Green Building Law Update

Environmental Law and Sustainability for Business

Understand How EPA Does Not Expect to Seek Penalties during COVID-19 Pandemic

The U.S. Environmental Protection Agency announced last Thursday retroactively beginning March 13, 2020, a temporary policy regarding EPA enforcement of environmental legal obligations during the COVID-19 pandemic.

EPA’s admittedly unprecedented temporary “enforcement discretion policy” applies to civil violations during the COVID-19 outbreak as a response to the deleterious effect on a wide variety of businesses. EPA has in the past announced how it intends to exercise enforcement discretion (e.g., the 1974 mobile source tampering policy) but it has maybe never before done so, so broadly and widely across all businesses as in this instance to be reasonably commensurate with the scope of the COVID-19 pandemic.

The policy addresses different categories of noncompliance differently. For example, under the policy EPA does not expect to seek penalties for noncompliance with routine monitoring and reporting obligations that are the result of the COVID-19 pandemic (e.g., even a well managed non-essential business closed by state order may not be able to collect monitoring samples, etc.) but on the other hand does expressly expect operators of public water systems to have heightened responsibility for continuing to ensure the safety of drinking water supplies.

Despite the hyperbole of activists who have characterized this policy as everything from an abject waiver of environmental laws to a license to pollute, “EPA is committed to protecting human health and the environment, but recognizes challenges resulting from efforts to protect workers and the public from COVID-19 may directly impact the ability of regulated facilities to meet all federal regulatory requirements,” said EPA Administrator Andrew Wheeler. “This temporary policy is designed to provide enforcement discretion under the current, extraordinary conditions, while ensuring facility operations continue to protect human health and the environment.”

Of paramount import “[a]ll enforcement discretion set forth in this temporary policy is conditioned on .. Entities should make every effort to comply with their environmental compliance obligations. If compliance is not reasonably practicable, facilities with environmental compliance obligations should .. [a]ct responsibly under the circumstances in order to minimize the effects and duration of any noncompliance caused by COVID-19.”

As we self-isolate in the final days of the first quarter of 2020, when food delivery is “out” and alcoholic beverage delivery is “in” the policy details the steps that regulated facilities must take now to qualify for enforcement discretion.

The temporary policy makes it clear that EPA expects regulated facilities to comply with regulatory requirements, where reasonably practicable, and to return to compliance as quickly as possible. To be eligible for enforcement discretion, the policy also requires facilities to document decisions made to prevent or mitigate noncompliance and demonstrate how the noncompliance was caused by the COVID-19 pandemic.

Be assured this is not a “get out of jail free” card. This policy does not provide leniency for intentional criminal violations of law.

The policy does not apply to activities that are carried out under Superfund and RCRA Corrective Action enforcement instruments. EPA will address these matters in separate communications.

Additionally, “[n]othing in this temporary policy relieves any entity from the responsibility to prevent, respond to, or report accidental releases of oil, hazardous substances, hazardous chemicals, hazardous waste, and other pollutants, as required by federal law, or should be read as a willingness to exercise enforcement discretion in the wake of such a release.”

The EPA’s policy will have a limited impact in states that have delegated EPA enforcement jurisdiction. That includes Maryland, where Secretary of the Maryland Department Environment Ben Grumbles made clear that the state wouldn’t be following EPA’s lead. “We understand we may need to exercise discretion in enforcement of environmental regulations on a limited, case-by-case basis during a disaster, but Maryland is not issuing a broad upfront policy as EPA is doing,” Grumbles said in a statement.

While you are at home take a few minutes to read the EPA COVID-19 Policy and be aware EPA will post a notification here at least 7 days prior to terminating this temporary policy.

If we can assist you in understanding how to navigate this extraordinary discretionary policy or otherwise with an environmental matter, we are ready to help you.

LEED can Help Mitigate Legal Risks in ESG Disclosures

By Stuart Kaplow on March 8, 2020 Posted in Environmental, LEED

Public companies in the U.S. find themselves at a dynamic time of emergent environmental, social and governance (“ESG”) disclosures. Vocal socially conscious investors, activist stockholder environmental proxy proposals, and the like are driving companies to make ESG statements.

