Category: Publications

By Sarah L. Fine*

As the old saying goes, whiskey is for drinking—water is for fighting over.

I. Introduction

The mythic Dead Sea—the highly salinated, low-altitude lake of international interest and importance—is drying up.[1] Although the Jordan Rift Valley, where the Dead Sea is located, is known for frequent droughts, the decline of the Dead Sea is primarily due to human intervention—namely, the diversion of the Jordan River, the main lake source which feeds the Dead Sea,[2] to provide potable water to increasing populations.[3] A water level drop of one meter per year has led the surface area to decrease from 960 km2 to 620 km2 in the last fifty years.[4] Today, the rate of decline is only increasing, giving rise to “extensive environmental degradation and damage to industry and infrastructure and . . . substantial intangible impacts and costs,” with an estimated direct cost to government and industry to be “some $2.9 billion over the next 60 years.”[5]

Despite the lack of stability between the Dead Sea’s three bordering entities—the State of Israel, the Hashemite Kingdom of Jordan, and the Palestinian Authority—a series of agreements between the groups have sought to address the problem of the disappearing Dead Sea alongside the problem of access to potable water.[6] Facilitated by the World Bank Group, the Red Sea­–Dead Sea Water Conveyance Study investigated the feasibility of reversing the environmental degradation of the Dead Sea by transferring seawater from the Red Sea. By introducing desalination into the transfer process, the hope of the three parties is that the Red Sea­–Dead Sea Water Conveyance will address the environmental degradation of the Dead Sea and the lack of affordable energy and drinking water in the Jordan Rift Valley, while increasing political goodwill and cooperation between the parties.[7]

II. Issues Sought to Be Addressed

The Dead Sea—neither dead, nor a sea—supports a wide variety of microfauna and macrofauna at the lowest point on the Earth’s surface.[8] As the lowest point on Earth, the Dead Sea acts as “the water seismograph of the region . . . express[ing] the nonsustainable use of fresh water.”[9] Since the 1960s, the surface area of the Dead Sea has declined by one-third,[10] resulting in increased incidence of dust storms, “losses of freshwater springs, river bed erosion, and occurrence of over one thousand sinkholes.”[11] The sinkholes occur because

[t]he retreat of the water (which is almost 10 times saltier than the ocean’s) has allowed fresh groundwater to well up and dissolve the layer of salt within the land’s subsurface. Underground cavities form and eventually trigger collapses. . . . The deepest pit could fit an eight-story building. . . . Today’s sinkholes, located almost exclusively on the sea’s Israeli side, first appeared in the early 1980s. . . . According to Eli Raz, a geology consultant who has tracked the problem almost since it began, more than 4,000 sinkholes now pockmark the land.[12]

The decline of the Dead Sea water level also disrupted the water tables; the low level of groundwater has “allow[ed] seawater intrusion,”[13] contaminating an aquifer in the Gaza Strip.[14]

There are multiple causes of the Dead Sea water level decline. The Jordan River’s flow into the Dead Sea has been most significantly impacted by diversion to satisfy increasing water consumption in Israel, Jordan, and Syria, driven by rapidly growing populations.[15] In addition, the large evaporation-based chemical industries in Israel and Jordan consume a significant amount of raw Dead Sea water, further contributing to the water level decline.[16] Further, as this is all occurring in desert nations, the problems of water scarcity will be only “exacerbated by the anticipated negative climate change scenarios” over time.[17]

A. Water Resources by Region
  1. Hashemite Kingdom of Jordan

The Hashemite Kingdom of Jordan, once a relatively water-rich nation, is now “the third most water insecure country in the world.”[18] Jordan, which has rationed water since the 1980s, found itself in 2013 in a full-blown water crisis—having integrated into their population nearly 1.4 million people seeking refuge from the Syrian Civil War.[19]

In 2008, Jordan implemented a water strategy expected to protect its water needs until at least 2022.[20] This strategy centered on the building of the Disi aquifer, which opened in 2013 and pumps 100 million cubic meters of water per year.[21] However, this strategy also relied upon pre-Syrian crisis population assessments. In a 2014 study, Jordan determined that the new $1.1 billion aquifer could only support the population through 2016.[22] According to Jordan’s Ministry of Water and Irrigation, water needs will exceed resources by more than 26% by 2025.[23]

To address its water crisis, in 2014 Jordan enacted “Water Wise Women” with funding from Germany’s Agency for International Cooperation (GIZ), a program which trains women to be plumbers and community outreach representatives.

Each group of “Water Wise Women” goes through eight different levels of training run by a German expert from GIZ and supervised by program alumni. The levels include: eradicating water leakage, harnessing technology, reducing water usage in the household, and improving hygiene. Each trained woman is expected to disseminate the technology and information within their community, and to reach out to at least 20–25 other women. They are given funding for travel for this outreach, and at the end of the course, each participant receives a box of tools.[24]

The program has trained more than three hundred women plumbers in fifteen locations across the Kingdom.[25] In those areas, Jordan’s Ministry for Water and Irrigation found “there has been a 30–40% reduction in household water consumption.”[26]

In March of 2017, the Kingdom’s first desalination plant opened in Aqaba.[27] This plant doubled Jordan’s potable water supply, providing five million cubic meters of potable water per year. In spite of these efforts, in December of 2017, the Economist reported that Jordan could provide only 15% of the threshold the World Bank defined as “water scarcity.”[28]

In early 2018, the Jordanian government partnered with another community group to promote conservation: college students. In a partnership with students at Princess Sumaya University for Technology, Jordan’s Ministry of Water and Irrigation launched a game application in February of 2018 to raise water conservation awareness among the general public.[29] In the style of Chutes and Ladders, the game entertains players while educating them about water rationing and water waste.[30]

  1. State of Israel

In 2008, after a decade-long drought, “its worst in at least 900 years,” Israel was running out of water.[31] But a few years of rain, combined with new, highly efficient preservation and desalination technology, put Israel in a vastly different position: by 2014, rather than experiencing water scarcity, it suddenly had a surplus.[32] Today, Israel leads the world in water reclamation: “87% of its wastewater is purified and reused for agriculture. For reference, Singapore, second on the list, reclaims some 35% of its sewage water, and most countries . . . reclaim less than 10% of their water.” [33] In support of this innovative water treatment system is a wholistic approach of water conservation, using “low-flow toilets and showerheads . . . installed nationwide” and an agricultural system powered by drip irrigation.[34]

The most significant change has been Israel’s newest source of freshwater: desalinated seawater.[35] Even as the world’s leader in water conservation, “Israel still needed about 1.9 billion cubic meters . . . of freshwater per year and was getting just 1.4 billion cubic meters . . . from natural sources.”[36] Desalination, or desal, was once considered a method of “last resort” due to its expense and inefficiency.[37] But a breakthrough innovation by Israel’s Zuckerburg Institute for Water Research changed that:

Desal works by pushing saltwater into membranes containing microscopic pores. The water gets through, while the larger salt molecules are left behind. Microorganisms in seawater quickly colonize the membranes and block the pores, and controlling them requires periodic costly and chemical-intensive cleaning. But [the Institute] developed a chemical-free system using porous lava stone to capture the microorganisms before they reach the membranes. . . . Israel now gets 55 percent of its domestic water from desalination.[38]

Israel’s Mediterranean coast is now home to five desalination plants, producing “roughly 550 million cubic meters per year” of potable water.[39] By 2025, “the Israel Water Authority plan[s] to establish another [plant] in Western Galilee and another four large facilities along the coast.”[40]

Today, as the nation faces its fifth consecutive drought year, Israel is no longer in a state of water surplus and has resumed water rationing.[41] This demonstrates the continued incentive Israel has for participating in the water conveyance project apart from concerns for the Dead Sea.

  1. Palestinian Authority: West Bank & Gaza Strip

The 1995 Oslo II Accords, an interim resolution meant to be revised within five years, granted Palestinian Authority jurisdiction over 40% of the West Bank, with Israel retaining control over Area C.[42] To “deal with all water and sewage related issues in the West Bank,” Oslo II established a Joint Water Committee (JWC).[43]

Oslo II also established the amount of water Israel is required to “make available to the Palestinians during the interim period a total quantity of 28.6 mcm/year,” based on a joint estimate of the “future needs of the Palestinians in the West Bank [as] between 70–80 mcm/year.”[44] B’Tselem, the Israeli Information Center for Human Rights in the Occupied Territories, reported in 2016 that because the “Palestinian population of the West Bank has nearly doubled . . . the Palestinian Authority (PA) is forced to purchase from Mekorot [the Israeli state-owned water distribution company] an amount two and [a] half times greater than [those] set out in the accords.”[45]

The World Health Organization recommends a minimum water consumption of one hundred liters per capita per day.[46] In 2014, the Palestinian Water Authority reported an average Palestinian water consumption of seventy-nine liters per capita per day.[47] B’Tselem reported that while this figure is reflective of Palestinians who are hooked up to the water grid, the figure for Palestinians who are not is much lower, an estimated twenty to fifty liters per capita per day.[48]

A significant component to the Palestinian Authority’s water scarcity is the extensive damage to the Gaza Strip’s water and wastewater infrastructure during the Second Intifada from 2000–2005.[49] In order to restore access to water and wastewater services to the area, the World Bank engaged in the Gaza Emergency Water Project, which closed in January 2012.[50] This project completed:

Drilling of more than 50 water production wells with small pumping capacity (new wells or replacement of existing polluted wells); Supply of chemicals and dosing pumps and chlorination of 99.7 percent of water supply; Replacement of more than 30,000 meters of old service connections and old asbestos main pipes, and installation of 15,000 domestic meters and 20 public meters; Monitoring program established for wastewater plants; [and] Emergency response plan established following the rupture of the temporary effluent basin at Beit Lahia wastewater treatment plant.[51]

Historically, the water source for the Gaza Strip has been an underlying coastal aquifer.[52] Complicating matters further, in 2012, the United Nations Country Team reported that, due to declining groundwater levels and resultant seawater infiltrates, the aquifer could become unusable as early as 2016, with the damage irreversible by 2020.[53]

Due to the Gaza Strip’s location on the Mediterranean coast, combined with the newly reduced cost of desalination, other sources of water have become possible. In January 2017, with contributions by UNICEF and the European Union, Gaza opened a significant seawater desalination plant in Deir al Balah.[54] This plant initially produced 6,000 cubic meters of desalinated water per day (or 2.19 million cubic meters per year), and has a projected target of approximately 20,000 cubic meters per day by 2020 (or 7.3 million cubic meters per year).[55]

The 1995 water allocation agreement in Oslo II was updated in July 2017 in the bilateral water agreement between Israel and the Palestinian Authority.[56] This agreement increased the amount Israel agreed to allocate to the Palestinian Authority from 28.6 million cubic meters per year to 32 million cubic meters of water per year.[57]

B. Lateral Water Agreements

While the possibility of an inter-basin transfer from the Red Sea to the Dead Sea has been studied in many forms since the mid-1800s, the significant Dead Sea water level decline in the last fifty years and wide-spread potable water scarcity led to an agreement in the 1994 Jordan–Israel Peace Treaty (joined by the Palestinian Authority) to consider a water conveyance to “save” the Dead Sea.[58] This treaty built on the water-sharing agreements in the Oslo I Accord in 1993[59] and was reinforced by Oslo II Accord.[60] In the 1994 treaty, the water conveyance was described as “The Two Seas Canal or the Peace Conduit.” [61] From the beginning, it was not only meant to provide 850 million cubic meters of potable water to Jordan, Israel, and Palestine,[62] but was also intended to be “a symbol of peace and cooperation in the Middle East.”[63]

In 2005, the Palestinian Authority, Israel, and Jordan (“the Beneficiary Parties”) signed a joint letter requesting that the World Bank “coordinate donor financing and manage the implementation of the Study Program.”[64] From the beginning, there was a “general consensus on the need to restore the Dead Sea, but opinions on how to achieve this objective var[ied].”[65] The resultant “Red Sea–Dead Sea Water Conveyance Study Program” was therefore multi-faceted, consisting of five main studies: a Feasibility Study, an Environmental and Social Assessment, a Study of Alternatives “examin[ing] other options available to the Beneficiary Parties to address the degradation of the Dead Sea and the production of additional potable water by means other than the identified water conveyance option,” a Red Sea Modelling Study, and a Dead Sea Modeling Study.[66]

As the various studies progressed, the Beneficiary Parties and the World Bank made a series of bilateral and trilateral agreements in negotiations to continue the project. First, in 2011, two Palestinian civil society organizations, Stop the Wall Campaign and the Palestinian Farmers Union, as well as the Global Initiative for Economic, Social and Cultural Rights, representing residents of the West Bank, filed a Request for Inspection of the Study Program.[67] This Request stated that West Bank residents “rely on ground water resources that are put at risk by the decline of the Dead Sea and which do not appear to be effectively addressed by the . . . Program,” and identified flaws in the Study Program Terms of Reference which “would result in inadequate and incomplete Environmental Social Assessments.”[68] Then, in 2013, all three Beneficiary Parties signed a “milestone regional cooperation agreement,” in the form of a Memorandum of Understanding, outlining “three major regional water sharing initiatives” to be pursued by the parties.[69] At this stage, the initiatives included:

the development of a desalination plant in Aqaba at the head of the Red Sea, where the water produced will be shared between Israel and Jordan; increased releases of water by Israel from Lake Tiberias for use in Jordan; and the sale of about 20–30 million m3/year of desalinated water from Mekorot (the Israeli water utility) to the Palestinian Water Authority for use in the West Bank. In addition, a pipeline from the desalination plant at Aqaba would convey brine to the Dead Sea to study the effects of mixing the brine with Dead Sea water.[70]

In 2015, Israel and Jordan signed a bilateral water cooperation agreement to further the project. Pursuant to this agreement, the two parties agreed to “share the potable water produced by a future desalination plant in Aqaba, from which salty brines will be piped to the Dead Sea. In return for its portion . . . Israel will be doubling its sales of Lake Kinneret (Sea of Galilee) water to Jordan.”[71] As the proposed pipeline would “lie[] entirely in Jordanian territory,”[72] in 2016, Jordan and the World Bank entered into a “Country Partnership Framework” to fund the pipeline.[73]

In 2017, Israel and the Palestinian Authority signed a bilateral agreement allocating thirty-two million cubic meters of water to the Palestinian Authority to be split, twenty-two million cubic meters to the West Bank, and ten million cubic meters to the Gaza Strip.[74] Recall that the 2013 trilateral Memorandum of Understanding included an agreement for Israel to sell “about 20–30 million m3/year of desalinated water . . . to the Palestinian Water Authority for use in the West Bank.”[75]

Today, the future of the water project is uncertain.[76] Just as the Dead Sea is “the water seismograph of the region,”[77] the water conveyance project is the region’s political seismograph.

