Green Building Law Update

The Intersection of Real Estate, Science, and Law

Maryland Adopts 42 New Environmental Laws in 2021

By Stuart Kaplow on Posted in Codes and Regulations, Environmental

The 442nd session of the Maryland legislature adjourned on April 12, 2021.

There were no balloons dropped from the balconies at sine die, ostensibly because of Covid-19 social distancing there were no high school pages to drop celebratory balloons from the balconies, but it is worthy of note that this year the legislature passed House Bill 391 making illegal intentionally releasing balloons (see below)?

During the 90 day General Assembly session, 47 senators and 141 delegates considered 2,347 bills and passed 817. Only 42 bills of those passed involve environmental matters. The Governor has until the 30th day after presentment to sign or veto bills.

This post is a compilation of the environmental legislation enacted this session.

Time and space do not allow a recitation of the bills that failed, but many did not pass in a session that was widely heralded as successful, including a much discussed Senate bill that would have made broad changes to Maryland’s approach to reducing statewide GHG emissions and addressing climate change that was not well received in the House.

Maryland has been described as having more pages of environmental statutes and regulations on a per capita basis than any other state. The new laws compiled below add to that already very green environmental regulatory scheme. Savvy players in the environmental industrial complex and associated industries will find business opportunities to lead and profit in environmental matters, including opportunities advantaged by these newly enacted laws.

Trees

The Maryland Attorney General recently issued an opinion concluding that the placement of a protective easement on an already existing forest, as opposed to intentionally created or restored forest, does not qualify for forest mitigation banking. House Bill 991 responds modifying the definition of “forest mitigation banking” to be the intentional restoration, creation, or qualified conservation of forests undertaken expressly for the purpose of providing credits for afforestation or reforestation requirements with enhanced environmental benefits from future activities. “Qualified conservation” is defined as the conservation of all or a part of an existing forest that was approved on or before December 31, 2020, by the appropriate State or local forest conservation program for the purpose of establishing a forest mitigation bank and is encumbered in perpetuity by a restrictive easement, covenant, or another similar mechanism recorded in the county land records to conserve its character as a forest. As such, the bill retroactively allows qualified conservation that was completed in a forest mitigation bank on or before December 31, 2020, to be used, under both State and local forest conservation programs. However, the bill limits the afforestation or reforestation credit that may be granted for the use of qualified conservation to no more that 50% of the forest area encumbered in perpetuity.

The bill, that may be the single most significant enactment of the session, also establishes a new policy of the State to support and encourage public and private tree planting, with the goal of planting and helping to maintain 5,000,000 sustainable native trees in Maryland by the end of 2031. The bill provides that it is the intent of the General Assembly that at least 500,000 of those trees be planted in underserved areas. The Governor must formally pledge the State’s commitment to achieving the bill’s tree planting goals through the World Economic Forum’s One Trillion Trees Initiative.

To help achieve these goals, the bill alters and directs additional resources to a number of existing programs and initiatives, including by way of example, in fiscal 2023, $2.5 million must be transferred from the Wastewater Account of the Bay Restoration Fund to the Chesapeake and Atlantic Coastal Bays 2010 Trust Fund for tree plantings on public and private land, and for fiscal 2024 through 2031, the Governor must include an annual appropriation of $2.5 million in the State budget for tree plantings on public and private land. The bill also establishes a $10 million annual Urban Trees Program, administered by the Chesapeake Bay Trust, for the purpose of making grants to qualified organizations for native tree-planting projects in underserved urban areas. Additionally, the bill establishes a Commission for the Innovation and Advancement of Carbon Markets and Sustainable Tree Plantings charged with developing a plan to achieve the State’s carbon mitigation goals.

Reduction of Greenhouse Gas Emissions, Climate Change, and Tree Planting

Senate Bill 359/ House Bill 80 require the Maryland Department of Transportation to develop an urban tree program to replace trees that are removed during the construction of a transportation facility project, including the area impacted by the Purple Line project.

House Bill 30 requires the Office of the People’s Counsel, in determining whether the interests of residential and noncommercial users are affected by each matter before the Public Service Commission, to consider the public safety, economic welfare, and environmental interests of the State and its residents, including the State’s progress in meeting its greenhouse gas emissions reduction goals. Under the bill, Office is also required to hire at least one assistant people’s counsel to focus on environmental issues, and the amount that Office may assess for its costs and expenses is increased. Finally, the bill adds the People’s Counsel as a member of the Maryland Commission on Climate Change and the Maryland Zero Emission Electric Vehicle Infrastructure Council.

