Authors Byron Taylor, David T Buente Jr, Roger R Martella Jr, Judith M Praitis Contributed by Sidley Austin LLP

Environment & Climate Change USA

Litigation developments
Rulemaking and policy developments
Enforcement developments
Biotechnology developments

Whether the issue was climate change, air quality standards or water jurisdiction, the Environmental Protection Agency’s (EPA) landmark rulemakings dominated the environmental headlines in 2015. This update highlights the decisions, rulemakings and policy determinations that are likely to have precedential effect and may represent long-term trends affecting the environment and regulated entities during 2016 and beyond.

Litigation developments

Superfund divisibility defence
Despite hopes raised in a court of appeals decision in 2014, federal district courts in 2015 remained unwilling to allow companies to limit their Comprehensive Environmental Response, Compensation and Liability Act (Superfund) liability through the defence of divisibility. Courts generally hold that Superfund liability is joint and several, although the Supreme Court has held that defendants can avoid joint and several liability if they can prove that a “reasonable basis for apportionment” exists.(1)

In 2014 the Seventh Circuit reversed a district court decision denying a divisibility defence in the Lower Fox River Superfund case and directed the district court to reconsider whether NCR Corporation had proven its entitlement to divisibility.(2) On remand in 2015, the district court initially held that NCR’s liability was divisible and limited to 28% of the clean-up cost at the site.(3) However, following several motions to reconsider, the district court changed its mind and held that NCR was subject to joint and several liability.(4) NCR has sought certification for an interlocutory appeal and that motion is pending.

In a separate case, a Rhode Island district court rejected Emhart Industries Inc’s attempt to have its liability declared divisible.(5) Although Emhart offered several different ways by which the court could apportion the liability – including geographic area, volume of contamination released, type of contaminants released and years involved in the site – the court found factual deficiencies in all of them. These cases continue a pattern of district courts rejecting efforts to establish a divisibility defence, despite the invitation of courts in cases such as Burlington Northern and Glatfelter.

Clean Air Act pre-emption of tort litigation
Several 2015 cases examined the relationship between common law tort claims and pre-emption under the Clean Air Act, adding to a pre-existing split of authority on the question.

The Sixth Circuit rejected defendants’ pre-emption defences in companion cases Merrick v Diageo Americas Supply Inc(6) and Little v Louisville Gas & Electric Company.(7) In Diageo Americas, plaintiffs living near a Louisville whisky distillery alleged that “whisky fungus” coated their homes and property, leaving a soot-like residue, and that ethanol vapours from the distillery caused the fungus to grow. The plaintiffs filed tort claims for damages and an injunction to abate the ethanol emissions by installing control technologies. Defendant Diageo moved to dismiss the plaintiffs’ nuisance and trespass claims, arguing that the Clean Air Act provided for comprehensive regulation of all air emissions from the refinery and warehouses. The district court, relying on the Clean Air Act’s savings clause, denied the motion to dismiss and certified the ruling for interlocutory appeal. The Sixth Circuit affirmed the lower court’s ruling, citing Bell v Cheswick Generating Station(8) as persuasive in finding that the Clean Air Act’s savings clause preserves state law tort claims.

The Sixth Circuit applied the same rationale to companion case Louisville Gas & Electric, where property owners near the Cane Run coal-fired power plant alleged that dust and coal ash from the plant settled onto their homes and cars. Plaintiffs filed claims of trespass, nuisance and negligence, citing alleged property damage. Unlike the Diageo refinery, the Cane Run plant was subject to an order specifically governing fugitive dust emissions. After issuing six notices of violation, the Louisville Air Pollution Control District’s Air Pollution Control Board (the Clean Air Act permitting agency) issued an order for Louisville Gas & Electric to implement a comprehensive odour, fugitive dust and maintenance emissions control plan at the Cane Run plant. The Sixth Circuit never mentioned this distinction. Instead, it stated merely that the question was “disposed of” by Diageo Americas.

Diageo Americas and Louisville Gas & Electric join the Second and Third Circuit Courts of Appeals’ rejection of the Clean Air Act pre-emption defence,(9) along with a 2013 case in the District Court for the Western District of Texas(10) and a New Hampshire Supreme Court case.(11) In contrast, two district court cases – Comer v Murphy Oil USA in the Southern District of Mississippi(12) and United States v EME Homer City Generation in the Western District of Pennsylvania –(13) previously dismissed tort claims under the Clean Air Act pre-emption defence.

Two additional courts decided notable Clean Air Act pre-emption cases last year. In Sciscoe v Enbridge Gathering (N Tex) LP the Seventh Court of Appeals for Texas reinstated nuisance claims against several midstream companies by 18 homeowners alleging that a compressor station was the source of excessive noise, offensive odours and particulate matter emissions that settled on their property.(14) The trial court granted summary judgment for the defendants, holding in part that the nuisance claim was pre-empted by local, state and federal air regulations. The Seventh Court of Appeals reversed this finding, holding that compliance with a permit and regulations does not constitute a licence to pollute, and that the plaintiffs’ nuisance claim could succeed without interfering with state or federal authority to regulate airborne emissions. The court upheld the lower court’s grant of summary judgment to the defendants regarding the plaintiffs’ demand of $1,000 for each day the defendants continued their alleged trespass. It found that a $1,000 per day assessment was akin to an extra-regulatory fine instead of compensation. It pre-empted such a claim, finding that if it were permitted, such an assessment would displace existing mechanisms to fine companies for air quality violations.

In Morrison v Drummond Co Inc the US District Court for the Northern District of Alabama found that the Clean Air Act’s savings clause preserved a man’s claim that he developed acute myelogenous leukaemia from exposure to benzene while working at the defendant’s coke plant, and required a remand to state court. The defendant argued that the plaintiff’s claim would be determined by whether emissions from its coke plant complied with the Clean Air Act.(15) The court, however, held that pre-emption is a narrow grant of federal jurisdiction that was unavailable in light of the Clean Air Act’s savings clause.

