Green Building Law Update

Environmental Law and Sustainability for Business

Companies are Preparing for ESG Disclosure Rules

By Stuart Kaplow on January 24, 2021 Posted in Climate Change, Codes and Regulations

Public companies in the U.S. find themselves at a dynamic time of emergent environmental, social and governance (“ESG”) disclosures. New appointees in the Biden Administration, from the SEC and the Labor Department to the top White House economic advisor, all signal mandatory ESG disclosures.

The idea of ESG began in 2004 with a United Nations initiative to influence capital in non Western markets.

While the federal government has to date stymied the call for ESG disclosures by vocal socially conscious investors, activist stockholder environmental proxy proposals, and the like, companies now anticipate new government edicts commanding ESG statements. In an initial move, the only Department of Labor regulation listed for review by the Biden Administration is the so called ESG Rule published in the Federal Register on November 13, greatly limiting the use of ESG information in certain retirement plans.

I have been pleasantly surprised by the large number of virtual meetings we have had in recent days with representatives of public companies preparing for all but certain new regulation in this space.

There is legal risk associated with ESG disclosures and I have assisted companies for years in mitigating their liability while still being responsive to the trend of investor demands for these disclosures.

Make no mistake, today there is no U.S. law requiring businesses to make ESG statements, and I have posted about failed past attempts to criminalize the matter, ESG Disclosure Simplification Act Passes Committee But Will Fail. But that is all about to change.

Of course, existing SEC rules generally require public companies to disclose, among other things, known trends, events, and uncertainties that are reasonably likely to have a material effect on the company’s financial condition or operating performance in an annual report and other periodic filings, and there are the SEC’s Conflict Minerals Disclosure Rule, and the California Transparency in Supply Chains Act, but none of that equates to ESG disclosures.

Recent U.S. case law underscores some of the risks that ESG disclosures may be actionable if found to be materially false or misleading. There has been relatively little judicial redress arising from ESG claims (largely attributable to a robust stock market in recent years) and much of it involving bad facts in extreme instances (i.e., against BP arising from the Deepwater Horizon incident, against Massey Energy arising from a fire in a coal mine, etc.) and the legal adage that bad facts rise to bad law may certainly have been at play in those instances.

But the risks associated with ESG disclosures are real and should not be underestimated.

It was widely reported in the media in December 2019 (.. yes, obviously pre Biden Administration) that the SEC was scrutinizing whether ESG claims “are at odds with reality.” The SEC sent examination letters to managers of funds touting their ESG bonafides, apparently focusing on criteria for claiming a company to be socially responsible and the methodology for applying those criteria.

The problem, of course, that existed then and still exists today is there are no such accepted criteria for the very big space that is ‘environmental, social, governance’.

Current SEC Commissioner Hester Peirce, famously said, “we are seeing a similar scarlet letter phenomenon in today’s modern, but no less flawed world” but it is not Hester Prynne’s “A” for adultery in Puritan Massachusetts Bay Colony in 1642, but rather ESG in America in 2020. The SEC Commissioner has also questioned “the materiality of ESG” including finding fault with ESG for having no enforceable or common meaning, “while financial reporting benefits from uniform standards developed over centuries, many ESG factors rely on research that is far from settled.”

But there is guidance out there and I have been advising companies to look to Europe and the EU Parliament requirement that by the end of 2020 EU member public companies must have published their policies on integration of sustainability risks. Theirs is a watered down definition of “sustainability risks .. as an ESG event that could cause an actual or potential negative impact on the value of the investment arising from an adverse sustainability impact,” but still offers good guidance for U.S. best practices.

The U.S. Chamber of Commerce released principles on ESG disclosures, but they did so when all of this was voluntary, and the voluntary disclosures many public companies make today bare little if any relationship to what will be required by law; however, these principals are good and offer some guidance as companies get ready for new ESG rules.

Michael Bloomberg funded the Sustainability Accounting Standards Board and more than 100 companies report information according to SASB guidelines, but the disclosures aren’t standardized like corporate financial disclosures including that they sometimes omit proprietary information or damaging data.

But, possibly of greatest concern to company boards of directors and other leaders are the limitations of the three letter acronym. The broad breadth of issues that get dropped into the ESG bucket are awfully large and diverse to be given a numeric score.

I have for years advised public companies about environmental matters and sustainability including navigating the complexity of the emergent ESG disclosure decision making landscape, including companies responding to the EU disclosure codes. And with ESG disclosure regulation in the U.S. in short order all but certain, there are steps that companies should take now to reduce the potential legal exposure that will be created by these disclosures.

Okay, whilst our most frequent advice has been simply to use aspirational language in ESG statements, including using words like “should,” “expect,” or “strive,” possibly our most efficacious advice has been to obtain third party verification of the accuracy of disclosures (e.g., LEED certification for claims about buildings and the like), but the coming regulation of this space by the federal government requires a robust response by companies, beginning now, to mitigate risk from ESG. All of which can be consistent with a core belief of this law firm that we can repair the planet with capitalism.

Former Public Officials Indicted on Criminal Charges in Flint Water Crisis

By Stuart Kaplow on January 17, 2021 Posted in Codes and Regulations, Environmental

Michigan prosecutors last Thursday announced that 9 individuals have been indicted on a total of 42 counts related to a series of alleged actions and inactions that created the Flint water crisis.

