Ohio Environmental Law Blog

E-Waste Recycling Legislation Introduced in Ohio

Joe Koncelik — Mon, 08 Mar 2010 18:12:31 -0500

Ohio does not have regulations governing the disposal or recycling of consumer electronic waste. State legislation has been adopted by at least nineteen other states to encourage the recycling of e-waste and divert computers and other electronic equipment from landfills.

Why manage e-waste differently? E-waste components can contain hazardous or toxic compounds that make it different than other household municipal waste.

Recently, Representative Dennis Murray introduced legislation (H.B. 447) designed to encourage the recycling of e-waste in the state. Sponsor testimony will be heard this Wednesday.

The bill is directed at manufacturers who produce and sell computers, printers and video equipment. Some of the key elements of the proposed legislation include:

Registration- Requires all manufacturers of electronics to register with Ohio EPA.
Fee- Manufactures must pay an annual registration fee of $5,000 to pay for administration of the program
Take-Back Programs- By April 2011 mandate computer and video display consumer take back programs. Allow consumers to mail or drops of equipment at stores for recycling by the manufacturer
Prohibit sales- Without registration or a take back program
Reporting- Manufacturers must report to the State on the success of their take-back programs

The Electronics Take-Back Coalition maintains a good website that provides information regarding state and federal efforts to mandate recycling of electronic waste. The web site provides a great resource to compare and contrast state legislation that has been adopted in other states with the Ohio proposal.

**Recycling Rates E-Waste**
Product	Units Disposed	Trashed	Recycled	Recycle Rate
T.Vs	26.9 million	20.6	6.3	18%
Computers	205.5 million	157.3	48.2	18%
Cell Phones	140.3 million	126.3	14	10%

The chart above from the Coalition web page provides some interesting information regarding recycling rates. Certainly, more can be done in Ohio to manage e-waste issues.

The Legislation may cast too broad of a net (covering too many products) or places too onerous requirements on manufacturer take-back programs. However, there is good information available to compare Ohio to the other nineteen (19) states operating programs. Ohio stands to learn from what has worked and what hasn't worked in these other states.

Ohio EPA Restarts Issuance of Air Permits Following Federal Ruling

Joe Koncelik — Fri, 26 Feb 2010 11:03:07 -0500

Today, Ohio EPA released its response to the federal court ruling which struck down the exemption from BAT for sources that emit less than 10 tons per year. The memo makes clear that it supplants the February 2nd e-mail instructing staff to not issue air permits until the ruling was evaluated.

There are few surprises in the memo. It basically states sources will have to go back to case-by-case BAT evaluations. This was what Senate Bill 265 was designed to eliminate. Therefore, three years after passage of the bill the status quo remains.

The memo also says Ohio EPA has supplied some information to U.S. EPA to support the rule exempting sources less than 10 tons per year. However, U.S. EPA requested additional information which it could not supply due to staffing shortages. The memo contains no discussion of what has been supplied or what additional information is going to be collected.

The memo also points out that there may be instances when sources less than 10 tons per year have more stringent regulations than sources greater than 10 tons per year. I don't anyone anticipated that outcome three years after passage of Senate Bill 265.

Also, notably absent is any discussion of the status of air permits that were issued over the last three years without BAT in accordance with the exemption. The memo only states that Ohio EPA has yet to make a decision as whether to go back and re-issue these permits. Businesses holding these permits received no word as to whether they are still considered valid or subject to potential federal enforcement.

EPA Provides Quick and Detailed Response to Senators on Climate Regulations

Joe Koncelik — Tue, 23 Feb 2010 11:52:08 -0500

On February 19th, eight Democrat Senator's wrote a letter to EPA regarding its plans for issuance of greenhouse gas regulations for vehicles, factories and power plants. This from the Wall Street Journal:

The lawmakers, including prominent Senators Max Baucus, (D., Mont.), Carl Levin, (D., Mich.) and John Rockefeller, (D., W.V), warned EPA chief Lisa Jackson in a letter that "ill-timed or imprudent regulation of [greenhouse gases] may squander critical opportunities for our nation, impeding the investment necessary to create jobs."

The letter could boost a Republican effort led by Sen. Lisa Murkowski, (R., Alaska), to prevent the EPA from regulating stationary greenhouse gas emitters such as power plants, refineries, steel mills, chemical plants and cement kilns.

The Senators letter also showed there is still a basic misunderstanding of how regulation of GHGs emissions from vehicles are tied to stationary source regulation.

The Senators suggest EPA move forward only with the Light Duty Vehicle rule setting GHG standards for vehicles so that there can be one national standard. However, based on this comment, it appears the Senators did not understand that issuance of the Light Duty Vehicle rule will automatically trigger regulation of stationary sources without any additional EPA rulemaking.

EPA Responds

In perhaps the quickest response in history, EPA Administrator Jackson has already released her written response. The response is notable not only for its timeliness, but the key insights it provides into EPA's greenhouse gas (GHG) rulemaking strategy.

The fact the letter provides so much valuable information about EPA's strategy only days after the Senator's letter was sent can only mean EPA's has decided on its path. Now EPA is floating a trial balloon of its strategy in its response letter. There are several key developments in the letter:

No final GHG standards in 2010. EPA will finalize the Light Duty Vehicle GHG rule in late March. However, the first vehicle GHG standard will be effective in 2011 (Model Year 2012). EPA explains that its legal view is that GHG do not become a "regulated" pollutant under the Clean Air Act until the Model Year 2012 standards are effective in 2011. By adopting this legal interpretation, EPA is effectively buying itself a year before GHG emissions from large stationary sources will be regulated. Of course, its an open legal question as to whether future vehicle standards amount to "regulation" sufficient to trigger stationary source regulation of GHGs immediately.
EPA is planning major changes to its proposed Tailoring Rule. In the draft Tailoring Rule, EPA proposed federal permit triggers for GHGs of 10,000 or 25,000 metric tons of CO2. Based upon this letter, EPA is proposing to go higher, thereby bringing in even fewer large stationary sources of GHGs in the short term. For example, in 2011 only sources that already trigger federal permitting for non-GHG emissions will have to evaluate their GHG emissions for controls. After 2011, the letter suggests much higher triggers than 25,000 metric tons from 2012-2016.
EPA is buying time on BACT. Major sources triggering federal permits must install Best Available Control Technology (BACT) to reduce emissions. A major issue has been EPA's determination of what will constitute BACT for GHGs. Especially concerning was the fact some possible controls, like carbon sequestration for power plants is not yet ready for implementation. By tying the date for regulation of GHGs from stationary sources to the 2012 model year vehicle regulations, EPA has bought itself a year to work through these issues.

A couple of final points. EPA discusses the implications of Sen. Lisa Murkowski's proposed amendment to disapprove of EPA's "endangerment finding." EPA states the immediate result will be revival of the California Waiver for regulation GHGs from vehicles. EPA warns there will be no national standard for motor vehicle emissions.

Also noteworthy is the fact the letter simply waives off claims that EPA may not have the legal authority to set higher trigger thresholds for stationary sources that the 100/250 tons triggers in the Clean Air Act. Administrator Jackson simply claims EPA has the authority and criticizes business groups for suggesting they would appeal the Tailoring Rule.

Finally, EPA Administrator concludes the letter by making the rather harsh statement that passage of the proposed Senator Murkowski resolution would put the U.S. behind China and more like Saudi Arabia its treatment of the issue of Climate Change. No doubt, that type of rhetoric is designed to discourage Democratic support for the resolution.

Very interesting response from EPA. It is written in such a way to suggest..."no need for immediate legislative action, nothing it really going to happen for at least a year if not longer." However, this assumes EPA has the legal authority to implement the strategy suggested in its response letter.

Three Years After Major Reforms- Ohio's Air Permitting Process is Anything But Certain

Joe Koncelik — Thu, 18 Feb 2010 09:12:40 -0500

Major uncertainty surrounds Ohio's air permtting program. I use the term "certainty" because that was the buzz word utilized when business groups fought hard for major reforms that eventually were passed in Senate Bill 265 in 2006.

Back in 2006, business groups were concerned that Ohio's system for issuing air permits was far more onerous and unpredictable than other states. The focus of attention was the requirement to install Best Available Technology (BAT) on smaller sources of air pollution.

Business groups complained BAT was imposed on an "ad-hoc" case-by-case basis. Individual permit reviewers could develop inconsistent determinations as what constituted BAT on same or similar sources. The goal was to get away from this uncertain application of BAT.

The two major reforms secured in Senate Bill 265:

All sources less than 10 tons per year (tpy) were no longer required to install BAT
For all sources larger than 10 tpy, Ohio EPA could only require BAT through rulemaking that defined BAT consistent with elements set forth in S.B. 265. It was contemplated the rules would spell out the requirements for various source categories. Thus, providing certainty by avoiding case-by-case determinations of BAT.

What is the status of air permitting in Ohio three years after passage of these reforms?

Business have far less certainty regarding Ohio's permitting process than they did three years ago (prior to S.B. 265)
Businesses are caught in a stalemate between U.S. EPA and Ohio EPA that could subject them to federal enforcement and make their permits invalid
Ohio businesses are no closer to avoiding case-by-case BAT decisions as they were three years ago
In some cases, businesses will take longer to get their permits and still have the same level of required controls
The two major reforms (the less than 10 tpy exemption and BAT through rulemaking for larger sources) will never be implemented unless hard choices are made.

To preserve the two major reforms, means facing the reality that federal law requires Ohio demonstrate the changes are valid. How does Ohio demonstrate validity?

Ohio EPA would have to quantify the lost reductions from "weakening" the BAT requirement (something Ohio EPA hasn't done in three years).
The business community will have to help direct the Agency in identifying new air pollution control programs that can be used to offset the lost reductions attributable to BAT.