Prohibition on Balloon Releases

Senate Bill 716/ House Bill 391 prohibit, with very limited exception, a person from knowingly and intentionally releasing, or causing to be released, a balloon into the atmosphere or organizing or participating in a “mass balloon release,” as defined. The bills establish a civil penalty of up to $100 per violation for organizing or participating in a mass balloon release. A person who violates the prohibition against knowingly and intentionally releasing, or causing to be released, a balloon into the atmosphere must watch a re-educational video and/or perform community service. Generally, the Maryland Department of the Environment must enforce the prohibitions, but MDE is authorized to delegate enforcement authority to specified local authorities.

Environmental Standing and Environmental Justice

Senate Bill 334/ House Bill 76 establish that a person who meets the threshold standing requirements under the federal Clean Water Act has an unconditional right and the authority to intervene in a civil action initiated by the State in State court to require compliance with certain water pollution control measures. A person exercising this right to intervene must act in accordance with applicable practices, procedures, and laws in the State. A person who meets the requirements to intervene under the bills has the same rights as an interested person or aggrieved party under CWA, including the right to apply for judicial appeal. Continue Reading

Labor Department Will Not Enforce Anti ESG Rule

By Stuart Kaplow on Posted in Environmental, ESG, GRESB, Sustainability

The U.S. Department of Labor has announced that it will not enforce recently published final rules by the prior Administration on “Financial Factors in Selecting Plan Investments” and “Fiduciary Duties Regarding Proxy Voting and Shareholder Rights.”

This policy statement is in furtherance of the Biden Administration issued Executive Order 13990, entitled “Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis,” directing federal agencies to review existing regulations promulgated, issued, or adopted between January 20, 2017 and January 20, 2021 that are or may be inconsistent with, or present obstacles to, policies .. including, advancing the use of environmental, social and governance (ESG) considerations in investments.

Labor’s Employment Benefits Security Administration released the announcement as an enforcement policy statement under Title I of the Employee Retirement Income Security Act of 1974.

Until the publication of further guidance, Labor announced it will not enforce either final rule or otherwise pursue enforcement actions against any plan fiduciary based on a failure to comply with those final rules with respect to an investment, including a Qualified Default Investment Alternative, or investment course of action or with respect to an exercise of shareholder rights.

As such, today it is like the Wild West as companies are under pressure to take stands on ESG issues, but risk a fast changing regulatory environment.

Principal Deputy Assistant Secretary for the Employee Benefits Security Administration Ali Khawar said,

We intend to conduct significantly more stakeholder outreach to determine how to craft rules that better recognize the important role that environmental, social and governance integration can play in the evaluation and management of plan investments, while continuing to uphold fundamental fiduciary obligations.”

By way of background, on Nov. 13, 2020, Labor published a final rule on “Financial Factors in Selecting Plan Investments,” which adopted amendments to the “Investment Duties” regulation under Title I of ERISA. The amendments generally require plan fiduciaries to select investments and investment courses of action based solely on consideration of “pecuniary factors.” On Dec. 16, 2020, Labor published a final rule on “Fiduciary Duties Regarding Proxy Voting and Shareholder Rights,” which also adopted amendments to the Investment Duties regulation to address obligations of plan fiduciaries under ERISA when voting proxies and exercising other shareholder rights in connection with plan investments in shares of stock.

As President Obama was quoted saying, “elections have consequences.” The Biden Administration has advised that it heard from a wide variety of stakeholders, including asset managers, labor organizations and other plan sponsors, consumer groups, service providers and investment advisers that have questioned whether Labor failed to adequately consider and address the substantial evidence submitted by public commenters on the use of ESG considerations in investing. Labor has also heard from stakeholders that the rules, and investor confusion about them, have already had a chilling effect on integration of ESG factors in investment decisions, including in circumstances that the rules may in fact allow. Accordingly, Labor intends to revisit the rules.

