Federal Environmental Issues

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.

On January 25, 2018, the U.S. Environmental Protection Agency (“USEPA”) issued guidance withdrawing the “once in always in” policy for the classification of major sources of hazardous air pollutants (“HAPs”) under section 112 of the Clean Air Act.  Under the new guidance, sources of HAPs previously classified as major sources may be reclassified as area sources when the facility limits its potential to emit below major source thresholds.

The guidance supersedes the “once in always in” policy that had been in place since May 1995, shortly after promulgation of the HAPs MACT rule.  Its rescission should provide incentive for HAPs reduction at facilities that are major sources by virtue of HAPs emissions.

The policy memorandum finds that the 1995 policy memorandum is contrary to the plain language of the Clean Air Act, which the current EPA interprets to not contain a time limit on when a facility emits or has the potential to emit HAPs in excess of regulatory thresholds.

USEPA intends to publish the memorandum in the Federal Register for comment but has commenced implementing it.  The EPA page addressing the policy can be found here: https://www.epa.gov/stationary-sources-air-pollution/reclassification-major-sources-area-sources-under-section-112-clean

On January 5, 2018, the Pennsylvania Public Utility Commission (“PUC” or “Commission”) reserved a public docket to review the impact of the Tax Cuts and Jobs Act, the federal tax reform bill that was signed into law on December 22, 2017, on utilities and companies under the PUC’s jurisdiction.  The PUC has not issued a tentative order or any further guidance or details regarding the scope and objectives of the proceeding.

The Tax Reform Act of 2017 lowers corporate tax rates from 35% to 21%.  Because income taxes are a significant component of a public utility’s revenue requirements, the Commission will be investigating potential means by which to provide the benefits of the Tax Reform Act of 2017 to customers.  Regulators and consumer advocates in other states, including Oklahoma, Kentucky, Michigan, and Montana, have already begun taking steps to investigate the impact of the Tax Reform Act of 2017, including potential refunds or rate reductions for consumers.

We will provide additional information through this blog once the PUC issues more information regarding its proceeding.

If you manufacture or import a chemical subject to the Toxic Substances Control Act (“TSCA”) Chemical Substance Inventory (currently 85,000 chemicals), the U.S. Environmental Protection Agency (“EPA”) has proposed to require you to confirm each such chemical’s active status using a ten-year lookback period of June 21, 2006 to June 21, 2016. In addition to manufacturers and importers, the proposal may affect “processors” of chemicals—basically anyone who adds a TSCA-regulated substance to its products for distribution in commerce.  Because the rule will require reporting by December 22, 2017, you will want to begin gathering the requisite information and evaluating its impacts now. This proposed rule, the TSCA Inventory Notification (Active-Inactive) Requirements (the “Inventory Proposal”), is one of many rules that will implement the 2016 TSCA reform.

Entities affected by this proposed regulation have until March 14, 2017 to submit formal Comments on the EPA’s proposed rule.  To learn more about the EPA’s proposed regulation and how it may impact your business, please click here or contact Rick Friedman at 717.237.5469 (rfriedman@mcneeslaw.com), Scott Gould at 717.237.5304 (sgould@mcneeslaw.com), or Steve Matzura at 717.237.5276 (smatzura@mcneeslaw.com).

As we transition from the dog days of summer and prepare for changes that are guaranteed to come this fall in our state and national political landscapes, we at McNees are considering what the upcoming elections and legislative sessions in Pennsylvania and Washington D.C. mean for our clients.  As discussed this summer, the Pennsylvania budget that became law on July 13 2016, provided relief for those who use state funding and its programs. The Pennsylvania General Assembly and Governor initially faced  a $1.3 billion shortfall in revenues when working on the FY 16-17 budget.  However, the final budget package was $1.2 billion less in spending than what Governor Wolf initially proposed and 5% higher than last year’s budget.  There are a number of new revenue sources for FY 16-17 including a $1 per pack tax increase on cigarettes with new taxes on e-cigarettes and smokeless tobacco products; expansion of the sales and use tax on digital downloads of videos, books, etc.; expansion of the income tax to include state lottery winnings, and a bank shares tax increase. While there was no across the board tax increases such as sales or income taxes or a tax on energy, it is expected and very likely that such tax increases will be necessary in the next budget cycle and is something we advise our large energy consumer clients to be mindful of as we approach this fall when elections and upcoming budget discussions will be front and center.

In addition to those relieved that a budget was passed somewhat timely in early July, there was also a sigh of relief for those who benefit from Senate Bill (SB) 1195 (Act 57 of 2016)  that was signed into law on June 23, 2016 and amends the Pennsylvania Greenhouse Gas Regulation Implementation Act by imposing requirements on Pennsylvania state government regarding its submission of a Clean Power Plan (CPP) to the EPA.  The CCP is intended to regulate states’ carbon emissions from existing electric power plants.

