Does Federal EPCA Trump Colorado Building Energy Performance Standards (BEPS)?

Two Colorado Building Energy Performance Standards (BEPS) laws were challenged last week in a much anticipated lawsuit commenced in the United States District Court for Colorado.

The lawsuit mirrors a successful ‘substantially similar’ federal court ruling last year that voided a natural gas ban in Berkely, California when this suit challenges Colorado’s Regulation 28 and the Energize Denver Ordinance, averring that they are preempted by the federal Energy Policy and Conservation Act (EPCA).

This lawsuit is a big deal at a time when emergent BEPS laws appear to be de rigueur among the environmental industrial complex, forsaking broader ideals like green building and the like, in what in many instances are flawed attempts by states and local governments to ration energy, through energy use intensity (EUI) standards and the like.

This judicial redress has national implications both because the two separate Colorado BEPS laws were modest enactments when compared with much more burdensome (.. if not all but impossible to comply with for many buildings) laws like those in Maryland and because the complaint challenges not only the EUI standards (.. that legal commentators suggest is low hanging fruit) but also greenhouse gas (GHG) intensity that would void the entire field of BEPS as interfering with the express federal authority over a consistent nationwide energy conservation policy that has existed since the 1975 Gerald Ford brokered post Arab oil crisis compromise that was the Congressional enactment of EPCA.

The plaintiffs in this case are the Colorado Apartment Association, Apartment Association of Metro Denver, Colorado Hotel and Lodging Association, Inc., and NAIOP Colorado Chapter. They are suing various Colorado officials and entities, including the Colorado Department of Public Health and Environment.

The allegations stretch over the 47 pages of the complaint. The crux of the averments is that Regulation 28 and the Energize Denver Ordinance, each a BEPS law, set energy limits for buildings over 25,000 or 50,000 square feet respectively. The standards focus on energy use, requiring building owners to comply with EUI and GHG intensity thresholds.

The complaint explains that the practical implications of these standards “effectively require” building owners to replace existing natural gas equipment and appliances with electric versions that exceed current federal energy efficiency standards.

The complaint alleges that the Colorado standards conflict with EPCA’s express preemption provisions, which are an absolute bar to state and local regulations concerning energy efficiency or energy use of federally regulated products.

The complaint seeks declaratory relief that Regulation 28 and the Energize Denver Ordinance are preempted by EPCA requesting injunctions to prevent their enforcement.

Just some days ago, we blogged about the City of Berkeley, Settlement Portends Broad Failure in Attempts to Ban Natural Gas, after the Ninth Circuit, which the Court had last year found regulations having the effect of banning natural gas were expressly preempted by the federal EPCA  statute when that court denied a petition to rehear the case.

That case is expressly referenced in this complaint and particularly instructive on the likely outcome of this new Colorado litigation when it is beyond dispute from the opinion that EPCA’s preemptive scope extends beyond regulations of covered products or building codes, but also expressly includes “concerning the energy use” within buildings that contain such products, delivering a fatal blow to state and local government attempt to regulate site EUI in BEPS and the like. Lest there be any doubt, to ascertain what Congress meant by “energy use,” we turn to the statutory definitions. EPCA defines “energy use” as “the quantity of energy directly consumed ..” and preempts states and local governments from regulating it, whether disguised as BEPS, site EUI, or otherwise.

It is possible a properly drafted BEPS law might stand but is clear that these Colorado laws fail as being precisely what Congress was barring with the express preemption mandate in EPCA.

Drew Hamrick of the Apartment Association of Metro Denver also makes a key point that strikes at the heart of BEPS laws, “That’s a boatload of money for the amount of carbon reduction it achieves,” .. when these laws are only regulating a subset of Scope 1 GHG emissions and note the more than 95% of GHG emissions that are not even proposed to be touched.

Of course, others see these matters otherwise, including the Sierra Club and Conservation Colorado whose representative responded, “This lawsuit is a baseless attack on innovative programs to tackle pollution from buildings, ..”

As we concluded an earlier blog post, “.. the only question may be how quickly extremist regulatory schemes like Maryland’s building energy performance standards regulations, with the concomitant ban of natural gas, even in existing buildings, and imposing penalties for exceeding arbitrary EUI maximums, will be vanquished.” The Maryland regulations seek not only to ban new natural gas pipe installations but to force the replacement of existing gas appliances and removal of gas piping from every existing covered building (.. far more than Berkeley intended to do and far more draconian than the Colorado mandates) and not only unreasonable but unquestionably preempted by EPCA. Of import, BEPS is on “Hold” in Maryland because of actions by the state legislature (.. not the courts) including inserting a provision in the 2024 budget prohibiting the use of state money to draft EUI regulations.

Plans by state and local authorities to ration energy are wrongheaded and as this legal challenge will show, preempted by federal law under the Supremacy Clause of the U.S. Constitution. We will blog more as this BEPS litigation plays out.

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Please join us for our webinar “New Environmental Laws from the 2024 Maryland Legislative Session” on Tuesday, May 14 from 9 – 9:30 am EDT presented by Stuart Kaplow. The webinar is complimentary, but you must register here.

New Environmental Laws in Maryland: 2024 Brings Opportunities for Businesses

The 446th session of the Maryland General Assembly concluded on April 8, 2024. With 1,052 bills and one resolution passed by the legislature, the governor has already signed 120 bills into law and has until May 28 to sign or veto the remainder of the legislation.

It was a busy 2024 session with more than 3,480 bills introduced.

This post is a compilation of the environmental and sustainability legislation enacted in this session, including links to each bill. As the author, I determine what is an environmental bill. Time and space do not allow recitation of the more than 300 failed bills we tracked.

Maryland has been described as having more pages of environmental statutes and regulations per capita than any other state. The new laws compiled below add to that already very green environmental regulatory scheme. But something was different this session. To quote Walt Mossberg and Kara Swisher in their last WSJ column, “In taking a page from the tech industry .. it was once again time to refresh, reimagine, remake and reinvent” the regulation of environmental matters.

Savvy players, not just those in the environmental industrial complex, will find business opportunities to lead and profit in environmental and sustainability matters, including opportunities to monetize these newly enacted state laws.

Greenhouse Gas Emissions

The two most significant environmental acts of the Maryland General Assembly were not legislation in the traditional sense. First, on January 29, 2024, the Joint Committee on Administrative, Executive, and Legislative Review (AELR) put a “hold” on the proposed regulations to create the Maryland Building Energy Performance Standards (BEPS) that require all buildings in the state that are 35,000 square feet or more be net zero greenhouse gas emission by 2040, as required by the Climate Solutions Now Act of 2022, Chapter 38 of 2022, apparently out of concern that the proposed implementing regulations went too far beyond what the 2002 statute authorized.

Second, when the legislature enacted the State Budget, it adopted Conference Committee Amendment No. 9,  “funds appropriated for the purpose of final development and submission of energy use intensity targets and standards regulations to the Joint Committee on Administrative, Executive, and Legislative Review may not be expended until the Maryland Department of the Environment submits ..” reports on matters of energy use intensity (EUI) and associated concepts to the budget committees; having the effect of an extended pause, if not causing MDE to completely start anew proposing the BEPS program as proposed by MDE. (Yes the budget was adopted by Senate Bill 360, but the available version does Not include the Conference Committee amendments. They may be found on page 255 in the Joint Chairmen’s Report.)

