Climate Change and Clean Technology Blog

California Fighting Back to Save PACE Program

Sheppard Mullin — Wed, 21 Jul 2010 11:44:53 -0800

By Lindsay Young

On July 14, 2010, California Attorney General Jerry Brown filed a lawsuit against Fannie Mae and Freddie Mac (California v. Federal Housing Finance Agency, N.D. Cal., No. 10-3084), claiming that the government-sponsored enterprises are thwarting the State’s PACE (Property Assessed Clean Energy) programs, which encourage homeowners to make their homes more energy and water efficient. Under PACE programs, local governments lend money to homeowners who then use the funds to install solar panels, better insulation and other energy efficiency improvements. The homeowners pay for the improvements through special property tax assessments over a period of 10 years or more. The PACE programs, which have already created thousands of jobs, have additionally attracted over $150 million in stimulus money for the State of California.

Fannie Mae and Freddie Mac contend that PACE funding constitutes a loan or senior lien that has priority over existing mortgages, which is not permitted under Fannie Mae and Freddie Mac’s standardized mortgage documents. On May 5, 2010, both Fannie Mae and Freddie Mac issued advice letters to all lending institutions stating that PACE “loans” that have senior lien status to a mortgage are not permitted. On July 6, 2010, the Federal Housing Finance Agency (FHFA), the federal agency that serves as the conservator for Fannie Mae and Freddie Mac, upheld this interpretation. Therefore, Fannie Mae and Freddie Mac will not buy or guarantee mortgage loans that participate in these programs, and, as lenders will not issue mortgage loans that do not satisfy Fannie Mae and Freddie Mac’s requirements, several California counties have suspended their PACE programs.

California, on the other hand, argues that Fannie Mae and Freddie Mac are incorrectly characterizing the programs as loans. Under California law, PACE funding is classified as a tax assessment. Tax assessments can be used to finance improvements that serve a public purpose, and in some instances, privately-owned improvements can also serve a valid public purpose. California argues that PACE’s energy efficient private home improvements do in fact serve a public purpose, which is supported by California’s legislative record, thus making the characterization of PACE funding as a tax assessment proper. Furthermore, Fannie Mae and Freddie Mac have for decades accepted and agreed that tax assessments constitute priority liens, which do not in themselves violate Fannie Mae and Freddie Mac’s mortgage requirements. If the courts agree with California’s characterization of PACE funding as an assessment rather than a loan, the PACE programs would then be compatible with Fannie Mae and Freddie Mac’s mortgage requirements.

Most counties in California have developed or plan to develop a PACE program, 22 other states have passed laws permitting PACE programs, and legislation is pending in most other states. As Fannie Mae and Freddie Mac either own or guarantee 30 million homes, constituting over half of the countries’ residential mortgage loans, FHFA’s decision to uphold Fannie Mae and Freddie Mac’s interpretation will effectively thwart PACE programs across the country. Several cleantech companies that rely on PACE funding, thousands of jobs and millions of dollars of capital now hinge on whether the courts will reverse FHFA’s decision.

For more information, please contact Lindsay Young. Ms. Young is an associate in the Corporate/Securities Group in the firm’s Orange County office.

The Supreme Court or Congress: Which Will Decide Whether Large Emitters of Greenhouse Gasses May be Held Liable for the Effects of Global Warming?

Sheppard Mullin — Fri, 11 Jun 2010 10:45:47 -0800

By Robyn Christo and Scott Vignos

As climate change litigation proceeds throughout the country, three cases, Comer v. Murphy Oil, Connecticut v. American Electric Power and Native Village of Kivalina v. ExxonMobil, provide indications of the Supreme Court's potential role in shaping the legal landscape of climate change. The Fifth Circuit's May 28, 2010 order dismissing the en banc appeal in Comer has provided renewed interest in this issue.

In Comer, property owners along the Gulf Coast brought a putative class action alleging the activities of energy, chemical and fossil fuel companies had contributed to global warming. The class claimed that greenhouse gas (GHG) emissions from the defendants’ operations contributed to rising sea levels and severe hurricanes resulting, ultimately, in property damage. The district court granted defendants’ motion to dismiss, finding plaintiffs’ claims presented non-justiciable political questions. A Fifth Circuit panel disagreed and the case was remanded for arguments on the merits. Defendants immediately moved for a rehearing en banc.

The Fifth Circuit, left with a bare quorum due to the recusal of seven justices, voted to hear the Comer appeal en banc, automatically vacating the panel's earlier decision. Prior to oral arguments, an eighth judge recused herself, prompting the loss of the quorum necessary to hear the appeal. Although the Court did not provide an explanation in its order, the recusals are speculated to be due to conflicts raised by stock-ownership issues.

Following arguments of both parties and amici, the Court dismissed the Comer appeal entirely, finding, “There is no rule that gives this court authority to reinstate the panel opinion which has been vacated." The order restored the district court's original ruling, leaving plaintiffs with a final alternative – a writ of certiorari to the Supreme Court. The order may signal a temporary victory for industry defendants, but the lasting impact of Comer is much more nuanced.

The Comer decision has generated interest in a potential Supreme Court ruling on the liability of large GHG emitters. Because the dismissal of Comer allowed the district court’s opinion to stand, it prevented, for the time being, a split in the circuits on climate change liability. The Second Circuit in American Electric Power, recently denied defendants' motion for en banc consideration. The ruling allows a panel decision to stand, giving plaintiffs – eight states, New York City, and three land trusts – a green light to proceed with tort claims against GHG emitters in district court.

A circuit split may yet arise, however. Native Village of Kivalina is currently before the Ninth Circuit Court of Appeals. The district court in Kivalina, criticizing the Second Circuit's rationale employed in American Electric Power, found the tort claims of a village in the Arctic were precluded by a lack of standing and the political question doctrine.

Several issues may bear on the Supreme Court's decision to grant (or deny) certiorari in Comer or American Electric Power. First, without a substantive ruling from the Fifth Circuit, the Second Circuit’s decision alone may not present the necessary impetus that is generally provided by a circuit split. Further, the Ninth Circuit may reverse the district court in Kivalina and side with the Second Circuit's decision in American Electric Power, leaving the circuits in agreement.

Second, should the Supreme Court grant certiorari, it is possible the Court would face recusal issues similar to those faced by the Comer court. Certainly Justice Sonia Sotomayor, who participated in American Electric Power while a justice on the Second Circuit, would recuse herself. Moreover, both Justices Anthony Kennedy and Samuel Alito own stock in large oil companies. Without the participation of these three Justices, the Court would be left with its bare quorum of six.

Finally, legislation pending on the Hill may militate against granting certiorari. Senators John Kerry and Joe Lieberman recently released their discussion draft of the long-awaited Kerry-Lieberman "American Power Act." Among other provisions, the bill contains measures to coalesce GHG emission standards under one federal rule, potentially affecting liability exposure for the energy, fossil fuel and chemical industries. To avoid venturing into delicate political territory, the Supreme Court may allow Congress an opportunity to enact comprehensive climate change legislation first.

While it is clear that the Fifth Circuit's decision to "punt" on the issue of climate change has left some frustrated with the Court's reticence on an important and timely issue, litigation may proceed in American Electric Power. And, while the Comer plaintiffs consider their next move, the attention of environmentalists and industry will shift to the Second Circuit where the defendants in American Electric Power have until June 19 to seek their own writ to the Supreme Court.

For more information regarding this article, please contact Robyn Christo. Ms. Christo is an associate in the firm's San Francisco office.

US Patent Office Expands Green Technology Accelerated Examination Program - More categories of invention are now eligible for expedited processing

Sheppard Mullin — Tue, 01 Jun 2010 13:35:20 -0800

By Daniel Yannuzzi

The United States Patent and Trademark Office (USPTO) has expanded its Green Technology Pilot Program to allow more categories of technology to be eligible for expedited examination. Under the Green Technology Pilot Program, applications pertaining to environmental quality, energy conservation, development of renewable energy, or greenhouse gas emission reduction, will be considered without meeting all of the usual requirements of the accelerated examination program (e.g., examination support document). Applications accorded special status will be placed on the examiner’s special docket and advanced out of turn prior to the first Office action, and will have special status in any appeal to the Board of Patent Appeals and Interferences and also in the patent publication process. Applications having special status under this program, however, will be placed on the examiner’s amended docket, after the first Office action.

The Pilot Program was originally limited to certain classifications to allow the USPTO to gauge the impact of the program and manage its resources. Due to this limitation, a number of petitions for green technology applications that would have otherwise qualified for the program were denied. However, after running with the program for several months, the USPTO has now determined that it can remove the restriction, opening up the program to a broader spectrum of green technologies.   “There has been a tremendous amount of interest in the Green Technology Pilot Program, and we would like to enable applicants whose inventions did not fall within the initial classifications eligible for the program to be eligible,” said Under Secretary of Commerce for Intellectual Property and Director of the USPTO David Kappos. “By expanding the eligibility criteria for this program, will further accelerate the development of critical green technologies while creating new jobs.”

If you want to participate in the pilot program, you must file a petition to make special under the Green Technology Pilot Program that satisfies all other requirements set forth in the December 8, 2009, Federal Register notice on this topic. No fee is required for participation in the program. The USPTO has waived the usual $130.00 fee for a petition under 37 C.F.R. § 1.102 (other than those enumerated in 37 C.F.R. § 1.102(c)).   However, the program term is limited and petitions must be filed before December 8, 2010, and is limited to the first 3,000 grantable petitions to make special under the program in new applications filed before December 8, 2009. Although almost 1,000 requests have been filed, only approximately 350 applications have been accepted into the program. According to the USPTO, this low acceptance rate was primarily due to the classifications restrictions. Accordingly, with the lifting of these restrictions, the number of applications in the program is expected to rise quickly.

If you previously filed a petition and it was dismissed or denied solely on the basis that your application did not meet the classification requirement, you may now file a renewed petition. If your renewed petition is filed by June 30^th, 2010, it will be accorded priority as of the date you filed the initial petition. It is important to note that continuing applications will not automatically be accorded special status based on a parent application. Each continuing application must meet all the requirements for special status on its own.

