December 2024 – Sustainability, Resiliency and Risk Mitigation

December 27, 2024December 27, 2024 by Brad A. Molotsky

New York passes second in the nation “Polluter Pays” Superfund Type Law – $75B Fund to be Created for infrastructure projects by attempting to hold Fossil Fuel Companies Strictly Liable for past actions.

As of December 27, 2024, New York becomes the second state in the US, after Vermont, to pass a version of a polluter pays climate change bill entitled the “Climate Change Superfund Act” (the “CCSA”).

The new law, which can be found at Article 76 – Climate Change Adaption Cost Recovery Program and requires the State Comptroller along with the Department of Taxation, to report, by January 2026, on the costs to residents and the State from greenhouse gas emissions that occurred between January 1, 2000, and December 31, 2018. This comprehensive assessment is intended to include impacts on agriculture, biodiversity, ecosystem services, education, finance, healthcare, manufacturing, housing, real estate, retail, tourism, transportation, and municipal and local government, using federal data to attribute emissions to specific greenhouse gas emitting fossil fuel companies. The fund to be raised from the CCSA is $75 Billion Dollars. These funds, when collected from the responsible parties, will be thereafter used to help fund climate change adaptive infrastructure projects.

The law recognizes that the amount that will be charged to the companies who have emitted greenhouse gases over the State standard “represents a small percentage of the extraordinary cost for New York State for repairing from and preparing for climate change-driven extreme events over the next 25 years.” The State found that the “largest one hundred fossil fuel producing companies are responsible for more than 70% of global greenhouse gas emissions since 1998.”

The CCSA law follows Vermont’s polluter-pays model, targeting companies involved in fossil fuel extraction, storage, production, refinement, transport, manufacture, distribution, sale and the use of fossil fuels or petroleum products extracted, produced, refined or sold that are linked to greenhouse gas emissions during the 2000 to 2018 specified period. Companies that have exceeded the 1 billion metric ton emissions mark are required to pay for their pro rata share of climate adaption measures needed by the State. The funds collected will then be specifically allocated to “climate change adaptive infrastructure” improvements such as roads and bridge upgrades, storm water management and drainage systems, coastal wetlands projects, making defensive upgrades to subways and transit systems, preparing for, and recovering from hurricanes and other extreme weather events, sewer treatment plant upgrades and retrofits and energy-efficient building enhancements.

The CCSA takes the position, much like the Federal Superfund laws, that the polluter in this case is strictly liable for its applicable share of costs incurred for climate change adaptation projects. Entities that are part of a controlled group are jointly and severally liable for the applicable costs.

The theory behind the approach to the CCSA is that the companies who have specifically contributed to greenhouse gas impacts are the ones required to fund necessary upgrades to existing or necessary climate change adaptive infrastructure and other “climate change adaptation projects” as defined under the CCSA. A State report due within 1 year is required to measure and provide a summary of various costs that have been incurred due to the greenhouse gases that were emitted during the relevant time-period and costs that are projected to be incurred in the future within the State to abate the effects of covered greenhouse gas emissions from 1-1-2000 through 12-31-2018. The State provided specific guidance under the CCSA regarding the conversion of coal (i.e., 942.5 Metric Tons of Carbon Dioxide released/1 Million pounds of coal used by such company), crude oil (i.e., 432,180 Metric Tons of carbon dioxide/1 Million barrels of crude oil used by such company) and natural gas (e.g., 53,440 Metric Tons of carbon dioxide/1 Million cubic feet of natural gas used by such company) used by the applicable companies into greenhouse gas emission numerics for purposes of measuring impact and, if applicable, calculating the overage above the 1 Billion Metric Ton standard set by the CCSA.

The CCSA also set forth certain mandatory prevailing wage and apprenticeship requirements for public entities utilizing funds from the climate fund to pay for climate change adaption projects. The CCSA also includes certain “labor harmony” requirements, certain “made in the US” requirements for various components of public entity projects, and also requires that the Comptroller and the Commissioner of Taxation keep the climate fund comprised of responsible party payments in a separate dedicated account that is NOT comingled with other funds of the State.

Within 1 year, the department is required to promulgate regulations and adopt methodologies to determine responsible parties and their share of applicable costs of covered greenhouse gas emissions and thereafter to issue notices of cost recovery demand amounts against the responsible parties.

Within 2 years, the department is required to complete a statewide climate change adaption master plan for guiding the dispersal of funds in a timely, efficient, and equitable manner to all regions of the State. The dispersal of funds will also take into account a stated goal of at least 35% of the expenditures being made to climate change adaptive infrastructure projects that benefit “disadvantaged communities”.

Green Spouts: The CCSA is the second of its kind state law that attempts to hold a polluter strictly liable for past acts that have created a negative impact on the State’s infrastructure and climate adaptability. The CCSA makes any entity or successor company that engaged in the trade or business of fossil fuel extraction or refining crude oil between 1-1-2000 and 12-31-2018 strictly liable for its share of costs incurred by the State. The emitters are being held responsible for their respective portion of greenhouse gas emissions above the 1 billion metric tons noted above. Interestingly, New York in joining Vermont are NOT alone here, as Maryland and Massachusetts are considering similar legislation as well. Whether this type of State Superfund strict liability law gets traction and passage by other states remains to be seen but it is surely a further evolution/development and one which bears watching, especially in light of the upcoming change in Administration federally which will likely see the Federal government take a step back from its climate initiatives and by default will leave the leadership role for climate change initiatives in the hands of state and local government.