House Bill 990 (passed) causes State greenhouse gas emissions reduction requirements to apply to the production of cement by removing the production of cement from the definition of “manufacturing.” All other manufacturing is protected from State regulation of GHG emissions reductions. The bill was significantly amended, ameliorating its harsh effect, now requiring MDE to make specific findings and consult with specified stakeholders in advance of promulgating any regulations negatively impacting the production of cement, all of which may in the end do more good than harm (.. just the opposite of what the bill as introduced proposed) in protecting the vital industrial sector of cement manufacturer from future GHG emission regulation.

The Maryland EmPOWER Program is a slate of energy efficiency and energy conservation programs funded by a per kilowatt hour surcharge on all utility ratepayers. Among other things, House Bill 864 (passed) alters EmPOWER by providing, subject to Public Service Commission approval, electric and gas companies in concert with the Department of Housing and Community Development must redistribute ratepayer collected funds to implement programs and services (.. different from the Program’s current aims of reducing energy consumption and providing assistance to limited income households) to now promote the greenhouse gas emission reduction and conservation of energy, demand response, and beneficial electrification by consumers, electric companies, gas companies, and DHCD, all in support of the GHG emissions reduction goals and targets. Annual GHG emissions reduction targets must be at least 2.0% in 2024, 2.25% in 2025 and 2026, and 2.5% per year in 2027 and annually thereafter, without regard to exacerbating the unaffordability of electricity and increased risks to electric reliability.

House Bill 1435/ Senate Bill 783 (both passed) known as the Brighter Tomorrow Act seeks to bolster solar in the State that has failed to keep pace with the Renewable Portfolio Standard nation leading mandate of 14.5% solar power by 2030 (i.e., 55% of that target by 2022), by among other matters causing the PSC to establish a Small Solar Energy Generating System Incentive Program (a key feature of which will include an artificially inflated value for SRECs). Out of concern, this is too little too late to drive the marketplace for solar in Maryland the bill, which was the work product of a widely criticized state government task force also modifies existing solar property tax credits and allows local governments to utilize Payment In Lieu of Taxes. It requires that certain home improvement contracts for the installation of rooftop solar include the installation of a certain wildlife barrier under certain circumstances; altering the maximum generating capacity authorized for certain net metered generating facilities; authorizing an eligible customer generator participating in certain meter aggregation to receive excess generation from more than one generating system; and, altering the expiration date of SRECs.

House Bill 579/ Senate Bill 474 (both passed) filed as the Critical Infrastructure Streamlining Act which became known as the Data Center Bill, alters the definition of “generating station” to exempt the construction of certain backup generators  (.. that are of paramount importance) at data centers used to produce electricity for onsite emergency backup and certain test and maintenance operations from the requirement to obtain a certificate of public convenience and necessity or certain other related approvals; and gained the support of many environmental groups by allocating 15% of the annual corporate income tax paid by data centers to the Strategic Energy Investment Fund, which ended up being the only new source of funding for climate initiatives created during the session.

Waste Management

Senate Bill 325/ House Bill 1 (both passed) require a producer of paint (technically, architectural coatings and paint) sold at retail in the State, to submit, by July 1, 2025, a plan for the establishment of a Paint Stewardship Program to MDE for approval; pay a plan review fee to MDE; implement the program, including post consumer paint collection, within six months after plan approval; submit annual reports for MDE review; and pay annual report review fees to MDE. The bill makes paint different than other recycled materials in the State. Of note, there are similar industry managed programs elsewhere, but the legislature heard they are expensive and this will increase the cost of paint in Maryland.

House Bill 457 (passed) requires a producer or seller of synthetic turf to disclose to a customer before the sale of synthetic turf the maintenance that is typically performed throughout the lifespan of synthetic turf, as well as the typical costs for removing, replacing, and disposing of synthetic turf. Additionally, MDE, in consultation with several stakeholders, must conduct a study on synthetic turf, existing synthetic turf fields in the State, and the synthetic turf industry in the State. MDE must report its findings by July 1, 2026.

There are existing restrictions limiting lead and PFAS chemicals in certain products in the Environment Article. House Bill 1147 (passed) expands upon these restrictions by prohibiting a person from installing, supplying, selling, soliciting, or offering for sale in the State playground surfacing materials that contain either more than 90 parts per million of lead or a component product, material, or substance to which PFAS chemicals were previously intentionally added, which sounds good but is two steps behind what U.S. EPA has proposed.

Clean Energy

House Bill 1296 (passed) requires the PSC to resuscitate the State’s offshore wind power generating efforts by opening an additional round of offshore wind project proceedings that will be limited to evaluating revised project schedules, sizes, or pricing for a previously approved project. The bill also allows any first round offshore project to seek PSC approval to amend its previously approved project to increase the maximum amount of ORECs and modify its project schedule. This is one of only a few bills there has been a groundswell requesting a gubernatorial veto in large measure because it alters existing ratepayer protections when the first round process requires consideration of changes in economic conditions since the first project awards. Last year, Chapter 95 of 2023, established a State goal of reaching 8,500 megawatts of offshore wind energy by 2031.

Among other things, Senate Bill 570/ House Bill 397 (both passed) authorize an electric company, a gas company, or a water company to own, manage, and recover costs associated with a thermal energy network system (i.e., connecting multiple buildings through a loop). And, by July 1, 2025, each gas company that serves at least 75,000 customers must submit at least one proposal for a pilot thermal energy network system to PSC for approval.

Among other things, Senate Bill 783 (passed) establishes the Customer-Sited Solar Program within the Maryland Energy Administration to provide grants to low to moderate income electric company customers (or a third party applying for a grant on behalf of a customer) for new solar energy generating systems, funded by reallocated solar alternative compliance payment revenues within SEIF. The program may provide grants to an income verified eligible customer-generator with a low to moderate income, up to $750 per kilowatt of nameplate capacity for a solar energy generating system, up to a maximum of $7,500 per system.

The most cutting edge legislation of the session, Senate Bill 959/ House Bill 1256 (both passed) among other things, makes Maryland the first state to require utilities to allow electric vehicles with bidirectional chargers to connect to the distribution grid things, that is vehicle to grid (V2G) technology. The PSC must also develop a program for each investor owned electric company to establish a pilot program or temporary tariff to compensate owners and aggregators of distributed energy resources for electric distribution system support services, and several other voluntary renewable energy incentives.

State Buildings

Chapter 289 of 2020 codified Executive Order 01.01.2019.08, which required the State to reduce energy consumption in State owned buildings by 10% by 2029 compared with a fiscal 2018 baseline. Executive Order 01.01.2023.07 rescinds the 2019 executive order and instead requires the State to reduce energy consumption in all State owned buildings by 20% by 2031, compared with the fiscal 2018 baseline. Senate Bill 258 (passed) repeals statutory language that implemented the 2019 executive order and instead codifies provisions from the 2023 executive order that implement the new target, without identifying a funding source for what some legislators were concerned is an energy service provider boondoggle.

Trees

House Bill 1511 (passed) delays the effective date of specified provisions of Chapters 541 and 542 of 2023 which modify State law relating to forest preservation and retention, from July 1, 2024, until July 1, 2026. The bill, however, makes changes to the definition of “qualified conservation,” adds an exemption from Forest Conservation Act afforestation requirements for specified solar photovoltaic facilities, and establishes provisions related to forest mitigation banking and priority areas/ vegetation that are identical, or appear intended to be identical, to provisions under Chapters 541 and 542, allowing those changes to take effect July 1, 2024.

State law governs certain tree care work done for compensation, on private or public property, and protects consumers by licensing qualified and insured tree care companies and individual tree experts. Senate Bill 683/ House Bill 561 (both passed) allow the Department of Natural Resources to set fees for licensed tree experts who are often low or moderate income immigrants that, instead of being limited to the costs of processing an application, may be up to $45 for an examination, $55 for initial licensure, and $100 for license renewal. The bill explicitly authorizes DNR to adopt regulations to implement the statutory provisions related to tree experts.

