greenhouse gas – 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.

April 5, 2023 by Brad A. Molotsky

5th Circuit Court of Appeals – Dismissal and Vacation of Lower Court Ruling – the Social Cost of Greenhouse Gas is Back in Action

In January, 2021, the Biden Administration issued Executive Order 13990 (“EO”) which re-established an interagency working group (the “Working Group”) in order to formulate guidance on the “social cost of greenhouse gases“. The EO directed the Working Group to publish dollar estimates quantifying changes in carbon, methane and nitrous oxide emissions for consideration by all federal agencies when policy making.

Since 2021, the working group has published their Interim Estimates which were based largely on findings of their predecessor Working Group which was established during the Obama Administration.

Various State Attorneys General from Louisiana, Alabama, Florida, Georgia, Kentucky, Mississippi, South Dakota, Texas, West Virginia and Wyoming (the “Plaintiff States“) challenged the EO and the Interim Estimates as procedurally invalid, arbitrary and capricious and obtained a preliminary injunction in the Western District Court of Louisiana.

The 5th Circuit concluded that the Plaintiff States did NOT establish standing to bring such a claim, and, as such, dismissed their action for lack of jurisdiction and vacated the lower courts preliminary injunction. The court indicated that the Plaintiff States failed to meet their burden to prove standing as they did not show an injury in fact. With this ruling, the Working Group and the Interim Estimates may now be used by various federal agencies as part of their analysis and policymaking.

For more than a decade, federal agencies have considered the effect of greenhouse gas emissions (along with a host of other variables) in their cost benefit analysis in determining whether to and the cost of implement various regulations. As the Court pointed out, before proposing any significant action, federal agencies are required to assess the costs and benefits of the regulation and submit to the Office of Management and Budget their assessment for review.

In 2009, the Obama Administration established the original working group to develop a transparent and defensible method, designed for the federal rulemaking process, to quantify the social costs of greenhouse gases. In 2017, after years of work and research, this group derived estimates from peer-reviewed models for translating emissions into dollar costs. Their findings were the subject of public notices and comments and were peer reviewed by the National Academies of Science, Engineering and Medicine.

Later in 2017, the Trump Administration disbanded the prior working group and its work product withdrawn from federal agencies, but these federal agencies were not barred from “monetizing the value of changes in greenhouse gas emissions resulting from proposed regulations.” In ohter words, the agencies were not mandated to include the Interim Estimates BUT they were still permitted to include greenhouse gas emissions and their impact in the agencies’ recommendations. The result of the disbanding of the working group was that instead of utilizing a coordinated approach across all agencies, each agency was left to its own devices in determining how and whether to score green house gas emissions in preparing its cost benefit analysis for a given regulation.

In early 2021, under the Biden Administration, the Working Group was reconvened under EO 13990 and re-tasked with developing Interim Estimates that would be “appropriate and consistent with applicable law.” When the applicable federal agency relies on the Interim Estimates to justify a final action, the court noted that the agency “must respond to any significant comment on those estimates and ensure it analysis” is “not arbitrary or capricious”.

Although some could characterize the Court’s ruling as a bit of legal “in the weeds” arguments over standing and injury, the crux of the court’s ruling hinged on the fact that the “EO 13990 does NOT require any action from federal agencies”. Agencies are required to exercise discretion in conducting their cost benefit analysis and deciding whether or not to use the Interim Estimates. If used, “the Interim Estimates are required by the EO to be appropriate and consistent with applicable law.” The Court further noted that “nothing in EO 13990 requires States to implement the Interim Estimates.”

Parting Thoughts – activism by the Plaintiff States Attorneys’ General is on the rise in the ESG arena and is evident in various articles and actions being taken to oppose various ESG and environmentally focused regulations. It is likely that this activism continues and that further ESG focused programs in investments arena and in disclosure of the impacts of climate change (like the proposed SEC Rules on Climate Change Disclosure which are supposed to be announces as final this month) continue to be called into question by these Plaintiff States. We will continue to monitor and report on these developments as they occur and are here if we can be helpful to you in your analysis on how they might affect your operations, your businesses or you.

