On April 6, 2022, by a 5-4 vote in the case of Louisiana, et. al. v. American Rivers, et. al., the Supreme Court temporarily resurrected a Trump-era rule that sought to stop the practice of many states and tribes from withholding or unduly conditioning their certifications that are required under the Clean Water Act before certain federally-permitted activities can proceed (the 2020 Rule). Delays and demands imposed on gas pipeline and other energy infrastructure projects through these tactics have drawn particular criticism.

The 2020 Rule was challenged by environmental groups and several states and vacated by the District Court for the Northern District of California in October 2021 – notably without an accompanying review of the merits and a finding that the rule was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. Supporters of the 2020 Rule sought an emergency stay with the Supreme Court pending their appeal to the Ninth Circuit. In agreeing to stay the District Court’s ruling and effectively reinstate the rule, the Supreme Court used its so-called “shadow docket,” a procedure typically reserved for emergency situations involving an immediate threat of harm if the Supreme Court does not act.

The case centers around the EPA’s July 2020 Section 401 Certification Rule, which limits the ability of states and tribes to withhold approval, or “certification,” of applications for a federal license or permit under the Clean Water Act. The 2020 Rule prevents states from blocking projects for any reason other than threat of direct pollution into the state’s waterways and strictly imposes the one-year statutory deadline for a state to act on a request for certification.

The 2020 Rule was among the Trump-era regulations that the Biden administration directed federal agencies to review in the early days of the new administration. In June 2021, the EPA announced a new rulemaking to propose revisions to the 2020 Rule. A final revised rule is expected in 2023. The Supreme Court’s decision does not prevent the EPA from continuing with its rulemaking but does ensure that until that process produces a final replacement regulation or further judicial review invalidates the 2020 Rule, it will remain in effect.

Notably, the Supreme Court’s majority opinion imposing the stay is contained in a single short paragraph. In a lengthier discussion, Justices Kagan, Breyer, Sotomayor, and Chief Justice Roberts dissented, citing the lack of evidence that the applicants would suffer irreparable harm if the Supreme Court failed to act. Specifically, Justice Kagan pointed out that the states and energy interests appealing the decision did not cite any projects that would be threatened by the ruling in question or that had been blocked in the months since it was issued last October.

Supreme Court watchers will need to consider whether the decision signals how the Court would rule on the merits of a challenge to the 2020 Rule, or whether a majority of the Court simply could not countenance a district court vacating a duly promulgated rule absent a full merits determination.

True to its word, the SEC released its proposed rule, The Enhancement and Standardization of Climate-Related Disclosures for Investors, last week. The rule would require companies to disclose a wide variety of climate-related information, including information about climate-related risks that are reasonably likely to have material impacts on its business and/or its consolidated financial statements, and greenhouse gas (GHG) emissions metrics that could help investors assess those risks.

Much has been made of the proposed requirements for GHG emissions reporting—not just for Scope 1 and 2 emissions (emissions from company operations and from the generation of electricity purchased and consumed by the company)—but also for Scope 3 emissions, or emissions from upstream and downstream activities in a company’s value chain. In this post, we will focus on the Scope 3 emissions requirements in the proposed rule.

First, not all companies would be required to report Scope 3 emissions. The proposed rules would require disclosure of Scope 3 emissions only if:

  • The emissions are material, or if there is a substantial likelihood that a reasonable investor would consider them important when making an investment or voting decision; or
  • The company has set a GHG emissions reduction target or goal that includes its Scope 3 emissions.

In limiting the reporting requirement, the SEC sought “[t]o balance the importance of Scope 3 emissions with the potential relative difficulty in data collection and measurement . . . .”

The SEC declined to propose a quantitative metric for the determination of materiality of Scope 3 emissions (although the proposed rule notes that some companies rely on such a metric, and it also seeks additional comment on whether such a metric should be included). Instead, it proposed to use its commonly known materiality standard, explaining that a “one-size-fits-all” approach would not capture the variability of regulatory, policy, and market conditions across companies, nor would it adequately capture the transition risk that is tied to GHG emissions and the choices that a company can make about its value chain because of them.