Chesapeake Bay

Each jurisdiction in Maryland is responsible for managing development in its portion of the Chesapeake Bay Critical Area through a local program. Among other things, House Bill 233 (passed) modifies the Chesapeake and Atlantic Coastal Bays Critical Area Protection Program to require locals to incorporate climate resilience, environmental justice, and equity measures. The bill also allows local programs to be reviewed once every 10 years rather than the 6 year interval required today. The also bill modifies density calculations for development in the Critical Area and alters the circumstances under which changes to Critical Area designations and zoning map amendments may be granted.

Senate Bill 268 (Ch. 80) alters the enforcement and after the fact application approval procedures required as minimum elements of a local jurisdiction’s Chesapeake and Atlantic Coastal Bays Critical Area Program to apply to all Critical Area violations.

Standing

Under Sackett v. EPA, 598 U.S. 651 (2023), the U.S. Supreme Court narrowed the scope of the bodies of water that are subject to the protections of the federal Clean Water Act. Senate Bill 653/ House Bill 1101 (both passed) The Clean Water Justice Act of 2024 establishes, after a great deal of lobbying on all sides, standing, for a person that meets the threshold standing requirements under federal law, in civil claims arising under specified standards relating to nontidal wetlands that do not have a continuous surface connection to surface water and discharges of pollutants affecting ephemeral streams or intermittent streams. The bill authorizes a person who has standing under this new enactment to bring a civil action against any person or political subdivision which is alleged to violate those standards. The bill will significantly weaken MDE when it also authorizes a person who meets the threshold standing requirements under federal law to intervene in a civil action brought by MDE relating to nontidal wetlands (similar authority already exists, and is reestablished under the bill, with respect to a civil action relating to the discharge of pollutants to waters of the State).

Wells

PFAS chemicals are pervasive and are linked to health hazards, but they are largely not regulated in Maryland. Senate Bill 956/ House Bill 1153 (both passed) require MDE, in collaboration with publicly owned treatment works and specified “significant industrial users” (.. a term critics of the bill suggest is misleading when for example it includes houses of worship and others who discharge 25,000 gallons a day), to by October 1, 2024, identify the significant industrial users that currently and intentionally use PFAS chemicals; by June 1, 2025, develop PFAS action levels for addressing PFAS contamination from industrial discharge for pretreatment permits; and by September 1, 2025, develop specified mitigation plans for addressing PFAS contamination from industrial discharge for pretreatment permits. In addition, MDE must develop PFAS monitoring and testing protocols for significant industrial users and update its PFAS Action Plan. Recent changes in federal environmental rules may cause this bill to be of limited efficacy if at all.

Indoor Air Quality

House Bill 238 (passed) prohibits vaping in certain indoor areas and places of employment and certain mass transportation; requiring that certain signs be posted in each public indoor area and each public entrance to an indoor area where smoking or vaping is prohibited; requiring the convening of a workgroup to study the issuance of alcoholic beverages licenses to tobacconists; and prohibiting the issuance of a local alcoholic beverages license to a tobacconist from July 1, 2024, to July 1, 2026.

Flooding

Senate Bill 148/ House Bill 449  (both passed) authorizes the Governor, for fiscal 2026 and each fiscal year thereafter, to include in the annual State budget an appropriation for the comprehensive flood management grant program of up to $20 million (in fiscal 2025 the program was funded at $10 million with general obligation bonds). So, the bill is really an environmental justice initiative when it requires that, for fiscal 2026 and each fiscal year thereafter, at least 40% of funding provided under the program be used for projects located in or directly benefiting underserved or overburdened communities.

Consumer Protection

Senate Bill 1 (passed) is a consumer protection act related to the retail sale of electricity although some provisions also apply to nonresidential service. It establishes an energy salesperson license for certain persons that offer or sell electricity or gas supply agreements to customers in the State; establishes an energy vendor license for certain persons that provide energy sales services in the State; prohibits a certain electricity supplier from marketing electricity as green power unless certain conditions are met; and broadly seeks to regulate this space, including applying portions of this Act prospectively.

If I can assist you in finding business opportunities to lead and profit in environmental and sustainability matters advantaged by these newly enacted state laws, or if we can otherwise assist your business with an environmental matter, do not hesitate to give me a call.

The Maryland General Assembly is next scheduled to reconvene on January 8, 2025.

Thank you to the Maryland Department of Legislative Services for the information in this post.

EPA Takes Action: PFOA and PFOS Now Hazardous Substances Under Superfund Law

In a landmark regulatory move, the U.S. Environmental Protection Agency has taken decisive action to designate perfluorooctanoic acid (PFOA) and perfluorooctane sulfonic acid (PFOS) as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), commonly known as the Superfund law. This final rule, issued just last Friday, marks a significant change in government response to these “forever chemicals.”

This action is separate and distinct from the April 10 PFAS drinking water standard final rule, this having dramatically larger impact.

PFOA and PFOS, members of the broader class of some 4,000 human made chemicals per- and polyfluoroalkyl substances (PFAS), have been extensively used in various industrial and consumer products for for more than 70 years due to their unique properties such as water and grease resistance. The highly persistent compounds that do not occur in nature have led to pervasive contamination of water sources and soil, posing serious health risks to humans.

Lest there be any question, this is a true bete noire where a peer reviewed 2020 study cited approvingly by the EPA describes 99.7% of Americans having detectable PFAS in their blood!

And this is a planetary problem, not a U.S. matter alone. Populations in nearly all industrialized nations have a PFAS blood level of at least 2 parts per billion. 

“The science is clear that PFAS chemicals are linked to a wide range of health harms including cancer, damage to cardiovascular and immune systems, poor pregnancy outcomes, and effects on the developing child,” said EPA spokesperson Dr. Tracey Woodruff, of the University of California.

PFAS is no doubt a developing environmental catastrophe but this just announced EPA action listing PFAS as a hazardous substance in the U.S. is yeeting the matter without regard that this solution may do more harm than good.

The cleanup of contaminated sites under the more than 40 year old Superfund program, which already regulates more than 800 hazardous substances, is today incredibly bureaucratic and expensive and this will compound that many times over. There are many implications of this designation including that the federal government owns the most PFAS contaminated land and clean up costs for the federal government alone (.. okay, taxpayers) will be in the untold Trillions of dollars. It will also lead the Department of Transportation to list and regulate these substances as hazardous materials under the Hazardous Materials Transportation Act (e.g., will a shipment of Gore-Tex jackets require a manifest?).

A perplexing feature of the new rule requires entities to immediately report new releases of PFOA and PFOS that meet or exceed the reportable quantity of one pound within a 24 hour period to the EPA and local emergency responders; a provision that would appear to add some teeth to the rule but for the fact that few if any heavily PFAS laden products are being produced in the U.S. today (e.g., when is the last time you bought a Teflon frying pan?).

The ASTM standard for the Phase l environmental site assessment process, which has been incorporated into Federal law, “to define good commercial and customary practice in the United States of America for conducting an environmental site assessment of a parcel of commercial real estate” will have to be promptly revised and altered to take into account the all but automatic recognized environmental condition (REC) finding for nearly every property. Sectors of the U.S. economy that own real estate must promptly begin to respond to this significant regulatory change.

EPA has a history of applying enforcement discretion policies and maybe more so than with any program in the Agency’s history, such will be of paramount import here where PFAS is already so widespread.