III. The Water Conveyance

The proposed water conveyance seeks to address the environmental degradation of the Dead Sea and the lack of affordable energy and drinking water in the Jordan Rift Valley, while increasing political goodwill and cooperation between the parties. As a “three birds with one stone” approach, “[o]n paper, Red–Dead looks as elegant as it is ambitious—a simple solution for a huge environmental crisis that includes jobs, infrastructure, and profits.”[78] It is planned that with one conveyance, all three issues would be addressed:

A hydroelectric plant would be built, generating energy; desalination plants would pump out drinking water; and the reject brine, the by-product of the desalination process, would replenish the Dead Sea like a hose filling a swimming pool. The Israelis and Jordanians would share responsibility for building, maintaining, and operating the system. Thus, water, a historic cause of anxiety, contention, and even war in the region, becomes a conduit for economic and social cooperation.[79]

Taking into account the technological, political, and financial complexity of the water conveyance, the Study Program examined the numerous impacts and effectiveness of the proposal over many years.

The objective of the Red Sea–Dead Sea Water Conveyance Project Study Program was to “investigate the feasibility of the concept as a solution to the decline of the Dead Sea water level” and was originally intended to be completed by 2010.[80] In order to get the full picture, the environmental impacts—both earthly and social—were studied.[81] A study of alternatives was also made, informed by a chemical industry analysis study.[82] Once these were completed, the Feasibility Study was finalized and published.

The Feasibility Study, completed in 2014, evaluated “six potential project configurations . . . based on three alternative conveyance systems.”[83] It considered estimated capital costs, whole lifecycle net present costs, environmental impacts during construction and operation, and the effect on the microbiome of mixing Red Sea and Dead Sea waters.[84] Based on a “weighted multi-criteria assessment process,” the Feasibility Study concluded that a “pipeline conveyance combined with a high level desalination plant is the recommended optimum solution.”[85] In reaching this conclusion, the Study Program explored multiple limitations and potential adverse effects of the conveyance plan, and in so doing introduced a number of safeguards and mitigation factors to address the myriad needs of the three Beneficiary Parties.[86]

There is one factor not addressed in the 2014 Study Program findings: the impact of large-scale use of desalination plants—something only beginning to be studied in Israel, where desalinated water has recently become the majority source of potable water.  While the quality of the water produced in desalination is high, it is also “devoid of some key minerals found in normal water, like magnesium,” as the mineral is removed in the reverse-osmosis process alongside other salts.[87]  Use of desalinated water in agriculture has therefore been shown to require an increased need for fertilizer. In addition, long-term consumption of desalinated water has also been linked to “an elevated mortality risk of myocardial infarction”—i.e., heart attacks.  It is theorized that this can be alleviated by the addition of magnesium to the treated water, which must be considered when implementing wide-spread use.

V. Conclusion

Having adequately addressed the multi-faceted concerns of all three Beneficiary Parties, by all accounts the Red Sea–Dead Sea Water Conveyance Project will break ground in the coming year.[88] In the two decades since the 1994 Jordan-Israel Peace Treaty and the 1993 and 1995 Oslo Accords, the political dynamics between the Dead Sea’s three bordering entities has remained complex, if not outright violent.[89] And yet, the inevitability of the Dead Sea’s decline, the inevitability of climate change, and the continued water scarcity in the entire Jordan River Basin has inexorably tied these parties together just as strongly as any treaty.

If the water conveyance project can be the region’s political seismograph, perhaps peace in the Middle East is closer than we think.

 

* Sarah L. Fine is a J.D. candidate at Lewis & Clark Law School and an Online Journal Editor of Environmental Law.

[1] The surface area of the Dead Sea has shrunk by at least one-third since 1960; the water level falls at “an alarming pace of 0.8 to 1.2 meters per year.” World Bank Grp., Red Sea – Dead Sea Water Conveyance Study Program: Overview – Updated January 2013, at 1 (2013), http://siteresources.worldbank.org/EXTREDSEADEADSEA/Resources/Overview_RDS_Jan_2013.pdf?resourceurlname=Overview_RDS_Jan_2013.pdf%26.

[2] Stephen C. McCaffrey, The Shrinking Dead Sea and the Red–Dead Canal: A Sisyphean Tale?, 19 Pac. McGeorge Global Bus. & Dev. L.J. 259, 260 (2006).

[3] Envtl. Res. Mgmt. et al., Red Sea-Dead Sea Water Conveyance Study Environmental and Social Assessment: Preliminary Scoping Report 13, 16 (2008).

[4] Coyne et Bellier et al., Red Sea – Dead Sea Water Conveyance Study Program Feasibility Study: Final Feasibility Study Report Summary 1 (2014).

[5] Id.

[6] The Dead Sea is “roughly bisected from the north to the south by the border between Jordan on the eastern side, and Palestine (the West Bank) and Israel on the western side, placing it in the middle of some of the most hotly-contested land on earth.” See McCaffrey, supra note 2, at 259, 260 n.4. Likely as a result, many of the document and agreements which comprise the Red Sea­–Dead Sea Water Conveyance are confidential.

[7] See World Bank Grp., supra note 1, at 2.

[8] Regarding microfauna: “In 2009, a marine biologist from Germany’s Max Planck Institute for Marine Microbiology discovered new species of green sulfur bacteria, cyanobacteria, and diatoms [in the Dead Sea]. Found within sediments nourished by underwater springs, these microorganisms have metabolisms allowing them to adapt to extreme changes in salinity.” Todd Pitock, Could Water from the Red Sea Help Revive the Dead Sea?, Nat. Resources Def. Council (Jan. 23, 2017), https://www.nrdc.org/onearth/could-water-red-sea-help-revive-dead-sea. Regarding macrofauna:

Located off the Dead Sea’s northwestern shore, the nature reserve is the world’s lowest in altitude, and its wetlands are the only place on the planet where rare blue and Dead Sea killifish coexist. The landscape’s altered hydrology is putting them at risk as well as causing the springs on the Dead Sea floor to migrate eastward.

Id.

[9] Michael Beyth, Water Crisis in Israel, in Water: Histories, Cultures, Ecologies 171, 174 (Marnie Leybourne & Andrea Gaynor eds., 2006).

[10] See World Bank Grp., supra note 1, at 1.

[11] World Bank Grp., Red Sea – Dead Sea Water Conveyance Study Program: Background Note – October 2010, at 1 (2010), http://siteresources.worldbank.org/INTREDSEADEADSEA/Resources/Background_Note_October_2010.pdf; see Envlt. Res. Mgmt. et al., supra note 3, at 4.

[12] Pitock, supra note 8.

[13] Natan Odenheimer, Israel – A Regional Water Superpower, Jerusalem Post (May 13, 2017), http://www.jpost.com/printarticle.aspx?id=484996.

[14] Stephen C. McCaffrey, Water Scarcity and Security Issues in the Middle East, 108 Am. Soc’y Int’l L. Proc. 297, 299.

[15] John Anthony Allan et al., Study of Alternatives: Final Report, Executive Summary and Main Report (2014).

[16] Id.

[17] Id. at 35.

[18] MercyCorps, Tapped Out: Water Scarcity and the Refugee Pressures in Jordan 12 (2014).

[19] Id. at 4–5.

[20] Id. at 14.

[21] Id.

[22] Id.

[23] Jordan’s Water Wise Women, Al Jazeera (May 17, 2017), http://www.aljazeera.com/programmes/earthrise/2017/05/jordan-water-wise-women-170516110004513.html.

[24] Odette Chalaby, Jordan Is Solving Its Water Crisis by Training Women as Plumbers, Apolitical (Nov. 3, 2017), https://apolitical.co/solution_article/jordan-solving-water-crisis-training-women-plumbers/.

[25] Id.

[26] Id.

[27] Jordan’s First Water Desalination Plant Opens in Aqaba, Jordan Times (Mar. 18, 2017), http://www.jordantimes.com/news/local/jordan%E2%80%99s-first-water-desalination-plant-opens-aqaba.

[28] Diplomatic Drought: Jordan’s Water Crisis Is Made Worse by a Feud with Israel, Economist (Dec. 2, 2017), https://www.economist.com/news/middle-east-and-africa/21731844-thirsty-kingdom-can-ill-afford-fall-out-its-neighbour-jordans-water.

[29] Ministry Launches Water Conservation Awareness Game, Jordan Times (Feb. 19, 2018), http://www.jordantimes.com/news/local/ministry-launches-water-conservation-awareness-game.

[30] Id.

[31] “Israel’s largest source of freshwater, the Sea of Galilee, had dropped to within inches of the ‘black line’ at which irreversible salt infiltration would flood the lake and ruin it forever.” Rowan Jacobsen, How a New Source of Water Is Helping Reduce Conflict in the Middle East, Ensia (July 19, 2016), https://ensia.com/features/water-desalination-middle-east/.

[32] Id.; Julia Pyper, Israel Is Creating a Water Surplus Using Desalination, E&E News: Climatewire (Feb. 7, 2014), https://www.eenews.net/stories/1059994202.

[33] See Odenheimer, supra note 13.

[34] See Jacobsen, supra note 31.

[35] Id.

[36] Id.

[37] Id.

[38] Id.

[39] Brett Walton, Israel’s Mediterranean Desalination Plants Shift Regional Water Balance, Circle Blue (July 25, 2016), http://www.circleofblue.org/2016/middle-east/israels-mediterranean-desalination-plants-shift-regional-water-balance/.

[40] Zafrir Rinat, Desalination Problems Begin to Rise to the Surface in Israel, Haaretz (Feb. 6, 2017), https://www.haaretz.com/israel-news/.premium-desalination-problems-begin-to-rise-to-the-surface-in-israel-1.5494726.

[41] Hagai Amit, Dry, Dry Again: After Several Wet Years, the Big Drought Is Back Again in Israel, Haaretz (Jan. 19, 2018), https://www.haaretz.com/israel-news/.premium-after-several-wet-years-the-big-drought-is-back-in-israel-1.5746445.

[42] World Bank, West Bank and Gaza: Assessment of Restrictions on Palestinian Water Sector Development 5–6 (2009).

[43] Id. at 5. In their 2009 report, the World Bank criticized the JWC as an “[in]effective mechanism for facilitating sector investment.” Id. at 47 & n.77.

[44] Israeli-Palestinian Interim Agreement on the West Bank and the Gaza Strip, Isr.-Palestine, Sept. 28, 1995, U.N. Doc. A/51/889.

[45] Summer 2016 – Israel Cut Back on the Already Inadequate Water Supply to Palestinians, B’TSELEM (Sept. 27, 2016), https://www.btselem.org/video/201609_water_salem#full.

[46] Id.

[47] Id.

[48] Id.

[49] Gaza Emergency Water Project, World Bank (Apr. 29, 2013), http://www.worldbank.org/en/results/2013/04/29/gaza-emergency-water-project.

[50] Id.

[51] Id.

[52] United Nations Country Team, Gaza in 2020: A Liveable Place? 11 (2012).

[53] Id.

[54] Largest Seawater Desalination Plant Opened in Gaza, U.N. Off. Coordination Humanitarian Aff. (Mar. 11, 2017), https://www.ochaopt.org/content/largest-seawater-desalination-plant-opened-gaza.