Less Than 10 TPY Exemption

My last post discussed the recent federal court ruling which determined the exemption from installing BAT for sources smaller than 10 tpy was inconsistent with federal law. The Court found Ohio EPA failed to properly revise its State Implementation Plan (SIP- the State plan for how it will meet federal air quality standards).

At issue, was a prohibition contained in the Clean Air Act called "anti-backsliding." In essence, if a state is going to reduce air pollution requirements on one set of sources it must make up for lost reductions by imposing more stringent controls someplace else.

The response to the Court decision by some business groups is to urge Ohio EPA to appeal the Magistrate's decision. This from the Ohio Manufacturer Association (OMA) Web page regarding the decision:

The OMA is urging the Ohio EPA to mount a vigorous defense of this common sense regulatory reform through all available legal channels.

However, even if the Agency successfully challenged the Magistrate's decision on appeal, I don't see how this fixes things for the business community. At issue in the Magistrate's decision was a Citizen Group's rights to challenge a State's implementation of its SIP- Ohio's air pollution control plan.

Regardless of the Citizen's suit, U.S. EPA has already put Ohio EPA on notice that it believes the less than 10 tpy BAT exemption is inconsistent with federal law. U.S. EPA sent a letter back on June 5, 2008 that it could not approve Ohio's attempt to provide the 10 TPY exemption.

Without U.S. EPA approval, all permits issued without BAT due to the state exemption could be deemed to violate federal law. All those businesses holding those permits could be subject to federal enforcement action or their permits determined invalid.

A win on appeal barring the Citizen Group from challenging Ohio EPA isn't truly a fix. The harsh reality is the only way to fix things for the business community is for Ohio to make an approvable submittal to U.S. EPA. To be approvable, Ohio will have to demonstrate their reforms don't violate "anti-backsliding."

To make such a demonstration, Ohio EPA must quantify the lost reductions attributable to the 10 TPY exemption- something I don't believe Ohio EPA has done in the three years since passage of S.B. 265. After Ohio EPA quantifies the difference, it will have to work with the business community to come up with replacement controls to make up for the lost reductions.

Anything short of developing a "true" fix, leaves the business community with greater uncertainty than it had prior to S.B. 265.

BAT Through Rule Making On Sources Greater Than 10 TPY

Things may even be more complicated for sources that emit more than 10 tpy. S.B. 265 mandates that Ohio EPA specify BAT on these larger sources through rulemaking. S.B. 265 provided a three year window to give Ohio EPA time to develop rules specifying BAT for different air pollution source categories.

In the three years since, Ohio EPA has yet to finalize a single rule defining BAT. Since the three year deadline has passed, State law now prohibits Ohio EPA from requiring BAT on sources larger than 10 tpy because it has not adopted rules consistent with S.B. 265. This State law requirement is in conflict with the federal law which requires approval from U.S. EPA before it can be deemed effective.

On December 10, 2009, Ohio EPA proposed a policy titled "BAT requirement for Permit Applications Filed on or After August 3, 2009." [August 3rd was the deadline imposed by S.B. 265 after which Ohio EPA could only require BAT through rulemaking]. The Policy was put out for public comment which closed January 31, 2010. The policy describes the current status as follows:

Ohio is currently working to develop short-term and long-term set of rules that would implement S.B. 265. A short-term rule would define BAT on a case-by-case basis consistent with the S.B. 265 provisions. Long-term rules would attempt to define BAT by category when possible. However, neither short-term nor long-term rules have been developed.

U.S. EPA has told Ohio EPA that issuing permits on or after August 3, 2009 without BAT would be considered by U.S. EPA as "backsliding" under the statutory provisions of the Clean Air Act and would not be acceptable.

The policy goes on to say, because Ohio EPA has not adopted any BAT rules it will require BAT on a case-by-case basis to avoid "backsliding" claims.

First of all...It's been three years since passage of S.B. 265 and the business community is no closer to its goal of avoiding case-by-case BAT decisions. Even what Ohio EPA describes as its "short-term rule" would require case-by-case BAT.

Worse yet, the policy makes clear that businesses may even be worse off then prior to S.B. 265. In the "Common Questions and Answers" Section of the Policy, at least two critical Ohio EPA comments appear:

Question 1: If a company indicates they do not want Ohio EPA to establish a BAT limit because a BAT rule has not been developed, what should the permit writers do?

The Policy goes on to answer- try and get the company to voluntarily accept a BAT limit or Ohio EPA will have to process the permit without a BAT limit. However, if there is no BAT limit in the permit, Ohio EPA states:

We will inform them [the business] that U.S. EPA would likely not approve the permit and that U.S. EPA may take some sort of action against either the company or the Ohio EPA because they don't approve the approach. We will also inform them that we are obligated to provide U.S. EPA with a copy of any issued permit that does not contain BAT.

In essence, unless a business voluntarily accepts a case-by-case BAT limit, they will be subject to enforcement by U.S. EPA.

The Second major issue appears in Question 5 of the Ohio EPA policy. It relates to when sources can avoid New Source Review (NSR) which is the complex federal air permitting program. Due to the complexities of the program there are strong incentives for businesses to avoid NSR.

Prior to August 3, 2009, Ohio EPA used BAT limits to avoid triggering NSR. However, the policy makes clear they can no longer utilize BAT to avoid NSR because of the stalemate with U.S. EPA.

The implication is more sources will have to go through a longer permitting process in order to avoid NSR. Therefore, no only will sources end up with the same controls as prior to S.B. 265, it will take longer to get their permit.

Conclusion

The status quo should be unacceptable to the business community. It must decide:

Whether the reforms in S.B. 265 are worth holding onto. If not, new state legislation is needed to undo the mess.
If the reforms are still critical, then the business community must engage Ohio EPA to fix its issues with U.S. EPA. It is very important that the business community involve itself in the details of developing a fix. Otherwise, it risks Ohio EPA spending valuable time developing proposals businesses believe are unworkable.

Federal Judge Strikes Down Three Year Old Air Pollution Reform

Joe Koncelik — Sun, 14 Feb 2010 20:23:17 -0500

On February 3rd Magistrate Judge Mark Able of the U.S. District Court in Columbus ruled that Ohio EPA (and really the Ohio General Assembly) violated that federal Clean Air Act by exempting small air pollution sources from stringent air pollution requirements. At issue was one major overhaul of Ohio's air regulation included in state legislation (Senate Bill 265) back in 2006. The law was designed to reduce the regulatory burden on small businesses.

The provision exempted small air pollution sources, those that emit less than 10 tons per year, from the requirement to install Best Available Control Technology (BAT). These sources would still be required to install air pollution control equipment. However, these small sources could avoid the more time consuming BAT permitting process.

I was Director of Ohio EPA when Senate Bill 265 was passed. The complaint regarding BAT was that it resulted in uncertain regulatory requirements for business. Upon receipt of an air permit for a small air pollution source, Ohio EPA would have to decide on a individual case-by-case basis which pollution controls were the most stringent for that particular source.

Businesses complained that the determinations as to what constituted BAT were inconsistent among Ohio EPA's five district offices. They also complained that businesses would not be able to plan ahead of time for the types of controls to install. Rather, business would be forced to wait until Ohio EPA concluded its evaluation.

To reduce the regulatory burden, Ohio businesses sought two major reforms regarding BAT in Senate Bill 265. The General Assembly passed the bill which included the following.

Exempt all sources smaller than 10 tons from having to install BAT.
After August 2009, Ohio EPA could only require BAT on larger sources (greater than 10 tons) through specific rulemaking for those types of sources.

The goal of reducing the regulatory burden was understandable. However, there is a long standing tenant in the federal Clean Air Act that restricts the ability of State's to change pollution control strategies to achieve federal clean air standards. This is referred to as "anti-backsliding."

"Anti-Backsliding"- If you drop an air pollution requirement, you must make up for those lost reductions through alternative control strategies.

The best example of this perhaps is E-check, the automobile tail pipe test that used to be required in Cleveland, Dayton and Cincinnati. E-check was dropped in Dayton and Cincinnati after the 10 year contract expired. In order to drop the program, Ohio EPA was forced to make up the lost reductions through new air pollution control requirements. One new requirement used to replace E-check was the requirement to use less polluting gasoline (RVP gas) in the summer months in Dayton and Cincinnati.

Ohio EPA failed to adopt replacement strategies after the General Assembly dropped BAT on sources less than 10 tons. It is my understanding, that Ohio EPA never actually even quantified the lost reductions attributable to dropping the BAT requirement. U.S. EPA put Ohio EPA on notice this past summer that it failed to address the "anti-backsliding" issue.

Ohio EPA's failure to adopt new controls to replace BAT- a violation of the "anti-backsliding" principal- was one of the reasons Magistrate Abel struck down the provision as a violation of the Federal Clean Air Act. According to a recent newspaper article, Ohio EPA has decided to stop issuing permits for small sources while it figures out how to address the decision.

The agency said Wednesday it won't authorize any new or expanded emissions from small sources until the ramifications of the decision are understood. Spokeswoman Heidi Griesmer said the agency has temporarily suspended issuing permits.

"These are small sources of pollution," she said. "We will be complying with the judge's orders but we're right now looking through the decision and figuring out how to do that..."

Griesmer said it was impossible to determine immediately on Wednesday how many exemptions the state has granted to small source polluters. The agency estimates it will take two weeks to mine through its permit database and count them all, she said.

What a mess...

The Agency will be forced to decide what to do with hundreds of permits it issued in the last three years in which BAT was not required. Does Ohio EPA go back and revoke those permits requiring businesses to install different air pollution controls?
Does the Agency still try and comply with Legislative mandate to eliminate BAT for small sources? If so, what new air pollution control requirements will it adopt to replace BAT for sources less than 10 tons.
What about permits already in the system that were about to be issued? No doubt the Agency will be forced to go back and determine BAT delaying these permits by many months.