This administrative agency rule, which many have observed in being done before the Biden Administration runs out of time, carries with it a huge economic cost. Moving forward, policymakers, regulators, industry stakeholders, and the public will have to work collaboratively to develop effective strategies for reducing the ongoing use (.. yes, PFAS is still being utilized across the country) and clean up of PFAS, balancing those domestic aims with the resultant drag on the U.S. economy.

We have been engaged in providing legal services associated with environmental site assessments since the 1990s (.. for far more than just the commercial real estate sector although nearly every nonresidential real estate transaction involves an environmental site assessment that will be impacted by this changes) and this rule will greatly expand the need for that work by environmental attorneys.

EPA will publish the Final Rule in the Federal Register shortly. The rule will be effective 60 days after the rule is published.

I concluded a blog post when this final rule was first proposed in 2022, EPA Proposes Designating PFAS as Hazardous, “It may be the quintessential example of “if the only tool you have is a hammer everything looks like a nail,” but an after the fact hazardous substance designation will not repair the planet.”

Shedding Light on the Future: The Evolution of Lightbulbs in the Wake of New Energy Efficiency Standards

One hundred and forty three years after Thomas Edison received his patent for the incandescent lamp, the most important invention in history, illuminating the way for the universal use of electric light, last Friday the U.S. Department of Energy finalized new energy efficiency standards for general service lamps, which include the most common types of residential and commercial lightbulbs, having the practical effect of phasing out compact fluorescent light bulbs and what remnants of incandescent bulbs still remain, replacing them with more energy efficient LEDs.

It is not just the phenomenon that a glass bulb produces light from electricity, and as a consequence improves safety in dark places, allows students to study after dark, permits people to work at night, but so much more.

We believe that when light appears, darkness will always disappear since darkness does not really exist in and of itself. That metaphor has roots in Genesis when God’s first act is separating darkness and light so today it is not surprising that this act by one government is drawing much scrutiny.

DOE had already implemented minimum lightbulb efficiency levels that effectively banned incandescent bulbs, in furtherance of the Energy Policy and Conservation Act, which set energy levels that could not be met by energy inefficient incandescent bulbs. Last Friday’s standards, which reflect that 2007 statute’s mandate to regularly review efficiency standards, as authorized by Congress are more likely to withstand any judicial challenge, set efficiency levels that can be met by a broad variety of widely available Light Emitting Diodes (LEDs) but not by Compact Fluorescent Lamps (CFLs). CFLs, once hailed as the next big thing in energy efficient lighting, have seen their day in the sun. LEDs are already gaining market share because they provide longer lifespans and lower electricity usage, and unlike CFLs do not contain mercury.    

When this rule was first proposed in January 2023 we blogged, Ban the Light Bulb to Repair the World.

Accepting the politicization of this final rule, the White House said, “over 30 years [.. really?], these updated standards will save Americans more than $27 billion on their utility bills and cut 70 million metric tons of dangerous carbon dioxide emissions, equivalent to the combined annual emissions of over 9 million homes.”

Specifically, this final rule will raise the efficiency level from 45 lumens per watt to more than 120 lumens per watt for the most common lightbulbs. Manufacturer compliance with the efficiency standards being adopted today will be required from July 25, 2028, and will apply to newly produced or imported general service lamps, not affecting continued consumer use and purchase of bulbs already manufactured; so, the federal government is not coming for your lightbulbs, but you are going to have to replace light fixtures and should likely begin that now.

With more hyperbole, DOE claims the energy savings from these standards over 30 years of shipments is approximately 4 quadrillion British thermal units, which represents a savings of 17% relative to the status quo of lightbulb energy use. 

We all know, having burned our fingers on a hot light bulb, even modern incandescent bulbs (that were phased out beginning in 2007) were not energy efficient with less than 10% of electricity supplied to the bulb being converted into visible light. The remaining energy is lost as heat and a pendant percentage of GHG emissions are squandered, however, cumulatively U.S. EPA has estimated those emissions at less than 1% of total emissions, which begs the question of the economic and environmental costs of complying with this new government mandate?

But of import, we have not been able to identify a single manufacturer of LED bulbs for home or business elimination anywhere in North America; which is not surprising given that nearly 94% of that manufacturing is in China.

Last Friday DOE issued the pre-publication Federal Register final rule. The effective date of this rule is 75 days after the notice has been published in the Federal Register. Compliance with the amended standards is required on and after July 25, 2028.

We should not lose sight of the fact that the purpose of a light bulb is to produce light from electricity, something that has literally improved the lives of nearly every man, woman, and child on the planet by eliminating our dependence on Earth’s rotation for natural light. Many will lament the end of the era of light bulbs and even more will question the role of one nation’s government banning such an important technology.

All of that observed, in 2024 there is nothing wrong with doing that better than Thomas Edison in 1860, with LEDs, and repairing the planet.

2024 International Energy Conservation Code is Final After Addressing Preemption 

On March 18, 2024, the International Code Council Board of Directors voted to affirm in part and reject in part nine appeals filed by five appellants to a draft of the commercial and residential editions of the 2024 International Energy Conservation Code. The Board expressly addressed concerns that aspects of the draft 2024 IECC codes were preempted by the federal Energy Policy and Conservation Act under the Supremacy Clause of the U.S. Constitution.  

Of course, it is 2024 so there were the usual cast of climate change doomsayers who took to social media, to deride the vote by the ICC as the end of the world, but to many, they sound like the boy who cried apocalypse. I have been enjoying the Carl’s Jr, “End of the Word” hamburger since 2012, and environmental groups have been monetizing the apocalypse since “An Inconvenient Truth” was still a slide show in 1989, so doomsday porn aside, the 2024 IECC is now final and the greater concern might be the coming of the Four Horsemen of the Apocalypse.

The International Code Council is a private nongovernmental organization established in 1994 to develop a single set of national model construction codes. It brought together three different organizations that had developed three separate sets of model codes throughout the country: Building Offi­cials and Code Administrators International, Inc. (BOCA), International Conference of Building Officials (ICBO), and Southern Building Code Congress International, Inc. (SBCCI). ICC codes are approved through a triennial process although the process for the 2024 IECC was changed from previous iterations of the IECC, using a procedure previously utilized for adopting  ‘standards’ but not codes.

The Appeals 

Following its own public hearing, the ICC Board determined that the scope and intent governing the 2024 IECC prohibited the inclusion of measures that did not directly affect building energy conservation within the base of the draft 2024 IECC, as the intent of both the commercial and residential 2024 IECC codes is limited to “providing minimum efficiency requirements for buildings that result in the maximum level of energy efficiency that is safe, technologically feasible, and life cycle cost effective considering economic feasibility, including potential costs and saving for consumers and building owners, and return on investment.” The Board further determined that alternative measures, including measures without direct impacts on building energy conservation, but that may reduce greenhouse gas emissions, could be included as an appendix given the intent of both the residential and commercial IECC codes provides that “[t]he code may include nonmandatory appendices incorporating additional energy efficiency and greenhouse gas reduction resources.”  