[55] Id.

[56] Press Release, White House, Donald J. Trump Administration Welcomes Israeli-Palestinian Deal to Implement the Red–Dead Water Agreement (July 1, 2017), https://www.whitehouse.gov/briefings-statements/donald-j-trump-administration-welcomes-israeli-palestinian-deal-implement-red-dead-water-agreement/.

[57] Id.; see also Israeli-Palestinian Interim Agreement on the West Bank and the Gaza Strip, supra note 44.

[58] See World Bank Grp., supra note 11, at 1–2.

[59] Declaration of Principles on Interim Self-Government Arrangements, Isr.-Palestine, Sept. 13, 1993, U.N. Doc. A/48/486.

[60] See Israeli-Palestinian Interim Agreement on the West Bank and the Gaza Strip, supra note 44, at Annex III art. 40.

[61] Saad Merayyan & Salwa Mrayyan, Jordan’s Water Resources: Increased Demand with Unreliable Supply, 3 Computational Water Energy & Envtl. Engineering 48, 49 (2014).

[62] Id.

[63] World Bank Grp., Red Sea – Dead Sea Water Conveyance Concept Feasibility Study and Environmental and Social Assessment: Information Note – July 2007, at 3 (2007), http://siteresources.worldbank.org/MENAEXT/Resources/RDS_Background_Note_V050707.pdf?resourceurlname=RDS_Background_Note_V050707.pdf.

[64] Id. at 5.

[65] World Bank Grp., supra note 63, at 2.

[66] World Bank Grp., Red Sea-Dead Sea Water Conveyance Study Program: Questions and Answer Sheet 1 (2011), http://siteresources.worldbank.org/INTREDSEADEADSEA/Resources/RDSQ&A13Dec2011_final.pdf.

[67] Memorandum from Roberto Lenton, Chairperson, Inspection Panel, World Bank, to President of the International Bank for Reconstruction and Development and the International Development Association (Oct. 20, 2011), http://documents.worldbank.org/curated/en/510341468184139751/pdf/651110IPNR0Box000INSP0SECM201100008.pdf.

[68] Id.

[69] Press Release, World Bank, Senior Israeli, Jordanian and Palestinian Representatives Sign Milestone Water Sharing Agreement (Dec. 9, 2013), http://www.worldbank.org/en/news/press-release/2013/12/09/senior-israel-jordanian-palestinian-representatives-water-sharing-agreement.

[70] Id.

[71] Sharon Udasin, Israeli, Jordanian Officials Signing Historic Agreement on Water Trade, Jerusalem Post (Feb. 26, 2015), http://www.jpost.com/Israel-News/New-Tech/Israeli-Jordanian-officials-signing-historic-agreement-on-water-trade-392312.

[72] See World Bank Grp., supra note 11, at 2.

[73] See generally Int’l Bank for Reconstruction & Dev. et al., Country Partnership Framework for Hashemite Kingdom of Jordan for the Period FY17–FY22 (2016).

[74] See Press Release, White House, supra note 56; Dalia Hatuqa, Water Deal Tightens Israel’s Control Over Palestinians, Al Jazeera (Aug. 1, 2017), http://www.aljazeera.com/indepth/features/2017/07/water-deal-tightens-israel-control-palestinians-170730144424989.html.

[75] See Press Release, World Bank, supra note 69 (emphasis added).

[76] In November of 2017, Israeli media reported that Israel was refusing to further participate in the project until it was allowed to reopen its embassy in Amman. In February of 2018, Israeli and Jordanian media reported that “Jordan is committed to implementing the . . . Project despite repeated Israeli signals that it was withdrawing from the regional scheme.” Hana Namrouqa, Jordan to Go Ahead with Red-Dead Water Project Despite Israel Withdrawal, Jerusalem Post (Feb. 12, 2018), http://www.jpost.com/Arab-Israeli-Conflict/Jordan-to-go-ahead-with-Red-Sea-Dead-Sea-project-542417. In late January, after six months of shut down and diplomatic dispute, the Israeli embassy began the process of gradually reopening; in early February, a Jordan government official reported they had not yet been notified of the naming of a new ambassador. Mohammad Ghazal, Jordan Says ‘Not Officially Notified’ of New Israeli Ambassador, Jordan Times (Feb. 8, 2018), http://www.jordantimes.com/news/local/jordan-says-not-officially-notified%E2%80%99-new-israeli-ambassador.

[77] See Beyth, supra note 9.

[78] See Pitock, supra note 8.

[79] Id.

[80] See World Bank Grp., supra note 63, at 4.

[81] See generally Envtl. Res. Mgmt. et al., Red Sea-Dead Sea Water Conveyance Study Environmental and Social Assessment: Final Environmental and Social Assessment (ESA) Report – Executive Summary (2014); Tahal Grp. & Geological Survey of Isr. & Assocs., Dead Sea Study: Final Report (2011); Thetis SpA et al., Red Sea Study: Draft Final Report (2013).

[82] See generally Vladimir Zbranek, Chemical Industry Analysis Study: Final Report (2013); Allan et al., supra, note 15.

[83] See Coyne et Bellier et al., supra note 4, at 82.

[84] Id. at 82–83.

[85] Id. at 83.

[86] See Envtl. Res. Mgmt. et al., supra note 81, at 4, 9, 34.

[87] Rinat, supra note 40.

[88] See supra note 76 and accompanying text.

[89] See supra note 49 and accompanying text.

This post is part of the Environmental Law Review Syndicate, a multi-school online forum run by student editors from the nation’s leading environmental law reviews.

__________________________________________

By Brianna E. Tibett[i]

INTRODUCTION.. 1

I. HISTORY AND DEVELOPMENT OF CERCLA’S PRIVATE CAUSES OF ACTION.. 4

  1. CERCLA’s Enactment. 4
  2. SARA’s Contribution Action and Contribution Protection. 6
  3. The Supreme Court’s Cooper Industries Decision. 7
  4. Supreme Court’s Atlantic Research Decision. 8                                                                             

II. ISSUES LEFT UNRESOLVED BY THE SUPREME COURT. 11

III. THE MUTUALLY EXCLUSIVE APPROACH ADOPTED BY THE U.S. COURTS OF APPEALS  13

  1. Availability of §§ 113(f)(1) and 113(f)(3)(B) Contribution Actions Under the Mutually Exclusive Approach 14
  2. Availability of Cost Recovery Pursuant § 107(a)(4)(B) Under the Mutually Exclusive Approach 18
  3. The Benefits of the Mutually Exclusive Approach. 21

CONCLUSION.. 22

INTRODUCTION

The purpose of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) is to facilitate the “timely cleanup of hazardous waste sites and to ensure that the [cleanup costs are] borne by those responsible for the contamination.”[ii] The proper application of CERCLA’s two private causes of action are necessary to achieve these goals. When applied properly they encourage private parties to voluntarily cleanup hazardous waste sites, effectively spread the cost of cleanup to the responsible parties, and encourage settlement.

For example, when a private potentially responsible party (PRP) voluntarily cleans up a site before any action regarding the site is commenced the PRP eliminates their exposure to uncertain liability, and avails itself of the “arguably preferred recovery vehicle for a PRP,” the cost recovery action. The private cost recovery action, under § 107(a)(4)(B), allows private parties to seek to recover the costs they incurred in voluntarily cleaning up a contaminated site from PRPs (regardless of their contribution to the site’s contamination).[iii] The PRP subject to the § 107(a)(4)(B) cost recovery action, can counterclaim in or bring against multiple other PRPs a § 113(f)(1) contribution action, requiring the equitable apportionment of the response costs.[iv] The remedy and the shorter statute of limitations afforded by contribution actions incentivizes PRPs to immediately locate other PRPs and initiate lawsuits sooner.[v]

The Supreme Court’s framework for the application of these private causes of action created in Atlantic Research[vi] jeopardizes CERCLA’s mechanisms that encourage PRPs to settle with the EPA. The Court’s framework identifies the cause of action that applies exclusively in some circumstances but not all. Specifically, the framework leaves open the availability of both causes of actions in situations in which costs are directly incurred as a result of forced cleanup. Uncertainty around the cause of action that a court will allow in circumstances of compelled cleanup may cause PRPs to stray away from settling with the Environmental Protection Agency (EPA), and thus make it more difficult for the EPA to negotiate cleanup and reimbursement settlements.[vii] Or it could incentivize PRPs to attempt to pass their tab on to another PRP by settling [to cleanup] and then bringing a cost recovery action to recover those cleanup costs. Which if permitted would leave the defendant unable to counter-sue for contribution, because of the plaintiff-PRP’s contribution bar, defeating CERCLA’s goal to have the responsible parties pay for cleanup.[viii]

The United States’ Courts of Appeals, have advanced a mutually exclusive framework that fully clarifies the applicability of and the interplay between the private causes of actions. This Article supports the mutually exclusive approach. First, the Article provides a brief overview of the history and development of the private causes of actions. Second, the Article highlights the issues regarding the applicability of the private causes of actions left unresolved by the Court. Third, the Article demonstrates how the mutually exclusive framework, established by the U.S. courts of appeals, seamlessly resolves those issues and facilitates the advancement of CERCLA’s goals.

I. HISTORY AND DEVELOPMENT OF CERCLA’S PRIVATE CAUSES OF ACTION

A. CERCLA’s Enactment

Congress’s prime motivation for passing CERCLA was to provide the EPA with the ability to promptly respond to the country’s hazardous waste sites and to place the cost of the response on the responsible parties, the “polluters.”[ix] To that end, Congress furnished the EPA with the means to undertake cleanup itself,[x] sue PRPs for reimbursement,[xi] and the authority to compel PRPs to clean up contaminated sites.[xii] However, Congress recognized that the EPA would not be equipped on its own to address 30,000 to 50,000 improperly managed hazardous waste sites.[xiii] CERCLA would also have to induce private parties to perform cleanup.[xiv] Accordingly, Congress included § 107(a)(4)(B), to enable private parties to recover their costs of cleanup from PRPs.[xv]

Because of CERCLA’s liability scheme, the remedies available to PRPs were in dispute.[xvi] Under § 107(a)(4)(A) the courts have interpreted CERCLA’s liability to apply retroactively, strictly, jointly, and severally.[xvii] Additionally, CERCLA liability extends beyond polluters to also include those who would benefit from cleaned sites, such as current owners and operators.[xviii] Thus, a current owner of contaminated property who did not contribute to the release of hazardous waste, or a past owner who only contributed a small part of the waste, may be a PRP.[xix] PRPs may find themselves subject to a cost recovery action, and if so, ultimately liable for the entire cost of cleanup.

To mitigate these harsh results, some courts held either that § 107(a)(4)(B) or federal common law provided litigants subject to a § 107 cost recovery claim an implied right to contribution.[xx] This allowed PRPs to either counterclaim for contribution or sue other PRPs for contribution.[xxi] A successful contribution action permits the equitable apportionment of costs among PRPs,[xxii] ameliorating the harsh effects of joint and several liability. As a result, more PRPs were required to pay their proportionate share of the cleanup instead of leaving a single PRP liable. Despite these efforts, extensive litigation continued, necessitating a CERCLA amendment.[xxiii]

B. SARA’s Contribution Action and Contribution Protection

Congress passed the Superfund Amendments and Reauthorization Act (SARA) in 1986 to address: (1) the EPA’s inability to timely recover response costs; (2) the threat that the courts would erode joint and several liability into a “fair share” allocation; and (3) the effectiveness of contribution actions in spreading the cost of cleanup to responsible parties.[xxiv] SARA created an express cause of action for contribution and incorporated statutes of limitations.[xxv] The right to contribution, codified in § 113(f)(1),[xxvi] allows a PRP, “during or following” a § 106 (compelled clean-up) or § 107 civil action, to seek contribution payments from another PRP that has not resolved its liability.[xxvii] The “settlement bar” created by SARA in § 113(f)(2), provides parties who have reached an “administrative or judicially approved settlement” with “contribution protection”—immunity from contribution claims that concern matters within the agreement.[xxviii]

The new provisions, although preserving contribution, did not fully resolve existing issues and indeed generated new ones. For example, SARA did not answer whether an implied right to contribution still remains when contribution pursuant to § 113(f) is unavailable—i.e., whether PRPs may pursue contribution only through § 113(f).[xxix] Many United States Courts of Appeals, while attempting to navigate § 107(a) and § 113(f) claims, have held that a claim for contribution under § 113(f) was the exclusive remedy for PRPs.[xxx] By preventing PRPs from pursuing an action under § 107(a), § 113(f) served as PRPs’ sole avenue to seek contribution.[xxxi] Still, some courts expanded § 113(f)’s provisions to allow recovery actions even in the absence of a suit under § 106 or § 107.[xxxii]

C. The Supreme Court’s Cooper Industries Decision

In Cooper Industries, Inc. v. Aviall Services, Inc. the Court addressed the expanded application of § 113(f)(1) and ultimately limited its availability to PRPs “during or following” a § 106 or § 107 civil action.[xxxiii] The Court held that current property owners who voluntarily cleaned up the contaminated site could not maintain a contribution action under § 113(f)(1) because the claim did not arise out of a § 106 or § 107 civil action.[xxxiv] First, the Court held that “may” in § 113(f)(1) should not be read as permissive; it should be read to only authorize § 113(f)(1) contribution claims “during or following” § 106 or § 107 civil actions.[xxxv] The Court stated that reading “may” to allow a PRP to bring a “contribution action at any time, regardless of the existence of a . . . civil action,” would render the language “during or following” superfluous, along with § 113(f)(3)(B), which permits contribution actions after settlement.[xxxvi] Second, the Court found that § 113(f)(1)’s saving clause, does not change its reading.[xxxvii] The Court specified that the saving clause functions only to prevent the loss of “any cause(s) of action for contribution that may exist independently of § 113(f)(1).”[xxxviii] Therefore, it does not expand the scope of § 113(f)(1) or create a cause of action, it only “rebuts any presumption that the express right of contribution provided by . . . [§ 113(f)(1)] is the exclusive cause of action for contribution available to a PRP.”[xxxix]

Following this application of § 113(f)(1), several Courts of Appeals reconsidered whether PRPs have any right of action under § 107(a)(4)(B).[xl] After revisiting this issue, some courts permitted private cost recovery actions under § 107(a)(4)(B).[xli] However, the Third Circuit continued to hold § 113(f) as the exclusive cause of action available for PRPs.[xlii] Accordingly, the Third Circuit in E.I. DuPont De Nemours and Co. v. U.S. held that there was no cause of action for PRPs who engaged in “sua sponte voluntary cleanups,”[xliii] effectively disincentivizing voluntary cleanup.

