March 8, 2010
On February 18, 2010, the Council on Environmental Quality (“CEQ”) released a long-anticipated draft guidance document addressing how the effects of climate change and greenhouse gas (“GHG”) emissions should be analyzed under the National Environmental Policy Act (NEPA).
The CEQ guidance stresses that NEPA “demands informed, realistic governmental decision making.” Accordingly, the guidance instructs federal agencies to include a discussion of climate change within the scope of its NEPA analysis when an analysis of the direct and indirect of GHG emissions from proposed actions “may provide meaningful information to decision makers and the public.”
To put some meat on the bones of its overarching standard for “meaningful information”, the guidance deems projected direct annual CO2-equivalent GHG emissions from a proposed action of 25,000 metric tons or more “an indicator that a quantitative or qualitative assessment may be meaningful to decision makers and the public.”
However, the 25,000 metric ton figure is not a firm standard. The guidance makes clear that impacts from long-term projects with emissions below 25,000 metric tons annually may also warrant analysis. The Guidance goes on to list a number of technical documents that can assist agencies in quantifying GHG emissions for the purpose of a NEPA review. The Guidance also states expressly that the 25,000 ton standard should not be seen as an indicator of the significance of potential impacts of an action.
Apart from GHG emission, the Guidance also provides that, when appropriate, agencies should consider the potential effects of climate change on, or in combination with, a proposed action. According to the Guidance, climate change effects should be considered in the analysis of projects designed for long-term utility and located in climate-change vulnerable areas. It states that as such “the observed and projected effects of climate change that warrant consideration are most appropriately described as part of the current and future state of the proposed action’s ‘affected environment.’” The Guidance emphasizes that, in light of the uncertainties associated with climate change predictions, in considering the future effects of climate change, monitoring programs should be considered for inclusion in NEPA decision documents.
The draft Guidance specifically does not address what climate-change related impacts rise to the level of “significance” – thus requiring the preparation of an EIS. Rather, it seems to assume that agencies will analyze climate change within whatever NEPA document is otherwise being prepared for an action. However, CEQ has asked for comment on whether the final Guidance should address significance.
The Guidance attempts to strike a balance between requiring an assessment of GHG emissions and climate change impacts within the scope of NEPA review where it would be meaningful, while limiting the scope of such review so it does not run afoul of the “rule of reason,” the principle that agencies should focus on the usefulness of the potential information to the decision making process when determining the scope of its NEPA review. To that end, CEQ makes clear that agencies should use the NEPA scoping process “to set reasonable spatial and temporal boundaries” on any GHG assessment and, most importantly, “focus on aspects of climate change that may lead to changes in the impacts, sustainability, vulnerability and design of the proposed action and alternative courses of action.” It is clear that CEQ is not looking for wholly academic discussions of climate change in NEPA EAs and EISs, and also does not want a discourse on “wholly speculative effects.” Rather, the Guidance favors a discussion of GHG emissions and climate change in a manner where it could meaningfully impact the decision making process subject to the NEPA review, such as cases where the NEPA review could be used “to reduce vulnerability to climate change impacts, adapt to changes in our environment, and mitigate the impacts of Federal agency actions that are exacerbated by climate change.” In that vein, the Guidance emphasizes the importance of comparing the climate change-related effects of various project alternatives.
Thus, the emphasis of the Guidance is precisely where it should be – to provide information and analysis consistent with NEPA’s “rule of reason.” Of course, like most things NEPA, the devil is in the details. While this draft Guidance document, when finalized, will provide some useful broad overarching principles to determine the scope of any GHG/climate change analysis, as well as some specific tools to assist agencies in conducting that analysis, it will be left to the agencies – and ultimately the federal courts – to grapple with these issues in the context of the myriad federal actions with the potential to cause GHG/climate change impacts or that are potentially vulnerable to climate change impacts.
CEQ will receive public comment on the guidance documents for 90 days. The guidance documents and instructions for submitting comments are available here: www.whitehouse.gov/ceq/initiatives/nepa.
February 16, 2010
On February 8, 2010, the Department of Commerce announced that it would create a new Climate Service within the National Oceanic and Atmospheric Administration (“NOAA”), to be called NOAA Climate Service. NOAA Climate Service will integrate NOAA’s climate science and provide an accessible source of climate change related planning information for governments, industries, academia, and the general public. NOAA stated that:
Individuals and decision-makers across widely diverse sectors – from agriculture to energy to transportation – are increasingly asking NOAA for information about climate change in order to make the best choices for their families, communities and businesses. To meet the rising tide of these requests, this newly proposed line office would be dedicated to bringing together the agency’s strong climate science and service delivery capabilities.
