Environmental update | June 2021

Environmental update | June 2021

June 15, 2021 | By Andrew Skroback in New York

The US Environmental Protection Agency said on May 27 that it plans to revise a Trump-era rule that limits the ability of state and tribal governments to review the water quality impacts from projects seeking federal permits under the federal Clean Water Act.

A federal agency may not issue a permit or license allowing any activity that may lead to discharges in "waters of the United States," unless a section 401 water quality certification is issued or the need for certification is waived. The Clean Water Act generally makes state and tribal governments where the discharge would occur responsible for issuing certifications to ensure that local water quality is protected.

EPA directed in June 2020 that state and tribal governments should certify or reject projects within one year. It limited state and tribal discretion to certify or reject water quality impacts, and it prohibited other considerations such as climate change impacts.

The Trump administration argued that curbs to local authority were necessary because too many states had been using clean water laws to block fossil-fuel projects such as pipelines and coal terminals from getting the necessary permits. It said that limiting local discretion would advance principles of "cooperative federalism" because the restrictions better balance the agency's regulatory powers with those of the states and tribes.

Critics said local authority should remain where a discharge would contravene state water quality requirements.

EPA has not said yet exactly what changes it plans. However, it will not return to the 1971 regulations that were in effect before Trump scaled back local authority.

While the Biden administration said it wants to strengthen the authority of states and tribes to protect their own water, it is simultaneously pushing broad-ranging infrastructure development that will also require state and tribal water quality certifications.

EPA published a notice of intention to revise the rules in this area in the Federal Register on June 2. The agency will accept written comments until August 2 on a series of questions listed in the notice, including the scope of permitted state and tribal government review.

The Trump-era rule remains the subject of consolidated litigation brought by 20 states, the District of Columbia and various tribes and environmental groups in three federal courts. The states complain that the rule upends 50 years of true cooperative federalism.

The states suing to challenge the Trump-era rule include California, Colorado, Connecticut, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Oregon, Rhode Island, Vermont, Virginia and Wisconsin.

Seven Republican-led states have intervened in defense of the Trump rule, namely Louisiana, Montana, Arkansas, Mississippi, Missouri, Texas, West Virginia and Wyoming.

EPA asked the courts on June 4 to delay the litigation to allow time for the litigants to determine how the agency's announcement of a replacement rule may affect the lawsuits.

Regulated Waters

EPA Administrator Michael Regan said on June 9 that EPA will revoke a 2020 Trump rule that significantly narrowed the types of navigable waters that the federal government views as protected under the Clean Water Act as "waters of the United States." The 2020 rule stopped federal oversight of water pollution in many tributaries of larger waterways and much of the arid West.

EPA will begin crafting a new, more expansive definition of which waterways are subject to federal water protections, but it appears the agency will leave the current definition of what constitutes a "waters of the United States" — and is therefore subject to regulation — in place until the rulemaking process is complete.

Regan said that the Trump rule is already leading to "significant environmental degradation" by allowing more than 300 projects that would have previously required Clean Water Act dredge-and-fill permits to proceed without such oversight.

Where a replacement rule will land in terms of the scope of regulated waters remains uncertain. Regan said he is committed to a new, more protective definition that is "durable," consistent with Supreme Court precedent, and informed by the last two decades of debate as to the act's scope.

The issue is particularly sensitive to farmers who were fiercely opposed when the Obama administration wrote a broad definition of protected waterways in 2015. Regan heard from North Carolina farmers and ranchers when he headed the North Carolina Department of Environmental Quality, many of whom supported his appointment to lead EPA.

EPA and the US Army Corps of Engineers asked a US district court hearing one of a dozen lawsuits challenging the Trump-era rule to send the rule back to the agency so that it can rework the definition. However, EPA and the Corps did not ask the court to vacate the rule in the meantime, meaning they probably intend to leave it in place until the new rulemaking process has been completed. The district court case is Conservation Law Foundation v. EPA.

Environmental groups are not happy.

The new rulemaking process could take a year or more. Any decisions that the Army Corps makes about what is considered a regulated waterway in the meantime would normally be expected to remain good for five years.

Phase I Site Assessments

The current industry standard for conducting most phase I environmental site assessments of industrial and commercial properties is expected to be replaced with an updated version later this year.

The purposes and current limitations of such assessments are not always well understood.

Phase I site assessments are almost always required before closing financings, commercial or industrial real estate purchases, or mergers and acquisitions.

A qualified environmental professional is employed to assess potential environmental risks by physically inspecting sites and observing adjacent properties, interviewing knowledgeable parties, and reviewing certain historical information and government regulatory databases that may yield information relevant to site conditions. Although a phase I site assessment requires an inspection of a property, no invasive sampling is typically performed. The inspector looks for visual evidence of environmental contamination or risk of such contamination.

