Pennsylvania, Other States to Consider Climate-Change Regulation Despite Federal Inaction

If you think the federal government’s inaction on climate change has stalled all agency regulation of greenhouse gases (“GHGs”), think again. Although the current federal administration may not be moving forward with any new restrictions on GHG emissions, state- and regional-level proposals and plans are in the works. For example, one significant development in Pennsylvania occurred in late November 2018, when the Clean Air Council and other parties (“Petitioners”) submitted a petition for rulemaking to the Pennsylvania Department of Environmental Protection (“PADEP”) to regulate greenhouse gas (“GHG”) emissions through an auction-cap-and-trade program. In another development, nine states participating in the Transportation and Climate Initiative (“TCI”) and Washington, D.C. agreed to develop a plan to curb GHG emissions from the transportation sector by requiring fossil fuel suppliers to purchase carbon allowances at an estimated cost of approximately $5.4 billion per year. At the same time, litigation is ongoing that would force the federal government to further regulate GHGs.

These developments are explained below, with a focus on the Pennsylvania petition that PADEP must act upon over the next several months. Stakeholders should track these developments and consider opportunities to participate, including by submitting public comments.

The Petition to Regulate GHGs in Pennsylvania

State and regional efforts are continuing, as interest groups are becoming more creative in their efforts to pressure states to act where the federal government has not. The Petitioners in Pennsylvania submitted detailed, proposed regulations that would set forth an auction-cap-and-trade program, aiming to reduce GHGs by targeting specific sources in Pennsylvania. The auction-cap-and-trade regulation would create a new Pennsylvania program to cap GHG emissions for particular sources and allow for the trading of allowances. Each allowance equates to one metric ton of “carbon dioxide equivalents” (“CO2e”). Once the new program is in place, the total emissions cap will decline annually by 3% with the goal being carbon neutral in Pennsylvania by 2052. Because the number of available allowances equals the overall emissions cap, available allowances will also decrease annually.

As proposed, the regulation would not affect all sources of GHGs as several are exempted or subject to individualized requirements. Sources of GHG emissions covered by the proposal fall into three broad categories:

  • First, the proposal provides an exhaustive list of covered entities with processes or operations that produce GHG emissions, such as cement production, lime manufacturing, petroleum refining, and paper manufacturing.
  • Second, the proposal covers electricity generators located within Pennsylvania and importers of electricity.
  • Third, various fossil fuel manufacturing processes and fossil fuel suppliers are also subject to the proposed regulation. With few exceptions, the Petitioners proposed a compliance threshold of 25,000 metric tons of CO2e. The 25,000 metric ton threshold, however, is an “equivalent,” rather than a fixed threshold. For example, an entity that emits 1,000 metric tons of methane would be subject to the regulation as the “global warming potential” of one metric ton of methane equates to twenty-five metric tons of CO2. If the regulation is adopted as proposed, covered facilities that exceed the relevant threshold will have to comply with all applicable requirements, such as by registering with PADEP, purchasing allowances, monitoring GHG emissions, and submitting the necessary reports to PADEP. The proposed program’s trading feature envisions that most allowances will be auctioned with a reserve price of $10 in 2020. This reserve price will increase annually at a minimum of 10% plus the cost of inflation. At the outset, Petitioners suggest that a number of allowances be distributed for free to industries that are subject to international and interstate competition. These free allowances, however, will be reduced by 5% per year. Additionally, the regulation includes punitive measures which proportionately reduce the number of free allowances held by a business if it closes or reduces production in Pennsylvania. In their proposal, the Petitioners argued that PADEP has the authority and duty to implement such GHG emissions regulation under the Pennsylvania Air Pollution Control Act (“APCA”), the federal Clean Air Act (“CAA”), and various court decisions interpreting those authorities. The Petition is primarily utilizing the momentum of recent court interpretations of Pennsylvania’s unique Environmental Rights Amendment in Article I, Section 27 of the Pennsylvania Constitution (“ERA”). Over the past year or so, Pennsylvania court decisions breathed new life into the ERA and energized interest groups to attempt to influence environmental developments in Pennsylvania. The ERA is the primary tool relied upon by the Petitioners and, because its scope remains subject to ongoing debate and pending court decisions, the outcome of the Petition is unclear. Looking forward, the petition will be reviewed in the following manner:
  • PADEP has thirty days to decide whether the petition conforms to departmental requirements. If PADEP determines the petition meets all the requirements, the Environmental Quality Board (“EQB”) will allow the Petitioners to orally present their case for the proposal, and PADEP will provide a recommendation as to whether EQB should accept the petition.
  • If EQB accepts the petition, a notice will be published in the Pennsylvania Bulletin within thirty days. PADEP will then provide a written report to EQB and the Petitioners. The report will outline DEP’s recommendations and provide a timeline for when a proposed rulemaking will be submitted to EQB. Petitioners then have thirty days to respond to PADEP’s report.
  • After reviewing any response by the Petitioners, PADEP will provide another recommendation and a proposed rulemaking to EQB within six months.
  • Once PADEP has submitted the proposed rulemaking to EQB, the standard rulemaking process begins, including an opportunity for public comment.
  • If at any time PADEP or EQB issues a final action/denial, that action would be subject to judicial review. Following the schedule outlined above, PADEP should provide an initial response to the petition in either late December 2018 or early January 2019. The proposed regulation entails significant implications for businesses and operations across the Commonwealth and is bound to be subject to legal and practical arguments from all sides. Stakeholders should participate early and often as this process unfolds.

