SEC/SRO UPDATE: DOJ Focuses on Cryptocurrency Enforcement; SEC Staff Releases Report on Equity and Options Market Structure Conditions in Early 2021; De-SPAC’d Music Streaming Company Reaches $38 Million in Fraud Action; Chancery Court Elaborates on Dividend Requirements

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The Environmental Protection Agency (EPA) is addressing the impact of climate change at Superfund sites through three main initiatives: (1) climate resilience, (2) green remediation, and (3) environmental justice. This article, which is the first of three, provides some background on EPA’s focus on Superfund climate resilience and suggests how these initiatives may present an opportunity for better approaches to remedy decision-making.

As climate change continues to drive extreme weather events, remedies at Superfund sites are becoming increasingly vulnerable to destabilization. According to a 2019 report
by the Government Accountability Office (GAO), over 60% (945 of 1,571) of nonfederal National Priorities List sites are in areas at risk of being impacted by extreme weather events driven by climate change. Many of the sites are vulnerable to multiple risks: flooding risks were identified at 783 sites, and wildfire risks were identified at 234 sites. Finally, 187 sites are vulnerable to storm surges from Category 4 or 5 hurricanes.

The number of Superfund sites that have already been compromised by climate change highlights the urgency of this problem.
See Evaluation of Remedy Resilience at Superfund and SAA Sites, EPA Office of Land and Emergency Management (2018). For example, flooding from Hurricane Harvey destroyed an interim armored cap at the San Jacinto River Waste Pits, causing dioxins to flow into the San Jacinto River, which is a public water supply. See id. at 21. Shortly after, EPA released a record of decision (ROD) explaining that “[t]he area has a high threat of repeated storm surges and flooding from hurricanes and tropical storms, which if the material was left in place, could result in a release of hazardous substances.” See San Jacinto River Waste Pits, Record of Decision, U.S. EPA Region 6, October 2017. The ROD further explains that, for the site to be protective of human health and the environment in the long term, the waste materials must be completely removed. See, id. Wildfires, particularly in the Western U.S., also pose threats to remedial infrastructure at Superfund sites and to the firefighters battling the flames, in terms of potential toxic air emissions and other hazards. See, e.g., Michael Kodas & David Hasemyer, Wildfires fueled by climate change threaten toxic Superfund sites, NBC News (Dec. 23, 2020) https://www.nbcnews.com/news/us-news/wildfires-fueled-climate-change-threaten-toxic-superfund-sites-n1252156. Simply put, disaster-related hazardous releases, particularly in population-dense areas, present threats that could be as complex and costly as the original site cleanup.

EPA, meanwhile, is beginning to evaluate remedy protectiveness in light of extreme weather events, for remedial actions under construction and five-year reviews. EPA’s “Superfund Climate Resilience” initiative is intended to provide a set of tools to evaluate, among other things, (1) the vulnerability of already-implemented remedies to extreme weather events, (2) the adaptive capacity of site remedies, and (3) the implementation of potential resiliency measures. Most recently, on June 30, 2021, EPA’s Superfund director directed all EPA regions to conduct “a site-specific analysis of the remedial action in light of current, forward-looking information on local or regional climate and weather regimes.” See Memorandum: Consideration of Climate Resilience in the Superfund Cleanup Process for Non-Federal National Priorities List Sites, from Larry Douchand, Director of Office of Superfund Remediation and Technology Innovation, to Regional Superfund National Program Managers (June 30, 2021). Additionally, it directs regions to evaluate adaptive measures that increase the system’s resilience to climate change to ensure protectiveness of human health and the environment. EPA has also developed a series of “climate resilience technical fact sheets” which are “designed to help project managers and other cleanup stakeholders identify, prioritize and implement site-specific measures for increasing remedy resilience to climate change and extreme weather events.” Climate Resilience Technical Fact Sheet: Groundwater Remediation Systems, October 2019 Update; Climate Resilience Technical Fact Sheet: Contaminated Sediment Sites, October 2019 Update; Climate Resilience Technical Fact Sheet: Contaminated Waste Containment Systems, October 2019 Update; see also
Climate Change Adaptation Technical Fact Sheet: Landfills and Containment as an Element of Site Remediation, May 2014.

Looking forward, potentially responsible parties (PRPs) at Superfund sites should be prepared for EPA and other regulatory agencies to re-evaluate whether existing remedies are sufficiently resilient to extreme weather events and whether additional protective measures are necessary. Additionally, climate resilience criteria will play an increasing role in EPA’s remedy selection process at Superfund sites that are still in the remedy selection process. While in concept this programmatic effort seems like one more regulatory hurdle to manage, “remedy resilience” as ultimately defined could actually provide an important platform and opportunity to argue for more sensible objectives and less intensive and expensive technologies so as to accelerate site cleanup and reuse.