The goal is to identify and disclose recognized environmental conditions, or "RECs."

The current 2013 standard defines a recognized environmental condition as "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." The term "hazardous substances" is defined as substances that are regulated under the federal Superfund law also known as CERLCA.

Minor conditions, referred to as "de minimis," are not treated as RECs. A condition is minor if it "generally does not present a threat to human health or the environment and . . . generally would not be the subject of an enforcement action if brought to the attention of appropriate governmental agencies."

Anyone doing due diligence should be aware that phase I site assessments may not cover everything potentially of interest to a buyer or financier.

There are three key limitations to keep in mind, particularly by buyers and financiers who did not engage the consultant directly. First, consultants are not required to recommend areas where additional investigation would be sensible, even if indicated by the facts. Second, assessment is not required of various types of environmental risks that are considered "non-scope." Third, the consultant doing the site assessment is required to consider only hazardous substances that are already defined as such under the Superfund law or that are considered "petroleum products." Not included are substances that are only regulated under state or other federal environmental laws and substances that are under consideration for regulation under Superfund but the regulation of which is not yet final.

While the scope of hazardous substances regulated under Superfund overlaps broadly with most other environmental laws, the overlap is not 100%.

The "hot topic" of concern related to this limitation is the emerging contaminants class known as per- and polyfluoroalkyl substances, or PFAS (pronounced "PeeFAS"). Also referred to as "forever chemicals" due to their durability and reported persistence in the environment, PFAS are a broad group of fluorinated chemicals that have been widely used in the United States and around the globe since the 1940s. This class of chemicals is under increasing regulatory scrutiny at both the federal and state levels, with many states already taking steps to regulate in advance of federal action and federal regulation under active consideration in Congress.

Despite that scrutiny, under the current standard for phase I site assessments, PFAS are considered non-scope substances falling outside of the CERCLA regulatory sphere. EPA clarified that the current standard generally does not require analysis of PFAS in an advance notice of proposed rulemaking on January 14, 2021 soliciting public comment and data to inform its ongoing evaluation of PFAS. "PFAS [are] not . . . CERCLA nor RCRA listed hazardous substance[s]."

Many consultants flag in their phase I assessments the possibility that there may be PFAS on the site, but a buyer or financier cannot count on the consultant to do this in cases where it is merely a relying party who did not actively engage the consultant to do the assessment.

PFAS have been used for decades in hundreds of industrial applications and consumer products. The following types of historical activities suggest possible PFAS: carpets and textiles, airport and other firefighting using certain foams, leather tanning and leather production, metal plating, cosmetics, furniture, food paper products and cosmetics. This is not an exhaustive list.

The current EPA standard for phase I assessments includes the following warning for users of these reports: "Users are cautioned that federal, state, and local laws may impose environmental assessment obligations that are beyond the scope of this practice. Users should also be aware that there are likely to be other legal obligations with regard to hazardous substances or petroleum products discovered on the property that are not addressed in this practice and that may pose risks of civil and/or criminal sanctions for non-compliance."

Anyone buying or financing a project where a phase I site assessment will be produced should be sure to review the scope of services specified in the report itself or in the engagement letter with the consultant and, unless stated otherwise, should assume that non-scope items are excluded when doing due diligence.

ASTM Update

The international standards organization American Society for Testing and Materials, or "ASTM," provides widely used standards for "good commercial and customary practice in the United States for conducting environmental site assessments of a parcel of commercial real estate with respect to the range of contaminants within the scope of" the Superfund law and petroleum products.

Changes to the Superfund law in 2002 required EPA to establish standards and practices for making "all appropriate inquiries" when evaluating a property's environmental condition. It is important to follow the EPA regulations not only to assess risk properly, but also to preserve the ability to claim a defense to CERCLA liability as an innocent landowner, contiguous property owner or bona fide prospective purchaser.

The EPA regulations said anyone following two ASTM standards will be considered to have made all appropriate inquiries. The two standards are ASTM E1527 ("Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process") and ASTM E2247 ("Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process for Forestland or Rural Property"). Each of these detailed standards is around 50 pages.

ASTM is expected to replace the current E1527-13 standard with a new ASTM E1527-21 standard later this year as part of its periodic review process. Reconsideration of this standard has been underway since 2018. Once ASTM acts, then EPA will have to confirm that any revised ASTM standards will still satisfy the requirement to have made "all appropriate inquiries."

ASTM seems focused on clarifying the existing language and making the phase I reports more comprehensive.

ASTM is expected to clarify what the definition of recognized environmental condition means when it uses the phrase "likely presence" of hazardous substances is expected.

