Carbon capture, utilization, and sequestration (CCUS) offer a known and readily available method to reduce the net emissions of carbon dioxide and meet ambitious climate goals. The regulatory framework, and the multiple protections built into it, ensure that it is safe. However, as the number of requests for authorizations of CCUS projects increases, it is uncertain whether that very regulatory framework and the agencies in charge of permitting and regulating the injection of carbon dioxide will facilitate or inhibit our ability to meet those climate goals.Continue reading “Is CCUS The Path to Net Zero?”
Preparing for Enhanced Enforcement in Overburdened Communities
In response to President Biden’s executive order requiring all federal agencies to embed equity into their programs and services, Michael Regan, EPA’s Administrator, directed all EPA offices to “strengthen enforcement of violations of cornerstone environmental statutes and civil rights laws in communities overburdened by pollution.” Internal memoranda were then issued regarding strengthening civil, criminal, and clean-up enforcement in communities with environmental justice concerns.
These internal memos are fairly general in nature but do have enough information to provide some insight into EPA’s direction as to environmental justice and enforcement. Essentially, the overall message is that EPA will use all available statutory and regulatory methods and mechanisms to minimize potential risks from ongoing or historic pollution in or near overburdened communities.
As to enforcement, EPA will increase the number of inspections in overburdened communities, resolve non-compliance using remedies with tangible benefits to that community, such as environmental projects, preventing further pollution, or fence-line monitoring, and increasing engagement with overburdened communities about enforcement cases. EPA’s Office of Land and Emergency Management also announced in December 2021 that it will analyze compliance patterns of Spill Prevention, Control, and Countermeasure (SPCC) and Facility Response Plan (FPC) facilities in overburdened communities and identify locations that are more likely non-compliant in order to focus future inspections and compliance efforts on these areas. In other words, SPCC/FRP facilities with past violations which are located in or near overburdened communities will likely be faced with increased inspections and scrutiny.Continue reading “Preparing for Enhanced Enforcement in Overburdened Communities”
Uh OOOO! More Regulation for Oil and Gas Production
The EPA has published a proposed rule to regulate methane and other emissions from new and existing oil and gas production sites and other portions of the oil and gas industry. The proposed rules are to be revisions and additions to the rules in Subparts OOOO and OOOOa and are the Biden Administration’s first entry into the back-and-forth regulation of this sector during the Obama and Trump Administrations. The proposed rules, however, go farther and are more expansive than even the Obama-era regulations.
The Biden Administration has famously imposed an “all of government” approach to addressing climate change. The effort began on President Biden’s first day when, among other things, he revoked the permit for the Keystone XL pipeline, paused new oil and gas leasing on federal lands, and re-entered the Paris Agreement. These, and other actions, contrasted sharply with the Trump Administration’s full-throated support of oil and gas production.
According to the U.S. Energy Information Agency, the United States produced more petroleum in 2020 than it consumed and exported more petroleum than it imported, making the United States a net annual petroleum exporter for the first time since at least 1949. As to natural gas, total annual exports generally increased each year from 2000 through 2019 as increases in natural gas production contributed to lower natural gas prices and the competitiveness of natural gas in international markets. In 2019, the United States exported natural gas to about 38 countries and total annual natural gas exports were 4.66 trillion cubic feet, the highest on record, and the United States was a net exporter of natural gas for the third year in a row. For more information about Trump-era oil and gas production, click here.Continue reading “Uh OOOO! More Regulation for Oil and Gas Production”
Back to the Future!!
The scope of regulatory jurisdiction over navigable waters and wetlands has again come into question under the Biden Administration. Over the course of four administrations, this jurisdiction has been explained, expanded, enjoined, restricted, and remanded to the point where the public has little confidence in continuity over time. Now, to determine jurisdiction over waters and wetlands, we go back to prior guidance while the future of regulatory jurisdiction is determined through yet another rulemaking.Continue reading “Back to the Future!!”
Energy Consumption Data During the Pandemic Year Reveals China’s Growth
2020 is a year that most people would likely soon forget, both in terms of personal impacts and the overall economic downturn caused by the pandemic. While it hopefully will prove to be an anomaly, economic and energy usage data and statistics from 2020 still provide some useful insights and glimpses of future issues. BP recently released its annual Statistical Review of World Energy, covering through the end of 2020.
