Energy Finance Report

Corporate Sustainability Efforts on Upswing

Posted by Leigh Ratino on 8/16/17 5:36 PM

Despite the new administration’s efforts to rollback Obama Era environmental regulations, most businesses in the U.S. are maintaining their commitments to sustainability. According to Lucid’s 2017 Sustainability Outlook Report, only 5% of private companies surveyed expect to decrease their commitment to sustainability programs in 2017, while 74% expect no change and 21% expect an increase in their commitments. Growing concern about climate change have presented companies with the opportunity to lead the way by increasing their sustainability efforts. Major companies are taking the threat of climate change more seriously, and already are developing solutions to reduce their greenhouse gas (GHG) emissions.

Opportunities abound for U.S. businesses to get involved in corporate sustainability. For those businesses that are up to the challenge, the MIT Sloan Management Review’s 2017 Research Report offers eight evidence-based factors to consider. First, articulate a practical sustainability vision and ambition that lays the foundation for new business practices. Second, identify and prioritize material issues to focus resources. For example, following its Environmental Sustainability Plan’s goal "to provide clean, fuel-efficient and dependable power for our customers with the least environmental impact possible,” Cummins Inc. recently decided to expand a wind farm in northern Indiana by adding an additional 75 megawatts of capability.

Third, embed sustainability organizationally through cross-functional teams, clear targets, and key performance indicators. As noted in the Journal of Accountancy, it is important that the chief financial officer (CFO) be part of and buy into the sustainability initiatives in order to facilitate an integrated company perspective. Fourth, innovate on multiple dimensions of your business model. Nestlé, for example, recently began placing “How2Recycle” labels on its half-liter bottles manufactured in North America. This activity is in line with the company’s sustainability target to “find a compelling and simple way to educate and encourage all Americans to recycle the bottle.” Not only does Nestlé’s How2Recycle project encourage recycling plastic bottles, but it also instructs consumers to empty and replace caps on bottles, resulting in fewer caps ending up in our waterways and oceans.

Fifth, develop a clear business case, and sixth, get the board of directors on board. Sustainability, while beneficial to the environment, also can be a business driver. As pointed out by the Journal of Accountancy, sustainability-related risks – extreme weather events, water crises, and climate change – are business risks. Furthermore, corporate sustainability have been proven to result in economic efficiency. For example, Unilever found that its “Sustainable Living” brands have grown 50% faster than the rest of its business because of consumer demand for sustainable products.

Seventh, communicate a sustainability value-creation story to your shareholders. Eighth, collaborate with a variety of stakeholders to drive strategic change. For example, 62 percent of Exxon Mobil Corporation’s shareholders recently voted for a resolution that requires the company to annually disclose how it will be affected by global efforts to mitigate the effects of climate change. Similarly, Occidental Petroleum Corp.’s shareholders recently approved a proposal requiring the company to report on climate change impacts to business.

Although President Trump has denied the impact of human activity on climate change and is actively seeking to resurrect the fossil fuel sector, nonetheless, it appears that U.S. businesses are maintaining their commitments to sustainability.

Leigh Ratino is a law clerk with Boston-based law firm Sullivan & Worcester LLP.

Topics: Climate change, Trump Administration, Corporate Sustainability, Sustainability

The New Administration’s Efforts to Deconstruct the Obama Climate Initiatives

Posted by Jeffrey Karp on 8/11/17 2:22 PM

President Trump is spearheading a government-wide roll back of Obama Era climate initiatives. The president and his EPA Administrator, Scott Pruitt, have delivered a one-two punch.  They both have denied the impact of human activity on climate change, while seeking to resurrect the moribund fossil fuel sector.  In March 2017, the President issued a wide-ranging “Energy Independence” Executive Order requiring review and reconsideration of any rule that might burden development of domestic energy sources, particularly oil, gas, coal and nuclear energy. After much drama, in June 2017, President Trump fulfilled a campaign promise to withdraw the United States from the Paris Climate Accord (“Accord”).  Moreover, in seeking to implement the new Administration’s energy independence strategy, government departments and agencies are pursuing delay or repeal of regulations aimed at curbing greenhouse gas (“GHG’) emissions, most notably EPA’s targeting for elimination the Clean Power Plan rule (“CPP”).