Interestingly, the Chief Judge of the Seventh Circuit in Genesee County appointed Judge David Newblatt to act as a one-man grand jury to investigate crimes related to the crisis. Indictments were issued after that sole grand juror secretly listened to and evaluated the evidence presented for 12 months.

“But why these criminal cases are so significant is it is incredibly rare that a public official is charged criminally for government actions or inactions related to environmental matters.”

Secrecy of grand jury proceedings have not allowed for release of the grand jury evidence underlying the charges, but as many will remember, in April 2014, the public water supply serving more than 100,000 homes, schools and businesses within the City of Flint was switched from water sourced from the Detroit water system using Lake Huron to the Flint River, in an effort to save $5 Million in the first 2 years. There is no real factual dispute that as a result of the corrosivity of the water, lead from aging pipes leached into the water supply. General Motors stopped using the public water in October 2014 after determining it was corroding automobile parts. It is alleged that as many as 12,000 children were exposed to drinking water with high levels of lead. It is also alleged that the water supply change was the cause of an outbreak of Legionnaire’s Disease that killed 12 people and affected another 85, but that link appears a bit fuzzy.

A large scale lead pipe replacement effort has been underway since 2016. On August 20, 2020, the victims of the water crisis were awarded a combined settlement of $600 million, with 80% going to the families of affected children and in November that settlement increased by a predetermined formula to $641 million.

But, again, the big news is that former Michigan Governor Rick Snyder and 8 other former officials were charged criminally. Read Rick Snyder’s Grand Jury Indictment, which may be long on the shadow it casts against those who may seek public service (or for that matter public work), but short on any facts. Two were charged with involuntary manslaughter. The indictments make clear the charges flow from the government determination in 2014 to switch the water supply from the Detroit water system to the Flint River as a cost cutting measure without properly considering the possible impact on human health.

“In 2021, people across the U.S. are beginning to question determinations made by public officials to have adopted building codes and indoor air quality standards that result in reduced energy use versus prioritizing ventilation to protect human health, having the effect of creating office buildings, schools, and homes with indoor air quality conditions ripe for the airborne spread of SARS-CoV-2 (the current designation for what had been the Novel Coronavirus 2019).”

At a time when matters of environmental social justice are at the fore, communities have, maybe for the first time, vocally questioned government funded cleanup of nonpotable water courses, largely used by the wealthy to boat and otherwise recreate, in lieu of using the public dollars to cleanup lead in drinking water?

Moreover, this has renewed the debate over why local governments are providers of water and what the role of the private sector should ideally be?

In 2015 the Detroit Free Press described the Flint water crisis as “an obscene failure of government,” and it is beyond dispute that federal, state and local government failed. and there is no doubt this is a particularly egregious instance of environmental harm. Hence the reason for the criminal charges against public officials, as rare as that is. But that has caused some to ask why federal EPA officials were not indicted, the agency that has ultimate oversight authority of drinking water quality? Many expect more and similar criminal charges against public officials in other instances in the years to come.

The defendants turned themselves in and were arraigned last Thursday, but many will recall the people spoke in the Michigan election of 2018 when this environmental crisis was timely, Democrats swept all of the statewide offices held by Republicans (Republican Governor Rick Snyder was term limited). Anyone concerned if the criminalization of bad environmental public policy is a good thing should follow the cases.

45L Energy Efficient Home Tax Credit Extended for 2021 by Covid Relief Bill

By Stuart Kaplow on January 10, 2021 Posted in Energy, Federal, Green Building, Green Globes, IgCC, LEED

The Consolidated Appropriations Act, 2021, H.R. 133, signed into law by President Trump on December 27th, extended the 45L energy efficient home $2,000 tax credit, which had been scheduled to expire last year, to cover qualified new energy efficient homes sold or leased through 2021.

And yes, regular readers of this blog will notice that I am writing about the same Act of Congress I posted about last week, but the $2.3 trillion, 5,593 page bill, the second largest ever passed by Congress, provides tax relief for just about everyone and all businesses from the $600 per person check that many have focused on to the 179D commercial property energy efficiency tax deduction, that I posted about, and much more. Key among the many provisions of the Act is this extension of a $2,000 per dwelling unit tax credit (.. yes, it is a credit and not a deduction).

Page 4,914 of The Consolidated Appropriations Act, 2021, provides,

SEC. 146. ENERGY EFFICIENT HOMES CREDIT.

(a) IN GENERAL.—Section 45L(g) is amended by striking ‘‘December 31, 2020’’ and inserting ‘‘December 31, 2021’’.

(b) EFFECTIVE DATE.—The amendment made by this section shall apply to homes acquired after December 31, 2020.

Okay, tax law may not be thrilling reading, but those few words apply to new construction and renovations of single family homes, multi family units in buildings up to 3 stories, including individually owned condominium units or rented apartments including much student housing; and with a $2,000 per dwelling unit federal tax deduction available, you may want to keep reading the relatively modest requirements, even if they are a bit dry.

