Environmental update

September 01, 2006 | By Andrew Giaccia in Washington, DC|New York

IFC Guidelines

The International Finance Corporation proposed revisions in early August to some of the environmental guidelines with which it requires borrowers to comply if they want to borrow money from the IFC to finance projects in developing countries. Many private banks use same standards. The IFC is part of the World Bank.

The existing IFC guidelines were drawn initially from a “Pollution and Prevention Abatement Handbook” issued by the World Bank in 1998 and then supplemented through a series of other guidelines published on the IFC website between 1991 and 2003. Seventy three guidelines currently exist, and the IFC committed earlier to updating them.

The IFC issued its first batch of draft guidelines for public comment on August 2. They consist of a set of “General EHS [Environmental, Health and Safety] Guidelines” and 20 industry sector-specific guidelines. The latter include guidelines for wind energy projects.

The draft general EHS guidelines contain a considerable amount of detail. They address processes, procedures and performance targets for air emissions, ambient air, wastewater, hazardous materials, solid and hazardous waste, noise, contaminated land and construction and decommissioning projects, as well as standards for human, occupational and community health and safety.

The scope is very ambitious, and the document reflects a change in philosophy from the existing guidelines. Other than standards for ambient air pollutants and noise and efficiency criteria for air emissions control technology, the draft guidelines do not rely extensively on numeric values. Instead, they emphasize processes that must be undertaken and sensitivities that should be considered, not only at the planning and construction stage, but also throughout the operational life of the project.

The draft general standards are meant to be supplemented by the industry-specific criteria. For example, the draft wind energy project environmental guidelines address both on-shore and off-shore wind projects and focus on impacts to local inhabitants and birds and other species. Most of the solutions are oriented toward selecting site locations as far away as possible from nearby residents and significant bird and animal populations. Because wind projects emit few pollutants, there are almost no numeric performance standards, except that noise increases should be limited to three decibels at the nearest receptor.

Once adopted, the environmental guidelines will take on significance beyond their use in IFC and World Bank transactions.

The guidelines are commonly used by a variety of multilateral lending institutions. They have also been adopted by the 40 mostly private international lending institutions who are signatories to the “Equator principles.”These institutions have reaffirmed their commitment to the newlyrevised IFC guidelines.

Additional draft sector-specific guidelines are expected in the coming weeks.

These will include reiterations of the widely-used thermal power plant guidelines, as well as guidelines for geothermal, oil and gas, mining and other types of infrastructure projects. The current draft guidelines were issued on August 2 for public comment. The IFC will accept comments on them until September 30. Copies of the draft guidelines can be obtained from that portion of the IFC website devoted to the EHS standard updates.

Superfund Liability

Recent court decisions reestablish the principle that parties forced to clean up contaminated sites can sue other responsible parties to share the cost of cleanup under Superfund.

Despite more than 25 years of court precedent and established practice, the liability scheme under the federal Superfund law (also known as CERCLA) was thrown into confusion by a Supreme Court decision that seemed to say responsible parties who avoid government enforcement by voluntarily cleaning up their properties cannot recover some of their costs from other responsible parties under Superfund.

The Supreme Court decision in Cooper Industries v. Aviall in 2004 held that only cleanup costs incurred under an enforcement proceeding or under a judicially- or administratively-approved settlement could be recovered in lawsuits between liable parties. Aviall Services bought contaminated property from Cooper and voluntarily cleaned it up under state supervision. Aviall sued Cooper to try to recoup a share of its remediation costs. The Supreme Court said that Superfund did not allow a claim in that situation, a decision that until recently appeared to have a chilling effect on Superfund litigation.

In July, a federal appeals court in New York issued its second consecutive post-Aviall decision affirming the right to bring private cost-sharing actions without waiting for the government to file a Superfund lawsuit. These decisions by the US appeals court for the second circuit, both of which involved only private parties, may also affect the outcome of a pending federal appeals court case in California, where the US government is defending against a cost recovery claim by arguing that Aviall precludes lawsuits against the government or any other liable party.