For companies that have set a GHG emissions reduction target or goal, the proposed rule states that disclosure is needed to help investors understand the potential costs associated with meeting such a goal and track the company’s progress along the way.

So what are Scope 3 emissions? As explained above, Scope 3 emissions are those from upstream and downstream activities in a company’s value chain. Some examples of these upstream and downstream activities include:

  • Purchased goods and services;
  • Transportation and distribution of purchased goods, raw materials, and other inputs;
  • Waste generated in operations;
  • Business travel and commuting by employees;
  • Transportation and distribution of sold products, goods, or other outputs; and
  • End-of-life treatment of a company’s sold products.

Scope 3 emissions data is difficult to gather and quantify, but the SEC is hoping that companies required to report will be able to influence the activities in their value chain and gather emissions data in the process:

“Although a registrant may not own or control the operational activities in its value chain that produce Scope 3 emissions, it nevertheless may influence those activities, for example, by working with its suppliers and downstream distributors to take steps to reduce those entities’ Scopes 1 and 2 emissions (and thus help reduce the registrant’s Scope 3 emissions) and any attendant risks. As such, a registrant may be able to mitigate the challenges of collecting the data required for Scope 3 disclosure.”

The proposed rule suggests that Scope 3 emissions data can be found in the following sources:

  • Emissions reported by parties in the registrant’s value chain, and whether such reports were verified by the registrant or a third party, or unverified;
  • Data concerning specific activities, as reported by parties in the registrant’s value chain; and
  • Data derived from economic studies, published databases, government statistics, industry associations, or other third-party sources outside of a registrant’s value chain, including industry averages of emissions, activities, or economic data.

Companies required to report Scope 3 emissions must do so individually (i.e., listing the emissions from each GHG), and also in the aggregate (carbon dioxide equivalent). They must also report GHG intensity, or the ratio of the impact of GHG emissions per unit of total revenue and per unit of production. The risks associated with climate change must also show up in a company’s financial statement metrics, with certain metrics (for Scope 3 emissions, think transition risk) required to be included in a note to a registrant’s audited financial statements. Lastly, if a company is required to report historic data on its income statement and cash flow statement, it should be prepared to do the same for emissions data (to the extent such emissions data is reasonably available).

The proposed rule would phase in the reporting of Scope 3 emissions, with the first reporting required for large accelerated filers in fiscal year 2024 (filed in 2025). Smaller reporting companies would be exempt from the Scope 3 emissions reporting requirements.

The SEC is seeking comment on the proposed rule. The comment period will remain open until at least May 20, 2022.

The U.S. EPA unveiled a new notification service this week called ECHO Notify. This new tool will allow the public to receive weekly e-mails notifying them of EPA- and state-led environmental enforcement actions and violations. A subscriber can request to be notified based on a specific EPA Facility ID, ZIP code, county, or state.

Each e-mail will notify the recipient of recent violations or enforcement actions at facilities within the selected geographic area or facility. Subscribers can elect to be notified of all EPA and state enforcement and compliance activities or select from a subset of programs (e.g., CAA, CWA, RCRA, TSCA, CERCLA, EPCRA, FIFRA, SDWA) and types of violations (e.g., high priority violation under the CAA or an informal enforcement action under RCRA).

This newfound ease by which members of the public as well as the regulated community can now be notified of violations and enforcement actions will likely increase public scrutiny, citizen suits, and third-party claims, and bolster environmental justice initiatives. It is the EPA’s expectation that the increased transparency also will serve to trigger stronger deterrence.

It would be prudent for those in the regulated community to sign up for notifications related to their facilities. This will allow facilities to catch errors or inconsistencies that may exist in the public record, as well as allow an entity to prepare for questions or inquiries from the public once information about a violation or enforcement action is publicly circulated. Signing up for notifications in the area around your facility may also provide insight into EPA and state compliance and enforcement trends.