Internal Revenue Code Section 45L provides eligible taxpayers may claim this tax credit for new energy efficient homes that are sold or leased by that taxpayer during the tax year for use as a residence. An eligible taxpayer is the person that constructed the qualified energy efficient home or produced a qualified manufactured home.

A person must own and have a tax basis in the qualified energy efficient home during its construction to qualify as an eligible taxpayer. For example, if the person that hires a third party contractor (.. and despite that the Federal law confusingly uses the word contractor) to construct the home owns and has the basis in the home during construction, the person that hires the third party contractor is the eligible taxpayer and the third party contractor doing the work is not an eligible taxpayer.

A qualified new energy efficient home is a dwelling unit, whose construction is substantially completed after August 8, 2005, and sold or leased before 2022, for use as a residence. The tax credit can even be claimed retroactively for past years. The home is required to be certified and meet certain energy saving requirements described below.

Significantly, construction includes not only new construction, but also substantial reconstruction and rehabilitation, and this incentive has been widely utilized in major renovations of multi family buildings, very commonly 3 story garden apartment buildings where this tax credit is layered on top of state and utility incentives for energy efficiency.

The credit is $2,000 for a dwelling unit that is certified to have an annual level of heating and cooling energy consumption at least 50% below the annual level of heating and cooling energy consumption of a comparable dwelling unit and has building envelope component improvements that account for at least 1/5 of the 50% reduction in energy consumption.

The required comparable dwelling unit is one that would have been constructed in accordance with the standards of chapter 4 of the 2006 International Energy Conservation Code as such Code (including supplements) was in effect on January 1, 2006.

An eligible taxpayer must obtain a certification that the dwelling unit meets the requirements of section 45L(c) from an eligible certifier before claiming the section 45L credit. Importantly, the certification will be treated as satisfying the requirements of section 45L(c) if all the construction has been performed in a manner consistent with the design specifications provided to the eligible certifier and the certification contains all of the information required by section 3 of Notice 2008-35. There is an Approved Software List for certification of the designed work and the requirements make costs dramatically less for certification of more than 85 units.

As I said in a virtual seminar last week, “which is all government speak for, to qualify for the $2,000 tax credit an eligible dwelling unit must be certified as at least 50% more efficient than the 2006 IECC benchmark and sold or leased prior to January 1, 2022.”

Many residential builders simply complying with state minimum energy requirement will easily satisfy the standard here, including most builders in California, Arizona, and Maryland. And in those states and elsewhere those contemplating new construction and major renovations may be well served to have that work completed in 2021 because even if this tax credit is again extended, given the political winds blowing in Washington DC, any future extension may well carry with it a heightened minimum energy standard (as just happened in the 179D extension).

Following a year when carbon emissions were down across the U.S. because many were afraid to leave their homes during the coronavirus pandemic, taking advantage of this one year extension of the energy efficient home tax credit, in the Covid Relief Bill, be one small step yielding $2,000 (per unit), good for the moribund U.S. green building industry, and also be a giant leap for mankind toward repairing the planet.

179D Tax Deduction Made Permanent by Covid Relief Bill

By Stuart Kaplow on January 3, 2021 Posted in Federal, Green Building, Green Globes, LEED

On page 4,872 of the Consolidated Appropriations Act, 2021, H.R. 133, which passed both houses of Congress on December 21st and was signed into law by President Trump on December 27th, the 179D energy efficient commercial buildings federal tax deduction, which had been scheduled to expire at year end, was instead made permanent.

At a total cost of $2.3 trillion, the 5,593 page bill is the second largest ever passed by Congress providing tax relief for just about everyone and nearly all businesses. The mass media has focused the $600 per person check as well as the PPP and business publications have written about allowing 100% deductibility of business meal expenses and extension of the $300 charitable contribution deduction for nonitemizers, but I suggest among the more impactful in repairing the planet provisions is the extension of the Internal Revenue Code Section 179D commercial property energy efficiency tax deduction.

The 179D commercial buildings energy efficiency tax deduction has since 2006 enabled building owners to claim a $1.80 per square foot tax deduction (i.e., this tax incentive has been popular because it is based on the area of the building not the dollar amount expended) for installing qualifying systems and buildings. Tenants may be eligible if they make the construction expenditures. If the system or building is installed on federal, state, or local government property, the 179D tax deduction may be assigned to the businesses primarily responsible for the system’s design or installation.

Included as Division Z of this huge Consolidated Appropriations Act, 2021 is the “Energy Act of 2020,” the first comprehensive update to U.S. national energy policy since 2007. Simply put the 179D tax deduction reduces the green premium. As public policy it has created the right incentives for companies that make the choice between simply looking green versus actually being green and making a difference.

With more than 24,000 green building incentives across the country, most for above code building, the 179D tax deduction has been among the most valuable.

The tax provisions of the Consolidated Appropriations Act, 2021 include making permanent a number of tax extenders, including the 179D deduction, encouraging green, energy efficient design of private and public building, now indexed annually for inflation, but coupled with a higher energy efficiency minimum.