For an application pertaining to environmental quality, the petition to make special must state that special status is sought because the invention materially enhances the quality of the environment by contributing to the restoration or maintenance of the basic life-sustaining natural elements.   The petition to make special for an application directed to development of renewable energy or energy conservation, or directed to greenhouse gas emission reduction, must state the basis for the special status (i.e., whether the invention materially contributes to (1) development of renewable energy resources or energy conservation, or (2) greenhouse gas emission reduction).

For more information regarding this article, please contact Daniel Yannuzzi. Mr. Yannuzzi is a partner in the firm's Del Mar office and co-chair of the firm’s Intellectual Property Practice Group.

Update on Initiative to Suspend California's Global Warming Bill

Sheppard Mullin — Mon, 10 May 2010 12:48:03 -0800

by Adrienne Lee

In March 2010, the California Jobs Initiative Committee began collecting signatures to place their initiative on the November 2010 ballot that would require California to abandon implementation of AB 32, also known as the Global Warming Solutions Act of 2006, until California's unemployment rate drops to 5.5 percent or less for at least a year.

What is AB 32?

Set to be phased in between 2012 and 2020, AB 32 is a comprehensive GHG reduction program that includes increased renewable energy and clean fuel requirements, mandatory emissions reporting, and fee schedules for major polluters, such as power plants and oil refineries. It directs the California Air Resources Board (CARB) to develop early actions to reduce greenhouse gases and to prepare a Scoping Plan to identify how best to reach the 2020 limit. The Scoping Plan, approved by the ARB Board in December 2008, provides an outline for actions to reduce California's GHG emissions.

Specifically, AB 32 requires CARB to:

Establish a statewide GHG emissions cap for 2020, based on 1990 emissions by January 1, 2008;
Adopt mandatory reporting rules for significant GHG sources, and a plan indicating how emissions reductions will be achieved, by January 1, 2009;
Adopt regulations by January 1, 2011 to achieve the maximum technologically feasible and cost-effective reductions in greenhouse gas, including provisions for market mechanisms and alternative compliance mechanisms;
Convene an Environmental Justice Advisory Committee and an Economic and Technology Advancement Advisory Committee to advise CARB; and
Ensure that the public is notified and can comment on all CARB actions.

AB 32 authorizes CARB to develop regulations and market mechanisms to meet the state's emissions targets. Under AB 32, California must reduce greenhouse gas emissions by 25 percent by 2020, returning them to 1990 levels. One of its most controversial proposals is a cap-and-trade system, through which polluting businesses can buy credits from non-polluters.

Before imposing any mandates or authorizing mechanisms, CARB must evaluate several factors, including impacts on California's economy, the environment and public health; equity between regulated entities; electricity reliability, conformance with other environmental laws; and ensuring that the rules do not disproportionately impact low-income communities. To enforce AB 32, CARB can impose criminal or civil penalties for AB 32 violations, but can also provide credits to businesses that reduce emissions early. The bill also includes a built-in safety valve that permits the Governor to suspend emissions caps for up to one year in the case of an emergency or threat of significant economic harm.

Opponents of AB 32 Seek Ballot Initiative to Suspend AB 32

The California Jobs Initiative Committee was formed to place an initiative on the November ballot, which would suspend implementation of AB 32. While the initiative was originally titled the "California Jobs Initiative," State Attorney General Jerry Brown deemed it misleading and required the official ballot title to be a description of what the initiative would do: "Suspends Air Pollution Control Laws Requiring Major Polluters to Report and Reduce Greenhouse Gas Emissions That Cause Global Warming Until Unemployment Drops Below Specified Level for Full Year."

The Committee must collect roughly 434,000 verified signatures by June 26 for the initiative to appear on the November 2010 ballot. The Committee has already submitted 800,000 signatures, which have yet to be verified. If the initiative appears on the ballot and receives more than 50% approval in November, the suspension would be in place until California's unemployment rate drops to 5.5 percent or less, for at least a year.

The California Jobs Initiative Committee contends that with California's current unemployment rate of 12.6 percent, Californians will be unable to afford the increases in the price of gasoline, electricity, food, and water that will be passed onto them as a result of the legislation. Furthermore, they insist that California businesses will be unable to create jobs if faced costly new regulations. According to a controversial report, titled "The Costs of AB 32," the bill could cause California to lose up to 1.1 million jobs, cost the average family nearly $4,000 per year in increased expenses, and cost small businesses nearly $50,000. However, the validity of this report has been called into question, most notably, by the Legislative Analyst's Office (LAO), which provides nonpartisan fiscal and policy analyses for the Legislature. According to LAO's review, "Both of the two studies…have major problems involving both data, methodology, and analysis. As a result of these shortcomings, we believe that their principal findings are unreliable." Responding to the criticism, the authors issued this statement: "We stand by the findings of our research, and emphasize that the costs of AB 32 are materializing quickly as utilities announce sky-high rate increases, and still the economic benefits of AB 32 are yet to be seen."

A variety of businesses and lobbying groups have combined efforts in the signature-gathering campaign. The initiative is largely being funded by Texas oil companies, such as Valero Energy Corp. and Tesoro Corp. which have donated $500,000 and $275,000 respectively. Other supporters of the initiative include the Howard Jarvis Taxpayers Association, World Oil Corp., and the conservative Adam Smith Foundation. Several business groups are also opposed to AB 32, warning that the bill would cost jobs and prompt billions of dollars in higher energy prices. John Kabateck, the executive director of the National Federation of Business California, stated at a news conference, "While the goals of AB32 are admirable, clearly the implementation of this at this time ... would be a death knell for many small businesses."

Supporters of AB 32 to Oppose the Initiative

A group called Californians for Clean Energy and Jobs has been formed to oppose the initiative to suspend AB 32. As of April, the group has received approximately $1 million in donations, with the bulk of it ($500,000) coming from the Green Tech Action Fund, a political group backed by the Energy Foundation, a San Francisco partnership which supports sustainable energy. George Schultz, former U.S. Secretary of State under President Reagan, has been named the honorary co-chairman of Californians for Clean Energy and Jobs. Dubbing it the "Dirty Energy Proposition," Shultz stated that the initiative is a "misguided proposition" that will "seriously harm our effort to encourage the growing entrepreneurial ventures that hold the promise of important change toward cleaner energy." Instead of hurting jobs, Schultz says that the regulations implemented under AB 32 "will boost the state’s economy by creating 'clean-tech jobs.'"

In March 2010, CARB released an Updated Economic Analysis of AB 32 Scoping Plan, which concluded that AB 32 would have minor but positive impacts on small businesses in California and that the economy would grow by 2.4% per year, consistent with current patterns. The study also found that increases in energy prices would be offset by the increases in efficiency throughout the economy and reduced fuel expenditures.

What next?

If the California Jobs Initiative Committee gathers 434,000 verified signatures by June 26th, the initiative will appear on the November 2010 ballot. This initiative will then need at least 50% of the vote to pass. If passed, then AB 32 will be suspended until California's unemployment rate is 5.5% or less for at least a year.

Studies on the economic impact of AB 32 have yielded widely divergent results. The only certainty is that California is facing one of its most contentious ballot initiatives yet and the fate of this landmark global warming bill will rest in the hands of California voters.

For more information regarding this article, please contact Adrienne Lee. Ms. Lee is an associate in the Business Trial Practice Group in the firm's Orange County office.

California Air Resources Board Concludes that Implementing Greenhouse Gas Reductions Mandated by Law Will Benefit California's Economy

Sheppard Mullin — Thu, 08 Apr 2010 12:10:24 -0800

By Olivier Theard

The California Air Resources Board (ARB) recently released its Updated Economic Analysis of California's Climate Change Scoping Plan. The detailed report examines the economic impact to California of implementing the strategies set forth in the Climate Change Scoping Plan (released in December 2008). The Scoping Plan sets forth California's blueprint for reducing greenhouse gas emissions to 1990 levels by 2020, as mandated by California's landmark Global Warming Solutions Act of 2006 (AB 32). The Scoping Plan identified several strategies for reducing emissions, including promoting energy efficiency in virtually all economic sectors, cap and trade of emissions, and transportation-related measures aimed at reducing emissions from vehicles (including development of low-carbon fuels and land use development strategies). The Economic Analysis was designed to measure the effect on California's economy from implementing the Scoping Plan.

The Economic Analysis was prepared amidst one of the worst recessions in history. In addition to recent critiques regarding the science of climate change, another popular argument against climate change policy is that the radical changes needed to reduce emissions will cause further damage to an already beleaguered economy. The Economic Analysis does not ignore this argument, stating that it "takes into consideration the recent downturn in global economic activity," but still concludes that "this analysis confirms that successful implementation of these measures [in the Scoping Plan] will mean that we can achieve the goals of AB 32 without adversely affecting the growth of California's economy over the next decade, especially as the state recovers from the current economic downturn." However, the fact that the Economic Analysis was approved by a 16-member committee and an independent panel of "top economists, business and financial leaders," as stated by ARB, will probably do little to quell the debate over whether greenhouse reduction strategies are compatible with economic sustainability.

The Economic Analysis relies in part on energy forecasts prepared by the California Energy Commission, as well as various economic modeling programs that take into account how greenhouse gas reductions affect fuel expenditures, changes in investments and supply and demand for various types of fuels. The Economic Analysis also studies impacts to small businesses and job creation.

The following are the key conclusions:

Fuel expenditures will drop by 4.9% in 2020, with a total cost savings of $3.8 billion in reduced gasoline and diesel consumption due to increased investment and use of energy efficiency and cleaner fuels;
The economy and personal income will grow at 2.4% per year, consistent with current patterns (demonstrating no ill effects from implementing the Scoping Plan);
Two million jobs will be created by 2020, also consistent with current patterns;
Failing to implement the Scoping Plan (i.e. limiting regulations on oil companies or utilities) will increase costs and shift the burden to consumers and small businesses.

The Economic Analysis also considered certain less tangible effects, such as the need to reduce dependence on fossil fuels, especially in light of the "continued volatility of world energy prices." By reducing dependence on fossil fuels, California can reduce its "vulnerability to future price spikes." As for small businesses, the Economic Analysis concludes that implementing the Scoping Plan is unlikely to have a negative impact, and that certain sectors will see an increase in employment and output as consumers shift to energy efficiency.

