The contentious debate over regulating carbon emissions may soon move into high gear in Washington. Depending on how forcefully the Obama Administration pushes it, companies could face major changes in environmental regulation and their compliance with corporate sustainability goals overall.
“If it is carried to industry, generally, it will result in far more significant regulation of many, many more businesses and small businesses … than ever before,” David Rifkind, general counsel of Buzzi Unicem USA, said during a recent Webcast sponsored by the Association of Corporate Counsel.
The Administration hasn’t unveiled any specific plans for regulating greenhouse gasses yet, but regulation of some form is widely expected. “It’s not a matter of ‘if,’” says David Whitten of environmental law firm Guida, Slavich & Flores. “It’s a matter of how quickly the EPA regulatory scheme gets in place, and how quickly the legislation comes down from Capitol Hill.”
Jackson
Hints of that are starting to come. In a recent staff memo, Lisa Jackson, the new head of the Environmental Protection Agency, agreed to reconsider whether carbon dioxide is subject to regulation under the Clean Air Act. During the Bush Administration, the EPA argued that carbon dioxide was not.
“Jackson has indicated that there is going to be a policy shift, or change, back in favor of reviewing greenhouse gases for potential regulation, and we anticipate that coming down the pike fairly quickly,” Rifkind said.
The EPA is already starting to make good on that promise. On March 10 the agency proposed a rule that would require businesses and utilities to file reports if their yearly greenhouse gas emissions exceed 25,000 metric tons (a threshold that would let most small companies off the hook).
The EPA estimates that the rule would affect roughly 13,000 facilities expected to cover up to 90 percent of total U.S. greenhouse gas emissions, including oil and chemical refineries, industrial gas suppliers, and car and engine manufacturers. “Through this new reporting, we will have comprehensive and accurate data about the production of greenhouse gases,” Jackson said in a statement issued last week.
Jackson won’t be the only force to be reckoned with. Also expected to make a big impact are climate and energy czar, Carol Browner; Department of Energy Secretary Steven Chu; and Secretary of Interior Ken Salazar, a strong advocate of renewable energy initiatives. “Between those four people, you are going to see a lot more activity in the environmental area,” Whitten says.
The Obama Administration is putting money into its plans, too. It has proposed an EPA budget of $10.5 billion, the largest in the agency’s 39-year history and $3 billion more than 2008 levels.
“That will feed the enforcement program, the research program, and the regulatory program,” says Steven Herman, a principal at the law firm Beveridge & Diamond. “I would expect that the enforcement program is going to be pretty robust.”
“Probably the first big action by the Obama EPA will be a determination that, in fact, carbon dioxide is a pollutant that can be regulated under the Clean Air Act.”
— David Whitten,
Lawyer,
Guida, Slavich & Flores
On the regulatory side, Whitten says, it will be “very interesting” to see how the EPA acts on a U.S. Supreme Court decision from 2007, Massachusetts v. Environmental Protection Agency. In that case, the court told the EPA to determine whether carbon dioxide is a pollutant that endangers public health—which the Bush Administration never got around to doing.
“Probably the first big action by the Obama EPA will be a determination that, in fact, carbon dioxide is a pollutant that can be regulated under the Clean Air Act,” Whitten now predicts.
Whitten and others also expect Congress to wade into the debate over carbon emissions, since a cap-and-trade system to curb emissions could have far-reaching consequences. President Obama wants Congress to approve an emissions trading system, putting a mandatory cap on carbon dioxide pollution nationwide for the first time in the United States. The American Recovery and Reinvestment Act signed into law in February also calls for the EPA to get $19 million to begin setting up an inventory of greenhouse gas emissions.
Verhey
Granted, Washington has its hands full with the economy, the federal budget and healthcare reform right now, so a substantive effort on climate change probably won’t happen in the first half of this year. But David Verhey, a partner at the law firm Holland & Knight, says new regulations could occur later in 2009, after major budget discussions have wrapped up.