Cross-State Air Pollution Rule
As reported in “2014 environmental year in review”, the Supreme Court reversed a prior DC Circuit decision vacating the EPA’s Cross-State Air Pollution Rule (Transport Rule) in EPA v EME Homer City Generation LP on April 29 2014.(16) The Transport Rule is the EPA’s latest effort to implement the Clean Air Act’s ‘good neighbour’ provision, which instructs states to prohibit upwind sources from emitting air pollutants that “contribute significantly” to downwind states’ ability to attain national ambient air quality standards (NAAQS). In the Transport Rule, the EPA determined that states were subject to the rule if their emissions contributed more than 1% of the total emissions in a downwind non-attainment area; it required subject states to impose cost-based emissions reductions, regardless of the degree to which the state contributed to downwind non-attainment.

The EPA established a federal implementation plan for all states covered by the Transport Rule without first giving them an opportunity to implement the rule through state implementation plans (SIP).

After the Supreme Court’s decision, the case was remanded to the DC Circuit for further briefing. On July 28 2015 the DC Circuit partially granted the petitions for review of the Transport Rule. The court granted several ‘as applied’ changes to the EPA-assigned emissions budgets for several states. However, it denied the broader challenges to the Transport Rule that were not addressed in the initial decisions of the DC Circuit and Supreme Court.

While the Transport Rule was stayed during the initial litigation, the stay was lifted after the Supreme Court decision. As a result, implementation of the Transport Rule began on January 1 2015. Further, on December 3 2015 the EPA published a proposed update to the Transport Rule. The proposal identifies 23 states that would be in an updated cross-state air-pollution region and therefore subject to the new rule. Using a similar approach as in the original Transport Rule, the EPA has proposed new emissions budgets for each of the 23 states which will take effect from 2017. The comment period for this proposed rule is now closed.

Mercury and Air Toxics Rule
The Supreme Court reversed a DC Circuit decision upholding the EPA’s Mercury and Air Toxics Rule on June 29 2015.(17) The Mercury and Air Toxics Rule established stringent emissions standards for mercury and other hazardous air pollutants emitted by power plants. The court held that the EPA impermissibly excluded consideration of costs when evaluating whether the regulation of hazardous air pollutants was “appropriate and necessary” under Section 112 of the Clean Air Act. Congress enacted a separate regulatory provision for power plants under Section 112 that requires the EPA to make such a finding.

While the regulatory scheme for power plants under Section 112 is unique, the court’s openness to considering costs in this context could have precedent in other areas under the Clean Air Act. However, the immediate effect of the court’s decision may be minimal. First, because the Mercury and Air Toxics Rule was not stayed during litigation, the vast majority of power plants had already taken action to comply with it before the Supreme Court’s decision was issued. Many coal-fired power plants installed costly emission-control devices, while others made irreversible decisions to retire. Further, the DC Circuit remanded the Mercury and Air Toxics Rule to the EPA without vacatur to allow the agency to consider costs. As a result, the rule will remain in effect while the EPA completes its review.

Regulation of reciprocating internal combustion engines
On May 1 2015 the DC Circuit held that the EPA’s final rule regulating reciprocating internal combustion engines under Sections 111 and 112 of the Clean Air Act was arbitrary and capricious.(18) The challenges centred on an exemption for reciprocating internal combustion engine generators operating fewer than 100 hours per year that the petitioners asserted could be used as back-up generators to replace clean energy sources. The court held that the EPA failed to respond to the petitioners’ comments on that issue as required by the Clean Air Act and the Administrative Procedure Act. Key themes throughout the litigation were the EPA’s authority to address electricity grid reliability under the Clean Air Act and the way in which the EPA should interact with the Federal Energy Regulatory Commission when environmental regulations may affect the electricity grid. The court subsequently granted the EPA’s request to delay issuance of the mandate in the case until May 1 2016 so that it could evaluate how to implement the remainder of the reciprocating internal combustion engine rule after vacatur of the 100-hour-operation exemption.

Rulemaking and policy developments

Greenhouse gas rulemakings
The year 2015 marked a significant expansion of the EPA’s regulation of greenhouse gas (GHG) emissions under the Clean Air Act in a variety of sectors.

Aircraft
On July 1 2015 the EPA proposed a new endangerment determination under the Clean Air Act for GHG emissions from aircraft. As with motor vehicles, the Clean Air Act requires the EPA to make a determination that emissions from aircraft cause or contribute to the endangerment of public health and welfare before it can regulate such emissions. The EPA’s proposed endangerment determination was similar to its finding for motor vehicles and relied on much of the same scientific evidence. The EPA also noted that US aircraft emit 11% of total GHG emissions from the transport sector and 3% of total US GHG emissions. It also issued an advanced notice of proposed rulemaking for GHG emissions from aircraft. The EPA and other federal actors have been engaged in international negotiations regarding GHG emissions from aircraft; in the advanced notice of proposed rulemaking, the EPA solicited comment on several proposals that have arisen from those international discussions. The EPA is expected to finalise the endangerment determination and issue proposed regulations for GHG emissions from aircraft in 2016, after the international community has had an opportunity to develop an international standard for such emissions.

Heavy-duty vehicles
On July 13 2015 the EPA and the National Highway Traffic and Safety Administration (NHTSA) issued proposed GHG emission limits and fuel efficiency standards for heavy-duty vehicles for model years 2018 to 2027. This is the fourth joint rulemaking on GHG emissions and fuel efficiency standards issued by the EPA and NHTSA, including two prior rulemakings for light-duty passenger vehicles and one prior rulemaking for heavy-duty vehicles. These Phase 2 regulations for heavy-duty vehicles pick up where the first heavy-duty vehicle rule left off and continue the EPA and NHTSA’s attempt to reduce GHG emissions from mobile sources. The agencies project that the rule could reduce fuel consumption (and GHG emissions) from tractor trailers by 24%. Overall, the agencies project that the rule could reduce GHG emissions by 1 billion metric tons while conserving 1.8 billion barrels of oil over the lifetime of the vehicles sold under the programme.

The comment period for this proposal has closed. The EPA is expected to issue a final rule this year.

Power sector
The EPA has finalised two significant rulemakings under Section 111 of the Clean Air Act to regulate GHG emissions from new and existing fossil fuel-fired power plants. These rules are highly controversial and subject to ongoing litigation. Nevertheless, the EPA and many states are moving forward with plans to implement these rules in accordance with EPA-imposed deadlines for further action.