This is consistent with the policies of the new Administration coming on the heels of an announcement I posted about some days ago, SEC to Update Required Climate Related Disclosures. ESG investing has been among the SEC’s priorities in 2021 and just this past Friday the Commission said that some businesses promoting ESG were potentially misleading investors having not adhered to global ESG frameworks or otherwise incorrectly pursuing those strategies from climate change to corporate diversity. It did not name the scofflaws nor describe the misleading statements, but the announcement is seen as step toward justifying a U.S. government regulatory standard for ESG disclosure.

While we all await new rules, this law firm has for years and continues to assist businesses in matters of mitigating risk in ESG disclosures, including providing advice and counsel on climate change and sustainability that may be marketplace driven, as companies seek to position themselves as forces for societal good, as well as in anticipation of impending regulation.

Green Buildings are Subsidizing Conventional Buildings Stymying Climate Progress

By Stuart Kaplow on Posted in Climate Change, Green Building, LEED

Green building bonds, which are higher rated and could provide cheaper capital for green building projects, can correct the current market that prices mortgages, green building or nongreen, the same, stimulating the economy and repairing the planet.

The financial value of green buildings is well documented, from commanding higher rents, greater occupancy rates, and increased occupant satisfaction, to lower operating costs for everything from reduced insurance premiums and less energy utilized, easily resulting in an increased return on investment of more than 9% over conventional building. That improved balance sheet for green buildings translates directly into green buildings having over 30% fewer commercial mortgage backed securities defaults.

Green buildings are less risky, more profitable, with higher appraised value than conventional buildings that results in higher company creditworthiness, measuring the reduced likelihood of it defaulting on its debt, but today, green building does not receive a commensurate lower interest rate on its debt.

Net zero building is not only the pinnacle of green building, as a climate neutral edifice, but carries the highest creditworthiness, yet, accepting there are only a few verified net zero commercial buildings in the U.S., they appear to be paying the same mortgage interest rates as similar conventional buildings in those markets. Not to mention there is anecdotal evidence from the first LEED Zero projects that the required integrated process has reduced change orders by a magnitude of up to 90% resulting in dramatic reduced total construction costs.

There is no underwriting justification for lenders charging the same interest rates on mortgages secured by green buildings. It is dinosaur lending practices that force green buildings to subsidize more risky conventional buildings through artificially low interest rates. This unfair capital subsidy stymies climate progress by siphoning investment from profitable green building including net zero projects, for non sustainable carbon polluting projects.

Mike Italiano, a founder of the U.S. Green Building Council and today CEO Capital Markets Partnership, encapsulates the larger issue as,

“We have a narrow window of opportunity defined by IPCC’s 2030 deadline 420+ gigatons / $14 trillion carbon pollution reduction requirement to maintain commerce, national security and a habitable planet.  Fortunately, highly repeatable, higher-rated Green Property Bonds can rapidly deploy the available investor capital to timely make the pollution reductions with the highest credit rating for net zero.”

And yes, there are green bonds in the marketplace, but they finance almost any positive environmental impact, not specifically green building, and with no widely recognized standard many have been criticized as greenwash. There are federal government associated multifamily green bonds offering better pricing and higher proceeds, but the federal government is not facile enough to command this space effectively. Today there is a nascent (.. and admittedly uneven) commercial green building mortgage backed securities market; although several offerings were hugely oversubscribed.

New and powerful ways are needed to address the existential environmental problems plaguing the planet. The private sector can seize on that opportunity. What is needed is a mechanism through which owners of buildings and the capital markets deal with the problem of asymmetric information through market signaling about the value of green building.  Green building bonds can be a key and very large part of the solution.

Do not underestimate the force that a change in green building can be. Real estate has been and remains the largest sector in the U.S. economy, and a reduction in the cost of capital through mortgages securitized with green building bonds, would not only be a dynamic shift in the economic underpinnings of the real estate industry, but create jobs, invest in existing buildings, and more, with the resultant fixing of the planet. Churchill’s wisdom seems pertinent, “this no time for ease and comfort.  It is time to dare and endure.”

The consensus underwriting standard for green building bond finance can be one giant leap for mankind advantaged by owners to issue higher rated green building bonds, opening the door to trillions in private capital for debt on green building, including retrofits to green buildings, that will reduce carbon pollution and repair the planet.