Although declines in use were noted for coal and natural gas, oil had the sharpest decline in global consumption: 9.1 million barrels per day, or 9.3 per cent. The decline is the largest ever seen and accounts for about three-quarters of the total decline in energy consumption. Oil demand fell the most in the US (2.3 million barrels per day), followed by the decline in the European Union of 1.5 million barrels per day. China saw an increase in oil consumption of 220,000 barrels per day.Continue reading “Energy Consumption Data During the Pandemic Year Reveals China’s Growth”
How to Ruin a Perfectly Good Oil and Gas Boom
Over the last several years, oil and gas production has risen steadily, setting production records year after year. These increases were driven mainly by production from tight rock formations using horizontal drilling and hydraulic fracturing.
According to the U.S. Energy Information Agency, the United States exported more petroleum than it imported in 2020, making the United States a net annual petroleum exporter for the first time since at least 1949. It also produced more petroleum than it consumed. Crude oil imports, though, were higher than exports. However, some of the imported crude oil is refined into petroleum products, such as gasoline, heating oil, diesel fuel, and jet fuel, and then exported. As to natural gas, total annual exports generally increased each year from 2000 through 2019 as increases in natural gas production contributed to lower natural gas prices and the competitiveness of natural gas in international markets. In 2019, the United States exported natural gas to about 38 countries and total annual natural gas exports were 4.66 trillion cubic feet, the highest on record, and the United States was a net exporter of natural gas for the third year in a row.
Against this backdrop of robust oil and gas production, the Biden Administration was installed on January 20, 2021. President Biden wasted no time reigniting the war on fossil fuels. Among other things, he rejoined the Paris Agreement on the day he was inaugurated, mandated the use of the “social cost of carbon” when monetizing greenhouse gas impacts, and paused new oil and gas leases on federal lands and in offshore waters.
Under the 2015 Paris Agreement, President Obama pledged that the United States’ nationally determined contribution to greenhouse gas emission (GHG) reduction was 26% to 28% below 2005 levels by 2025. President Biden has now announced that the United States will achieve a 50 – 52% reduction from 2005 levels by 2030 and achieve net zero emissions by 2050. In the Fact Sheet released with the announcement, he also announced a goal to reach “100 percent carbon pollution-free electricity by 2035.”
According to the EPA’s GHG Inventory, Table E-2, total GHG were 7,423 million metric tons of carbon dioxide equivalent (MMT) in 2005. Over the 14 years from 2005 through 2019, total GHG emissions dropped to 6,558.3 MMT, a drop of 864.7 MMT and 11.6%. GHG emissions dropped in 2020 due COVID-related economic restrictions but are expected to rise with renewed economic activity.
However, President Biden’s goals place even greater transformative pressure on the economy and creates a great deal of uncertainty as to how his goals will be achieved in the designated time frames. To achieve the goal of reducing total GHG by 50% from 2005 levels (half of 7,423 MMT is 3,711.5 MMT), an additional 2,846.8 MMT will have to be reduced over the next nine years based on the 2019 level of 6,558.3 MMT. Assuming that the entire electrical generation infrastructure can be changed by 2030 or 2035, a realization of the goal of “100 percent carbon pollution-free electricity by 2035” will not achieve the overall 50% goal, as 2019 emissions from fossil fuel combustion for electric power were only 1,606 MMT. Clearly, reductions from many other sectors of the economy will have to be realized.
The social cost of carbon (SSC) is an estimate of the monetized “damages” associated with incremental increases in greenhouse gas emissions. Its use and value were scaled back under President Trump. However, President Biden issued an executive order requiring its use “when monetizing the value of changes in [GHG] emissions resulting from regulations and other relevant agency action.” An interim SSC was released in February 2021 setting the SSC at $51 per metric ton (at a three percent discount rate) with increases to $85 per metric ton by 2050. Thus, there is a “cost” of $51 for every metric ton of CO2 emitted in 2020. Stated another way, preventing the emission of a ton of CO2 yields $51 in societal value or benefit.
