Recent developments with the UK ETS

The past few weeks saw a number of developments in relation to the UK Emissions Trading Scheme (UK ETS), which came into force on 1 January 2021. This short blogpost summarises the key aspects of what is changing.

Consultation on compensation to energy intensive industries for UK ETS is now open

The UK ETS poses increased indirect costs for some energy intensive industries in the short to medium term. Recognising this issue, the Department for Business, Energy and Industrial Strategy (BEIS) published a consultation on compensation to industries deemed to be exposed to a significant risk of carbon leakage due to these costs.
The consultation aims to gather views on:

  1. The risk of carbon leakage due to indirect costs related to the UK ETS; and
    Which sectors are most exposed to such risk.
  2. The consultation is available here. It is open until 9 August.

CCC’s updated advice on the UK ETS cap and its interaction with CORSIA

At the end of June, the sixth UK carbon budget (for 2033-2037) came into force. It aims to cut greenhouse gas (GHG) emissions by 78% by 2030 (compared to 1990 levels); thus being the world’s most ambitious climate change target.

Reflecting on the updated budget, the Climate Change Committee (CCC) updated its advice on the level of the cap on the UK ETS and on its interaction with the CORSIA. While previously the CCC advised carbon emissions reductions to 61 megatonnes of carbon dioxide (CO2) per year by 2030, the new advice entails more ambitious targets. CCC advises that GHG emissions for currently traded UK ETS sectors should be reduced by 53% by 2030 compared to 2019 levels (i.e. to 59 megatonnes of CO2 per year). If emissions removals are included, the number is 54 megatonnes of CO2 per year (i.e. by 57%) by 2030.

These targets reflect the exclusions of Northern Irish emissions from the UK ETS (under the Northern Ireland Protocol, such emissions are still included in the EU ETS).

The full advice is available here.

Please do not hesitate to contact any member of the Reed Smith EHS team if you would like more detailed information on this topic.

Environmental, Social and Governance Legislation in the Biden Era: The Climate Risk Disclosure Act of 2021 PART II: Oil and Gas Sector

In a previous post, we reported on the Climate Risk Disclosure Act of 2021 (the “Act’) being placed on list of all bills reported from committee and eligible for House floor action,  some sweeping changes required by that Act, and the Act’s uncertain future in the Senate.

This Part II focuses on the effect of the Act on companies engaged “in the commercial development of fossil fuels,” that is, oil and gas companies.

It is important to note that the requirements on oil and gas companies under the Act apply to any “covered issuer” that is commercially develops fossil fuels.   The term ‘covered issuer’ means an issuer that is required to file an annual report under subsection (a) or section 15(d) of the SEC Act.

There are significant disclosure obligations under the Act that are proposed to specifically apply to oil and gas companies.  Under the Act, all oil and gas companies would be required to report: (1) an estimate of total and disaggregated amounts of direct and indirect GHG emissions attributable to combustion, flaring, process emissions, directly vented emissions, fugitive emission/leaks and land use changes; (2) the sensitivity of reserve levels to future price scenarios; (3) the percentage of companies’ reserves developed under several different “potential future state of the market” scenarios; (4) a forecast for development prospects under these  different scenarios; (5) potential GHG emissions embedded in proved and probable reserves; and (6) methodologies used for detecting and mitigating fugitive methane emissions.

This final category deserves special attention.  The final category requires a number of very specific disclosures of particular relevance to the oil and gas sector, such as data or information concerning the frequency of leak checks, processes and technology to detect leaks, the percentage of assets covered by disclosed methodologies, reduction goals for methane leaks, the amount of water withdrawn from freshwater sources to support operations and the percentage of water from regions of waste stress or wastewater management challenges.  Many oil and gas companies have fought regulation of this type on a state level and should be aware that the regulation is creeping in on a federal level though the “back door” of corporate disclosure.

Undoubtedly controversial, the Act may not survive the Senate. However, oil and gas companies should be cognizant of the far reaching proposals contained therein.

Pennsylvania’s Environmental Quality Board oks regulations targeting power sector greenhouse gas emissions

On July 13, 2021, the Pennsylvania Environmental Quality Board approved a rulemaking  to establish a program to limit the CO2 emissions from fossil fuel-fired electric generating units (EGU) located in the Commonwealth.

The stated purpose of the final-form rulemaking is “to reduce anthropogenic emissions of CO2, a greenhouse gas (GHG) and major contributor to climate change impacts, in a manner that is protective of public health, welfare and the environment in this Commonwealth.”  The rule would establish the Pennsylvania’s position in the Regional Greenhouse Gas Initiative (RGGI).