If you are skeptical there is a precedent. In the 1980s, the commercial real estate business in the U.S. faced a credit crisis when hazardous substance cleanup liability lawsuits caused banks to stop lending and the solution was a consensus standard for the Phase 1 environmental site assessment that had the effect of mitigating the risk to banks giving rise to the multi Trillion Dollar commercial mortgage backed security industry.

Domestic green building, from LEED to Green Globes, has been hindered by a lack of capital. The matter is even more acute when seeking financing to green the more than 5 million existing commercial buildings in the U.S.

An effort for cheaper capital for green building is now being driven by building owners. A coalition is coming together and beginning to plan for a NYSE market launch. If you are interested in participating in the Coalition Ending Subsidies Preventing Net Zero Buildings, #cheaper-capital-for-net-zero, contact me at skaplow@stuartkaplow.com.

A robust private sector green building bond market can fund the repair of the planet.

Now We Know What is Killing the Birds

By Stuart Kaplow on Posted in Environmental
Stuart Kaplow

A cause is now known for bird deaths that eluded scientists for more than 25 years.

It is beyond dispute that there are human activities that have a known negative impact on the natural environment, but sometimes events come together, only in part arising from human activities, to create unknown environmental consequences.

During the winter of 1994, 29 bald eagles died at DeGray Lake in Arkansas, the largest undiagnosed mass mortality of bald eagles in the United States. More than 70 dead eagles were found over the next 2 years. There were no obvious signs that humans had played a role.

By 1998, the emerging cause was a disease that had a name, avian vacuolar myelinopathy (AVM) and had been confirmed at 10 sites across 6 states, a neurological disease, having been implicated in the deaths of more than 100 eagles and thousands of other birds.

But the source of AVM was not identified until a study published last Friday in Science.

After considerable effort, a team of scientists identified the cause of these bird deaths as an insidious combination of factors: An invasive plant introduced into lakes and reservoirs, an opportunistic previously unidentified cyanobacterium, exposed to bromide in those lakes and reservoirs, often (but not always) anthropogenic in origin, resulted in what scientists have now termed “aetokthonotoxin” (AETX), that bioaccumulates to kill bald eagles and other birds.

So, the scientists confirmed that AETX is the causative agent of AVM.

But knowing what killed the birds doesn’t really answer the question? It certainly does not rise to the level of a proximate cause. First, what was the source of the invasive water plant, hydrilla? Was it a discarded aquarium plant from a person emptying a household aquarium, or ..? Second did the cyanobacteria arrive in the leaves and stems of the hydrilla or was it already in the water bodies? Third, and possibly most significant because bromide availability is necessary to promote the toxin production, was the bromide naturally occurring, or could it be coming from human activities (e.g., government water treatment plants)?

So, now we know what is killing the bald eagles and other birds. The study published in Science is fascinating, but the environmental issue is complex and there appears no good solution to forestalling future avian deaths.

Of course the total numbers of AVM deaths pale by comparison to the numbers of birds killed each by housecats, the greatest threat to birds.

Public policy could discourage people from discarding home aquarium plants or for that matter having housecats, but each sound like a solution chasing a problem.

Covid Pandemic Exposes More Children to Toxic Lead

By Stuart Kaplow on Posted in Codes and Regulations, Environmental

Covid-19 school closures and lockdowns resulted in thousands of children having increased blood lead levels.

In a study of this consequence of Covid-19, released by the Centers for Disease Control and Prevention, to describe blood lead level testing among young children during the Covid-19 pandemic, the CDC analyzed data reported from 34 state and local health departments about blood lead level testing among children aged 6 years and under.

Approximately 500,000 fewer children in the reporting jurisdictions were tested for lead exposure during the first 5 months of 2020 than during the same period in 2019. Estimating from this finding, approximately 10,000 children with elevated blood lead levels were missed because of decreased testing.

“Exposure to lead, a toxic metal, can result in severe effects in children, including decreased ability to learn, permanent neurologic damage, organ failure, and death.”

No safe blood lead level is known. Routine testing, in particular in young children, can detect elevated lead and drive elimination of lead sources and other interventions.

In the United States, today the most common childhood lead exposures are from lead based paint that was used in pre 1978 housing and from drinking water from old lead pipes and fixtures. The pandemic trapped thousands of children in the more than 24 million American homes with significant lead hazards. As a result of Covid-19 school closures, not only has their education suffered, but children are spending more time in contaminated environments and will have ongoing and increased exposure.