NSPS for new fossil fuel-fired power plants: On October 23 2015 the EPA finalised a rulemaking under Section 111(b) of the Clean Air Act that established new source performance standards (NSPS) for new, modified and reconstructed fossil fuel-fired power plants. The final rule imposes an emission limit of 1,400 pounds of carbon dioxide (CO2)/megawatt hour for new coal-fired power plants, achievable through partial carbon capture and sequestration. This is substantially less than the emissions from any currently operating commercial coal-fired power plant. Modified and reconstructed coal-fired power plants are subject to less stringent requirements that, for modified sources, are based on each source’s historical emissions. Combined cycle natural gas turbines are subject to emissions limits that are consistent with current emissions, meaning that the rule is unlikely to result in any additional emission reductions from natural gas-fired power plants.

The NSPS for fossil fuel-fired power plants have been challenged by multiple parties in the DC Circuit. Litigation is expected to focus on the EPA’s authority to regulate fossil fuel-fired electric generating units under Section 111(b) of the Clean Air Act and on the EPA’s reliance on carbon capture and sequestration technology to set emissions limits for new coal-fired power plants.

Clean Power Plan for existing fossil fuel-fired power plants: The EPA finalised the Clean Power Plan in October 2015, establishing binding emissions guidelines for CO2 emissions for existing fossil fuel-fired power plants. Overall, the rule is projected to reduce GHG emissions from existing fossil fuel-fired power plants by 32% compared with 2005 levels. The EPA made a number of changes to the proposal, but still requires emissions reductions far beyond what can be achieved at the source by existing fossil fuel-fired power plants. While the EPA altered its approach to calculating the emissions reductions that could be achieved by the “best system of emission reductions”, it continues to rely heavily on the increased use of renewable energy and on re-dispatching electricity generation from coal-fired power plants to natural gas-fired power plants. However, the EPA projects that overall demand for natural gas will decline slightly as a result of the rule. The EPA projects that demand for coal will fall dramatically. The EPA has also slightly adjusted the compliance deadlines, imposing interim compliance requirements from 2022 to 2029, with final standards coming into effect in 2030.

The Clean Power Plan establishes state-specific emission reduction targets based on historical generation that can be met through a rate-based or mass-based plan. It also authorises states to develop both intrastate and interstate trading programmes to comply with the targets. While the EPA touts the flexibility provided by the final rule, states seeking to implement these standards will have no choice but to reduce coal-fired electricity generation dramatically while rapidly expanding renewable energy and energy efficiency programmes.

The Clean Power Plan was challenged in the DC Circuit within hours of its publication in the Federal Register. In total, 41 petitions for review were filed. While petitioners are expected to raise a host of issues, the EPA’s authority to look beyond fossil fuel-fired power plants and require other changes to the production methods will likely be at the centre of this litigation. Given the significance of this rulemaking and the fact that initial compliance deadlines are approaching, several petitioners are seeking a stay of the Clean Power Plan until litigation is complete. The stay motions have been fully briefed, but at the time of writing the court had not issued a decision.

Implementation of Clean Power Plan: Under Section 111(d) of the Clean Air Act, states have primary authority for implementing the Clean Power Plan and must submit implementation plans to the EPA for approval. If a state does not submit a satisfactory plan, the EPA must prepare a federal implementation plan. The Clean Power Plan established a September 6 2016 deadline for states to submit implementation plans. However, states may seek a two-year extension after meeting minimum progress goals. Many states are already beginning public outreach as they determine how to implement the aggressive emission reduction goals in the Clean Power Plan. In addition, on October 23 2015 the EPA issued a proposed federal implementation plan and model trading rules for the states. The proposed federal implementation plan includes both a mass-based and a rate-based approach to complying with the Clean Power Plan, as well as additional details regarding plan implementation that were not included in the final Clean Power Plan. The EPA suggests that the proposed federal implementation plan may serve as a model to states as they prepare their own implementation plans and states that provisions in the proposed federal implementation plan will be presumptively approvable if included in state implementation plans. The comment period for the proposed federal implementation plan closed on January 21.

Oil and gas sector
On September 18 2015 the EPA proposed NSPS to control methane and volatile organic compound emissions from new and modified sources in the oil and gas sector. The proposal, issued under Section 111(b) of the Clean Air Act, expands on the EPA’s prior regulation of this source category by introducing methane controls and adding new sources that were not previously regulated. While the methods for controlling methane are similar to those already in place to control volatile organic compounds, the inclusion of new sources marks a significant expansion of the oil and gas NSPS. In particular, the EPA proposes to expand the current NSPS for the oil and gas sector to include hydraulically fractured wells and downstream gas processing sources. Further, the EPA is proposing a new fugitive emissions monitoring programme designed to identify and repair methane and volatile organic compound leaks.

If finalised, these regulations would have a significant effect on oil and gas development and on the EPA’s regulation of GHG emissions as a whole. First, this proposal marks the first time that the EPA has sought to regulate methane as a GHG and the first time that it has sought to regulate GHG emissions specifically from the oil and gas sector. As such, it represents a significant expansion of the EPA’s climate change agenda. While the EPA has previously imposed similar requirements on a smaller sub-set of sources through volatile organic compound emissions limits in prior rulemakings, the scale of these regulations is significantly larger and presents implementation challenges.

The comment period for this proposal has closed. The EPA is expected to issue a final rule this year.

Final ozone NAAQS
On October 26 2015 the EPA published its final NAAQS for ozone in the Federal Register. It reduced both the primary (health-based) standard and the secondary (welfare-based) standard from 75 to 70 parts per billion (ppb). In doing so, the EPA rejected the position advanced by industry and some states that the existing standard should be retained, as well as the position advanced by some non-governmental organisations (NGOs) that the primary standard should be reduced to 65 ppb or less and that a separate secondary standard should be set using a different, seasonal form (which would be more stringent that the standard set by the EPA). This is just the fourth time that the ozone NAAQS have been changed since the original standard was issued in 1971.