Duane Morris has an active Sustainability and Risk Mitigation Team to help organizations and individuals plan, respond to, and execute on your Sustainability and ESG planning and initiatives. For more information, please contact Brad A. Molotsky, David Amerikaner, Sheila Rafferty-Wiggins, Jeff Hamera, Jolie-Anne Ansley, Robert Montejo, or the attorney in the firm with whom you are regularly in contact.

December 26, 2024 by Brad A. Molotsky

NJEDA Opens Opt-In Process for NJ Municipalities to Allow for NJ-C-PACE

Earlier this month (December 2024), the New Jersey Economic Development Authority (NJEDA) published municipality opt-in documents to participate in the Garden State Commercial Property Assessed Clean Energy (C-PACE) Program.

C-PACE is a program that has been adopted in 38 states and the District of Columbia and allows commercial property owners in Participating Municipalities to access a new form of financing to undertake energy efficiency, water conservation, renewable energy, and resiliency improvements. Typically loan proceeds approximate 30% of the stabilized value of the project (i.e., a higher value to base proceeds on that merely just hard costs). Moreover, while typical commercial lenders were initially skeptical of allowing C-PACE lenders to have “soft” second positions in their deals, most regional and national lenders have come around to the program and realized that because the C-PACE lender is not permitted to accelerate their loan for non-payment, the risk of a foreclosure by the C-PACE lender is quite remote.

C-PACE financing is typically non-recourse, does NOT involve a payment guaranty or completion guaranty and does NOT involve filing a mortgage on the property. The term of the financing is often 25 years (not the amortization period, rather, the actual term of the loan) and the interest rate is derived using the 10-year Treasury not SOFR plus a spread.

The Garden State C-PACE Program allows property owners to repay investments from Qualified Capital Providers (i.e., Lenders) into eligible projects through a special assessment to a Participating Municipality, similar to the owner’s real property tax, sewer, or water bill. The Participating Municipality then remits the payment to the initial capital provider. This unique form of financing can result in lower-cost, longer-term financing, making it easier for projects to be cashflow-positive from the outset. In other words, property taxes are incrementally increased and used to pay back the C-PACE lender over the 25-year term.

As such, NJEDA has finally published relevant opt-in documentation for any municipality in NJ that is interested in allowing C-PACE financing in their town. Under the rules, municipalities are required to first adopt the Opt-In Ordinance prior to submitting an application for participation in the program to the NJEDA.

According to the NJEDA website, applications will open shortly and will be accepted on a rolling basis.

Green Spouts: After passing legislation over 3 years ago, NJEDA has finally moved forward to issue applicable regulations to implement the legislation. Now interested municipalities will need to opt into the program. It will be curious to see how this information is shared with the 566 municipalities in the State of New Jersey and how “easy” the process is to opt in. Only time will tell but for developers and owners looking for financing or refinancing on projects, this could not come too soon especially given that all surrounding states to New Jersey have had this C-PACE arrow available to projects for years.

Duane Morris has an active Sustainability Team to help organizations and individuals plan, respond to, and execute on your Sustainability and ESG planning and initiatives. For more information, please contact Brad A. Molotsky, David Amerikaner, Sheila Rafferty-Wiggins, Jeff Hamera, Jolie-Anne Ansley, Robert Montejo or the attorney in the firm with whom you are regularly in contact.

December 19, 2024 by Brad A. Molotsky

Montana Supreme Court rules proposed State law that restricts consideration of Greenhouse Gas Impact Unconstitutional

Earlier this week (December 17, 2024), in Rikki Held et al. vs, the State of Montana, the Montana Supreme court affirmed a lower court ruling that struck down a proposed state law that barred consideration of greenhouse gas emissions in state permitting decisions. In other words, the Supreme Court agreed that greenhouse gas emissions can be considered in permitting decisions. 20241218_docket-DA-23-0575_opinion.pdf

The Court agreed with the plaintiffs who made the argument to the lower court that the Montana state lawmakers attempted amendments to the Montana Environmental Policy Act prohibiting regulators from taking into consideration greenhouse gas emissions in permitting decisions violated the plaintiffs’ constitutional right to a “clean and healthful environment”.

The Court rejected the state’s argument that the authors of the State constitutional provision could NOT have intended to include climate change concerns in the right to a “clean and healthful environment”. Instead, they indicated that …”new advancements, consistent with the object and true principles of the constitution are provided for within Montana’s living constitution.”

The plaintiffs had sued in 2020, claiming that the Montana Legislature had compromised their future and the rights of Montana citizens by prioritizing the development of carbon intensive fossil fuels and by barring the review of greenhouse gas impacts as part of the permit review process. The lower court had agreed with the plaintiffs and struck down the proposed legislation as unconstitutional.

The justices also agreed with the plaintiffs in ruling that they had standing to bring the suit based on the plaintiffs providing that that they had a sufficient personal stake in their right to a clean and healthful environment as well as that they had shown sufficient injury resulting from the proposed amendments.

Plaintiffs showed at trial—”without dispute—that climate change is harming Montana’s environmental life support system now and with increasing severity for the foreseeable future,” the order states. “Plaintiffs showed that climate change does impact the clear, unpolluted air of the Bob Marshall wilderness; it does impact the availability of clear water and clear air in the Bull Mountains; and it does exacerbate the wildfire stench in Missoula, along with the rest of the State.”

Green Spouts: While this case is limited to the facts and drafting of the Montana proposed legislation and the State’s constitution, plaintiffs in other states will likely take notice of the arguments used by the Rikki Held plaintiffs in crafting similar arguments to a recent proliferation of legislation in various states that seek to limit regulatory bodies from taking into account greenhouse gas emissions in their rule making.