Environmental update

Environmental update

April 12, 2016 | By Andrew Skroback in New York

Attorneys general from Massachusetts and the US Virgin Islands announced in late March that they are joining ongoing efforts by New York and California to investigate possible inconsistencies between corporate securities disclosures and what public companies concluded internally about the risks from climate change to company finances.

Last fall, New York Attorney General Eric Schneiderman took a number of actions suggesting there may be greater peril to companies in what they disclose, or fail to disclose, to investors about the potential effects of climate change on company bottom lines.

Then, Schneiderman accused coal behemoth Peabody Energy of violating state laws by making misleading statements to investors and the public about the financial risks it faced from climate change and potential regulatory responses. Peabody told shareholders that it is unable to predict the effects of environmental regulations despite internal company projections that the regulations could significantly reduce the value of its coal sales in the United States. Peabody agreed to revise its shareholder disclosures. (The company warned in March that it may have to file for bankruptcy.)

Around the time of the Peabody settlement, the New York attorney general also subpoenaed ExxonMobil to determine whether the company has made false statements to investors about climate change risks. California later joined in the investigation.

The investigation is focused on what ExxonMobil and possibly other companies knew about the financial risks and whether it is consistent with what they told shareholders. ExxonMobil helped to fund outside groups in the past that were working to dispute climate science at the same time as its in-house scientists were describing the possible consequences of climate change along with the areas of uncertainty.

ExxonMobil has said it is cooperating with the investigation, but said the accusations are based on the “preposterous claim” that it “reached definitive conclusions about anthropogenic climate change before the world’s experts” and did not disclose them.

While the inquiry could be expanded to other energy companies or even trade organizations, none has been named.

Lesser Prairie Chicken

A federal district court in Texas affirmed in late February its decision to overturn the listing of the lesser prairie chicken as “threatened” under the federal Endangered Species Act.

The court had previously found that the listing was arbitrary and capricious.

The Fish & Wildlife Service had asked the court to send the matter back to it for further consideration without nullifying the listing of the bird as threatened — an action that would have left the Endangered Species Act protections in place while the agency addressed the problems raised by the court. The court’s ruling strips the lesser prairie chicken of those protections.

The court said the species does not face an imminent and substantial threat. It said that the easing of the western drought and the severe decline in oil production in areas where the species lives have left it less threatened. The court also found fault with the failure by the Fish & Wildlife Service to consider whether a conservation plan established before the agency’s decision might be enough in lieu of listing the species as endangered.

The court also rejected a request by the Fish & Wildlife Service to limit the court’s ruling just to the Permian Basin in west Texas and southeastern New Mexico. Therefore, the decision is at least temporary relief for developers, including the wind industry, across Colorado, Kansas, New Mexico, Oklahoma and Texas.

Although the lesser prairie chicken is no longer entitled to federal protection as an endangered species, uncertainty remains a significant concern for both developers and lenders.

The government is likely to appeal the decision or to consider a new listing for the species, possibly both. A new listing effort may already be underway.

Developers with projects in areas where the birds are found must weigh the risk that the species might be redesignated as an endangered species.

The case at issue is Permian Basin Petroleum Association et al. v. US Department of Interior.

Clean Power Plan

The Clean Power Plan remains in limbo, possibly until early 2018, to give first a US appeals court and then the US Supreme Court time to hear arguments about the plan.

The stay granted by the US Supreme Court in February came as a surprise. The late Justice Antonin Scalia was in the 5-4 majority that voted for the stay.

It is unusual for the high court to block federal regulations, particularly where, as here, a US court of appeals had just denied a similar request. The decision suggests that at least four of the remaining Supreme Court justices have concerns about the authority of the Environmental Protection Agency to implement the far-reaching regulatory changes contemplated by the plan.

The Clean Power Plan requires a 32% reduction in carbon dioxide emissions from most existing coal- and gas-fired power plants by 2030. Each state has been assigned individual carbon reductions and is required to submit an implementation plan demonstrating how it will achieve the reductions. The federal government will impose a federal plan in states that fail to submit their own plans or submit plans that fall short of what the Clean Power Plan requires.

The Clean Power Plan contains a detailed implementation schedule and several interim deadlines, including a September 2016 deadline for states to submit compliance plans. The September 2016 deadline has been suspended by the stay.

The Senate majority leader, Mitch McConnell (R-Kentucky), sent all the governors a letter in March urging them not to work on state plans to reduce carbon emissions. McConnell warned them “to carefully consider the significant economic and legal ramifications at stake before signing your states up to a plan that may well fall in court.”

Opponents are urging EPA to defer the 2022 initial deadline to begin achieving emissions reductions for the same amount of time that the stay is maintained.

Oral arguments about the plan are scheduled in the US court of appeals in Washington on June 2 and 3. A decision is expected in October. It is virtually certain, regardless of the outcome, that the appeals court decision will be appealed to the Supreme Court. The Supreme Court would hear the case in 2017, but probably not issue a decision until early 2018.

It is hard to predict how the Supreme Court will ultimately resolve the issues, particularly in light of the recent death of Justice Scalia. A successor to Scalia is unlikely to be seated on the Supreme Court before the November 2016 presidential election. If the Supreme Court ends up with a 4-4 split in the case, that would leave any decision by the court of appeals in place.

States are deciding in the meantime whether it is prudent to continue work on preparing compliance plans. According to EPA, 25 states have indicated they will continue working informally with EPA on their own compliance plans. Another 20 states have said they have either suspended or are scaling back compliance efforts.

The Next Justice

Merrick Garland, whom President Obama has nominated to fill Scalia’s seat on the court, has a judicial record that suggests he may vote to uphold the Clean Power Plan. Garland has tended to give deference to government agencies, rather than substitute his own views on policy, regardless of whether agency rules were written during a Republican or Democratic administration.

Garland is the chief judge of the US Court of Appeals for the District of Columbia circuit, which has exclusive jurisdiction to review regulations arising under a number of environmental statutes, including the Clean Air Act — the source of authority for the Clean Power Plan.

Garland is not on the three-judge panel that will decide the current challenge to the Clean Power Plan when the case is heard by his court.

Initial reaction to Garland’s nomination from supporters of the Clean Power Plan has been favorable. SCOTUSblog.com said, after analyzing Garland’s environmental decisions, that “Judge Garland has in a number of cases favored contested EPA regulations and actions when challenged by industry, and in other cases he has accepted challenges brought by environmental groups.”

Garland voted in 2014 to uphold EPA’s hotly-contested MATS rule limiting mercury emissions from fossil fuel power plants.

According to UCLA law professor Ann Carlson, Garland “is almost always deferential to agency interpretations of statutes.” Professor Carlson said his record “at least suggests he is likely to uphold the president’s signature climate initiative, the Clean Power Plan.”

Richard Lazarus, an environmental law scholar at Harvard University, said Garland is well-respected by environmental law practitioners and “doesn’t come with any inherent skepticism about the federal government overreaching. In terms of looking for someone who would give a fair hearing [to the Clean Power Plan], he’s a big shift from Scalia.”