In the USA, Congress has enacted federal environmental laws that have national application. The state governments, as well as local governments within many states, have also enacted environmental programmes that are applicable within their own geographic boundaries. Federal environmental laws were designed to be administered at the state and local levels, wherever possible, with the clear intent of using the strengths of federal, state and local governments in a partnership to protect public health and the nation’s air, water and land. State and local governments are expected to assume primary responsibility for the implementation of national programmes, while the federal government is to provide national environmental leadership, develop general programme frameworks, establish standards as required by congressional acts, conduct research and national information collection, provide technical support to states, and ensure national compliance with environmental quality standards, primarily through the United States Environmental Protection Agency (EPA). Most states assume a dual role of administering their own environmental laws, coupled with receiving approval from the EPA to implement permitting and compliance required by federal laws through a “delegation” memorandum of understanding agreement between the EPA and a state environmental agency.
EPA administers most federal programmes, but not all. For example, the United States Fish and Wildlife Service administers most of the Endangered Species Act, which places important restrictions on new land, energy and infrastructure development in much of the country. Similarly, the United States Army Corps of Engineers (COE), in conjunction with the EPA, permits structures or works in the navigable waters of the USA (that is, any stream large enough to support navigation by very small watercraft), and also discharges of dredged or fill material into wetlands and smaller streams sufficiently connected to navigable waters to be subject to federal jurisdiction.
For ongoing operations with environmentally related issues – air emissions, water discharges, or land-based waste disposal, for example – the regulatory programme will require a permit with a defined term such as five or ten years, which must be renewed on whatever terms are appropriate at the time of renewal. Permits will include limitations based on the performance achieved by the control technology on which the regulator predicates the limit, or based on a back-calculation of the emissions limitation necessary to achieve a particular ambient quality – such as a maximum air pollutant concentration in the ambient air or a maximum in-stream concentration of a water pollutant.
Federal statutes addressing ongoing facility operations include the following:
Certain environmental regulatory programmes require the review of new projects or major modifications to existing facilities before construction begins. In particular, the National Environmental Policy Act (NEPA) requires the preparation of an environmental impact statement (EIS) for any major federal action (a permit, a grant, an actual federal construction project) that will have a significant impact on the environment. The EIS offers an integrated analysis of all the direct and many indirect environmental impacts of the action that the federal decision maker must consider before taking action. However, NEPA includes no substantive standards. Many states have parallel requirements, although the extent to which the state environmental review programmes impose substantive constraints varies from state to state, as does the extent to which they apply to private projects.
Most constitutional due process rights assure some kind of hearing before a regulatory decision or promptly afterward, and an opportunity at some point for judicial review. The federal Administrative Procedure Act and some of the federal environmental statutes specify when and how one may exercise those rights, and who may exercise those rights. State statutes do the same for state regulatory programmes. Because most federal environmental permit decisions are made by state regulators under approved or delegated programmes, the administrative hearing and the opportunity for judicial review are in the state system under state law. These systems vary substantially in whether administrative hearings are trial-type proceedings, what rights third parties have, whether the parties can develop evidence or are restricted to a previously developed administrative record, whether review is deferential or de novo, and, importantly, when review must be sought at the administrative or judicial level. Actions become administratively final and unappealable very promptly in most programmes; limitation periods as short as 30 days are not uncommon, and they are not uniform across states and sometimes across programmes. Which decisions are final for purposes of review also varies across jurisdictions and programmes.
The key regulatory authorities and bodies responsible for environmental policy and enforcement in the USA are as follows:
Each regulatory statute typically requires the regulated entity to maintain books and records for specified periods, and to allow the regulator access to them upon demand. In addition, undertaking a regulated activity entails consenting to inspections and other entries.
Regulated entities typically have reporting obligations when an incident occurs, often on a very tight schedule. Failure to report in a timely way may itself be a violation.
In the event that the regulators seek to investigate or to enforce outside the context of a permit or other approval, either the statute will provide the right to the administrative agency to issue an order for access or the regulator must seek a search warrant.
The primary activities for which a permit is required are the following.
Permits are obtained by application to the permitting agency. Typically, the applicant or a person opposing the permit may demand an evidentiary hearing before the permit is issued. The permittee and often third parties have a right to administrative or judicial review of a final permitting decision. In the federal court system, the person challenging a permitting action must have the minimum constitutional stake in the challenged decision in order to have standing. Otherwise, the matter is not a “case or controversy” within the meaning of Article III of the US Constitution.
At some level, environmental law in the USA may be seen as an elaboration on the English common law of public nuisance. The government can usually assert a statutory provision to obtain a court order requiring a person who has caused pollution that remains evident in the environment to abate the public nuisance. In some circumstances, the administrative agency may itself issue an administrative order to the same effect. The authorities vary from state to state, from the federal government to state government, and across types of pollution.
When the pollution causes personal injury or property damage, with limited exceptions, common law tort principles – and at times statutory rights – allow private plaintiffs to recover money damages for those harms or an injunction to abate the pollution may be available.