The Act provides, in relevant part (.. in government speak),

“(b) INFLATION ADJUSTMENT. Section 179D, as amended by subsection (a), is amended by redesignating subsection (g) as subsection (h) and by inserting after subsection (f) the following new subsection:

(g) INFLATION ADJUSTMENT. In the case of a taxable year beginning after 2020, each dollar amount in subsection (b) or subsection (d)(1)(A) shall be increased by an amount equal to (1) such dollar amount, multiplied by (2) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting ‘calendar year 2019’ for ‘calendar year 2016’ in subparagraph (A)(ii) thereof.”

While that the deduction will be indexed for inflation is not a bad thing, the certainty that this deduction will exist (.. something that had not existed un the past when the deduction was authorized only for two years at a time) when a project is put into service is truly a valuable thing.

And the energy efficiency standards are updated,

“(c) UPDATE OF STANDARDS.

(1) ASHRAE STANDARDS. Section 179D(c) is amended (A) in paragraphs (1)(B)(ii) and (1)(D), by striking ‘Standard 90.1–2007’ and inserting ‘Reference Standard 90.1’, and (B) by amending paragraph (2) to read as follows:

‘(2) REFERENCE STANDARD 90.1. The term ‘Reference Standard 90.1’ means, with respect to any property, the most recent Standard 90.1 published by the American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of North America which has been affirmed by the Secretary, after consultation with the Secretary of Energy, for purposes of this section not later than the date that is 2 years before the date that construction of such property begins.”

That is, the tax deduction has been available for improvements that reduce a building’s total energy and power cost by 50% or more in comparison to a building meeting minimum requirements set by ASHRAE Standard 90.1-2007 for buildings and systems placed in service after January 1, 2017; before that date ASHRAE 90.1-2001 was used; and, presumably now ASHRAE 90.1-2019 (with its higher standard) will be required.

Also new, in California, the 179D deduction allows for use of the most recent California Nonresidential Alternative Calculation Method approved by the Department of Energy two years before the date that construction of the property or energy efficiency improvements begin.

In a closely related matter, in the coming days I will post about that the Section 45L new energy efficient home tax credit of up to $2,000 per unit was extended by the Consolidated Appropriations Act, 2021 through end of 2021.

The updated 179D tax deduction made permanent by the Covid Relief Bill will be key in reviving the moribund U.S. green building industry, including jumpstarting privately owned new green construction, but the higher standard to qualify will be out of reach for most existing buildings. And the certainty that 179D tax deduction will exist when a new construction project is put into service will make this green incentive among the most valuable for new green building.

GRESB Purchased from GBCI in advance of ESG Breakout

By Stuart Kaplow on December 20, 2020 Posted in GRESB, LEED

Last month GRESB announced that its management had purchased the business from its parent GBCI.

GRESB was established in 2009 as the Global Real Estate Sustainability Benchmark by three pension funds who wanted to assess and benchmark the Environmental, Social and Governance (ESG) and other related performance of real assets, providing standardized data to capital markets.

GBCI, the global certification body for LEED (.. yes, it is the sister organization to the USGBC), TRUE zero waste, PEER, SITES, WELL, EDGE, ICP and RELi, acquired GRESB in 2014.

While under the umbrella of GBCI, the Amsterdam based, previously privately owned, GRESB arguably grew to become a leading ESG benchmark for real estate across the world. GRESB data covers US $5.3 trillion (.. yes, “trillion” which is 1,000 times larger than a billion) in real estate and infrastructure value. Notably, 957 private real estate companies and funds, and 272 publicly traded companies and REITs participated in the 2020 GRESB real estate survey, representing more than 96,000 assets located in 64 countries. Results were released last month.

A criticism has been that GRESB assessment is weighted in favor of portfolios that contain new buildings and that GBCI would not correct for that because its interest were in more new LEED Platinum certified buildings. And, of course there is a cottage industry of ESG consultants who will draft the GRESB questionnaire responses to skew the score. Separating from GBCI will also allow more asset level reporting, versus portfolio level, which would directly compete with LEED building ratings.

The new GRESB Foundation will own and govern the GRESB Standards upon which the GRESB Assessments are based. The Foundation Board will be constituted from GRESB investor members and will be responsible for reviewing and approving the Standards to ensure they remain investor led.

GRESB BV, incorporated in the Netherlands, will be responsible for administering the GRESB Assessments, providing the benchmarks and promoting the GRESB Standards. GRESB BV will become a benefit corporation and seek B-Corp certification, with the aim of demonstrating the separateness of the two organizations and building accountability.

The price of the acquisition from GBCI was not announced, but was significant and financed by Summit Partners that has invested in more than 500 companies in technology, healthcare and other growth industries.

Apparently, negotiations went on for months after the GRESB founders demanded the buy from GBCI, hoping but failing to accomplish the deal for the GRESB tenth anniversary. When the deal was finally made public on November 16, 2020, asset managers in the know suggested the value of GRESB had grown exponentially with the results of the November 5 U.S. Presidential election. GRESB has been “a European thing” with its core mission of assessing ESG data having been “unAmerican” (.. GRESB does have some Canadian investor participation) including with the U.S. Department of Labor’s rule greatly limiting the use of ESG information by retirement plan fiduciaries, and the U.S. Securities and Exchange Commission very public scrutiny of ESG claims as not meeting a threshold of having a material effect, but rather as being “.. at odds with reality.” However, as I wrote in an August blog post, ESG Going the Way of the Dodo?,

“If President Trump is reelected, it appears more likely than not that ESG disclosures in the U.S. will be made extinct like the dodo bird, not unlike as the federal government banned the 100 watt Edison light bulb out of existence, but that course will all be certainly see a polar opposite reversal and ESG will be embraced in a Biden Administration.”