The new NAAQS will require states to develop new or revised SIPs with additional regulatory control requirements on sources of the chemicals that form ozone in the atmosphere (primarily nitrogen oxides and volatile organic compounds), in an effort to reduce those emissions and attain the revised NAAQS. This could mean extensive and costly emissions reductions or other control actions by sources of these chemicals. In some areas of the country, the reduced ozone NAAQS will be difficult, if not impossible to meet, due to background ozone concentrations (ie, those that are not attributable to anthropogenic US sources). Further, the revised NAAQS will require the designation of new or expanded geographical areas as ‘non-attainment’ areas for the revised ozone NAAQS. This designation carries stringent regulatory requirements, including those applicable to the review of potential new and modified sources within such areas. The EPA argues that the new standard is based on the best available science, and that a number of new and proposed federal rules – such as the Regional Haze, Mercury and Air Toxics, Clean Power Plan and new vehicle standards – will help states meet the new standard.

Several states and industry organisations have filed appeals with the DC Circuit challenging the revised NAAQS as overly stringent. In addition, NGOs have filed an appeal in the same court arguing that the EPA should have reduced the standard even further, to 60 ppb. The appeals have been consolidated and will be briefed later in 2016.

SSM rules
As reported last year, the EPA issued a proposed rule and a supplemental proposed rule addressing the treatment of air emissions during start-up, shutdown malfunctions (SSMs) in 2013 and 2014. These proposals were issued in response to a petition for rulemaking filed by the Sierra Club in 2011 which argued that SSM provisions contained within many SIPs violate provisions of the Clean Air Act, which require emission sources to meet emissions limitations continuously. The EPA’s 2013 and 2014 proposals significantly altered the way in which states had traditionally addressed SSM events.

The final rule was published on June 12 2015.(19) This action invalidated ‘affirmative defence’ provisions shielding industrial facilities from civil penalties for exceedances of emissions limits that occur during SSM events. The final rule also determined that states could not automatically exempt facilities from emission limits during SSMs and identified the SSM provisions in the SIPs of a total of 36 states (each listed here) as failing to meet Clean Air Act requirements. In other words, the rule requires states to revise their SIPs so that all excess emissions caused by SSM events would be identified as violations. The final action requires that those states subject to the SIP call submit their revised SIPs by November 22 2016. The final rule also contains criteria for developing and evaluating alternative emission limitations applicable during start-up and shutdown.

On August 11 2015 17 states challenged the EPA’s June 2015 final rule. The states filed a brief petition for review of the rule with the DC Circuit Court, arguing simply that the “EPA erroneously concluded that the [SIPs of those 17 challenging states] are ‘substantially inadequate’ with regard to periods of startup, shutdown and malfunction and must be revised”.

Several other petitions challenging the rule were also filed by energy companies and other interested legal groups.

Refinery technology and residual risk MACT Rule
Section 12 of the Clean Air Act requires the EPA periodically to review final emission standards addressing hazardous air pollutants (commonly called maximum achievable control technology (MACT) standards or national emission standards for hazardous air pollutants) to evaluate both technological developments and risks to public health that remain after application of the standards. Based on its reviews, the EPA is further required to revise the standards as necessary to “tak[e] into account developments in practices, processes, and control technologies” and to provide an “ample margin of safety to protect public health… or to prevent, taking into consideration costs, energy, safety and other relevant factors, an adverse environmental effect”.(20)

On December 1 2015 the EPA’s final refinery sector technology and residual risk review rulemaking (the Refinery Rule) was published in the Federal Register.(21) While it is not the first final rule to stem from the EPA’s technology and residual risk assessments, it is notable for several reasons. Most significantly, based on the EPA’s technology review, the Refinery Rule for the first time requires facilities to conduct fence-line pollutant monitoring. Specifically, subject facilities are required to install benzene monitors around their property boundaries to monitor ambient benzene concentrations. If concentrations exceed an established action level, facilities will be required to conduct root cause analyses and implement corrective actions. Monitoring data will be made available to the public through an EPA database. The EPA anticipates that the monitoring systems will “improve the management of fugitive emissions” from a broad range of activities and equipment, including wastewater collection, equipment leaks, heat exchange systems and storage vessels.

The EPA additionally expects to increase facility accountability by creating a “kind of neighborhood watch”. By making data easily accessible to the public, the Refinery Rule may encourage added scrutiny from neighbours, environmental watchdog groups and plaintiffs’ attorneys. Although the Refinery Rule is the only rule to require fence-line monitoring and sharing of data so far, similar programmes will likely appear in rulemakings as such programmes are consistent with the EPA’s Next Generation Compliance Initiative. Further, because the EPA justified the monitoring programme on the basis of general technological developments – a justification that arguably crosses all industries – such programmes can be extended more easily because a showing of residual risk will not be required.

Regarding the remainder of the rule, although the EPA determined that the level of risk remaining after application of the MACT standards was “acceptable”, it nevertheless concluded that additional regulation is appropriate to ensure the ample margin of safety. On that basis, the Refinery Rule expands certain storage vessel control requirements and extends the requirements to a larger group of vessels.

Regional haze rulemakings
The Clean Air Act directs states to develop implementation plans to reduce levels of regional haze and improve visibility in national parks, wilderness areas and other related areas. Efforts to address regional haze have focused on large industrial sources, most notably power plants. The EPA has recently taken a more aggressive approach to the regional haze programme, resulting in several proposals to reject SIPs as insufficient and to replace them with more stringent federal implementation plans.

Texas and Oklahoma
On December 16 2014 the EPA issued a proposed rule disapproving part of the regional haze SIPs submitted by Texas and Oklahoma and proposing federal implementation plans to take their place. The EPA asserted in the proposal that the Texas SIP would not produce sufficient improvement in visibility in protected areas in Texas and Oklahoma. Specifically, the EPA asserted that the state’s reasonable progress goals failed to comply with the statutory requirements of the Clean Air Act. The EPA then conducted an analysis of power plants in Texas and, in its proposed federal implementation plan, included emissions reductions in the power sector that went beyond what Texas had proposed. The EPA received a number of comments on the proposed rule that criticised the EPA’s approach and questioned the legality of its proposed disapproval of the Texas and Oklahoma SIPs and the process it used to set reasonable progress goals in Texas. On January 5 2016 the EPA published a final rule that was little changed from the proposal. Litigation over the EPA’s disapproval of the Texas and Oklahoma SIPs and issuance of federal implementation plans in their stead are expected.