Generally, responsibility for an environmental condition rests with the current owner or operator of the land or the facility where that condition exists, even if a predecessor is the original cause. See 11.1 Key Laws Governing Contaminated Land concerning contaminated land. By contrast, liability for non-compliance generally rests with the person who caused the non-compliance. Thus, if a pollutant is spilled, only the spiller is generally liable, unless the spill causes a continuing condition.
When the business entity changes hands, the liability of the business entity is not affected. If a facility operated by a corporation experiences an air pollution incident, the liability for any damages caused by that incident remains with the corporation, even if all of the stock is sold to a new owner.
In general, see 11.1 Key Laws Governing Contaminated Land concerning environmental incidents. In addition, an environmental incident can give rise to common law tort claims for nuisance, trespass or negligence, and, in some cases, strict liability for an abnormally dangerous activity. Nuisance is an unreasonable interference with the use or enjoyment of land. Trespass is an unprivileged interference with a land occupier’s right to exclusive possession of property. Negligence is a failure to take due care to avoid injury to another. Strict liability is imposed when the defendant’s activity poses an abnormal risk to others; the typical example would be blasting. When the incident or damage arises from the sale or distribution of a product, such as asbestos-containing insulation or a chemical for consumer use, product liability theories may apply.
These theories all depend upon state law, and so the specific law applicable to each claim varies from state to state. However, in almost all jurisdictions, a tort claim requires proof of a causal connection between the alleged tort and damages suffered by the plaintiff. Damages generally fall into two categories: losses due to a personal injury (an illness, for example), and losses due to property damage (a reduction in value, for example, or the imposition of additional costs).
Causation is a key defence in environmental cases. This generally requires proof that a completed route of exposure to a pollutant exists, that exposure actually occurred, and that the exposure caused an alleged harm. Statutes at times shift that burden of proof, establishing presumptions in favour of the plaintiff.
Most states impose a relatively short limitation period on actions for personal injuries or property damage; two years is a common length, with the time generally running from when the plaintiff acquires the right to sue. Environmental torts may be hard to detect; contamination of one’s well is much more subtle than an automobile accident. Many states apply the “discovery rule” to torts such as these, and the limitation period begins to run from the time when the plaintiff knew, or in the exercise of reasonable diligence ought to have known, of his or her right to bring suit. For torts arising from exposure to the release of a hazardous substance, Section 309 of CERCLA requires application of the discovery rule to state law torts. Despite this, expiration of the limitation period is a common defence in environmental toxic tort cases.
A corporation that owns or operates a facility that caused environmental damage or was guilty of non-compliance will almost uniformly be responsible for that damage or non-compliance. It may be subject not only to tort claims, but also to claims for injunctive relief, administrative penalties, judicially imposed civil penalties, and fines. Moreover, a corporation that is guilty of criminal violation of a federal environmental statute will be debarred from doing business with the federal government. It may also be debarred from public contracts in some states, and may be disabled from obtaining new, modified, or renewed environmental permits.
An issue arises as to whether a current corporation is a successor to a corporation that is responsible for environmental damage or breaches of environmental law. In general, corporate successor liability is a matter for the state law of the law of incorporation of the corporation. The federal courts will generally apply that state law in federal environmental cases.
When corporations merge, the liabilities of both corporations generally remain with the successor. However, when an acquiring corporation purchases only the assets of the seller, the liabilities remain with the seller. In many states, the purchase of assets with consideration consisting at least partially of stock in the acquiring entity will be treated as a de facto merger, and liabilities will pass. When the consideration is cash, liabilities generally do not pass.
The liability of shareholders or corporate parents varies from state to state and, when liability is statutory, from statute to statute. In the absence of specific guidance, many courts will follow United States v Bestfoods, 524 US 51 (1998), holding that a corporate parent is not liable under CERCLA as an owner of its subsidiary’s facility or as an operator of that facility unless its behaviour with respect to the subsidiary was idiosyncratic. However, some state statutes specifically list corporate shareholders as people responsible for a violation. Furthermore, a shareholder who personally causes the damage or the non-compliance may be individually liable.
Directors and corporate officers may be personally liable for environmental damage or breaches of environmental law if they were directly involved in the activity which caused the damage or the breach. Moreover, under the responsible corporate officer doctrine set out in United States v Park, 421 US 658 (1975), a corporate officer can be responsible, in that case criminally, when they should have known about the violation and should have taken steps to avoid or abate it. The Clean Air Act and certain other environmental permitting programmes require the permit application and certain periodic certifications to be signed by a responsible corporate officer, thus exposing the officer to civil liability, penalties, and even criminal liability.
Individuals can insure against some liabilities, but typically cannot insure against criminal liability and often cannot insure against fines and penalties.
Lenders are typically not liable for environmental damage or breaches of environmental law unless they themselves directed the act that gave rise to the damage or non-compliance. So, for example, a lender's refusal to extend credit that is necessary to keep pollution control equipment operating would generally not give rise to liability, although peculiar circumstances could arise. However, if the lender had the right under the loan agreement to direct, and in fact did direct, the borrower to turn off the pollution control equipment, the lender would have a weaker position.