So, the change to a Democratic Administration in Washington DC and its green agenda for financial markets, will include a favorable view of ESG and an overwhelmingly welcoming market for GRESB not only in the EU, but if their Dutch owners can translate it, now in the new world.

ESG has to date relied most heavily on the “E” environmental, but in the U.S. given the last year of calls for social justice, governance will likely be a new emphasis, as evidenced by the new NASDAQ requirement that boards have at least one woman and one director that self identifies as an underrepresented minority or LGBTQ, and a question may be if GRESB can capitalize on that.

And lest you think there is not already a new and exploding market for ESG data in the U.S., the data that GRESB is the leader in and will no doubt move to take advantage of, in the little more than a month since the Presidential election, I have received more inquiries from public companies and their representatives about ESG than year to date before the November 5.

GRESB, separated from GBCI, will no doubt have an opportunity to thrive in the U.S. You should check out their website.

The Birds: Migratory Bird Treaty Act redux without Tippi Hedren

By Stuart Kaplow on December 13, 2020 Posted in Federal, LEED, Solar Panel, wind turbine

Three weeks ago the U.S. Fish and Wildlife Service proposed a regulation to finally resolve and codify the legal principal that an incidental bird take resulting from an otherwise lawful activity, for example a sparrows flies into a solar panel, is not prohibited under the Migratory Bird Treaty Act.

The Fish and Wildlife Service is the federal agency delegated the primary responsibility for managing migratory birds consistent with four international migratory bird treaties (between the United States and Canada, Mexico, Japan, and Russia) and the implementing the MBTA enacted in 1918. The goal of the MBTA was to stop the unregulated killing of migratory birds at the federal level. The MBTA makes it unlawful to, among other things, take individual birds of most species found in the United States, unless that taking is authorized by regulation. “Take” is defined by regulation as “to pursue, hunt, shoot, wound, kill, trap, capture, collect, or attempt to hunt, shoot, wound, kill, trap, capture, or collect.”

Federal courts have adopted different views on whether the MBTA prohibits the “incidental take” of a migratory bird. Incidental take of a migratory bird is a take that results from an activity, but is not the purpose of that activity (also sometimes referred to as accidental, unintentional, or non-purposeful taking). The saga, now covering 1,093 species of birds, has played out more than a century, literally.

Earlier this year I wrote a bog post, Migratory Bird Treaty Act Will Apply Only to Intentional Takes, in response to a February 3, 2020, FWS move to codify a 2017 Department of the Interior Opinion M–37050, which determined the MBTA only applies to the intentional take of migratory birds and not an incidental take, saying,

Interpreting the MBTA to apply to incidental or accidental actions hangs the sword of Damocles over a host of otherwise lawful and productive actions, threatening up to six months in jail and a $15,000 penalty for each and every bird injured or killed.”

In a parallel but not directly related action, on August 11, 2020, Judge Valerie Caproni, of the U.S. District Court for the Southern District of New York, struck down that Interior legal opinion, “It is not only a sin to kill a mockingbird, it is also a crime,” paraphrasing Harper Lee. “That has been the letter of the law for the past century.” The decision has been appealed. But that case did not involve the February notice of rulemaking (that yes, also relied on the same Interior legal opinion that Her Honor struck down).

Which takes the saga to three weeks ago and the FWS proposal to develop a regulation that interprets the scope of the MBTA decriminalizing the incidental take of migratory birds.

All of this is against the backdrop of a widely discussed study in the journal Science last year that found “cumulative loss of nearly three billion birds since 1970, across most North American biomes.” But that study concluded that building collisions, driven by the increased use of glass building facades, are second to cats as the greatest threat to birds. Criminal fines of housecat owners do not make a good public policy, but owners of glass buildings should breathe a sigh of relief. Far down on the list are industrial “incidental takings” resulting in, on average 57 investigations for migratory bird deaths each year (the largest number of which were by contact with an electric power line) resulting in $178.8 Million in criminal fines and civil penalties over the past decade.

This newly proposed rule has already sparked a fiery debate, pitting members of the environmental industrial complex against one another and in opposition to business scale renewable energy, but I suggest this rule strikes a reasonable balance between the 1918 era MBTA law and unintended take, including deaths associated with modern wind turbines and solar panels.

Carbon Tax Proposed in Portland will be First in the Nation

By Stuart Kaplow on December 6, 2020 Posted in Climate Change, Green Globes, LEED, Local Government

The City of Portland is proposing a carbon tax that would be the first of its kind anywhere in the country. Given the increased emphasis on climate change by the incoming Biden Administration the proposed ordinance should be on your required reading list.

Carbon dioxide and other greenhouse gas emissions are changing the climate. Energy prices do not currently reflect these costs of greenhouse gases. A carbon tax puts a price on those greenhouse gases, encouraging business and government to produce less of them.

