Environmental update

Environmental update

October 09, 2020 | By Andrew Skroback in New York

California Governor Gavin Newsom signed a broad executive order in September that sets a goal of requiring all new passenger vehicles sold in the state to have zero emissions starting in 2035. It also asks the state legislature to block issuance of hydraulic fracturing permits by 2024.

Newsom called attention to the widespread wildfires consuming large swaths of California and said “This is the most impactful step our state can take to fight climate change.”

The executive order directs the California Air Resources Board  to issue regulations requiring all new passenger cars and trucks sold in the state by 2035 to be zero-emission vehicles.

CARB is already working on regulations that are expected to require all medium- and heavy-duty trucks on California roads be 100% percent zero emission by 2045, where feasible.

The order also requires state agencies to accelerate placement of fueling and charging stations around the state in partnership with the private sector. The state cannot move to electric and hydrogen vehicles without such infrastructure.

Californians can still own gasoline-powered cars, and there is no restriction on buying and selling such vehicles in the used-car market.

A press release that the state issued says that “zero-emission vehicles will almost certainly be cheaper and better than the traditional fossil fuel powered cars” by 2035. “The upfront cost of electric vehicles is projected to reach parity with conventional vehicles in just a matter of years, and the cost of owning the car - both in maintenance and how much it costs to power the car mile for mile - is far less than a fossil fuel burning vehicle.”

Newsom does not have authority to ban fracking by executive order. The state legislature would have to act.

Forever Chemicals

A class of chemicals under increasing regulatory scrutiny at both the federal and state levels should be on the radar screens of project developers to avoid getting caught up in someone else’s mess when selecting project sites.

Per- and polyfluoroalkyl substances, or PFAS (pronounced “PeeFAS”), are a broad group of fluorinated chemicals that have been widely used in the United States and around the globe following their introduction in the 1940s.

Regulation is still nascent, but is already expanding rapidly, particularly at the state level, with indications that additional federal regulation is likely.

EPA and other regulators suggest that the chemicals can build up in people’s bodies through drinking water and other types of exposure and that this can cause reproductive and developmental, liver, kidney and immune-system problems if there is enough exposure over time. Drinking water exposure is the focus of most regulatory concern so far.

PFAS are commonly added to a variety of consumer products to make them non-stick, waterproof and stain-resistant or to make them more effective as a firefighting agent.

They are sometimes referred to as “forever chemicals” because their durable chemical makeup not only makes them highly beneficial for such uses, but may also make them more resistant to degradation and treatment when released into soil or groundwater.

PFAS have been used in the manufacture of products such as carpets and upholstery, waterproof apparel, floor waxes, non-stick cookware, camping gear, fast-food wrappers, cleaners, dental floss and firefighting foams for putting out fuel fires.

While the main regulatory exposure is likely to fall on manufactures of PFAS themselves or of the products that contain PFAS, risk could arise in any situation where PFAS-containing products have been used in such a way that the chemicals are released into the environment at or near project sites.

Somewhat common examples of potential areas of concern include prospective solar sites where fire-fighting training has been conducted, such as on municipal property or at or near current or former airports and on military bases. If PFAS-containing foams were used in training, particularly over a long period of time, the risk of contamination should be vetted, particularly if the developer will own the site.

Another example is putting a solar array on a landfill in which such materials may have been deposited. Whether or not a landfill has reached regulatory closure, it is unlikely that such closure took into account potential PFAS contamination and all or most such regulatory closures have reopener provisions.    

For developers selecting project sites, and for lenders or investors deciding whether and on what terms to lend or invest, the likely expansion of regulation should be kept in mind when negotiating contract terms defining the scope of environmental disclosures and allocating environmental risks and when reviewing environmental site assessments and other diligence materials.