D. Supreme Court’s Atlantic Research Decision

The Court again revisited the scope of CERCLA’s private causes of action. In United States v. Atlantic Research Corp., the Court: (1) held that PRPs have a right to cost recovery under § 107(a)(4)(B);[xliv] (2) clarified that §§ 107(a) and 113(f) provide distinct remedies; and (3) provided a framework for the application of §§ 107(a)(4)(B) and 113(f)(1) actions.[xlv] The Court made the inference that Congress sculpted § 113(f)(1) based on the traditional sense of contribution, which is contingent “upon an inequitable distribution of common liability among liable parties.”[xlvi] However, because the statute authorizes PRPs to seek contribution “during or following” a civil action, liability does not need to be established before bringing a contribution action under § 113(f)(1).[xlvii]

The Court held that PRPs may utilize a cost recovery action, pursuant to § 107(a)(4)(B), only to recover costs the PRP “‘incurred’ in cleaning up a site.”[xlviii] For instance, when a PRP reimburses another party, the PRP has not incurred its own cleanup costs and thus cannot recover them under § 107(a)(4)(B).[xlix] Additionally, the Court held that § 107(a)(4)(B) is the sole cause of action to recover costs incurred during voluntary cleanup.[l] With these distinctions made, the Court states that the remedies available in §§ 107(a) and 113(f) “provid[e] causes of action ‘to persons in different procedural circumstances,’” and as a result they do not cause conflict, or provide an opportunity for a PRP to choose its remedy.[li]

To summarize, § 113(f) authorizes a right to contribution “to PRPs with common liability stemming from an action instituted under § 106 or § 107(a).”[lii] Respectively, after a PRP pays money pursuant to a settlement agreement or a court judgment, in which they are reimbursing those parties they may, and may only, pursue § 113(f) for contribution.[liii] On the contrary, “§ 107(a) permits cost recovery . . . by a private party that has itself incurred cleanup costs.”[liv] As a result, in cases of reimbursement, a PRP cannot circumvent § 113(f)(1)’s three-year statute of limitations by attempting to bring an action in cost recovery, which has a six-year limitation.[lv]

Lastly, the Court claims PRPs that utilize § 107(a) “will not eviscerate the settlement bar set forth in § 113(f)(2).”[lvi] The settlement bar provision “prohibits § 113(f) contribution claims against ‘[a] person who has resolved its liability to the United States or a State in an administrative or judicially approved settlement.’”[lvii] The Court explains that although the contribution bar “does not by its terms protect against cost-recovery liability,” the defendant can trigger equitable apportionment by filing a § 113(f) counterclaim.[lviii] In footnote 6, the Court states that in cases of reimbursement and voluntary cleanup, §§ 107(a)(4)(B) and 113(f) have no overlap, but there may be overlap when a PRP incurs expenses pursuant a consent decree.[lix] In cases of “compelled costs” a PRP does not incur costs voluntarily (which would have the effect of precluding a § 113(f)(1) contribution action) but also does not reimburse the costs of another party (which would have the effect of precluding § 107(a)(4)(B) cost recovery action).[lx] The Court did not address whether these compelled costs of response are recoverable under § 107(a) or § 113(f).

II. ISSUES LEFT UNRESOLVED BY THE SUPREME COURT

Although the framework provided by the Court’s Cooper Industries and Atlantic Research decisions reinstate PRP’s ability to utilize § 107(a)(4)(B) for cost recovery and § 113(f) for contribution, the decisions do not clarify the complete applicability and interplay of the private causes of action. The Court’s framework for CERCLA’s private actions is limited to the following: (1) PRPs who pay money to satisfy a settlement agreement or a court judgment—incur costs in the form of reimbursement—may only pursue § 113(f) contribution actions; and (2) PRPs who have incurred cleanup costs directly—not reimbursement costs—may only seek to recover those response costs from other PRPs pursuant to § 107(a)(4)(B). Thus, in those limited “procedural circumstances,” §§ 107(a)(4)(B) and 113(f) are mutually exclusive.[lxi]

This limited framework leaves unresolved the cause of action or actions available to private parties in other situations, specifically when PRPs incur costs directly.[lxii] The following issues, which were unresolved by the Court’s framework, have not only spurred considerable litigation, but have also caused apprehension to settling claims:

  1. Whether settling-PRPs may sue other PRPs for cost recovery pursuant 107(a)(4)(B) to recover cleanup costs that were incurred voluntarily, i.e., costs incurred independent of the administrative or judicially approved settlement.
  2. What causes of action do settling-PRPs that incur costs directly in order to comply with settlement obligations have when such settlement does not satisfy the requirements set forth in 113(f)(3)(B).
  3. What cause of action is available to PRPs who directly incur cleanup costs under an obligation in an “administrative or judicially approved settlement?” May they bring an action in cost recovery pursuant § 107(a)(4)(B) and as a result: (1) circumvent the contribution bar which prevents them from bringing an action in contribution against the other PRPs in their settlement agreement; and (2) render both non-settling PRPs and settling-PRPs unable to counterclaim in contribution because the plaintiff-PRP can utilize the contribution bar.
  4. Whether a PRP that settled with a state entity has a cause of action under CERCLA.
  5. Whether a private entity that finances a cleanup pursuant to a private agreement has a cause of action under CERCLA to recover costs.
  6. If the statute of limitations for a PRP’s contribution claim runs out—and a PRP can no longer pursue its right to contribution—may the PRP pursue cost recovery pursuant § 107(a)(4)(B) when it had incurred cleanup costs as a result of its obligations flowing from an “administrative or judicially approved settlement.”

Strictly adhering to the Court’s framework to resolve these issues would permit either a § 107(a)(4)(B) or § 113(f) action in all the above circumstances. Allowing settling-PRP’s to choose which cause of action they can utilize could cause any PRP, regardless their responsibility of contamination, to be stuck with the entire or a significant portion of the cleanup costs while other PRPs skirt liability.[lxiii] For example, under the Court’s framework, settling-PRPs could pursue cost recovery actions under § 107(a)(4)(B) for costs incurred directly from cleanup required in order to satisfy the “administrative or judicially approved settlement.” As a result, defendant PRPs subject to § 107(a)(4)(B) causes of action brought by a settling-PRP, can be subject to joint and several liability without the ability to counterclaim for contribution pursuant § 113(f)(1) because of the plaintiff-PRP’s contribution bar under § 113(f)(2). This application would not advance Congress’s intent of CERCLA being a “polluter pays” statute, where the responsible parties bear the financial responsibility of the cleanup. To the contrary, under this framework CERCLA functions more like a game of Uno.[lxiv]

III. THE MUTUALLY EXCLUSIVE APPROACH ADOPTED BY THE U.S. COURTS OF APPEALS

Litigation over the unresolved issues has ensued in the lower federal courts since the Court’s holding in Atlantic Research.[lxv] The United States’ Courts of Appeals that have heard the issues, collectively hold that the causes of actions available to private parties apply mutually exclusively.[lxvi] This framework provides a seamless application of the private causes of action in all circumstances, including those that were left unresolved by the Court.

When a private party incurs costs directly, the mutually exclusive approach resolves the issue of what proper cause of action the PRP is authorized to utilize. The lower courts agree that once it is determined that either a § 113(f)(1) or § 113(f)(3)(B) contribution action is available for the costs sought, the PRP must pursue an action for contribution, and is barred from pursuing a § 107(a)(4)(B) cost recovery action.[lxvii] If, however, contribution is not available to recover the costs sought, the private party may pursue a § 107(a)(4)(B) cost recovery action to recover its response costs.[lxviii] The mutual exclusive approach provides a framework for determining the causes of action for each of the unresolved issues mentioned above, while simultaneously advancing CERCLA’s goals.

A.   Availability of §§ 113(f)(1) and 113(f)(3)(B) Contribution Actions Under the Mutually Exclusive Approach

All contribution claims under § 113(f) are contingent upon “an inequitable distribution of common liability among” PRPs at the time the underlying claim is resolved.[lxix] Following the Court’s rulings in Cooper Industries and Atlantic Research, PRPs subject to a civil action under either § 106 or § 107 may only seek contribution. The unresolved issues following the Court decisions thus lie within the application of § 113(f)(3)(B).

Section 113(f)(3)(B) provides that contribution claims are available to entities who have resolved their “liability to the United States or a State for some or all of a response action or for some or all of the costs of such action in an administrative or judicially approved settlement[.]” Following the language of § 113(f)(3)(B), the agreements that trigger contribution claims must be “administrative or judicially approved settlement[s].”[lxx] A judicially approved settlement can take the form of a consent decree, which results from a court’s approval of a settlement that is “fair, reasonable, and consistent with CERCLA’s goals.”[lxxi] The “defining feature of an ‘administrative settlement’ is” the resolution of a “PRP’s liability to the United States . . . for some or all of a response action or for some or all of the costs of such action.”[lxxii]

For an administrative settlement to trigger the application of § 113(f)(3)(B), the federal government must have followed the procedures set forth in § 122(i).[lxxiii] Although § 112(i) procedural requirements apply only to the federal government, several courts have held that in light of due process concerns, CERCLA administrative settlements entered into with a state entity require hearings or public comments, as required for federal entities in § 112(i).[lxxiv] Thus, a state administrative settlement should provide non-settling parties with notice and an opportunity to be heard.[lxxv] If procedural safeguards similar to those set forth in § 122(i) are not followed, a settlement cannot constitute an “administrative settlement” that triggers § 113(f)(3)(B).[lxxvi] Those PRPs will neither have an action in contribution, nor will they be afforded contribution protection.[lxxvii]

Congress provided contribution protection to those parties entering into settlements to further incentivize settling, as well as to support the “polluters pay” philosophy.[lxxviii] Section 113(f)(2) bars contribution claims against entities that have resolved their liability to the United States or a state in an “administrative or judicially approved settlement” if the costs arise from matters addressed in the settlement.[lxxix] The party claiming contribution protection, whether defendant or plaintiff, must demonstrate that it is afforded such protection. Contribution protection will not be afforded to parties that cannot demonstrate the resolution of their CERCLA liability.[lxxx] In other words, PRPs must demonstrate that they have been subject to “an administrative or judicially approved settlement.”[lxxxi]

For example, the Pennsylvania Middle District Court held that the agreement between the Pennsylvania Department of Environmental Protection and United States did not constitute an administrative settlement because it was devoid of any procedures designed to safeguard due process concerns.[lxxxii] As a result, the court permitted the plaintiff to pursue a contribution claim against the federal government because the federal government was not afforded contribution protection[lxxxiii].