Arkansas
On May 1 2015 the EPA issued a proposed regional haze federal implementation plan for Arkansas. The EPA had disapproved of Arkansas’ regional haze SIP in a different rulemaking. In the proposed federal implementation plan, the EPA identified specific emission reduction targets for a number of power plants as a means to improve visibility in protected areas in and around Arkansas. As in the Texas and Oklahoma proposal, the rulemaking faces challenges regarding the EPA’s statutory authority to impose limits on certain plants as well as the process and modelling used by the EPA in the federal implementation plan. The comment period on this proposal has closed, but the EPA has not yet issued a final rule.

Source determination rule for oil and gas sector
On September 18 2015 the EPA proposed a new ‘source determination’ rule for stationary sources in the oil and gas sector. The rule’s purpose is to clarify when individual emission points can be aggregated for the purpose of meeting regulatory thresholds for major sources under the Clean Air Act. The EPA proposed two options for defining the term ‘adjacent’ for the purpose of making aggregation decisions:

The first proposal would define adjacency in terms of proximity, proposing a distance of one quarter of a mile for use in making aggregation decisions.
The second proposal would define adjacency in terms of functional relatedness, allowing for aggregation of sources that are located near each other or related by function.
The EPA has expressed a preference for a proximity-based test, but solicited comment on both alternatives.

This rulemaking is the EPA’s attempt to end a long-running dispute over how to aggregate sources in the oil and gas sector. In Summit Petroleum Corp v EPA the Sixth Circuit vacated the EPA’s attempt to aggregate sources over a broad area encompassing more than 40 square miles.(22) The court held that the EPA’s expansive aggregation of sources was inconsistent with the Clean Air Act. The EPA’s later attempt to limit the scope of that decision to states in the Sixth Circuit was also struck down by the DC Circuit, which held that EPA regulations require a uniform approach to adjacency across the entire country.(23) This rulemaking is an attempt by the EPA to provide a uniform approach to defining adjacency for purposes of aggregating sources that is consistent with the Clean Air Act.

The comment period for this proposal has closed. The EPA is expected to issue a final rule this year.

Waters of the United States
On June 29 2015 the US Army Corps of Engineers and the EPA published a final rule defining the scope of waters protected under the Clean Water Act in an effort to provide clarity to the term ‘waters of the United States’ following decisions by the Supreme Court in Solid Waste Agency of Northern Cook County v US Army Corps of Engineers(24) and Rapanos v United StatesI.(25) Scheduled to go into effect on August 28 2015, the rule was challenged in federal court in North Dakota by a coalition of 13 states, which claimed that it brought sweeping changes to the jurisdictional reach of the Clean Water Act, drastically expanding the scope of the water-quality programmes administered and implemented by states, the EPA and the corps.

The new rule also provoked controversy regarding how it should be challenged. The North Dakota District Court rejected the federal government’s claim that review was available only by petition for review in an appellate court. The district court ruled that it had jurisdiction and issued a preliminary injunction on August 27 2015, applicable in the 13 plaintiff states. However, petitions for review were also filed in courts of appeal; four such actions brought by 18 other states were consolidated by the Panel on Multi-district Litigation for handling by the Sixth Circuit, bringing the total number of states challenging the rule to 32. In addition, numerous trade organisations, NGOs and others have intervened – some in support and others in opposition. On October 9 2015 the appellate court also found that it had jurisdiction, at least for the purpose of issuing an interim stay order, thereby preventing the rule’s effectiveness on a nationwide basis.

At this point, the corps, the EPA and the states have resumed nationwide use of the agencies’ prior regulations defining the term ‘waters of the United States’. The Sixth Circuit is expected to decide early this year whether it or the federal district courts have jurisdiction under the Clean Water Act to adjudicate the many challenges to the new rule. Thereafter, litigation on the merits will resume in whatever court is found to have jurisdiction. Many interested parties expect that the Supreme Court will make the final decision on the rule’s validity.

In Rapanos, all nine Supreme Court justices agreed that the term ‘waters of the United States’ includes some waters that are not navigable in a traditional sense; however, Rapanos provided no clear judicial holding on the ultimate breadth of the term. The corps and the EPA assert that the final rule provides the clarity needed after Rapanos without broadening the jurisdictional reach of the programme. The rule establishes a ‘significant nexus’ standard, finding jurisdiction under the Clean Water Act if the subject waters – either alone or in combination with similarly situated waters in the region – significantly affect the chemical, physical or biological integrity of traditional navigable waters, interstate waters or the territorial seas. Further, the corps and the EPA assert that the new rule’s increased use of bright-line boundaries to establish waters that are jurisdictional by rule limits the need for case-by-case review. To do this, the new rule defines ‘waters of the United States’ as falling within eight categories of jurisdictional waters, while maintaining all existing exclusions from the reach of the Clean Water Act.

Crude by rail
Following several high-profile incidents involving crude oil trains, the US Department of Transportation’s Pipeline and Hazardous Materials Safety Administration issued a final rule imposing new tank car standards, speed limits and braking standards for high-hazard flammable trains (HHFTs) in May 2015. HHFTs are defined as single trains with a continuous block of 20-plus tank cars loaded with a flammable liquid or with 35-plus loaded tank cars carrying a flammable liquid dispersed throughout the train. The final rule did not deviate substantially from the proposed rules in terms of topics covered, but did ultimately extend many of the compliance dates.

The key requirements are as follows:

Certain enhanced braking requirements for HHFTs travelling in excess of 30 miles per hour (mph) were required by the July 2015 effective date. However, the more controversial electronically controlled pneumatic braking systems will be required only for HHFTs carrying 70-plus cars and were given a compliance date of January 1 2023 (or January 1 2021, if any one car is carrying a more highly flammable category liquid – referred to as a Packing Group 1 material).
There are enhanced standards for tank cars built after October 1 2015 for use in HHFTs and a compliance schedule for retrofitting existing tank cars that varies according to two risk factors: the packing group categorisation of the flammable liquid and the type of tank car. A retrofit reporting requirement – requiring owners or lessees of covered tank cars to report the number of tank cars retrofitted and the number of retrofits yet to be completed – is triggered if the initial retrofit milestone is not met.
Reduced operating speeds are mandated:
a maximum of 50 mph in all areas and for HHFTs with cars not meeting the enhanced standards; and
a maximum of 40 mph in all designated high-threat urban areas.
The rule introduces:
enhanced testing requirements for unrefined petroleum products prior to initial shipping and where changes (eg, mixing or subsequent processing) may affect characteristics;
broader certification obligations and written documentation; and
annual updates of the testing programme and protocols in use.
The final rule was almost immediately subject to both legal and administrative challenges from both industry and parties concerned that the final rules were not sufficiently stringent.