Other Efforts
Verhey adds that working with state governments, as well as local or regional projects like the Western Climate Initiative, “is going to be important.” States such as New Jersey and California, for example, already have begun work on their own cap-and-trade programs.
PLEASE STAY
The Natural Resources Defense Council petitions EPA Administrator Lisa Jackson to stay the NSR Aggregation Rule for three months, as provided under CAA section 307(d)(7)(B), based on the following points:
The rule’s procedural inadequacy, based upon the logical outgrowth and section 307(d)(7)(B) defects … along with the failure to comply with Executive Order 12866 originally identified by NACAA;
the rule’s failure to properly consider all relevant facts, including the burden on state and local permitting authorities; their lack of specialized expertise in the economic interdependence test created by the rule’s “clarifying” interpretation; the implementation problems with the rule due to permitting authorities lack of access to source records; and the rule’s utter failure to determine the emissions consequences arising from the new interpretation;
the rule’s failure to consider all legal aspects of the controlling New York I0I decision and CAA section 111(a)(4) and the agency’s legal obligations thereunder;
the rule’s unreasonable judgments about legally relevant policy considerations, such as the relaxation of approved SIP and delegated programs relying upon EPA’s stronger longstanding aggregation policies, and anti-backsliding concerns arising from the final rule’s weaker approach; the introduction of vague new legal standards and criteria that will pose legal enforceability problems to federal, state, and local regulators and the public; and the lack of experience by regulators and regulated sources with these vague new legal standards and criteria, in contrast to many years of implementation experience with the aggregation policies that the final rule supplants;
the rule’s failure to adequately consider and address objections to the rule, including those identified in the Response to Comment discussions … and the failures to respond to deep concerns by NACAA; and
finally, the rule’s failure to find adequate support in the rulemaking record, based upon the numerous deficiencies identified in these reconsideration and administrative stay petitions.
Source
NRDC Asks EPA to Reconsider NSR Rule (Jan. 30, 2009).
A related concern for companies will be increased pressure for environmental disclosure—something new Securities and Exchange Commission Chairman Mary Schapiro has already noted publicly. Environmental activists have also been pushing that cause for years, with little effect at the Bush-era SEC or at annual shareholder meetings.
“She is clearly under pressure and has made it quite clear that she’s going to be more intense on enforcement,” says Gregory Rogers of environmental law firm Guida, Slavich & Flores. “And that should be favorable for groups like CERES and the Investor Network on Climate Risk, who file these proxies every year, trying to get more responsiveness from the boards of public companies.”
Whether greater enforcement springs from Congressional legislation, EPA regulation, or both, companies would be wise to use this period to audit their processes for environmental management, Whitten says, so they’ll have a better sense of where they stand when new compliance obligations finally do arrive.
“Now would be a very good time, before greater regulation and greater enforcement actually become a reality, to prepare,” he says.
And not surprisingly, some businesses—power utilities above all, but also many manufacturers—will face extra hurdles because they generate more pollution than others. Already the new EPA leadership is reviewing Bush-era changes to the “New Source Review” permitting program, which requires companies to ensure that state-of-the art emission control technology is installed at new plants or existing plants undergoing a major modification.
The Bush Administration amendments, published Jan. 15, would change the way industrial facilities measure their air pollution by no longer requiring facilities to aggregate emissions data, if the emissions are a result of different processes that are not “substantially related.” Once the Obama Administration came into power, Jackson put those changes on hold at the request of the Natural Resources Defense Council.
The EPA has delayed the effective date of the amendments until mid-May. In the meantime, Administrator Jackson can choose to revamp the regulation yet again or toss it out.
New regulatory standards under the NSR also will be strengthened by “significant shareholder and disclosure requirements … that will start to force businesses to change their models and focus on ensuring more use of renewable energy, and becoming more energy efficient,” Rifkind said.
“That establishment is going to have major effects for utilities across the country, and it’s going to dictate that those utilities produce a significant portion of their electricity from wind, solar, and geothermal energy,” Verhey says.
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