EPA has described lead as the number one environmental public health hazard in the United States. And, again, no amount of lead is safe. Period.

This failure by state and local governments to test for lead exposure in children during the Covid-19 pandemic (i.e., very conservatively, an estimated 2% of children not tested are assumed to have levels exceeding acceptable blood level reference values), will negatively impact a generation, with a disproportionate impact anticipated among children from racial and ethnic minority groups and from families who have been economically or socially marginalized.

It is beyond sad that the children are the victims of this failure of government during a pandemic, if not also more broadly, but their will be larger costs borne by our society caring for theses individuals, and there will also be other implications, including maybe perversely in lead litigation for owners of housing with significant lead hazards.

The study is, Courtney JG, Chuke SO, Dyke K, et al. Decreases in Young Children Who Received Blood Lead Level Testing During COVID-19 – 34 Jurisdictions, January-May 2020. MMWR Morb Mortal Wkly Rep 2021; 70:155–161. DOI: http://dx.doi.org/10.15585/mmwr.mm7005a2external icon.

SEC to Update Required Climate Related Disclosures

By Stuart Kaplow on Posted in Climate Change, ESG, Federal

On February 24, acting chair of the U.S. Securities and Exchange Commission Allison Herren Lee, offered insight into the future direction of mandatory climate change disclosures and new ESG regulation, when she directed the Division of Corporation Finance to enhance its focus on climate related disclosure in public company filings.

The Commission provided guidance in 2010 to public companies regarding then existing disclosure requirements as they apply to climate change matters. For more than a decade we have assisted public companies and their advisors in matters of climate change and sustainability, including compliance with that 2010 SEC guidance.

It is anticipated that the new obligation to make disclosures with respect to climate change will expand greatly and that John Coates, who joined the SEC on February 1 as acting director of its Division of Corporation Finance will be at the center of those actions including to expand companies’ environmental, social, and governance disclosures (.. a subject he spoke and wrote on at his prior post at Harvard).

As part of its enhanced focus in this area, the SEC staff has now been directed by the acting chair to review the extent to which public companies address the topics identified in the 2010 guidance, assess compliance with disclosure obligations under the federal securities laws, engage with public companies on these issues, and absorb critical lessons on how the market is currently managing climate related risks. The staff “will use insights from that work to begin updating the 2010 guidance” to take into account developments in the last decade.

We know anecdotally that more than ever, investors are considering ESG including climate related issues when making their investment decisions. It is the SEC’s responsibility to ensure that investors have access to material information when making investment decisions and it is going to do that with a finger on the scale in favor of climate change by ensuring compliance with the rules on the books and updating existing guidance to produce consistent, comparable, and reliable climate related disclosures. Companies will need to adjust their behavior and be cautious to mitigate significant increased risk that will be associated with a new realm of disclosure laws.

While it is premature to speculate on specific enforceable disclosure rules including specific government written metrics or standards for ESG disclosures, it is clear such is the direction of the SEC.

Allison Herren Lee was appointed by President Trump to the SEC, unanimously confirmed by the U.S. Senate, and sworn into office on July 8, 2019. Ms. Lee was designated acting chair of the Commission by President Biden, on January 21, 2021.

All of this will all but certainly move forward promptly when President Biden’s SEC chairman nominee, Gary Gensler (.. whose confirmation hearing in scheduled for March 2, 2021) is seated.

We have and continue to assist public companies in matters of climate change and sustainability, including voluntary environmental reports, as well as the realm of emergent SEC disclosures and financial statement compliance.

Rare Earth Metal Theft by Catalytic Converter

By Stuart Kaplow on Posted in Environmental

The theft of catalytic converters to sell for the value of the rare earth metal components is a thing once again.

A catalytic converter is a component part of the exhaust system of a fossil fuel motor vehicle that catalyzes, or accelerates the break down of vehicle emissions making them less harmful. The catalyst of a catalytic converter is usually Platinum (Pt), Palladium (Pd), and Rhodium (Rh). All three of these platinum group metals are rare.