The ARB continues to invite comments and host public meetings related to its Economic Analysis. Affected industries are encouraged to attend. The next meeting is April 25, 2010.

The Economic Analysis, Scoping Plan, and information on upcoming public meetings can be found at the following link: www.arb.ca.gov/cc/scopingplan/economics-sp/economics-sp.htm.

For more information, please contact Olivier Theard. Olivier Theard is an associate in the Business Trial and Environmental Litigation Practice Group in the firm's Los Angeles Office.

EPA Will Not Require Stationary Sources to Obtain Clean Air Act Permits for GHGs Until January 2011

Sheppard Mullin — Tue, 30 Mar 2010 10:29:09 -0800

By Adrienne Lee

Yesterday, the U.S. Environmental Protection Agency issued its decision that stationary sources will not be required to get federal permits under the Clean Air Act for greenhouse gases (GHGs) before January 2011. According to EPA Administrator Lisa P. Jackson, “This is a common sense plan for phasing in the protections of the Clean Air Act. It gives large facilities the time they need to innovate, governments the time to prepare to cut greenhouse gases.” Jackson also announced that during the latter half of 2011 and 2013, the threshold for permitting will be raised “substantially higher” than the originally proposed 25,000-ton limit, with the smallest sources exempted from Clean Air Act permitting requirements until at least 2016.

In a December 18, 2008 memorandum entitled “EPA’s Interpretation of Regulations that Determine Pollutants Covered by Federal Prevention of Significant Deterioration (PSD) Permit Program,” the EPA decided that the PSD Permitting Program would apply to pollutants that are subject to either a provision in the Clean Air Act or a regulation adopted by EPA under the Clean Air Act that requires actual control of emissions of that pollutant. Under this permitting program, companies would have to apply for a Clean Air Act permit before constructing new industrial facilities or expanding existing facilities in a way that significantly increases emissions.

Today, the EPA refined its interpretation of the memorandum and formally announced that the Clean Air Act permitting program will not be triggered for GHGs until a final nationwide rule "takes effect." The EPA has concluded that the Clean Air Act program requirements will apply to GHGs when the anticipated tailpipe standards for light-duty vehicles (known as the “LDV Rule”) take effect. This means that the rule limiting GHG emissions for cars and light trucks would trigger the permitting requirements in January 2011, the earliest point at which 2012 model vehicles meeting the standards can be sold in the United States. Later this spring, the EPA will make a decision on the amount of GHGs a facility can emit before triggering the requirement to include limits for these emissions in its permit.

For a more detailed discussion regarding the development of EPA’s GHG rules, please see EPA Defends Proposed GHG Plan But Extends Timeline (March 1, 2010) and EPA Uses the Clean Air Act to Propose New Rules Intended to Reduce GHG Emissions from Large Emitters (October 6, 2009).

For more information regarding this article, please contact Adrienne Lee. Ms. Lee is an associate in the Business Trial Practice Group in the firm's Orange County office.

SEC Interpretive Release On Climate Change Disclosure

Sheppard Mullin — Tue, 30 Mar 2010 04:19:37 -0800

By Jeralin Cardoso

On February 2, 2010, the Securities and Exchange Commission (the "SEC") issued an interpretive release (the "Release"), previously approved by a 3-2 vote on January 27, 2010, to provide guidance to public companies as to how the SEC's existing disclosure requirements apply to climate change matters. The Release was issued after requests were made over several years by a variety of environmental, investor and business groups. A copy of the Release can be found at http://www.sec.gov/rules/interp/2010/33-9106.pdf.

In the Release, the SEC provides that it views Item 101 (Description of Business), Item 103 (Legal Proceedings), Item 303 (Management's Discussion and Analysis of Financial Condition and Results of Operations or MD&A) and Item 503(c) (Risk Factors) of Regulation S-K as the most pertinent non-financial statement disclosure rules that may require climate change disclosure. The Release describes four specific topics of climate change disclosure that may need to be addressed under these rules, each of which are outlined below.

Impact of Domestic Legislation and Regulation

The Release notes that recent legislative and regulatory developments could have a significant effect on company operations and financial decisions, including the recent steps taken by the Environmental Protection Agency to regulate greenhouse gas emissions by requiring large emitters of greenhouse gases to collect and report data with respect to their greenhouse gas emissions.

MD&A –Unless company management determines that a material effect is not reasonably likely, it should evaluate whether pending legislation and regulation regarding climate change is likely to be enacted and determine the impact such enacted legislation and regulation might have on the company, its financial condition, or results of operations. If the impact is material, management should consider discussing the difficulties that may be involved in assessing the timing and effect of the pending legislation and regulation. The Release reminds companies that both positive and negative consequences of a proposed law should be disclosed.

Risk Factors –Company management should consider providing risk factor disclosure regarding existing or pending legislation or regulation that relates to climate change and in doing so should consider the specific risks the company faces as a result; the company should avoid generic risk factor disclosure that could apply to any company.

In addressing this topic, the SEC also provided specific examples of possible consequences of pending climate change legislation and regulation, which could include: costs to purchase or profits from sales of allowances of greenhouse gas emissions credits trading; costs required to improve equipment and facilities to reduce greenhouse gas emissions in order to comply with regulatory limits; impacts on profits and losses from increased or decreased demand for good and services and changes in the costs of certain goods.

Impacts of International Accords

The Release notes that recent actions have been taken by international regulatory agencies and groups, including the Kyoto Protocol and the European Union Emissions Trading Systems, to address climate change issues on a global basis and such actions and any future actions that may be taken by these agencies and groups could have a material impact on companies involved in international business. The SEC expects companies to provide disclosure if it is likely to be, or is, materially impacted by international agreements related to climate change.

MD&A –Companies that are likely to be affected by international accords should monitor the progress of any potential agreements and consider the impact that may arise on the business of the company if such agreements are executed. The SEC noted in the release that the United States is continuing to participate in ongoing discussions with other nations, including its participation in the recent United Nations Climate Change Conference in Copenhagen, which may lead to future international treaties focused on reducing the environmental damages caused by greenhouse gases.

Indirect Consequences of Regulation or Business Trends

Even if companies are not directly affected by legislation and regulation regarding climate change, they may still be required to provide climate change disclosure if they are indirectly affected by such legislation and regulation. For example, companies may be affected if prices of goods and services of another company are increased or decreased as a result of legislation and regulation regarding climate change.

Description of Business –Legal, technological, political or scientific developments may create new opportunities or risks if the demand for new products and services is increased or if the demand for existing products and services are decreased. Disclosure may be required if there is a significant impact on the company's business.

Risk Factors –Changes in business trends due to legislation and regulation regarding climate change may require a risk factor disclosure. For example, potential indirect risks from climate change may include: the impact on a company's reputation from publicly available data regarding its greenhouse gas emissions; a decrease in the demand for goods that produce significant greenhouse gas emissions; a decrease in demand for services related to carbon-based energy sources; or an increase in competition to develop innovative new products.

Physical Impacts of Climate Change

The Release notes that there may be significant physical effects of climate change that could potentially have a material effect on a company's business and operations. Such physical effects may include an increase in the severity of the weather, change in availability, quantity, and quality of water and other natural resources, or extreme changes in temperature. These types of changes could create disruptions to operation of major customers or suppliers; increase insurance claims, liabilities, premiums, and deductibles; decrease the availability of insurance; and decrease the production of agricultural products.

Risk Factors–Companies with businesses that are vulnerable to severe weather or climate-related events should consider disclosing material risks of, or consequences from, such events.

Other Considerations

Even though the Release identified Item 103 (Legal Proceedings) of Regulation S-K as one of the most pertinent non-financial rules for climate disclosure, the Release does not address in detail the disclosure that may be required under such rule. Instruction 5 to Item 103 specifically states that proceedings involving environmental matters will not be considered "ordinary routine litigation incidental to business" and therefore such proceedings will be required to be disclosed if they meet the specified materiality thresholds. Companies should continue to review and assess legal proceedings and disclose environmental litigations and/or proceedings where appropriate.

Conclusion

The SEC is focused on climate change disclosure and plans to monitor the impact of the Release on corporate filings through its ongoing disclosure review process. In this regard, public companies will want to review their existing climate change disclosure and reassess whether, in light of the Release, such disclosure fulfills their obligations under the SEC rules. Public companies may also want to examine their disclosure controls and procedures to ensure the thorough reporting of the potential impact of climate change and the proper assessment of its materiality. Many companies are already voluntarily providing information about their greenhouse gas emissions and other climate change matters to organizations, such as the Carbon Disclosure Project (the "CDP"),[1] which make the information available to the public. These companies should carefully consider whether the information provided to such organizations is consistent with its disclosure in SEC filings. And although the SEC has advised that it does not want companies to dilute the usefulness of their disclosure with immaterial information, companies operating in business sectors that could conceivably be sensitive to climate change should be prepared to address any questions the SEC staff may have regarding its assessments of materiality and the company should have sufficient information to support its conclusions.

The SEC has scheduled a public roundtable on climate change disclosure issues to be held in the spring of 2010. Further guidance, or rulemaking concerning climate change disclosure, may follow.

For more information, please contact Jeralin Cardoso. Ms. Cardoso is an associate in the Corporate Practice Group in the firm's Del Mar Heights office.

[1] The Carbon Disclosure Project publishes the results of the information it obtains from companies that voluntarily fill out and submit questionnaires relating to climate change issues. A copy of the reports can be found on the Carbon Disclosure Project website at www.cdproject.net.

Permit Application Penalty Holiday Established by the AQMD

Sheppard Mullin — Wed, 24 Mar 2010 04:19:23 -0800

by Kyndra Joy Casper

Due to the current economic challenges facing businesses and local governments in Southern California, the AQMD adopted Rule 310, Amnesty for Unpermitted Equipment on March 5, 2010. The new rule provides a temporary opportunity to obtain permits for equipment that should have permits without incurring late fees or violations penalties when certain conditions are met. The penalty holiday will last for six months, from February 5, 2010-August 4, 2010.

All facilities, other than federal Title V sources, operating a piece of equipment without a permit are eligible to participate in the program. Title V facilities may participate only for small equipment operating without a permit. However, if a facility has received a Notice of Violation or a Notice to Comply from the AQMD for an unpermitted piece of equipment or turned in a permit application prior to February 5, 2010, that facility is not eligible for the amnesty.