When adhering to the mutually exclusive approach, if the requirements to satisfy an “administrative or judicially approved settlement” are not met by the agreement that causes the PRP to incur cleanup costs directly, that party may pursue a cost recovery action to recover those costs, because it does not have an action for contribution. On the other hand, “a party who may bring a contribution action for certain expenses must use the contribution action, even if a cost recovery action would otherwise be available.”[lxxxiv]

Parties cannot circumvent the mutually exclusive approach by waiting for their contribution action to run so they can employ an action for cost recovery. When a party could have brought a § 113(f) contribution claim, but failed to do so in a timely manner (three years had passed since the party had the availability of an action under § 113(f)) the party cannot evade the statute of limitations and the allocation scheme of a § 113(f) contribution claim by bringing a § 107(a) cost recovery action.[lxxxv]

Moreover, the mutually exclusive approach permits a PRP that has incurred costs as a result of both a civil action or settlement agreement and voluntary cleanup at a single site to pursue both cost recovery and contribution actions without compromising CERCLA’s liability structure. Under the mutually exclusive approach, when any of the statutory triggers for a contribution claim occurs for certain expenses the party may only bring a § 113(f) contribution action for those expenses.[lxxxvi] But, the same party may also bring a § 107(a)(4)(B) action to recover expenses that fall outside of the contribution action.[lxxxvii] “[A] party’s right to contribution for some of its expenses at a site does not necessarily mean that the party loses its right to bring a cost recovery action for other expenses.”[lxxxviii] Thus, costs incurred from work performed outside the obligations of an “administrative or judicial settlement” are recoverable under § 107(a)(4)(B). 

B. Availability of Cost Recovery Pursuant § 107(a)(4)(B) Under the Mutually Exclusive Approach

Following the Court decision in Atlantic Research, private parties may bring a cost recovery action against other PRPs to recover costs directly incurred from engaging in cleanup pursuant to § 107(a)(4)(B).[lxxxix] This distinction does not resolve the issue of what cause of action is applicable when PRPs are obligated to incur cleanup costs pursuant to a civil action, an “administrative or judicially approved agreement,” or a private agreement. In all of these circumstances, a PRP does not reimburse another entity, but rather incurs costs directly.

The Third Circuit Court in Agere Systems applied the mutually exclusive approach to determine which, if any, private cause of action is available to a private entity that is obligated under a private settlement agreement to fund a response action. The Third Circuit held that in such circumstances the private party may recover their costs with a § 107(a)(4)(B) cost recovery action.[xc] In Agere, the plaintiffs that had been subject to EPA § 107(a) civil actions were required to comply with consent decrees by doing work such as cleanup at the contaminated facilities.[xci] The two plaintiffs not subject to the consent decree (Agere and TI)[xcii] joined a private settlement agreement with the plaintiffs subject to the consent decree.[xciii] The private settlement agreement required Agere and TI to fund the other plaintiffs’ two consent decrees.[xciv] Agere and TI then brought a cost recovery action under § 107(a)(4)(B) against other PRPs.[xcv] The Third Circuit Court held that the Agere and TI were permitted to bring a cost recovery action pursuant § 107(a)(4)(B).[xcvi]

The Third Circuit explains that this holding is in-line with the Court’s decision in Atlantic Research. First, Agere and TI “incurred” costs in the ordinary sense since they were paying for ongoing work.[xcvii] Second, when the Court made the statement that payments made pursuant to a settlement agreement are not recoverable with a § 107(a)(4)(B) cost recovery claim, those parties had § 113(f) contribution claims for their settlement amounts.[xcviii] In contrast, the two Agere plaintiffs did not have such contribution claims, and as a result they would not have an avenue to recover those amounts under CERCLA if they were not permitted to utilize § 107(a)(4)(B).[xcix]

The Third Circuit goes on to explain that Congress could not have intended such an outcome because CERCLA’s goal is “to encourage private parties to assume the financial responsibility of cleanup by allowing them to seek recovery from others.”[c] CERCLA should not be read to discourage private entities’ participation in cleanup in situations where they have not yet been sued, but are aware that they may bear some responsibility for cleaning up hazardous waste.[ci] The Third Circuit correctly explained that private entities would be less likely to settle if it is uncertain whether they can seek to recover some of the amounts they will contribute.[cii] If they cannot recover costs for participating in cleanup, then they will wait for a party to file a civil action against them to ensure they can sue for contribution against other PRPs.[ciii]

Most courts have drawn this line, holding “that costs may be recovered under § 107(a)[(4)(B)] notwithstanding that they may have been ‘compelled’ under an administrative order or settlement with the government where that order or settlement does not give rise to contribution rights under § 113(f)(3)(B).”[civ] But if a PRP meets one of the requirements for suit under 113(f)(1) or (3)(B), it must proceed under that § 113 subsection.[cv]

C. The Benefits of the Mutually Exclusive Approach

This mutually exclusive framework advances CERCLA’s goals by bringing all of the responsible parties to the settlement table, therefore ensuring responsible parties pay their fair share of the cleanup.[cvi] This framework promotes the private causes of actions that Congress contemplated when it enacted SARA.[cvii] It does not allow a settling party to circumvent the contribution bar by bringing a § 107(a)(4)(B) action against another settling party for compelled costs pursuant to its settlement agreement. Moreover, the mutually exclusive framework does not allow a settling party to wait until its contribution claim is no longer ripe once the statute of limitations has run.

Although settling parties may be subject to § 107(a)(4)(B) cost recovery actions as a result of the mutually exclusive approach, settlements in most situations do not “‘resolve liability’ for response actions not yet completed or costs of responses not yet incurred.”[cviii] Thus, a cost recovery action that is permitted under the mutually exclusive approach against a PRP that has already settled or been subject to a civil action is for cleanup that the party did not yet resolve its liability for, and they may counterclaim for contribution under § 113(f)(1). Furthermore, settling PRPs may be subject to claims of contribution for settlements to which it was not a party. The idea is that by the end of response actions, each phase will have a settlement with possibly different PRPs. Through the exhaustion of contribution actions, each PRP will ultimately be responsible for their fair share, and thus fully reimbursing the entities cleaning up the contamination.

However, if instead of settling, a PRP decides to wait and see whether the United States, the State, or another entity brings an action against them, they risk the possibility of being subject to a recovery action for all costs incurred from a facility. As a result, they will bear the costs of: (1) the initial litigation; (2) the substantial judgment amount; and (3) the burden of seeking out other PRPs and bringing claims in contribution, until they are relieved of the inequitable dispersion of costs. This is the original intent of CERCLA.

CONCLUSION

CERCLA’s purpose is to facilitate the prompt cleanup of contaminated sites that pose a risk to health and welfare of the country. CERCLA’s success and integrity hinges on PRPs’ cooperation in voluntarily cleaning up sites, reimbursing the EPA for response costs, and sorting out amongst themselves the equitable allocation of the costs based on their responsibility. The mutually exclusive framework created by the United States’ Courts of Appeals encourages that cooperation. It maintains the liability structure that Congress contemplated when it adopted SARA, and ensures that the responsible parties at some point throughout a site’s cleanup will be allocated their share of the costs. In conclusion, circuits that have not yet heard these issues should adopt the mutually exclusive approach to maintain CERCLA through consistency and reliability.

[i] J.D. Candidate, 2018, Vermont Law School; Administrative Editor, Vermont Journal of Environmental Law.

[ii] Burlington N. & Santa Fe Ry. Co v. United States, 556 U.S. 599, 602.

[iii] 42 U.S.C. § 9607(a)(4)(B) (2012). Cost recovery is seen as the preferable cause of action because it has a longer statute of limitation and it provides the “opportunity for joint and several recovery.” Whittaker Corp. v. United States, 825 F.3d 1002, 1007 n.4 (9th Cir. 2016).

[iv] The contribution actions, under §§ 113(f)(1) and 113(f)(3)(B), allow parties to recover from other PRPs some of the costs they paid either pursuant to a CERCLA civil action or to “an administrative or judicially approved settlement” through equitable apportionment. 42 U.S.C. §§ 9613(f)(1), (3)(B).

[v] 42 U.S.C. § 9613(g)(3) (contribution actions are subject to a three year statute of limitations); Whittaker Corp. v. United States, 825 F.3d 1002, 1013 (9th Cir. 2016).

[vi] United States v. Atl. Research Corp., 551 U.S. 140, 140 – 41 (2007).

[vii] Martha L. Judy & Katherine N. Probst, Superfund at 30, 11 Vt. J. Envtl. L. 191, 244–46 (2009) (explaining that after Atlantic Research Corp., the contribution-protection provision—provided to private entities in settlement agreements with the United States or States and to parties that have been subject to enforcement actions—have been called into question because uncertain whether private party cost recovery claims may be able to circumvent the contribution bar, dis-incentivizing settlements).

[viii] Luis Inaraja Vera, Compelled Costs Under CERCLA: Incompatible Remedies, Joint and Several Liability, and Tort Law, 17 Vt. J. Envtl. L. 394, 415–16 (2016).

[ix] Elizabeth F. Mason, Comment, Contribution, Contribution Protection, and Nonsettlor Liability Under CERCLA: Following Laskin’s Lead, 19 B.C. Envtl. Aff. L. Rev. 73, 74–75 (1991).

[x] 42 U.S.C. § 9604(a).

[xi] Id. § 9607(a).

[xii] Id. § 9606(a).

[xiii] Peter L. Gray, The Superfund Manual: A Practitioner’s Guide to CERCLA Litigation 255 (2016); Judy & Probst, supra note 7, at 193 (citing H.R. Rep. No. 1016, 96th Cong., 2d Sess., pt. 1, at 18 (1980), reprinted in 1980 U.S.C.C.A.N. (94 Stat.) 6119).

[xiv] United States v. Chem-Dyne Corp., 572 F. Supp. 802, 805 (S.D. Ohio 1983) (citing 1980 U.S.C.C.A.N. (94 Stat.) 6119, 6119–20).

[xv] Gray, supra note 13, at 255; Judy & Probst, supra note 7, at 225.

[xvi] Gray, supra note 13, at 256.

[xvii] See Id. at 85 n.1, 86 n.2, 88 n.10 (listing the cases establishing CERCLA’s liability scheme).

[xviii] Judy & Probst, supra note 7, at 214; Luis Inaraja Vera, Compelled Costs Under CERCLA: Incompatible Remedies, Joint and Several Liability, and Tort Law, 17 Vt. J. Envtl. L. 394, 396 (2016); see also 42 U.S.C. § 9607(a) (providing the scope of those persons that may be held liable under CERCLA).

[xix] Vera, supra note 18, at 397.

[xx] United States v. Atl. Research Corp., 551 U.S. 128, 141 (2007); see Gray, supra note 11, at 257 n.3 (citing cases that found an implied right for contribution pursuant § 107(a) and federal law).

[xxi] The court in United States v. New Castle County, 642 F. Supp. 1258, 1262 (D. Del 1986) questioned whether CERCLA provided contribution rights and found a right to contribution under federal common law…In Wehner v. Syntex Agribusiness, Inc., 616 F. Supp. 27, 31 (E.D. Mo. 1985) the court that § 107(e)(2) implied a right of contribution. Look to Cooper Industries, 161-162, 125 S.Ct. 577 for a listing of these cases (if needed); Key Tronic Corp. v. United States, 511 U.S. 908, 816, also has listings of such cases.

[xxii] United States v. Atl. Research Corp., 551 U.S. 128, 140 (2007).

[xxiii] Judy & Probst, supra note 5, at 214; Vera, supra note 16, at 396.

[xxiv] Richard H. Mays, Settlements with SARA: A Comprehensive Review of Settlement Procedures Under the Superfund Amendments and Reauthorization Act, 17 ELR 10101, 10102 (1987).

[xxv] Id. at 10102.

[xxvi] 42 U.S.C. § 9613(f)(1) (2012) (emphasis added) (“Any person may seek contribution from any other person who is liable or potentially liable under [§ 107(a)] of this title, during or following any civil action under [§ 106] of this title or under [§ 107] of this title.”).

[xxvii] Mays, supra note 22, at 10102.

[xxviii] Vera, supra note 16, at 398.

[xxix] Gray, supra note 13, at 257.

[xxx] United States v. Atl. Research Corp., 551 U.S. 128, 131 (2007).

[xxxi] Id. at 132.

[xxxii] Id. at 133.

[xxxiii] Cooper Industries, Inc. v. Aviall Servs., Inc., 543 U.S. 157, 167–68 (2004).

[xxxiv] Id.

[xxxv] Id. at 166.

[xxxvi] Id.

[xxxvii] Id. at 166–67.

[xxxviii] Id. at 166.

[xxxix] Id. at 166–67.

[xl] United States v. Atl. Research Corp., 551 U.S. 128, 133 (2007).

[xli] Id.; see, e.g., Metro. Water Reclamation Dist. v. N. American Galvanizing & Coatings, Inc., 473 F.3d 824, 835 (7th Cir. 2007) (“Nothing in subsection [§ 107(a)(4)](B) indicates that a potentially liable party . . .  should not be considered ‘any other person’ for purposes of a right of action.”).

[xlii] Atl. Research Corp, 551 U.S. at 133 (citations omitted).

[xliii] E.I. DuPont de Demours & Co. v. United States, 460 F.3d 515, 543 (3d Cir. 2006), vacated, 551 U.S. 1129 (2007).

[xliv] Atl. Research Corp., 551 U.S. at 135–37.

[xlv] Id. at 138–41.