This blog post highlights the legal risk associated with ESG disclosures and proffers that with green building practices companies can mitigate their legal risk while still being responsive to the trend of investor demands for more disclosure.

Make no mistake, there is no U.S. law requiring businesses to make ESG statements, but I have posted about ongoing attempts to criminalize the matter, ESG Disclosure Simplification Act Passes Committee But Will Fail.

Of course 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 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 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, is there are no such accepted criteria.

SEC Commissioner Hester Peirce has publicly 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.”

In what is widely viewed as a flawed rule only further slowing chronically weak European economies, the EU Parliament will require by the end of 2020 that EU member public companies publish their policies on integration of sustainability risks, with a much 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.” Such offers no good guidance for U.S. best practices.

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. Critics claim SASB simply provides more data the parent company can sell and such is a widely heard knock on many in the ESG space?

In a year when Billionaires are “out” and 401(k) Millionaires are “in” increasingly progressive in the U.S. are disgruntled when the most popular stocks held in ESG mutual funds are Microsoft and Apple, the same as in non-ESG funds?

Maybe most damning is that ESG mutual funds, on average, underperform the market. An analysis reported last month in The Wall Street Journal of 219 mutual and exchange traded funds classified by Morningstar are integrating ESG into their investment process of focusing on sustainable themes “underperformed the S&P 500 over both one and three years.” The Morningstar data does not rely on any particular criteria, but rather lets the companies self identify as integrating ESG.

People are free to invest in companies as they wish, but they can only do so if the peddlers of ESG are honest about the limitations of the three letter acronym. The broad breadth of issues that get dropped into the ESG bucket are too diverse to be given a number 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. Of course, there are steps that companies can take to reduce the potential legal exposure created by these disclosures. While our most frequent advice is simply to use aspirational language in ESG statements, including using words like “should,” “expect,” or “strive,” possibly our most efficacious advice is to obtain third party verification of the accuracy of disclosures.

And there may be no better third party verification in the realm of environmental disclosures (the E of ESG) than a third party certified LEED green building. I posted about the concept in 2018 and today, still with no accepted criteria, the widely recognized LEED seal provides some sustainable panache, but most important mitigates risk from the modern scarlet letters ESG.

179D Tax Deduction Allocated from Government Buildings

By Stuart Kaplow on February 23, 2020 Posted in Codes and Regulations, Energy, Environmental, Green Building

On December 20, 2019, the President signed legislation reviving the Section 179D energy efficient commercial building tax deduction and while much has been written about the much needed boost to green building, little has been said about the enormous benefits available from government owned buildings.

The § 179D federal tax deduction was brought back from the dead. This was Congress’ tax extenders bill bringing back to life expired tax provisions. This post will not consider the extended tax breaks for racehorses and auto racetracks nor the reduction in taxes for domestic beer and spirts, and not the § 179D deduction for privately owned buildings, but rather it will focus on the energy efficient commercial building deduction for government owned buildings.

Unremarkable, the Tax Extender and Disaster Relief Act of 2019 amended the Internal Revenue Code of 1986, ..

SEC. 131. ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION.

IN GENERAL. – Section 179D(h) is amended by striking ‘‘December 31, 2017’’ and inserting ‘‘December 31, 2020’’.

EFFECTIVE DATES. – The amendment made by subsection (a) shall apply to property placed in service after December 31, 2017.

But the import of those few interlineated words, is in the instance of energy efficient commercial building or property that is installed on or in property owned by a Federal, State, or local government or a political subdivision where the owner of the property may allocate the § 179D deduction to the person primarily responsible for designing the property (the designer). Of course, the government does not pay federal income tax such that it cannot utilize a tax deduction , so that tax deduction may be allocated to a taxpayer.