The issue of lender liability has been addressed specifically in the context of contaminated land. CERCLA was amended in 1996 largely to exempt lenders, even foreclosing lenders, from liability as owners or operators of their borrowers’ facilities, provided that they acted as secured lenders, not as investors (Pub. L. No. 104-208, §§ 2501-05, 11 Stat. 3009, 3009-462 to 469 (Sept. 30, 1996)). Many states have adopted similar lender liability protections. To reiterate, a lender engaged in an aggressive work-out or that takes control of a facility in foreclosure can face liability if it steps beyond the role of secured lender. Note that the only reason anyone would consider pursuing the lender is that an incident occurred and no one else is available to pay; all of the lender’s actions will be reviewed in hindsight.
Lenders often conduct diligence before extending credit, in order to understand the risk and properly value any collateral. They may also include covenants limiting the use of the property or policing housekeeping and compliance. Insurance may be available.
Prudent lenders will have policies in place tailored to the particular state in which they are operating and often to the sort of business in which the borrower is engaged.
Civil claims for compensation or injunctive relief against environmental damages are typically based on common law tort claims. See 5.2 Types of Liability and Key Defences concerning common law tort claims.
Exemplary or punitive damages are rare, and typically apply only to intentional bad acts. The circumstances in which they are permissible vary from state to state. The Supreme Court has expressed certain constitutional limits on the relationship between a punitive damages award and the underlying compensatory damages (see, eg, Exxon Shipping Co. v Baker, 554 US 471 (2008), concerning the reduction of punitive damages award to victims of the Exxon Valdez oil spill).
Class actions are sometimes possible for environmental-related civil claims. However, there must generally be commonality in injuries and damages among members of the class, which can be difficult to show in an environmental toxic tort because the damage to each person and each property can often be said to be unique.
Recent landmark environmental liability cases include the following:
Landmark environmental cases regarding the scope of important federal laws, such as the Clean Air Act and the Clean Water Act, and the authority of the U.S. Environmental Protection Agency to promulgate environmental regulations under these laws include the following:
Environmental liability may be apportioned contractually between private parties, but typically that is not binding on regulators. As between the parties to an indemnification or other contractual undertaking, the contract will generally govern. Without more, an indemnification or contractual undertaking will not make the indemnitor liable under an environmental statute. The indemnitor would have to be a regulated person under whatever statute applies.
On the other hand, if the contract amounts to an assumption of responsibility, rather than just an indemnification, regulators may be convinced to pursue the assuming party first. In almost no circumstances can a contract absolve the indemnitee of any liability it had to the regulators or even to third persons as the result of the indemnitee’s environmental non-compliance or damage.
Insurance is available. The precise terms are negotiated based on particular circumstances.
Covered risks include tort liability, clean-up liability, natural resource damages, certain sorts of civil penalties, and sometimes cost overruns on clean-up projects.
The key federal laws addressing contaminated land are the Resource Conservation and Recovery Act (RCRA – 42 U.S.C. §§ 6901, et seq), and the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA – 42 U.S.C. §§ 9601, et seq).
RCRA addresses the clean-up of solid and hazardous wastes at RCRA-regulated facilities that have a hazardous waste treatment, storage, or disposal permit. It also regulates underground storage tanks for hazardous substances and petroleum, including the clean-up of releases.
CERCLA addresses releases of hazardous substances and is particularly important at abandoned sites where there is no current owner or operator who is financially capable of responding to a release. Subject to certain statutory defences, CERCLA imposes liability on past owners and operators at the time of disposal, on any generators who sent waste to the site, and on any transporters who selected the site for disposal.
Other federal statutes address specific situations. For instance, the Clean Water Act at 33 U.S.C. §1321 addresses discharges of oil and hazardous substances into waters of the USA or adjoining shorelines, and the Oil Pollution Act, 33 U.S.C. § 2701, et seq, addresses liability for oil spills.
In addition to the federal laws, the states have their own laws and regulations, many of which are more stringent in effect and broader in scope than the federal laws.
The USA is a party to the United Nations Framework Convention on Climate Change and the 2015 Paris Agreement. The Trump Administration has started the process to withdraw the USA from the international agreements, but that is a multi-year process which is ongoing. The Obama Administration sought to meet the country’s obligations by promulgating regulations known as the Clean Power Plan under the federal Clean Air Act (42 U.S.C. §§ 7401, et seq). On 19 June 2019, EPA issued its new Affordable Clean Energy rule (ACE), which is described by the U.S. EPA as “an effort to provide existing coal-fired electric utility generating units, or EGUs, with achievable and realistic standards for reducing greenhouse gas (GHG) emissions.” This action was finalised in conjunction with two related, but separate and distinct rulemakings:
EPA’s description of the objectives of ACE is that the rule “provides states with new emission guidelines that will inform the state’s development of standards of performance to reduce carbon dioxide (CO₂) emissions from existing coal-fired EGUs – consistent with EPA’s role as defined in the CAA”. The ACE rule is currently, and will continue to be, the subject of ongoing litigation as are other Trump Administration EPA-proposed regulatory rollbacks.
Policy and legal requirements to reduce greenhouse gas emissions are uncertain at this time due to ongoing regulatory amendment efforts by the Trump Administration, which generally have been met by judicial challenges by environmentalists. Nonetheless, market forces, investor social policies, and efforts by some states continue to reduce greenhouse gas emissions.