During his announcement, Secretary of Commerce Gary Locke, stated that “NOAA Climate Service will help tackle head-on the challenges of mitigating and adapting to climate change [and] [i]n the process, we’ll discover new technologies, build new businesses and create new jobs.”
In conjunction with its announcement, the Department of Commerce also unveiled a new website: http://www.climate.gov. The Climate Service must now be approved by appropriations committees within Congress.
February 5, 2010
On January 27, 2010, in response to petitions filed by institutional investors and other investor groups, the Securities and Exchange Commission (“SEC”) published an interpretive release to provide greater guidance to public companies regarding the Commission’s existing disclosure requirements as they apply to climate change matters (the “Guidance”).
The SEC’s action follows settlements entered into by the New York State Attorney General’s office with three major power companies mandating more extensive disclosure of climate change risks, and the EPA’s recently-finalized rule mandating a wide array of companies to publicly report their greenhouse gas emissions.
During comments announcing the decision, SEC Chair Mary Schapiro emphasized that the Guidance is not meant create new law, and instead is aimed at providing consistency among corporate climate change disclosures, which have been marked by significant variability in scope and content, even among companies within the same industry.
The Guidance was approved by a 3-2 vote of SEC Commissioners, divided along party lines. Dissenting Commissioners objected to the SEC using its interpretive power to address areas that are not within its competence and expertise. The Guidance also has been heavily criticized by certain Republican members of Congress.
Although the Guidance does not technically create new legal obligations, it does, in practice, advance principles that public companies must carefully consider when updating and revising their environmental disclosures. Although some critics have questioned whether the Guidance will really solve the problem of variability in climate change disclosure due to potentially different interpretations of the materiality standard, it will, at the very least, promote more careful attention to corporate disclosure of climate change issues and very likely drive companies toward more fulsome disclosure.
Many of the key principles articulated in the Guidance reiterate fundamental tenets of good corporate disclosure that the SEC has been applying for years, but when applied specifically to climate change matters, they create a formidable set of challenges for companies making disclosure decisions. For example:
- In determining whether a climate change risk is material, the company should ask whether there is a substantial likelihood that a reasonable investor would consider the information important, and resolve doubts in favor of disclosure;
- Disclosure of a known trend or uncertainty regarding climate change (such as future legislation or regulation) is required unless management determines that it is not reasonably likely to occur or is not material;
- The time horizon of an analysis underlying a disclosure may be relevant to a registrant’s assessment of whether a future trend or uncertainty is reasonably likely to occur or is material; and
- Companies should address, when material, their difficulties in assessing the effect of the amount and timing of uncertain events and provide an indication of the time periods in which resolution of the uncertainties is anticipated.
In light of these uncertainties, companies would be well advised to consider certain core issues as they relate to disclosure of the risks and effects of climate change, including the following potential concerns as they may be relevant and material to a particular company’s business:
- Companies should assess whether they have sufficient disclosure controls and procedures in place to process information pertaining to climate change disclosure;
- Because climate change is a rapidly developing area, companies should regularly assess their potential disclosure obligations in light of new developments;
- Climate change disclosure should consider the material impacts of current and reasonably anticipated future international accords, as well as federal, state, and local laws and regulations;
- Companies should consider the extent to which their plants and operations are subject to current and reasonably anticipated material physical impacts associated with climate change; and
- Companies should consider whether the indirect consequences of climate change regulation will create new material risks or opportunities that could impact their profitability.
It remains to be seen how these principles will be applied, but, taken together, they point toward increased analysis and disclosure of climate change risk by public companies.
January 14, 2010
The parties to a lawsuit challenging New York State’s participation in, and its rules to implement, the Regional Greenhouse Gas Initiative (“RGGI”) have reached a settlement. On December 23, 2009, a proposed consent decree in the matter of Indeck Corinth, L.P. v. Paterson, No. 5280-09, was filed with the Supreme Court of the State of New York in Albany. The litigation, which commenced on January 29, 2009, was brought against Governor Paterson, various State entities, and Consolidated Edison (“ConEd”) by Indeck Corinth, the operator of a gas-fired energy co-generation facility that held a long-term contract with ConEd. Two other gas-fired energy co-generation facilities with long-term ConEd contracts later intervened in support of Indeck. As described in the proposed consent decree, Indeck alleged that New York’s participation in RGGI was outside the scope of the State’s lawful authority (ultra vires) and unconstitutional, and that the rules implementing RGGI were arbitrary, capricious, and not supported by a proper record. Indeck contended that its long-term contract prevented it, unlike other generators without such contracts, from passing on to ratepayers the costs of complying with New York’s rules implementing RGGI (“RGGI Rules”).