Duane Morris has an active ESG and Sustainability Team to help organizations and individuals plan, respond to, and execute on your Sustainability and ESG planning and initiatives. We would be happy to discussion your proposed project and how this DOE funding prize might apply to you. For more information or if you have any questions about this post, please contact Brad A. Molotsky, Alice Shanahan, Jeff Hamera, Nanette Heide, Jolie-Anne Ansley, Robert Montejo, Seth Cooley or David Amerikaner or the attorney in the firm with whom you in regular contact or the attorney in the firm with whom you are regularly in contact.

April 18, 2021April 18, 2021 by Brad A. Molotsky

ESG: Carbon Footprint Labels – Helpful or Green Washing?

Major Fortune 100 and 500 companies and others continue to focus on their ESG efforts in various forms and arenas, including the continued evolution of carbon emissions disclosures on various products.

As noted by Saabira Chaudhuri in her Wall Street Journal column, consumers, investors, Boards and regulators are becoming more and more interested in emission levels in the context of growing concerns over climate change and its impact.

Unilever PLC – intends to introduce carbon footprint details on 70,000 of its products, given that sales of sustainable products are growing faster than their lines of non-sustainable products. They are currently working on obtaining direct information about their carbon footprint for each ingredient supplier that provides products that are used in Unilever products.

Colgate- Palmolive – continues to work with their supply chain providers of various ingredients that are inputting into their products in an effort to avoid allowing estimates of amounts of impact in favor or real numbers. Colgate continues to work on ways to measure and verify their footprint, and to require that their supply chain actually measure and verify these impacts.

Quorn/Monde Nissin Corp – began displaying carbon-dioxide/kilogram on-package carbon footprint details in 2020 for certain of their meatless products.

Oatly AB, Upfield Holdings BV and Just Salad brands have also started listing carbon emissions figures on both their packaging and menus.

Logitech International began listing carbon emissions figures on their computer keyboard products.

Having labelled and provided on line environmental impact numbers for its Garnier hair products already, L’Oréal SA announced it will be adding carbon labels for all of its “rinse off” products, including shampoos, in 2022.

To date, there is no market based, agreed upon, uniform way to report or measure these various GhG impacts but, each of the above mentioned companies, have attempted to outline their methodologies and have given their rationales on how they measure and report – an excellent first step. As others either desire to join them or feel the pressure from consumers, their Board and/or stakeholders to measure and report as well, one can only hope that a quasi uniform methodology for monitoring, measuring and reporting is agreed upon and utilized so that consumers can measure apples to apples rather than apples to oranges or kilograms to pounds.

The Triple Bottom Line: While personally I am a big fan of labeling (whether this be nutrition or calories on a menu or ingredients in a chemical mixture to enable the consumer to review the information and make an informed decision), and, in my view, the growing use of “carbon labeling” represents a good step in the right direction to enable better, more informed consumer choices, I am just not so sure that everyone’s motivation and nomenclature is the same when using phrases like “net-zero”, “carbon emissions” and “greenhouse gas impact”. As such, the reported results will not be comparable as between products, at least not yet. Again, I am very much in favor of solid attempts by various organizations to self report their impacts, I just look forward to the day when everyone is measuring outcome in a similar fashion so that real comparisons by brand and product will be possible, rather than merely smart marketing by some with a lack of a verifiable real methodology for measuring and reporting. As such, I will put “carbon labeling” in the “growing in interest” category, likely to become more and more real and relevant as time and measurement systems are put in place during 2021 and 2022 and, very likely that regulators like the EU, the SEC or trade associations like the SASB continue to push for more required and verifiable disclosure. As such, an area to continue to pay attention to and keep attuned to the market dynamics that continue to push for more and better information.

Duane Morris has an active ESG and Sustainability Team to help organizations and individuals plan, respond to, and execute on Sustainability and ESG planning and initiatives within their own space. We would be happy to discussion your proposed project with you. Contact your Duane Morris attorney for more information.

If you have any questions about this post, please contact Brad A. Molotsky (bamolotsky@duanemorris.com), Christiane Schuman Campbell, Darrick Mix, Dominica Anderson, Nanette Heide, David Amerikaner or the attorney in the firm with whom you are regularly in contact.