The past year has been a busy one in environmental law and policy. While a look ahead could include topics such as likely impacts from continuing efforts by the current U.S. administration to bolster use of coal-fired energy or the myriad lawsuits facing the Environmental Protection Agency (EPA) in 2019 from environmental groups and state attorneys general, from a business perspective, developments in air and
water related litigation and regulation are likely to have the most immediate domestic consequences in the coming year.

Examining environmental areas of interest in the macro, climate change lawsuits and policy will continue to factor into everything from investing and insurance, to energy sector decision making.

Air – methane and mercury take center stage

2019 promises to continue the trend of rapidly changing and surprising moves by the Trump administration’s EPA as they relate to fossil fuels and air quality. At the center of these intentional shifts from the previous administration’s policy are methane and mercury.

Methane discussions are more than hot air

  • Methane limits and controls were targeted in 2018 by the EPA through an amendment to the 2016 New Source Performance Standards, which would change the monitoring frequency for fugitive emissions, and clarify both design and certification requirements for equipment at well sites and compressor stations.
  • Methane was also targeted by the Department of Interior’s plan to revise the Methane Flaring Rule, which would change the percentage of methane required to be captured at drilling sites, as well as revise measurement of leak detections.
  • EPA Administrator Andrew Wheeler spoke in Pittsburgh indicating EPA’s intention to continue examining methane and greenhouse gas emission limits in the context of the Trump administration’s overall goal to reduce regulations, including those on oil and gas facilities.
    • In opposition to this agenda, states are taking the lead in suing EPA over its recent policy and regulatory decisions.
    • 2018 saw numerous state attorneys general threatening to sue EPA over its methane rollbacks, and in one recent example, California and New Mexico (along with environmental groups) will be able to continue an appeal of a District Court’s stay of aspects of the previous administration’s methane rules per a Tenth Circuit Court Order.
    • 2019 will almost certainly bring more lawsuits from states and environmental groups in response to the Trump administration’s deregulation around methane and other greenhouses gases – a trend that has not escaped EPA’s notice.
  • Coming into a new year, contentious political relationships – both internal to the federal government, and between states and the federal administration – will shape regulation of air toxics and greenhouse gases.
  • One can expect that the ongoing changes of federal regulations, and the potential for individual state regimes, will affect not only markets and investment in fossil fuels, but in day today compliance and enforcement activities.
  • Takeaway: Methane will be a major focus at the federal, state, and local levels in 2019. Understanding which statutes and regulations apply to emissions sources is crucial from a compliance standpoint, and understanding differing policy perspectives is important for effective messaging to achieve business goals.

The mercury is rising between interested stakeholders

  • The Mercury and Air Toxics Standard, or MATS Rule, set limits for air toxics from existing power plants.
  • Required compliance spurred the adaptation – and in some cases closure – of coal-fired
    power plants.
  • The Trump administration’s promises to support coal and coal-fired power plants have led to a recent effort to rein in the MATS Rule.
  • However, that effort required a compromise when utilities and other energy companies who had expended significant resources to comply with the MATS Rule objected to scrapping them entirely.
  • Instead, the current EPA has signaled its intention to keep the MATS Rule, but make changes that will require a new, and more difficult, evaluation if considering tougher emissions limits.
  • The battle over the MATS Rule, and the proposed changes, reflect a trend that is likely to continue to affect environmental regulation in 2019 – the conflicting and competing interests between coal producers and some energy companies, including utilities.
  • Takeaway: The MATS Rule is just one example of potential changes in air quality regulation. For businesses that include air emissions and permitting, it is important to keep abreast of new regulation and its impact on current operations, while planning for the future (see the section on climate change, below).

Water – regulatory interpretations ebb and flow

While battles over the future of emissions regulations have sometimes played out most prominently in the media, a nuanced, but no less significant, conflict has been brewing over regulatory interpretation in the clean water space.

What’s your point (source)?

  • There is an ongoing conflict over interpretation of “point source” and “non-point
    source pollution.” This debate is particularly applicable to waste impoundments interacting with groundwater, and even more specifically to coal-ash impoundments.
  • The Clean Water Act’s (CWA) definition of “point-sources” is the subject of a split between the Sixth Circuit, and the Fourth and Ninth Circuits over whether coal-ash impoundments are considered point-sources when related contaminants are found in groundwater.
  • This split may be resolved in 2019 as the Supreme Court has indicated its interest by inviting the perspective of the Solicitor General in briefs by January 4, 2019. The ultimate interpretation of what constitutes a point source, if addressed by the Supreme Court, could alter liability for existing and potential discharges, not just from impoundments, but from other similarly situated management units.

Coal-ash not just a focus of courts

  • The conflict over point source discharges related to coal-ash impoundments may have to contend for precedence with a new conflict over coal-ash disposal regulations.
  • EPA is expected to review standards for new and existing coal-ash impoundments, including groundwater monitoring requirements.
  • Between potential revisions to these regulations, lowering standards for coal-ash impoundments, or handing that authority to individual states, and the ongoing judicial conflict over interpretation of CWA language, 2019 is shaping up to be a year of uncertainty for coal-ash impoundment operators.
  • Despite this uncertainty, those with potential liabilities can work proactively to ensure they can make the best case for their specific circumstances.
  • As a reading of the cases involved in the circuit split demonstrates, coal-ash impoundments (and other waste management units), can be unique, and those unique attributes matter for case outcomes.