Under the Accord, the United States had pledged to reduce its greenhouse gas emissions 26-28% below 2005 levels by 2025, and to contribute up to $3 billion in aid to an international fund that helps the world’s poorest nations mitigate the effects of climate change.  It was expected that one of the President’s first acts following the inauguration would be to withdraw the country from the Accord.  On the campaign trail, Mr. Trump had not minced words about his view of the Accord, and his belief that climate change was a hoax.  Nonetheless, the President delayed his decision, while considering the views of many who advocated that the United States remain in the Accord, including several of his advisors, former Vice President Gore, the leaders of the G-7 nations, state governors and corporate executives.  President Trump, however, announced on June 2, 2017 the country’s withdrawal from the Accord, declaring the overarching need to protect United States workers and businesses from intrusive environmental restrictions, and negative impacts on economic growth.  In response to the President’s decision, a coalition of states, companies, and institutions have pledged to fulfill the United State’s emissions reduction commitment.

The withdrawal from the Accord appears unlikely to affect ongoing domestic efforts to reduce GHG emissions.  Currently, 29 states and the District of Columbia have enacted renewable portfolio standards (RPS) to increase the amount of electricity generated from renewable energy sources.  Since the beginning of 2016, seven states have even increased their commitments for additional wind and solar-generated power. 

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Furthermore, according to an EPA report, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990–2015 (April 15, 2017), GHG emissions have decreased in all major economic sectors since 2005.

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Between 2005 and 2015, GHG emissions decreased by roughly 20% in the electricity sector, 10% in the transportation sector, 4% in the industry sector, and 0.7% in the agriculture sector.

In addition to negating the impact of global warming, the Trump administration seeks to resuscitate the fossil fuel sector by removing regulatory impediments to growth.  As noted, on March 28, 2017, President Trump issued an EO that instructed EPA to reconsider the CPP and “as soon as practicable, suspend, revise or rescind” the rule.  Promulgated in 2015 under the Clean Air Act, the CPP is expected to facilitate a reduction in carbon dioxide emissions from the utility power sector by 32 percent below 2005 levels by 2030.  However, the rule has been tied up in litigation.  Shortly after promulgation, the Supreme Court stayed the CPP’s implementation.  A ruling on the CPP’s validity is awaited from the United States Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”)  following an en banc hearing in September 2016.  In the meantime, on April 4, 2017, EPA issued a notice of intent to review the CPP, while seeking to delay the D.C. Circuit’s impending decision on the rule’s validity.  On April 28, 2017, the court denied the EPA’s request to indefinitely delay the litigation while the Agency reconsiders the need for the CPP.  Instead, the D.C. Circuit agreed to hold the litigation in abeyance for 60 days, and ordered the parties to submit briefs addressing whether the court should continue to delay its decision or dismiss the litigation and remand the rule to the EPA.  After reviewing the parties’ briefs, on August 8, 2017, the court ordered that the cases remain in abeyance for an additional 60 days, and that EPA submit status reports in 30-day intervals. 

More recently, EPA attempted unsuccessfully to secure a lengthy delay in implementing another Obama Era emissions reduction regulation.  That rule requires that oil and gas companies fix methane leaks and upgrade equipment at extraction sites.  Siding with the NGOs, who challenged EPA’s announced two year delay, the D.C. Circuit ruled that EPA lacked authority under the Clean Air Act to stay the regulation while the Agency reconsiders it.  On August 10, 2017, the D.C. Circuit rejected industry groups and states’ request to reconsider the ruling.