Two of the three are currently worth more per ounce than Gold. Palladium prices earlier this month were over $2,300 per ounce (.. Gold is about $1,900), a 20% increase since January. Rhodium was selling this month at more than $21,000 per ounce, up from less than $6,000 last month.

Rare earth metals are not only used in automobile pollution control devices (and not just in the U.S. but in growing numbers across the globe including in China), but also in smart phones, LEDs, flat screen televisions and a host of tech devices from wind turbines to hybrid car batteries, all for which worldwide demand continues to increase. And while China likely leads the world in production from raw elements, the U.S. may be the largest importer and largest recycler of rare earth metals.

Hence a crime of opportunity.

The precise number of thefts is not known. The National Insurance Crime Bureau, the public source for vehicle theft data reported to insurance companies, stopped tracking catalytic converter thefts in 2015. But there is has been a dramatic increase that we can track anecdotally because within the last month there have been news media accounts in the New York Times and on NPR. Police departments from Wichita to South Bend and Lynchburg to Manchester have all issued statements about increased converter thefts.

Curiously, the largest quantity of rare earth metals in a Toyota Prius hybrid is in the magnets in its electric motor, second are the car’s dashboard electronics and only third, its catalytic converter, which is among the most stolen in the U.S. because the gasoline engine does not run fulltime so the metals in the pollution control device last longer, but also because it is easy to separate from the vehicle.

EPA generally does not permit the installation of used catalytic converters, so it is clear they are being stolen for recycling of the rare earth metals.

Some have asked why is this crime wave happening now? It is not pandemic related. The pollution control devices have been required in the U.S. since 1975 and there was a wave of thefts on the 1980s, but the current crime spree to feed rare earth metal recycling is apparently driven by the skyrocketing prices for those elements.

A Washington DC environmental regulator recently said, the Black market of extracting rare earth metals from stolen catalytic converters may be the most valuable recycling market, and possibly the only profitable recycling market, in the U.S. today.

EPA 2020 Enforcement Offers Insight

By Stuart Kaplow on Posted in Codes and Regulations, Environmental, Federal

The Environmental Protection Agency’s has released the results of its 2020 enforcement and compliance efforts and those results offer significant insight that business can benefit from.

In the first 5 months of fiscal year 2020, EPA was on track to significantly exceed traditional numeric metrics in many categories with more compliance monitoring activities in the first 5 months than in any year since 2013, more in assessed penalties the first 5 months than in 7 out of the previous 10 years, more injunctive relief in the first 5 months than in FY 2019, and more concluded cases in the first 5 months than in either FY 2018 or FY 2019.

Then on March 13, 2020, the President declared a national emergency due to SARS-Cov-2 followed by state stay at home orders, federal employees teleworking, many courts closed, and enforcement took a dive. To its credit, like most of us, EPA’s enforcement and compliance assurance program adapted.

Good for the agency, but disappointing for our society, in FY 2020 among the agency’s priority cases were an onslaught of violations of the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) by persons hoping to cash in on the fear of the coronavirus by making fraudulent claims that their products or devices kill that virus.

The quick take on EPA’s other FY 2020 enforcement and compliance achievements include:

Commitments to reduce, treat, or eliminate over 426 million pounds of pollution, the most in a single year since 2015.

Proper treatment, minimization, or disposal of 1.6 billion pounds of hazardous and non-hazardous waste, more than all but two of the past eight years.

Clean up of 104 million cubic yards of contaminated soil and water, more than in FY 2019.

Prevention of 18.2 million pounds of air pollutants by preventing, reducing, treating, or eliminating emissions from vehicle and engine air sources through resolution of 31 civil enforcement cases for tampering and aftermarket defeat devices—the most for any one year in the agency’s history.

247 new criminal cases opened, 77 more than in FY 2019 and the most since 2014.

Superfund response and cash-out settlements of over $636 million for cleanup work, $65 million more than FY 2019, as well as $178.4 million for EPA’s costs.

EPA’s FY 2020 Annual Environmental Enforcement Results, offers insights into the thinking of federal regulators, including analysis of specific cases, see,  https://www.epa.gov/enforcement/enforcement-annual-results-fiscal-year-2020

However, if one reads between the lines of the agency issued report, enforcement actions were below prior years reported cases. Not a surprise to anyone during a pandemic.