The use of an inflated SSC tends to skew a cost-benefit analysis. The addition of costs associated with the emission of carbon will likely always generate a conclusion that the societal benefits of a proposed rule outweigh its costs. Further, the use of the SSC for “other relevant agency action” means that the SSC will be applied beyond rule-making to a variety of new agency actions. Based on this broad language, Interior may factor in the SSC in its decision to resume oil and gas activities on federal lands.
President Biden also issued an executive order requiring that the Secretary of the Department of Interior “pause new oil and gas leases on public lands or in offshore waters.” The “pause” will be in place pending a “comprehensive review” of “potential climate and other impacts of oil and gas activities on public lands and in offshore waters.”
This is not the first time Interior has been engaged in hindering oil and gas activity. In fiscal year 2007, 7,124 drilling permits were approved on federal lands, but by FY 2016 that number had dwindled to 2,184. There was a bit of a rebound by FY 2020 as 4,226 permits were issued. Further, the new Secretary of the Interior, Deb Haaland, has revoked twelve Trump era orders that were focused on promoting oil and gas development on federal lands and in offshore waters because the orders were “found to be inconsistent with, or present obstacles to,” the policies announced by President Biden.
The Department’s web-site states that the “worsening impacts of climate change pose an imminent threat to our daily lives, critical wildlife habitats and future generations” and the “time for bold action is now.” It is likely that the Interior, as part of its “comprehensive review,” will factor in the SSC in its decision to resume oil and gas activities on federal lands.
Interestingly, in order to achieve a “100 percent carbon pollution-free electricity by 2035” and net zero emissions by 2050, a vast number of solar and wind farms will have to be built in a short period of time. Some estimate that an area the size of South Dakota will be required to achieve the 2035 goal and an area the size of five South Dakotas is necessary to achieve the 2050 goal. It is likely that the same federal lands that now support oil and gas development will be utilized to house the large number of wind turbines and solar panels necessary to produce the necessary electricity.
The production and combustion of fossil fuels, including clean burning natural gas, will face obstacles that will curtail growth and likely diminish the levels of current production in order to reach the new GHG emission reduction goals. In announcing the new reduction targets, President Biden did not address the disruption to the oil and gas industry or the economy as a whole which will be associated with such a dramatic decrease in reliance on fossil fuels over such a short time period.
Louisiana Board of Tax Appeals Rules That Chemicals Qualify for Pollution Control Sales Tax Exclusion
The Louisiana Board of Tax Appeals issued an important ruling relating to pollution control devices or systems. For at least two decades, the relevant agencies did not consider chemicals to meet the definition of a pollution control device or system and thus chemicals did not qualify for the applicable exclusion from sales tax. However, the decision, issued on April 14, 2021, found that chemicals used for pollution control, which otherwise meet the terms of the exclusion, could qualify and provide a refund for sales taxes paid.
For sales tax purposes, the term “sale at retail” does not include the sale of a “pollution control device or system.” The statutory definition is “any tangible personal property approved by the Department of Revenue and the Department of Environmental Quality and sold or leased and used or intended for the purpose of eliminating, preventing, treating, or reducing the volume or toxicity or potential hazards of industrial pollution of air, water, groundwater, noise, solid waste, or hazardous waste in the state of Louisiana.” La. R.S. 47:301(10)(l). The regulatory definition is similar but with a relevant difference: “any one or more pieces of tangible personal property which is intended and installed.” LAC 61:I.4302, emphasis supplied.
Monsanto Company operates a facility in Luling, Louisiana (the Luling Facility). Like many industrial facilities in Louisiana, Monsanto utilizes sodium hydroxide, or caustic, to neutralize and control the pH of acidic waste streams. Monsanto uses caustic in its air scrubbers, which are pollution control devices designed to neutralize acid gases. In fact, Monsanto’s air permit mandates that caustic be used in this manner. Monsanto also uses caustic to control the pH of its wastewater prior to discharge and deepwell injection. Again, Monsanto’s discharge and injection permits mandate that the pH be maintained above or within specific levels prior to discharge or injection.
The caustic is received at the Luling Facility in liquid form and placed it into storage tanks. From this central location, the caustic is hard piped to the various scrubbers, tanks, and other equipment. Sensors in each unit determine the pH of the materials and caustic is automatically pumped to the unit to adjust the pH when and as needed.