RGGI is an agreement among ten Northeast and Mid-Atlantic states, including New York, to limit greenhouse gas emissions through a cap-and-trade system. As summarized by the New York State Energy Research and Development Authority (“NYSERDA”), the agreement “calls for states to cap power sector carbon emissions through 2014 and then reduce emissions by 2.5 per year for the next four years, resulting in a 10 percent reduction by 2018.” The RGGI Rules were promulgated by the New York State Department of Environmental Conservation (“DEC”) (codified at 6 NYCRR Part 242) and by NYSERDA (codified at 12 NYCRR Part 507). As summarized by the DEC, the RGGI Rules “require power plant owners in New York to obtain sufficient allowances to cover their annual CO2 emissions,” primarily by purchasing them at auctions or through a secondary market, but with “a limited number of allowances” allocated at no charge to power generators with long-term contracts that prevent them from passing the cost of such allowances to ratepayers.
The settlement provides that ConEd will pay Indeck and the intervenors for the cost of allowances in excess of those allocated to them under DEC rules, and that NYSERDA will allot a portion of RGGI proceeds to offset ConEd’s costs. According to NYSERDA, the settlement “maintains the number of set-aside allowances and the size of the emissions cap,” and is “designed to be ratepayer neutral,” with provisions for NYSERDA to partially fund efficiency and infrastructure improvements for ConEd, which should offset consumer costs.
The Court has not yet entered the proposed consent decree as an order. Although not required by law to do so, the State seeks public comment on the settlement agreement, which will be considered in the Court’s approval process. The 30-day comment period began on December 30, 2009. Comments will be collected by the New York Attorney General’s office; instructions for submitting comments are available here.
December 8, 2009
On Monday, December 7, the U.S. Environmental Protection Agency (“EPA”) formally determined that greenhouse gases endanger public health and welfare. This endangerment finding is a direct response to the Supreme Court’s 2007 decision in Massachusetts v. EPA, which held that greenhouse gases are pollutants covered by the Clean Air Act and ordered the agency to determine whether or not emissions of greenhouse gases from motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare.
EPA’s endangerment finding for greenhouse gases marks the first in a series of steps that the agency is poised to take in order to regulate greenhouse gas emissions. The endangerment finding itself triggers the regulation of emissions from motor vehicles; specifically, it allows the EPA to finalize greenhouse gas emission standards for light-duty vehicles, which were proposed on September 15, 2009. After these vehicle standards are finalized and promulgated, greenhouse gases will be considered to be “regulated pollutants” that are also subject to permitting requirements under the Clean Air Act’s Prevention of Significant Deterioration (“PSD”) program for stationary sources. In order to make such regulation practicable, the EPA has proposed a “tailoring rule” to exempt from PSD requirements sources that emit fewer than 25,000 tons of carbon dioxide per year. Environmental organizations and others have questioned whether EPA has the legal authority to create a higher threshold for greenhouse gases than presently applies to other pollutants.
The endangerment finding for greenhouse gases, along with the regulations it will engender, are likely to be challenged in court. Even if these actions do not survive judicial scrutiny, they represent a concerted effort to regulate greenhouse gases beyond mere reporting requirements. Notably, the specter of complex greenhouse gas regulation by the EPA may increase the sense of urgency in Congress to forge legislation that will offer a comprehensive, coherent, and cost-effective approach to the problems posed by climate change.
December 4, 2009
On November 19, The AES Corporation (“AES”) entered into a settlement with the Attorney General of the State of New York (“NYAG”) regarding disclosure of climate change risk to investors. This is the third such settlement with the NYAG by a major power company (the other two settling power companies were Xcel Energy and Dynegy). The terms of the NYAG settlements provide a useful roadmap for climate change disclosure, and should be studied carefully by energy, industrial and other companies with significant carbon footprints. In brief summary, the settlement requires each company (on an annual basis) to:
- Analyze material financial risks associated with GHG laws and regulation. This includes:
- identification of current GHG laws and regulations in the states and countries where the companies operate (including the Regional Greenhouse Gas Initiative (RGGI);
- discussion of expected trends in GHG laws and regulations; and
- analysis of the material financial impact (if any) of these laws and regulations on the company’s business.