Although a facility is safe from late fees and violation penalties, it still must pay the regular permitting fee and comply with all other applicable air quality rules and regulations.

Basically, this rule allows facilities to permit equipment that already should have been permitted without the risk of late fees of violation penalties. The AQMD estimates that cost savings could range from about $900 for small equipment, to about $5,300 for larger equipment.

A similar program was offered by the AQMD in 1990 and in 1995, bringing in over 600 permits in a six-month period, mostly from small businesses.

If you would like to view the rule of the rule fact sheet, click on the following links http://www.aqmd.gov/rules/reg/reg03/r310.pdf and http://www.aqmd.gov/news1/2010/PAPHfactsheetu.pdf .

For more information, please contact Kyndra Joy Casper. Ms. Casper is an associate in the Real Estate, Land Use and Environmental Practice Group in the firm's Los Angeles office.

New Green Technologies Would Meet the Renewable Energy Standard Under the Support Renewable Energy Act of 2010

Sheppard Mullin — Tue, 02 Mar 2010 13:31:32 -0800

By Adrienne Lee

On February 23, 2010, Senators Feingold (D-WI) and Ensign (R-NV) introduced legislation that could create new green jobs, promote businesses that produce renewable energy technologies, and reduce the country's dependence on fossil fuels. Known as the "Support Renewable Energy Act of 2010," Senate Bill 3021 would amend the Public Utility Regulatory Policies Act of 1978 to ensure that more forms of renewable energy would meet a new federal standard, called the Renewable Energy Standard (RES). Current proposals in Congress would require utilities companies to produce a certain percentage of their energy from renewable sources, but limit the types of renewable energy that would qualify. Senate Bill 3021 would authorize the Secretary of the Department of Energy to promulgate regulations permitting utilities to use a broader range of sources to comply with these renewable energy requirements.

The new legislation would expand the definition of renewable energy to include electric energy and technologies that directly use renewable sources, produced through consumer-sited renewable energy equipment. Consumer-sited renewable energy equipment include solar water heating, solar water and space heating or cooling, biogas, geothermal heating, and solar daylight and light pipe technology. Light pipe technology refers to equipment that uses a highly reflective pipe that has a solar collection component and distribution lens at the ends of the pipe to transport solar radiation to illuminate interiors of buildings. Solar daylight systems use lenses, prisms, glazing, reflectors, or concentrators to convey or diffuse natural light into a building.

The legislation would also issue renewable energy credits equal to 100 percent of the electricity (or thermal energy expressed in an electricity-equivalent) displaced by qualifying renewable energy equipment. Renewable energy credits are issued by certifying agencies to producers of renewable energy and represent proof that 1 megawatt-hour (MWh) of electricity was generated from an eligible renewable energy resource. These credits can then be sold on the open market to utilities companies seeking to comply with their state-based RES and the proposed federal RES. Many states already have RES programs in place. For example, in California, Governor Schwarzenegger signed an executive order mandating electricity corporations to expand their renewable portfolio to 33% by the year 2020.

According to Senator Feingold's press release on February 23, 2010, this bill could stimulate local economies by promoting partnerships between utilities companies and local businesses to supply the renewable energy. The bill also aims to encourage individuals to install their own renewable energy systems, thereby boosting the number of construction jobs, particularly in roofing and plumbing. Additionally, Senator Feingold says the bill will reduce the strain on electricity transmission grids by encouraging renewable energies that do not have to go through the grid.

For more information, please contact Adrienne Lee. Ms. Lee is an associate in the Business Trial Practice Group in the firm's Orange County office.

EPA Defends Proposed GHG Plan But Extends Timeline

Sheppard Mullin — Mon, 01 Mar 2010 10:29:20 -0800

By Kyndra Joy Casper

In September of 2009, the U.S. Environmental Protection Agency (the "EPA") revealed a new proposal to regulate greenhouse gas ("GHG") emissions from power plants, factories and refineries, which are considered large GHG emitters. In a response to questions from Senate Democrats, EPA Administrator Lisa Jackson issued a letter on February 22, standing by the agency's plans to develop the first-time Clean Air Act ("CAA") regulations for GHGs and attacking pending efforts in Congress to overturn the EPA's finding that GHGs endanger public health and welfare.

The regulations being developed would require the use of best available control technology (“BACT”) to compel large emitting sources to curb GHG emissions whenever a new facility is constructed or a major modification takes place. The proposal would require large industrial facilities that emit at least 25,000 tons of GHGs a year to obtain construction and operating permits. (For more information about the September 2009 proposal please see previous article, "EPA Uses the Clean Air Act to Propose New Rules Intended to Reduce GHG Emissions from Large Emitters.").

In a letter dated February 19, 2010, the senators asked a number of questions regarding the impacts of the agency's pending GHG regulations and the impact a resolution to overturn the endangerment finding would have on other climate efforts.

Jackson's response letter, issued only a three days later, outlines a number of ways that she intends to ensure that the EPA regulates GHGs in "sensible ways that are consistent with the call for comprehensive energy and climate legislations."

First, no facility will be required to address GHG emissions in CAA permitting of new construction or modifications before 2011. Also, for the first half of 2011, only facilities that are already required to apply for CAA permits as a result of their non-GHG emissions will need to address their GHG emissions in their permit applications.

Second, EPA is considering a modification to the rule announced in September requiring large facilities emitting more than 25,000 tons of greenhouse gases a year to obtain permits demonstrating they are using the best practices and technologies to minimize GHG emissions. EPA may raise that threshold substantially to reflect input provided during the public comment process.

Further, smaller facilities will not be subject to CAA permitting for GHG emissions any sooner than 2016.

Jackson also uses her response letter to attack Senator Lisa Murkowski's pending resolution to undo the endangerment finding. The endangerment finding triggers a duty under the CAA to regulate GHGs. If the endangerment finding is overturned, the EPA cannot regulate GHGs under the CAA at all, including the GHG standards proposed for light-duty vehicles. The resolution is co-sponsored by 38 Senators and is currently pending in the Senate.

Jackson also appeared before the U.S. Senate Environment and Public Works Committee on February 23. She admitted that the EPA would support congressional legislative efforts to regulate GHGs and that legislation "adds certainty to the process."

For more information, please contact Kyndra Joy Casper. Ms. Casper is an associate in the Real Estate, Land Use and Environmental Practice Group in the firm's Los Angeles office.

EPA Issues Final Rule Regulating Emissions From Diesel Powered Stationary Reciprocating Internal Combustion Engines, Affecting Many Industrial Facilities

Sheppard Mullin — Wed, 24 Feb 2010 05:26:37 -0800

By Olivier Theard

Introduction

On February 17, 2010, the EPA issued a final rule under the Clean Air Act intended to reduce emissions of toxic pollutants from existing diesel powered stationary reciprocating internal combustion engines (RICE), also known as compression ignition (CI) engines. The new rules are important because they will affect operations at many facilities throughout the country that need to generate electricity for certain applications. RICE engines are typically used in industrial facilities such as power plants, chemical and manufacturing plants to generate electricity for compressors and pumps. The engines can also serve in emergency situations to produce electricity to pump water for flood and fire control. In general, the rules will require installation of pollution control equipment, performance of emissions tests and the burning of ultra-low sulfur fuel. A link to a fact sheet concerning this rule is attached here. This article, in combination with the EPA fact sheet, summarizes the key aspects of the rule.

What Pollutants Are Affected?

The primary chemical affected will be carbon monoxide (CO). EPA has determined that CO is an appropriate surrogate for emissions of other related chemicals from stationary engines. EPA has determined that, by reducing CO emissions, emissions of benzene, ethylbenzene, formaldehyde, styrene, toluene, xylene, PAH, 1-3 butadiene, n-hexane, napthalene, and polycyclic organic matter will also be reduced. Also expected to be reduced are emissions of the following metallic pollutants: cadmium, chromium, lead, manganese, mercury, nickel and selenium. EPA expects that the rules will also lead to a decrease in emissions of particulate matter and SOx, as well as other chemicals.

What Are the Requirements?

The rule addresses emissions from existing stationary CI engines, dividing the requirements into limits for engines at "major sources" and those from "area sources."A "major source" is a stationary source that emits or has the potential to emit any single regulated pollutant at a rate of 10 tons or more per year, or any combination of regulated pollutants at a rate of 25 tons or more per year. All stationary sources that are not "major sources" are considered "area sources." The emissions limits are based on the HP capacity of the engines, as set forth in the charts below. Compliance with these limits requires pollution controls and, for certain engines, the burning of ultra-low sulfur fuel:

Numerical Emission Standards for Existing Stationary CI RICE Located at Major Sources

Subcategory	Standard, except during periods of startup
Non-emergency CI, 100≤HP≤300	230 ppmvd CO at 15% O2
Non-emergency CI, 300≤HP≤500	49 ppmvd CO at 15% O2, or 70% CO reduction
Non-emergency CI, >500 HP	23 ppmvd CO at 15% O2, or 70% CO reduction

Numerical Emission Standards for Existing Stationary CI RICE Located at Area Sources

Subcategory	Standard, except during periods of startup
Non-emergency CI, 300≤HP≤500	49 ppmvd CO at 15% O2, or 70% CO reduction
Non-emergency CI, >500	23 ppmvd CO at 15% O2, or 70% CO reduction

What About Start-Up?

Start up of equipment, which is defined as the time from initial start until the engine reaches steady state or normal operations, may lead to emissions in excess of the emissions standards. Thus, the rule generally requires start up time not to exceed 30 minutes.

Additional Requirements

In addition to satisfying emissions standards, operators will be required to regularly change the oil and filter on engines, and inspect the air cleaner, hoses and belts within certain specified periods. Facilities will also need to conduct emissions tests at certain intervals to demonstrate compliance.

Significance of the Rule

This rule has a broad impact on operators at most major facilities, especially those where engines are used to generate electricity. Facility operators should be aware of this rule and the potential impacts, including the possible need to replace equipment or add pollution controls to existing equipment in order to comply with the law.

For more information, please contact Olivier Theard. Olivier Theard is an associate in the Business Trial and Environmental Litigation Practice Group in the firm's Los Angeles Office.