The deduction will be allowed to the designer for the taxable year that includes the date on which the property is placed in service. The § 179D deduction had been in effect since January 1, 2006, but the systems and buildings must have been placed in service by December 31, 2017, which is when § 179D expired, prior to this revival. And it should not be lost on anyone that this tax deduction was revived back to December 31, 2017 (.. when it last expired) and will remain effective through December 31, 2020.

The IRS has issued guidance, that a designer is a person that creates the technical specifications for installation of energy efficient commercial building property (or partially qualifying commercial building property for which a deduction is allowed under § 179D). A designer may include, for example, an architect, engineer, contractor, environmental consultant or energy services provider who creates the technical specifications for a new building or an addition to an existing building that incorporates energy efficient commercial building property.

A person that merely installs, repairs, or maintains the property is not a designer.

If more than one designer is responsible for creating the technical specifications, the government owner of the building may determine which designer is primarily responsible and allocate the full deduction to that designer, or at the owner’s discretion, allocate the deduction among several designers.

An allocation of the § 179D deduction to the designer of a government owned building must be in writing and will be treated as satisfying the requirements of tax code with respect to energy efficient commercial building property (or partially qualifying commercial building property for which a deduction is allowed under § 179D) if the allocation meets the simple and straightforward requirement of the IRS guidance and contains:

(1) The name, address, and telephone number of an authorized representative of the owner of the government owned building; (2) The name, address, and telephone number of an authorized representative of the designer receiving the allocation of the § 179D deduction; (3) The address of the government owned building on or in which the property is installed; (4) The cost of the property; (5) The date the property is placed in service; (6) The amount of the § 179D deduction allocated to the designer; (7) The signatures of the authorized representatives of both the owner of the government owned building and the designer or the designer’s authorized representative; and (8) A declaration, applicable to the allocation and any accompanying documents, signed by the authorized representative of the owner of the government building and designer.

In most instances that allocation form is no longer than one page.

A tax deduction of $1.80 per square foot (i.e., this tax incentive is based on the area of the building not the dollar amount expended) is available to owners of new or existing buildings who install (1) interior lighting; (2) building envelope, or (3) heating, cooling, ventilation, or hot water systems that reduce the 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).

Note the maximum amount of the § 179D deduction to be allocated to the designer is the amount of the costs incurred by the owner of the government owned building to place the energy efficient commercial building property in service. A partial deduction may be allocated.

Be aware the Department of Energy maintains a public list of software that may be used to calculate energy and power consumption and costs for purposes of the comparison against the prototype ASHRAE 90.1-2007 building. Selection of the ideal software for a particular building type can be key.

In 2020 when Big Pharma is “out” and Jagged Little Pill is “in” many if not most new buildings constructed this year in states where the adopted energy code is the 2015 IECC or later, will meet the required level of performance above the ASHRAE standard. And LEED as well as 4.0 projects will in the vast majority of instances qualify.

Deductions of $0.60 per square foot are available in instances in which individual lighting, building envelope, or heating and cooling systems that partially qualify by meeting certain target levels or through an interim lighting rule issued by the IRS.

Bringing back to life the dormant § 179D tax deduction will not bring about the zombie apocalypse (.. I’m fairly confident?) but it will revive the moribund U.S. green building industrial complex, including incentivizing energy efficient government building.

Moreover, given that buildings use more than 40% of energy in the U.S., this tax incentive can benefit not only the designer of a government owned building, but given the concomitant one-third of all greenhouse gas emissions coming from those buildings (more than any other sector in the economy), also repairing the world.

This law firm regularly works with owners, tenants, designers and others in securing green building incentives, including advantaging the § 179D tax deduction.

One Trillion Trees

By Stuart Kaplow on February 16, 2020 Posted in Climate Change, Environmental

The One Trillion Trees Initiative was launched at the World Economic Forum last month.

When President Trump announced that the United States would join the tree planting initiative on January 21 in Davos among more than 3,000 world government, business, and NGO leaders, more than half of whom joined the commitment, it garnered little reaction at home. And when he reiterated it in the State of the Union speech address on February 4, the initiative received little response beyond muted skepticism from the usual cast of environmental organizations.