During an internal tax review, it was determined that Monsanto had paid over $3.9 million in sales taxes on its caustic purchases between 2012 and 2014. Monsanto applied for a sales tax refund. However, when the Louisiana Department of Environmental Quality (LDEQ) received Monsanto’s application for review, it stated that it “does not consider chemicals as parts of pollution control systems … because they do not constitute ‘tangible personal property … installed.’” Based on this, the Department of Revenue (Revenue) denied the sale tax refund and Monsanto appealed to the Board of Tax Appeal (BTA).
In its Order with Written Reasons, the BTA found that Monsanto “is entitled to the claimed refund.” The BTA, noting that it must construe exclusions in favor of the taxpayer and that it does not give deference to LDEQ’s interpretation of the law, disagreed with LDEQ’s “interpretation of the law related to the meaning of ‘installed.’” The term ‘installed’ is not defined in the statute, regulation, or any guidance from LDEQ or Revenue. Finding that the ordinary meaning of the word ‘installed’ is “to set up for use or service,” the BTA found that Monsanto installs the caustic as it sets it up in the storage tanks, uses caustic to neutralize acidic waste, and does so for use in its pollution control scheme. Therefore, Monsanto’s use of the caustic is “within a common and approved definition of ‘install.’”
Taxpayers still have a narrow window in which to seek refunds even though the exclusion was partially suspended from July 1, 2016 through June 2018 and fully suspended between July 2018 until 2025. Taxpayers that have paid sales taxes on chemicals, such as caustic, and which otherwise meet the terms of the exclusion have two opportunities to claim a refund: taxpayers may be entitled to a refund for periods from December 2017 through June 30, 2018 if claimed before December 31, 2021 and taxpayers currently under state audit may be able to claim additional periods prior to December 1, 2017 if the audit is still open.
The Social Cost of Carbon Returns
The Biden Administration has elevated concerns about climate change to the center of its decision-making, signaling that the emission of greenhouse gases must be severely curtailed. President Biden, beginning on his first day in office, rejoined the Paris Agreement and issued executive orders stating, among other things, that federal agencies must “immediately commence work to confront the climate crisis.” He has appointed officials to decision-making positions who have expressed their opposition to the use of fossil fuels. For an economy that currently relies heavily on fossil fuels to create low-cost energy, a “war on carbon” could cause unnecessary disruptions.
According to EPA’s Draft Inventory of US Greenhouse Gas Emission and Sinks, 1990 – 2019, the total gross U.S. greenhouse gas emissions in 2019 were 6,577.2 million metric tons of carbon dioxide equivalent. This represented a 2.0 percent increase since 1990 but a 1.7 percent decrease from 2018. The decrease from 2018 is largely due to a decrease in CO2 emissions from fossil fuel combustion, reflecting the continued shift from coal to less carbon intensive natural gas and renewables. Emissions have decreased 12.9 percent since 2005 levels.
Despite these decreases and downward trends, President Biden on January 20, 2021 issued Executive Order 13990. In it, he explained that the “social cost of carbon” is an estimate of the monetized damages associated with incremental increases in greenhouse gas emissions which represents “changes in net agricultural productivity, human health, property damage from increased flood risk, and the value of ecosystem services.” He established the Interagency Working Group on the Social Cost of Greenhouse Gases and ordered that the IWG publish an interim SCC within 30 days.
The IWG met the deadline, issuing an interim SSC in February 2021. The IWG’s SSC was generally a reinstatement of the SSC it had developed prior to being disbanded in January 2017 by President Trump. According to the IWG, the SSC is $51 per metric ton (at a three percent discount rate) which increases to $85 per metric ton in 2050. Thus, there is a cost of $51 for every metric ton of CO2 emitted in 2020. Stated another way, preventing the emission of a ton of CO2 yields $51 in societal value or benefit.
The use of an inflated SSC tends to skew a cost-benefit analysis. For example, in the Regulatory Impact Analysis for the Clean Power Plan, issued by the Obama Administration in 2015, it was estimated that the climate benefits were $2.8 billion by 2020 (at a three percent discount rate) and, when those estimated climate benefits were added to the air quality health co-benefits, the benefits vastly outweighed the estimated compliance costs. The EPA then used that analysis to justify, in part, the issuance of the rule. The addition of costs associated with the emission of carbon will likely always generate a conclusion that the societal benefits of a proposed rule outweigh its compliance costs.