Moreover, the President’s Energy Independence EO lifts the moratorium on leasing federal land for coal mining, and instructs the Department of Interior (“DOI”) to consider rescinding the 2015 regulation of hydraulic fracturing on federal and tribal lands.  In June 2016, a Wyoming federal judge struck down the rule, which subsequently was appealed to the Tenth Circuit.  DOI’s Bureau of Land Management (“BLM”) has requested the Tenth Circuit to stay the litigation while it reviews the need for the regulation.  On July 25, 2017, BLM published a proposal in the Federal Register to rescind the 2015 regulation, asserting that it  needlessly burdens industry with unjustified compliance costs.  The Tenth Circuit has yet to rule on BLM’s stay request.

To further assist the domestic energy sector, President Trump’s Energy Independence EO also seeks to ease permitting of fossil fuel energy projects.  In particular, the EO rescinds an Obama Era directive that federal agencies performing National Environmental Policy Act (“NEPA”) project reviews must consider GHG and climate change impacts.  Shortly after taking office, President Trump approved the permits for the TransCanada Corp’s Keystone XL pipeline and the Dakota Access pipeline.  In response, the Standing Rock Sioux Tribe and other Native American tribes challenged issuance of the final permit to complete construction of the Dakota Access pipeline in the U.S. District Court for the District of Columbia.  On June 14, 2017, the court ruled that aspects of the Army Corps of Engineers’ (Corps) environmental assessment were inadequate, and ordered the Corps to conduct further  review.  But, the court refused to grant the plaintiffs’ requested injunctive relief to halt oil pumping operations pending the Corps performance of further environmental review, which is expected to be completed by the end of the year.

Despite President Trump’s efforts to provide a “leg up” to the fossil fuel sector, it seems doubtful that the decline in coal-fired power generation will be reversed for several reasons. First, coal is not competitive with lower-priced and widely-available natural gas.  Second, the cost of developing renewable energy resources continues to drop.  Third, state RPS programs and corporate commitments to reduce greenhouse gas emissions continue to drive the growth of the renewables market.  Fourth, carbon emissions from power plants have fallen by 5% during each of the last two years, which is largely due to the switch by the utility sector, coal’s largest customer, to natural gas and renewables.  Currently, coal’s market share is in the low 30% range, and is unlikely to increase despite the new administration’s efforts to revitalize the industry.

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Furthermore, withdrawal from the Paris Climate Accord is unlikely to have short-term impacts in the United States.  Carbon dioxide emissions from United States’ energy sources are expected to hit a 25-year low in 2017, and to continue to decrease.  Thus, it appears that the train already has left the station regarding  the overriding support by many corporations and states for the increased development of renewable energy resources, and the ongoing conservation and sustainability measures to further reduce greenhouse gas emissions.  In light of the foregoing developments, it seems that market forces, not President Trump’s EO or government agencies’ efforts, will dictate the fate of the fossil fuel industry.

Jeffrey Karp is a partner and Leigh Ratino is a law clerk with Boston-based law firm Sullivan & Worcester LLP.

Topics: clean power plan, Climate change, Trump Administration, Energy Independence Executive Order, Paris Climate Accord

The New Administration’s Deregulatory Agenda and its Impact on Environmental & Energy Policy

Posted by Jeffrey Karp on 7/28/17 8:24 AM

As seen in the first six months of President Trump’s Administration, the country is on a rollercoaster ride.  There is much uncertainty regarding the implementation of new policies and the status of existing programs throughout the government.  Nowhere is this sentiment more evident than in the environmental and energy arenas.  President Trump is quickly trying to undo the Obama Administration’s programs through executive orders seeking to roll back regulations; the appointment of faithful supporters of deregulatory agenda to key positions; significant budget cuts that substantially reduce agencies’ head counts and defund targeted programs; and the helping hand of a Republican-controlled Congress.