Nature based solutions, as an important part of the response to climate change, strike many as a good idea.

The current initiative has as its roots the idea that “the restoration of trees remains among the most effective strategies for climate change mitigation.” That statement from a 2019 report, The Global Tree Restoration Potential, published by a group of Swiss researchers, Bastin, et al, in Science, found “the restoration of forested land at a global scale could help capture atmospheric carbon and mitigate climate change.”

The study calculates there is enough non agricultural and non urban land in the world to accommodate 1.2 trillion more trees. There are currently approximately 3 trillion trees. Planting that many new trees would significantly cool the Earth by taking 205 gigatonnes of carbon, the equivalent of 25% of the carbon dioxide that is currently in the atmosphere, sequestering it in growing trees.

And beyond carbon dioxide alone, expanded continuous forests could have huge biodiversity benefits, restoring city trees could dramatically reduce urban heat island effect, and more ..

Man has understood the importance of trees since before the Old Testament admonition, when waging a war against a city “.. you must not destroy its trees,” (Deuteronomy 20:19) which has been interpreted far more broadly than only protecting fruit trees, but to stand for the proposition of not destroying God’s creations.

Modern global tree planting initiatives may have begun with Mangari Maathai’s Green Belt Movement planting more than 50 million trees across Africa beginning in the 1970s. Later the Billion Tree Campaign declared victory with the planting of the one billionth tree, an African olive, in Ethiopia in 2007.

In full disclosure, I have personally planted trees (.. yes, shovel in the ground) across the world from Israel and Bhutan to Tanzania. In 2018 I had the opportunity to plant a tree in Baltistan, on a day that more than 1.5 million trees were planted, as Plant4Pakistan began a 5 year project of planting 10 billion trees across Pakistan.

In 2020 when climate change is “out” and climate crisis is “in,” in a typical American response, we look to legislate a solution for nearly everything, including a good idea like planting a tree. Last week Rep. Bruce Westerman (R Ark.) introduced the Trillion Trees Act and while the Congressional bill will no doubt be partisan fodder, it is a good read.

There is more information about the One Trillion Trees Initiative at 1T.org.

And yes, a trillion trees is a lot. It is one thousand times one billion, maybe easier thought of as a million millions or a one followed by 12 zeroes.

There is no doubt an opportunity for climate change mitigation through tree planting. So with that large goal, maybe you should get started repairing the world and planting trees?

Migratory Bird Treaty Act Will Apply Only to Intentional Takes

By Stuart Kaplow on February 9, 2020 Posted in Codes and Regulations, Environmental, Solar Panel, wind turbine

Last week, the U.S. Fish and Wildlife Service proposed a rule clarifying that the scope of the Migratory Bird Treaty Act only extends to conduct intentionally injuring birds. Conduct that results in the unintentional (incidental) injury or death of migratory birds is not prohibited under the act.

As I described in a 2017 blog post, Migratory Bird Treaty Act Reform is for the Birds, with five federal circuit courts of appeals divided on the question, it is important to bring regulatory certainty clarifying that the criminal scope of the MBTA only reaches to conduct intentionally injuring birds.

Owners of wind turbines and of solar panel farms have had their modern environmentally friendly and legal businesses criminalized under the World War I era MBTA regulatory scheme. In a 2013 blog post I wrote about Duke Energy’s guilty plea in the First Ever Criminal Prosecution for Deaths of Birds by Wind Turbine.

This action codifies the 2017 Department of the Interior Solicitor’s Office Opinion M–37050, which analyzed the scope of the MBTA and determined the act only applies to the intentional take of migratory birds and that the take of birds resulting from an activity is not prohibited when the underlying purpose of that activity is not to take birds.

That is, for the reasons explained in the Memorandum, consistent with the text, history, and purpose of the MBTA, the act’s prohibitions on pursuing, hunting, taking, capturing, killing, or attempting to do the same apply only to affirmative actions that have as their purpose the taking or killing of migratory birds, their nests, or their eggs.

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.”