Today the U.S. already has a “carbon” tax on fossil fuels, that is the federal excise tax on automotive fuels, of about $5 per ton. Economist suggest a broader carbon tax (coal, oil, natural gas, etc.) of $40 per ton would add about 36 cents to the price of a gallon of gasoline and about 2 cents to the average price of a kilowatt-hour of electricity. Policymakers could use the resulting revenue to offset the impacts on energy-intensive industries and lower-income households, lower individual and corporate taxes, and invest in clean energy and climate adaptation.

A carbon tax is a form of tax on pollution. More common in the U.S. are other forms of tax on pollution, like tradable credits, including the Regional Greenhouse Gas Initiative (RGGI), a regulatory trading program to reduce greenhouse gases. RGGI is a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont to cap and reduce CO2 emissions. States sell nearly all emission allowances through auctions and invest proceeds in energy efficiency, renewable energy, and other consumer programs, and all users of energy in those states pay the “tax” through higher electricity and natural gas rates passed on by electric utility companies.

A study on the efficacy of RGGI, characterized laws that mandate green building, like LEED or Green Globes, as an example of a pseudo pollution tax on embodied carbon that come with a high economic cost.

But doubling down on the broader subject of pollution taxes, advocates candidly acknowledge their real aim for a carbon tax is as a core strategy for reducing and eventually eliminating the use of fossil fuels.

There are some carbon taxes outside of the U.S. Finland was the first country to enact a carbon tax in 1990. And the United Kingdom, Ireland, Australia, Chile and Sweden all have some form of carbon tax and more than a dozen countries have a scheduled implementation.

The City of Portland’s current legislative proposal, introduced last month, follows Oregon lawmakers’ failed efforts to levy statewide carbon fees, with bills to establish a cap-and-trade policy failing to pass in 2019 and earlier in 2020. A city level carbon tax begs the question if businesses will leave the city to remain competitive, moreover whether the city levy will be deductible on federal tax returns.

The stated goal of the bill “is to reduce pollution in Portland to improve the health of our residents and reduce the risks to our economy from climate change and the high costs of pollution.”

The proposal is intended to raise approximately $11 million per year as dedicated and ongoing funding for Portland to take more aggressive steps to reduce greenhouse gas emissions and the most harmful impacts of air pollution. Portland is off track in meeting its carbon reduction target. Portland’s June 2020 Climate Emergency Declaration set a goal to reduce local carbon emissions by at least 50% below 1990 levels by 2030. Emissions are currently 19% below 1990 levels.

The new Portland Healthy Climate Fee would establish a $25 per ton fee on greenhouse gas emissions from facilities in Portland with emissions of 2,500 metric tons of CO2e (carbon dioxide equivalents) per year or greater. The base fee would be $62,500.

Based on publicly available 2019 data, 35 facilities in Portland would be subject to the tax. Covered facilities are primarily industrial plants, hospitals, food production facilities, and higher education campuses. Together, they released about 370,000 metric tons of CO2e in 2019. Here is a list of the possible payers of the new tax, some of whom may vote with their feet and relocate to a more tax free jurisdiction. Health care facilities that, however, are proposed to be exempt from paying any new fees until January 2022 due to the financial strain they face from the Covid-19 pandemic.

The City Council is expected to consider the proposal in January 2021 and it appears all but certain there are the three votes (of five council members) to enact the new law later in the month. A public comment period is now open through noon on January 4, 2021. Comment here. The mayor of Portland Ted Wheeler has said he will sign the bill.

The draft Ordinance is essential reading for anyone interested in environmental matters in our current climate. The carbon tax fee exhibit is a separate document.

It is clear that climate change will once again be a national priority in the U.S. and a carbon tax will be part of the discussion. Whether or not you live in Portland, this ordinance should be on your required reading list.

EPA Releases Draft National Recycling Strategy

By Stuart Kaplow on November 29, 2020 Posted in Federal, IgCC, LEED, recycling

The U.S. Environmental Protection Agency has released a draft National Recycling Strategy and is seeking public comment through December 4, 2020, with the goal of finalizing it in early 2021.

Maybe not since Plato wrote about the value of reusing waste in the fourth century BC has recycling faced the challenges that we are seeing right now. The draft National Recycling Strategy is released against a backdrop where our current recycling, largely based on notions from the 1960s, no longer makes economic sense. This draft identifies strategic objectives and actions needed to create a stronger, more resilient U.S. solid waste recycling system.

“Recycling is a key driver of the U.S. economy and a way to conserve resources and protect the environment. Environmental benefits include reducing the amount of waste sent to landfills and incinerators, which can reduce the amount of air emissions released into the atmosphere.”

EPA reports the total generation of municipal solid waste (.. yes, a subset of all waste, but a good datapoint) in 2018 was 292.4 million tons or 4.9 pounds per person per day. Of that waste generated, approximately 69 million tons were recycled and 25 million tons were composted. Together, 93.9 million tons of waste were recycled and composted, equivalent to a 32.1% recycling and composting rate (.. but, it is suggested that may reflect “collected for recycling” and not necessarily recycled). However, in response to recent international policy changes related to accepting recyclables, see my blog post The World is Forced to Rethink Recycling, and major domestic changes in use patterns related to more time spent at home and other Covid-19 challenges (e.g., Baltimore City has not collected recycling since August), anecdotal evidence suggests recycling numbers have decreased sharply in 2020.