Toxic Substances Control Act reform
After years of legislative wrangling on various proposals to amend the outdated Toxic Substances Control Act, late on December 17 2015 the Senate passed by voice vote a bipartisan bill that would substantially revise the way chemicals are assessed and regulated by the EPA. The House of Representatives had passed its version of the Toxic Substances Control Act reform (HR 2576) in June. The overwhelming bipartisan support for reform of the chemical safety law is reflected in the margin of passage of the House of Representatives bill (a 398 to one vote) and the fact that the Senate bill passed by voice vote.

The Senate bill, S697, had been voted out of committee in April; however, in the face of opposition by Senator Boxer of California, a floor vote was not scheduled. Notwithstanding Boxer’s opposition, support for the bill continued to grow as minor tweaks were made and it eventually garnered 60 co-sponsors. But a vote was delayed further as a result of a hold placed on the bill relating to the dispute over the Land and Water Conservation Fund. Once that issue was resolved as part of the compromise appropriations package, the way was cleared for a vote on S697. Senate leaders then put forward for consideration an amended HR 2576, in which all of the original language was replaced with the revised S697. Therefore, what the Senate approved on December 17 was an amended HR 2576.

Now before Congress are two very different versions of HR 2576 and much work must still be done to reconcile the bills. To begin with, the house bill is much less detailed and prescriptive than the Senate bill. The house bill is 46 pages, while the Senate bill is more than four times as long. In many instances, the approach in the house bill is to grant the EPA new authority to act in certain areas (eg, chemical prioritisation and risk assessment), whereas the Senate bill to a much greater extent directs the EPA’s future actions.

Examples of areas with significant differences are the prioritisation of chemicals and supportive funding of the EPA’s regulatory activities. The Senate bill establishes a multi-stage process for the EPA to prioritise the chemicals that must be assessed (of over 86,000 ‘existing chemicals’, it is thought that approximately 1,000 are of sufficient concern to require comprehensive risk assessment). The Senate bill requires the EPA to designate high and low-priority chemicals. The EPA is to designate 10 high and 10 low-priority chemicals within 180 days of enactment. Within three years, the EPA is to have either completed or have in process 20 high-priority chemical risk assessments; this number increases over time. Under the house bill, EPA authority to require testing is expanded, but a mechanism for EPA priority setting is not specified. Similarly, means for supportive funding for EPA regulatory activities is very different in the two bills. In the Senate bill, the EPA is to establish ‘reasonable fees’ on manufacturers and processors that take specific actions under the Toxic Substances Control Act. The house bill, on the other hand, merely provides that the EPA may require fees for manufacturers and processors that take certain actions under Toxic Substances Control Act.

The two chambers will likely begin work early this year to reconcile these two bills. Congressional leaders have not announced whether this will occur in the context of a formal conference committee or via negotiation.

Pharmaceutical waste
On August 31 2015 the EPA proposed a rule establishing management standards for pharmaceutical waste that is classified as Resource Conservation and Recovery Act hazardous waste. The proposal was published in the Federal Register on September 25 2015.

In 2008 the EPA had originally proposed to add pharmaceuticals to the types of hazardous waste that could be classified as ‘universal waste’. But after taking public comment, the EPA decided to not finalise that proposed rule and instead developed another proposal with new standards for the management and disposal of pharmaceutical hazardous waste that is generated by healthcare-related facilities.

Specifically, the proposed rule contains new standards for healthcare facilities and pharmaceutical reverse distributors, including standards for storage, labelling, recordkeeping, reporting and shipment. Healthcare facilities include hospitals, health clinics, other medical facilities, pharmacies and retail facilities that sell over-the-counter medication. The proposal conditionally exempts hazardous waste pharmaceuticals that are classified as controlled substances under regulations established by the Drug Enforcement Administration. The EPA states that the proposal is projected to prevent the flushing of more than 6,400 tons of hazardous waste pharmaceuticals annually by banning healthcare facilities from flushing such waste down the sink and toilet.

The proposed pharmaceutical waste rule was issued at the same time as a separate proposed rule that would substantially revise the requirements for generators of Resource Conservation and Recovery Act hazardous waste. The comment period for both proposed rules closed on December 24 2015.

Underground storage tanks
On July 15 2015 the EPA published in the Federal Register – as a final rule – revisions to the underground storage tank regulations, including revisions to the underground storage tank technical requirements and to the state programme approval requirements. These are the first major revisions to the underground storage tank regulations since 1988. The revisions modify the 1988 regulations by increasing the emphasis on properly operating and maintaining underground storage tank equipment. Specifically, the revisions change certain portions of the 1988 underground storage tank technical requirements at 40 CFR Part 280. The revisions establish federal requirements that are similar to key portions of the Energy Policy Act of 2005. The EPA also added new operation and maintenance requirements and addressed underground storage tank systems deferred in the 1988 underground storage tank regulations. Specific changes include:

adding:
secondary containment requirements for new and replaced tanks and piping;
operator training requirements;
periodic operation and maintenance requirements for underground storage tank systems; and
requirements to ensure underground storage tank system compatibility before storing certain biofuel blends;
removing past deferrals for emergency generator tanks, airport hydrant systems and field-constructed tanks;
updating codes of practice; and
making editorial and technical corrections.
The revisions also update the state programme approval requirements in 40 CFR Part 281 consistent with these changes.