It is only a slight exaggeration that owners of house cats, the largest killer of the more than 1,000 species of migratory birds in North America, can now sleep soundly; not to mention owners of real estate with windows a bird may fly in to.

And despite hyperbole from some environmental groups, the Endangered Species Act and the Bald and Golden Eagle Protection Act, as well as state laws and regulations, are not affected by the Solicitor’s Opinion M-37050 or the proposed regulation.

The proposed rule and notice of intent are now available.

The proposed rule will change how Fish & Wildlife administers the MBTA, and Fish & Wildlife has determined an Environmental Impact Statement under the National Environmental Policy Act is the most efficient and comprehensive approach for considering the potential impacts of this action on the environment. This is the first step in an open and transparent public process that Fish & Wildlife will manage throughout the development of the rulemaking process. The public is encouraged to provide input to help ensure that these changes are clear, effective and advance the goal of migratory bird conservation.

The proposed rule was published in the Federal Register on February 3, 2020, beginning a 45-day public comment period. Written comments must be received on or before March 19, 2020 and can be made at http://www.regulations.gov.

In 2020, when Smokey Bear is “out” and Little Fires Everywhere is “in” this proposed rule has already sparked a fiery debate, pitting members of the environmental industrial complex against each other, but I suggest this rule strikes the correct balance between the 1915 era MBTA law and unintended take, including that associated with modern wind turbines and solar panels.

Low Carbon Concrete for the First Time Required by Law

By Stuart Kaplow on February 2, 2020 Posted in Climate Change, Green Building, Local Government

The negative environmental impact of concrete, the most common man made substance on Earth, has not been meaningfully responded to in 2020.

Cement use in concrete is the largest single material source of greenhouse gas emissions in building.

Concrete is the largest single material source of embodied emissions in buildings, and makes for more than 8% of global greenhouse gas emissions.

Embodied (or embedded) emissions are emissions of carbon dioxide and other greenhouse gases generated by making and transporting materials to a building site, including mining, refining, and shipping.

Current green building programs actually encourage the use of concrete. While a lot of work has been done to reduce operational emissions in buildings, and less work has been done on impervious surface harms and urban heat island, addressing the now but unaddressed embodied emissions is the next frontier.

Replacing cement with currently available alternative cementitious materials, such as fly ash or slag, and other practices to “decarbonize” concrete has the potential of reducing total emissions from concrete by more than half.

The Marin County, California Low Carbon Concrete Code was the first in the nation to address the negative environmental externalities of concrete when it added a mandatory low carbon concrete specification to the Marin County Building Code.

The new code went into effect last month and applies to all private and public construction projects involving concrete. That new code modified the 2019 California Building Standards Code regulating allowable mix design and materials for plain and reinforced concrete. The purpose of this code is to provide standards and requirements for the composition of concrete, that ideally maintains adequate strength and durability for the intended application and at the same time reduces greenhouse gas emissions associated with concrete composition. The code provides for substituting one of several pozzolans, such as fly ash, slag and other Portland cement replacements. Possibly most significant, the code provides a form of non-residential specification and residential specification that could be a model for construction contract provisions.

In 2020, when birds are “out” and Birds of Prey are “in” Marin County’s legislating concrete standards are likely the wrong means to obtain the right end of better green building. New laws are not the most efficacious method of driving change in concrete, but to date the industry with a market value of more than $400 Billion a year, has failed to be a good steward of the planet.

There are 40 tons of concrete for every person on the planet and an additional one ton per person is added very year!

Despite innovations (e.g., the high tech sector), we are still pouring billions of tons of old fashioned concrete, a product that predates both agriculture and the wheel. The Romans were the first to erect beautiful concrete buildings, some of which still stand today, including the almost two millennia old Pantheon and Senate Building. But, of course, modern rebar inserted concrete is all but disposable with much of it disintegrating in little more than fifty years or so.

It is undisputable that concrete is a wonderous building material that has made possible the iconic Sydney opera house and the panoramic New River Gorge bridge. And such is why addressing the negative environmental impacts of concrete matters. The concrete industries must modernize reducing environmental externalities. And the next versions of green building programs must respond.

