Environmental Update

January 01, 2007 | By Andrew Giaccia in Washington, DC|New York

Wetlands Permitting

The test for determining what wetlands in the United States are protected by the Clean Water Act remains unclear. Six months after the US Supreme Court profoundly muddied the water, the US Army Corps of Engineers has still failed to issue guidance.

A Supreme Court decision in June 2006 failed to endorse one test over another. Five justices decided to overturn two lower court decisions. At issue was what constitutes a “navigable water” so that the federal government can assert its constitutional power over interstate commerce to impose environmental protections. Four justices decided that “navigable waters” are “only those relatively permanent standing or continuously flowing bodies of water ‘forming geographical features.’”Wetlands are also “navigable waters” if they have “a continuous surface connection” to such bodies of water with “no clean demarcation between” them. There are nine justices on the court. A fifth justice concurred in the result, but without endorsing the reasoning of the other four justices.

The test used by the four justices potentially excludes ephemeral and intermittent streams from “wetlands.” An ephemeral stream has flowing water for only short periods after it rains. The US Environmental Protection Agency estimates that intermittent or ephemeral streams comprise about 59% of stream miles in the US (excluding Alaska).

The fifth justice, Anthony Kennedy, who concurred in the result reached by the other four, proposed his own test. He would treat as a “wetland” waters that have a “significant nexus” to traditionally navigable waters, meaning

if the wetlands either alone or in combination with similarly situated lands in the region, significantly affect the chemical, physical, and biological integrity of other covered waters more readily understood as ‘navigable.’ When, in contrast, wetlands’ effects on water quality are speculative or insubstantial, they fall outside the zone fairly encompassed by the statutory term ‘navigable waters.’

The Kennedy test would require a deeper factual inquiry on a case-by-case basis. The Supreme Court case — there were actually two cases that were consolidated — was called Rapanos and Carabell.

Although there is precedent for applying just the test embraced by the four justices — the “plurality test” — some courts and observers suggest that Justice Kennedy’s significant nexus test will be followed. Three US courts of appeal have decided cases involving wetlands since Rapanos. The US appeals court for the 1st circuit ruled in late October that the US Army Corps of Engineers can establish authority to regulate under either the significant nexus test or the plurality test. Two other US appeals courts — in the 7th and 9th circuits — applied the significant nexus test. In practice, an area will be subject to regulation as a wetland if it is considered a wetland under the plurality test. It may also be one if it is covered by the significant nexus test.

After the Supreme Court decision, the Army Corps seemed ready to draw clearer lines around what it considered wetlands. Now, more than six months have passed, courts are not using a common definition, and the Corps may be hesitating to provide some permits to build projects on potential wetlands.

The Corps made an internal announcement in early July to expect guidance. In the interim, the various Corps offices were told to delay making wetlands jurisdictional determinations for areas beyond the limits of traditional navigable waters. Permits involving traditional navigable waters have not been delayed, but Corps offices have been told to choose between two approaches for projects at other sites that may or may not be wetlands. An office can issue a permit with the strict Corps mitigation requirements for wetlands. Or it can delay a decision until headquarters issues guidelines on how to apply the Rapanos decision. Developers who accept permits that treat their sites as wetlands so as not to delay their projects will be able to ask that their permits be modified after the guidelines are issued.

The Corps is also in the process of reissuing all of its nationwide wetlands permits. Some of the nationwide permits are being modified to include jurisdiction over ephemeral streams. This may serve as an indication that the upcoming substantive guidance may be more reflective of Justice Kennedy’s significant nexus test.

Clean Air Mercury Rule

US states had until November 17, 2006 to decide whether to regulate mercury emissions from coal-fired power plants on their own or participate in a federal “cap-and-trade” system. Twenty-one states submitted their own plans by the deadline. The 21 are Alabama, Arizona, Connecticut, Delaware, Idaho, Illinois, Iowa, Louisiana, Massachusetts, Montana, Nevada, New Hampshire, New Jersey, New York, North Dakota, Pennsylvania, Rhode Island, South Dakota, Texas, Vermont and West Virginia.

The federal government has proposed nationwide limits on mercury emissions from coal-fired power plants to reduce mercury emissions. The proposed rule applies to coal-fired steam generating units capable of generating more than 25 megawatts on an output basis and that sell more than 25 megawatts to the grid.

The proposed rule places a nationwide cap of 38 tons per year starting in 2010 and a cap of 15 tons per year starting in 2018. Each state and Indian tribe receives an annual budget to meet cap targets. States and covered tribes were supposed to submit plans to achieve reductions in their respective geographic areas. State and covered tribes were given the choice of participating in a cap-and-trade program managed by the US Environmental Protection Agency or adopting their own programs. Environmental groups advocated more stringent state rules to reduce mercury emissions. The deadline for state plans to achieve the required reductions was November 17, 2006.

For those states that missed the deadline, EPA has now proposed a federal program to be used as a surrogate to achieve the targeted reductions.

Although the proposed federal rule provides a method for unit-by-unit mercury allocations, the proposal notes that the preference is for participating states to issue the allocations. Thus, the proposed rule lets states submit a mercury allocation methodology while allowing the remaining trading program to be governed by the EPA cap-and-trade regulations.