In the last few months, the U.S. Fish and Wildlife Service (USFWS) initiated a variety of regulatory efforts that may affect clean and renewable energy, including an advance notice of proposed rulemaking to streamline the permitting process for incidental take of eagles, a 90-day finding on a petition to list the American bumble bee (Bombus pensylvanicus) under the Endangered Species Act (ESA), and a permitting process under the Migratory Bird Treaty Act, as previously described in a Davis Graham client alert. Over this same period, Colorado Parks and Wildlife released best management practices for solar energy projects, and the American Wind Wildlife Institute released guidance on siting wind projects.

Improvements to Eagle Take Permitting Process

On September 14, 2021, USFWS published an advance notice of proposed rulemaking seeking public input on “several approaches that could potentially underpin a more streamlined eagle incidental-take-permitting framework” than the current framework authorized in 2009. Particularly, USFWS seeks public comment on the following questions:

• Are there specific protocols, processes, requirements, or other aspects of the current permitting process for incidental take of eagles that hinder permit application, processing, or implementation?

• What additional guidance, protocols, analyses, tools, or other efficiencies could the Service develop that would reduce the time and/or cost associated with applying for, implementing, and conducting monitoring associated with long-term permits for incidental take of eagles under existing regulations? What are the estimated costs of the suggested additional efficiencies, and how do those costs compare to industry’s current practices?

• What targeted revisions could be made to existing regulations consistent with the overall permitting framework and PEIS that would reduce the time and/or cost associated with applying for and processing long-term permits for incidental take of eagles?

• Are there potential new regulatory approaches to authorizing incidental take under the Eagle Act, particularly for projects that can be shown in advance to have minimal impacts on eagles, that would reduce the time and/or cost associated with applying for and operating under long-term permits for incidental take of eagles?

USFWS is accepting comment until October 29, 2021.

90-Day Finding on Petition to List the American Bumble Bee as Threatened or Endangered

On September 29, 2021, USFWS published a 90-day finding on a petition to list the American bumble bee under the ESA. The American bumble bee’s range covers the eastern and central U.S., including Colorado and New Mexico, as well as portions of Canada and Mexico.

With the 90-day finding, USFWS also announced it is initiating a status review of the species to determine whether listing is warranted. Based on the status review, the USFWS will issue a 12-month finding determining whether or not listing is warranted, as required by the ESA. USFWS is accepting public comment as part of its status review.

Siting Guidance for Solar and Wind Energy

Colorado Parks and Wildlife recently released best management practices for large-scale solar energy development. These best management practices provide guidance related to siting considerations, wildlife surveys, avoidance and minimization of habitat loss and fragmentation, sensitive wildlife (including big game, raptors, migratory birds, grouse, and bats, among others), high priority habitat features, construction and operational considerations, weed management, security fencing and lighting, transmission line development, avian fatality risk, and reclamation and decommissioning.

Additionally, the American Wind Wildlife Institute released a Wind Energy and Wildlife Guide that summarizes the statutory and regulatory framework applicable to onshore wind energy and wildlife, the state-of-the-science on wind-wildlife interactions, and the strategies that are being implemented to avoid, minimize, and compensate for adverse impacts from wind energy to wildlife and habitats. It provides guidance on landscape assessment and siting practices, minimization of collision risk during wind operations, and compensatory mitigation under federal wildlife laws, among other issues.

The Bureau of Land Management (the “BLM”) recently announced competitive lease sales for solar and geothermal development on public lands in the western U.S.

On November 9, 2021, the BLM will close the bidding period
to lease over 4,800 acres in the Milford Flats South Solar Energy Zone in Beaver County, Utah for solar energy development. If these parcels are leased and fully developed, they have the potential to generate over 600 megawatts of electricity, enough electricity to power approximately 100,000 homes. In Nevada, the BLM is seeking public comment
for the Luning Solar Energy Project, which will cover 560 acres dedicated to the expansion of an existing solar facility in Nevada.

Regarding geothermal energy development, on October 5, 2021, the BLM sold approximately 83,544 acres across eight different Nevada counties. The BLM decided to lease these 32 parcels after preparing environmental assessments (linked on the BLM’s ePlanning website) and finding no significant impact. Here, the leases allow for exploration and development of geothermal resources and may be extended if the lessee establishes production or proof of diligent exploration.