On November 16, EPA Administrator Wheeler announced the goal to increase the U.S. recycling rate to 50 percent by 2030. The strategy recognizes the historic broad underperforming of recycling programs and that stressing those programs are factors including: confusion about what materials can be recycled; recycling infrastructure that has not kept pace with today’s diverse and changing waste stream; reduced markets for recycled materials; and varying methodologies to measure recycling system performance.

What may be called for is a better approach to resource use and operation of buildings. It is important to accept that EPA’s authority to regulate recycling is fuzzy at best, beyond the agency’s implementation of the Resource Conservation and Recovery Act. Most solid waste collection in the U.S. is at the municipal level.

Benefits of recycling are obvious including conserving natural resources, such as timber, water and critical minerals; and preventing pollution by reducing the need to collect new raw materials. Economic and community benefits include increasing economic security by tapping a domestic source of materials; supporting American manufacturing; conserving valuable resources; and creating jobs in the recycling and manufacturing industries. EPA’s data shows recycling and reuse activities accounted for approximately 757,000 jobs, $36.6 billion in wages, and $6.7 billion in tax revenues

But in response to all of that, including the historic low success rates in recycling programs, EPA has begun a redoubled effort to focus on recycling challenges facing states and municipalities and private (e.g., Cradle to Cradle) programs. In recent years, there have been plastic bag bans, bars on plastic drinking straws and just last month I wrote a blog post, Maryland Becomes First State to Ban Polystyrene this Thursday.

This new federal strategy organizes high-level actions around three strategic objectives to improve the cacophony of state and municipal recycling systems by reducing contamination in the recycling stream, increasing processing efficiency, and improving markets.

To read the draft National Recycling Strategy and provide comments visit: https://www.epa.gov/americarecycles/national-recycling-strategy-and-framework-advancing-us-recycling-system

And we continue to work with businesses to pursue their waste goals, including achieving near zero waste while cutting their carbon footprint and supporting public health, and in satisfying LEED, Green Globes and IgCC waste management plan requirements. Some of the most satisfying sustainability work we have done is working with businesses to maximize resource use and facility operations.

With no good market in which to sell most recyclables and existing laws barring much domestic reuse, it is now time to rethink the solid waste practices that are currently not supported by good science, and disproportionately negatively impact on economically disadvantaged people, which recycling practices have been largely unchanged since the 1960s.

COVID-19 Liability for Building Owners

By Stuart Kaplow on November 15, 2020 Posted in Codes and Regulations, Legal Developments

With Covid-19 spreading across the U.S. and some places reclosing in reaction to the new surge, considered against a backdrop of more than 2,000 new statutes, regulations and executive orders addressing the pandemic that have been enacted in a matter of months, many commercial real estate owners are questioning if they can be liable for damages when someone, whether an employee of a business tenant or someone else, claims to have contracted the Coronavirus Disease (Covid-19) at their building?

And these questions are not unfounded because as of November 1, 2020, legal industry databases of state and federal litigation are tracking more than 6,100 cases involving Covid-19 claims.

But U.S. courts have never addressed a pandemic like SARS-CoV-2 (the current designation for what had been the Novel Coronavirus 2019). There was not a mature plaintiff’s bar during the 1918 Spanish flu. This evolving and rapidly changing experience is and likely will continue to be governed by state, and sometimes local law that varies from jurisdiction. Over time coronavirus pandemic exposure claims may result in a new emergent subset of premises liability case law and in a number of jurisdictions new statutes are already limiting liability, but in most instances it is presumed the longstanding body of premises liability law will control.

In premises liability cases in Maryland, the state’s highest court has adopted the general rule, also applied in a majority of states with some variations, contained in Restatement (Second) of Torts § 343 (1965) that provides:

“A possessor of land is subject to liability for physical harm caused to his invitees by a condition on the land if, but only if, he

(a) knows or by the exercise of reasonable care would discover the condition, and should realize that it involves an unreasonable risk of harm to such invitees, and

(b) should expect that they will not discover or realize the danger, or will fail to protect themselves against it, and

It is widely accepted that while a property owner owes a duty to exercise ordinary care to keep the premises in a reasonably safe condition, it is not the insurer of the invitee’s safety. Moreover, an invitee cannot maintain a negligence suit merely from a showing that an injury was sustained in the defendant’s building.

No tort case has yet provided an answer to a building owner’s liability for failure to enforce social distancing or to wear a mask, or for that matter to take the temperature of all invitees.

As early as March lawsuits had already been filed in courts in San Francisco and Miami against Princess Cruise Lines Ltd. alleging negligence that passengers on cruise ships became ill with Covid-19 because the ships did not employ proper screening protocols and more.

Historically, state courts have awarded damages for negligent transmission of diseases imposing liability on individuals who have harmed others (from occupational diseases like silicosis inhaled while grinding steel, to cotenants in a two apartment house infected with tuberculosis, and having unprotected sex and transmitting AIDS).