States have until May 30, 2007 to submit their allocation methodologies. States have latitude to determine the frequency of allocations and whether allowances will be distributed for free. Allocations may be recorded in participating states by as early as December 1, 2007 for the 2010 control period. In the absence of a state plan or state allocation methodology in place by December 1, 2007, EPA will decide on allocations for the 2010 control period. Future years allocations could then be altered as state plans or state allocation methodologies are approved. The Environmental Protection Agency is collecting comments on the proposal by February 20, 2007.

In mid-December, the New York State Environmental Board approved final regulations that will require coal-fired plants in New York to reduce their current mercury emissions by 50% by 2010 and by 90% by 2015. Under this state program, no emission credit trading is allowed. This is because of concerns over the creation of mercury “hot spots” in areas such as the Adirondack and Catskill mountains.

CO2 Trading

The New York Department of Conservation reworked its proposed rules for the “Regional Greenhouse Gas Initiative” called “RGGI.”

RGGI is a regional initiative to reduce greenhouse gas emissions. It now includes eight states: the original seven states of Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York and Vermont and now Maryland. Under the RGGI, the states will use a regional cap-and-trade system to limit CO2 emissions. Under the New York proposal, CO2 credits would be sold rather than allocated. Revenue from the program would be used by each state for energy efficiency and carbon abatement technologies.

Other RGGI states, such as Connecticut and New Jersey, are expected to issue their proposals early in 2007.

Opponents argue that in a deregulated electricity market like the one in effect in New England, utilities that receive free emissions credits will still pass the cost of allowances to consumers even though the utilities did not have to pay for them. Others complain about the potentially disproportionate impact on the coal industry. Although RGGI is limited largely to the northeast, it could be applied more broadly. California is exploring ways to join RGGI, but coordination of the programs may prove challenging. Public comments on the New York proposal will be accepted until January 12, 2007.


The US Supreme Court heard arguments on November 29 in a potentially landmark case over whether the federal government has authority to act on global warming without further legislation from Congress. A decision is expected in the case later this year.

The case is called Massachusetts v. EPA. At issue is section 202(a)(1) of the Clean Air Act. That section says that the Environmental Protection Agency “shall by regulation prescribe . . . standards applicable to the emission of any air pollutant from any class or classes of new motor vehicles or new motor vehicle engines, which in [its] judgment cause, or contribute to , air pollution which may be reasonably be anticipated to endanger public health or welfare.” Based on this mandate, several environmental groups petitioned EPA in 1999 requesting motor vehicle standards for CO2 and three other greenhouse gases. The EPA denied the petition and subsequent appeals made their way to the Supreme Court.

The justices were interested during oral argument in whether the environmental groups have “standing” to bring the case. To have standing, they must be able to show that they suffered an injury in fact. Some of the justices asked questions that suggested they are skeptical. For example, Justice Antonin Scalia asked whether harm posed by rising sea levels over time is enough to confer standing. The Supreme Court is also expected to rule this year in another Clean Air Act case called Environmental Defense v. Duke Energy. At the heart of the Duke Energy dispute is the term “major modification” as it is used in the prevention of significant deterioration program under the Clean Air Act. Duke made changes to some of its coal-fired power plants. It maintains that the changes were not “major modifications” requiring a permit. The alterations both extended life and increased the electricity output. EPA commenced an enforcement action The Court must decide what counts as an increase in emissions for purposes of a modification — an increase in annual emissions or an increase in hourly emissions. A decision is expected in early 2007.

In late December, the US appeals court in the District of Columbia invalidated an eight-hour air quality standard for ozone enforced by the Environmental Protection Agency. The case is South Coast Air Quality Management District v. Environmental Protection Agency. The decision means that EPA must rewrite its rules for ozone attainment.

In 2004, EPA issued an eight-hour air quality ozone standard. Nonattainment areas are classified as marginal, moderate, serious, severe or extreme, and deadlines are established for each of such area to clean up the air.

A number of areas were not considered in violation under an earlier one-hour ozone air quality rule, but they have been labeled nonattainment areas under the eight-hour ozone air quality rule. EPA gave these areas until June 2009 to achieve attainment. The US appeals court said the same stringent rules must apply in all areas of nonattainment, even areascounties that were reclassified as nonattainment areas when EPA moved to an eight-hour rule.

Both classification as attainment or nonattainment and status, such as severe or moderate, make a difference in permitting decisions. For example, under the current regulations, in a serious nonattainment area, 25 tons per year of nitrogen oxides (NOx) or volatile organic compounds (VOCs) emissions trigger “new source review” procedures and the possible need for a permit. ( NOx and VOC emissions serve as a surrogate to control ozone because ozone is formed from the combination of NOx, VOCs with heat and sunlight.) In contrast, in a moderate ozone nonattainment area, it takes 100 tons per year of NOx or VOC emissions trigger new source review requirements.

Finally, a new technical standard, ASTM E 1527-05, took effect on November 1, 2006 for purchasers of property who want to limit possible Superfund liability if the property turns out to be contaminated. The Federal Deposit Insurance Corporation issued updated guidelines for lenders in mid-November. The FDIC guidelines — called “Guidelines for an Environmental Risk Program” — recognize that the value of real estate collateral may be significantly impaired by environmental contamination. The FDIC is recommending that banks implement environmental risk assessment programs focusing in particular on potential exposure of their borrowers for liability tied to contaminated sites.