Environmental Law Overview: United States
Companies doing business in the U.S. will encounter an expanding body of federal and state environmental law in 2011 addressing access to energy resources, market access for products, chemicals regulation, and new requirements relating to greenhouse gases. Both the Congress and the Obama Administration are advancing important new environmental initiatives that are likely to shape the environmental law landscape for decades.
Energy Policy in the Aftermath of the Deepwater Horizon Incident
The need to develop alternative sources of energy remains a focal point of U.S. environmental law. In the wake of the 2010 Deepwater Horizon incident in the Gulf of Mexico, however, virtually every aspect of U.S. environmental law will be implicated in the legal and legislative response to that event.
U.S. courts have already been inundated with lawsuits brought by private parties, public interest groups, and the Federal Government. These actions could break new ground in the application of state and federal environmental laws. Over the coming months and years, federal and state agencies and the courts will struggle to assess environmental and economic damages and assign liability for the cleanup among the parties involved.
Just as the Love Canal episode spawned the Superfund program focused on the clean-up of hazardous sites, the Gulf spill is expected to spur Congress to pass new laws, and agencies to adopt new regulations, aimed at greater environmental protection in the exploration for and development of energy. The precise contours of resulting regulatory requirements remain to be seen.
The Gulf spill will also provide President Obama with an opportunity to shape how the nation’s energy resources are developed. The Obama Administration has clearly placed emphasis on the development of alternative energy sources. Moreover, despite the concerns over nuclear safety occasioned by the aftermath of the tsunami in Japan, the Administration remains committed to safe generation of nuclear power in the U.S. Yet even renewable energy sources create controversy and environmental issues. Wind power must confront avian and visual impacts; solar development must address competing land use considerations; and the promotion of alternative fuels like ethanol has raised stark disagreement over the costs and benefits of that technology. The future of all these energy sources remains highly uncertain, particularly in light of the availability of supplies of relatively inexpensive natural gas, reserves of which have become more accessible as a result of advances in controversial hydraulic fracturing techniques. The potential impact of those techniques on environmental quality has raised calls for heightened scrutiny and regulation of them.
Climate Change Developments
U.S. climate policy continues to evolve, although there are virtually no prospects for comprehensive federal climate change policy in the current Congress. The prospects for comprehensive federal climate change policy in the current Congress. The prospects for such legislation even in the medium term are also severely weakened in light of the failure of the last Congress to enact such a measure, and the fact that “cap and trade” models for addressing climate change have become a political lightning rod among certain important U.S. constituencies.
As a result, U.S. climate policy is focused at present primarily on a suite of rulemakings by the U.S. Environmental Protection Agency (EPA) under its existing Clean Air Act (CAA) authority, and on actions at the state level – in California in particular. Notwithstanding a significant amount of Congressional scrutiny and legislative threats (unsuccessful to date) to impose limits on its CAA authority, EPA has steadily progressed with its plans to roll out sweeping new climate change-related rules under the CAA.
For example, many U.S. commercial and industrial facilities are now subject to mandatory annual GHG emissions reporting under EPA’s mandatory Reporting Rule. EPA has also begun to implement its “Tailoring Rule,” which, together with regulatory measures finalized last year for GHG tailpipe emissions standards for light-duty vehicles, set the stage for stationary source regulations on GHG emissions that began in January 2011. The Tailoring Rule establishes an implementation plan “tailoring” the existing stationary source permitting programs of the CAA to GHG emissions and limiting the number of sources affected by new GHG permitting requirements to the largest GHG-emitters. Under this rule, GHG emissions will now be subject to the CAA’s preconstruction permitting sources, based on a phased approach that, starting in July 2011, targets the largest sources of GHG emissions.
It is unclear whether these rules will survive judicial and Congressional scrutiny. For example, the Tailoring Rule has already been challenged in court by multiple parties, and it is widely viewed as vulnerable because the thresholds for GHG emissions that EPA adopted in the Tailoring Rule depart dramatically from the clear statutory guidelines in the CAA. If the Tailoring Rule is overturned, the remaining rules would impose burdensome permitting requirements on numerous small GHG sources and create a regulatory impasse difficult to address without Congressional intervention.
In the meantime, EPA has also issued a number of rules aimed at conforming state-level implementation of the CAA to the Tailoring Rule’s requirements (a process that, in the state of Texas, has involved an essentially hostile takeover by EPA of that state’s CAA permitting process, which is also the subject of pending litigation). EPA has also announced plans to expand, over the course of 2011 and 2012, its suite of GHG emissions requirements to include emissions standards on power plants and refineries through the New Source Performance Standard authorities of the CAA.
As the various judicial and legislative challenges to EPA’s authorities play out at the federal level, regulated industry sectors operate under a cloud of uncertainty. This situation has hampered certain business decisions regarding investments in new assets, particularly in the energy sector.