Regional Movement Addressing GHG Emissions

Recently, members of TCI, a group of Northeast and Mid-Atlantic states including Pennsylvania, agreed to develop a regional, inter-linked cap-and-invest program to reduce GHG emissions from the transportation sector. On December 18, 2018, the TCI members released a joint statement regarding the development of the program. On behalf of Pennsylvania, Secretary McDonnel, PADEP, and Secretary Richards, PennDOT, issued statements of support for the proposal. Although the specific mechanics of the program have not been established, TCI proposes an overall cap on GHG emissions from the transportation sector. The developing program would reduce GHG emissions in the transportation sector by requiring fuel wholesalers to purchase carbon allowances or credits. The cost of these allowances or credits would ultimately be passed to consumers and would likely lead to increased fuel and energy costs. Funds generated from the program would then be reinvested to promote alternative transportation options (e.g., public transit, lower GHG emitting vehicles). The participating states plan to finalize the program within a year and additional states may join as the actual structure of the program begins to take shape. Once finalized, each of the participating states would then choose whether to adopt the program and how to implement it.

Additional Developments at the Federal Level

Although the current federal government has refrained from placing further restrictions on GHG emissions, public interest groups are attempting to force the issue. Plaintiffs in the ongoing “kids’ climate lawsuit,” Juliana v. United States, have alleged both Constitutional and public trust doctrine violations related to the federal government’s energy policies. Specifically, plaintiffs argue that the federal government has contributed to climate change by endorsing pro-fossil fuel energy policies. The case is currently in a holding pattern as the Ninth Circuit Court of Appeals reviews the government’s mandamus petition seeking dismissal. Unlike the auction-cap-and-trade petition in Pennsylvania, plaintiffs in Juliana do not have a specific Constitutional provision, like Pennsylvania’s ERA, to base a claim upon. Nevertheless, plaintiffs have survived several legal hurdles and are currently urging the district court in Oregon to resume proceedings in the case in an effort to outpace the Ninth Circuit before it addresses the government’s arguments for dismissal.We encourage you to stay apprised of developments and consider providing comments on the proposed cap-and-trade program once a proposed rule is released. Please feel free to contact any member of the McNees Wallace & Nurick Energy & Environmental Group for assistance or questions regarding any environmental issues or questions about this post.

Our Energy and Environmental Practice Group issued a client alert today related to a rule released by the EPA and USACE that deals with “waters of the United States.”  The rule will impact land development and permitting.  The first two paragraphs of the article are reproduced below and additional details and the full text of the alert are available here.

On December 11, 2018, the Environmental Protection Agency (“EPA”) and the Army Corps of Engineers (“USACE”) announced the long-awaited replacement rule for the 2015 “waters of the United States” rule (“WOTUS I”).  In effect, the 2015 WOTUS I rule expanded EPA and USACE jurisdiction over wetlands and similar features (and created uncertainty) under the federal Clean Water Act (“CWA”), which complicated permitting for land development.  As written into the regulatory text from 2015, the agencies’ “case-by-case” interpretation of their jurisdiction had the tendency of placing landowners, developers, farmers, and other stakeholders in the precarious position of not knowing whether a given body of water was jurisdictional under the CWA.  In practice, landowners could find themselves on the wrong end of an enforcement action if either EPA or USACE determined that the waterbody was jurisdictional, even if such a determination was only made after the landowner’s allegedly offending activity (e.g., construction, plowing, backfilling) had ceased.

Now, the replacement rule (“WOTUS II”) proposes to scale back the scope of EPA and USACE jurisdiction over wetlands and similar features under the CWA.  WOTUS II will be published in the coming weeks for public comment.  Because the proposed rule will impact land development and permitting, and will be hotly contested, regulated stakeholders should seriously consider participating in the process and submitting comments on the important proposal.

Please read the full alert here.