Act 57 reflects a compromise between the Pennsylvania General Assembly and Governor Wolf that allows the General Assembly the opportunity to review and approve the state’s proposed CPP before it is submitted to the EPA.  If either chamber of the General Assembly disapproves the draft CPP, the Department of Environmental Protection (DEP) must review and consider the reasons for disapproval and modify the draft CPP.  At that time, the DEP must resubmit a CPP to the General Assembly and open a public comment period for no less than 180 calendar days on the modified CPP during which time the department shall conduct at least four public hearings in geographically dispersed areas of the Commonwealth.  The Act also includes other provisions that address a default approval or a situation where neither chamber approves the draft or resubmitted modified CPP.  The amendment language further restricts the administration from submitting a CPP to the EPA until after the expiration of the stay issued by the United States Supreme Court on February 9, 2016.

While no one can truly predict how the U.S. Supreme Court will rule, Hillary Clinton’s campaign has boldly made its prediction. Recently during a panel discussion hosted during the Democratic National Convention in Philadelphia at the end of July 2016, Hillary Clinton’s campaign and energy adviser expressed the campaign’s expectation that the U.S. Supreme Court will uphold the CPP and the EPA’s authority to regulate greenhouse gases under the Clean Air Act.  While Donald Trump has not predicted the high court’s position, he has made clear that he is against the CPP and would work to repeal it regardless of the high court’s ruling.  Meanwhile, in Pennsylvania, the republican majority dominated General Assembly will be closely monitoring when the U.S. Supreme Court rules and monitor the state’s plan if and when it is submitted to the EPA.  Until then, the political landscape and issues being debated by the presidential candidates are indicators that this Fall will be quite interesting in many respects with the status and future of the CPP being just one of them.

At McNees, our energy attorneys and government relations professionals will be closely monitoring the politics that will affect this and many subjects of interest to our clients.  Please let us know if there is a specific issue or piece of legislation or subject you have interest in learning more about and we will help you.  Please contact Pam Polacek or Kathy Bruder at 232-8000 should you have any questions or want to discuss.

Since its adoption on September 6, 2015, the federal Clean Power Plan (“CPP”), the United States’ first comprehensive rule for lowering greenhouse gas emissions, has been a topic of simultaneous praise and criticism.  With respect to the impact of the CPP on future electricity costs, there are also significant differences of opinion.  Although the Environmental Protection Agency (“EPA”) acknowledges CPP compliance costs of $8.4 billion per year, the EPA contends that the CPP will encourage energy efficiency programs and switching to lower cost fuels that could eventually result in lower electricity costs for consumers.  By contrast, non-governmental organizations such as the National Economic Research Associates (“NERA”) estimate compliance costs at approximately $33.5 billion per year and predict an electricity cost increase of between 12 and 17%.  In light of such varying predictions related to the impact of the CPP on electricity costs, large consumers of electricity should, at a minimum, pay close attention to individual state implementation plan proposals to assess how these specific proposals may affect their electricity costs.

In addition to the questions associated with the CPP’s impact on future electricity costs, the future of the CPP is also subject to significant uncertainty.  On February 9, 2016, the United States Supreme Court issued a stay of the CPP preventing the EPA from enforcing the CPP until legal challenges are resolved by the federal courts.  As a result, the Supreme Court will not review the CPP until late 2017 or 2018.

The composition of the Supreme Court at that time will likely be the deciding factor regarding the CPP’s fate.  Specifically, since the death of Justice Antonin Scalia, the Supreme Court is considered to have four conservative Justices and four liberal Justices.  As a result, the upcoming Presidential election will almost assuredly determine whether or not the CPP will be upheld.  A President Hillary Clinton likely means a fifth liberal justice and the CPP surviving challenge at the Supreme Court.  A President Donald Trump likely means a fifth conservative justice and rejection of the CPP by the highest court.

Whether or not the CPP is upheld by the Supreme Court, however, the push by some for greenhouse gas reductions will continue.  The United States is now subject (as part of the Paris Agreement) to an international commitment to lower its greenhouse gas emissions by 26 to 28 percent from 2005 levels by 2025.  In addition, a number of states have adopted legislation and regulations to address climate change solutions or combat greenhouse gases directly.  For example, Pennsylvania’s Climate Change Act of 2008 requires Pennsylvania’s Department of Environmental Protection (“DEP”) to draft a Climate Change Action Plan that identifies greenhouse gas emissions baselines and recommends legislative changes to reduce greenhouse gas emissions in the Commonwealth.  Other states, such as California, have more aggressive and binding ambitions.

If you have any questions regarding the CPP or state proposals for reducing greenhouse gas emissions and the impact on electricity pricing, please do not hesitate to contact us.