However, achieving this desired goal is easier said than done.  President Trump’s objectives may be tempered by legal, procedural and resource constraints, bureaucratic resistance combined with delays in filling key agency decisions, and higher priority domestic agenda items and world events.  This article will examine what already has occurred and what may be in store on significant issues involving energy and the environment.  It also will highlight aspects of the Trump Administration’s deregulatory efforts and the proposed budgetary impacts.

Out of the gate, the new administration has pursued an aggressive deregulatory agenda. President Trump’s operative goal is to “deconstruct the administrative state.”  His administration is building on campaign rhetoric to “roll back” “economy-choking regulations,” and implementing his campaign promise to “Drain the Swamp” by reining in and shrinking the federal bureaucracy.  For example, in January 2017, President Trump issued the “2-for-1” Executive Order (EO) on Reducing Regulation and Controlling Regulatory Costs, which specifies that agencies must repeal two existing regulations for every new significant regulatory action.  The EO further requires cost balancing between new and repealed regulations and a net cost of zero for any new regulations.  In response, Non-Governmental Organizations (NGOs) and others, led by the Natural Resources Defense Council (NRDC), are challenging the validity of the EO in the U.S. District Court for the District of Columbia, arguing that the executive order is “arbitrary, capricious, an abuse of discretion, and not in accordance with law.”  In April 2017, the Department of Justice filed a motion to dismiss the complaint on the President’s behalf, and the NGOs moved for summary judgment in May.  Attorneys General from 14 states filed a brief in support of the EO.  The case is in limbo, as the court has not yet ruled on the parties’ motions.

In February 2017, President Trump issued another EO, on Enforcing the Regulatory Reform Agenda, which requires designation of regulatory reform officers and task forces in all agencies and departments.  Each task force must identify “all regulations that are unnecessary, burdensome and harmful to the economy.”  In addition to internal deliberations, the task forces have asked stakeholders to help identify troublesome regulations.  For example, the Commerce Department sought public comment on government regulations interfering with domestic manufacturing.  Of the 168 comments submitted, 79 called out the EPA, the majority of which cited the Clean Air Act (CAA) and Clean Water Act (CWA).

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President Trump is particularly focused on curtailing EPA programs from the Obama Administration’s regulatory agenda.  For example, the EO on Enforcing the Regulatory Reform Agenda requires EPA to review, and either rescind or revise, the Clean Water Rule promulgated by the Obama Administration in 2015 under the CWA.  The CWA regulates discharge of pollutants to “navigable waters,” defined as waters of the United States (WOTUS).  The 2015 WOTUS Rule was issued by EPA and the Army Corps of Engineers (Corps) after a series of court decisions failed to adequately clarify the EPA’s jurisdictional scope.  The 2015 WOTUS Rule created quite a controversy because it applies to streams serving as tributaries to navigable waters, as well as wetlands adjacent to traditional navigable waters or interstate waters.  For the rule to apply, the wetlands and tributaries must be “relatively permanent.”  Under prior court decisions, this means such water bodies could be “intermittent.”  The Sixth Circuit stayed the 2015 WOTUS Rule soon after its promulgation.  Therefore, it was never implemented or enforced.  On January 13, 2017, the U.S. Supreme Court agreed to resolve the jurisdictional dispute over whether a district court or a court of appeals should decide the rule’s validity.

On March 6, 2017, EPA’s “Notice of Intent to Review and Rescind or Revise the Clean Water Rule” was published in the Federal Register.  In Senate testimony delivered on June 27, 2017, EPA Administrator Scott Pruitt stated that the agencies intend to revoke the 2015 WOTUS Rule, contending that the rule has created substantial uncertainty for farmers, ranchers, and landowners because they cannot tell whether their streams or dry creeks are “relatively permanent.”  Pruitt further stated that the rule inhibits development because landowners face substantial civil penalties if they incorrectly assess the rule’s coverage and the property is determined to be subject to federal jurisdiction.  