Moreover, anecdotally, EPA had been vocal in the last 4 years about emphasizing compliance assistance over enforcement. Michael Regan, the Biden Administration nominee for EPA Administrator has accentuated matters of climate change and environmental social justice, but on day to day enforcement he may lead the agency otherwise.

Despite the obvious EPA policy differences in a Trump versus a Biden Administration, the professional staff in the enforcement and compliance program may well man a steady keel in terms of priorities, including in the immediate protecting the environment and public from false claims that products or devices kill the coronavirus.

PFAS in a Phase I Environmental Site Assessment?

By Stuart Kaplow on Posted in Codes and Regulations, Environmental, Uncategorized

The question de riguer in commercial real estate transactions is if PFAS is included in a Phase I Environmental Site Assessment?

As made clear by the January 14, 2021 EPA action, the response is “no” that the standard practice for environmental site assessments in the vast majority of places does not consider PFAS, however, ..

Per and polyfluoroalkyl substances are a group of more than 4,000 man-made chemicals that include PFOA, PFOS, GenX, and many other chemicals. PFAS has been manufactured and used in a variety of industries around the globe, including in the United States since the 1940s and have been the most extensively produced and studied of these chemicals. PFAS is very persistent in the environment and in the human body, meaning these chemicals don’t break down, accumulating over time, and as such have been referred to ‘forever chemicals’ making them an emergent environmental catastrophe.

The EPA reports, “there is evidence that exposure to PFAS can lead to adverse health outcomes .. studies indicate that PFAS can cause reproductive and developmental, liver and kidney, and immunological effects in laboratory animals, .. and have caused tumors in animal studies.”

A peer reviewed study cited approvingly by the EPA describes 99.7% of Americans have a detectable PFAS in their blood!

Against that backdrop, the stated purpose of the ASTM Standard E1527-13 Phase I Environmental Site Assessment process is “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 with respect to the range of contaminants within the scope of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) (42 U.S.C. §9601) and petroleum products.”

The term “recognized environmental conditions means the presence or likely presence of any hazardous substances or petroleum products in, on, or at a property ..”

“.. a substance defined as a hazardous substance pursuant to CERCLA 42 U.S.C.§9601(14), as interpreted by EPA regulations and the courts: (A) any substance designated pursuant to section 1321(b)(2)(A) of Title 33, (B) any element, compound, mixture, solution, or substance designated pursuant to section 9602 of this title, (C) any hazardous waste having the characteristics identified under or listed pursuant to section 3001 of the Resource Conservation and Recovery Act of 1976 (RCRA), as amended.”

PFAS is not a CERCLA nor RCRA listed hazardous substance.

Such was confirmed on January 14, 2021, when EPA issued an Advance Notice of Proposed Rulemaking to get public comment and data to inform the agency’s ongoing evaluation of PFAS. That public comment may influence additional regulatory steps, if any, maybe even CERCLA listing?

Of course there may be environmental issues or conditions at a property that parties may wish to assess in connection with a commercial real estate transaction that are outside the scope of a Phase I, these are known in ASTM parlance as “non-scope considerations” and may be included in the Phase I report. Such would generally be a bad idea perverting a Phase I, however might be prudent at a property where PFAS was produced or incorporated into manufacturing or other processes. But what would the seller and buyer do if PFAS was detected?

Additionally, there are a limited number of places where PFAS is regulated as state hazardous substance, like Michigan where should likely be included in a Phase I. And there is at least one place where there appears to be a complete disconnect, as I described last year in a post,  Maryland the First State to Legislate Permitted Use of PFAS.

The broad consensus of environmental professionals in the know is that there is simply no good reason to consider PFAS in a commercial real estate transaction and only negatives that can flow from these widespread chemicals that are nearly everywhere and are in nearly everyone’s blood.

This law firm has been advising and counseling clients in PFAS related matters since 2009, including in real estate transactions this past year, one of which was adjacent to a commercial airport, another had previously been a fire station and a third was a marina; each a place where one would anticipate PFAS laden fire suppression foam had impacted the environment.

Despite that they will not read about it in a Phase I report, all those with an interest in commercial real estate should be aware of how pervasive PFAS is in the economy and the environment, and the associated risk associated with this forever chemical, including what will no doubt be changing laws and emergent litigation as the legal system catches up to the science.

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