More of the type of cost benefit analysis used in the Clean Power Plan is forthcoming from EPA and other agencies. EO 13990 mandates that “agencies shall use [the interim SSC] when monetizing the value of changes in greenhouse gas emissions resulting from regulations and other relevant agency actions until final values are published.” Thus, the SSC will be used in a host of regulatory determinations over the next four years to justify agency actions. Likely, the SSC will be used to hinder, delay, or deny projects involving fossil fuels. It has been difficult enough over the years to obtain permits for natural gas pipelines, liquified natural gas facilities, and other facilities emitting greenhouse gases or at least contributing to the emission of such gases. Now, with the renewed application of a higher SSC, authorizations for such projects face an even more difficult path to a final permit.
Earlier this month we posted the five-part series, “Environmental Justice: Origins, Background, and Site Selection Considerations”. I am pleased to announce that the Washington Legal Foundation, a public interest law firm and policy center in Washington, D.C., has compiled the five-part series. You can visit or bookmark the series here at this link: https://www.wlf.org/wp-content/uploads/2021/02/2-2021King_CLN-final.pdf
Below is another five-part series concerning siting in Louisiana. The five articles can be found at these links:
Environmental Justice: Origins, Background, and Site Selection Considerations – Part V: Considerations in Site Selection
Environmental justice is not a new concept, but it is one that promises to receive renewed and vigorous attention in the Biden Administration. On his first day in office, Mr. Biden issued an Executive Order requiring the federal government to advance and prioritize environmental justice. Mr. Biden has selected a committed advocate as the head of EPA who has promised a pronounced emphasis on environmental justice concerns.
As a result, it is a good time to understand the legal underpinnings of environmental justice claims, the current EPA approach to investigating complaints regarding environmental justice, and steps that may be taken during site selection to minimize or eliminate serious claims regarding environmental justice.
The article contains five parts:
Part II: The Executive Order and EPA’s Regulations
Part III: EPA Guidance – The 2000 Draft Revised Investigative Guidance
Part IV: EPA Guidance – The Toolkit
Part V: Considerations in Site Selection
Part V: Considerations in Site Selection
An applicant for an environmental permit faces any number of hurdles in gaining approval to construct and operate a facility or even expand an existing facility. Environmental justice concerns add a layer of complexity and uncertainty to capital investment decisions. It is almost certain that environmental justice claims will be made during the permitting process for major facilities. While each situation is different and the level of effort should be based on the facts and needs in each case, consideration can be given to taking certain steps before and during that process to reduce the likelihood of success of any such claims.
It is important to note that there is little to no fact-checking during the public comment process, meaning that opponents to a facility can make any number of unsupported claims. Many environmental justice advocates seem to believe that any facility located near or in the vicinity of a disadvantaged community is, on its own and regardless of the facts, a basis to make a claim regarding environmental justice. In other words, the mere location of the facility creates an environmental injustice. Additionally, claims of environmental injustice can be made tactically to galvanize opposition to the facility, again without regard to facts or based on the flimsiest of evidentiary bases. Notwithstanding the rhetoric, there are legal standards and factual thresholds, based on Title VI and the case law interpreting it and EPA’s own regulations and policies, that must be met to prove an environmental justice claim.
It is also important to remember that administrative or judicial review of environmental permits is usually confined to an administrative record. It is critically important that information developed to counter environmental justice claims be placed into the administrative record during the application and public comment process. Without supporting information in the record, the agency and permittee will not be able to rely on and reference the information in a decision document, the permit decision will lack valuable supporting evidence, and a reviewing tribunal or court will lack a basis to uphold the permit decision.
The obvious, but perhaps unrealistic, step to limit or eliminate environmental justice claims is to locate a facility in an area where no one lives in proximity to the proposed facility. These may be located in rural areas or within much larger tracts used or set aside for industrial purposes (sometimes called ‘mega-sites’). If such tracts are available, they should be given serious consideration. However, rural tracts may not meet the needs of the proposed facility, such as access to transportation infrastructure for raw materials or products, and even the larger tracts set aside for industrial purposes may have residents in some degree of proximity.