RGGI is a partnership between New England and Mid-Atlantic states (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont, and Virginia).  RGGI’s goal is to reduce GHG through a “cap and invest” program that both sets a regulatory limit on CO2 emissions from EGUs and creates a trading program for CO2 allowances.  Each state participating in the RGGI sets its own CO2 emission budget, which will decline gradually over time.  The summary of the final-form rulemaking indicates that if Pennsylvania commences participation in the RGGI on or by January 1, 2022, the CO2 budget for the Commonwealth will be 78,000,000 tons.  The stated goals are to reduce GHG emissions by 80% in 2050 (compared to GHG levels in 2005) and generate a net increase of over 30,000 jobs in the Commonwealth by 2030.

If finalized, the rule would adopt new compliance requirements for EGUs which will include Title V permit modifications, establishing a CO2 tracking system, emissions monitoring, and recordkeeping and reporting obligations.  Additionally, EGUs would be required to obtain necessary CO2 allowances if needed through auctions, offset projects, or through the secondary market.

The next step in the regulatory process is review by Pennsylvania’s Independent Regulatory Review Commission.  Additionally, the Pennsylvania Attorney General must determine the rulemaking complies with law before publication in the Pennsylvania Bulletin.  Pennsylvania DEP Secretary Patrick McDonnell has acknowledged likely legal changes, including potentially by members of Pennsylvania’s General Assembly who have stated they will bring a bill to require legislative approval join a cap and trade program.

You can read more about Pennsylvania’s proposed participation in the RGGI here.

Biden’s Transportation Plan

Using his Presidential platform, Joe Biden announced his Build Back Better Plan, “a national effort aimed at creating the jobs we need to build a modern, sustainable infrastructure now and deliver an equitable clean energy future.” As part of this plan, Biden intends to make a $2 trillion accelerated investment to set the United States on a path that meets these goals. Of this $2 trillion, Biden will allocate $85 billion to modernize public transit, including commuter rails, buses, and stations. He’ll also allocate an additional $80 billion to enhance the nation’s passenger and freight rail networks. These funds will be used to “address Amtrak’s repair backlog; modernize the high traffic Northeast Corridor; [and] improve existing corridors and connect new city pairs.” The administration says that this funding could also help the development of a high-speed rail.  In June of this year, Biden restored a $929 million grant for California’s high-speed rail project.  The high-speed rail project aims to be completed in the 2030s.

While Biden has yet to release a formal allocation of funds, a USDOT official sent a proposed breakdown of the transportation infrastructure plan, which includes the following items:

  • Transit System Expansion: $25 billion
  • Public Transportation Repairs: $55 billion
  • Diesel Bus Conversion to Electric: $25 billion
  • Northeast Corridor Modernization: $39 billion
  • Amtrak National Network: $19 billion
  • Other Intercity Passenger Rail: $20 billion
  • Build/Install 500,000 Electric Vehicle Chargers: $15 billion

Within the auto industry, Biden plans to create 1 million jobs. Many of these jobs will come from manufacturing and installing an estimated 500,000 electric vehicle charging stations. By 2030, he also plans to “provide every American city with 100,000 or more residents with high-quality, zero-emissions public transportation . . . ranging from light rail networks to improving existing transit and bus lines.” Through his budgeting process, he will allocate flexible federal investments to help these cities install light rail networks and enhance their transit and bus lines. By 2035, Biden’s plan will expand the U.S. rail network by creating 30 new routes that will serve an estimated 20 million more people than those that used Amtrak in 2019.

Additionally, Biden’s plan promises that by 2030, all American-built buses will be zero-emissions. His plan will accelerate this goal by converting the 500,000 school buses in America to zero emissions. He hopes to transform the energy sources that power the transportation sector, including rail, aviation, ports, and inland waterways, to make it easier for travel to be powered by electricity and clean fuels. The goal of these changes is to reduce U.S. greenhouse gas emissions, reduce traffic, and create jobs that will boost the U.S. economy.

Environmental, Social and Governance Legislation in the Biden Era: The Climate Risk Disclosure Act of 2021

An example of a new trend towards recognizing “Environmental, Social and Governance” (“ESG”) impacts from business operations is the recently introduced Climate Risk Disclosure Act of 2021 (“the Act”).  As currently drafted, the Act would require significant new public disclosures from publicly traded companies regarding financial risks to their operations and profitability from climate change (e.g., air emissions, risks to facilities from storms, lending and insurance costs, etc.).  Such disclosures could also indirectly impact non-publicly traded companies (domestic or foreign) who provide goods and services to publicly traded companies.