Council for Environmental Quality Issues Draft NEPA Guidance for Consideration of Climate Change Effects

Sheppard Mullin — Tue, 23 Feb 2010 09:15:24 -0800

By Brenna Moorhead

The Council of Environmental Quality issued draft guidance to federal agencies on how to analyze the environmental effects of greenhouse gases ("GHG") and climate change under the National Environmental Policy Act ("NEPA") on February 18, 2010. (Available here.)

The White House issued this guidance along with three other memoranda intended to "modernize and reinvigorate" NEPA which is now in its 40^th year. The guidance has two parts, the first of which focuses on the effects of an agency action on GHG emissions. It provides guidance on when and how to consider GHGs and what to analyze as part of the NEPA process. The second section encourages federal agencies to consider the effects of climate change on the proposed agency action. Comments regarding the draft guidance can be submitted at the Counsel's website within 90 days. Stay tuned to sheppardmullin.com for further analysis on this issue.

A Brief Overview of the Recent Amendments to CEQA Guidelines

Sheppard Mullin — Thu, 18 Feb 2010 05:08:40 -0800

By Brenna Moorhead

On December 29, 2009, the California Natural Resources Agency ("Resources Agency") adopted amendments to the guidelines implementing the California Environmental Quality Act ("CEQA"). The amendments were filed with the Secretary of State on February 16, 2010 and will assist lead agencies in complying with CEQA's existing requirements when analyzing and mitigating the impacts of greenhouse gas ("GHG") emissions[1] associated with a proposed project.

The amendments implement Senate Bill 97 which required the Resources Agency to clarify how GHG emissions should be analyzed and mitigated during the CEQA process. Recent legislation and issuance of the California Air Resource Board's ("CARB's") Scoping Plan pursuant to Assembly Bill 32, the Global Warming Solutions Bill, created uncertainty regarding CEQA compliance. CARB approved the Scoping Plan a year ago. It presents strategies for achieving the statewide goal of reducing GHG emissions to 1990 levels by 2020. The Legislature passed SB 97 to give greater certainty to CEQA lead agencies as to whether CEQA requirements have been met. According to the Resource Agency's Final Statement of Reasons for Regulatory Action (dated Dec. 2009), they do not add substantive requirements.

The amendments provide guidance to lead agencies regarding how to determine whether GHG emissions are significant, how to analyze significant impacts, how to develop appropriate mitigation measures to address significant impacts, and how to address significant impacts that cannot be mitigated to below a level of significance. The changes affect 14 sections of the existing CEQA Guidelines, Appendix F regarding Energy Conservation, and Appendix G which presents the Environmental Checklist Form.

Are the Impacts Significant? Should an EIR Be Prepared?

Under CEQA, an EIR is required if a lead agency determines there is substantial evidence that a proposed project "either individually or cumulatively, may cause a significant impact on the environment." 14 C.C.R. § 15063. Lead agencies have struggled to determine when GHG emissions associated with a project may cause a significant impact. Under the new section 15064.4(b), the following are to be considered in determining the significance of impacts from GHG emissions: (1) the extent of change in GHGs compared to the existing environmental setting, (2) whether emissions exceed an applicable threshold of significance, and (3) the extent of compliance with regulations or requirements to implement a plan for reduction or mitigation of GHGs. Id. at §§ 15064.4(b)(1)-(3); see also § 15183.5(b).

Change in GHG Emissions

The amendments focus on the project's potential incremental contribution of GHGs. They include the addition of section 15064.4(a) which states that the description, calculation or estimation of GHGs should be made "based to the extent possible on scientific and factual data." This subsection grants the lead agency the discretion either to use a model or methodology to quantify such emissions or to rely on qualitative analysis or performance-based standards. Id. at § 15064.4(a)(1)-(2). The amendments do not specify how GHG emissions are calculated. The lead agency must determine how it will calculate emissions.

Environmental Setting

The environmental setting is defined as the "physical environmental conditions in the vicinity of the project." Id. at 15125. An EIR is required to discuss inconsistencies between the proposed project and existing general and regional plans. Id. at 15125(d). Inconsistencies indicate that potentially significant impacts exist: they do not require a mandatory finding of significance. The amendments add specific plans to the list of plans to be considered for consistency. Id. In addition, regional blueprint plans and plans for reducing greenhouse gas emissions were added to the list of examples of regional plans that should be considered. Id. The lead agency must determine the significance of any inconsistencies with such plans.

Cumulative Analysis

Existing section 15130(b) requires that a lead agency determine the extent of cumulative project impacts and determine if the project's incremental contribution is “cumulatively considerable” and therefore significant. To determine whether the impacts of a project are "cumulatively considerable":

[T]he incremental effects of an individual project . . . [must be] viewed in connection with the effects of past projects, the effects of other current projects, and the effects of probable future projects. Id. § 15064(h)(1).

Compliance with these types of plans establishes a rebuttable presumption that the effects are not cumulatively considerable. The lead agency must still document how plan implementation ensures project effects are not cumulatively considerable.

Amendments to section 15064(h)(3) focus on the types of plans and programs that may be considered during CEQA review of cumulative impacts. They do so in the context of cumulative effects. Id. The revisions added habitat conservation plans, natural community conservation plans, and plans or programs for regulation of GHG emissions. Id. Whatever the plan, it must provide requirements that "avoid or substantially lessen the cumulative problem" of GHG emissions. Id. Also, the plan must be "specified in law" or already be adopted by a public agency that has jurisdiction to implement the law. Id. If a project complies with such a plan, then the lead agency may determine the project's incremental contribution to a cumulative effect is not cumulatively considerable. Id.

Thresholds of Significance

Section 15064.7(c) was added to allow lead agencies to consider "thresholds of significance previously adopted or recommended by other public agencies or recommended by experts." The Resources Agency identifies local and regional air districts as likely sources for thresholds. Another potential resource for thresholds is the California Air Pollution Control Officers Association ("CAPCOA"). CAPCOA has issued a White Paper on the development of thresholds for GHG emissions. The purpose of this amendment is to assist lead agencies lacking expertise to develop thresholds for GHG emissions. A lead agency's decision to employ a particular threshold must be supported by substantial evidence.

The amendments add GHG emissions reduction requirements contained in adopted land use plans, policies or regulations as an example of "uniformly applied development policies or standards." Id. at § 15183(g)(8). The effects of a project are not peculiar to a project if such adopted policies or standards will substantially mitigate the effects. Id. at § 15183(f). The agency must make this finding based on substantial evidence and can decide not to prepare an EIR on this basis. Id.

Existing CEQA law remains unchanged. If there is a fair argument, based on substantial evidence, that a project will result in significant effects, then the lead agency must prepare an EIR. This is true for the impact of GHG emissions related to a project as well. These amendments clarify how other plans and programs might affect determinations of significance and whether an EIR is prepared.

What Should the EIR Contain?

When determining what to analyze in an EIR, lead agencies often focus on the environmental factors listed in Appendix G to the CEQA Guidelines. Appendix G contains a sample checklist of potential impacts that should be analyzed. The CEQA amendments add or modify sample questions regarding forest resources, GHG emissions, and transportation. However, a lead agency should not limit its review to the items listed in the checklist. In accordance with existing case law, a lead agency must consider all substantial evidence regarding potentially significant impacts.

Other amendments provide guidance regarding the impacts to be analyzed in the EIR. Amendment of section 15126.2(a) requires that an EIR analyze the significant effects of bringing development and people to the affected area. The EIR should evaluate impacts associated with locating development in areas susceptible to hazardous conditions such as floodplains, coastlines, and wildfire risk areas. The amendments clarify that areas susceptible to hazards include those affected by climate change, and the effects of GHG emissions might include flooding, sea-level rise and wildfires. These should be considered in the project EIR in a manner consistent with the probability of the potential hazard.

The Resources Agency stated in its Final Statement that this amendment regarding hazards was made in response to public comments. Recognizing the potential for overlap, the public requested "guidance addressing the analysis of climate change on a project" in response to the 2009 California Climate Adaptation Strategy Discussion Draft (issued 2009) pursuant to Executive Order S-13-2008. The Adaptation Strategy is a programmatic document that prescribes State action for addressing the effects of climate change. CEQA is not the tool to implement the Adaptation Strategy.

Appendix F of the Guidelines was revised to ensure that lead agencies recognize that analysis and mitigation of energy impacts is not only a procedural requirement but also a substantive requirement of Public Resources Code 21100(b)(3). Analysis and mitigation are mandatory.

These amendments provide some clarification regarding what aspects of impacts of GHG emissions should be analyzed in the EIR.

How Is Mitigation of Significant Emissions Impacts Addressed?

The addition of section 15126.4(c) addresses mitigation measures related to GHG emissions. Lead agencies must consider feasible means of mitigating the significant effects of GHGs based on "substantial evidence and subject to monitoring or reporting." Id. Reductions in emissions not otherwise required may constitute mitigation pursuant to the CEQA Guidelines. Such mitigation measures may include: (1) mitigation measures in an adopted plan, (2) reductions resulting from project implementation including measures identified in Appendix F, (3) off-site measures including carbon offsets, community energy conservation projects, and forestry projects, (4) greenhouse gas sequestration, and (5) development of measures that can be implemented at the project level. Id.

The amendments also add section 15183.5 addressing GHG reduction plans in tiering and streamlining GHG emissions analyses. It recognizes that "GHG emissions may be best analyzed and mitigated at a programmatic level" consistent with state policy. Section 15183.5(a) states that existing CEQA Guidelines regarding tiering apply to GHG analysis. Section 15183.5(b) provides criteria for determining if an existing GHG reduction plan is appropriate for tiering the cumulative impacts analysis. Requirements for an existing GHG reduction plan must be binding and enforceable on the project or must be incorporated into the project as mitigation measures.

CONCLUSION

The amendments become effective March 18^th of this year. Only time will tell if the amendments achieve their goal of providing greater clarity to lead agencies on how to analyze the effects of project-related GHG emissions. On a parallel track, the CARB is developing new information and criteria pursuant to Assembly Bill 32, The Global Warming Solutions Bill. The CEQA Guidelines will be amended periodically to account for this new information.

For more information, please contact Brenna Moorhead. Brenna Moorhead is an associate in the Real Estate, Lane Use and Environmental Practice Group in the firm's San Francisco Office.