- Analyze material financial risks from climate change litigation. This includes:
- a description of any climate change litigation involving the company the outcome of which is likely to have a material financial effect; and
- any climate change-related decisions issued by the Supreme Court of the United States, the US Court of Appeals or any court in any jurisdiction in which the company operates, that the company concludes are likely to have a material financial impact on the company’s business.
- Analyze material financial risks from the physical impacts of climate change. This includes material financial risks to the company arising from increases in sea level and changes in weather conditions (such as extreme weather, droughts or water shortages and changes in temperature).
- Analyze strategies to manage climate change risk and GHG emissions. To the extent that the company’s GHG emissions (or the impacts of climate change on company operations) materially impact its financial exposure, the company is required to:
- state its current position on climate change;
- estimate its GHG emissions for the reporting year;
- identify expected GHG emission from new plants that are subject to federal or state permitting;
- include strategies to reduce its climate change risk and adapt to the physical impacts of climate change;
- identify the results of such strategies; and
- address the company’s corporate governance process applicable to climate change issues, including the role of the board of directors and whether officer compensation is based on meeting climate change objectives.
Only a few days after the AES settlement was announced, the NYAG joined a supplemental petition to the Securities and Exchange Commission (SEC) filed by a coalition of institutional investors, asset managers and environmental organizations renewing its call for interpretive guidance on climate risk disclosure. The supplemental petition cites a number of new developments that make the need for national guidance on climate change risk even more compelling than it was when the coalition filed its original petition in 2007. Those developments include:
- Increasing scientific evidence that climate change is happening at a more rapid pace than had previously been predicted;
- Current EPA regulations requiring reporting of greenhouse gas (GHG) emissions;
- The progression of proposed cap and trade legislation through Congress;
- EPA’s proposed finding that GHGs endanger human health and welfare;
- EPA’s proposed “tailoring rule” that would require GHG permitting under the Clean Air Act for large stationary sources; and
- Recent appellate court decisions recognizing standing and federal court jurisdiction over climate change claims.
In a speech before the Corporate Counsel Institute at Northwestern University School of Law on October 9, SEC Commissioner Elisse B. Walter stated:
We are taking a very serious look at our disclosure system in [the climate change] area. Although I’ve stated publicly that we are not an agency populated with climate experts, we are taking affirmative steps to better educate ourselves. I have recently met with a number of experts who analyze the risks and opportunities posed by climate change. Discussions at these meetings have confirmed my belief that climate change is a very serious issue. And I believe that it is time for us to consider issuing interpretive guidance regarding disclosure in this area.
Although Commissioner Walter was speaking for herself and not making an official pronouncement on behalf of the SEC, two working groups have been created within the SEC to study the issue. It appears that the petition filed in 2007 seeking interpretive guidance from the SEC on climate change disclosure is receiving more favorable consideration now than was the case under the prior administration.
November 24, 2009
The New York City Climate Change Adaptation Task Force will present key findings of its forthcoming report on climate change adaptation on December 2 in a joint presentation with the New York Academy of Sciences. The Task Force, launched in August 2008, seeks to secure the City’s critical infrastructure against sea level rise, higher temperatures and fluctuating water supplies projected to result from climate change, and is guided by the New York City Panel on Climate Change (NPCC). The report will contain a detailed plan outlining the need for early and ongoing adaptation action in the City.
The Task Force was one of the 127 initiatives proposed in PlaNYC, the City’s long-term sustainability plan, and is made up of City and State agencies, authorities, and private companies that operate, maintain, or control critical infrastructure in New York City. SPR Partner Pamela Esterman was a member of the team that assisted in drafting the legal portion of the adaptation plan for the NPCC. Next steps after the release of the plan are for the City to begin preparing for and implementing specific adaptation investments.
The December 2 event will include a full day briefing session highlighting the findings of the NPCC’s climate change adaptation plan, and is co-sponsored by the New York Academy of Sciences, Columbia’s Earth Institute, and CUNY’s Institute for Sustainable Cities. More information is available at NYAS.org (pdf).
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