There are likely intervening issues, including significantly that legal action by employees is almost all barred and claims limited to the workers’ compensation system where the employer has insurance (and despite defying the facts, at least 15 states now have an interpretation that assumes an individual who contracts Covid-19 was infected in the workplace triggering workers’ compensation). And while OSHA is providing guidance through a May 19, 2020 Updated Interim Response Plan the agency has issued no new mandates and in fact has announced enforcement discretion as to existing standards, which will further bar employee claims; although many expect that a Biden Administration OSHA will issue an emergency temporary standard which will establish mandatory workplace rules.

Customers, as well as business invitees and even trespassers might be able to articulate some claim, but proof during a pandemic that exposure was in a particular building will likely face insurmountable causation problems not to mention an inability to prove some breach was the proximate cause of the harm?

All of this begs the question if a business owner’s premises liability insurance covers such claims? And while reviewing insurance policies, it is also likely prudent to review liability provisions in tenant leases.

While there are more than 2,000 new federal, state and local statutes, regulations and executive orders enacted in a matter of months to respond to the pandemic, likely more than have ever been enacted in the U.S. on a single topic in such a short period, few have directly impacted matters of liability. Georgia, Idaho, Iowa, Kansas, Louisiana, Michigan, Mississippi, Nevada, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee, Utah and Wyoming have each enacted liability shields for civil claims related to SARS-CoV-2 by a newly enacted statute, and of course there are differences between the enactments and what is shielded; and not all would protect a building owner. Alabama and Arkansas’ liability shields were enacted by executive order. Other states have legislation pending. There, of course, has been discussion in Congress about limiting liability for everything from grocery stores and pharmacies to others that have provided essential services, and some lawmakers have discussed eventually making similar protections universal.

I am not aware of any cases interpreting those new laws. I did write an earlier blog post about a concomitant matter, A Force Majeure Decision during the Covid-19 Pandemic.

These are uncharted waters, but exercising reasonable care may be adopting conduct by following available government guidance, including from the CDC and states about buildings. California offers widely quoted guidance on reopening.

And while there is some very good information about reopening in the real estate marketplace including from the U.S. Green Building Council that rolled out a series of pilot credits, including the well regarded Safety First: Managing Indoor Air Quality During COVID-19 credit. But caution must be observed when following third party advice; for example some of the green building industrial complex required cleaning products and disinfectants necessary to achieve a rating system credit are not on the EPA List N of disinfectant products that have qualified for use against SARS-CoV-2 and could expose a building owner to legal jeopardy.

There is a great deal of uncertainty, at this time when we are still learning about this coronavirus. I wrote in an earlier blog post, COVID-19 in Buildings is all about Ventilation, making clear that “until effective vaccines exist and are in wide-spread use, enhanced ventilation in buildings will be key, and even more significant than the important social distancing including community masking, and hand washing, in limiting the spread of SARS-CoV-2.”

There are some things a building owner should likely do. Most state premises liability law provides a duty of a property owner to warn a business invitee of an unsafe condition and while it might sound silly in this instance, posting warning signs is prudent. The CDC has provided some printable signs at the link above that serve to warn and also may allay the concerns of those entering a premises, another key issue. Additionally, some of the newly enacted Covid-19 liability shield laws require specific warnings be posted.

But a building owner should likely not adopt policies that it seeks to impose on others. Arguably there could be liability for failing to reasonably or consistently enforce a self created policy. However, should an owner determine to articulate some Covid-19 policy, it should include a disclaimer, like this one created for a business owner that occupied its own building:

Disclaimer: While the strategies embodied in these policies are intended to help promote health and safety in the built environment, an individual’s health and safety are determined by a number of factors particular to that individual and implementing the strategies in these policies do not in any way guarantee that the individuals in a space will be safe, healthy or healthier, nor that the space will be free from bacteria, viruses, allergens, volatile organic compounds or other pathogens; and the content of these policies does not constitute the provision of medical advice nor is does it represent all possible strategies that may be implemented or recommended to promote health and safety.

Some have asked those coming on their land to sign liability waivers, including notably President Trump’s reelection campaign had supporters sign liability waivers at a Tulsa, Oklahoma rally.

The coronavirus pandemic is obviously unprecedented, and as such it is not possible to predict with any degree of certainty how a court might rule on premises liability or other exposure claims, however, the legal reasoning above may provide guidance on the role of law in this pandemic and possibly mitigating the legal risk to commercial building owners.

While much is still being discovered about this novel coronavirus I have been asked about our business’ adaptations. We believe the best approach to keeping people safe and mitigating risk to owners of buildings is to employ a variety of interventions. In our personal law offices we trust in technology and innovation and we have never closed our offices, but rather after posting warning signs, we adapted our operations, by way of example having stopped recirculating indoor air, increased airflow, upgraded to MERV 13 air filters, and disinfecting air with UV-C light, in addition to social distancing including community masking and hand washing, in our war with SARS-CoV-2.

With more than 6,100 cases involving Covid-19 claims pending, building owners should track liability shield laws in their jurisdiction (.. including because some require warning signs). And it is important that all mitigate the risk in the coronavirus pandemic operation of their building or face the legal risk being another victim of this disease.