As covered in my previous post, the ASTM International (ASTM) released a revised standard for conducting Phase I Environmental Site Assessments (Phase I ESAs) – ASTM E1527-21. While the E1527-21 standard has been available for use since November, it has not been officially included in the CERCLA regulations as satisfying the All Appropriate Inquiries (AAI Rule).

On March 14, 2022, the U.S. EPA published a direct final rule to update CERCLA’s Standards and Practices for AAI to state that the ASTM E1527-21 standard is equivalent to the AAI Rule. This update does not require the use of ASTM E1527-21 to satisfy the AAI Rule, but would allow use of the standard to meet the AAI Rule. The update also retains the ability to use the ASTM E1527-13 or ASTM E2247-16 standards to meet the AAI Rule. The rule is expected to go into effect on May 13, 2022, unless the EPA receives significant negative comments.

In its review of the ASTM E1527-21 standard, the EPA found “no legally significant differences between the regulatory requirements and the ASTM E1527-21 standard.” Nevertheless, the EPA provided a “Comparison of All Appropriate Inquiries Regulation, the ASTM E1527-13 Phase I Environmental Site Assessment Process, and ASTM E1527-21 Phase I Environmental Site Assessment Process.” This document is intended to “facilitate an understanding of the slight differences between the AAI Rule and the ASTM E1527-21 standard” and “the applicability of the E1527-21 standard to certain types of properties . . . .”

While the prior ASTM standards, particularly ASTM E1527-13, will continue to satisfy the AAI Rule for the time being, it is only a matter of time before it will be officially phased out. Therefore, parties seeking to satisfy the AAI Rule in order to qualify for CERCLA’s innocent landowner defenses, such as the bona fide prospective purchaser defense, should become familiar with the ASTM E1527-21 standard and consider requiring future Phase I ESAs to comply with the new standard.

Throughout the first year of the Biden-Harris Administration, Environmental Justice (EJ) has been a focus of the U.S. Environmental Protection Agency. As I wrote about in November 2021, since January 2021 EPA has released numerous policies and guidance documents on EJ-related issues and has taken unprecedented actions in connection with permitting reviews and enforcement actions. EPA Administrator Michael Regan has repeatedly emphasized that EJ will be a top EPA priority.

Recently, EPA released additional broad policy actions to follow through on its EJ priority. These actions include:

  • “Aggressively” using EPA’s authority to conduct unannounced inspections of suspected non-compliant facilities and using all available tools to hold accountable those found to be in non-compliance.
  • Establishing a new program to expand air monitoring capacity, including additional air pollution inspectors, airplanes, and other air monitoring vehicles.
  • Leveraging EPA resources to invest in community air monitoring in vulnerable areas.
  • Pressing state and local elected officials to take urgent action to better protect the most overburdened communities.
  • Increased monitoring and oversight of polluting facilities in overburdened communities.
  • Applying the best available science to agency policymaking to safeguard public health and protect the environment.

EPA’s announcement included a number of specific actions focused on southern states (e.g., Texas, Louisiana,  and Mississippi) to address long-standing EJ challenges. This included the formation of a Multi-Scale Monitoring Project called the Pollution Accountability Team (PAT), which will utilize high-tech air pollution monitoring, and an increase in inspectors on the ground to enhance inspection and enforcement actions.

While EPA’s recent announcement is primarily focused on EJ challenges in a handful of southern states, it provides useful insight into EPA’s EJ-related investments, investigations, and enforcement nationwide.

 

Effective January 26, 2022, OSHA withdrew its enforcement of its COVID-19 Emergency Temporary Standard (ETS), which would have required many employers to mandate vaccination or regular testing for employees. As we have previously discussed, the ETS had undergone a number of legal challenges. Most recently the United States Supreme Court stayed the ETS and sent it back to the Sixth Circuit for full review on the merits. OSHA’s announcement that it will cease enforcement of the ETS will likely end this litigation.