This is just a sample of the issues facing EPA after S.B. 265. Next up- The second major reform in S.B. 265 that prevents Ohio EPA from requiring BAT on sources larger than 10 tons per year unless done through rulemaking.

Climate Update: SEC Guidance, EPA and Cap & Trade

Joe Koncelik — Tue, 02 Feb 2010 11:12:38 -0500

The twists and turns in the saga of regulation greenhouse gases (GHGs) continue. After the State of the Union and release of the President's budget, there is speculation that President Obama has abandoned Cap & Trade legislation.

Meanwhile, businesses face greater risk as a result of new and impending regulatory action. The Securities and Exchange Commission (SEC) has issued guidance telling companies they must disclosure risks to investors related to the company's exposure to effects of climate change and potential regulations. Finally, EPA is moving ahead with its plans to regulate GHGs using existing authority under the Clean Air Act.

Is Cap & Trade Dead or Alive?

The President only made vague references in the State of the Union to a "comprehensive energy legislation" that will include measures to address climate change. Speculation was that the Obama Administration had made the decision to drop its plans for Cap & Trade. The speculation increased with the release of the proposed federal budget, which dropped $646 billion in anticipated revenue from Cap & Trade. The President only included a "placeholder" for that revenue.

Carol Browner, the President's Climate Adviser, pushed back on the notion Cap & Trade is dead. This from Politico:

The top White House climate adviser pushed back against reports that a climate bill would be scaled back — but shied away from giving an exact time frame for when the Senate should take up the legislation.

“I think predictions about when something is going to happen in the legislative process are very, very hard to make you have to just continue working at it,” Carol Browner told an audience assembled for a climate and energy forum. “We’re encouraged by what we are seeing, and we’re going to continue working at it.”

In hopes of keeping a bi-partisan compromise alive in the Senate, the President put more nuclear power on the table in State of the Union. There is also discussion of a scaled back Cap & Trade proposal that would be limited only to utilities.

Even with a scaled back proposal or other compromises, I see it very hard to get to 60 votes in the Senate. Which makes the next update the critical issue.

EPA Rulemaking

While some businesses think the reduced prospects of a Cap & Trade bill means they have escaped potential climate change regulation, they may have a major wake up call this March. EPA is planning on moving forward with a series of regulations that will have dramatic impacts on businesses that emit CO2 and other greenhouse gases.

EPA has finalized its "Endangerment Finding." This paves the way for the Agency's release of the Light Duty Vehicle Rule which will establish GHG emission standards for vehicles. As previously discussed in prior posts, finalization of mandatory emission limits for vehicles raises GHGs to "regulated pollutant" status under the Clean Air Act.

Once GHGs are considered "regulated pollutants", other provisions of the Clean Air Act are automatically triggered, most notably Title V permitting and New Source Review (NSR). EPA is proposing to finalize its "tailoring rule" simultaneously with the Light Duty Vehicle Rule in order to substantially raise the thresholds for triggering Title V permits or NSR.

The likelihood of regulations was further evidenced by the President's proposed budget, which includes significant increase funding to pay for new EPA regulatory initiatives on climate change. (Summary of EPA proposed budget)

$47 million more the EPA in the 2011 budget to pay for greenhouse gas regulation
$4 million would go to the EPA's mandatory greenhouse gas reporting rule. Major emitters of greenhouse gases must start tracking their emissions this year under EPA's reporting rule.
$25 million to States to aid in processing new permits that will be required as a result of greenhouse gases becoming a regulated pollutant under the Clean Air Act.
$7 million is allocated to development of new performance standards including determining what constitutes Best Available Control Technology (BACT) for greenhouse gases.

SEC Interpretative Guidance

On January 27th, the SEC voted to issuance guidance requiring companies to disclose certain risks associated with climate change. The 3-2 vote was highly controversial.

While some saw the SEC action as an political endorsement of climate change regulation, others believe its the job of the SEC to require disclosure of business risks. The NY Times, in an editorial, supported increased information on corporate risk associated with climate change-"The S.E.C. action is simply one more incentive for investors and managers to better understand the risks — and the opportunities — out there for publicly traded businesses. "

From the press release, here is a description of the requirements in the forthcoming guidance:

Impact of Legislation and Regulation: When assessing potential disclosure obligations, a company should consider whether the impact of certain existing laws and regulations regarding climate change is material. In certain circumstances, a company should also evaluate the potential impact of pending legislation and regulation related to this topic.

Impact of International Accords: A company should consider, and disclose when material, the risks or effects on its business of international accords and treaties relating to climate change.

Indirect Consequences of Regulation or Business Trends: Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for companies. For instance, a company may face decreased demand for goods that produce significant greenhouse gas emissions or increased demand for goods that result in lower emissions than competing products. As such, a company should consider, for disclosure purposes, the actual or potential indirect consequences it may face due to climate change related regulatory or business trends.

Physical Impacts of Climate Change: Companies should also evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business.

While the prospects for Cap &Trade legislation have dimmed dramatically over the last few months, this is by no means the end of the story. Significant new mandatory regulations will be finalized as early as March.

While there are issues with the House version of the Cap & Trade bill, it would at least create a market mechanism for reducing emissions. Business opposing Cap & Trade may soon learn that the alternative- regulation under the Clean Air Act- is a far worse proposition.

Climate Regulation Update: Cap and Trade Unlikely; Regulation a Certainty

Joe Koncelik — Wed, 20 Jan 2010 17:19:53 -0500

I was giving a speech to a trade association last night regarding Cap and Trade legislation in Congress. The sentiment of most participants in this manufacturing group was that they had dodged a major bullet because passage of a bill looks very unlikely. While that is true, I told the audience don't lose sight of the fact regulations are coming even without a bill in Congress. This took many of the members by surprise.

Here is how the battle over climate change regulation is currently unfolding...

While the Senate continues to try and reach a compromise over Cap and Trade legislation that could garner 60 votes, most observers are now saying passage is very unlikely. A range of reasons are cited for the diminishing chances for a Senate bill:

Loss of the "super" majority with the Massachusetts Senate race- although 60 Democrats were not going to vote for this bill, it is one less vote. This from Reuters:
From a purely numerical perspective, the Massachusetts election makes only a marginal difference. With the real division running through the centre of the Democratic Party, rather than between the parties, cap-and-trade was never going to pass on a 60-40 party-line vote. It was always going to need at least some Republican votes. So the loss of one Democrat makes only a small difference.
Hard fought legislative battles over health care reform diminishes any potential compromise between Republicans and Democrats
Failure in Copenhagen to reach a global consensus on climate action
Health care, financial reform and jobs being much higher legislative priorities
"Climategate"- the uncovering of unflattering e-mails by climatologists

Pick any combination of the items above and a strong case can be made that cap and trade will not emerge in 2010 or in the near future. A recent New York Times Article does a great job describing how the battle has shifted from Congress to the halls of U.S. EPA.

EPA in March is expected to roll out the first-ever federal standards affecting greenhouse gas emissions from automobile tailpipes. This follows the agency's move in December declaring greenhouse gases a danger to public health. The tailpipe standards would automatically trigger requirements that stationary sources -- such as power plants -- install "best available control technology," or BACT, according to EPA. The agency has proposed a separate rule to shield smaller facilities from those requirements, the "tailoring rule," which is also expected to be in place by March.

As set forth above, the dominoes are falling leading to full blown regulation of greenhouse gases using EPA's existing authority under the Clean Air Act. The regulations have progressed as follows:

Mandatory Greenhouse Gas Reporting Rule- EPA has already finalized mandatory reporting for large source (25,000 metric tons). Sources must start tracking emissions this year.
Endagerment Finding- EPA finalized its finding that greenhouse gas emissions from vehicles endanger human health and the environment. This was a pre-requisite to issuance of its Light Duty Vehicle greenhouse gas standards.
Light Duty Vehicle GHG Standards- EPA has stated in prior rule packages that it expects to finalize this rule this March. This will be the first rule establishing actual emission limits for greenhouse gases. Once mandatory emission limits are established for vehicles, the Clean Air Act automatically requires certain provisions will apply to all other sources. New Source Review (NSR) will be triggered by emissions of greenhouse gases.
GHG Tailoring Rule- This is EPA's effort to change the triggers for NSR to fit GHG emissions. Without this rule very small sources would trigger federal air permitting requirements.

As EPA marches toward full blown regulation, attention shifts back to the Senate where a major battle over an amendment to block EPA's efforts is about to take place. This from Environmental Leader:

U.S. Sen. Lisa Murkowski (R-Alaska) is expected to introduce an amendment that would prevent the Environmental Protection Agency (EPA) from regulating greenhouse gas emissions (GHG) under the Clean Air Act, reports the Los Angeles Times.

Murkowski will either try to block the EPA by seeking an amendment to an unrelated debt bill due to go to vote on Jan. 20 or she will seek a resolution of disapproval, which would not be subject to filibuster and only need 51 votes to pass, reports the Guardian. She has the support of 34 Republicans and is reaching out to Democrats, according to the article.

Its going to be very difficult to find another seventeen votes to support the measure in the Senate. Therefore, businesses must be prepared for the major EPA's greenhouse regulations in March. Its a good time to be assessing your businesses exposure and risks using the proposed thresholds.