The appeals court for the second circuit is able to authorize these types of private claims because the Supreme Court decision in Aviall addresses a completely different section of Superfund than the one on which the newer cases are based. Under section 107 of Superfund, owners and operators (among others) of a contaminated property may be jointly, severally and strictly liable for the costs of investigating and cleaning up a release of hazardous substances, regardless of their culpability in causing or allowing the contamination. Section 113 of Superfund provides an explicit right of contribution for those liable parties to sue other parties for a share of the costs. Aviall held that those section 113 actions could not be brought by parties who failed to wait until they were forced to clean up the contamination pursuant to a government order or government settlement. However, the Aviall decision left open the question of whether the costs of voluntary cleanups could be recovered under section 107.

The Aviall decision was criticized as creating a disincentive for companies to clean up sites voluntarily without waiting for the government to sue. Cleanups under voluntary state brownfields remediation programs would not qualify as a “civil action” or “settlement” under the court’s interpretation. It also would create delays in cleanups and increased costs associated with added governmental oversight as well as foreclose cost-recovery actions where the federal government is a responsible party. Although the Aviall decision did not affect contribution rights that exist under state statutes and common law, it ended a standard procedure for seeking recovery of cleanup costs from other responsible parties.

The new court decisions appear to be headed toward carving out a post-Aviall remedy for potentially-liable parties who have conducted voluntary cleanups or cleanups under administrative orders with the US Environmental Protection Agency or state environmental agencies to continue to be able to recover their costs under Superfund. The response to Aviall may prompt Congress to amend the Superfund statute to provide for an explicit right of contribution when a liable party conducts voluntary cleanup.

Clean Water Act

A decision earlier this summer by the newly reconstituted Supreme Court led by Justice Roberts has created uncertainty about the reach of the federal Clean Water Act.

In the first environmental ruling by the Roberts court, a divided bench rejected the expansive jurisdictional reach currently employed by both the US Army Corps of Engineers and the Environmental Protection Agency. The court said the Clean Water Act does not regulate every ditch and intermittent waterway that might occasionally discharge into a navigable waterway or its adjacent wetlands, but it could not muster the consensus necessary to say exactly where the jurisdictional line should be drawn. The decision will force a reworking of current federal wetlands and possibly wastewater permitting programs.

Rapanos v. United States raised the question of when developers must seek permits to fill wetlands. The federal government asserted jurisdiction over Michigan wetlands lying near ditches or man-made drains that eventually emptied into traditional navigable waters, where the existence of federal jurisdiction is clear.

Revised Equator Principles

In July, 40 international financial institutions announced newly-revised Equator principles that will govern their lending practices. Originally adopted in 2003, the principles are a common set of best practices to manage social and environmental risks related to project financing.

  • The threshold for application of the principles has been lowered from project financings with capital costs above $50 million to all financings with capital costs above $10 million. 

  • The principles are also expected to cover upgrades or expansions of existing projects where the additional environmental or social impacts are significant. 

  • The principles have been streamlined for countries with existing high standards for environmental and social issues.

  • Each participating institution will now be required to report on its progress in implementing the principles on an annual basis. 

  • An effort has been made to strengthen standards with the adoption of the new IFC guidelines and more extensive public consultation procedures.

Justice Scalia, joined by Justices Roberts, Alito and Thomas, argued the Clean Water Act should extend only to waters that are “relatively permanent, standing or continuously flowing” or to wetlands that are immediately adjacent to such waters. Four dissenting justices took the opposite view, leaving Justice Kennedy with the tie-breaking vote. Although Kennedy sided with the Scalia group against the government’s position, he used a completely different standard for Clean Water Act jurisdiction, arguing that while there should be limits on Clean Water Act protections for remote water bodies, those with a “significant nexus” to navigable waters should be protected. He concluded that such a “nexus” could be established if the body of water in question significantly affects the integrity of navigable waters.