As a result, it is more likely than not that available industrial sites will be located in areas where some population resides in some degree of proximity. Determining if those sites are suitable for selection, from an environmental, economic, and environmental justice perspective, requires a searching inquiry that should begin prior to making any purchase commitments.
Site selection can be based on a number of considerations. Economic considerations, such as price, property size, local zoning or land use ordinances, proximity and access to transportation (pipelines, rail, truck, barge, or ship), and access to electrical infrastructure, are standard. Many companies make decisions based solely on these considerations.
However, environmental considerations are also important. For example, in Louisiana, an applicant and the environmental agency must give due consideration to environmental aspects of the project and an applicant cannot simply rely on business or economic considerations. See e.g., In re: Supplemental Fuels, Inc., 94-1596 (La. App. 1 Cir. 5/9/95), 656 So.2d 29, 39. Environmental considerations could include the attainment status of the area, the amount of wetlands on or adjacent to the property, the property’s location in a floodplain, the water quality standards for the waters receiving permitted discharges from the facility, the level of emissions, and the proximity of residents to the proposed facility.
Environmental justice has added a new level of complexity and considerations to site selection, especially as to the effect the environmental aspects of the facility have on any community in proximity of the proposed facility. In general terms, the demographics of the population in proximity to the proposed site can be obtained and the effects of “pollution” (such as generated waste, wastewater discharges, and air emissions) from the facility on that population can be analyzed.
In this regard, due regard should be given to the site selection team and its organization. Team members representing real estate, economics, and environmental professionals should be included, but, should the circumstances warrant it, consideration should be given to including counsel, along with a modeler, statistician, and toxicologist. The modeler, statistician, and toxicologist should be hired by counsel as consulting experts and should report only to counsel. This will assist in preserving the confidentiality of any communications from the modeler, statistician, and toxicologist regarding the effects of “pollution” on the community.
The demographics of the community in proximity, down to zip codes and census blocks, can be obtained from the US Census and other sources. Further, there may be reliable information available regarding actual impacts in a given area. For example, the Louisiana Tumor Registry compiles actual cancer incidences and mortality data for specific cancers at the census block level.
Once available data is gathered, the modeler, toxicologist, and statistician can evaluate potential impacts on a neighboring community. In these efforts, counsel and these team members should be guided by the legal and policy framework set out in the Draft Revised Investigative Guidance and Toolkit or any other guidance issued by the Biden Administration. In other words, their efforts and analysis should be shaped and guided by the “disparate impact” framework set forth in those documents.
The modeler can use air emission models to predict or identify off-site locations, or receptors, where air emissions are predicted to be located. For example, receptors can be located within the model at locations in and around the community to predict the level of emissions at that location or receptor based on the maximum levels of emissions estimated from the proposed facility. The toxicologist can utilize the predicted information from the model to determine the potential impacts on that population and the statistician can determine if that potential level of impact is statistically significant.
During the permit and public comment process, opponents are likely to insert their own information into the record to attempt to support their claims. Information such as the demographics of an area, the results of screening model runs, such as EPA’s Risk-Screening Environmental Indicators (RSEI) model, and data obtained from EPA’s EJ Screen have all been used. However, the RSEI model and EJ Screen have important caveats as to their use. For example, EPA notes that EJ Screen was developed merely to “highlight places that may be candidates for further review.” There is “uncertainty in the data” and that EJ Screen is “a screening tool and “not a detailed risk analysis.” See www.epa.gov/ejscreen/limitations-and-caveats-using-ejscreen. The applicant and its team should address and refute any comments and submissions utilizing this type of basic screening-level information.
The end result of the process should be a report that can be placed into the record for each potential site to support the decision to choose a particular site. If the analysis indicates that a particular site will not have a disparate impact, based on EPA’s own analytical framework, the site can be evaluated based on economic or environmental considerations. If the analysis indicates that a particular site will have or may have a disparate impact, that site can be ruled out, additional analysis performed to further define the extent of any impact, or perhaps there may be facts supporting a claim of substantial legitimate justification. In this way, the decision to choose a specific site has a viable and supported administrative record that should survive administrative or judicial review and should serve to counter or negate opposition and/or unsupported rhetoric in the record.