EPA Announces Tighter Ozone Standard; Big Implications for Ohio

Joe Koncelik — Thu, 07 Jan 2010 13:27:58 -0500

Today, U.S. EPA announced it has officially thrown out the .075 ppm ozone standard proposed in 2008 by the Bush Administration. The Bush proposal would have reduced the standard from .08 ppm to .075 ppm. Now the EPA is proposing to set a new revised ozone standard somewhere between .06 ppm to .07 ppm. This from the Washington Post regarding the proposed new ozone standard:

Ozone standards have been the center of a political and legal battle since the spring of 2008, when the EPA set a looser limit than what its own scientific advisers had suggested and President Bush himself intervened to scale back the agency's proposal at the last minute. The new proposal mirrors what EPA's Clean Air Scientific Advisory Committee unanimously recommended in 2007.

What are the implications for Ohio? To say they are significant would be a gross understatement. The following chart from Ohio EPA demonstrates that significant progress has been made in reducing ozone levels in the State.

However, it becomes more and more difficult to achieve standards as they become more stringent. Many businesses have already been squeezed hard to reduce their emissions. The cost to achieve additional reductions will be greater.

Ohio has been able to redesignate much of the state into attainment with the old .08 ppm standard. Even Cleveland, the highest ozone levels in the State, was able to achieve the standard barely in time and was redesignated.

As discussed above, the Bush Administration had previously proposed lowering that standard to .075 ppm. Based upon recent ozone data for major cities, this standard was going to be difficult to achieve. The chart below show Cleveland monitors just came barely below the .084 ppm standard required to demonstrate compliance. (EPA allow up to .084 ppm to meet the old standard. Also note, the chart is in parts per billion). Cincinnati and Columbus also barely achieved the old standard.

Achieving the .075 ppm standard would be very difficult based upon this data. However, now comes the news today that EPA has elected to throw out the .075 ppm standard established by the Bush Administration as inconsistent with the scientific recommendations provided to EPA. This from EPA's press release:

In September 2009 Administrator Jackson announced that EPA would reconsider the existing ozone standards, set at 0.075 ppm in March 2008. As part of its reconsideration, EPA conducted a review of the science that guided the 2008 decision, including more than 1,700 scientific studies and public comments from the 2008 rulemaking process. EPA also reviewed the findings of the independent Clean Air Scientific Advisory Committee, which recommended standards in the ranges proposed today.

Today's announcement indicates the standard will be set some where between .06 to .07 ppm. What are the implications of the high end of that spectrum, .07 ppm standard, on Ohio?

Under the .075 ppm standard 23 out of Ohio EPA's 49 air monitors show non-attainment
Under the .07 ppm standard 49 out of 49 monitors show non-attainment

Designations could happen this fall, which means virtually every county that touches any major metropolitan area (Toledo, Columbus, Cleveland, Akron, Canton and Youngstown) will be designated non-attainment. EPA estimates 32 Ohio counties would be out of compliance with the .07 ppm standard. Non-attainment designations brings with it restrictions on new or expanding businesses. It also brings with it more stringent air pollution control requirements.

Part II: Risks and Opportunities With Proposed Regional Stormwater Utility

Joe Koncelik — Wed, 06 Jan 2010 15:27:54 -0500

The Board of the Northeast Ohio Regional Sewer District (NEORSD) could vote as soon as the end of this week on whether to create a stormwater utility within its service territory. Through the imposition of a fee on homeowner's and businesses the District would hope to tackle some of the region's major stormwater issues.

In my post on Monday I discussed some of the local battles that have emerged over whether the District has the legal authority to move forward with its proposal. In today's post, I discuss some of the other issues and opportunities that may have gone unnoticed due to the contentious debate that is occurring.

Pro's and Con's of Regional Solution to Stormwater

At its core, the idea of treating stormwater as a regional issue makes sense. Water does not know any boundaries. Prioritizing the largest stormwater issues within the area also makes sense. Some projects would be just too costly to do without aggregating resources.

However, this has to be balanced with making sure certain areas don't receive the lion share of revenue collected by the Utility. This is the concern of Summit County who fears revenue will be almost entirely be used to fund projects in Cuyahoga County.

The proposed regulations, especially upon revision, attempt to address this issue by establishing Watershed Advisory Committees. These Committees would be made up of key local stakeholders in each watershed. They would provide input into project selection and identification of stormwater issues.

However, even with recent language changes in response to comments, the Committee's are purely advisory. The District retains the ability to ultimately make all decisions regarding use of the funds it collects. There must be ways to balance the structure and use of the Committees to provide additional local control over resources.

Impact on Local Stormwater Ordinances Governing Storm Water

In Chapter 6 of the proposed regulations, NEORSD has the authority to establish its own standards for stormwater management. Those standards must be consistent with Ohio EPA requirements for municipal stormwater systems. However, the District has the authority to impose more stringent requirements than Ohio EPA. This may set up an interesting battle over ordinances passed by local municipalities within the District's jurisdiction.

The best example of where a potential battle may take place is riparian set back requirements. Riparian setbacks establish "no build" zones adjacent to streams and wetlands in order to maintain their natural ability to control stormwater and filter run-off.

Right now riparian setbacks are one option a municipality can choose to implement in meeting Ohio EPA's requirements for municipal stormwater systems. This option has proved controversial. Contentious debate has take place, including over the following issues:

Size of the Setbacks- Standards range from 25 feet to 300 feet. This is a very wide range and Ohio EPA has not formally endorsed a specific distance.
Takings- Issues have raised by property owners that the government imposing no-build areas on their property amounts to a "takings" under the Constitution which would entitle them to compensation
Variances- What is the process for granting a variance from the set back requirements? Communities have utilized very different processes in determining whether to grant a variance

Right now municipalities have had the flexibility to determine these and other issues associated with riparian set back on their own. They can craft their ordinances to deal with local concerns of their constituents. While this has led to variations in standards, some would argue variation may be suitable based upon local conditions.

What if the Sewer District decides riparian set backs are mandatory and imposes certain standards on all communities related to the setbacks? For example, what if they impose a mandatory 50 to 100 foot setback from all streams and wetlands? This may lead to significant debate and outcry.

Cost of the Program- Opportunities to Offset CSO Compliance Costs Should Be Explored

One of the other major concerns with the proposal is the imposition of a new fee (tax) during these tough economic times. Certainly it is a legitimate concern to worry about imposing new costs on businesses after the worst recession in decades.

However, it is possible the stormwater utility could save money. The Sewer District is still in a battle with U.S. EPA over its combined sewer overflows (CSOs). The ultimate fix to those problems runs into the billions of dollars over the next few decades. This translates into ever escalating sewer rates to pay for those improvements.

It is possible to offset some of the costs through the stormwater utility? There are opportunities, such as the use of "green infrastructure" to reduce infiltration of stormwater into the Sewer District's system. Reducing infiltration diminishes the need for costly "grey" infrastructure to hold stormwater to prevent overflows.

The Cincinnati Metropolitan Sewer District faced years of litigation with U.S. EPA over its CSOs. Ultimately a very costly judicial order was agreed to satisfy the federal agency. However, built into that Order were unprecedented flexibility to explore the use of "green infrastructure" instead of constructing deep tunnels to hold stormwater. Here is an excerpt from a report recently submitted to U.S. EPA regarding viability of green infrastructure to solve CSO issues (Note: while it says for settlement purpose this document is available on the web):

All of the parties clearly desire significant improvement to water quality currently impacted by MSD's CSOs and SSOs. If cost were no object, this could be done by conventional, so-called "grey" methods, such as massive deep storage tunnels. However, as discussed openly among the parties, MSD's service area faces huge economic problems due to its increased urbanization, population and industry losses, and related matters. MSD maintains that the sewer rate increases required through construction of massive "grey" solutions would be economically and socially devastating. This problem has the potential to create a stalemate or gridlock in finalizing the WWIP. It also presents a lose-lose situation where neither side obtains what it wants or needs. As recognized by USEPA, green infrastructure has the potential to provide water quality improvements at a fraction of the cost of "grey" infrastructure projects.-- Cincinnati MSD "Green Infrastructure" Program

Sounds very similar to the issues facing our Region. Perhaps there is a real opportunity to see if the stormwater utility could be used as a means to reduce the District's compliance costs to solve its CSO problems.

Has the District even studied or discussed whether a "green infrastructure" program implemented by the proposed utility could be a cost saver versus another tax imposed on businesses and residents?

Local Controversy Intensifies Over Proposed Northeast Ohio Stormwater Utility

Joe Koncelik — Mon, 04 Jan 2010 16:41:06 -0500

The Northeast Ohio Regional Sewer District (NEORSD) is pushing forward with a proposed storm water utility that would extend through out its service area. The Board is expected to vote on the proposal January 7th.

Under the proposal the District would assess the average homeowner $4.75 per month or around $57 per year. The fees would be aggregated to run a regional storm water program administered by the Sewer District to perform the following activities:

Create master storm water plans
Inspect and maintain storm water control infrastructure
Build storm water control projects
Support green infrastructure
Restore streams
Assist municipalities in complying with Phase II storm water requirements

(click here for NEORSD's power point on the proposed storm water utility)

Recent newspaper articles have discussed battle over the District's legal authority to implement the plan. The Plain Dealer has had a series of articles discussing the storm water utility proposal in depth as well as an editorial in support. As reported in the Hudson-Hub Times, Summit County has already filed a lawsuit challenging the proposal.

A complaint for declaratory judgment and permanent injunction was filed by Summit County Dec. 30 in the Summit County Court of Common Pleas. Other plaintiffs include Northfield Center and Sagamore Hills townships, the cities of Macedonia, Hudson and Bath, and the villages of Boston Heights and Richfield.

The complaint states, among other allegations, that NEORSD has no authority to impose “stormwater fees, taxes or assessments on Summit County residents” and states the county engineer’s office is better suited to manage stormwater issues in the county.