The Supreme Court ruling in Rapanos is likely to produce several important results. First, an increase in Clean Water Act-related litigation is likely. Second, lower courts will take on a significant new and somewhat unpredictable role in determining the parameters of the Clean Water Act. They are unlikely to develop a cohesive and universal interpretation of the statute. Third, the failure by the court to agree on the scope of the Clean Water Act in Rapanos may force the Army Corps to restrict the scope of its general wetlands permits. Finally, increased pressure has been put on the Environmental Protection Agency, the Army Corps and Congress to offer guidance regarding the scope of Clean Water Act permitting.

The US home building industry filed several challenges recently to force the Army Corps to update its regulatory definition of protected waters. In NAHB v. US Army Corps of Engineers, the National Association of Home Builders challenged the policy of the Philadelphia district office of the Corps of regulating ditches that eventually connect to navigable waters. Numerous courts have allowed Clean Water Act jurisdiction over wetlands based on their proximity to ditches that eventually connect to navigable waters. Should the district court rule in NAHB’s favor, other courts could be forced to re-examine the issue.

The Environmental Protection Agency and the Corps have begun discussing how to reauthorize existing permits for construction and mining activities, and possibly issue new permits for other activities. The Corps recently announced that it will soon start the process of making changes to its nationwide permit program, which creates pre-approved general permits for certain activities that have minor impacts on wetlands. The revisions are expected to be issued in final form in early 2007 and implemented next March.

In addition, an internal memo distributed to Corps district officials last month says that the Corps and the EPA are in the process of developing joint guidance clarifying Clean Water Act jurisdiction following Rapanos. The memo stresses that any changes expected will focus on the tests and justifications the Corps uses when it makes its jurisdictional determinations rather than on the definition of “waters of the United States.”

All of this uncertainty could prompt Congress to clarify which waters are subject to Clean Water Act protection. However, any such action is unlikely before the November elections because of the polarizing effect of environmental issues.

Greenhouse Gases

The Supreme Court has agreed to review whether the Environmental Protection Act must regulate greenhouse gases under the Clean Air Act. EPA argues it has no such obligation and would not do it anyway. The tendency by the current Supreme Court to interpret laws narrowly makes it unlikely the court will rule against the agency.

The case is Massachusetts v. EPA. It deals with those portions of the Clean Air Act that authorize EPA to regulate pollutants from motor vehicles, but the definitional issues could reach into federal stationary source air programs as well. Even so, the environmental ramifications of the decision are particularly acute given the fact that motor vehicle sources are responsible for more than a quarter of the US greenhouse gas emissions. The Supreme Court decision could also have important implications for the interpretation of US environmental laws. This will be the second time in a year that the court has had a chance to comment on the scope of US environmental statutes.

In the case, 12 states, three cities, an American territory and numerous environmental organizations petitioned EPA to regulate greenhouse gas emissions — carbon dioxide, methane, nitrous oxide and hydrofluorocarbons — from cars and trucks under the Clean Air Act. EPA declined, stating that it does not have statutory authority and, even if it does have authority, it would choose not to regulate greenhouse gas. A US appeals court upheld the EPA position. Although the specific issue in Massachusetts is limited to emissions by motor vehicles, a decision requiring regulation of vehicles would pave the way for related carbon dioxide programs. The outcome may also affect other pending lawsuits. In April, states, cities and environmental groups filed suit against EPA demanding that the agency place limits on carbon dioxide emission from new power plants and industrial facilities. That litigation may be suspended until the Massachusetts case is decided.

This would be the first decision by the US Supreme Court relating to global warming and the role of the federal government in regulating greenhouse gases. Greenhouse gases are already being regulated at the state and local level. The court could decide what level of government should regulate this field. Last month, California became the first state to adopt its own greenhouse gas emission limits for automobiles. Several other states have followed California and begun to regulate motor vehicle emissions. This has led to industry lawsuits. In California and 10 other states, automakers are opposing state emission standards for cars and trucks.