The new ACE rule establishes heat rate improvement (HRI), or efficiency improvement, for electric utilities. The Trump Administration EPA asserts that is the best system of emissions reduction (BSER) for carbon dioxide (CO₂) from coal-fired EGUs. By employing a broad range of HRI technologies and techniques, EGUs can more efficiently generate electricity with less carbon intensity. The ACE rule lists six HRI “candidate technologies”, as well as additional operating and maintenance practices. For each candidate technology, EPA has provided information regarding the degree of emission limitation achievable through application of the BSER as ranges of expected improvement and cost. The states’ role is to develop plans that establish unit-specific standards of performance that reflect application of the BSER.
Asbestos is a hazardous air pollutant regulated by the Clean Air Act (42 U.S.C. § 7412). Demolition or renovation of a building constructed with asbestos-containing materials is subject to a prohibition against emissions to the atmosphere, prior to notification to the regulator, use of trained and properly equipped workers, and certain work practices (40 C.F.R. §§ 61.140-.157).
The federal Resource Conservation and Recovery Act (RCRA – 42 U.S.C. 6901, et seq), is the backbone of waste regulation in the USA. The two primary parts are Subtitle C, which addresses hazardous waste management, and Subtitle D, which addresses solid waste disposal. Most of the states have implemented laws and regulations consistent with RCRA, or more stringent than it.
A producer or consignor of waste may retain liability for waste after it has been disposed by a third party. Under CERCLA, 42 U.S.C. 9607(a)(3), one of the categories of potentially responsible parties is persons who arranged for the disposal of hazardous substances. CERCLA litigation among PRP groups over remediation costs at multi-party disposal sites has been fairly common.
The imminent hazard provision of RCRA, (42 U.S.C. §6973), makes not only owners and operators of solid wastes or hazardous wastes potentially subject to corrective action orders, but also generators and transporters of such wastes.
The USA has few, if any, laws requiring manufacturers to take back or recycle goods. Some states require bottle and can-recycling deposits to encourage recycling, but most other recycling programmes are voluntary.
CERCLA requires immediate reporting to the National Response Center (NRC) of a release of a reportable quantity of a hazardous substance (42 U.S.C. 9603(a)).
The Emergency Planning and Community Right-to-Know Act (EPCRA) requires immediate reporting of a release of any extremely hazardous substance or hazardous substance to the state emergency response commission and to the local emergency planning committee (42 U.S.C. §11004(a)).
The Clean Water Act (CWA) requires immediate reporting of any discharge of a reportable quantity of oil or a hazardous substance to waters of the USA (33 U.S.C. §1321(b)(5)).
In addition to the above emergency release reporting, EPCRA requires an annual report to the United States Environmental Protection Agency of discharges and emissions to the environment from a facility. Also, air, water and waste permits require reporting or record-keeping of most variances from the permit requirements.
The federal government and most states maintain public websites containing certain information about environmental permits and remediation sites. In addition, federal records are publicly available under the federal Freedom of Information Act, and most states have similar open records laws that make their records available. In general, all records of federal, state and local government agencies and quasi-governmental authorities are subject to open records laws, although there are exceptions, such as for records of criminal investigations and internal deliberations.
The federal Securities and Exchange Commission requires publicly traded corporations to disclose certain liabilities, including environmental.
Environmental due diligence is typically conducted. One component of several of the statutory CERCLA defences is that the purchaser of a contaminated property conducted all appropriate inquiries into the environmental condition of the property before the acquisition, so that is a primary driver of transactional due diligence. In addition, economic evaluation by a potential purchaser requires the investigation of significant factors potentially affecting the value of the property, which includes not only whether a property is contaminated and the extent of any such contamination, but also whether any existing operation on the property is environmentally compliant or whether any proposed operation can obtain any necessary permitting.
Typically a purchaser will inspect the assets – often including interviews of key employees, reviewing the seller’s records including its environmental compliance records, and reviewing all public records of environmental agencies pertaining to the company and its assets. At 42 U.S.C. §9601(35)(B), CERCLA specifies the scope of “all appropriate inquiries” necessary to qualify for the CERCLA defences. The corresponding regulations (40 CFR Part 312) provide further guidance, including adopting ASTM International Standard E1527-13, entitled “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process”, as an accepted means of conducting environmental due diligence. Note that CERCLA due diligence does not address all aspects of environmental compliance, such as permitting, record keeping, etc, so compliance should be addressed additionally.
A seller is not typically required by law to disclose environmental information. There are some exceptions – for example, many states require environmental disclosure in the sale of residential property. Also, there are some situations involving contaminated property in which the owner must place a notice of the contamination in the public land records in order to advise future owners of the situation.
At the federal level, the government has chosen to encourage green activities through incentives such as tax credits for renewable energy and solar and tax deductions for energy-efficient design and improvements to residential and commercial buildings.
At the state level, many states impose fees or taxes to help pay for the operation of their environmental agencies. For example, many states charge permit application fees, air emissions fees, taxes on fuel to fund underground storage tank release response, disposal fees for used automotive tires and batteries, etc.