Similarly, in New Mexico, the BLM will offer almost 4,000 acres for geothermal lease on November 18, 2021 via a virtual sale. The parcels for these leases are in Hidalgo and Sierra counties. The environmental assessment resulted in a finding of no significant impact.

Additionally, on October 13, the Biden administration announced plans to promote expanded offshore wind development across the U.S. coasts. The Secretary of the Interior intends to sell wind leasing and development rights in state coastal waters, the central Atlantic and the gulfs of Maine and Mexico. The Interior Department is aiming for seven offshore wind lease sales by 2025, to help the United States generate power from the gusty winds at sea.

These lease sales support President Biden’s Executive Order, 14,008, Tackling the Climate Crisis at Home and Abroad (January 27, 2021), which requires an increase in renewable energy across the U.S. Specifically, the Biden administration announced a goal to achieve net-zero emissions, economy-wide, by 2050 and to double offshore wind energy production by 2030. As a result of these climate goals, in the past 10 months, 13 renewable energy lease sales have been initiated in the U.S.

On October 7, 2021, the Council on Environmental Quality (CEQ) published proposed revisions to the regulations implementing the National Environmental Policy Act (NEPA) (“Proposed Revisions”). If finalized, these Proposed Revisions would undo certain changes to the NEPA regulations that took effect in September 2020, 85 Fed. Reg. 43,304 (July 16, 2020) (“2020 Rule”).

The Proposed Revisions would make three general changes to the CEQ regulations: 1) revise the definition of “effects” to expressly include direct, indirect, and cumulative effects; 2) reduce the emphasis on an applicant’s purpose and need; and 3) allow agencies to adopt NEPA regulations that are more rigorous than the CEQ regulations. CEQ cited the directions in Executive Order 13,990, Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis
(Jan. 20, 2021), and Executive Order 14,008, Tackling the Climate Crisis at Home and Broad (Jan. 27, 2021), as justification for these revisions.

CEQ has described the Proposed Revisions as a “Phase 1” rulemaking. CEQ anticipates a second phase rulemaking (“Phase 2”), in which CEQ will “more broadly revisit the [2020 Rule] and propose further revisions to ensure that the NEPA process provides for efficient and effective environmental reviews that are consistent with the statute’s text and purpose; provides for regulatory certainty to [f]ederal agencies; promotes better decision making consistent with NEPA’s statutory requirements; and meets environmental, climate change, and environmental justice objectives.”

CEQ is accepting comments on the Proposed Revisions until November 22, 2021.

I. Definition of “Effects”

The 2020 Rule merged the distinct concepts of “direct” and “indirect” into one definition of “effects” and eliminated the concept of “cumulative” effects from the impacts an agency must examine in NEPA analysis. Particularly, the 2020 Rule defines “effects” as “changes to the human environment from the proposed action or alternatives that are reasonably foreseeable and have a reasonably close causal relationship to the proposed action or alternatives, including those effects that occur at the same time and place as the proposed action or alternatives and may include effects that are later in time or farther removed in distance from the proposed action or alternatives.” 40 C.F.R. § 1508.1(g).

Additionally, the 2020 Rule excludes from the definition of “effects” impacts that result solely from a “but for” causal relationship because “[e]ffects should generally not be considered if they are remote in time, geographically remote, or the product of a lengthy causal chain.” 40 C.F.R. § 1508.1(g)(2). Finally, the 2020 Rule excludes from the definition of “effects” impacts that “the agency has no ability to prevent due to its limited statutory authority or would occur regardless of the proposed action.” 40 C.F.R. § 1508.1(g)(2).

The Proposed Revisions would expressly incorporate “direct,” “indirect,” and “cumulative” effects into the definition of “effects” and would not exclude impacts resulting from a “but for” causal relationship or effects outside of an agency’s authority. The Proposed Revisions would define “effects” as:

[C]hanges to the human environment from the proposed action or alternatives and include the following:

(1) Direct effects, which are caused by the action and occur at the same time and place.

(2) Indirect effects, which are caused by the action and are later in time or farther removed in distance, but are still reasonably foreseeable. Indirect effects may include growth inducing effects and other effects related to induced changes in the pattern of land use, population density or growth rate, and related effects on air and water and other natural systems, including ecosystems.

(3) Cumulative effects, which are effects on the environment that result from the incremental effects of the action when added to the effects of other past, present, and reasonably foreseeable actions regardless of what agency (Federal or non-Federal) or person undertakes such other actions. Cumulative effects can result from individually minor but collectively significant actions taking place over a period of time.