Accordingly, the Board resolved to move several of the challenged provisions to an appendix:  

  • Sections C406.1.1.1 and C502.3.7.1 (heat pump products)  
  • Sections C403.4.6, C404.10, C405.2.8, R403.5.4 and N1103.5.4 (demand response)  
  • Sections C405.14, R404.7, and N1104.7 (electric vehicle charging infrastructure)  
  • Section C405.16 (electrical energy storage system readiness)  
  • Sections R404.6 and N1104.6 (solar readiness)  
  • Sections R404.5 and N1104.5 (electric readiness)  

Preemption

The Board also specifically considered concerns that provisions in the draft IECC codes were preempted by the federal Energy Policy and Conservation Act. Where the Board determined there was a significant risk of preemption, it decided to move those provisions to a resource with a cautionary note regarding the risk of preemption:  

  • Appendix CG (all-electric commercial) and Appendix RE (all-electric residential): moved to resource due to significant risk of preemption based on recent cases 
  • Appendix CD Section CD101.1 and Table CD101.1 (prescriptive glide path to net zero): moved to resource due to significant risk of preemption based on an inability to comply with minimum efficiency equipment  
  • Appendix RG (glide path to net zero): retained as an appendix with a cautionary note regarding the limited compliance options for minimum efficiency equipment in specific climate zones 

Finalization of the 2024 IECC

The Board’s determinations mark the conclusion of the 2024 IECC development process. The residential and commercial codes are now final.

Of import, the 2024 IECC builds on the 2021 edition and is anticipated to improve energy efficiency by roughly 6.5% for residential buildings and by 10% for commercial buildings.

Huge Implications

This is a big deal because versions of the IECC are in use or have been adopted in 48 states (.. although adoption of the latest 2021 version, in the 3 year cycle, was only by 5 states) because wide earlier adoption was a prerequisite for access to Federal grants in aid.

In states like Maryland where the Maryland Building Performance Standards, require each local jurisdiction to adopt the IECC, but “may not adopt any amendments that weaken the requirements of the IECC” the implications of this action by the ICC Board are dramatic; saving the entire state from mandatory all electric commercial and residential building codes which would have had the effect of banning natural gas and ultimately determined to be “without effect” as preempted by federal law. Of course, Maryland and other jurisdictions could still incorporate additional greenhouse gas reduction measures, electrical vehicle charging infrastructure, energy storage systems, electric readiness, and demand responsive controls; although such is not expected and any such state would be a regulatory outlier.

Settlement Portends Broad Failure in Attempts to Ban Natural Gas

The City of Berkeley is going to repeal its regulation that prohibits the installation of natural gas piping within newly constructed buildings.

Last week the California Restaurant Association announced that the group and the City of Berkeley entered into a settlement agreement immediately halting enforcement of the City’s ‘first in the nation’ ban on natural gas piping as the City Council takes steps to repeal the 2019 ordinance after the U.S. Court of Appeals for the 9th Circuit refused to reconsider its 2023 ruling that the ban is “without effect” as preempted by Federal law under the Supremacy Clause of the U.S. Constitution.

Berkeley’s city attorney, Farimah Faiz Brown confirmed to print media sources that the city has ceased enforcement of the ban.

This government surrender has significant negative implications for other state and local laws across the country that would have the effect of banning the use of natural gas in favor of the cause célèbres, all electric buildings.

That forced retreat was buttressed, in the same week by the March 18, 2024 vote by the International Code Council Board of Directors on the 2024 International Energy Conservation Code to move mandatory all electric building provisions in the proposed code to a non-mandatory appendix (.. more on this below).

We blogged on January 2, 2024, Federal Appeals Court Delivers Coup De Grace in Berkeley Attempt to Ban Natural Gas, when the Ninth Circuit, which the Court had last year found regulations having the effect of banning natural gas were expressly preempted by federal statute, when that court denied a petition to rehear the case.

The law is clear. Nearly everything important can be gleaned from the first paragraph of that January opinion,   

“By completely prohibiting the installation of natural gas piping within newly constructed buildings, the City of Berkeley has waded into a domain preempted by Congress. The Energy Policy and Conservation Act (“EPCA”), 42 U.S.C. § 6297(c), expressly preempts State and local regulations concerning the energy use of many natural gas appliances, including those used in household and restaurant kitchens. Instead of directly banning those appliances in new buildings, Berkeley took a more circuitous route to the same result. It enacted a building code that prohibits natural gas piping in those buildings from the point of delivery at a gas meter, rendering the gas appliances useless.”

You could also read our blog post from last year, after the original decision in this case, describing that attempts by state and local governments to ban natural gas in buildings in favor of all electric buildings are superseded by federal law, under the Supremacy Clause, Court Saves Gas Stoves from the Government.

Naysayers had suggested the Ninth Circuit’s second opinion in this challenge, denying the motion to reconsider, was somehow weaker or stepping back from the unequivocal finding of express federal preemption, but this settlement takes the wind out of their sails. The new text in the reissued court opinion in January includes, “that the Berkeley ordinance cut to the heart of what Congress sought to prevent – state and local manipulation of building codes for new construction to regulate the natural gas consumption ..”

To be clear, that amended opinion leaves no doubt, .. based on its text, structure, and context, that EPCA expressly preempts building codes like Berkeley’s ordinance that ban natural gas piping within new buildings. EPCA’s preemption provision extends broadly including to regulations that address gas fueled appliances themselves and building codes that concern the use of natural gas. By enacting EPCA, Congress ensured that States and localities could not prevent consumers from using energy in their homes and businesses. In this instance, EPCA thus preempts Berkeley’s building code, which prohibits natural gas piping in new construction buildings from the point of delivery at the gas meter.

That analysis is precisely what the ICC Board of Directors said it considered in the internal appeals of the proposed 2024 IECC as it explained its actions regarding the prescriptive all electric building, “.. provisions in the draft IECC codes were federally preempted [by EPCA]. Where the Board determined there was a significant risk of preemption based on case law or the Board had concerns about the ability to comply with provisions using minimum efficiency equipment, the Board decided to move those provisions to a resource with a cautionary note regarding the risk of preemption.”

Moreover, it is beyond dispute from the opinion that EPCA’s preemptive scope extends beyond regulations of covered products or building codes, but also expressly includes “concerning the energy use” within buildings that contain such products, delivering a fatal blow to state and local government attempts to regulate site Energy Use Intensity (EUI) in building energy performance standards and the like. Lest there be any doubt, to ascertain what Congress meant by “energy use,” we turn to the statutory definitions. EPCA defines “energy use” as “the quantity of energy directly consumed ..” and preempts states and local governments from regulating it, whether it is disguised as a building energy performance standard site EUI or otherwise.

As we concluded an earlier blog post, “.. the only question may be how quickly extremist regulatory schemes like Maryland’s building energy performance standards regulations, with the concomitant ban of natural gas, even in existing buildings, and imposing penalties for exceeding arbitrary EUI maximums, will be vanquished.” The Maryland regulations seek not only to ban new natural gas pipe installations but to force the replacement of existing gas appliances and removal of gas piping from existing buildings (.. far more than Berkeley intended to do) and unquestionably preempted by EPCA. Of import, BEPS is on “Hold” in Maryland as a result of action by the legislature (.. not the courts) to examine more closely these issues.

The Berkeley settlement halting enforcement of the City’s ban on natural gas piping and the ICC vote eliminating the all electric building mandate from the 2024 IECC, within days of each other, portend the immediate and long term failure of state and local government attempts from Colorado to Maryland and everywhere in between to ban natural gas in homes and businesses.

SEC Climate Disclosure Rule Stay and Venue Now in the 8th Circuit

After this blog was posted, on April 4, 2024, the SEC, noting that it has discretion to stay its rules pending judicial review if it finds that “justice so requires,” determined to exercise its discretion to stay the Final Rule pending the completion of judicial review of the consolidated Eighth Circuit petition. In its Order Issuing Stay, the Commission did expressly state, that it “will continue vigorously defending the Final Rule.”