Communities within Cuyahoga County have also expressed concern. As reported in theSun-Star Courier, Broadview Heights and Strongsville also have issues with the proposal.

The fee doesn’t sit well with Broadview Heights Mayor Sam Alai either. With the city already having fees in place, residents may be seeing a double charge if the district has their way.

“My opinion is that Broadview Heights has its own sewer fee,” Alai said. “I can’t see us billing our residents twice for the same service.”

Concern has focused mostly on the following issues associated with proposal:

Wisdom of imposing a new tax during these tough economic times
Legal authority to create the utility
Summit County is concerned fees will be assessed in their County for projects in Cuyahoga County
Local governments are concerned with infringement upon their authority

These are all serious issues worthy of debate which have already resulted in litigation. In fact, this list of issues may be so serious that many are not paying close attention to other, more practical, issues associated with the proposal.

NEORSD just concluded its public comment period and has revised its proposed regulations that would govern the utility. It is a valuable exercise to review the proposed regulations to get a better understanding of how the District will administer the program. (Click here to see revised regulations) In future posts I will be discussing some of the issues that perhaps have been overlooked as a result of the debate over legal authority. These include:

Impact on local ordinances governing storm water
Proposed use of Watershed Advisory Committees to solicit input on projects and planning
Advantages and disadvantages to a regional program to address storm water
Green infrastructures relationship to combined sewer overflows

Meeting with Serbian Delegation Leads to Interesting Exchange

Joe Koncelik — Mon, 21 Dec 2009 15:14:50 -0500

A few weeks back I was contacted by the Cleveland Council on World Affairs (CCWA) to meet with a small delegation of representatives from Serbia who were interested in learning about environmental regulations, specifically those that relate to solid waste and/or recycling. While I was to be interviewed by the delegation members, I think I learned much more even though I wasn't asking the questions. Here is a bit of background on the CCWA from their e-mail invitation:

The Cleveland Council on World Affairs (CCWA) hosts international leaders from all over the world year-round. Each year the CCWA hosts over 400 foreign nationals to meet and confer with their professional counterparts and to experience America firsthand. The visitors, who are selected by American Foreign Service Officers and U.S. Embassies overseas, are current or potential leaders in government, politics, the media, education, the arts, business and other fields. This program is sponsored and funded by the United States Agency for International Development (USAID)

Members of the delegation worked in the following areas:

Journalist reporting on environmental issues
Manager of an electronic waste recycler
Member of a trade association for chemical manufacturers
Manager for a public utility company
Members of Environmental Groups
Local Government
Green business consultant
Small business owner with recycling operation

What jumps out at me from the list above is that you have the same cross-section of organizations and individuals involved in environmental policy in the U.S. Each individual is interested in representing their own constituents, business or advancing their own environmental principles.

During the exchange I was asked to describe various regulatory challenges faced by businesses. I was also asked, generally, about general attitudes of citizens toward protecting the environment or environmental issues. Here are a few interesting observations or conclusions I made from the meeting:

Management of Electronic Waste- The delegation was interested to learn that there were no mandates requiring individuals or businesses to recycle electronic waste in Ohio. I was pressed on this point several times by members of the delegation. They thought it was interesting that any citizen could carry his old TV out to the corner to be thrown away in a landfill. Here is Ohio EPA guidance encouraging recycling of electronic waste.
Used Tires- While I think elimination of used tire piles is one of the biggest environmental success stories in the State of Ohio, the delegation provided a different perspective. The laughed and smirked when told that an individual was allowed to accumulate 23 million tires on their property (Kirby Tire Pile). For a country known for its sophisticated (if not overly complex) environmental regulations, it is somewhat odd this slipped through the cracks. As a result, Ohio was forced to enact a new tax on tires and it took nine years to clean up the Kirby Tire Pile.
Renewable Portfolio Standards- I was asked to provide some pretty detailed information regarding Ohio's Advanced Energy Portfolio Standard, including use of alternative compliance payments and renewable energy credits (RECs). I was told that Serbia was working toward a RPS standard. I thought it was interesting that a small European country was developing a very sophisticated energy program.
Jobs and the Environment- I was asked to comment on general attitude of the public on environmental issues. Some were interested in understanding how those attitude vary depending on what state you called home. Overall, there seemed to be general understanding among the delegation of the interplay between the economy and environmental regulation which challenged my perception those debates were less heated in Europe than in the U.S. Just like in the U.S., I got the feeling there was a wide range of opinions within the room. Those opinions can change with time as well. As noted in CNN recent poll on attitudes of Americans towards the root cause of global warming.

Overall, some of my own perceptions or paradigms regarding environmental regulation were challenged. It usually takes someone or a group of people from the outside to get you to re-examine your own perceptions. I found it very enlightening even though I didn't get to ask a single question.

EPA "Endangerment Finding" Sets in Motion Regulation of Greenhouse Gases

Joe Koncelik — Mon, 07 Dec 2009 17:30:08 -0500

Today, a day that will likely live in environmental law infamy....the EPA Administrator Lisa Jackson finalized the "endangerment finding" in response to the U.S. Supreme Court's ruling in EPA v. Massachusetts which was issued way back in April 2, 2007. While the Supreme Court found that greenhouse gases were air pollutants covered by the Clean Air Act, it did not say the Act mandated regulation. Rather, the Court said EPA was required to make additional findings regarding the danger presented by greenhouse gases before regulations would kick in.

The magic language for emission standards from motor vehicles appears in Section 202(a) of the Clean Air Act. Under Section 202(a), EPA is required to determine whether or not emissions of greenhouse gases from new motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare (so called "endangerment finding"). If EPA makes a positive finding- meaning emissions endanger public health and welfare- it then promulgate greenhouse gas emission standards for motor vehicles. Today, the Administrator made an positive determination.

Today's major announcement is the necessary precursor to mandatory emission standards for vehicles. More importantly, it sets in motion regulation of greenhouse gases from all sources, not just motor vehicles. Here are the steps that lead to that result:

Positive "endangerment finding"
Finalize regulations setting emission standards from motor vehicles- March 2010?
Greenhouse gases (GHGs) become a "regulated pollutant" under the Clean Air Act- once a "regulated pollutant" other regulations in the Clean Air Act are automatically triggered.
Most notably, on the same day vehicle standards are finalized, New Source Review (NSR) standards would include review of emissions of GHGs from new or expanding sources. No new regulatory action is required for NSR to apply to GHGs, it will automatically happen.

EPA realizes the process that has been set in motion for much broader regulations which is why it proposed the Greenhouse Gas Tailoring Rule in the Fall. (see prior post, EPA Risky Climate Change Regulatory Approach) The Tailoring Rule attempts to temporarily reduce the scope of the NSR program to only larger emission sources of GHGs.

Now that a positive endangerment finding has been finalized, broad GHG regulation is absolutely inevitable. Short of Congressional action, the existing Clean Air Act will be used to regulate GHG emissions. An outcome, even the EPA itself has said it does not prefer. Note the press release from EPA:

President Obama and Administrator Jackson have publicly stated that they support a legislative solution to the problem of climate change and Congress’ efforts to pass comprehensive climate legislation. However, climate change is threatening public health and welfare, and it is critical that EPA fulfill its obligation to respond to the 2007 U.S. Supreme Court ruling that determined that greenhouse gases fit within the Clean Air Act definition of air pollutants.

Congressional refusal to act swiftly on climate change legislation is putting us dangerously close to a chaotic regulatory scheme under existing Clean Air Act authority. In fact, as noted above, Congress has to act to take us off the path. Refusing to act, in order to blame President Obama is too large a price to pay to score a few political points.

Ohio Brownfield Tax Abatement Law Needs Improvement

Joe Koncelik — Fri, 04 Dec 2009 13:04:18 -0500

I was interviewed for a story on the local NPR station in Cleveland about a Northeast Ohio company that nearly went bankrupt because of confusion over Ohio's brownfield tax abatement law. The title of the story was "How a Poorly Worded Tax Rule Nearly Bankrupted Ohio's Oldest Company." Listen to the whole story by clicking here.

After reviewing the issue in preparation for the interview, it became readily apparent this was a law in serious need of a re-write. A company's future shouldn't hinge on a vague tax exemption law. I also learned that it was probably time to revisit some of the policy decisions made when writing the brownfield tax exemption law.

Background: Taylor Companies was debating whether to move out of Ohio. It decided to remain in Ohio, in part, due to incentives it would receive for building on a brownfield site. The principle incentive being a 10 year tax exemption for the increase in value of the property post-clean up. Here are some excerpts from the story on NPR:

The abatement was 87% less than what he expected. See, Taylor’s lawyers interpreted the state statute to mean that the tax exemption would cover the increase in value from before they did any clean-up to the new value after the company built and moved into its nice new building on what had been a brownfield. But Shelley Wilson of the Ohio Department of Taxation says they were wrong...

Instead of comparing the value of the land from its polluted days to its clean state…which seems most logical, tax officials compare the value of the land from one year before the tax abatement to its value after the improvements were made. The problem is that cleaning up the land and constructing a building may take longer than that narrow one-year time-frame. In Taylor’s case, he had already made most of the improvements by the time the tax commissioner made his assessment of the change in the land’s value. Shelley Wilson of the office of taxation concedes Taylor’s reading of the statute was probably the intent of the law.

Basically, the Ohio Department of Taxation responded to the controversy by saying- it may be the intent of the law to compare value pre-clean up to post-clean up, but that is not how the Ohio Legislature wrote the law.

At issue is the statutory provision set forth in R.C. 5709.87 "Exempting increase in assessed value of realty cleaned of contamination." The key language is as follows:

(C)(1)(a) Upon receipt by the tax commissioner of a certification for property under division (B) of this section, the commissioner shall issue an order granting an exemption from real property taxation of the increase in the assessed value of land constituting property that is described in the certification, and of the increase in the assessed value of improvements, buildings, fixtures, and structures situated on that land at the time the order is issued as indicated on the current tax lists.