(4) Effects include ecological (such as the effects on natural resources and on the components, structures, and functioning of affected ecosystems), aesthetic, historic, cultural, economic, social, or health, whether direct, indirect, or cumulative. Effects may also include those resulting from actions which may have both beneficial and detrimental effects, even if on balance the agency believes that the effects will be beneficial.

CEQ’s proposal to reinstate cumulative impacts into the definition of “effects” is the most significant proposed change. CEQ rejected the 2020 Rule’s elimination of the obligation to analyze cumulative impacts, stating that “[d]ecades of agency practice and CEQ guidance affirm the interpretation that NEPA requires analysis of cumulative effects.” CEQ further reasoned that “[c]umulative impacts analysis is an essential component of NEPA analysis, as it allows agencies and the public to understand how the incremental impacts of a proposed action contribute to cumulative environmental problems such as air pollution, water pollution, climate change, and biodiversity loss, among others.”

CEQ attempted to justify its proposal to reinstate the concepts of direct and indirect effects by reasoning that “this change would better reflect NEPA’ statutory purpose and intent and be more consistent with case law[.]” CEQ also explained that this change “would ensure that agencies consider the full range of reasonably foreseeable effects in the NEP process, consistent with NEPA’s goal of facilitating reason-based decision making that protects public health and the environment, as well as this Administration’s policies to be guided by science and to address environmental protection, climate change, and environmental justice.”

Further, CEQ championed its proposed changes related to the causal relationship between an action and its effects. CEQ explained that the pre-2020 version of its NEPA regulations “gave agencies the discretion to identify the reasonably foreseeable effects of a proposed action and its alternatives in light of NEPA’s goals” and that “this approach provides for more sound decision making, including decisions informed by science, and a more knowledgeable and engaged public than the definition of ‘effects’ in the 2020 [Rule].”

Finally, CEQ defended its proposal to eliminate the limitation that agencies need not analyze effects that they lack the authority or ability to prevent, reasoning that “agencies may conclude that analyzing and disclosing such effects will provide important information to decision makers and the public.”

II. Applicant’s Purpose and Need

The 2020 Rule emphasizes a private applicant’s purpose and need for a proposed action when an agency has a statutory duty to review an application. Particularly, 40 C.F.R. § 1502.13 directs that the purpose and need statement in an environmental impact statement “briefly specify the underlying purpose and need for the proposed action. When an agency’s statutory duty is to review an application for authorization, the agency shall base the purpose and need on the goals of the applicant and the agency’s authority.”

The Proposed Revisions would eliminate the reference to an applicant’s purpose and need. The Proposed Revisions would revise 40 C.F.R. § 1502.13 to state simply: “The statement shall briefly specify the underlying purpose and need to which the agency is responding in proposing the alternatives including the proposed action.”

Additionally, the Proposed Revisions would make a conforming edit to the definition of “reasonable alternatives” at 40 C.F.R. § 1508.1(z). The 2020 Rule defines “reasonable alternatives” as “a reasonable range of alternatives that are technically and economically feasible, meet the purpose and need for the proposed action, and where applicable, meet the goals of the applicant.” 40 C.F.R. § 1508.1(z) (emphasis added). The Proposed Revisions would eliminate the italicized language.

As justification for the proposed changes, CEQ expressed concern that the language of the 2020 Rule “could be construed to require agencies to prioritize the applicant’s goals over other relevant factors, including the public interest.” CEQ reasoned that, instead, “[a]gencies should have discretion to base the purpose and need for their actions on a variety of factors, which include the goals of the applicant, but not to the exclusion of other factors,” including “other regulatory requirements, desired conditions on the landscape or other environmental outcomes, and local economic needs, as well as an applicant’s goals.”

III. Agency NEPA Procedures

The 2020 Rule limits agencies’ ability to develop NEPA regulations or guidance that require more rigorous review than the CEQ regulations, effectively establishing a ceiling of NEPA review. The 2020 Rule provides that, “[w]here existing agency NEPA procedures are inconsistent with the regulations in this subchapter, the regulations in this subchapter shall apply . . . unless there is a clear and fundamental conflict with the requirements of another statute.” 40 C.F.R. § 1507.3(a). Similarly, the 2020 Rule directs that “agency NEPA procedures shall not impose additional procedures or requirements beyond those set forth in the regulations in this subchapter.” 40 C.F.R. § 1507.3(b). The 2020 Rule also instructs agencies, by September 14, 2020, to “eliminate any inconsistencies” with the 2020 Rule.