Developments in Federal Enforcement
On 11 July 2019, the US Environmental Protection Agency (EPA) issued a policy setting out its expectations and procedures for co-operation with states that are authorised to implement federal environmental programs. EPA will generally defer to authorised states as the primary implementer of inspections and enforcement in authorised programmes, subject to certain exceptions, such as violations that are part of a National Compliance Initiative, situations that involve an emergency or a substantial risk to human health or the environment, where a state lacks adequate equipment, resources, or expertise, significant violations that the state has not timely or appropriately addressed, and serious violations for which the EPA’s criminal enforcement authorities may be needed.
EPA National Compliance Initiatives
On 7 June 2019, the EPA announced six National Compliance Initiatives (NCIs) for its fiscal years 2020-23, specifically: (i) creating cleaner air for communities by reducing excess emissions of pollutants from stationary sources, with a focus on significant sources of volatile organic compounds and hazardous air pollutants, in particular where emissions may affect an area’s attainment status or adversely affect vulnerable populations; (ii) reducing hazardous air emissions from hazardous waste facilities, including improving compliance by hazardous waste treatment, storage, and disposal facilities and large quantity generators; (iii) stopping the manufacture, sale, and installation of devices designed to defeat required emissions controls on vehicles and engines; (iv) reducing significant non-compliance with National Pollutant Discharge Elimination System (effluent discharge) permits; (v) reducing non-compliance with drinking water standards at community water systems; and (iv) reducing risks of accidental releases, including catastrophic accidents, at industrial and chemical facilities. The EPA also identified reducing childhood exposures to lead as a priority. Businesses and local governments with these operations or permits can expect to be the focus of EPA enforcement and compliance actions.
DOJ evaluation of corporate compliance programmes
In April 2019, the U.S. Department of Justice (DOJ) Criminal Division issued an updated guidance addressing the factors that federal prosecutors should consider in conducting an investigation, determining whether to bring charges, and negotiating plea or other agreements. The factors include the adequacy and effectiveness of the corporation’s compliance programme at the time of the offence, and the corporation’s remedial efforts to implement or improve an adequate and effective corporate compliance programme. The guidance states that a prosecutor should ask three fundamental questions: (i) is the corporation’s compliance programme well designed; (ii) is the programme being applied earnestly and in good faith, in other words, is the programme being implemented effectively; and (iii) does the corporation’s compliance programme work in practice? The guidance shows that a strong compliance programme is a factor considered in enforcement as well as a means to prevent non-compliance.
Limitations on the use of guidance documents
On 9 October 2019, President Trump issued two executive orders reiterating that guidance documents may not be used to impose new standards of conduct on persons outside the executive branch or cause unfair surprise. They also require that federal agencies maintain an indexed, searchable website of all guidance documents, and finalise regulations to establish procedures for issuing guidance documents, including procedures for the public to petition for the withdrawal or modification of a guidance document and requirements for a 30-day public notice and comment period before issuance of “significant guidance documents”. These executive orders build upon memoranda issued by the DOJ in 2017 and 2018 that prohibit the DOJ from issuing guidance documents that purport to create rights or obligations binding on persons or entities outside of the executive branch in circumvention of the notice-and-comment rulemaking process or using its enforcement authority to effectively convert guidance documents into binding rules.
DOJ curtailment of the use of Supplemental Environmental Projects in environmental settlements
Supplemental Environmental Projects(SEPs) are environmentally beneficial projects or activities that go beyond what could legally be required, but that a defendant (or respondent) agrees to undertake as part of the settlement of an enforcement action. The DOJ and EPA determine the amount they are willing to settle for by considering several factors, including SEPs. For many years, SEPs have been commonly used in environmental settlements as a means to mitigate the civil penalty. In November 2018, the US Attorney General (AG) issued a memorandum prohibiting settlements of lawsuits against state and local governmental entities which extract greater or different relief from the defendant than could be obtained through agency enforcement authority or by litigating the matter to judgment. Then, on 21 August 2019, the Assistant AG of the DOJ Environment and Natural Resources Division followed with a memorandum stating that SEPs involving state and local governments fall within the core of the AG’s November 2018 memo, and therefore are precluded in settlements with state or local governments, absent the granting of an exception. It is unclear whether the DOJ’s limitations on the use of SEPs will be extended to settlements with private parties, or will be followed by the EPA or state environmental agencies.
EPA’s new owner audit policy for the oil and gas sector
In May 2018, the EPA announced a renewed emphasis on its audit (or voluntary self-disclosure) policy, which is intended to encourage regulated entities – primarily through mitigation of civil penalties related to self-disclosed violations – to voluntarily discover, promptly disclose, expeditiously correct, and take steps to prevent recurrence of environmental violations. On 29 March 2019, EPA finalised a New Owner Clean Air Act (CAA) Audit Program tailored to the oil and natural gas sector (well sites, including associated storage tanks and pollution control equipment). This expands on the EPA’s 2008 “new owner” policy which incentivises new owners of regulated facilities to make a clean start by addressing environmental non-compliance that began prior to the acquisition, through enhanced mitigation of civil penalties related to such non-compliance.