And beginning immediately, Marin County has provided vetted specifications for low carbon concrete that can be included in construction contracts across the country.

FERC Decision Puts State Renewable Portfolio Standards At Risk

By Stuart Kaplow on January 26, 2020 Posted in Codes and Regulations, Energy, Solar Panel

In the ongoing conflagration between “reliable power” and “clean energy” many may have missed when last month federal energy policy declared reliability the winner with renewable energy subsidies (e.g., state renewable portfolio standards) the loser.

In a decision that critics have called “unprecedented” the Federal Energy Regulatory Commission on December 19, 2019 issued an Order Establishing Just And Reasonable Rate “to protect the competitive capacity market administered by PJM Interconnection, L.L.C.” by directing PJM to expand its current pricing rules at its wholesale electricity auctions, including to take into consideration state mandated rate payer subsidized electric generation by wind and solar.

For the unknowledgeable, PJM operates the largest wholesale competitive electricity market in the country, covering 13 states and the District of Columbia. To protect customers against the possibility of losing electric service, PJM is responsible for ensuring that its system is reliable having sufficient generating capacity to meet its resource adequacy obligations.

No one should have been surprised by the decision last month because it simply reaffirms the FERC’s June 2018 decision that found PJM’s capacity market to be “unjust and unreasonable” due to its failure to take into account state subsidized wind and solar resources. In part that decision found that PJM auction pricing failed to address the price distorting impact of state renewable portfolio standard programs including those influenced by the Regional Greenhouse Gas Initiative, which state cooperative includes most of the PJM participating states.

“FERC is affirming our obligation to safeguard the competitiveness of the PJM capacity market,” FERC Chairman Neil Chatterjee said. “I recognize, and wholeheartedly respect and support, states’ exclusive authority to make choices about the types of generation they support and that get built to serve their communities. They still can do so under this order.”

In response to claims that this was an effort to settle the broader conflict over fossil fuels versus state subsidized clean energy, in a statement making clear that the decision was generating source neutral, Chatterjee said, “An important aspect of competitive markets is that they provide a level playing field for all resources, and this order ensures just that within the PJM footprint.”

But the two Democrats on the FERC blasted the decision, saying with one writing that it puts the commission on the “wrong side of history in the fight against climate change.”

And the Maryland Public Service Commission said, the “December 2019 Order thereby thwarts state public policy decisions addressing environmental attributes” of the power generation alternatives, .. and “is particularly dangerous in that it severely curtails cooperative federalism in the regulation of generation by acting to stymie state efforts to value resource attributes.”

But others have suggested that depending on the details of a final PJM tariff, such a rule could ultimately be a boon to renewable and nuclear energy and contribute to the decay of the remaining capacity market, or not. And, of course, the hodgepodge of other state laws would still be flawed.

Last week, the Maryland Public Service Commission, joined by regulators from New Jersey and Pennsylvania, the American Wind Energy Association and Solar Energy Industries Association, filed a request for rehearing and clarification of the FERC decision articulating the weak reed that “the practical effect of the December 2019 Order will be to frustrate state polices designed to support a transition to cleaner generating resources.” But that progressive political position fails to acknowledge that this is a highly regulated space by both the federal and state governments in a Faustian public policy attempting to take into account both energy industry and environmental interests. But there is no serious dispute that these major issues of the day are being resolved by bodies that few pay attention to, from the Federal Energy Regulatory Commission to the Maryland Public Service Commission.

In 2020 when cursed energy is “out” and dark energy is “in” techno optimism, the view that technology can help us produce our way out of our demand for reliable power, is in.

In the war between “reliable power” and “clean energy” in federal energy policy, this major battle has been won by traditional longstanding reliable power sources, including expressly providing that renewable portfolio standards programs are the loser as unjust and unreasonable.