The Proposed Revisions would eliminate these provisions, consistent with the regulatory requirements that predated the 2020 Rule. CEQ reasoned that “[a]gencies should be able to tailor their procedures to meet their unique statutory mandates and include additional procedures or requirements beyond those outlined in CEQ’s NEPA regulations, especially if doing so will promote better decisions, improve environmental or community outcomes, or spur innovation that advances NEPA’s policies.”

IV. Conclusion

The Proposed Revisions may impact energy projects requiring federal permits, such as those located on federal public lands. The 2020 Rule was intended to streamline NEPA analysis and promote efficiencies, and a final rule undoing the 2020 Rule may contribute to lengthy NEPA reviews.

Land users concerned with, or who support, the proposed regulatory changes should submit comments on the Proposed Revisions to ensure a strong administrative record that reflects their positions on the rules. Moreover, land users should anticipate additional proposed revisions to CEQ’s NEPA regulations.

More than ever before, companies are seeking to reduce their carbon emissions into the atmosphere. One solution that energy developers are seeking to deploy is carbon capture, use, and sequestration (CCUS). Growth in the CCUS industry has been spurred by recent Section 45Q federal tax credit legislation, as detailed in Michael Snider’s article on the topic. However, difficulties remain in deploying CCUS projects at scale; some of these issues include a lack of clarity around pore space ownership and a lengthy permitting process for CCUS wells.

Setting aside the “use” component of CCUS projects, for carbon capture and sequestration projects (or CCS projects), to sequester carbon it must be stored underground through injection wells that are injected into pore space. So, what is pore space and who owns it? At its most basic level, pore space is comprised of the tiny voids in subsurface rock that are unoccupied by solid material, which could be used for the injection and permanent sequestration of carbon. In the United States, there is a general consensus that ownership of pore space belongs to the owner of the surface estate. However, uncertainty remains in this developing field, so ownership of the pore space should not be presumed to be vested in the surface owner, especially when there has been a severance of the surface estate and mineral estate.

Several states have enacted pore space ownership and use statutes, including the western states of Wyoming, North Dakota, and Montana. The breadth of the pore space definition and applicable statutes can vary considerably, which is why it is helpful to compare legislation between each state. (The Wyoming statutes can be accessed here; the North Dakota statues can be accessed here; and the Montana statutes can be accessed here.) Such legislation can provide clarity on which landowners’ consent needs to be obtained by a CCS project developer in order to access and use the pore space for drilling injection wells and sequestering carbon.

From a regulatory perspective, the Environmental Protection Agency (EPA) regulates several classes of underground injection wells under the Safe Drinking Water Act. CCS project developers should obtain a Class VI well permit for CCS injection well purposes (for geologic sequestration wells). However, only two Class VI wells have been permitted for injection, both of which are located in Illinois, and the permit application processing time was six years for both permits. States can apply for and the EPA may grant states primary authority to enforce and administer Class VI wells, as the EPA has granted for both Wyoming and North Dakota (which now administer these Class VI well programs in their states). It remains to be seen whether primacy of Class VI wells that is held by Wyoming and North Dakota will speed up the Class VI well permit process in those states.

Recent state and federal policy updates further illustrate the current momentum behind CCS projects. For example, on May 24, 2021, the Nebraska legislature signed into law Legislative Bill 650, which promulgated extensive legislation on subsurface geologic storage of carbon. Such legislation provides clarity that is lacking in many other states regarding pore space ownership, unitization, permitting, and long-term ownership upon project completion. A full copy of Legislative Bill 650 can be found here. On June 30, 2021, the White House released a report, prepared by the Council on Environmental Quality and mandated by Congress, which outlined potential actions that the federal government could take to accelerate CCS projects in the United States. The report notes President Biden’s commitment to increasing support for CCS research and enhancing the Section 45Q tax incentive for CCS project development. The 84-page report can be found here. Furthermore, Governor Polis’ 2021 Colorado Greenhouse Gas Pollution Reduction Roadmap included an announcement to form a task force on CCS starting in mid-2021, which is to report back to the governor within a year a recommended framework to align with Colorado’s emissions reduction targets.

Though there have been momentous upswings in legislation and regulations surrounding CCS projects the past few years, much legal and regulatory uncertainty remains. For assistance navigating the complexities of CCS projects, please contact Craig Gleaton, Katie Schroder, John Jacus, Kathleen Pritchard, and Katie Roux.

SEC ESG Taskforce Update: Commissioner Lee Doubles Down, and Examination Division Issues ESG Risk Alert; Eastman Kodak Preparing to Defend Insider-Trading Lawsuit; The House of Representatives Passes the Insider Trading Prohibition Act

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