Much has transpired since Wednesday, March 6, 2024, when the Securities and Exchange Commission, by a 3 to 2 vote, adopted its long awaited rules to enhance and standardize climate related disclosures, including for the first time requiring greenhouse gas emission disclosures by public companies and in public offerings.

We blogged about the substantive provisions of The Enhancement and Standardization of Climate-Related Disclosures for Investors Final Rule, but before it was even published in The Federal Register, the first legal challenge was filed by ten states in federal court.

On Friday, March 15, 2024, the 5th Circuit Court of Appeals issued an Order granting an Emergency Motion for Administrative Stay and Stay Pending Judicial Review filed by Liberty Energy, Inc. and Nomad Proppant Services, LLC, in another of the cases challenging the SEC Final Rule, which unpublished two page Order did not explain the reasoning for granting the stay pending the outcome of that judicial review. But, keep reading ..

Additional federal judicial reviews were filed by the State of Louisiana, et al, the Texas Alliance of Energy Producers, et al, and the Chamber of Commerce of the United States, et al, each in the Fifth Circuit; the Ohio Bureau of Workers’ Compensation, et al in the Sixth Circuit; the State of Iowa, et al in the Eighth Circuit; and, the State of West Virginia in the Eleventh Circuit. Environmental groups also filed two challenges to the Rule, the Natural Resources Defense Council in the Second Circuit and the Sierra Club, et al, in the DC Circuit.

The SEC filed a notice of multi circuit petitions with the Judicial Panel on Multidistrict Litigation and on Thursday, March 21, 2024, the nine lawsuits pending in six federal circuits were after a random lottery, by a Consolidation Order moved into a single case to be heard in the St. Loius based 8th Circuit Court of Appeals. The case is now known as In Re: Securities and Exchange Commission, The Enhancement and Standardization of Climate-Related Disclosures for Investors, Issued on March 6, 2024, J.P.M.L., MCP No. 180, consolidation order issued 3/21/24.

A fun fact, the Congressionally created selection process to provide a means for the random selection of one circuit court of appeals to hear consolidated petitions for review of agency decisions is truly random. It has since 1988 been accomplished by a court clerk, who selects a court of appeals by lottery (i.e., spinning a drum and selecting a number at random).

Media sources have reported that the 8th Circuit Court of Appeals has 17 judges of whom 10 are active and were appointed by a Republican president with only one judge appointed by a Democrat president, so it is not characterized as a liberal venue.

Dramatically, on Friday, March 22, 2024, the 5th Circuit Court of Appeals’ unpublished Order that transferred the litigation to the 8th Circuit dissolved its prior issued stay (.. over the objection Judge Edith Jones, of one of the three judges on the panel) having the effect of restoring the SEC Final Rule.

That the Fifth Circuit’s now dissolved stay has been previously granted should necessarily not be interpreted as an indication that the Final Rule ultimately will be struck down. However, commentators have suggested the several petitioners are likely to prevail on the merits for several reasons. First, the Final Rule fails the major questions doctrine. That is, there is no clear authority in federal statute for the SEC to regulate the controversial matters of climate change. Second, the Final Rule is arbitrary and capricious because it fails to account for the SEC’s drastic change in position on what is materiality (.. to an investor in a public company). And third, the Final Rule violates the First Amendment by mandating speculative disclosures of politically charged issues using controversial international frameworks (not based on U.S. law) and effectively forces each company into political debates about climate change. Moreover, the “Rule seeks to cripple traditional energy sector, with Petitioners and the general public paying the price.”

The environmental groups, including Sierra Club which filed a petition for review, principally were heard to complain that the Final Rule omitted a requirement for companies to disclose their Scope 3 greenhouse gas emissions.

To understand the crux of what is at issue in this judicial review one need to look no further than SEC Chair Gary Gensler’s own statement before the vote approving the Final Rule, which begins explaining, “Our agency .., was set up to be merit neutral. Thus, the SEC has no role as to climate risk itself ..” but, the Chair quotes President Franklin Roosevelt who called for  “complete and truthful disclosure”, to justify, “It’s in this context that we have a role to play with regard to climate-related disclosures.” That dichotomy, which some suggest is between modern science in 2024 and law, The Securities Act of 1933 (.. the statute granting the authority for the Final Rule although certainly Congress did not contemplate climate change in 1933) is now what is before the 8th Circuit.

Compellingly 25 states have now filed petitions for judicial review attacking the Final Rule. The federal judicial branch will be the ‘decider’.

Despite this litigation, including wide speculation that the 8th Circuit will reinstate a stay of the Final Rule going into effect, public companies potentially subject to the Rule should still consider carefully the Rule’s application to their organizations and begin taking the steps necessary to comply. We continue to work with companies determining the best business specific strategies for calculating greenhouse gas emissions, which by way of example, often includes amending leases to share data necessary for that calculation.

As this “final” rule continues to change rapidly and repeatedly from one position and situation to another and back again, we will continue to monitor the litigation including the expected imminent application in the 8th Circuit for a stay. We will provide updates.

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Join us for our upcoming Strafford live webinar, “Greenhouse Gas Emission Laws Now Impact Commercial Leases” on Thursday, May 2, at 1 pm ET. Click this link for more information.

EV Charger Data Apocalypse

Last week the House of Representatives passed a measure to effectively ban TikTok in the U.S. to protect Americans’ sensitive personal data from exploitation by the People’s Republic of China on national security grounds. The week before President Biden issued an Executive Order establishing protections for Americans’ sensitive personal data from sale to countries of concern.

But neither of those actions protects Americans’ personal and sensitive information, including geolocation data, financial data, and other personally identifiable information, available from electric vehicle (EV) charging equipment.

Bad actors can use this EV charger data to track Americans, pry into their personal lives, and pass that data on to other data brokers and foreign intelligence services. This data can enable intrusive surveillance, scams, blackmail, and other violations of privacy.  

EV chargers are proliferating in response to President Biden’s $7.5 Billion government funding for 500,000 chargers across the country through the National Electric Vehicle Infrastructure program. New laws and legislation pending in more than 20 states, like Maryland HB 1279 require new construction to install EV charging equipment and otherwise cause parking spaces to be electric vehicle supply equipment capable or ready. Cast in a light most positive to government, this is a rush to respond to climate change, and despite that EV chargers are prime vectors for data vulnerabilities there are not yet government or other accepted protections for the data. A darker perspective might be that government is unwittingly building a mass surveillance project with an entirely new network of spying devices across the country (and the world).

In an era when the world’s most valuable resource is no longer oil, companies are collecting more of Americans’ data than ever before, and it is often legally sold and resold through data brokers. The U.S. government is the largest domestic purchaser and reseller of the data. As we have blogged about, Immigration and Customs Enforcement has used address data sold by utility companies to track down undocumented immigrants.

The line between hackers and commercial data brokers and others is fuzzy when data is sold to or otherwise accessed by countries of concern, or entities controlled by those countries (.. the largest acquirer of data worldwide are government instrumentalities in China), and data can land in the hands of foreign intelligence services, militaries, or companies controlled by foreign governments. Hence the recent Executive Order.

These risks are not merely hypothetical. In 2019, New York Times writers were able to combine a single set of bulk location data collected from cell phones and bought and sold by data brokers, which was anonymized and represented “just one slice of data, sourced from one company, focused on one city, covering less than one year” with publicly available information to identify, track, and follow “military officials with security clearances as they drove home at night,” “law enforcement officers as they took their kids to school,” and “lawyers (and their guests) as they traveled from private jets to vacation properties.”

When there is a claim data is anonymized such that it is stripped of personal identifier information, that is simply ‘silly talk’ and reverse engineering in not only almost always possible, but all but easy with modern AI solutions.