Revising or revoking rules is not a perfunctory or simple process. The agency that promulgated the rule must follow the same Administrative Procedure Act (APA) notice and comment procedures to rescind or change it.  Thus, an agency cannot simply revoke a rule and subsequently replace it to satisfy the policies of a new administration.  Rather, an agency first must create an Administrative Record (AR) that supports revoking an existing rule, and then the agency must conduct a separate rulemaking proceeding to promulgate a new revised rule.  Ultimately, the AR must justify a different outcome than the record upon which the existing rule was issued.  This same process must be followed for each rule that an agency desires to abolish or revise.

On June 27, 2017, EPA and the Corps announced a plan to replace the 2015 WOTUS Rule in two steps: 1) repeal the stayed Obama-era rule, and 2) commence a second rulemaking to replace it.  However, on July 12, 2017, a House subcommittee approved an energy and water spending bill that would allow EPA and the Corps to withdraw the 2015 WOTUS Rule “without regard to any provision of statute or regulation that establishes a requirement for such withdrawal.”  Essentially, if the bill is passed, the agencies could bypass the APA procedures, including the public notice and comment period, and repeal the 2015 WOTUS Rule.  The House is expected to vote on the bill in the next few weeks.  The Senate Appropriations Committee’s version of the energy and water bill does not include language allowing the Trump Administration to bypass APA procedures.  Thus, a reconciliation of the bills likely will be necessary.

The Administration’s effort to eradicate Obama Era environmental regulations is further complicated because many rules presently are tied up in court proceedings awaiting oral argument or court rulings.  The EPA sought to stay challenges to such rules while the new administration reconsiders their scope and breadth.  In several cases in which oral arguments have not been heard yet, the requested relief was granted.  However, the agency’s strategy was foiled in the case challenging the Clean Power Plan, the most contentious of the Obama Era rules.  In that case, an en banc ruling is pending in the D.C. Circuit.  On April 28, 2017, rather than grant EPA’s request for an indefinite stay, the court agreed only to hold the litigation in abeyance for 60 days, while ordering the parties to file briefs addressing whether the case should remain on hold, or whether the court should close it and remand the rule to EPA for disposition.  On May 15, 2017, both parties submitted their briefs.  The motions are pending.

President Trump also is seeking to use the budget process to pursue his deregulatory goals.  The Administration’s 2018 proposed budget, sent to Congress on May 23, 2017, would reduce EPA’s funding by nearly one-third, eliminate thousands of jobs, and scrap dozens of existing programs.  The budget proposal would increase funding in a select few areas — for water and air rulemaking, and the TSCA-Chemical risk review and reduction program; however, it is expected that much of the additional TSCA funding would be offset by a “pay to play” scheme under which the companies requesting such reviews would be required to pay for them.  On the other hand, government wide programs that address climate change and global warming would be obliterated.  The Integrated Risk Information System (IRIS) program, which assesses the health risk of toxic chemicals, is specifically targeted for termination.  The Science Advisory Board is recommended for an 85% cut, and EPA’s categorical grants to states to operate and enforce delegated programs are slated for a 45% reduction.  The Chesapeake Bay and Great Lakes initiatives would be eliminated, as would programs supporting energy efficiency and R&D, and loan guarantees for clean energy technologies.  Nevertheless, Congress has the final say over President Trump’s budget proposals, and it remains to be seen whether there is sufficient support for his substantial proposed budget cuts.

We anticipate a steady stream of lawsuits will be filed by NGOs and, perhaps, some activist states challenging the Trump Administration’s deregulatory actions.  We also expect an uptick in “citizens suits” seeking to enforce environmental laws and regulations due to EPA’s diminished role as the “cop on the beat.”  Further, the impact of President Trump’s budget proposal largely will depend on the willingness of the Republican majority in Congress to eliminate or reduce funding for programs with traditional bi-partisan support.

Jeffrey Karp is a partner and Leigh Ratino is a law clerk with Boston-based law firm Sullivan & Worcester LLP.

Topics: Energy Policy, Environmental Policy, Trump Administration, Deregulatory Agenda, Executive Orders

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