate, where it is currently awaiting Governor Phil Murphy’s approval. This bill requires the New Jersey Department of Environmental Protection (DEP) to evaluate environmental and public health stressors of certain facilities on “overburdened communities” when reviewing major pollution source permit applications, such as, but not limited, to landfills, gas-fired power plants, large sewage treatment plants, and scrap metal facilities, and medical waste incinerators.
Within two months of the effective date of the legislation, DEP must publish and maintain a list of “overburdened communities” (as defined by a statutory formula) on the agency’s Internet website. The agency must consider the potential environmental and public health impact of proposed applications located in an overburdened community. This environmental justice permit review process mirrors the traditional National Environmental Policy Act (NEPA) process in that the applicant must prepare an environmental justice impact statement that assesses the potential environmental and public health stressors associated with the proposed or expanded facility. In addition, the agency must consider the cumulative impact of the propose permitted activity on existing conditions located in or affecting the overburdened community.
The apparent impact of this legislation on the regulated community is that an otherwise permissible activity might still be denied if there is a finding of disproportionate impact of the proposed regulated activity on an overburdened community. The bill also provides certain public notice and hearing requirements to allow the overburdened community an opportunity to be heard prior to the issuance of any permit.
2020 has brought a renewed focus on social justice issues so that we should expect to see more consensus, state-sponsored environmental justice legislation that require agencies to evaluate, not only permitting decisions, but also siting and cleanup decisions which all could impact property values.