[1] The Amendments define GHGs as including "but not limited to: carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexaflouride" consistent with section 38505(g) of the Health and Safety Code.

California Air Resources Board Delays March 1 Deadline For Compliance With Off-Road Regulation

Sheppard Mullin — Fri, 12 Feb 2010 10:22:49 -0800

By Misti M. Schmidt

In 2007, the Air Resources Board (ARB) adopted a regulation to reduce diesel particulate matter (PM) and oxides of nitrogen (NOx) emissions from in-use (existing) off-road heavy-duty diesel vehicles in California. With the March 1, 2010 deadline looming over the construction industry for complying with the off-road regulation, ARB issued a statement yesterday postponing any enforcement actions for noncompliance with the regulation. Because of the faltering economy, reduced construction activity, and associated reduced emissions, "effective immediately, and until further notice, no enforcement action will be taken for noncompliance."

On March 11, ARB will hold an Executive Officer hearing at which stakeholders can testify regarding whether the off-road regulation should be further modified to account for the economy and resultant reduction in emissions. The information gathered at that hearing will be provided in an update to the full board at its regularly scheduled April meeting.

An earlier FAQ issued by ARB regarding the March 1 compliance obligations is available here, while further information regarding the off-road regulation in general can be found here.

For more information, please contact Misti M. Schmidt. Misti M. Schmidt is an associate in the Real Estate, Lane Use and Environmental Practice Group in the firm's San Francisco Office.

California Unveils Preliminary Draft Regulation For A Cap-And-Trade Program As One Of The Main Strategies To Reduce Greenhouse Gas Emissions That Cause Climate Change

Sheppard Mullin — Mon, 21 Dec 2009 11:46:46 -0800

by Taraneh Fard & Olivier Theard

On November 24, 2009, the California Air Resources Board unveiled its proposed draft regulation for a greenhouse gas ("GHG") cap-and-trade program in its effort to put California on the path to achieve the mandate imposed by Assembly Bill 32 ("The Global Warming Solutions Act") of reducing GHG emissions to 1990 levels by the year 2020, and ultimately achieving an 80% reduction from 1990 levels by 2050. The cap-and-trade strategy is a proposed solution that is intended to provide the certainty that GHG emission reductions will be achieved by setting emission goals, while offering the needed flexibility in reaching those goals through the creation of tradable permits. In other words, the "cap" is a legal limit on the quantity of greenhouse gases that a particular region can emit each year and the "trade" means that companies may swap among themselves the permission—or permits—to emit greenhouse gases. Release of the preliminary draft regulation marks the beginning of the next phase of the cap-and-trade rulemaking, culminating in the California Air Resources Board's consideration in 2010 of the first broad based cap-and-trade program in the nation. The rule will be in effect by January 1, 2012.

The preliminary draft combines in one place the results of a year-long public process involving 21 workshops on issues related to cap-and-trade program design, and builds on more than two years of collaboration with the partners of the Western Climate Initiative, which involves six other Western states and four Canadian provinces. As a preliminary draft version, it contains both draft regulatory language on process and structure along with narrative sections that memorialize significant issues that remain to be resolved within a cap-and-trade program.

The preliminary draft covers the full range of elements for the cap-and-trade program outlined in the Assembly Bill 32 Scoping Plan, adopted in December 2008, which contains the main strategies California will use to reduce greenhouse gases. The draft proposal would:

Require a minimum number of allowances to be auctioned at the program's start.
Include emissions from transportation fuel combustion (e.g., gasoline, diesel, ethanol) by covering the supplies of fuel to vehicles and other small sources.
Require about 600 of the state's largest GHG-emitting stationary sources that emit 25,000 or more metric tons of GHGs annually, along with electricity imports, to manage their emissions under an aggregate declining emissions cap at 15% below today's levels.
Allow the limited use of high quality offsets outside of capped sectors to cover a portion of the overall emissions reductions.
Establish clear rules for emissions trading, monitoring and enforcement.

When fully implemented, the program is designed to address 85 percent of California's greenhouse gas emissions, including emissions from electricity generation, large industrial sources, transportation fuels, and residential and commercial use of natural gas. Nonetheless, the draft fails to address what may be some hotly contested issues including (1) how much to rely on auctions of credits, which would require power companies and the like to buy permission to pollute (the emitters want allowances given to them, especially early on) and (2) how gasoline and residential heating fuel suppliers will react to the legislation since they could be included in the first cap-and-trade phase, which had only been expected to focus on big pollution sources like power plants and refineries. Indeed, if gasoline and residential heating fuel supplies are included under the cap in 2012, the program could lead to a rise in the price of gasoline by eight cents a gallon, if carbon permits are eventually traded at a likely $10 a ton. The California Air Resources Board says it is weighing whether to bring fuel deliverers under the cap in 2012 or in 2015. Furthermore, California businesses are already regularly criticizing the plan as going too far too fast—and costing too much. Thus, whether the net effect of the plan will be a new green economy or disaster for overburdened businesses is still fiercely debated.

Notwithstanding the above, California and other local governments see themselves as the vanguard of addressing climate change, especially in light of slow national action. Indeed, "California is the first out of the box," Mary Nichols, California Air Resources Board Chair, told reporters on a conference call. It is a “milestone . . . to address our state’s contributions to climate change, as the eighth largest economy in the world.”

The draft rules kick off a comment period where the California Air Resources Board will be accepting written comments until January 11, 2010, that will ultimately lead to a final regulation next fall. Some of the key details not yet decided upon, including plan costs and suggestions on how much support to give industry, will be presented through the advice and review of a blue ribbon committee of outside experts called the Economic & Allocation Advisory Committee, which plans to release some of its recommendations in January of 2010.

In short, the goal of the cap-and-trade program is to commit the state of California to responsible limits on global warming emissions and to gradually step down those limits over time. Setting commonsense rules, a cap-and-trade program is intended to spark the competitiveness and ingenuity of the marketplace to reduce emissions as smoothly, efficiently, and cost-effectively as possible. Not surprisingly, President Obama has made it clear that establishing a bold cap-and-trade program is a prioritygiven that the European nations, operating under the 1997 Kyoto Protocol, a climate treaty that the U.S. refused to ratify, have regulated greenhouse gases under a cap-and-trade system for several years.

For more information, please contact Taraneh Fard and Olivier Theard. Taraneh Fard is an associate in the Business Trial Practice Group in the firm's Los Angeles office. Olivier Theard is an associate in the Business Trial and Environmental Litigation Practice Group in the firm's Los Angeles Office.

Federal Courts Take Divergent Views of Common Law Claims on Climate Change

Sheppard Mullin — Tue, 08 Dec 2009 10:43:44 -0800

Comer v. Murphy Oil USA, __ F.3d __, No. 07-60756 (5th Cir. 2009); Native Village of Kivalina v. ExxonMobil Corporation, No. 08-1138 (N.D. Cal. Sept. 30, 2009)

by James F. Rusk

In two sharply diverging opinions, the Fifth Circuit Court of Appeals and a northern California district court recently considered the validity of common law tort claims against large emitters of greenhouse gases. The Fifth Circuit, in Comer v. Murphy Oil USA, held that plaintiffs had standing and that their claims did not present a nonjusticeable political question. The district court, in Native Village of Kivalina v. ExxonMobil Corporation, found that plaintiffs lacked standing because their injuries were not traceable to defendants' actions, and that their claims were barred by the political question doctrine.

Comer is generally consistent with the Second Circuit's recent opinion in Connecticut v. American Electric Power Company Inc., ____F.3d ____, No. 05-5104 (2nd Cir. 2009), although the Fifth Circuit did not rely on that case. Kivalina, on the other hand, explicitly criticized the reasoning of American Electric, setting the stage for a potential circuit split if the Ninth Circuit upholds the district court's decision.

Comer v. Murphy Oil USA

In Comer, private property owners along the Mississippi Gulf Coast filed a putative class action against energy, chemical, and fossil fuel companies headquartered outside the state but doing business in Mississippi. Plaintiffs alleged that defendants' emissions of greenhouse gases contributed to global warming, which led to a rise in sea levels and increased the severity of Hurricane Katrina, thereby damaging plaintiffs' property. Invoking federal diversity jurisdiction, plaintiffs asserted claims under Mississippi's common law, including public and private nuisance, trespass and negligence. Plaintiffs did not assert any federal law claims and sought only damages, not injunctive relief.

Defendants contended that plaintiffs lacked standing because their injuries were not "fairly traceable" to defendants' actions, in that the causal connection between plaintiffs' injuries and defendants' actions was too attenuated. They also argued that plaintiffs' claims presented a nonjusticeable political question. The district court agreed and dismissed the claims in a bench ruling. The Court of Appeals, however, reversed and remanded.

On the issue of standing, the Fifth Circuit rejected defendants' attack on causation, finding that it "essentially calls upon us to evaluate the merits of plaintiffs' causes of action" and was therefore "misplaced at this threshold . . . stage of the litigation." Slip op. at 9. At the pleading stage, it was sufficient that plaintiffs' complaint alleged a causal chain linking defendants' emissions and plaintiffs' injuries. The court also found it significant that the Supreme Court, in Massachusetts v. EPA, had "accepted a causal chain virtually identical in part to that alleged by plaintiffs." Slip op. at 11.

The court also relied upon Massachusetts for the proposition that "injuries may be fairly traceable to actions that contribute to, rather than solely or materially cause . . . global warming." Slip op. at 12 (emphasis added). Thus, the court rejected defendants' contention that traceability was lacking because defendants' emissions had contributed only minimally to plaintiffs' injuries.

As to justiceability, both American Electric and Kivalina addressed this issue by analyzing the criteria found in Baker v. Carr, 369 U.S. 186 (1962), the seminal case dealing with the political question doctrine. American Electric and Kivalina focused primarily on two of the Baker factors: whether there was a "lack of judicially discoverable and manageable standards for resolving" the plaintiffs' claims, and whether resolution of the claims would be impossible "without an initial policy determination of a kind clearly for nonjudicial discretion." Baker, 369 U.S. at 217. The Fifth Circuit, however, relied on Nixon v. United States, 506 U.S. 224 (1993).