Although OSHA is withdrawing the ETS as an enforceable emergency temporary standard, OSHA has not withdrawn the ETS as a proposed rule. This is significant because it will allow OSHA to expedite the rulemaking for a permanent COVID-19 rule under the Administrative Procedures Act. In the meantime, OSHA is prioritizing its resources to focus on finalizing a permanent COVID-19 Healthcare Standard and continues to “strongly encourage[s] vaccination of workers against the continuing dangers posed by COVID-19 in the workplace.”

While the ETS will not be enforced at this time, employers should investigate whether another federal, state, or local mandate may apply to them. If not, then they may choose to implement policies and practices they deem appropriate for the unique needs of their work environment. Of course, OSHA is continuing to enforce existing personal protective equipment, respiratory protection, and sanitization standards, as well as issue citations for recognized hazards (including COVID-19) under the General Duty Clause.

As we have previously reported, the implementation status of OSHA’s Emergency Temporary Standard (ETS) regarding COVID-19 vaccination or testing seems to change weekly. Yesterday, the United States Supreme Court reinstated the stay of OSHA’s ETS, ultimately sending the rule back to the Sixth Circuit to await a full review on the merits.

In the 6-3 opinion, the Supreme Court held that, while OSHA has the authority to regulate “occupational dangers,” it does not have the authority to regulate “public health more broadly.” The Supreme Court held that, while COVID-19 might be present in workplaces, it is not necessarily an occupational hazard in most. “Permitting OSHA to regulate the hazards of daily life—simply because most Americans have jobs and face those same risks while on the clock—would significantly expand OSHA’s regulatory authority without clear congressional authorization.”

While the ultimate fate of OSHA’s ETS will continue to play out in the courtroom, U.S. Secretary of Labor Marty Walsh released a statement urging employers to require workers to get vaccinated or tested weekly. Secretary Walsh also referenced OSHA’s existing COVID-19 guidance as a resource for employers to keep workers safe from COVID-19. Secretary Walsh concluded by saying:

“Regardless of the ultimate outcome of these proceedings, OSHA will do everything in its existing authority to hold businesses accountable for protecting workers, including under the Covid-19 National Emphasis Program and General Duty Clause.”

Employers should continue to monitor the fate of the OSHA ETS as it heads back to the Sixth Circuit. In addition, the Executive Order related to COVID-19 vaccination/testing for federal contractors, while currently stayed, may be reinitiated as well. Employers should continue to monitor legal developments related to the Executive Order.

Perhaps not as glamorous as the Times Square crystal ball, but something else drops at the start of the New Year: The threshold for mandated food waste separation and recycling by certain industrial and commercial facilities in Connecticut.

Legislation passed this year cut in half the annual tonnage of organic waste generation – from 52 tons/year to 26 tons/year – that will trigger the state’s organics recycling mandate under certain conditions. In particular, as of January 1, 2022, certain facilities – industrial food manufacturers and processors, commercial food wholesalers and distributors, supermarkets, resorts, and conference centers – must source-separate organic materials from other solid waste and ensure that such source-separated organic materials are recycled at an authorized composting facility. This requirement is triggered if the following conditions are met:

  1. The facility must generate an average projected volume of at least 26 tons/year of source-separate organic materials;
  2. The facility does not compost its source-separated organics material on-site, or treat it via on-site organic treatment equipment permitted under state or federal law; and
  3. The facility is located 20 miles or less from an authorized composting facility that has available capacity and will accept the source-separated material.

While Connecticut’s statute does not provide details about how to calculate a facility’s average projected volume against the 26 tons/year threshold, the internet provides some tools that may be useful for this purpose (caveat emptor). For example, there is a calculator developed by the Massachusetts Department of Environmental Protection-funded Recycling Works in connection with that state’s similar organics recycling mandate.

To determine if an authorized composting facility is within the 20-mile limit of your facility, a good place to start is the Connecticut Department of Energy and Environmental Protection’s food waste composting webpage. This page includes a relatively recent, but not necessarily definitive, list of such composting facilities.