Clean Air Act Developments
Continuing roll-back of regulations
The EPA continues to roll-back a number of CAA regulations, several of which were promulgated under the Obama-era EPA. The following are three examples.
On 19 June 2019, the EPA issued the final Affordable Clean Energy (ACE) rule, which establishes emission guidelines for states to use in their development of unit-specific standards of performance that address greenhouse gas (GHG) emissions at existing coal-fired electric utility generating units (EGUs). The EPA estimates that ACE will cover 600 units at 300 facilities in the USA. The states have three years to submit a plan to the EPA that must also include a programme for the implementation and enforcement of the standards of performance at the unit level. The EPA must then act on the plan within 12 months of receipt. If a state fails to develop and submit a plan, or if the EPA disapproves a state plan, the EPA will have two years to develop a federal plan that establishes the standards of performance for that state. The ACE rule was finalised in conjunction with two related but independent rulemaking actions that repealed the Obama-era Clean Power Plan and revised the implementing regulations for ACE and future emission guidelines for existing sources.
On 1 August 2019, the EPA proposed to revise the New Source Review (NSR) applicability regulations to clarify the process for evaluating whether the NSR permitting programme applies to proposed physical or operational changes (projects) at existing air pollution sources. This proposal would make it clear that both emissions increases and decreases from a major modification at an existing source are to be considered during Step 1 of the two-step NSR applicability test. This process is known as "project emissions accounting" (previously referred to as "project netting"). The proposed revisions are consistent with the EPA’s regulatory interpretation set out in a March 2018 memorandum.
On 28 August 2019, the EPA proposed amendments to the 2012 and 2016 New Source Performance Standards (NSPS) for the oil and natural gas industry. The primary proposal would remove sources in the transmission and storage segments – including transmission compressor stations, pneumatic controllers, and underground storage vessels – from the oil and natural gas industry NSPS source category, both for ozone-forming volatile organic compounds (VOCs) and GHGs which are regulated through limits on methane. The primary proposal would also rescind methane emission limits, but keep VOC emission limits, for the production and processing segments. As an alternative to the primary proposal, the EPA proposed to rescind the methane emission limits for oil and natural gas sources, without removing any sources from the source category, but retain the VOC emission limits for the production, processing, transmission, and storage segments of the source category.
Draft guidance on the interpretation of “ambient air”
The CAA regulations define “ambient air” as “that portion of the atmosphere, external to buildings, to which the general public has access” (40 CFR § 50.1(e)). Historically, to exclude a particular area of land from the air quality modelling and analysis, the EPA has required the permit applicant to demonstrate that the area is owned or controlled by the source, and public access to the area is precluded by a fence or other physical barriers. In November 2018, the EPA issued a draft guidance document entitled “Revised Policy on Exclusions from ‘Ambient Air’” in which it proposes to change the way it applies the regulatory definition of “ambient air”. Under the draft guidance, “ambient air” would exclude the atmosphere over land owned or controlled by the stationary source, where the owner or operator of the source employs measures, which may include physical barriers, that are effective in deterring or precluding access to the land by the general public. Based on a case-by-case determination, these effective measures may include “no trespassing” signs, either with or without a fence, or swamps or large tracts of undeveloped private land.
National Air Toxics Assessment for ethylene oxide
Ethylene oxide is a flammable, colourless gas used in making a variety of products, including antifreeze, textiles, plastics, detergents, and adhesives, and to sterilise equipment and plastic devices that cannot be sterilised by steam. On 22 August 2018, the EPA released an update to the National Air Toxics Assessment (NATA) which identified ethylene oxide as a chemical of potential concern in certain areas of the USA. As a result, the EPA is reviewing two National Emission Standards for Hazardous Air Pollutants (NESHAP). On 13 September 2019, it announced that a draft proposal for the Miscellaneous Organic Chemical Manufacturing NESHAP is under review at the Office of Management and Budget for interagency review. The EPA has also been working on the NESHAP for ethylene oxide commercial sterilisers and plans to take the following two actions in the near future: (i) issue an Advance Notice of Proposed Rulemaking (ANPR) that will identify potential approaches for addressing ethylene oxide emissions, including the technologies available for controlling ethylene oxide emissions; and (ii) issue a request for information to ethylene oxide commercial sterilisers under the CAA that would requiring these companies to provide facility information to support a proposed rulemaking. The accuracy of the NATA with respect to health risks of long-term air exposures to ethylene oxide has been questioned and is the subject of ongoing review and debate.
Clean Water Act Developments
The “waters of the United States” (WOTUS) Rule
In 2015, the EPA and the United States Army Corps of Engineers (USACE) under the Obama administration finalised a rule which addresses the Clean Water Act (CWA) definition of “waters of the United States”, sometimes referred to as “WOTUS” (the 2015 Rule). Several states and other opponents of the 2015 Rule sued questioning the scope and legal authority for the rule and arguing that it significantly and improperly expanded the EPA’s and the USACE’s jurisdiction over wetlands on inland property. As a result of various federal court decisions, until recently, the 2015 Rule was effective in 22 states, the District of Columbia, and the US territories, but the pre-2015 Rule regulations applied in the remaining states where the rule had been stayed.