[xlvi] Id. at 138–39 ( “[A] ‘tortfeasor’s’ right to collect from others responsible for the same tort after the tortfeasor has paid more than his or her proportionate share.”).

[xlvii] Id.

[xlviii] Id. at 139.

[xlix] Id.

[l] See id. (explaining § 107, as opposed to § 113, must be used for party who incurs cleanup costs).

[li] Id.

[lii] Id.

[liii] Id.

[liv] Id.

[lv] Id.

[lvi] Id. at 140.

[lvii] Id. (citation omitted).

[lviii] Id. at 140–41.

[lix] Id. at 139 n.6.

[lx] Id.

[lxi] See id. at 138–41 (describing the distinct differences between § 107 and § 113).

[lxii] Jeffrey M. Gaba, The Private Causes of Action Under CERCLA: Navigating the Intersection of Section 107(a) and 113(f), 5 Mich. J. Envtl. & Admin. L. 117, 141 (2015); Gray, supra note 13, at 258 (2016).

[lxiii] Alfred R. Light, Avoiding the Contribution “Catch-22”: CERCLA Administrative Orders for Cleanup Are Civil Actions, 46 ELR 10791, 10791–92 (2016).

[lxiv] An American card game where the aim of the game is to discard all of your cards to get out of the game first, the last one holding a deck of cards is the loser.

[lxv] Gaba, supra note 62, at 142.

[lxvi] Id.

[lxvii] See Diamond X. Ranch LLC v. Atl. Richfield Co., 2016 U.S. Dist. LEXIS 114799, 12 (2016) ( “[A] party who may bring a contribution action for certain expenses must use the contribution action, even if a cost recovery action would otherwise be available.”) (quoting Whittaker Corp. v. United States, 825 F.3d 1002, 1007 (9th Cir. 2016)); see also Niagara Mohawk Power Corp. v. Chevron U.S.A., 596 F.3d 112, 118 (2d Cir. 2010); Hobart Corp. v. Waste Mgmt. of Ohio, Inc., 758 F.3d 757, 767 (6th Cir. 2014); Bernstein v. Bankert, 733 F.3d 190, 206 (7th Cir. 2013); Solutia, Inc. v. McWane, Inc., 726 F.Supp. 2d. 1316, 1342 (N.D. Ala. 2010); Morrison Enters., LLC v. Dravo Corp., 638 F.2d 594, 603 (8th Cir. 2011); Agere Sys. v. Advanced Envtl. Tech. Corp., 602 F.3d 204, 229 (3d Cir. 2010).

[lxviii] See discussion infra Section III.B.

[lxix] Atl. Research Corp., 551 U.S. at 139; Agere Sys. v. Advanced Envtl., Tech. Corp., 602 F.3d 204, 220 (3d Cir. 2010); see Solutia, Inc. v. McWane, Inc., 726 F. Supp. 2d 1316, 1336 (N.D. Ala. 2010) (quoting Atlantic Research, 551 U.S. at 139.).

[lxx] 42 U.S.C. § 9613(f)(2).

[lxxi] Pa. Dep’t of Envtl. Prot. v. Lockheed Martin Corp., 2015 U.S. Dist. LEXIS 10814 at *15–16 (2015) (citing United States v. Cannons Eng’g Corp., 899 F.2d 79, 85 (1st Cir. 1990)).

[lxxii] Fla. Power Corp. v. First Energy Corp., 810 F.3d 996, 1001(6th Cir. 2015) (alterations omitted) (citing Hobart v. Waste Mgmt. of Ohio, Inc., 758 F.3d 757, 768 (6th Cir. 2014)).

[lxxiii] 42 U.S.C. § 9612(i) (2012); Lockheed Martin Corp., 2015 LEXIS 10814 at *16.

[lxxiv] See Lockheed Martin Corp., 2015 LEXIS 10814 at *17 (holding that the agreement was neither an administrative settlement nor judicially approved settlement because the agreement was made without following administrative procedures and no impartial arbiter determined whether the settlement amount was fair and reasonable); see CPC Int’l v. Aerojet-Gen. Corp., 759 F. Supp. 1269, 1283 (W.D. Mich. 1991) (stating that an “administrative or judicially approved” settlement must include hearings and public comment).

[lxxv] Lockheed Martin Corp., 2015 LEXIS 10814 at *16.

[lxxvi]Id. at *18 (2015).

[lxxvii]Id.

[lxxviii] Id. at *15; Gray, supra note 13, 175 (2016).

[lxxix] Lockheed Martin Corp., 2015 LEXIS 10814 at *14; U.S. v. Aerojet General Corp., 606 F.3d 1142, 1149 (9th Cir. 2010); Gray, supra note 11, 175 (2016) (This benefit is limited as it only applies to “matters addressed in the settlement.”); see also 42 U.S.C. § 9613(f)(2) (2012).

[lxxx] Lockheed Martin Corp., 2015 LEXIS 10814 at *15.

[lxxxi] Id.

[lxxxii] Id. at *18 (2015).

[lxxxiii] Id. at *29 (2015).

[lxxxiv] See Diamond X. Ranch LLC v. Atl. Richfield Co., 2016 U.S. Dist. LEXIS 114799, at *12 (2016) (quoting Whittaker Corp. v. United States, 825 F.3d 1002 (9th Cir. June 13, 2016)); Niagara Mohawk Power Corp. v. Chevron U.S.A., 5966 F.3d 112, 112 (2d Cir. 2010); Hobart Corp. v. Waste Mgmt. of Ohio, Inc., 758 F.3d 757, 767 (6th Cir. 2014); Bernstein v. Bankert, 733 F.3d 190, 206 (7th Cir. 2013); Solutia, Inc. v. McWane, Inc., 726 F. Supp. 2d 1316, 1342 (N.D. Ala. 2010); Morrison Enters., LLC v. Dravo Corp., 638 F.2d 594, 603 (8th Cir. 2011); Agere Sys., Inc. v. Advanced Envtl. Tech. Corp., 602 F.3d 204, 229 (3d Cir. 2010).

[lxxxv] ITT Indus. v. BorgWarner, Inc., 615 F.Supp.2d 640, 646–48 (W.D. Mich. 2009).

[lxxxvi] See Whittaker Corp. v. United States., 825 F.3d 1002, 1011 (9th Cir. 2016)(holding that the plaintiff could only bring a contribution action for expenses it was found liable for in a prior action).

[lxxxvii] See Whittaker Corp., 825 F.3d at 1009 (9th Cir. 2016) (holding that plaintiffs could recover costs with a cost recovery action for expenses separate from those which the plaintiff was found liable for in a prior action); Bernstein v. Bankert, 733 F.3d 190, 202–03 (7th Cir. 2012) (holding that plaintiffs could bring cost recovery action for expenses separate from those for which the plaintiffs had a right of contribution); NCR Corp. v. George A. Whiting Paper Co., 768 682, 690–92 (7th Cir. 2014) (holding that the plaintiff was required to bring all claims in contribution because each set of expenses was covered by an order triggering the right to contribution); Agere Sys., Inc. v. Advanced Envtl. Tech. Corp., 602, F.3d 204, 225 (3d Cir. 2010) (holding that a party who had been sued in a § 107(a) cost recovery action could bring a cost recovery action for expenses separate from the liability established by the prior suit, because § 113(f) had not been triggered for those separate costs and a contribution action was therefore unavailable for those costs it seeks).

[lxxxviii] Whittaker Corp. v. United States, 825 F.3d 1002, 1011 (9th Cir. 2016).

[lxxxix] See discussion supra Section III.

[xc] Agere Sys., Inc. v. Advanced Envtl. Tech. Corp., 602, F.3d 204, 225 (3d Cir. 2010).

[xci] Id. at 21l.

[xcii] Id. at 225–26

[xciii] Id. at 212.

[xciv] Id.

[xcv] Id. at 225.

[xcvi] Id.

[xcvii] Id.

[xcviii] Id.

[xcix] Id.

[c] Id. at 226 (3d. Cir. 2010) (citing Key Tronic Corp. v. United States, 511 U.S. 809, 819 n.13 (1994)).

[ci] Id.

[cii] Id.

[ciii] Id. (citations omitted).

[civ] See Solutia, Inc. v. McWane, Inc., 726 F.Supp. 2d 1316, 1341 (N.D.A.L., 2010) (citing W.R. Grace & Co.Conn. v. Zotos Int’l, Inc., 559 F.3d 85, 90–91 (2d Cir. 2009) (holding that the plaintiff could bering § 107(a) claim based upon cleanup costs incurred pursuant to administrative settlement with state environmental agency that did not give rise to contribution rights under § 113(f)(3)(B), because agreement did not settle liability under CERCLA).

[cv] PCS Nitrogen, Inc., v. Ross Dev. Corp. 104 F. Supp. 3d 729, 740 (D.S.C. 2015); Niagara Mohawk Power Corp. v. Chevron, (2d Cir. 2010); Hobart Corp. v. Waste Mgmt. of Ohio, Inc., 758 F.3d 757, 766 (6th Cir. 2014).

[cvi] A Bill to Extend and Amend the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 and for Other Purposes: Hearings Before the Senate Committee on the Judiciary on S. 51, 99th Cong. 1, 52 (1985).

[cvii] See discussion supra Section I.B..

[cviii] Light, supra note 63, at 10791–800.

This post is part of the Environmental Law Review Syndicate, a multi-school online forum run by student editors from the nation’s leading environmental law reviews.

__________________________________________

Opportunities to Address Climate Change in the Next Farm Bill[1]

By Sara Dewey,[2] Liz Hanson,[3] & Claire Horan[4]

Introduction

The Farm Bill affects nearly every aspect of agriculture and forestry in the United States. Therefore, its next reauthorization offers an important opportunity to better manage the risks of climate change on farms, forests, and ranches by supporting resilience practices that also offer greenhouse gas (GHG) emission reductions.

Agriculture is vulnerable to the impacts of climate change, including rising temperatures, changes in rainfall and pest migration patterns, extreme weather events, and drought. In addition to being heavily affected by climate change, agriculture is also a significant contributor to climate change. Agricultural practices are responsible for about eight percent of U.S. GHG emissions.[5] Estimates of total food system emissions, which include the CO2 emissions from energy use and transportation, increase the agricultural industry’s proportion of U.S. GHG emissions to between 19 and 29 percent.[6]

To better align their practices with their long-term interests, farmers and ranchers can adopt practices that enhance their resilience, while also reducing GHG emissions, and increasing carbon sequestration. Many of these practices improve the long-term productivity and profitability of farms. For example, farmers are already adopting practices that reduce emissions or sequester carbon in the soil and in woody biomass while also improving productivity and resilience on their land.

This paper proposes a suite of practices that should be considered during the next authorization of the Farm Bill to improve on-farm efforts to adapt to and mitigate climate impacts. It is organized into four main sections. Part I provides background on the Farm Bill and the ways that the U.S. agricultural system contributes to GHG emissions. Part II provides an overview of opportunities for on-farm mitigation and adaptation. Many of the practices we recommend can reduce on-farm emissions and build a more resilient agricultural system. Part III identifies a set of metrics that we used to assess potential proposals. Lastly, Part IV summarizes how climate practices can be incorporated across titles and highlights three policy options.

I. Background

A. Agricultural Sources of GHG Emissions

Greenhouse gases trap heat in the atmosphere and contribute to increases in global temperatures. Although this a natural process, increased greenhouse gas emissions since the industrial revolution have increased atmospheric greenhouse gases to levels never before recorded. Agriculture, including raising crops and animals as well as resulting land use changes and farm equipment usage, is a source of three GHGs: methane (CH4), nitrous oxide (N2O), and carbon dioxide (CO2).[7]

Figure 1. GHG Profiles[8]

Figure1

Globally, emissions from food systems are responsible for nearly a third of all GHG emissions.[9] Domestically, EPA’s Inventory of U.S. Greenhouse Gas Emissions and Sinks divides up agriculture-related emissions into different categories. N2O and CH4 emissions are categorized as “Agricultural,” and accounted for 8.3 percent of total greenhouse gas emissions in the United States in 2014.[10] In 2014, N2O emissions were 336 million metric tons of carbon dioxide equivalent (MMT CO2 Eq.); these emissions were caused primarily by soil management such as the use of synthetic fertilizers, tillage, and organic soil amendments.[11] Manure management, and biomass burning, also contribute to N2O emissions. CH4 emissions were 238 MMT CO2 Eq. and were produced by enteric fermentation during ruminant digestion (164 MMT CO2 Eq.), manure management (61 MMT CO2 Eq.), and the wetland cultivation of rice (12 MMT CO2 Eq.)[12]

CO2 emissions from agriculture-related land use changes and equipment usage are accounted for in the “Land Use, Land-Use Change, and Forestry” and the “Energy” categories, respectively. Estimates of total food system emissions, which include the CO2 emissions from energy use and transportation, increase the agricultural industry’s proportion of U.S. GHG emissions to between 19 and 29%.[13]

II. Strategies for Managing Climate Risk through Mitigation and Adaptation

Given agriculture’s contributions to GHG emissions that are contributing to climate change, which in turn affects agricultural productivity, it is appropriate to consider how climate change can be incorporated across the titles of the Farm Bill. The anticipated reauthorization in 2018 can play a critical role in addressing climate change in the United States by promoting practices that encourage mitigation and adaptation practices on farms.