How will WOTUS apply to us?

  • In another conflict over regulatory definition, in mid-December of 2018, EPA and the US Department of the Army announced a proposed rule to revise how Waters of the United States (WOTUS) are defined under the CWA. This proposal is the second step in a two-step process to review and revise the definition of “Waters of the United States” consistent with the February 2017 Presidential Executive Order entitled “Restoring the Rule of Law, Federalism, and Economic Growth by Reviewing the ‘Waters of the United States’ Rule.” The proposed definition would replace the approach in the 2015 WOTUS rule and the pre-2015 regulations.
  • The public comment period on the new proposal extends into early 2019, and it is very likely that whatever definition ultimately prevails, there will be new legal challenges soon after enactment.
  • Until then, whether an affected, or potentially affected, body of water is considered a WOTUS will require fact-based scrutiny.

Pipelines in the picture

  • A trend that appears will continue in 2019 is environmental and citizen group lawsuits over pipeline development. 2018 saw lawsuits over oil and gas pipelines in numerous states, with cases before administrative tribunals, state courts, utility commissions, and federal courts.
  • Litigation over pipeline construction and operation can require legal expertise in property rights and eminent domain, energy and utility law, and environmental law – specifically related to erosion and sedimentation and flow-back into state or federal waters.
  • Takeaway: Legal battles over regulatory interpretation may seem academic, but they will have real consequences on compliance at all levels. Knowing which interpretation is presently applicable, and tracking any further developments in this area, will allow entities operating near water bodies to accurately assess the potential liability from currently permissible discharges and inadvertent releases.

Climate change – an abstract issue with concrete consequences?

There was plenty to keep up with in terms of domestic environmental law in 2018 that may have distracted from ongoing trends related to climate change.

  • The 24th Conference of the Parties to the United Nations Framework Convention on Climate Change, commonly known as COP24, took place this past December in Katowice, Poland.
  • The COP24 participants met to determine implementation guidelines for the Paris Climate Change Agreement.
  • Despite the attention on fossil fuels and socioeconomic differences between different countries and stakeholders, the COP24 coincided with an increasing trend of businesses and investors recognizing the impacts of climate change on their bottom-line and potential liability.
  • These potential liabilities include taking steps to ensure climate-related risks are appropriately mitigated.
  • Although there has not been a federal push regarding climate change, state and regional action remain strong.
    • For example, California’s Global Warming Solutions Act of 2006 (commonly known as AB 32) requires the state to reduce its greenhouse gas emissions by about 15 percent to 1990 levels, among other items.
    • California hit their goal early in 2018, though the reasons for that achievement, and the overall results, intended and otherwise, have been the subject of debate.
    • California has a longer-term goal of further reduction by 2030, and the “cap and trade system” has been extended through 2030 as well – the trend to watch for in 2019 could be how the state handles emissions from transportation and how the cap and trade program is used.
    • Meanwhile, on the eastern side of the United States, New Jersey is working to re-enter the Regional Greenhouse Gas Initiative, another cap and trade system, and a similar system, the Transportation and Climate Initiative, is being developed in the Northeast and Mid-Atlantic to address emissions related to transportation.
  • Many eyes remain on the climate change related cases against several major oil and gas companies involving federal, state and local jurisdictions, including Alaska, Massachusetts, New York, California, Colorado, Washington, Rhode Island, Maryland, Oregon, and the U.S. Virgin Islands. We expect that some of these cases may be decided in 2019.
  • 2018 was a year that various constituencies focused on how to approach measurable changes in weather events in the context of a real-money business perspective – a trend that will continue throughout 2019. Reed Smith was voted the Best Law Firm for Global Weather Risk Management for the fifth year in a row in Environmental Finance’s Annual Market Rankings – the largest and most closely watched poll of sentiment across the carbon, renewable energy certificate, and weather risk and catastrophe risk markets.
  • Takeaway: In 2019, businesses will have to contend with current and potential investors’ agendas, as well as protecting existing assets. Knowing what policies are, or will be, applicable to international transactions or partnerships, and assuring that weather does not hamper operations or prospects, will be key to thriving in a time of uncertainty when it comes to climate change.

Guidance in gray areas and innovative advocacy

Whether dealing with implementation and application of global climate change agreements, weather related risk management, or domestic air and water compliance concerns, Reed Smith is uniquely positioned to address the need for adaptation to rapidly changing environmental regulations and policies, as well as client-focused advocacy during a time of conflicting perspectives. Reed Smith’s Energy and Natural Resources Group combines cross-practice authority in energy, environmental, insurance and finance law, including former state and federal regulatory attorneys, to provide innovative and comprehensive guidance and advocacy so clients can mitigate risk and achieve their business goals.