This post is about EV chargers but appreciate concerns about exploitation of personal car data, we found a gray data broker who sells niche data sets where even tires are a vector for surveillance. The dashboard lights on your car that tell you the tire pressure on your front left tire is 30 psi operate through a wireless signal from a small sensor, and companies have figured out how to use those unique identifier signals to track people. Apparently, the largest purchaser of this data is government (.. who is using it to track Americans without a warrant?). A data aggregator who is said to be doing work for Ukraine after the Russian invasion sells a portable system that detects war zone tire pressure signals.

But that is not what keeps me up at night. The nightmare may be an EV charger data apocalypse.

The Office of the Director of National Intelligence has made clear that “[o]ur adversaries increasingly view data as a strategic resource.”

Many EV charger users have considered that a bad actor could have access to a homeowner’s EV charger connected Wi-Fi network or through the smartphone apps used to control charging or simply as a smart device connected to the internet, and also access the credit card information provided in a commercial EV charger, not to mention be vulnerable to transferable malware infections, but armed with EV charger data could hackers switch on or off an EV battery or thousands of EV batteries at one time?

In the movie, Leave the World Beyond, produced by Barack and Michelle Obama, hackers attack the U.S. including through thousands of hijacked Teslas that pile up on roadways.

That was fiction, and real world damaging hacks that we know about have been relatively few, but a week following Russia’s invasion of Ukraine, a private Russian power company’s EV charging stations outside of Moscow were hacked, including displaying anti Putin video messages and disabled. This was in the same timeframe that the UK’s Isle of Wright saw pornography flash on the screens of EV chargers at public car parks.

In 2019 a now widely read study published by an NYU Tandon School of Engineering professor described “cybersecurity risks to the grid where multiple high-wattage charging stations could be used in tandem to launch an attack and potentially cause a blackout.” His analysis had less than 1,000 EV charging vehicles taking down the Manhattan power grid. The study establishes that while such an attack was not possible at the 2019 penetration level of EV chargers, it would be practical in the near future once the number of EV chargers proliferates.

Today there are no widely implemented cyber security standards for EV chargers and the UK is one of very few countries with any legal requirements in place when it mandates credential authentication, data encryption, and information deletion options. Service providers must also provide regular software updates. Note, there is a U.S. Federal Highway Administration rule setting minimum standards and requirements for EV chargers funded under the National Electric Vehicle Infrastructure program, but that rule expressly excludes cyber security provisions out of concern that such might slow installations. I don’t think this is some secret coterie of tech companies and governments to weaponize EV chargers, but it is malfeasance at a huge scale and the transgressions will certainly do more harm than good .

And I do not lose sleep over a possible EV charger cyber apocalypse any more than a climate change apocalypse.

I am told the best thing you can do is regularly update the software in your EV charger and associated phone app. Personally, I drive a gasoline powered car.

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Join us for our upcoming Strafford live webinar, “Greenhouse Gas Emission Laws Now Impact Commercial Leases” on Thursday, May 2, at 1 pm ET. Click this link for more information: https://www.sp-04.com/r/products/tlkruhhana

SEC Final Rule on Climate Change and GHG Disclosure

After this blog was posted, on Friday, March 15, 2024, the 5th Circuit Court of Appeals issued an Order granting an Emergency Motion for Administrative Stay and Stay Pending Judicial Review filed by Liberty Energy and Nomad Proppant Services, in one of the nine cases challenging the March 6 SEC Final Rule on Climate Change and GHG Disclosure (in advance of that Final Rule even being printed in the Federal Register), which unpublished two page Order did not explain the reasoning for granting the stay. But, ..

Then on March 21, 2024, the nine lawsuits pending in six federal circuits were after a random lottery, by a Consolidation Order of the Judicial Panel on Multidistrict Litigation, into a single case to be heard in the 8th Circuit Court of Appeals.

And on Friday, March 22, 2024, the 5th Circuit Court of Appeals’ unpublished Order that transferred the litigation to the 8th Circuit dissolved its prior issued stay having the effect of restoring the SEC Final Rule. We will follow the litigation here.

Last Wednesday by a 3 to 2 vote the Securities and Exchange Commission adopted long awaited rules to enhance and standardize climate related disclosures, including for the first time requiring greenhouse gas emission disclosures by public companies and in public offerings.

The Enhancement and Standardization of Climate-Related Disclosures for Investors Final Rule is different from the proposal released two years ago and it is more than that the proposed rule was 510 pages in length and this Final Rule is 886 pages. With the benefit of having watched the more than 2 hour live streamed SEC public meeting where the vote took place, this blog post will highlight our initial impressions of this consequential rulemaking from those 886 pages in several hundred words.

Widely reported in the media, the Final Rule eliminates the originally proposed Scope 3 GHG emission reporting (.. the devilishly difficult attempt to estimate from activities not owned or controlled by the company).

To not bury the lede, the Final Rule expressly and approvingly allows the use of carbon offsets and renewable energy certificates (RECs) requiring disclosure when they are a component of a business’ plan to achieve its disclosed climate related targets or goals. Make no mistake, this is huge.

But the changes do not alter the rule’s fundamental purpose (.. and flaw as many see it) that climate disclosures require heightened treatment and express space in SEC disclosures without authority from Congress. This Final Rule will be expensive for public companies and their shareholders and will expose companies to a myriad of previously unknown risks.

Of course, the existing SEC disclosure regime already requires companies to inform investors about material risks and trends, including those related to climate (.. 36% of annual Commission filings include climate disclosures). The Commission’s 2010 climate guidance explains how climate related issues, particularly a company’s financial condition, require annual analysis and possible disclosure. We have done a great deal of that work for public companies, their securities counsel, and their consultants and that work will grow exponentially under this new Final Rule as materiality appears now replaced by pages of prescriptive disclosures.

Specifically, the Final Rules will require most SEC registered companies to disclose:

  • Climate related risks that have had or are reasonably likely to have a material impact on the business’ business strategy, results of operations, or financial condition;
  • The actual and potential material impacts of any identified climate related risks on the business strategy, business model, and outlook;
  • If, as part of its strategy, a company has undertaken activities to mitigate or adapt to a material climate related risk, a quantitative and qualitative description of material expenditures incurred and material impacts on financial estimates and assumptions that directly result from such mitigation or adaptation activities;
  • Specified disclosures regarding a business’ activities, if any, to mitigate or adapt to a material climate related risk including the use, if any, of transition plans, scenario analysis, or internal carbon prices (leaving uncertain how to address in that transition plan that the outcome of an election would significantly alter the risk?);
  • Any oversight by the board of directors of climate related risks and any role by management in assessing and managing the business’ material climate related risks;
  • Any processes the registrant has for identifying, assessing, and managing material climate related risks and, if the company is managing those risks, whether and how any such processes are integrated into the business’ overall risk management system or processes;
  • Information about a business’ climate related targets or goals (e.g., we will be carbon neutral by 2040), if any, that have materially affected or are reasonably likely to materially affect the business’ business, results of operations, or financial condition;
  • For large accelerated filers and accelerated filers that are not otherwise exempted, information about material Scope 1 GHG emissions and/or Scope 2 emissions;
  • For those required to disclose Scope 1 and/or Scope 2 GHG emissions, an assurance report at the “limited assurance” level, which, for a large accelerated filer, following an additional transition period, will be at the higher “reasonable assurance” level (.. which higher level we arguably already achieve for clients today);
  • The capitalized costs, expenditures expensed, charges, and losses incurred as a result of severe weather events and other “natural conditions” (.. SEC Commissioner Peirce pointed out that was a crazy broad term that might have included Covid or the next pandemic), .. subject to applicable one percent and de minimis disclosure thresholds, disclosed in a note to the financial statements;
  • The capitalized costs, expenditures expensed, and losses related to carbon offsets and renewable energy certificates (RECs) if used as a material component of a business’ plans to achieve its disclosed climate related targets or goals, disclosed in a note to the financial statements; and
  • If the estimates and assumptions a registrant uses to produce the financial statements were materially impacted by risks and uncertainties associated with severe weather events and other natural conditions or any disclosed climate related targets or transition plans, a qualitative description of how the development of such estimates and assumptions was impacted, disclosed in a note to the financial statements.