ESG is a topic increasingly accepted as central to legal, corporate and financial risk assessment and strategy for business leaders. The environmental stewardship aspect of ESG can be evaluated in part by measuring a company’s greenhouse gas emissions, energy efficiency and overall sustainability. Social values often consider a company’s relationship with its employees, diversity and inclusion policies, labor standards, and contributions to the communities in which it operates. Lastly, the governance facet of ESG considers a company’s leadership, internal structure, and core values.

Board-level executives across industries are grappling with how to address and leverage ESG related issues to both mitigate risks as well as create long-term value for their organizations. ESG is a complex topic attracting comment from various stakeholders including shareholders, customers, suppliers, financial lenders and employees. We are now seeing more ESG initiatives in legislation, as described below.

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Supreme Court Update: Supreme Court reaches decisions on HollyFrontier and PennEast Pipeline cases

On Friday, June 25, 2021, the U.S. Supreme Court reversed a Tenth Circuit Court decision that had vacated an Environmental Protection Agency (“EPA”) exemption relieving small refineries from the fuel blending requirements of the Renewable Fuel Program (“RFP”), codified by 42 U.S.C. § 7545(o). The decision represents a huge victory for small refineries.

In an effort to reduce greenhouse gas emissions and reduce America’s dependence on imported oil, Congress created the Renewable Fuel Program in 2005, and expanded it in 2007, to require gasoline sold in the United States to contain a certain blend of renewable fuels. However, Congress created a temporary small refinery exemption to avoid disparately impacting small refiners (defining a “small” refiner as one with an average daily crude oil throughput of 75,000 barrels or less). Although the exemption applied through 2011, any small refinery could petition the Department of Energy for a two-year extension of the exemption. After two years, Congress permitted small refineries to petition for additional extensions of the exemption in circumstances of “disproportionate economic hardship,” as determined by the EPA.

The Court’s decision in HollyFrontier Cheyenne Refining, LLC, et al. v. Renewable Fuels Association et al. considered whether the EPA could grant an extension to small refineries that did not continuously receive a hardship exemption each year since 2011. Renewable fuel producers argued that small refineries must have a continuous, unbroken exemption to be eligible for an extension. However, the Court held that the statutory language of the RFP, under 42 U.S.C. § 7545(o), imposed no continuity requirement upon small refineries, confirming that a small refinery that previously received a hardship exemption may obtain an extension even if it did not continuously receive the exemption.

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Revised Cal/OSHA COVID-19 Emergency Standard Approved by Board and Fast-Tracked by Governor Newsom

On Friday June 11, 2021, the California Department of Occupational Safety and Health (Cal/OSHA) published new proposed text for re-adoption of the COVID-19 Emergency Temporary Standard (ETS).  After previously voting against adopting Cal/OSHA’s initial revised ETS during a highly contentious public meeting earlier this month, during which critics vehemently objected to the rule’s continuation of existing mask requirements, on Thursday, June 17, the California Occupational Safety and Health Standards Board voted in favor of adopting Cal/OSHA’s newly proposed version of the ETS.  Immediately afterward, Governor Gavin Newsom issued an executive order that the ETS will not be subject to the Office of Administrative Law (OAL) ten-day review period, and is instead be effective immediately upon filing with the Secretary of State.   A subcommittee of the Standards Board is scheduled to meet next week to discuss implementation of the new rule and supporting guidance.

Significant changes since the previously proposed version of the new ETS include:

  • The definition of “fully vaccinated” makes clear that the employer must only “document” that the employee is vaccinated (not maintain standalone copies of supporting documentation), and has expanded to accept vaccines listed by the World Health Organization (WHO) for emergency use.
  • The physical distancing and partition requirements have all together been removed, except in the context of an outbreak.
  • Face coverings are only required indoors for employees that are not fully vaccinated.  When face coverings are required, the requirements are similar to what was previously in effect (e.g., employer must provide them, they are clean and undamaged, exceptions apply).
  • There is no requirement for face coverings outdoors and the “outdoor mega event” definition has been removed.
  • Face coverings must be provided to employees upon request regardless of vaccination status.
  • Employers must provide respirators for voluntary use to employees who are not vaccinated upon request.
  • Outbreak requirements no longer mandate physical distancing within the exposed group, but require face coverings indoors and outdoors when within 6 feet of others unless an exception applies.
  • Exceptions have been built into the transportation requirements for vaccinated employees.

California employers should work to update their COVID-19 policies and procedures based on the new requirements.  A copy of the ETS compared to the initial ETS adopted in December 2020 is available here.