The Ohio Department of Taxation looked at the bolded language and determined the valuation comes from when the tax exemption order was issued, rather than looking back at the value of prior to when clean up commenced. Triggering the exemption based on when an order is issued by Taxation really puts the squeeze on businesses redeveloping brownfield properties. Unless they time everything perfectly, they can lose out on potentially millions in tax abatement. (see example below)

The Department states this interpretation is supported by a decision issued by the Ohio Supreme Court- Columbus City School District v. Wilkens. Here is how Ohio EPA describes the process in its guidance document dealing with the brownfield tax exemption:

For example, if the covenant not to sue is issued by Ohio EPA in September, 2007, and the Tax Commissioner issues the tax exemption order in October, 2007, the property tax exemption granted will be for the increase in value of the land and buildings on the property from the value of the property as of January 1, 2006, the tax lien date for tax year 2006. Since real property taxes are collected a year in arrears (i.e., the 2006 taxes are based on a value as of January 1, 2006, but collected in 2007), the 2006 tax list would be the most current list available for the Tax Commissioner’s October 2007 exemption order. The tax exemption would begin for tax year 2007 which would affect taxes collected in 2008.

Even if businesses line up things in the right way, they are still dependent on two government agencies- Ohio EPA and the Ohio Department of Taxation- acting on a timely basis. One Cincinnati company lost out on a potential tax exemption on a $4 million dollar increase in the value of its property simply because paperwork was not issued by the government agencies in a timely fashion. See, Hamilton Brownfields Redevelopment LLC v. Zaino, Tax Commissioner of Ohio. In that case the Board of Tax Appeals states:

"The General Assembly has mandated the exemption period begin in the year in which the order is issued. The statute provides no latitude to consider or later the commencement of the exemption."

It is time to fix the language in the tax exemption statute. The entire purpose of the tax abatement law is to provide an incentive to clean up brownfield sites. If we want to encourage redevelopment of brownfields versus building on greenfield sites, incentives must be significant and effective to overcome the increased costs of building on brownfield sites.

The best fix would be to simply take the tax valuation of the property that was issued immediately before the clean up was commenced (at date identified in the papers filed with Ohio EPA) and compare it to the valuation after clean up is completed.

New Construction- In or out?

The commencement of the tax exemption is not the only flaw in this law. There is also confusion regarding the extent of the tax exemption as it applies to new construction. As noted in Ohio EPA's guidance document:

The Department of Taxation interprets the exemption granted under ORC 5709.87 as limited to the increase in value of the land and the existing buildings on the NFA property, and not of new structures constructed at the NFA property.

Taxation has made it even a bit more complicated than simply limiting it to existing buildings at the property. Taxation has gone on to limit improvements to existing buildings that were not features of the building prior to the clean up. For example,

If you replace an old swimming pool with a new swimming pool, the increased value attributable to the new pool is exempt.
However, if the building never had a swimming pool, it would be considered a new improvement and not exempt.

(See, Seven Seventeen HB Philadelphia v. Franklin County Board of Revision)

Unfortunately, Ohio is blessed with thousands of brownfield sites. If we are going direct development towards these sites, we need strong incentives. Costs of cleaning up a brownfield can run into the millions of dollars.

Is it really good policy to restrict the tax exemption in such a fashion?

We also need the law to be clear on its face. Lets hope the last part of the NPR story is correct and the Ohio Legislature takes up fixing the brownfield tax exemption law soon.

U.S. EPA to Impose Numeric Discharge Limits at Construction Sites

Joe Koncelik — Mon, 30 Nov 2009 21:49:11 -0500

On November 23, 2009, the U.S. Environmental Protection Agency (EPA) finalized new rules intended to control stormwater pollution from construction sites. The rule takes effect on February 2010 and will be phased in over four years.

The most significant new requirement is the imposition of numeric discharge limits from larger construction sites. In the past, U.S. EPA required construction site owners/operators to implement best management practices (BMPs) to control stormwater runoff without monitoring or discharge limits. Once the new standards are phased in, owners/operators will be required to sample stormwater discharges and comply with a numeric standard for the pollutant turbidity in discharges according to the following schedule:

In 18 months (August 2011), construction sites 20 acres or larger will be required to monitor and meet numeric discharge limits
In four years, construction sites 10 acres or larger will be required to monitor and meet numeric discharge limits

From the EPA press release:

Owners and operators of sites that impact 10 or more acres of land at one time will be required to monitor discharges and ensure they comply with specific limits on discharges to minimize the impact on nearby water bodies. This is the first time that EPA has imposed national monitoring requirements and enforceable numeric limitations on construction site stormwater discharges.

There are also impacts to smaller construction sites ranging from 1 acre to 10 acres in size. The rule will impose a series of mandatory Best Management Practices (BMPs) relating to: Erosion and Sediment Controls; Soil Stabilization BMPs; Dewatering BMPs; Pollution Prevention Measures; and Prohibited Discharges. Previously, owners/operators were allowed to pick and choose their BMPs as long as they met specified engineering requirements.

Stringency of the Numeric Limits

Dirt particles in storm water discharges typically cannot be effectively removed by conventional BMPs (such as sediment basins). In November 2008, U.S. EPA had proposed a numeric limit of 13 nephelometric turbidity units (NTU). To meet the proposed numeric turbidity limit, sites may have been forced to actively treat stormwater. Active treatment could have included use of chemical treatment and filtration of their storm water discharges.

However, U.S. EPA backed off the stringent 13 NTU proposed limit. The final rule has a far more relaxed standard of 280 NTU. EPA decided to increase the limits based upon a flood of comments suggesting the 13 NTU limit would represent less than background levels at some sites and would be nearly impossible to meet.

Even with the high numeric standard, Industry is concerned with the implications of the new rules. The construction industry is simply not accustomed to being required to take samples and meet specific permit limits. As detailed on the Associated General Contractors of America, the following could be implications for contractors at larger construction sites:

On all jobsites where the numeric limit applies, the rule requires contractors to collect numerous stormwater runoff samples from all discharge points during every rain event and calculate the NTU level(s). (This may entail taking "grab" samples by hand and performing measurements with a field turbidimeter; however the rule doesn't specify any sort of monitoring protocol or methods - instead EPA is leaving it up to that states to spell that out in their permits.) If the average NTU level of the samples taken over the course of a day exceeds the "daily maximum limit" of 280 NTU on any given calendar day, then the site is in violation of the federal limitation requirement. EPA is also leaving it up to the states to specify applicable requirements for contractors to report on the samples they take of their construction site discharges...

AGC is deeply concerned about the potential impact this rule will have on the construction industry and will provide more information in the near term as we continue to analyze EPA's C&D ELG rulemaking

No doubt the final rule represents a significant increase in the stringency of regulations applicable to the construction industry.

Basics of Brownfield and Pollution Liability Insurance

Joe Koncelik — Thu, 19 Nov 2009 07:37:00 -0500

Whether you are redeveloping a former manufacturing site or you operate a business on a contaminated site, the liability risks associated with releases of hazardous substances are significant. With the unknowns and surprises associated with environmental clean up the future of your business could be at risk without proper protections. There are a range of insurance products that can be essential to businesses looking to minimize such risks.

Insurance products can provide coverage against neighbors claims that contamination has migrated onto their property. Products can provide protection against cost overruns on clean up projects. They can also protect service providers against liability for negligence or mistakes in providing services on clean up projects.

This post provides a basic overview of various environmental insurance products. In purchasing such products close attention should be paid to the specific terms of the policy offered. In other words, know and understand the limits of your coverage so there are no surprises should an issue arise in the future.

Pollution Liability Policies

These are the most widely used brownfield insurance products. They provide a range of protections typically triggered after you have successfully cleaned up a property (signified by regulatory agency signoff on you clean up). The potential protections in such policies include:

Third party bodily injury and property damage tor liability claims that arise post clean up as a result of remaining contamination
- Potential tort claims brought by neighboring property owners who claim could damages based upon bodily injury, property damage, diminution in property value or business interruption based upon pollution from your property migrating off-site
- Tort claims for on-site property or bodily injury caused by pollution remaining at the site
- Pollution released during transport of clean up related soils and materials
Costs of additional clean up and other related expenses in the event there is a finding of new contamination or a regulator later decides they want more clean up
- additional clean up of known contamination which regulators had believed did not require remediation
- clean up of previously unknown contamination
Legal defense costs associated with the first two types of coverage

When seeking pollution liability insurance careful review of the proposed policy terms is essential. What items are excluded from coverage? What risks are so remote they could be excluded and bring down the cost of the policy? Typically, there is a "base policy" that provides some level of standard coverage. The base coverage is then modified through addition or exclusion of specific coverages (referred to as "endorsements").

Different insurance products will offer varying standard terms, those that must be added (special endorsements) and those that are simply not offered. Some possible special endorsements or exclusions may include:

lead-based paint in buildings
asbestos in soil or buildings
mold in buildings
low level radioactive materials
natural radioactive materials (ex: radon)
unknown underground storage tanks

It is important to understand the limits of a policy to make sure you are receiving coverage for the most important and largest risks attributable to your site.

Coverage can typically range from anywhere from $1 million to $50 million in protection. Common policy limits can range between $5 million to $10 million in coverage. Deductibles can be as low as $10,000 or as high as $1 million or more depending on the coverage sought.