On 22 October 2019, the EPA and the USACE published a final rule to repeal the 2015 Rule. As a result, at present, the EPA and the USACE will implement the pre-2015 Rule regulations in all states, the District of Columbia, and the US territories.
On 11 December 2018, the EPA and the USACE announced their proposal of a new rulemaking to revise the definition of “waters of the United States” consistent with Justice Scalia’s opinion Rapanos v United States, 547 U.S. 515 (2006). The proposed rule was published on 14 February 2019. Critics argue that the proposed rule would significantly restrict the EPA’s and the USACE’s jurisdiction over wetlands, by excluding many ditches, prior converted croplands, interstate waters, ephemeral streams, and isolated wetlands from their jurisdiction. Public comment on the proposed rule has ended and a final rule is expected in 2020.
On 23 October 2019, several environmental groups sued the EPA and the USACE regarding their repeal of the 2015 Rule. Significant litigation is also anticipated with respect to any final rule.
Permitting of discharges to groundwater
The CWA requires an NPDES permit for the discharge of a pollutant from any point source, such as a pipe or ditch, to waters of the United States (jurisdictional surface waters). In recent cases, the issue has arisen as to whether an NPDES permit is required for discharges from a point source to groundwater that subsequently migrate or are conveyed to jurisdictional surface waters. For example, in County of Maui v Hawaii Wildlife Fund, 886 F.3d 737 (9th Cir. 2018), the Ninth Circuit Court of Appeal held that a LPDES permit is required for discharges of treated wastewater via an injection well to groundwater, if the pollutants travel to jurisdictional surface waters and are “fairly traceable” back to the point source and are more than de minimis. The Maui decision is presently pending before the US Supreme Court. Meanwhile, on 12 April 2019, the EPA issued an interpretive statement concluding that all releases of pollutants from a point source to groundwater are excluded from NPDES permit requirements regardless of a hydrological connection between the groundwater and a jurisdictional surface water. This interpretation could avoid a flood of new permits for facilities that indirectly discharge pollutants to jurisdictional surface waters via groundwater. On 6 November 2019, the US Supreme Court heard oral arguments and will ultimately decide the issue.
EPA guidance and proposed rule for Section 401 water quality certifications
Section 401 of the CWA prohibits a federal agency from issuing a permit to conduct any activity that may result in a discharge of pollutants into "waters of the United States", unless the state or indigenous American Indian or Alaska Native tribe with jurisdiction over the area where the discharge will originate issues a Section 401 water quality certification verifying compliance with existing water quality requirements or waives the certification requirement. If the state or tribe fails or refuses to act on a request for certification within a reasonable time, not to exceed one year, the certification requirement is waived. In the past, some states or tribes arguably have delayed or denied water quality certifications for pipelines and other energy infrastructure projects for reasons other than water quality – for example, based on broad National Environmental Protection Act or protected species requirements.
Pursuant to an April 2019 executive order, on 7 June 2019, EPA issued an updated guidance for federal agencies, states, and tribes intended to help streamline the Section 401 certification process and promote timely action on important federal permits. The guidance addresses the applicable timelines for action on certification requests, and recommends that the scope of the certification review be limited to an evaluation of potential water quality impacts, that certification conditions be clear, precise, and directly related to water quality requirements with citations to relevant requirements, and that certification denials be in writing and specify the reasons for denial. Additionally, on 8 August 2019, EPA signed a proposed rule to replace and modernise the existing federal water quality certification regulations and streamline the certification process. The proposed rule was published on 22 August 2019.
The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), also referred to as the Superfund statute, is the primary federal statute that addresses clean-up of contaminated property. The EPA’s Superfund Task Force was created in May 2017 to accelerate the pace of clean-ups and promote site reuse. In September 2019, EPA issued its Superfund Task Force Final Report, which explains the actions taken to address recommendations made under five overarching goals, one of which was to encourage private investment in clean-ups. As stated in the report, with respect to this goal: (i) on 17 April 2018, the EPA and DOJ issued a new policy memorandum entitled “Agreements with Third Parties to Support Clean-up and Reuse at Sites on the Superfund National Priorities List”, which encourages more frequent use of bona fide prospective purchaser agreements and prospective purchaser agreements to foster clean-up and reuse of National Priorities List (NPL) sites; (ii) on 17 May 2019, EPA issued a revision of its 1997 “Policy Towards Landowners and Transferees of Federal Facilities” to encourage redevelopment and reuse at federal facilities on the NPL; (iii) on 29 July 2019, EPA issued an updated “Common Elements Guidance” regarding the statutory criteria that landowners must meet to qualify for liability limitations as bona fide prospective purchasers, contiguous property owners, or innocent landowners; and (iv) on 21 August 2019, EPA issued the “2019 Policy on the Issuance of Superfund Comfort/Status Letters” with model letters that EPA regional staff can use when drafting site-specific letters for parties interested in reusing impacted property.