Phase l Assessments for Tenants are the Hottest Environmental Issue in 2020

By Stuart Kaplow on January 19, 2020 Posted in Environmental, Federal

The hottest environmental topic for business in 2020, as a result of an amendment to the Superfund law for the first time making clear that tenants can qualify as bona fide prospective purchasers, protected from cleanup costs from the presence of hazardous substances on a property, is prospective tenants are now ordering Phase l Environmental Site Assessments to take advantage of the liability protections in the new law.

Buried in the more than 800 page Consolidated Appropriations Act signed on March 23, 2018 was Division N, the ‘‘Brownfields Utilization, Investment, and Local Development Act of 2018’’ (the BUILD Act).

The Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA, commonly referred to as Superfund), 42 U.S.C. § 9601 et seq., provides an important liability protection, including from cleanup costs, for parties who qualify as bona fide prospective purchasers (BFPPs).

The potential applicability of the BFPP protection to a tenant who leases contaminated or formerly contaminated real estate has been the subject of debate for the decades since the CERCLA’s enactment. The cases interpreting CERCLA make clear that the mere execution of a lease does not necessarily make a tenant liable as an owner or operator under the law. But courts have acknowledged uncertainty regarding the potential liability of tenants under CERCLA including because a tenant may be an operator of the property as well as a responsible person, but tenants had previously lacked any express protection in the Superfund laws. A prospective tenant may now to seek BFPP treatment in the event of a future federal CERCLA cleanup action at the leased property or simply to ensure appropriate environmental stewardship of the property.

Such is a dramatically large issue with the economic contribution of real estate to the U.S. economy, when in any given year the vast majority of real estate transactions are leases and not contracts of sale. In 2020, an increasingly large number of prospective tenants, from commercial banks to sports apparel retailers and the defense industry are actively seeking protection from existing contamination before signing leases.

In 2002, as part of the Small Business Liability Relief and Brownfields Revitalization Act, the BFPP definition was amended to include the parenthetical phrase “(or a tenant of a person)” in the description of who can claim the BFPP defense, but there was no other direction on the treatment of tenants.

EPA then issued guidance in 2012 on the treatment of tenants as BFPPs, providing that a tenant could only derive it BFPP status through the property owner, and that status was limited to “so long as the owner maintains its BFPP status.” So while instructive, it provided little, if any, comfort to tenants.

This 2018 BUILD Act addresses the uncertainty dating to 1980, by amending CERCLA § 101(40) including by in subclause (II), by inserting ‘‘, by a tenancy, by the instruments by which a leasehold interest in the facility is created,’’ ..

And in that subsection, the term “bona fide prospective purchaser” has been amended to mean,

(ii) a person who (I) who acquires a leasehold interest in the facility after January 11, 2002; (II) who establishes by a preponderance of the evidence that the leasehold interest is not designed to avoid liability under this Act by any person; and ..”

Which has the macro effect of increasing the value of many commercial and industrial properties making reuse viable, obviating one of the longstanding criticisms of CERCLA, that the law limits urban redevelopment across America, and the micro effect of mitigating a tenant’s risk in an individual leasehold, by allowing a tenant to avoid CERCLA liability by any of the following three means:

One, establishing the landlord is a BFPP because that landlord completed the “all appropriate inquiries” as required by federal law (including with a Phase I ESA); or two, establishing that the landlord completed all appropriate inquiries, but later failed either with compliance or to complete additional requirements; or three, establish the tenant itself, as the BFPP, by completing all appropriate inquiries prior to acquiring the leasehold interest and maintaining compliance with the additional requirements, if any.

A tenant can now assert, without having to rely on the landlord’s status, the innocent landowner defense being protected from CERCLA liability including cleanup costs from the presence of a hazardous substances on the property.

In this new decade when cursed energy is “out” and dark energy is “in” Phase I ESAs ordered by prospective tenants are in.

As a pendent matter, when a Phase I ESA report exists, it may now as a result of the 2018 Build Act be material information, under state law, that a real estate broker is obligated to disclose to a prospective tenant.