Cost Cap Policies

Cost cap insurance is purchased to protect against the event that the clean up of the site becomes far more costly that initial estimates. Cost cap insurance is typically expensive and for that reason its less common. Typical types of events that can be covered include:

Clean up involved either higher volume or higher concentrations of known pollutants that was anticipated when developing the clean up plan
Newly found pollutants that were not known during development of the clean up plan
Additional investigation required as a result of newly found contamination
Increase costs due to changes in regulatory requirements or standards
Failure of the proposed remedy for the site

There are even less standard terms in cost cap policies that pollution liability policies. Business must carefully review the terms to understand their limits of coverage.

For example, often the clean up plan can be incorporated into the policy. Coverage may be limited to only those activities set forth in the plan. If some other activity is required that was not discussed in the clean up plan, there may be no coverage for increases costs associated with that activity.

As noted, the premiums for cost cap insurance can be expensive. One study of brownfield insurance products found that premiums ranged anywhere from 10% to 25% of the estimated cost of clean up or the limit of coverage.

Other Brownfield Insurance Products

Pre-funded Programs- these products involve prefunding expenses at a clean up site. Depending on the type of policy, the insured pays the premium and expected clean up costs upfront. If clean up is less than anticipated, depending on terms, the insured may get a portion of the prefunded expenses back. If costs are higher than anticipated, the insurer will pay the cost overruns pursuant to the terms of the policy.
Secured Lender Policies- These policies protect against loses due to pollution on a property that is subject to secure a loan. The coverage that could be provided includes: a) reimbursement of principal left on the loan due to borrower's default; and b) third party tort claims for bodily injury or property damage after foreclosure on the property. The purpose of this coverage is to give your lender comfort by minimizing their risk in financing your project.
Contractor's Pollution Liability- policies issued to general contractors and others who handle remediation, transportation of hazardous substances, or other aspects of the clean up. The product will protect against property damage, bodily injury and environmental clean up claims that could arise from working on a clean up sites.
Professional Liability Insurance- purchased to protect against mistakes or negligence of engineers, consultants, labs or other professionals providing services or advice on clean up sites.

Ohio Voluntary Action Program- Insurance Discount

Ohio EPA's Voluntary Action Program (VAP) is the state clean up program addressing brownfield and other voluntary clean ups. VAP has developed a new component of their program that provides discounts on environmental insurance products. The Environmental Insurance Program (EIP) began on July 20, 2009 and allows VAP volunteers (and others with an interest in the brownfield property) the ability to obtain Pollution Liability Insurance at a 10% discount off the standard premium rate.

More Information on Brownfield Insurance Products

BrownfieldsInsurance.org is a site that was developed with funding from the US Environmental Protection Agency (EPA) to assist those seeking information and assistance with insurance products that mitigate environmental liabilities associated with brownfield properties. The site contains papers and studies discussing various environmental insurance products. It also has information regarding professional services. It is a good basic resource to educate yourself on environmental insurance products.

(photo: everystockphoto.com-patriarca12)

Cleaning Up Midwest Fine Particulate Pollution- Reliance on CAIR Misplaced

Joe Koncelik — Wed, 11 Nov 2009 10:59:50 -0500

A new report regarding fine particulate pollution in the Midwest shows that achieving compliance with federal air quality standards is linked to U.S. EPA's fix for the Clean Air Interstate Rule (CAIR). The Lake Michigan Air Director's Consortium (LADCO) released its white paper discussing recommendation on addressing fine particulate (p.m. 2.5) pollution in the Midwest. The white paper includes these major findings:

The air quality studies demonstrated that high daily PM2.5 concentrations occur year-round, but are more likely in the winter and summer months, and are associated with elevated concentrations of particulate sulfate (especially in the summer), particulate nitrate (in the winter), and organic carbon (OC). Effective control programs for these PM species include:

Regional reductions in sulfur dioxide (SO2) emissions from EGUs and large non-EGUs

Reductions in ammonia (NH3) emissions from agricultural operations, especially in winter

Regional reductions in oxides of nitrogen (NOx) emission reductions

Urban-scale reductions in OC primary emissions from residential wood combustion and mobile sources, and VOC emissions from anthropogenic sources

The report notes that, beside power plant sulfate emissions, PM levels are attributable to agricultural emissions, smoking cars and outdoor wood fireplaces. However, these types of sources are much more difficult to control.

Outdoor wood fireplaces may be responsible for local hot spot type emissions, however regulation of these sources has proved very controversial.
Addressing smoking cars and auto emissions in general is always been a difficult task. Automobile testing, while continuing, is still very controversial.
Agricultural operations have fought long and hard to stay out of EPA regulation. The report acknowledges no federal program for reduction of agricultural ammonia emissions.

In contrast there has been a long track record for regulating power plant emissions. Starting with the acid rain program, then the NOx SIP call and finally CAIR- there have been three different cap and trade programs set up for reducing emissions. CAIR is critical because power plants are the largest source of SO2 emissions. (See post, CAIR Impact on Air Quality) The table below was taken from the report (EGU = Electric Generating Units).

Table 1. Annual SO2 Emissions in LADCO Region (1000 TPY)

	2005	2012	2018
Point-EGU	2,826 (83%)	1,665 (77%)	1,468 (76%)
Point-NonEGU	470 (14%)	423 (20%)	393 (20%)
Area	47 (1%)	44 (2%)	42 (2%)
Nonroad	61 (2%)	16 (1%)	11 (1%)
On-road	20 (1%)	5 (--)	4 (--)
	3,425	2,155	1,919

CAIR, under a cap and trade program, would dramatically reduce SO2 power plant emission in two phases- 2010 requires 50% reduction and 2015 requires 65% reduction. States are counting on the continued existence of CAIR to meet PM air quality standards. However, the D.C. Circuit Court tossed out CAIR as "fatally flawed." U.S. EPA is currently working on a "CAIR fix" to address the issues raised in the Court's decision.

LADCO's white paper makes it clear little thought is being given to what will happen if CAIR cannot be fixed. A review of the legal issues with CAIR shows the State's better start considering that possibility.

The fact State's have incorporated CAIR into the air quality planning is the main reason the Court allowed CAIR to remain while U.S. EPA worked on its CAIR fix. But there is no guarantee U.S. EPA is going to find a legally valid way to preserve CAIR. The Court found many "fatal flaws" but two of those flaws go to the heart of the cap and trade program:

One of the central problems the Court noted with CAIR was its method for reducing the cap on SO2 emissions. The Clean Air Act establishes a value for acid rain allowances- one allowance is the right to emit one ton of SO2. CAIR attempted to reduce the cap by cutting the value of an acid rain allowance in half in 2010. The Court found this to be problematic because the value of acid rain allowances is set forth the Clean Air Act. The Court said:

Lest EPA forget, it is “a creature of statute,”
and has “only those authorities conferred upon it by Congress”;
“if there is no statute conferring authority, a federal agency has
none.”

CAIR, as program created by rule, cannot trump a statute. How U.S. EPA can possibly get around the Clean Air Act establishment of acid rain allowance to preserve CAIR reductions is perplexing.

The Court also questioned the fundamental basis of EPA's cap and trade program that it was not required to eliminate one state's contribution to another state's non-attainment problem. The Court said:

"Theoretically, sources in Alabama could purchase enough NOx and SO2 allowances to cover all their current emissions, resulting in no change in Alabama's contribution to Davidson County, North Carolina's non-attainment."

How U.S. EPA can legally show CAIR will address contribution from one state to another while at the same time preserving the cap and trade concept is also perplexing.

While States are counting on preservation of CAIR reductions to meet air quality standards, their faith in U.S. EPA to develop a legally defensible CAIR fix may be misplaced. Senator Carper has pushed hard to incorporate a new, stronger CAIR-like program in the Senate climate change legislation. However, this move has not been all that popular as it is seen to slow down progress on climate change.

What will be left if CAIR cannot be repaired is a mess in terms of air quality planning. It will also make the mountain that much higher to climb for areas recently designated nonattainment by U.S. EPA.

Growing Wave of Climate Change Tort Suits Create Uncertainty

Joe Koncelik — Thu, 05 Nov 2009 16:40:49 -0500

Two federal appeal courts (Fifth and Second Circuits) have issued decisions that will allow lawsuits to proceed that assert common law tort claims based on business contribution to climate change. Comer v. Murphy Oil USA Inc. is the second decision in the last two months to allow claims to proceed. Earlier in October, the Second Circuit allows a federal common law tort claim to proceed in Connecticut v. American Electric Power.

In Comer, Mississippi coastal residents, following hurricane Katrina, sued a number of energy, oil refining and chemical manufacturing companies claiming their greenhouse gas emissions contributed to climate change. The residents argue, that climate change increased the intensity of hurricane Katrina which led to massive damages along the cost.

A key distinguishing factor between the Comer and Connecticut is that the plaintiffs rely upon different legal theories to present their cases. In Connecticut it was based purely on federal common law tort claims. In Comer, the Mississippi residents grounded their claims in state common law theories of nuisance, trespass and negligence. After these decisions, it appears either federal or state law claims can proceed.

It is important to note that another federal district court (Northern District of California) in the case of Native Village of Kivalina v Exxon Mobil Corp. dismissed a common law tort claim because the Court determined Plaintiffs failed to establish standing. However, district courts had dismissed similar claims that were later overturned by the appellate court decisions cited above. Certainly this decision will be appealed to the Ninth Circuit which means we will have three federal district courts weigh in on this question.

What are the implications of these decisions?

We are a long way from plaintiffs successfully collecting millions or even billions in damages from businesses for their greenhouse gas contribution to climate change. The two federal appeal courts have only determined that there is enough of an argument for plaintiffs to be allowed to proceed to trial or in other words, the plaintiffs have standing.