Adopting new agricultural practices can be challenging, especially for small farmers or operations without access to large amounts of capital or information about adaptation opportunities. However, doing so will not only assist the U.S. farmers and ranchers confront shifting seasons, more severe storm events, new pests, drought, and other challenges,[14] it will also reduce the Farm Bill’s fiscal burden on taxpayers.[15] A number of land managers are already adopting strategies that not only reduce emissions or sequester carbon in the soil, but also have the important co-benefits of improving productivity and resilience.[16]

A. Mitigation Measures

Land managers can mitigate GHG emissions by offsetting current emissions, sequestering carbon, and/or preventing future emissions.[17] Figure 2 describes these strategies and the practices to achieve them.

First, land managers can reduce the GHG emissions of their farming practices in a number of ways. Practices such as conservation tillage reduce soil disturbance, and prevent some erosion, which can lower soil carbon loss. Precision agriculture strategies can reduce fertilizer inputs on cropland, which in turn reduces GHG emissions from fertilizer production and application.[18] Reincorporating livestock manure onto cropland as well as improved management of liquid manure using anaerobic digesters or other on-farm technology can reduce methane emissions from livestock waste by capturing it rather than emitting it.[19]

Second, land managers can sequester additional carbon through on-farm practices. Soil carbon can be increased by incorporating cover crops, including legumes, into crop rotations, reducing tillage, and agroforestry practices.[20] In addition, planting perennial crops or incorporating trees into farms through alley cropping, hedgerows, and riparian forest buffers can lead to long-term sequestration of carbon in woody biomass.

Finally, land managers can take steps to avoid future emissions. The most critical way to avoid new on-farm emissions is to avoid land conversion, which releases carbon that was previously sequestered in the soil and in woody biomass.

Figure 2. Practices for agricultural greenhouse gas mitigation[21]

Figure2

B. Adaptation Measures

Adapting to a changing climate will require farmers, foresters, and ranchers to prepare for and respond to new risks, including extreme weather events, shifts in growing seasons, and different pests and plant diseases. Figure 3 provides an overview of the range of practices that farmers can undertake to adapt to climate change.

To make farming operations more resilient, farmers can enhance soil health, which will make agricultural systems better able to withstand extreme weather, drought, and erosion due to high winds or flooding.[22] Strategies for enhancing soil health include adjusting production inputs, timing of planting and soil amendments, cover crops, tillage, new crop species, and diversified crop rotations.[23]

Farmers can also take additional steps to make their farms more resilient to other climate risks. For example, to prepare for flooding, heavy rainfall, and other risks, farmers can implement resilient farm landscapes that include buffer strips and the return of marginal cropland to native vegetation. To prepare for new pests and diseases, farmers can diversify their crop selection and alter crop rotations. To adjust to changing seasons and a warming climate, farmers can plant different crops; crop scientists can also develop more heat- and drought-resistant crop varieties. Resilience planning is also important on the community level, as rural communities can ensure that new infrastructure investments supported by the Farm Bill, such as rural water and energy systems, are resilient to climate change effects.

Figure 3. Practices for agricultural adaptation to climate change[24]

Figure3

C. Opportunities for Complementary Mitigation and Adaptation

Importantly, many on-farm practices can help with both climate adaptation and mitigation.[25] For example, improving soil health not only mitigates climate change, it also makes farms more resilient and better able to withstand the shifting, and at times extreme, conditions of a changing climate. Efficient fertilizer application will reduce GHG emissions while enhancing soil resilience. Similarly, cover cropping, diversified crops, and other practices that stabilize the soil will reduce GHG emissions from the soil while building soil health. It is important to note that the efficiency of these on-farm practices will vary by region, impacting the ways they can and should be implemented.[26]

Mitigation and adaptation strategies for agricultural systems often require long-term planning to strengthen “climate-sensitive assets,” such as soil and water, over time and in changing conditions.[27] Developing better regionally specific agricultural climate and conservation practice adoption data is required for this long-term planning to be successful. From those baseline data, regional efforts will be critical to identify mitigation opportunities, develop strategic adaptation planning, and implement enhanced soil and livestock management practices.[28]

III. Metrics for Prioritizing Reform Proposals

As the summary above indicates, there are many actions that can promote climate change mitigation or adaptation in agriculture. In addition, changes can be made to every Title of the Farm Bill that would promote one or more of these mitigation and adaptation strategies. Given this complexity, the uncertainties associated with quantitative estimates of the mitigation potential of different strategies, and the qualitative differences between mitigation and adaptation as goals, we developed a range of qualitative metrics that we used to analyze potential reforms. In particular, we considered:

Potential magnitude of climate impact: Priority was given to proposals that had proven climate benefits, did not require significant additional research, and targeted the largest sources of agricultural GHG emissions.

Co-benefits: Priority was given to proposals that could increase resiliency or economic benefits of farms.

Equity: Priority was given to programs that could benefit small and large farms in all regions.

Scalability: Priority was given to proposals that seemed replicable and applicable to farms across the country or where Climate Hubs could facilitate regional diversity.

Enforceability/Administrability: Priority was given to proposals that could be tied in with or build upon existing requirements or programs in the Farm Bill.

Feasibility: Feasibility considerations included ease of implementation technically, economically, and politically. Because any legislative change will need to be passed in Congress, political feasibility was determined to be one of the most important considerations. Accordingly, we prioritized proposals that seemed, based on stakeholder engagement, suitable for the next Farm Bill, given competing interests for funding and stakeholder sentiment towards climate action.

An analysis of these metrics is included throughout our recommendations. However, these should be considered as only a first step. While we have attempted to target the largest sources of GHG emissions, more detailed proposals will be required before there can be precise estimates of the potential for emission reductions. The USDA’s COMET-Farm, an online farm and ranch GHG accounting tool, can likely facilitate this effort.[29] Similarly, determining the economic feasibility of specific reform proposals has been difficult because of taxpayer subsidization, the uncertainty of how appropriations may be allocated, and the varying degrees of stringency that reforms could encompass (e.g. mandate vs. incentive). Finally, while previous Farm Bill reauthorizations can serve as a guide, the ongoing transitions at U.S. federal agencies engaged in Farm Bill programs will likely have impacts on the political feasibility of proposals that cannot be appropriately assessed at this time. For these reasons, we recommend that additional research measure the climate impact of proposals, outline the benefits and co-benefits for farmers and the public, articulate the administrability of the program, and gather stakeholder input and support for proposals.

IV. Pathways for Addressing Climate Change in the Farm Bill

To determine how the Farm Bill could better address climate change, we first categorized the range of mitigation and adaptation practices identified in Figures 2 and 3, above, in terms of their potential applicability to the Farm Bill. We then examined how these practices mapped onto the current titles in the Farm Bill. Finally, we assessed how the upcoming Farm Bill could better incentivize these actions across titles, with an eye toward win-win practices with both mitigation and adaptation benefits.

Figure 4 contains the range of possibilities we identified for addressing climate mitigation and adaptation by title. To fully assess the impact of each of these policy options – and its interaction with other policies and programs –requires additional research and outreach to stakeholders affected. We discuss in more detail below a set of recommendations that best fit our metrics, indicated by bold font in this table.

Figure 4. Options for Addressing Climate Change by Farm Bill Title

Figure4

Figure4_pt2

All of these areas for reform have the potential to advance climate-ready agricultural practices through the Farm Bill. Many of these areas for reform also have wide-ranging benefits beyond climate change mitigation or adaptation such as enhancing on-farm productivity and more efficiently using taxpayer dollars. We elected to focus on three recommendations we judged to be particularly important based on the metrics we established in Part III).

Recommendation 1: Incorporate climate measures into crop insurance and conservation compliance to better manage on-farm climate risks under Title II (Conservation) and Title XI (Crop Insurance).

Recommendation 2: Ensure the best available science and research—including the outcome of pilot programs—are incorporated into Farm Bill programs; support dissemination of downscaled climate data through USDA regional offices and land grant universities to develop agricultural climate mitigation and adaptation capacity under Title VII.

Recommendation 3: Advance manure management collection and storage methods, as well as biogas development under Title IX to mitigate GHG contributions from livestock.

Recommendation 1: Incorporate Climate into Crop Insurance and Conservation Compliance

a. Reform crop insurance to incentivize climate risk management and eliminate disincentives for adopting climate-friendly practices

Crop insurance, Title XI, makes government-subsidized crop insurance available to producers who purchase a policy covering losses in yield, crop revenue, or whole farm revenue. Farmers can select and combine several types of crop insurance policies: catastrophic coverage, “buy-up” coverage, and a supplemental coverage option for selected crops. USDA’s Risk Management Agency (RMA) sets insurance premium subsidy rates and develops specific contracts,[30] working with 18 insurance companies to administer the program.[31]

Crop insurance is deeply subsidized by the federal government, and it represents the single largest federal outlay in the farm safety net.[32] On average, taxpayers cover 62 percent of crop insurance premiums.[33] The insurance companies’ losses are reinsured by USDA, and the government also reimburses their administrative and operating costs.[34] The Congressional Budget Office anticipates that this program will cost taxpayers over $40 billion from 2016 to 2020.[35]

These subsidies disproportionately benefit large farms: while only about 15 percent of farms use crop insurance, insured farms account for 70 percent of U.S. cropland.[36] Small farmers struggle to utilize crop insurance because of the high administrative burden and challenges of insuring specialty crops.[37] In addition to clear equity concerns involving access to crop insurance, this situation is problematic from a climate perspective because larger farms are more likely to grow monocultures, which are both more vulnerable to pests and extreme weather events and can degrade soil health. Indeed, just four crops—corn, cotton, soybeans, and wheat—make up about 70 percent of total acres enrolled in crop insurance.[38]

The current loss coverage policies in the crop insurance program can discourage farmers from proactively reducing their risks by taking steps to enhance soil health and resilience. Because farmers with crop insurance are protected against losses incurred from impacts likely to increase with climate change, farmers may not be properly incentivized to respond to the changing conditions.[39] Some environmental organizations have even raised concerns that in response to the crop insurance transfer of risk, some farmers may be more willing to engage in unsustainable practices, such as aggressive expansion, irresponsible management, and use of marginal land.[40] In addition, farmers may make planting decisions based on the insurance program incentives rather than market-based signals.[41] In these ways, crop insurance can push farmers towards practices that pose risks to both their operations and taxpayer obligations.[42] It is therefore important that the crop insurance program better align farmers’ risk management incentives with the real and growing risks they face from climate change.

One way to achieve this objective is through incentivizing or requiring farmers to undertake actions to improve soil management and promote soil health. Some specific changes to the crop insurance program that could promote these practices include:

  • Incorporating climate projections to account for changing growing seasons and planting dates.
  • Providing insurance premium rebates for farmers who voluntarily undertake beneficial practices.
  • Incentivizing improved soil management practices, diversified crops, and manure management.
  • Adjusting the length of policies to better reflect the value added from changes that improve long-term soil health.
  • Writing soil health requirements into insurance policies.

More generally, changes to the crop insurance program that reduce the magnitude of the subsidy offered to farmers, such as setting a dollar-per-acre cap, could reduce the moral hazard that current policies create.[43] The methodology used to set premiums could also be adjusted to be based more on the projected frequency and intensity of events such as droughts and floods rather than on backward-looking data. RMA has started to incorporate climate-related risk metrics into annual rates by weighting recent loss experience more heavily, thereby more accurately reflecting the risks that growers face. However, it is important to consider future risks from climate change as well.

Requirements of the crop insurance program that act as disincentives to climate-friendly farming practices should be updated to account for growing climate risks farmers face. For example, RMA has guidelines in place about the termination of cover crops, because of concerns that these crops will scavenge water from the commodity crops.[44] This requirement can act as a disincentive to farmers’ adoption of cover cropping, a practice that builds the soil and reduces runoff in the non-growing season.[45] The next Farm Bill could specify that there should be no specific termination requirements for cover crops.

Insurance policies may also serve to incentivize some environmentally harmful practices, such as early and excess fertilizer application and cultivation of environmentally sensitive land.[46] Because early application maximizes crops’ uptake of nitrogen, it can increase yield in the short term, but it contributes to nitrous oxide emissions, unhealthy soils that become less able to fix nitrogen and must rely increasingly on fertilizer, and polluted runoff. In addition, synthetic fertilizers, which are made from non-renewable materials, including petroleum and potash, are produced at a huge energy cost.[47] Some studies have suggested that crop insurance may incent some farmers to convert highly erodible or wetlands to farmland.[48] Therefore, the next Farm Bill could also indicate this type of practice is not required to be eligible for crop insurance. This change could be complemented by an increase in the length of insurance policies, as discussed above, because insurance companies would benefit from the longer-term improvements in soil health.

b. Tie crop insurance to a new conservation compliance provision for building soil health for climate ready agriculture

Currently, in order to qualify for crop insurance, farmers must satisfy two conservation compliance requirements, the Wetland Conservation (“Swampbuster”) and Highly Erodible Land Conservation (“Sodbuster”) provisions.[49] These provisions ensure, respectively, that farmers do not convert a wetland or plant crops on highly erodible land or a previously converted wetland.[50] While these current conservation requirements are beneficial in addressing some climate impacts, adding a conservation compliance requirement directly targeted at climate-related practices would improve upon them.