Cal Safety Standards Board approves second COVID-19 ETS

Late last week, the California Occupational Safety and Health Standards Board (“Standards Board”) reconvened in a public meeting to consider the California Division of Occupational Safety and Health (Cal/OSHA) revised COVID-19 Prevention Emergency Temporary Standard (ETS).  The new proposed ETS was developed to replace the existing ETS that has been in place since December 1, 2020.

A prior draft of the ETS was initially to be considered in a May meeting, but it was tabled to allow Cal/OSHA the opportunity for revisions to align with State and the Centers for Disease Control (CDC) guidance.  Cal/OSHA made a few revisions to the prior draft of the ETS, the most important of which are detailed below:

  • The physical distancing section has been simplified.  As was the case with the prior version of the ETS, physical distancing is still only required for all employees until July 31.  From the passage date until July 31st,  employers have the option to: (1) ensure distancing; or (2) provide unvaccinated employees with respirators for voluntary use.  The distancing requirements (if that option is selected) are similar to the previous requirements.
  • There is a requirement to maintain physical distancing when a face covering is required but not worn, but only if the face covering is not worn for either of two very specific reasons, (1) where an employee cannot wear a face covering due to a medical condition or (2) where specific tasks cannot feasibly be performed with a face covering.  The other exceptions to the face covering requirements do not trigger this physical distancing requirement.
  • The requirement to evaluate the need for respiratory protection when distancing cannot be maintained prior to July 31 has been removed.
  • Cal/OSHA has added “outdoor mega events” as a defined term and has added new requirements for outdoor mega events that are similar to those for employees working indoors with a few notable exceptions.  An outdoor mega event is defined as an outdoor event with 10,000+ participants (g., theme parks, concerts, etc.).
  • The exception that previously excluded fully vaccinated individuals from becoming COVID-19 cases has been removed.  Importantly, however, the exception from excluding fully vaccinated individuals who have had close contact remains unchanged.

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Consultation on the European Commission’s planned new regulations on mobile phones and tablets now open

On 31 May 2021 the EU Commission opened up the public consultation period for its dual proposal for regulations on mobile phones and tablets.

As we discussed in our earlier blog post “EU EHS and Product Compliance laws: what to look out for in 2021”, at the end of 2020 the Commission announced its intention to develop two new EU-wide regulations aimed at reducing the environmental impact of mobile phones and tablets. These new legislative instruments will be established under the already existing Ecodesign Directive and the Energy Labelling Regulation, adding another category of products to those currently caught by these “framework” regimes.

The Commission has indicated these regulations will be developed in accordance with the commitments made through the EU Green Deal, in particular under the Circular Economy Action Plan (CEAP). One of the CEAP’s main aims is to ensure that products are designed and produced in a way that contributes to the circular economy, with the goal to keep resources in the EU economy for as long as possible.

In respect of both proposed regulations, the Commission has identified some priority areas for regulatory intervention, which are likely to be incorporated into any draft legislation down the line. These include steps to ensure greater “repairability” of devices, such as: battery accessibility and longevity, the ability of products to be disassembled, and the availability of spare parts, among other things.

The public consultation for the proposed Ecodesign regulation is available here, and public consultation for the equivalent Energy Labelling initiative is available here.

The timeframe for both consultation periods is 31 May – 23 August 2021, with Commission adoption of draft legislation planned for Q2 2022.

Texas keeps the gas taps flowing, but will others do the same as energy infrastructure takes center stage?

The regular session of the Texas Legislature came to a fraught end on May 31, 2021. The political spectacle in recent days capped off a legislative session dramatically interrupted by a winter storm in February that crippled much of the state with snow, ice, and power outages. That natural disaster led to intense scrutiny of the state’s power distribution infrastructure and calls to weatherize the power grid.

In response, the Texas Legislature approved legislation aimed at addressing some of the infrastructure issues caused by the storm. The Legislature’s response to the storm understandably received much attention. Perhaps this allowed another energy infrastructure bill—one that makes a big statement in terms of energy and climate policy—to pass without similar attention.

House Bill 17 passed the Texas Legislature earlier this year and was signed into law by Governor Abbott on May 18, 2021. The law prohibits Texas localities from restricting or discriminating against utility infrastructure based on the type or source of the energy delivered to the end-use customer. The law also prohibits Texas localities from imposing additional charges on development and building permit applicants that encourage or discourage the installation of infrastructure based on the type or source of energy. While not expressly stated, the intent of the bill is to prohibit localities from phasing out natural gas and its infrastructure.

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