Under Nixon, the court found it unnecessary even to apply the criteria found in Baker, because the question whether defendants were liable to plaintiffs under Mississippi common law clearly had not been textually committed to a political branch of government by the Constitution or by federal law. The court also noted that common law tort claims are "rarely thought to present nonjusticeable political questions," and that claims for damages are "considerably less likely" to be nonjusticeable than claims for injunctive relief, in part because a claim for damages would not require the court to set standards for greenhouse gas emissions. Slip op. at 25.

Native Village of Kivalina v. ExxonMobil Corporation

In Kivalina, the governing bodies of a small Alaskan coastal village, located seventy miles north of the Arctic Circle, sued twenty-four oil, energy and utility companies under the federal common law of nuisance. Plaintiffs alleged that the defendants' emissions of greenhouse gases contributed to global warming, which in turn reduced the sea ice that protected the village against storms, leading to erosion that was making the village uninhabitable. The plaintiffs sought unspecified damages, alleging that the village would have to be relocated at a cost of $95 million to $400 million.

As in Comer and American Electric, the defendants argued that plaintiffs lacked standing and that their claims were nonjusticeable. In Kivalina, however, the court agreed. The court found that the plaintiffs lacked standing because their alleged injuries were not fairly traceable to defendants' conduct, given that global warming results from the cumulative effects of emissions from a multitude of sources over many decades. Although defendants' emissions may have contributed to global warming, this alone did not establish a substantial likelihood that defendants' conduct, and not that of other parties responsible for similar emissions, actually harmed plaintiffs. According to the court, prior water pollution cases embracing a "contribution" theory were distinguishable because they involved discharges in excess of statutory limits, where the plaintiff also was within the "zone of discharge." Those factors gave rise to a presumption of causation not applicable in the present case, given that no statutory limits exist for greenhouse gas emissions and that the zone of discharge for such emissions would be the entire planet. Slip op. at 19.

Applying the Baker factors discussed above, the court also found that the case presented a nonjusticeable political question. As the court explained, a public nuisance is defined as an "unreasonable interference with a right common to the general public." Determining whether the interference is unreasonable requires the court to weigh the "gravity of the harm against the utility of the [defendant's] conduct." Slip op. at 10 (quoting the Restatement (Second) of Torts). Therefore, resolution of plaintiffs' claims would require the fact finder to weigh the harms associated with current energy-production methods against the potential benefits and risks associated with alternative energy sources, taking into account such factors as reliability, safety and economic impacts. The court could identify no standards that would produce a decision that would be "principled, rational, and based upon reasoned distinctions." Slip op. at 11.

Likewise, resolution of plaintiffs' claims for damages necessarily would require the courts to decide who, among the many contributors to greenhouse gas emissions, should bear the costs of global warming—a policy decision best left to the political branches. Plaintiffs' claims were therefore unfit for judicial resolution and dismissed for lack of jurisdiction.

Conclusion

On the standing issue, Kivalina reached a different conclusion from Comer and American Electric in large part because the Kivalina court rejected the "contribution" theory of causation accepted by the Fifth and Second Circuits. According to the Kivalina court, the undifferentiated nature of greenhouse gas emissions means that, as a matter of law, plaintiffs cannot establish causation sufficient to support a claim against any particular defendant. This may reflect the court's reading of the relevant case law, but it also appears to reflect underlying justiceability concerns—i.e., that the courts should not be responsible for deciding who among the innumerable contributors to global warming should be held responsible for the harm that it causes. That is not surprising, given the enormous scope of the problem and the unprecedented magnitude of the damages that could be at issue.

The same concerns about justiceability and fairness that drove the Kivalina decision will provide continued pressure for a resolution of this emerging conflict among the federal courts. As long as the Second and Fifth Circuits, and possibly others, continue to allow these suits, large emitters of greenhouse gases will be subject to uncertainty and nearly unlimited potential liability. It would not be surprising to see the Supreme Court address this issue, unless Congress enacts comprehensive climate change legislation that preempts common law claims.

For more information, please contact James F. Rusk. James Rusk is an associate in the Real Estate, Land Use and Environmental Practice Group in the firm's San Francisco office.

Summary of "Green" Legislation for the 2009 California Legislative Session

Sheppard Mullin — Tue, 08 Dec 2009 10:21:07 -0800

by Daniel P. Bane

At the end of the 2009 legislative session, Governor Schwarzenegger signed a remarkable potpourri of "green" legislation into law. While some of these measures are new edicts, others supplement or amend existing statutory schemes in hopes of catalyzing swift growth in the area of private renewable energy generation to help California achieve its ambitious clean energy goals as well as the goals of the California Global Warming Solutions Act of 2006 (Health & S C §§ 38500-38598 ("AB 32"). Specifically, this article addresses the following recent bills signed by the governor: SB 32, AB 920, AB 758, SB 104, AB 881, and AB 1366.

The synopses below are meant to highlight the key components of some of these newly enacted measures. However, this discussion is not meant to be all encompassing and thus, readers should review the complete text of the chaptered bills to familiarize themselves with the nuances of this newly enacted legislation. Copies of the chaptered bills may be obtained for a small fee from the Legislative Bill Room, State Capitol, 712 R Street, Sacramento, CA 95814, (916) 445-2323, or from the website maintained by the legislative counsel at www.leginfo.ca.gov.

Private Renewable Energy Generation

With the enactment of Chapters 328 (SB 32 – McLeod) and 376 (AB 920 – Huffman), Californians now have more incentive than ever to invest in renewable energy generation for their homes or businesses. However, behind the glowing press releases, these acts are not without their share of controversy and dissent in renewable energy industry circles.

SB 32

In an effort to encourage further renewable energy development, SB 32 expands the existing feed-in-tariff (FIT) program by requiring investor owned utilities (IOUs) and local publicly owned electric utilities (POUs) with 75,000 or more retail customers[1] to purchase all electricity produced by eligible renewable electric generation facilities that are up to three (3) megawatts (MW) in size and located within the service area of the utility. While there are subtle differences in the FIT programs for local POUs and IOUs, the goals for each program are essentially the same: to encourage the siting of clean generation close to load centers in order to meet increases in the demand for electricity by removing the barriers for smaller projects in the competitive bidding process under the renewables portfolio standard (RPS) program. Importantly, for POUs and IOUs, each kilowatt hour (kWh) of electricity purchased from an eligible electric generation facility under this FIT program counts toward meeting the utilities’ RPS annual procurement targets.

As with the existing California FIT program, SB 32 makes the expanded FIT program available to eligible electric generation facilities and defines them as generation facilities located within the service territory of, and developed to sell electricity to, either a local POU or IOU and that meets all of the following criteria: (1) has an effective capacity of not more than three MW; (2) is interconnected and operates in parallel with the electrical transmission and distribution grid; (3) is strategically located and interconnected to the electrical transmission and distribution grid in a manner that optimizes the deliverability of electricity generated at the facility to load centers; and (4) is an eligible renewable energy resource pursuant to Public Resources Code sections 399.11 et seq.

However, electric generation facility operators should be aware that the FIT program is not unlimited. SB 32 establishes program limits for both local POUs and IOUs. No local POU or IOU is required to purchase, under the FIT program, more than its fair share of electricity produced by eligible renewable electric generation facilities. This measure prevents local POUs and IOUs, and their ratepayers, from being unduly burdened by the FIT program.

While the FIT program is generally seen as a step in the right direction, some in the renewable energy industry feel the step may not be big enough to make a real difference toward meeting California RPS goals. First, SB 32 is limited because it, like the RPS program, does not appear to have any teeth in the event POUs and/or IOUs fail to meet their RPS annual procurement goals. Second, some renewable energy advocates are concerned that the FIT project (three MW) and program (750 MW) size limitations contained in SB 32 are arbitrary and would not allow more renewable energy capacity on the grid. Third, there is concern that SB 32 will detract focus from the bill’s ultimate objective – to create a more robust market for medium scale 1-20 MW renewable projects through the revision of California’s existing FIT program – by sidetracking California Public Utilities Commission ("CPUC") staff that would otherwise be free to implement what are perceived to be more effective programs (i.e. the Reverse Auction Mechanism (RAM) proposal) currently under consideration by the PUC and legislature. (See http://docs.cpuc.ca.gov/efile/RULINGS/106275.pdf).

Lastly, and perhaps of greatest concern to renewable energy advocates, SB 32 does little to fix the seeming fatal flaw of AB 1969 (Chapter 731 – Yee), which was a FIT based on the MPR, a price that was below the actual cost to produce renewable energy. As a result, few renewable energy projects have been constructed pursuant to AB 1969 during the approximately three years since its enactment on September 29, 2006. Consequently, renewable energy advocates fear that with a similar pricing mechanism based on the MPR, even with some additional consideration for renewable attributes, SB 32 may suffer the same fate as AB 1969.

AB 920

AB 920 focuses on residential and small-business wind and solar projects by expanding the existing net-metering programs to allow net-metered customers to sell any excess electricity they produce over the course of a year to their electric utility. In the past, any excess electricity was the property of the electric utility without any compensation provided to the net-metered residential or small-business customer. According to AB 920, this expansion is seen as a way to (1) encourage substantial private investment in renewable energy resources, (2) stimulate in-state economic growth, (3) reduce demand for electricity during peak consumption periods, (4) help stabilize California's energy supply infrastructure, (5) enhance the continued diversification of California's energy resource mix, (6) reduce interconnection and administrative costs for electricity suppliers, and (7) encourage conservation and efficiency.

While AB 920 is sure to create additional interest in solar rooftops and the like, one key limitation that faces this bill is the two and one half percent of the electric utility's aggregate customer peak demand cap placed on the net-metering program. AB 560 (Skinner) was proposed concurrently to increase the net-metering program cap to five percent of the electric utility's aggregate customer peak demand. However, AB 560 failed to pass during the 2009 legislative session. Currently, it is projected that some parts of California will reach the two and one half percent program cap by as early as 2010. (See http://www.pr-inside.com/california-solar-bill-ab-560-stalls-r1479660.htm) Consequently, without an increase in the net-metering program cap, AB 920 may not be enough to spur the substantial private investment in renewable energy resources or stimulate the economic growth initially contemplated.