At the state level, California continues to lead the way in its implementation of state legislation (AB 32) that authorizes state regulators to issue a raft of command-and-control regulations (including energy efficiency programs and low carbon fuel standards), and establish an economy-wide cap-and-trade scheme to cover other stationary source GHG emissions. State voters in November 2010 rejected a proposition that would have suspended AB32, and regulators subsequently adopted a cap-and-trade program in December 2010, which would take effect beginning in 2012. However, a California state court subsequently issued a stay of the cap-and-trade portion of AB32 on the grounds that state regulators did not follow California’s rules regarding environmental planning when developing the regulations. Although the stay may eventually be overturned, it has imposed a pause on the efforts of California regulators to finalize the rules before the trading program is scheduled to begin next year.
Expanding Product Regulation
Companies are also contending with an unprecedented expansion of product-based environmental legislation and implementing regulations governing product design, market access, and end-of-life management. Varying state requirements applicable to products have raised hurdles for businesses to confront. The Federal Government has also become more active in this arena.
At the federal level, the Consumer Product Safety Commission (CPSC) is continuing its implementation of the Consumer Product Safety Improvement Act (CPSIA), passed in 2008. The CPSIA imposes challenging restrictions for lead and phthalates in children's products and toys. Companies that manufacture, import, or sell these products must also comply with new testing, certification, and labeling obligations.
EPA has also substantially increased its activities addressing chemicals of concern in products under the Toxic Substances Control Act (TSCA). EPA has recently issued action plans for regulating a variety of chemicals found in a wide range of products, and has announced that it will issue plans for additional chemicals. EPA has also indicated that it plans to take several regulatory actions to collect information on nanomaterials.
These regulatory activities under TSCA are occurring while Congress considers legislation to substantially overhaul TSCA in light of REACH and other developments. Legislation introduced in April 2011 would put the burden of proving safety on manufacturers and processors; require submission of minimum data sets on all chemicals in commerce; and direct EPA to evaluate the safety of chemicals on a prioritized basis.
Federal agencies are also taking steps to implement recent legislation imposing new supply chain obligations on companies. For example, the Animal and Plant Health Inspection Service (APHIS) is enforcing recent amendments to the Lacey Act, making it unlawful to import, export, transport, sell, or purchase any illegally sourced wood and wood products. These requirements impose due diligence and documentation obligations on wood products companies, manufacturers and retailers. Separately, the Securities and Exchange Commission is working on a final rule on “conflict minerals” expected to be promulgated later this year. The rule is targeted at companies that manufacture products that contain certain metals that originate in the Democratic Republic of Congo (DRC) (e.g., tin, tantalum, tungsten and gold). Using public disclosure requirements as a tool to change supply chain management practices, the rule will require companies to perform due diligence on the origin of the metals in their products and to disclose whether their products contain metals derived from minerals that were mined in areas controlled by armed groups in the DRC. States, which have been leaders in environmental regulation of products, continue to consider new legislation and develop rules imposing content restrictions, product take-back, and recycling requirements for various consumer products.
States, which have been leaders in environmental regulation of products, continue to consider new legislation and develop rules imposing content restrictions, product take-back, and recycling requirements for various consumer products.
Environmental Toxic Tort Litigation
Recent trends in environmental toxic tort litigation are expanding the scope of cases, increasing the number of defendants with potentially significant exposure, and enlarging the size of some plaintiffs’ damages claims to extraordinary levels. Three of the principal trends are: (1) use of product liability theories by plaintiffs other than product users to sue “deep pocket” manufacturers; (2) use of common law theories to claim injuries even when applicable regulatory limits have been met; and (3) increased aggressiveness of governmental entities, particularly states, in aggregating contamination claims to seek recovery for broad alleged environmental impacts.
Plaintiffs have sought to couple ordinary environmental tort claims with product liability theories, alleging that products are defective or that manufacturers failed to properly warn of risks and the need for proper handling. The long-running litigation over the gasoline additive methyl tertiary butyl ether (MTBE) is a good example. Some plaintiffs have eschewed claims against parties responsible for releases while seeking recovery from gasoline refiners and others in the product distribution chain when MTBE is detected in drinking water sources. Similar litigation has emerged on groundwater contamination claims involving other chemicals, such as solvents, degreasers and pesticides.
Another trend is the use of common law tort theories to claim injuries for detections of chemicals that are well within state regulatory standards. Plaintiffs argue in these cases that a single molecule of a chemical in drinking water constitutes an injury even if it does not trigger requirements under state environmental law.
A third trend is the increased willingness of states to aggregate contamination claims and seek to hold defendants responsible for relatively small individual contributions to larger environmental damages. Several states have sued six major electric utilities that own or operate fossil fuel-fired power plants, asserting public nuisance claims seeking the abatement of carbon dioxide emissions from their facilities on the grounds that they contribute to climate change. The case is currently pending before the U.S. Supreme Court and a decision - which could have a broad impact on the viability of future climate-related nuisance claims - is expected by the end of 2011.
The upshot of these trends is a more expansive and rigorously enforced environmental legal regime. Moreover, meeting environmental standards may not be enough to stave off potentially large liabilities as some courts and juries are holding manufacturers to standards well beyond regulatory compliance.