Enforcement developments

Yates memo
Through a September 9 2015 guidance document – the Yates memo – the Department of Justice (DOJ) issued new internal guidelines regarding “individual accountability for corporate wrongdoing”. The memo articulates several changes to DOJ policy and has been incorporated into the US Attorneys’ Manual, Sections 9-28.000. Some of its major points expand on existing practices regarding the investigation and prosecution of corporate wrongdoing, while other aspects of the memo introduce new challenges for corporate internal investigations – particularly regarding the ability to protect privileged information while still receiving credit for cooperating with a government investigation.

Taken as a whole, the policy indicates a fundamentally new approach for environmental matters – especially in civil cases. The Yates memo sets out six principles to guide DOJ enforcement actions:

To be eligible for cooperation credit, corporations must provide the DOJ with all relevant facts about the individuals involved in corporate misconduct.
Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation.
Criminal and civil attorneys handling corporate investigations should be in routine communication.
Absent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals.
Corporate cases should not be resolved without a clear plan to resolve related individual cases before the statute of limitations expires, and declinations as to individuals in such cases must be memorialised.
Civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual’s ability to pay.
The principal thrust of the new guidance is a requirement that a self-reporting company seeking cooperation credit make a full disclosure to the DOJ, particularly by identifying culpable individuals. In distinguishing between cases in which companies have been punished severely versus leniently, the DOJ has already emphasised the significance of a company’s disclosures regarding corporate officers involved in wrongdoing. For example, several companies that have recently been charged and convicted of serious offences – and have paid steep fines as punishment – were criticised by the DOJ for their lack of cooperation. The DOJ has indicated that its disclosure policy will be enforced more stringently in future. For example, the DOJ has compared a company that fails to identify responsible individuals to a drug trafficker who is unwilling to testify against a cartel boss. These considerations will also apply to charging decisions in civil cases; the scope of cooperation may affect whether the DOJ chooses to pursue a parent or its subsidiary.

Some aspects of this requirement likely will pose challenges for companies conducting internal investigations. The 2008 Filip Memo (also known as the Principles of Federal Prosecution of Business Organisations) previously established that a corporation may receive cooperation credit while continuing to withhold privileged materials – including memos of interviews conducted during an investigation – as long as the corporation discloses relevant facts relating to the alleged misconduct. Although the Yates memo carefully limits the required disclosures to non-privileged information, it is unclear how the DOJ will address assertions of privilege in the assessment of total cooperation, particularly regarding withholding interview memos that may reflect the statement of targeted individuals. Likewise, if a company cannot establish individual culpability through an internal investigation, it may have no choice but to waive privilege to demonstrate why not.

An additional challenge will be determining what scale of internal investigation is required to satisfy these requirements. Establishing culpability for any one individual can be extremely difficult, particularly in cases involving failures to implement adequate safeguards, and can require a probing – and potentially expensive – investigation beyond what might be required solely to identify a problem and begin basic remediation within the company. It may be possible to identify individuals whose conduct would warrant termination; but the new guidance suggests that the DOJ expects companies to go further, developing evidence of legal culpability sufficient to assist materially with the individuals’ prosecution.

A second major issue raised by the guidance is a policy to resolve individual cases before corporate cases. The Yates memo allows a corporate case to be closed only if prosecutors memorialise a clear plan for the resolution of any accompanying individual cases. This raises the possibility that corporations could spend long periods of time in limbo, cooperating with the DOJ and making required public disclosures, but nevertheless unable to obtain closure. Similarly, the requirement that prosecutors memorialise the reasons for any declination of prosecution against individuals could encourage more such prosecutions, imposing ongoing cooperation obligations on companies and delaying the closure of any issues.

Finally, the DOJ is reducing the weight afforded to an individual’s ability to pay in determining whether to bring civil charges. The DOJ indicated that financial resources will be only one consideration in making civil charging decisions, recasting the role of civil litigation to focus on establishing accountability and broader deterrence rather than achieving a monetary recovery. This new guidance could represent a paradigm shift for public health and welfare areas with parallel tracks of civil and criminal enforcement, such as environmental law. In the criminal context, environmental laws often contain low liability standards, with general-intent felonies and even negligence-based misdemeanours under many statutes. This expands the potential universe of individuals in whom the DOJ might be interested and thus who must be considered in corporate internal investigations.

In the civil context, the Yates memo portends even greater changes. The EPA’s primary goals in civil enforcement are a return to compliance, maintenance of compliance and reduction of pollutants. Civil enforcement traditionally focused on the company, except in the case of very small businesses with only a few employees. The new focus on individuals – especially considering that the civil liability standard is very low in many environmental laws – could greatly complicate civil enforcement by expanding the number of employees on whom the EPA or the DOJ might focus. This apparent shift raises a variety of issues, from whether employees will require separate counsel to whether joint defence agreements with current and former employees will still be viable. The Yates memo also raises issues concerning the EPA’s Incentives for Self-policing: Discovery, Disclosure, Correction and Prevention of Violations.(26) This policy encourages self-reporting of violations by reducing a gravity-based component of any civil penalty for voluntary disclosure. Following the Yates memo, it is not clear whether a company’s disclosures under the policy must also address possible individual malfeasance. Additionally, it is unclear whether the EPA can promise not to recommend prosecution of the company if individuals have not been sufficiently investigated.

Next Gen
The EPA has embarked on the Next Generation Compliance Initiative (Next Gen). The EPA generally describes its ongoing initiative as an effort to increase compliance by using “advances in pollutant monitoring and information technology combined with a focus on designing more effective regulations and permits to reduce pollution”. It uses a combination of interrelated tools or concepts to fulfil its goals, including:

more effective regulations and permits – that is, new and revised permits and regulations that include built-in compliance mechanisms such as continuous monitors for stationary sources or pre-certified control systems modelled on the automobile gas mileage and diesel engine emission programmes;
advanced monitoring – that is, new monitoring techniques such as fence-line monitoring, infrared camera systems or continuous water sampling systems;
electronic reporting of emissions and compliance data;
transparency – that is, public availability of electronic data and possibly third-party audits or verification of results; and
innovative enforcement – that is, the incorporation of these concepts in administrative or judicial settlements and injunctive relief demands.
The EPA’s efforts to promote Next Gen in 2016 are illustrated through the following examples.