Energy Conservation
AB 758

Rather than promoting the development of additional energy supplies like Chapters 328 and 376 above, Chapter 470 (AB 758 – Skinner) focuses on meeting California’s energy needs by decreasing overall demand through cost-effective improvements in energy efficiency. Specifically, AB 758 requires the California Energy Resources Conservation and Development Commission (Energy Commission), by March 1, 2010, to establish a regulatory proceeding to develop a comprehensive program to achieve great energy savings in California’s existing residential and nonresidential building stock. The program established by the Energy Commission, in coordination with several specified entities, may include, but is not limited to, the following: (1) a broad range of energy assessments; (2) building benchmarking; (3) energy rating; (4) cost-effective energy efficiency improvements; (5) public and private sector energy efficiency financing options; (6) public outreach and education efforts; and (7) “green” workforce training.

In addition to mandating the creation of a comprehensive program that accomplishes a laundry list of directives, AB 758 also requires the CPUC, by March 1, 2010, to open a proceeding investigating the ability of electrical corporations and gas corporations to provide various energy efficiency financing options to their customers for the purpose of implementing the Energy Commission’s energy conservation program developed pursuant to AB 758.

Expansions Of The Global Warming Act of 2006

SB 104

The enactment of Chapter 331 (SB 204 – Oropeza) expands the definition of greenhouse gases included in the Global Warming Act of 2006 to include nitrogen triflouride, a gas used as an etchant in microelectronics. Consequently, manufacturers using nitrogen triflouride will now be subject to the compliance requirements of the Global Warming Act of 2006. For a comprehensive discussion of the Global Warming Act of 2006, see Towill and Theard, The Global Warming Solutions Act (AB 32): Raising the Temperature of California Business (November 2007).

AB 881

Chapter 375 (AB 881 – Huffman) creates the Sonoma County Regional Climate Protection Authority (Climate Protection Authority), until December 1, 2015, to assist local agencies in Sonoma County to meet greenhouse gas (GhG) emission reduction goals. The Climate Protection Authority is to be governed by the same board as that governing the Sonoma County Transportation Authority.

Specifically, the newly created Climate Protection Authority is authorized to (1) reduce energy consumption, (2) coordinate and implement energy efficiency projects, (3) increase water use efficiency, (4) utilize carbon sequestration opportunities, (5) administer grants to local entities, (6) develop alternative transportation options, and (7) measure and quantify ongoing greenhouse gas reductions.

Though a press release from Governor Schwarzenegger's office has indicated that this bill would allow the Climate Protection Agency to coordinate with other local public agencies to reduce GhG emissions in Sonoma county by 25 percent below 1990 levels by 2015, it does not appear from the text of AB 881 that level of GhG reductions is expressly mandated.

Water Quality

AB 1366

Chapter 527 (AB 1366 – Feuer) gives authority and discretion to any local agency that owns or operates a community sewer system or water recycling facility, within specified areas of the state, [2] to take action, by ordinance or resolution, after a public hearing on the matter, to control salinity inputs from residential self-generating water softeners to protect the quality of the waters in California, if the appropriate regional board makes a finding that the control of residential salinity output will contribute to the achievement of water quality objectives.

The bill specifically lists several actions that may be taken by local agencies in order to control residential self-regenerating water softener salinity inputs such as buy back programs and use restrictions. However, if the local agency requires removal of self-regenerating water softeners, the local agency must compensate the owners for the reasonable value of the water softener, as determined by the local agency.

For more information, please contact Daniel P. Bane. Dan Bane is an associate in the Real Estate, Land Use and Environmental Practice Group in the firm's Orange County office. A more detailed version of this article appeared in the November 2009 issue of the CEB Real Property Law Reporter.

[1] There was no previously existing FIT program for local POUs.

[2] AB 1366 only applies to the Central Coast, South Coast, San Joaquin River, Tulare Lake, and the Counties of Butte, Glenn, Placer, Sacramento, Solano, Sutter, and Yolo.

U.S. Fish and Wildlife Service Seeks Public Comment on Proposed Strategic Climate Change Plan

Sheppard Mullin — Mon, 16 Nov 2009 07:31:42 -0800

By Robert Uram and Robyn Christo

The United States Fish and Wildlife Service (the "Service") is accepting public comments through November 23, 2009, on its proposed Strategic Plan for Climate Change ("Strategic Plan") and accompanying 5-Year Action Plan ("Action Plan"). Both Plans are part of the Department of the Interior's (the "Department's") commitment to organizing a Department-wide effort to protect the country's water, land, fish and wildlife against the effects of global warming. The Service developed the Plans to provide the basic framework for and specific details of its overall strategy for working with others to "ensure the sustainability of fish, wildlife and habitats in the face of climate change." The Strategic Plan lays out the Service's general climate change goals whereas the Action Plan identifies specific actions the Service will take to accomplish those goals.

The Service recognizes that addressing global warming is a challenge of extraordinary proportions but sees it as an opportunity to "galvanize" the conservation community. The cornerstone of the Strategic Plan is collaboration. The Service understands that collaboration is imperative to success and accepts a leadership role in organizing an "unprecedented cooperation and partnership" among public, private and government entities to formulate a collective response to climate change. This partnership will be lead by a National Climate Team and several Regional Climate Teams (the "Teams") that will operate under the guidance of the Agency through its Climate Change Working Group and, ultimately, the Department's Climate Change Response Council. Once formed, the Teams will undertake the challenge of addressing the effects of climate change on fish, wildlife and their habitats using three overall strategies of Adaptation, Mitigation and Engagement.

The Service's adaptation strategy – planned management actions to help reduce the impacts of climate change – forms the "core" of the Strategic Plan. Over the next five years, the Service will form Regional Climate Change Partnerships that will work to develop a National Fish and Wildlife Adaptation Strategy that focuses on species and habitats that are most vulnerable to climate change. The Adaptation Strategy will utilize both reactive (maintaining current conditions) and anticipatory (managing toward future conditions) responses to climate change. Reactive responses may be utilized in the short-term to build resilience in ecosystems and "buy time" whereas anticipatory responses are long-term solutions to biological planning and conservation design and will be used as certainty about future conditions grows.

The second strategy employed by the Service is mitigation. Mitigation will be effectuated through the reduction of the Service's own carbon footprint with the goal of achieving carbon neutrality by the Year 2020. Carbon neutrality will be effectuated by changing business practices and employing carbon sequestration and carbon credits to offset the balance. The Service sees its mitigation efforts as a model to influence organizational behaviors as well as local, regional, national and international land use and energy policies and actions.

The final strategy found in the Plan is engagement. The Service will reach out – both internally and externally – to join forces in seeking solutions to climate change and its effects on fish and wildlife. The Service will start internally – informing, educating and training its staff on climate change issues – before reaching out to share information with external audiences. The Service will also forge climate change alliances with the goal of exchanging information and influencing global climate change policy.

The Service is seeking "substantive comments, factual information and other constructive criticism" which will help improve the Plans. The Service is particularly interested in feedback on its overall approach to climate change (i.e., the three strategies of adaptation, mitigation and engagement) and the partnership tactic and leadership role the Service envisions in organizing the approach. Comments suggesting improvements to the Plans, pointing to possible inaccuracies or any other related issues are also encouraged.

While the proposed Strategic and Action Plans are stated in general terms, adoption of the Plans could eventually have on the ground impacts for landowners, farmers, ranchers and others whose land management practices could be changed to address climate change concerns.

To see the full Strategic and Action Plans, please visit http://www.fws.gov/home/climatechange/strategic_plan.html. Commenters may use the Service's online response form (http://www.fws.gov/home/climatechange/onlineresponseCC.cfm) or, may mail comments to: Kurt A. Johnson, National Climate Change Scientist, Office of the Science Advisor, U.S. Fish and Wildlife Service, 4401 N. Fairfax Drive, Room 700d, Arlington, VA 22203. Comments must be received by Monday, November 23, 2009.

Cleantech product development: Are strings attached to Recovery Act Funds?

Sheppard Mullin — Fri, 23 Oct 2009 06:17:40 -0800

The American Recovery and Reinvestment Act of 2009 appropriated nearly $800 billion to stimulate the U.S. economy out of recession. Included in the Recovery Act is billions of dollars for cleantech, including $16.8 billion for the Department of Energy's Office of Energy Efficiency and Renewable Energy. Approximately $2.5 billion was allocated to support research, development and deployment activities. These are significant opportunities for companies involved with developing new clean technologies. However, companies should be aware of strings attached to these new funding opportunities.

The following article by Daniel Yanuzzi and Christopher Noon was originally published in the San Diego Daily Transcript. To read the article please click here.

California Governor Signs S.B. 827 into Law; South Coast Air Quality Management District Now Permitted to Continue Emissions Trading Program

Sheppard Mullin — Wed, 14 Oct 2009 12:03:50 -0800

By Misti M. Schmidt

In 2008, a superior court judge placed a moratorium on certain aspects of the emissions trading program administered by the South Coast Air Quality Management District ("District"), instructing the District to complete an environmental impact report regarding its 2007 amendments to District Rule 1315 and District Rule 1309.1. See Natural Resources Defense Council v. South Coast Air Quality Management District, Case No. BS110792 (C.D. Cal., Nov. 3, 2008). Rule 1315 sets forth procedures for tracking emissions credits, while Rule 1309.1 establishes a priority reserve to more easily provide credits to certain preferred sources. Perhaps unexpectedly, the decision with respect to Rule 1309.1 had a large impact on small businesses and public services which have not been permitted to expand because the District has been unable to issue any emissions credits to these entities.

In response, the legislature and governor acted together to permit the District to issue emissions credits under the program to certain specified entities without conducting the environmental review required by the court. Senate Bill 827, introduced by Senator Wright in March 2007, was passed by the legislature on September 12, 2009, signed into law by Governor Schwarzenegger on October 11, 2009, and will go into effect in January 2010.

The bill enables the District to continue issuing permits under District Rule 1304 and District Rule 1309.1, which cover small businesses and entities providing "essential public services," such as prisons, police facilities, sewage treatment plants, hospitals, landfills, and public transit. In addition, the District can now use in its program any emission credits that have resulted from emissions reductions and facility shutdowns from minor sources since 1990. The bill has an automatic repeal date of May 1, 2012 and has no effect on the court's decision regarding Rule 1315.