Unlike some of the other jurisdictions in the country with similar organics recycling mandates, Connecticut’s program does not cover institutional cafeterias, such as those at large corporate offices, hospitals, schools or universities.

On December 21, 2021, the U.S. Supreme Court took its first step into the fray over federal vaccine mandates. As we have previously posted, legal challenges to the Biden administration’s various vaccine mandates have been working their way through the courts since November. Most recently, the U.S. Court of Appeals for the Sixth Circuit ruled last Friday that OSHA’s Emergency Temporary Standard (ETS) for COVID-19, which includes a vaccine-or-testing mandate, could continue after it was halted by another court the day after it went into effect. In an unusual move, the Supreme Court announced it will hold a special hearing on January 7 to hear arguments on both the ETS and a regulation from the Centers for Medicare and Medicaid Services (CMS) requiring vaccines for health care workers. The Supreme Court has not yet issued any rulings to stay either requirement. Both requirements are set to go into effect in January.

The January 7 hearing will occur just before the Supreme Court is set to begin its regularly scheduled term. The hearing also moves these legal challenges from the so-called “shadow docket,” which has been subject to criticism lately. The Supreme Court has repeatedly upheld state-implemented vaccine mandates in a variety of circumstances. However, the future of OSHA’s ETS and the federal contractor vaccine mandate will likely turn on whether Congress authorized the executive branch to institute these types of requirements. While the Justices’ questions during the January 7 hearing will likely give some insight into how they may rule, the date of a ruling on the future of these requirements is not known.

At his confirmation hearing earlier this year, Attorney General Merrick Garland identified the policing of corporate crime and enforcement as a key priority of the Biden administration. In an address at the ABA’s recent National Institute on White Collar Crime, Deputy Attorney General Lisa Monaco announced three significant actions to strengthen the Department of Justice’s (DOJ) corporate criminal enforcement policies and practices. The DOJ memo provides prosecutors with a new, or at least sharpened, set of tools to effectuate DOJ policy. For companies and corporate officers, especially those in heavily-regulated industries, the DOJ’s renewed focus warrants a review of internal compliance programs and procedures.

Evaluating History of Misconduct

When evaluating a company’s compliance history, the policy clarifies that prosecutors are to consider the entirety of the entity’s regulatory and criminal enforcement record, not simply the misconduct at issue.  Prosecutors are encouraged to “start from the position that all prior misconduct is potentially relevant,” and therefore broaden their information sweep. This includes any prior criminal, civil, or regulatory enforcement actions, regardless of how it might relate, or not, to the subject of the present investigation. Organizationally, it also includes the target company’s parent, divisions, affiliates, subsidiaries, and other entities within the corporate family. Especially for large companies and multi-national corporations, this broad scope of review could result in a greater focus on the target’s past misconduct, even if unrelated to the conduct at issue.

Identifying All Individuals

Obtaining credit for cooperating with the authorities can influence, or even determine, the outcome of a prosecution determination. The DOJ has clarified that, in order to qualify for any cooperation credit, “corporations must provide to the Department all relevant facts relating to the individuals responsible for the misconduct.” This means producing “all nonprivileged information relevant to all individuals involved in the misconduct,” both inside and outside of the company. The new policy takes a broad view of “involved” and effectively removes the company’s discretion in determining which individuals to disclose to the government. Even in the case of a rogue employee falsifying records, the company will be expected to disclose the identity of co-workers, supervisors, and managers, regardless of position or potential culpability.

Using Corporate Monitors

The DOJ has pivoted away from prior policies critical of corporate monitors and has recommitted to imposing monitors where appropriate in corporate criminal matters. While still evaluated on a case-by-case basis, the DOJ will favor the imposition of a third-party monitor where a company’s compliance program has proven ineffective, untested, or inadequately funded. According to the DOJ, monitors can be “an effective means of reducing the risk of repeat misconduct and compliance lapses.” Independent monitors can also be a costly addition to a resolution of a government investigation.