Rulemakings
EPA’s 2015 Refinery Rule requires facilities to install continuous benzene monitors at their fencelines and report the data quarterly on a publicly accessible website.

Settlements
Settlements to resolve claims under a number of regulatory programmes have included a broad range of Next Gen components, including:

installation of automated electronic release detection monitoring systems with off-site alarms;
implementation of centralised monitoring locations;
evaluation of vapour control system designs followed by a report to the public to promote sharing of information;
use of infrared cameras during inspections to enable real-time detection of air emissions; and
use of third-party audits to verify compliance.
Data generated to meet these Next Gen requirements may qualify as ‘credible evidence’ for enforcement purposes. It may also spur or support common law tort actions such as those highlighted in the litigation section above.

One potential benefit of some of the Next Gen activities is increased compliance rates and emissions reductions attributable to real-time data and improved monitoring. This data can provide early indications of potential operational problems. It is generally accepted that publication of compliance data tends to cause higher rates of compliance than otherwise. Whether publication on websites causes higher rates of compliance than systems that require periodic compliance reporting (eg, Title V certifications or discharge monitoring reports) to state or federal regulators is less clear.

Whatever the risks and benefits, Next Gen is a clear priority of the Office of Enforcement and Compliance Assurance and the initiative is consistent with the EPA’s broader efforts to use electronic reporting and public dissemination of data as a regulatory tool. In this sense, the initiative is an attempt to modernise the EPA’s enforcement mechanisms. The extent to which it deters violations and contributes to improved compliance largely depends on the EPA’s efforts to implement and support the initiative. Any party engaged with the EPA in enforcement matters or rulemaking development must be familiar with these efforts in order to to engage with the EPA effectively and productively.

Biotechnology developments

Significant legal developments in agricultural biotechnology in 2015 include the continued viability of the Vermont genetically modified organisms (GMO) food labelling law, set to take effect on June 1 2016; and the Food and Drug Administration’s (FDA) approval of the AquaBounty genetically engineered salmon.

Vermont Act 120
Vermont’s Act 120 establishes mandatory labelling requirements for food products sold for human consumption that contain ingredients produced through genetic engineering. Act 120 also prohibits use of the word ‘natural’ or any “words of similar import” on product labels or advertising of covered foods. Act 120 has been challenged in the US District Court for the District of Vermont by the Grocery Manufacturers Association, Snack Food Association, International Dairy Foods Association and National Association of Manufacturers. The plaintiffs’ complaint alleged violations of:

the First, Fifth and Fourteenth Amendments to the Constitution;
the Commerce Clause and the Supremacy Clause of the Constitution; and
the doctrine of pre-emption.
The plaintiffs sought a preliminary injunction enjoining Vermont from implementing Act 120 until the litigation was resolved. On April 27 2015 the court dismissed the motion for preliminary injunction on the basis that the plaintiffs had failed to demonstrate irreparable harm. The plaintiffs have appealed the denial of the motion for preliminary injunction to the Second Circuit Court of Appeals and oral argument was heard on October 8 2015.

Safe and Accurate Food Labelling Act of 2015
In a related development, on April 23 2015 the House of Representatives passed HR 1599, the Safe and Accurate Food Labelling Act of 2015. The act would pre-empt state GMO labelling laws and require that the Department of Agriculture establish a voluntary system to govern non-GMO and GMO-free labelling. A companion bill has not been introduced in the Senate.

FDA GMO determinations
On November 19 2015 the FDA determined that the genetically engineered AquAdvantage salmon produced by AquaBounty Technologies is as safe to eat and as nutritious as non-genetically engineered Atlantic salmon. The FDA also determined that the AquaBounty containment system in which the fish are grown makes it “extremely unlikely” that the genetically engineered fish could escape and become established in the wild. However, the Consolidate Appropriations Act of 2016 mandates that the FDA not allow introduction into interstate commerce of “any food that contains genetically engineered salmon” until it publishes labelling guidelines for such salmon.

For further information on this topic please contact Byron F Taylor at Sidley Austin LLP’s Chicago office by telephone (+1 312 853 7000) or email ([email protected]). Alternatively, contact David T Buente Jr or Roger R Martella Jr at Sidley Austin LLP’s Washington DC office by telephone (+1 202 736 8000) or email ([email protected] or [email protected]). The Sidley Austin website can be accessed at www.sidley.com.

Endnotes

(1) Burlington Northern & Santa Fe Ry v United States, 556 US 599 (2009).

(2) United States v PH Glatfelter Co, 768 F3d 662 (7th Cir 2014).

(3) United States v NCR Corp, 107 F Supp 3d 950 (ED Wis 2015).

(4) United States v NCR Corp, 2015 WL 6142993 (ED Wis Oct 19 2015).

(5) Emhart Indus Inc v New England Container Co Inc, 2015 WL 5512202 (DRI September 17 2015).

(6) 805 F3d 685 (6th Cir 2015).

(7) 805 F3d 695 (6th Cir 2015).

(8) 734 F3d 188 (3d Cir 2013).

(9) In re: MTBE Products Liability Litigation and Bell.

(10) Cerny v Marathon Oil Corporation, 13-562, 2013 WL 5560483 (WD Tex October 7 2013).

(11) New Hampshire v ExxonMobil, 126 A3d 266 (NH 2015).

(12) 839 F Supp 2d 849 (SD Miss 2012).

(13) LP 823 F Supp 2d 274 (WD Penn 2011).

(14) 07-13-00391-CV, 2015 WL 3463490 (Tex App June 1 2015).

(15) 14-cv-0406, 2015 WL 1345721 (ND Ala March 23 2015).

(16) 134 S Ct 1584 (2014).

(17) Michigan v EPA, 576 US __ (2015).

(18) Delaware Department of Natural Resources v EPA, 785 F3d 1 (DC Cir 2015).

(19) 80 Fed Reg 33840.

(20) Clean Air Act §112(f)(2).

(21) 80 Fed Reg 75,177.

(22) 690 F3d 733 (6th Cir 2012).

(23) Nat’l Envtl Dev Ass’n v EPA, 752 F3d 999 (DC Cir 2014).

(24) 531 US 159 (2001).

(25) 547 US 715 (2006).

(26) 65 Fed Reg 19618 (April 11 2000).