Climate Change Litigation
Various cases proceeding throughout the state and federal courts of the USA could be categorised as touching upon climate change issues whether the suits turn on constitutional issues, statutory interpretations, or questions of state law. However, the suits that have captured the most public attention are (i) securities fraud suits against ExxonMobil brought by the New York and Massachusetts attorneys general, (ii) suits by various cities and counties claiming that oil companies’ attempts to impede climate change science despite knowledge of the impacts of burning of fossil fuels was negligent and constitutes a public nuisance, and (iii) suits by young people against the federal and state governments who are suing under the public trust doctrine for the alleged failure of government actors to adequately protect the environment and address climate change. These three types of cases are at different procedural stages.
Attorneys General v ExxonMobil Corporation
The roots of this case stretch back to 2015 when the attorneys general of New York and Massachusetts sought subpoenas of ExxonMobil’s records to determine if the company had misled the public or investors about the risks of climate change. After a countersuit by ExxonMobil was unsuccessful in quashing the subpoenas and the US Supreme Court declined to intervene, New York filed a securities fraud-based case against the company in New York state court. The state’s claims turn on a question of whether estimation practices by ExxonMobil misled investors about the future cost of climate change, reducing the projected risk by tens of billions of dollars. A bench trial began on 22 October 2019. In the opening statement for ExxonMobil, its attorney argued that the case was part of a conspiracy by liberal states and attorneys general to smear the company. On 24 October 2019, Massachusetts’ Attorney General filed a similar suit against ExxonMobil.
Various cities’ and counties’ suits
Beginning in mid-2017 when three coastal California municipalities sued 37 oil and gas companies alleging that the industry failed to warn the public about the risks of burning fossil fuels and that the exploration, production, and use of these fuels were defective by design, municipalities from King County, Washington to New York City have filed similar suits. Federal judges in different districts split on whether the claims belonged in state and federal court (a split that remains unresolved) and the suits by San Francisco, Oakland, and New York have been dismissed (though the cities have appealed). On 22 October 2019, the US Supreme Court refused to block suits by Rhode Island, Colorado, and the City of Baltimore from proceeding.
Children v US and state governments
Our Children’s Trust filed suits against both the federal government and state governments in 2015, prompting immediate opposition by the then-Obama Administration and later the DOJ under President Trump. After the lower court denied the federal government’s attempts to dismiss the lawsuit and set the case for trial, the government sought stays at the US Supreme Court. That request for a stay was granted in the fall of 2018 in order to consider a petition for stay by the government. The Supreme Court later lifted the stay in order to allow the government’s arguments to proceed in the Ninth Circuit Court of Appeals. The Court of Appeals heard oral arguments on the pending issues in June 2019 and a decision is forthcoming.
Judicial Deference to an Agency’s Interpretation of its Own Regulations
In Kisor v Wilkie, 139 S. Ct. 2400 (2019), a closely-watched case decided by the US Supreme Court in the final week of its 2018-19 term, the Court addressed the deference owed by courts to an agency’s interpretation of its own regulations. Mr Kisor, a Vietnam War veteran, sued the US Department of Veterans Affairs (VA) after being denied retroactive disability benefits. The VA granted Mr Kisor disability benefits for post-traumatic stress disorder in 2006, but refused to pay him retroactively going back to when he first made a benefits claim in 1982. The case turned on the VA’s interpretation of a regulation requiring “relevant” military service records to reconsider a denied claim. The lower courts deferred to the agency’s interpretation of its own regulation, under the Auer deference doctrine, which has its roots in Supreme Court precedent dating back to 1945. The case was of interest to various business and industry groups as it presented an opportunity to pare back regulatory authority which could have wide ranging effects in areas such as the environment, energy, and climate change.
While all nine justices sided with Mr Kisor and agreed to remand the case back to the lower courts for additional proceedings, the decision as to whether the Auer doctrine should be overturned divided the Court. In a five-four decision, the Court narrowly upheld the Auer deference doctrine, but imposed limitations. First, courts must discern whether the regulatory text is ambiguous and the regulatory interpretation must be one actually made by the agency (meaning it must be “authoritative” or the “official position”, “rather than any more ad hoc statement not reflecting the agency's views”). Second, the agency's interpretation must in some way implicate its substantive expertise – and the agency’s interpretation should not substitute for the role of the judiciary in interpreting laws and doctrines that fall more naturally to courts than executive agencies. Finally, the Court wrote that deference is “rarely” warranted when an agency has changed its regulatory interpretation over time because it creates an unfair surprise and eliminates the ability of parties to rely on past agency positions and conduct.
As Justice Gorsuch wrote in his concurring opinion, the Kisor opinion “is more a stay of execution than a pardon” and “the [Auer] doctrine emerges maimed and enfeebled – in truth, zombified”. The significant limitations imposed by this ruling will likely have impacts on agency decisions throughout the federal government including the EPA, the Department of Interior, the Department of Labor, and others that are active in regulating matters of environmental law.
The Trump administration has continued to revise environmental regulations and policies that it considers to be unlawful or unnecessarily burdensome on businesses or economic development. In response, interested parties such as federal, state and local governments, tribes and non-governmental organisations have stepped in to challenge these actions in court and fill what they believe are regulatory gaps. Although the fundamental principles of US environmental law are established and predictable, persons doing business in the USA would be well-advised to keep a close eye on these developments.