The Final Rule, in another change from that proposed, permits a business to hire non auditor assurance providers, which will allow other than just the Big 4 and other large accounting firms to report on climate change and calculate GHG emissions. For more than 10 years we have been advising companies, their securities counsel, and their consultants about SEC climate change disclosures, and for nearly 20 years we have counseled clients about GHG emissions, so we believe we are uniquely qualified to do that work under this new regulatory regime.

All of that observed much of this Final Rule will Not apply to the more than 50,000 Department of Defense contractors that Congress just provided by statute, on December 23, 2023, who are not permitted to “disclose a greenhouse gas inventory or any other report on greenhouse gas emissions,” being a significant number of the approximately 12,000 companies registered with the SEC.

Among the significant unresolved issues is given that the SEC has by this Final Rule taken the position that the federal agency has broad authority to mandate climate disclosures, does this preempt California’s recently passed disclosure law (that is being challenged in court by businesses) which applies to an untold number of companies across the country and the globe that do business in California, already serving as a national standard? And how does this mesh with the EU ESG disclosure obligations for multinationals effective since January 1, 2024?

Before adopting the final rules, the Commission considered more than 24,000 comment letters, including more than 4,500 unique letters, submitted in response to the rules’ proposing release issued in March 2022.

The Final Rule will become effective 60 days following publication in the Federal Register and compliance dates will be phased in dependent on the business’ filer status, however, ..

In future blogs, we will post about the legal challenges to the Final Rule, including the case already filed by ten states in federal court in the 11th Circuit where West Virginia is the lead plaintiff (.. déjà vu West Virginia v. EPA, where the Supreme Court solidified its major questions jurisprudence and significantly curbed the EPA’s power to regulate GHG emissions without clear authority from Congress). And if environmental groups that have been heard to threaten court challenges because the rules do not go far enough, commence actions, we will blog about it.

We will also blog a detailed analysis of key requirements of the Final Rule, including methodologies for GHG emission calculation (e.g., that are inconsistent with Maryland’s proposed GHG regulations).

Even with the uncertainty arising from already commenced judicial challenges, it is of critical import that the thousands of SEC reporting companies (.. and their landlords, utilities, and others) promptly create the internal processes and commence collection of data for fiscal year 2025 disclosures and financial statements required by the Final Rule.

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Join us for our upcoming Strafford live webinar, “Greenhouse Gas Emission Laws Now Impact Commercial Leases” on Thursday, May 2, at 1 pm ET. Click this link for more information.

New York is Coming for Your Cheeseburger with Greenwashing Case

This blog may sound like a broken record as we have time and again warned about the risks of a business claiming that they will be “net zero greenhouse gas emissions by 2040” or the like.

For readers who may not have heeded our warnings and even clients we have offered counsel and advice to before they make environmental marketing claims or disclosures required by governments (e.g., tenants disclosing greenhouse gas emission data to landlords under building energy performance standards (BEPS) laws and the like), reality set in this past week.

Last Wednesday, New York Attorney General Letitia James filed a lawsuit against JBS USA Food Company, the American subsidiary of the world’s largest producer of beef, alleging greenwashing in the company’s statements in a print ad and on its website “that it will achieve net zero greenhouse gas emissions by 2040 ..” in a scheme to garner climate conscious customers.

The greenwashing lawsuit filed in state court claims JBS USA engaged in deceptive acts or practices, false advertising, and repeated or persistent fraudulent or illegal conduct justifying relief ranging from an injunction for future bad acts accompanied by future audits of all consumer facing publications to a $5,000 civil penalty per violation and to “disgorgement of all ill-gotten profits, funds, and assets traceable to its fraudulent, deceptive, or illegal acts or practices.” But the biggest peril to JBS USA may be reputational risk by a coterie of environmental groups that have publicly sought to halt the company’s planned listing on the New York Stock Exchange.

The complaint figuratively and literally has the New York State government coming for your cheeseburger when it alleges, .. “Beef has the highest total greenhouse gas emissions of any major food commodity, and beef production is linked to large-scale deforestation, especially in the Amazon rainforest, which further drives climate change by releasing greenhouse gases and eliminating trees and plants that absorb and store carbon dioxide ..”

The complaint then incredibly avers, “Even if it had developed a plan to be ‘Net Zero by 2040,’ the JBS Group could not feasibly meet its pledge because there are no proven agricultural practices to reduce its greenhouse gas emissions to net zero at the JBS Group’s current scale, and offsetting those emissions would be a costly undertaking of an unprecedented degree.”

Letitia James’ filing goes on to cast in a negative light that, “Across its marketing materials, the JBS Group has made sweeping representations to consumers about its commitment to reducing its greenhouse gas emissions, claiming that it will be “Net Zero by 2040.”

The pleading’s ultimate greenwashing allegation is that having made such an aspirational statement, “The JBS Group has repeatedly and persistently made unsubstantiated and misleading environmental marketing claims to New York consumers, .. .. and has profited from its fraudulent and illegal business activities.” That allegation is founded in the apocalyptic environmental belief that net zero is not attainable from a meat processor.

What this case is truly about is made clear in Letitia James’ post on X, “The beef industry is one of the largest contributors to climate change, and JBS has falsely advertised its commitment to sustainability and endangered our planet.” So, Letitia James’ problem is with beef. And when the pleading describes that “as of 2021, the JBS Group’s estimated annual greenhouse gases were more than those of the entire country of Ireland” which ignores that one state attorney general is seeking to inject herself in the purchasing decisions of all American consumers buying the food produced by the company’s U.S. operations can process more than 200,000 cattle, 500,000 hogs and 45 million chickens a week. Despite the more than $10 Billion market cap of this Brazilian based producer of animal proteins, the Complaint avers there is nothing the company that has operations on six continents can do about its environmental impact, apparently because cows belch methane (evidently it is not an anthropogenic thing).

First, they came for JBS Group, but some have observed that Tyson Foods, the world’s second largest processor of animal proteins has a net zero emission by 2050 target. And Smithfield, the largest pig and pork producer across the globe, says the company’s U.S. operations will be carbon negative by 2030. There are greenhouse gas commitments across the food production industries and increasingly by thousands of businesses across all sectors, including many of those commitments being mandated by government BEPS laws and the like that expose businesses to risks from greenwashing claims.

The Complaint in this case is an instructive read on greenwashing for all business leaders who want to mitigate their climate change risk.

We continue to advise a broad breadth of businesses about greenhouse gas emissions as well as related required disclosures and advertising claims. We would be pleased to speak with your organization.

Make no mistake, the New York State government is coming for your cheeseburger with this greenwashing case.

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Join us for a live webinar “Remove Slavery From Your Supply Chain” 30 talking points in 30 minutes, Tuesday, March 19 at 9 am ET presented by Stuart Kaplow on behalf of ESG Legal Solutions, LLC. The webinar is complimentary, but you must register here.

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