The current standard defines a recognized environmental condition as "the presence or likely presence of any hazardous substances or petroleum products in, on, or at a property." There has been some debate over when a consultant should opine that such substances are "likely" present in the absence of positive proof.

Another change reportedly under consideration would define "likely" in that context as "that which is neither certain nor proved, but can be reasonably expected or believed by a reasonable observer based on the logic and/or experience of the environmental professional, and/or available evidence, as stated in the report to support the opinions given therein."

ASTM may decide that consultants should use a "reasonable observer" standard informed by the facts and more strictly tied to assumed expertise and judgment.

Other changes under consideration are to require the consultant to provide a more complete explanation why particular site conditions do not rise to the level of a recognized environmental condition in cases where releases described in the report are either historical or controlled. This would set a bar for what has to be disclosed when determining that a past release should not be considered a recognized environmental condition.

The current standard defines an historical recognized environmental condition as "a past release of any hazardous substances or petroleum products that has occurred in connection with the property and has been addressed to the satisfaction of the applicable regulatory authority or meeting unrestricted use criteria established by a regulatory authority, without subjecting the property to any required controls (for example, property use restrictions, activity and use limitations, institutional controls, or engineering controls)."

The new standard may require the consultant to review "reasonably ascertainable" information to confirm that a regulatory authority has cleared the property for unrestricted use or why it otherwise qualifies.

It may also require the consultant to consider whether there have been any changes in applicable regulatory cleanup criteria or migration pathways that would turn an historical condition back into a current condition.

The current standard defines a controlled recognized environmental condition as "a recognized environmental condition resulting from a past release of hazardous substances or petroleum products that has been addressed to the satisfaction of the applicable regulatory authority (for example, as evidenced by the issuance of a no further action letter or equivalent, or meeting risk-based criteria established by regulatory authority), with hazardous substances or petroleum products allowed to remain in place subject to the implementation of required controls (for example, property use restrictions, activity and use limitations, institutional controls, or engineering controls)."

The new standard may require the consultant to explain why a condition should be considered controlled rather than a current condition requiring attention and provide supporting information.

Another revision may finally make crystal clear when a phase I site assessment is too stale. The revision should clarify that the date on the report cover is irrelevant for that purpose. Instead, each specific diligence inquiry required by the standard — including the site visit, interviews, search for environmental cleanup liens and government records searches — must have been done within 180 days before closing the transaction.

The market is watching for whether the ASTM will require disclosure of emerging contaminants like PFAS. It is possible that the new version will simply add emerging contaminants like PFAS, along with such things as asbestos and wetlands, to the list of "non-scope" issues that do not have to be disclosed. Even if ASTM were to require disclosure in the body of the report, this would probably not lead to increased awareness unless the issue is flagged in the conclusions section where the eyes of many users land and rarely stray.

Offshore Wind

The "record of decision" that the Bureau of Ocean Energy Management issued in May allowing the 800-megawatt Vineyard Wind project off Massachusetts to move forward is like the starting gun at the start of a large race. The Biden administration hopes to see another 36 offshore wind projects of similar size built by the end of the decade.

Vineyard Wind plans 62 turbines about 15 miles off the coast of Martha's Vineyard in Massachusetts. The project is expected to be in service as early as 2023.

The administration hopes that its target of 30,000 megawatts of offshore wind by 2030 will draw $12 billion in capital investments per year and support 77,000 direct and indirect jobs by 2030.

Three are more than 5,000 offshore wind turbines operating currently in Europe compared to just seven in the United States. The Biden goal translates to 2,000 US turbines by 2030.

Offshore wind projects are currently planned off the US east coast from Maine to North Carolina. Biden is also taking steps to open the Gulf of Mexico and an area off California to offshore wind development.

Permits for projects off the east coast are expected to be put on a fast track. The US Department of Energy is expected to offer $3 billion in federal loan guarantees for offshore wind projects. US ports will also have to be upgraded to support offshore construction.

West coast development is farther behind the east coast and will involve floating turbines because water depths will prevent bolting turbines off the Pacific coast to the ocean floor.

Twelve miles and beyond is the sweet spot for limiting onshore visual impairment from offshore wind farms. Depths at that distance from shore in the east can be 100 feet or less in some areas compared to five times that depth or more out west.

Two pilot-scale wind power projects are currently being proposed off California.

The US Department of Defense has promised to be more flexible in accommodating offshore wind projects in areas near where it conducts testing and training operations, but the practical and regulatory challenges for west coast production are comparatively daunting. Unlike many eastern states, California has yet to commit to purchases of offshore wind energy as part of its renewables strategy.