Whether a project company will own a site with potential PFAS contamination, as opposed to leasing or being granted an easement to use the site, is also a paramount consideration. Although a project company is not out of the woods as a potential operator or as a cause of a release or for exacerbating a release under certain federal and state environmental laws, leases and easements generally avoid or limit claims that the project company should share in liability for historical releases barring certain circumstances.

The goal of conducting a phase I environmental site assessment of a project site before entering into a transaction is to identify “recognized environmental conditions” as part of diligence.

Coming Regulation

A “recognized environmental condition” is “the presence or likely presence of any hazardous substances or petroleum products in, on, or at a property: (1) due to any release to the environment; (2)under conditions indicative of a release to the environment; or (3) under conditions that pose a material threat of a future release to the environment.”

Sometimes performing a phase I environmental site assessment can help a party qualify for certain defenses to Superfund liability. A timely and full phase I assessment is a necessary precursor for having conducted the “all appropriate inquiry” that is needed to qualify.

If a party qualifies for a defense under Superfund, that does not necessarily mean it is shielded from state or common law liability exposure. Market practice is to perform the phase I assessment to the ASTM E1527-13 standard, but this does not, by its own terms, “address requirements of any state or local laws” and even excludes some federal laws. As the standard warns, “[u]sers are cautioned that federal, state, and local laws may impose environmental assessment obligations that are beyond the scope of this practice.”

Whatever legal or factual defenses are available, they also do not shield a project company from being pulled into a lawsuit, particularly where groundwater contamination threatens area drinking water wells or the landowner or other responsible parties are insolvent and the project company is the only deep pocket in sight.

PFAS are not currently regulated as “hazardous substances” under the federal Superfund statute, the Resource Conservation and Recovery Act or the Safe Drinking Water Act.

Since what constitutes a “hazardous substance” under the ASTM standards is limited to how the term is defined under various current federal environmental laws, parties doing diligence have to pay attention to emerging chemicals that may be tomorrow’s federal regulatory concern or that may currently raise state or even local law risk.

Pay attention to both the scope of the contractual definitions in project agreements and to the scope of the work done by the environmental consultant brought in to gauge risk. To be clear, a consultant conducting a phase I assessment is arguably not obligated to address known PFAS contamination under the applicable ASTM standards because the substances are currently not considered “hazardous substances” under federal law such that a recognized environmental condition has to be noted.

Proposals are under active consideration in both Congress and within the Environmental Protection Agency to regulate PFAS at the federal level.

In addition to possible regulation under the Safe Drinking Water Act, there is mounting effort to designate certain of the most common PFAS as hazardous under federal law. Such a designation could trigger liability for owners, operators and other responsible parties for remediation of not only future releases, but also of decades-old releases. The designation could also allow regulators and co-liable parties to recoup their remediation costs from other legally responsible parties and for trustees to seek recovery for damages to natural resources.

Though likely to change, federal regulation so far has been limited to additional tracking of PFAS use, action plans, reports and health advisories to address concerns over PFAS contamination in drinking water. EPA currently has no cleanup standards for PFAS, but has issued only an unenforceable drinking water health advisory covering a few of the most common PFAS. 

In recent years and with increasing frequency, states have stepped in to regulate rather than wait for federal action. Whatever EPA does at a national level, an increasing number of states have already entered the regulatory field. More states are considering action.

For example, New Jersey regulators recently set health-based groundwater cleanup standards for PFAS at much stricter levels than those currently being considered by EPA. The state proposed groundwater quality standards of 14 parts per trillion for PFOA and 13 parts per trillion for PFOS, significantly lower than the EPA unenforceable drinking water health advisory of 70 parts per trillion.

Regulation of various types of PFAS has already been adopted or is being considered in dozens of states, including Massachusetts, New Jersey, New York, Vermont, New Mexico, Michigan, California, Washington, North Carolina and Pennsylvania.

While some such regulation may be subject to challenge based on the underlying science, the momentum of regulation is clear and developers and those involved in project development should be aware of potential future exposures to liability and take appropriate steps.