The legal standards for standing are much lower than what is required to be successful in winning a judgment. For example, tort claims must meet more stringent causation standards than are required to demonstrate standing. The Comer court found that plaintiffs had demonstrated sufficient causation. The Court said plaintiffs did not have to show that the defendants greenhouse gas emissions alone caused the damages suffered by plaintiffs. Rather, it is sufficient for standing that defendant's emissions contributes to the injuries suffered.

While plaintiffs can now proceed to trial, there is certainly no guarantee of success. However, these two appellate decisions will certainly embolden many more to file suits against utilities, chemical manufacturers, refiners, etc. A flood of litigation is certainly on its way.

All this litigation creates significant uncertainty for the business community. If just one plaintiff is successful in securing damages, the risk of liability will be massive for businesses. All of this should be considered as the Senate continues to debate Climate Change legislation.

Great Lakes Restoration Initiative Money Could Sit Idle

Joe Koncelik — Thu, 29 Oct 2009 18:56:02 -0500

The Obama Administration proposal for funding the Great Lakes, known as the Great Lakes Restoration Initiative (GLRI), has cleared a key House-Senate conference committee. The legislation would provide $475 million for a comprehensive Great Lakes restoration and protection initiative. The funding would be targeted toward the most critical environmental concerns facing the Great Lakes, including invasive species, toxic sediments, non point source pollutants and wildlife habitat loss.

While its wonderful news that increased funding is being directed toward the Great Lakes, there are key components of the legislation that could leave a large portion of the federal money unspent. Those key components relates to clean up of contaminated sediment under the Legacy Act (the primary vehicle for providing federal funding for removal of sediments).

A recent U.S. EPA Inspector General Report was highly critical of the pace of clean up under the Legacy Act.

Contaminated sediment is a massive problem in the Great Lakes. There is an estimated 75 million cubic yards of contaminated sediment. To date, under the Legacy Act, five sediment projects have been completed removing 800,000 cubic yards of contamination. This represents about 1% of the problem. As stated in the report, at the current pace, it would take more than 77 years to complete all the contaminated sediment projects in the Great Lakes.

Now this is where I part ways with the Inspector General Report. The IG placed the blame for the slow pace of contaminated sediment clean up on the lack of management within the Great Lakes National Program Office (GLNPO). The real story is the lack of resources at the state and local level.

Cost of removal of contaminated sediment is estimated at $3 billion in federal, state, and local funds. The Legacy Act includes the requirement for a 35% local share before federal funds can be used for clean up.

Sediment projects carry large price tags. Even a small sediment project can cost millions of dollars. While at least five project have been able to cobble together required 35% match, in some cases it took 5-10 years to generate the funds. In many other instances there are simply not the resources to develop the required 35% match.

The inability to generate this level of funding can be attributed to:

Limited amount of companies with money to pursue who contributed to the contaminated sediment problem (known as PRPs);
Even if PRPs are identified, complex legal actions or settlements must be pursued which can slow the process for years;
Furthermore, the current strain on local and state governments due to economic considerations, especially in the Midwest, makes state/local funding unlikely

As long as the millions in funding for sediment clean up in GLRI includes the 35% local share requirement, major portions of the federal money could remain sitting unused. Statutory changes to the Legacy Act are needed to provide authority to waive or reduce the 35% local share if it can be demonstrated, for instance that:

There are no or few PRPs;
The project should be fast tracked based on human health or environmental risks:
Local or State governments are constrained on their ability to contribute more of the local share

Expert Environmental Traders Discuss Climate Bills

Joe Koncelik — Thu, 22 Oct 2009 11:31:27 -0500

The past two days I have been in Houston at the Environmental Markets Association (EMA) fall conference. If you are not familiar with the EMA, it is an organization that supports the use of market-based solutions to environmental issues. The members are largely made up of consultants, traders of environmental credits and project developers.

Many of the members were on the ground floor when the first cap and trade programs were implemented in the 90's regarding acid rain. The also participated in the two cap and trade programs on utilities that followed acid rain- NOx SIP call and CAIR.

Finally, there is also expertise in the burgeoning carbon markets. Whether that involves the "voluntary markets" in the U.S., state mandatory programs like RGGI in the east, or the international cap and trade program in the European Union.

Bottom line, these folks have the expertise in trading various environmental credits under a wide range of programs. They have seen what has worked (acid rain) and what hasn't worked (collapse of the CAIR program).

The big topic of course is the Waxman-Markey and Kerry-Boxer bills pending in Congress. There was a lot of discussion regarding the various elements of these bills. From the various perspectives offered over the last few days I draw the following perspectives regarding the drive for a federal CO2 cap and trade program in the U.S.:

Complexity- Many expressed concern that the Waxman-Markey Bill is overly complex. That instead of focusing on setting up a core program- namely putting a price on carbon-the bill tries to dictate the minutia around the program. The more complex the program the more difficult it is to operate.
Offsets- Many concentrated on the debate over the domestic and international offset programs. There appeared to be consensus that an offset program was absolutely key to bringing down the cost of compliance. The concern expressed was that both Waxman-Markey and Boxer-Kerry put too many conditions on the offset program. These include limiting how many offsets each company can use for compliance. What types of offsets will qualify. How quickly EPA can certify the verification procedures for creating offsets.
Stabenow-Baucus Offsets Bill- This bill is seen as a mechanism to clean up what is wrong with the offset programs established in the other bills. A lot of hope was being placed on this being the vehicle to correct the problems.
EPA Preclusion- While not receiving a lot of attention, a huge difference between the House and Senate bills is whether EPA is precluded from regulating greenhouse gases under the Clean Air Act. House says EPA is precluded, Senate does not. As I have discussed on in prior posts, this is a huge issue. In fact, one of the main reasons to set up a cap and trade program is to pre-empt EPA from establishing an unworkable command and control program under the Clean Air Act.
Stability Reserve- This is the concept of trying to address carbon prices getting to high after the program is established. Rather than simply placing a cap on prices, both bills create the concept of a reserve of allowances that could be released if prices get to high. This is not a cap, if the trigger is met it allows future allowances to be auctioned off. EPA is supposed to take the proceeds from the auctions and purchase offsets to make the impact of releasing more allowance neutral. The concern on the stability reserves were: 1) the triggers to tap into the reserve and whether it really can control prices from getting too high; and 2) what happens if not enough offsets are available for EPA to purchase because all the limitations placed on which types of offset qualify.
Verification Procedures for Offsets- The Senate would require notice and comment on every offset project which was seen as overly cumbersome. The House allows pre-compliance offset credits to qualify for only 2009-2012. Also, projects must meet either a state verification procedure or one deemed by EPA as stringent as a state verification procedure. The short duration of pre-compliance offset projects was concerning because it may severely limit available offset credits after 2012. The limitations on verification procedures could disqualify many projects that went through non-state certified verification procedures.

Many more observations and comments were made. I certainly learned a lot from the experts who work have been working in environmental markets since the 1990's. Their expertise certainly should carry a lot of weight with Congress. Otherwise, we risk have politicians set up a program that is doomed to failure from the start.

Federal Tax Incentive For Environmental Clean Ups Provides Advantages Through End of 2009

Joe Koncelik — Thu, 15 Oct 2009 13:51:09 -0500

Any business spending money on an environmental investigation or on clean up at property they own examine closely a federal tax incentive which is set to expire December 31, 2009. The incentive allows environmental clean up costs to be fully deductible in the year they are incurred, rather than having to be capitalized and spread over a period of years.

Some businesses may not look closely at that tax incentive because they don't think they own a "brownfield" property. Many conjure images of falling down and abandoned manufacturing buildings when they think of a brownfield. However, the incentive, known as the Federal Brownfields Tax Incentive, is very broad and inclusive as to what constitutes eligible properties. Properties in full productive use with contamination can be eligible.

Until 2000, the Federal Brownfield Tax Incentive did include restrictions on which properties could be eligible. The law included requirements on specific land use, geographic and contamination requirements for determining eligible properties. However, most of these limitations were removed in 2000.

Section 198 of the Internal Revenue Code contains the requirements for expensing environmental remediation costs. Section 198 defines "qualified contaminated site" as the following:

The term "qualified contaminated site" means any area-

(A) which is held by the taxpayer for use in a trade or business or for the production of income, or which is property described in section 1221(a)(1) in the hands of the taxpayer, and

(B) at or on which there has been a release (or threat of release) or disposal of any hazardous substance.

(Note: sites on the National Priorities List are excluded from eligibility)

The two requirements set forth in Section 198 are not very limiting, potentially allowing any property to be eligible that is held by a business upon which contamination is present. Any business looking to qualify their property as eligible must obtain a statement from the designated state agency (typically the State EPA where the property is located) that there has been a release, threat of release, or disposal of a a hazardous substance at or on the property.

Clean ups at former gas stations or those involving underground storage tanks containing gasoline now also potentially qualify. In 2006, the tax incentive was further expanded to include contamination from petroleum products (e.g., crude oil, crude oil condensates, and natural gasoline).

What types of expenses are deductible? Generally speaking, any expenses incurred in connection with abatement or control of hazardous substances, including:

Site assessment and investigation;
Site monitoring;
Clean up costs;
Operation and maintenance costs;
State voluntary cleanup program oversight fees; and
Removal of demolition debris

While the incentive was extended at least three times since 1997, it is set to expire on December 31, 2009. If the incentive provides advantages to your business it may make sense to consider managing your clean ups in the remaining months to maximize its benefits before it expires. Also, note that it is possible previously filed tax returns can be amended to include deductions for past clean up expenditures.

U.S. EPA has a very useful fact sheet and answers to frequently asked questions on their website that provide further guidance on the incentive.

[Disclaimer: You should consult your environmental counsel, CPA and tax counsel to determine whether your specific circumstances would qualify for the Federal Brownfield Tax Incentive]

[Photo: everystockphoto.com/Here in Van Nuys]