News | July 10, 2014

EPA Issues Proposed Rule To Significantly Reduce Carbon Dioxide Emissions

Summer has kicked off with a regulatory push by the United States Environmental Protection Agency (EPA). This alert briefly addresses two recent EPA rulemakings.

On June 2, 2014, the EPA issued a long-anticipated proposed rule to reduce carbon dioxide emissions from existing power plants. The proposed rule imposes 30 percent carbon dioxide emission reductions by 2030, primarily through emission limits at coal-fired power plants. Although the proposed rule is directed at existing coal-fired power plants, the rule allows individual states to determine their own method for achieving the required emission reductions, including reducing existing electrical demand from consumers.

As proposed, the rule establishes ambitious carbon dioxide emission reduction requirements tailored to each state. Further, the proposed rule requires that each state develop and implement plans to achieve these carbon dioxide emissions reductions, although states can work together to develop regional or joint plans, such as through a cap-and-trade system. To achieve the emissions reductions, the EPA proposes utilizing four “building blocks”: (1) improved electrical generator efficiency; (2) substitution of lower-carbon fuels for higher-carbon fuels; (3) increased use of renewable energy; and (4) increased demand-side energy efficiency.

The EPA projects that the proposed carbon dioxide emissions reductions will produce health and climate benefits between $48 and $82 billion. However, critics of the proposal argue it will negatively impact the nation’s energy sector and economy by requiring greater infrastructure costs to comply, preventing the creation of more than 220,000 annual jobs and imposing higher consumer electrical costs. Industry response to this proposal has been swift and critical, with a lawsuit already filed by Murray Energy that has been joined by nine states.

The public has 120 days to submit comments on the proposed rule to the EPA. Once finalized, the rule will require states to submit plans for meeting the EPA’s carbon dioxide goals by June 30, 2016, although a one or two year extension may be permitted. Businesses concerned about the proposed rule should consider consulting with an attorney to determine whether the rule and any corresponding state plans may impact their current and future operations.

On June 17, 2014, the EPA finally sought to clarify the confusion posed by having competing standards for meeting “All Appropriate Inquiry” (AAI) under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). The proposed rule follows its December 30, 2013 promulgation of a final rule in which the EPA included the 2013 ASTM Phase I Environmental Site Assessment standard (E1527-13) as also meeting AAI.

One of the requirements to qualify for CERCLA’s innocent landowner defenses is that a purchaser of contaminated property undertake “all appropriate inquiries” into prior ownership and prior uses of the site.

As reported by Rick McNeil in the February 21, 2014 Snell & Wilmer Legal Alert, under the December 2013 rule, the EPA maintained a reference to the 2005 ASTM standard, thus leaving in place two different ASTM standards under which AAI could be satisfied. With its June 17 proposal, the EPA fulfills the promise it made in the December 30, 2013 rule to propose removal of the 2005 Phase I standard in the “near future.”

AAI requirements are critical to assess environmental conditions arising from past operations at a property, so that an owner or operator can qualify for the bona fide prospective purchaser, innocent landowner or contiguous property owner defenses to CERCLA strict liability. Regardless of when the EPA-proposed rule is effective, the industry standard at the time of performing due diligence remains applicable. More particularly, for those properties acquired between November 1, 2005 and the effective date of the new proposed rule, the 2005 ASTM standard will continue to satisfy AAI. Further, to accommodate investigations which may be ongoing at the time the rule goes into effect, the EPA anticipates a one-year delay in the effective date of the final action to provide adequate time for parties to complete ongoing investigations and become familiar with the updated 2013 ASTM standard. The EPA is accepting comments on the proposed rule until July 17, 2014.

The EPA acknowledged that “[t]he updated 2013 standard is the currently recognized industry consensus-based standard to conduct All Appropriate Inquiry under CERCLA.” Because the 2005 ASTM standard is no longer the “industry consensus-based standard,” removing its reference in the AAI rule should eliminate any confusion for those seeking to conduct AAI as part of their environmental due diligence.

If the rule is finalized in its current form, purchasers, lenders and environmental professionals, among others, must require that Phase I Environmental Site Assessments comply with the 2013 ASTM standard to qualify for CERCLA’s innocent landowner protections. The 2013 ASTM standard includes definitions of different types of Recognized Environmental Conditions (RECs) (including Controlled and Historical RECs), regulatory file review procedures and, perhaps most critically from an expense and time standpoint, clarifications on vapor migration assessment.

Although use of the 2013 ASTM standard likely will require more time and expense in many instances, the elimination of the dual standard for compliance with the AAI rule will help clarify any ambiguity and should not be otherwise controversial. Utilizing solely the 2013 ASTM standard will reduce uncertainty in the application of CERCLA’s innocent landowner defenses.

SOURCE: Environmental Protection Agency (EPA)