Concomitantly, should the Phase I ESA reveal a recognized environmental condition, a tenant could seek protection as a “inculpable person” not liable for existing contamination under state Brownfield laws.

In 2020, prospective tenants in commercial and industrial properties are now ordering a Phase I Environmental Site Assessment.

When Trees Sue for their Own Environmental Preservation

By Stuart Kaplow on January 5, 2020 Posted in Codes and Regulations, Environmental

In the new decade American environmental law will likely expand to include you being sued by the trees. I don’t mean being sued by the Lorax or someone else who “speaks for the trees” but rather the trees will have standing to sue to confront environmental degradation and the like.

This movement to empower nature is the single most impactful trend in environmental law.

This is much more than the currently proposed amendments to state constitutions, across the country, seeking to establish that every “person” has the right to a certain clean and healthy environment. Many of those bills do seek to establish that the state’s natural resources are the common property of every person, but they only expand standing for people.

A party to a lawsuit must have standing, that is they must be authorized to participate in the action. Standing means that a party has a sufficient stake in a controversy to be able to obtain judicial resolution of that controversy. Most state law traditionally has limited standing to a person that is “aggrieved” by an action or decision.

The idea that nature can have standing is not new. Justice William O. Douglas’ widely quoted dissent in the U.S. Supreme Court case, Sierra Club v. Morton, 405 U.S. 727 (1972) described that

public concern for protecting nature’s ecological equilibrium should lead to the conferral of standing upon environmental objects to sue for their own preservation. … So it should be as respects valleys, alpine meadows, rivers, lakes, estuaries, beaches, ridges, groves of trees, swampland, or even air that feels the destructive pressures of modern technology and modern life.”

And we are now seeing that legal doctrine legislatively implemented such that Mother Nature is now a proper person to pursue adjudication. In 2019, Toledo residents voted to approve the Lake Erie Bill of Rights, within the City’s charter “which include the rights of Lake Erie and its watershed to exist, flourish, and naturally evolve.”

This may be the first time in America that an ecosystem has been given the legal status of a “person.”

Under the amended City charter, the Lake Erie ecosystem may enforce its rights through an action prosecuted by the City or any resident in the name of the ecosystem. Damages are the cost of restoring the ecosystem to its status previous to the acts that caused the injury. And significantly there is no defense for an issued permit or claim of preemption by other state or federal laws.

Drewes Farm Partnership filed a lawsuit in federal court the day after the charter amendment passed in an overwhelming voter referendum. The partnership’s complaint asks the court to declare the voter enactment unconstitutional on several grounds and also claims it violates a variety of state laws. The City of Toledo consented to a preliminary injunction and the case is proceeding. While any interpretation of the preliminary pleadings is premature, there is an argument that this type of creation of a new right is more correctly done at the state level (versus at by a city). Spurred by Toledo, it is possible Florida and New Hampshire will each give standing to nature, from the spotted owl to the polar bear, in 2020.

Most major current federal environmental laws were passed in the 1960s and 1970s, including the Clean Air Act, the Endangered Species Act, and the Clean Water Act, and it is unlikely the current government in Washington DC will enact any new sweeping environmental statutes. The planet is also not best protected by local and state government legislative bodies enacting hodgepodges of new statutes, including this year’s trendy legislation banning plastic from straws to bags, based on junk science and ignoring the key facts that the alternatives are not much better if not worse.

The courts, as a coequal branch of government can and are better to assume their proper role in enforcing tort law and more, to stop environmental harm done by bad actors.

So, now conferring standing on objects in nature, from lakes to trees, to sue for their own environmental preservation, an idea that has percolated for decades is gaining popularity and will in this new decade of the Roaring ‘20s be the order of the day. This rocket scientist thinking is the next step in American environmentalism. It is the opportunity to increase efficacy of existing court tested environmental laws, from modern statutes to the common law, many of which have hit bumps, by broadening who can enforce those laws without negatively impacting the current worldwide economic boom.

Thought leaders largely agree we need a better way of protecting the environment and enabling the trees to seek judicial redress is good public policy coming to a courtroom near you.