With 70 percent of farmland in the crop insurance program, changes in conservation compliance through the next Farm Bill or through RMA’s policies can drive big climate change benefits. Under Title II, Congress could create an additional conservation compliance requirement for climate-friendly agricultural practices, which could either be required to obtain crop insurance or could make farmers eligible for rebates. The types of on-farm practices that could mitigate risk and enhance climate resilience include more precise irrigation and fertilizer application, reduced tillage of the soil, cover cropping, altering crop rotations, and building buffer strips and riparian buffers. Particularly beneficial practices for building resilient soil include cover cropping, diversified crop rotations, reducing tillage, and efficient irrigation.[51]

In addition, enforcement gaps have limited the success of the existing conservation compliance requirements. To make the mechanism effective, it will be important to establish simple and effective enforcement, for example by using remote sensing, and to ensure that Natural Resources Conservation Service (NRCS) offices have sufficient resources to carry out enforcement efforts.

First, these proposals could produce significant climate benefits from increasing soil health, in terms of both mitigation and adaptation. Reform of the crop insurance and conservation titles could also help address some of the equity issues that currently exist between small and large farms. Existing USDA programs, described in the next section, could help with scalability and administrability. Finally, in terms of feasibility, while any change may be difficult, our stakeholder engagement indicated that farmers are open to programs that target soil health, given the potential economic benefits to their farms. While the actual on-farm impacts will vary based on how the program is designed and constructed, building more resilient, healthy soil can help improve environmental outcomes and decrease the risk of crop loss.[52]

Recommendation 2: Ensure Best Available Science and Research Guides Farm Bill Programs

Agricultural practices that promote climate change mitigation and adaptation, including those described above, are often regionally specific in their implementation. For many new climate-ready practices to be included in conservation compliance or crop insurance, the USDA would need to account for this regional specificity. For example, the benefits of many of the on-farm practices that improve soil health, including more precise irrigation and fertilizer application, reduced tillage of the soil, and altering crop rotations, vary by region and soil type. In some areas, no-till methods may be infeasible; farmers who try to implement no-till in these areas would likely continue to till to some degree or after a short period of time, resulting in quick reversal of the achieved carbon sequestration benefits. Furthermore, the technical specificity of choosing among these practices and correctly implementing them requires guidance at a local level.

To address these types of knowledge gaps and to provide technical assistance to states and farmers, the USDA has created a range of programs, including Climate Hubs, which were established at public land-grant universities in 2014.[53] The Hubs deliver science-based knowledge, practical information, and program support for farmers to engage in “climate-informed decision-making” by farmers.[54]

Increasing funding in the 2018 Farm Bill in Title VII, the Research title, could solidify and expand USDA’s ability to administer and scale climate research and outreach efforts across all regions of the country. Additionally, creating systems to collect and analyze regional data on pilot programs and ensure best practices are adopted could assist long-term efforts to incorporate climate policies into Farm Bill programs.[55] For these reasons the Farm Bill should provide additional funding for climate research and monitoring, especially focused on regional resilience.

Recommendation 3: Address the Significant GHG Contributions of Livestock Management

Improving livestock management, especially manure management, is a significant opportunity for mitigating emissions of methane and achieving several co-benefits for the public and farmers. There is currently very little regulation of livestock manure management. Manure is sometimes stored—uncovered—in a single collection site, which causes the methane to be released directly into the atmosphere. In addition to being a major GHG emissions source, it can cause a range of considerable environmental harms.[56]

a. Require improved manure management, including the covering of lagoons

First, the upcoming Farm Bill could address manure management collection and storage methods. Practices can be improved through actions such as allowing livestock to roam,[57] covering manure lagoons, flaring the methane produced, or producing biogas for use. Simply covering a manure lagoon results in significant decreases in methane emissions, as well as decreased odors. Flaring is the combustion of methane, which yields water and carbon dioxide. Although flaring still emits GHGs, carbon dioxide is a less potent GHG than methane.

The Farm Bill could promote these practices either through incentives or mandates in the Conservation or Crop Insurance titles. For example, the Farm Bill could mandate or incentivize farmers with a threshold number of cattle, swine, or poultry cover manure and flare the produced methane to be eligible for crop insurance. Such a mandate would have the greatest impact at Concentrated Animal Feeding Operations (CAFOs), which may also be better able to bear the high capital costs associated with biogas production

b. Pursue strategies to decrease methane emissions, including biogas and other on-farm renewable energy production

Second, the Energy Title could incentivize on-farm biogas. On farms, many different substrates may be used to produce biogas, including animal excrements (including that of cattle, swine, poultry,[58] and horse), food waste, milling by-products, and catch crops (such as clover grass on farms without livestock).[59] Farmers can realize substantial savings from biogas production, including through substituting biogas for other energy sources, through substituting digestate[60] for commercial fertilizers,[61] and by avoiding disposal and treatment of substrates (such as for waste-water treatment). Farmers may also be able to sell carbon offsets.[62] In addition, farmers producing biogas can avoid some of the worst problems with animal agriculture: farmers must do something with the manure, and its storage can produce strong odors,[63] unhealthy conditions for workers and families,[64] and pollution through runoff in the worst scenarios.[65]

Farmers have two main options for biogas use: (1) generation of electricity for on-site use or sale to the grid; and (2) direct use of biogas locally, either on-site or nearby.[66] Using the biogas to fuel a generator to produce electricity is considered the most profitable use for most farms.[67] Another use is to upgrade the biogas, then called biomethane, to be injected into the national natural gas pipeline network as a substitute for extracted natural gas.

Because farmers could benefit financially from on-farm use or the sale of biogas, the Farm Bill should continue and expand funding for the Rural Energy for America Program, which offers cost-sharing grants and loans for renewable energy improvements. [68] However, these programs are most likely to benefit large farms because anaerobic digesters are expensive and require a large and constant supply of substrate to produce a return on investment. We therefore suggest the Farm Bill also fund pilot programs to assist small farm communities to form cooperatives so that they are also able to utilize this technology and participate in the grant or loan program.

Even with the available grants and loans, farmers are still taking a substantial financial risk. USDA or land-grant universities should actively help communities or cooperatives with the planning and application process. Large farms or cooperatives who are unable or unwilling to operate and maintain anaerobic digesters themselves could hire a company to lease the equipment and manage the biogas production process.[69] USDA Rural Development Agencies could be a valuable liaison between biogas management companies and farmers.

CAFOs could be part of a voluntary program or required to use anaerobic digesters due to their greater contribution to climate change and other environmental harms. Because CAFOs are responsible for high levels of greenhouse gas emissions and because anaerobic digesters are economically feasible for large operations, there is reason to consider the benefits that could be achieved by requiring these practices for large CAFOs in the Farm Bill.

Livestock management is a critical area for addressing climate impacts, and biogas has the potential to be a win-win for farmers willing to invest in alternative energy production.

Conclusion

The U.S. agricultural system must evolve to mitigate climate change and adapt to the effects of a changing climate. Opportunities for climate change mitigation and adaptation exist across the Farm Bill titles, from bolstering climate resilient infrastructure in the Rural Development title to incentivizing sustainable forest management in the Forestry Title. Taking action on climate measures in the next Farm Bill reauthorization will help farmers better plan for changing conditions, protect taxpayers from increasing risks, and assist the United States in meeting its global climate commitments. The next Farm Bill should incorporate climate risk management provisions, and state and local actors should consider ways to support these efforts.

[1] The first draft of this paper was written while the authors were enrolled in Harvard Law School’s Emmett Environmental Law and Policy Clinic, and a previous version was released by the Clinic in Fall 2017. The authors would like to acknowledge Clinical Professor and Director Wendy Jacobs and Senior Clinical Instructor Shaun Goho for their contributions and guidance throughout the project. Thanks also to the editorial staff of the Harvard Environmental Law Review for their help and advice. Any mistakes are the authors’ own.

[2] J.D., Harvard Law School, Class of 2017.

[3] M.P.P. Candidate, Harvard Kennedy School, Class of 2018.

[4] J.D. Candidate, Harvard Law School, Class of 2018.

[5] EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2015, at ES-21 (2017).

[6] Research Program on Climate Change, Agriculture, and Food Safety, Food Emissions (2016), https://perma.cc/YYL8-YSPM.

[7] EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990 – 2014, at 5-1 (2016) [hereinafter EPA, Inventory], https://perma.cc/HQ9B-BJYP.

[8] EPA, Overview of Greenhouse Gas Emissions [hereinafter EPA, Overview], https://perma.cc/7WS6-JXQY. The two to three percent of emissions unaccounted for are fluorinated gases, which are synthesized during industrial processes. Id.

[9] Natasha Gilbert, One-third of our Greenhouse Gas Emissions Come from Agriculture, Nature (Oct. 31, 2012), https://perma.cc/2GF7-ASMM.

[10] EPA, Inventory, supra note 7, at 5-1.

[11] Id.

[12] Id.

[13] Research Program on Climate Change, Agriculture, and Food Safety, Food Emissions (2016), https://perma.cc/YYL8-YSPM.

[14] See U.S. Dep’t of Agric., USDA Agriculture Climate Change Adaptation Plan 9 (2014) [hereinafter USDA, Adaptation Plan], https://perma.cc/8SM9-5NDX; Louise Jackson & Susan Ellsworth, Scope of Agricultural Adaptation in the United States: The Need for Agricultural Adaptation, in The State of Adaptation in the United States (2012), https://perma.cc/HS57-K35T.

[15] For example, a recent report from the Office of Management and Budget and the Council of Economic Advisers estimates that the annual cost of the crop insurance program will increase by $4 billion per year in 2080 as a result of the impacts of climate change. OMB & CEA, Climate Change: The Fiscal Risks Facing the Federal Government 6 (Nov. 2016), https://perma.cc/4Y22-P85V; see also USDA, Adaptation Plan, supra note 14, at 9.

[16] U.S. Dep’t of Agric., Climate Change and Agriculture in the United States: Effects and Adaptation 126–27 (2013) [hereinafter USDA, Effects and Adaptation], https://perma.cc/QW8T-Y4RL.

[17] M. McLeod et al., Cost-Effectiveness of Greenhouse Gas Mitigation Measures for Agriculture: A Literature Review, OECD Food, Agriculture and Fisheries Papers, No. 89, at 26 (2015).

[18] Peter Lehner & Nathan Rosenberg, Legal Pathways to Carbon-Neutral Agriculture, 47 Envtl. L. Rep. 10,845, 10,849 (2018).

[19] Id. at 19–21.

[20] For a more detailed review of how carbon sequestration can be increased in agriculture, see Daniel Kane, Nat’l Sustainable Agric. Coal., Carbon Sequestration Potential on Agricultural Lands: A Review of Current Science and Available Practices (2015), https://perma.cc/R4WA-2PPK.

[21] Adapted from P. Smith et al., Greenhouse Gas Mitigation in Agriculture, Philosophical Transactions of the Royal Society B, 363, 789–813 (2008).

[22] Alexandra Bot & José Benites, Food & Agric. Org. Of the United Nations, FAO Soils Bulletin 80, The Importance of Soil Organic Matter: Key to Drought-Resistant Soil and Sustained Food and Production 19 (2005), https://perma.cc/6VE8-6KG7.

[23] USDA, Effects and Adaptation, supra note 16, at 123; see also Nat’l Sustainable Agric. Coal., Climate Change and Agriculture Recommendations for Farm Bill Conservation Program Implementation 2 (2014), https://perma.cc/2JKC-AXSY.

[24] While these practices may generally lead to better resilience on farms, adaptation practices are highly region-specific.

[25] USDA, Effects and Adaptation, supra note 16, at 126–27 (2013).

[26] For example, in the Central Valley of California, an adaptation plan that included integrated changes in crop mix and altered irrigation, fertilization, and tillage practices, was found to be most effective for managing climate risk. Id. Along with the USDA Climate Hubs, the following organizations have undertaken projects related to regional agricultural adaptation research and planning: California Healthy Soils Initiative; Wisconsin Initiative on Climate Change Impacts; Southeast Florida Regional Climate Change Compact; The Mid-Atlantic Water Program; U.S. Midwest Field Research Network for Climate Adaptation.

[27] Id. at 126.

[28] Id.

[29] See COMET-Farm, https://perma.cc/4GR3-DHJH.

[30] U.S. Dep’t of Agric., About the Risk Management Agency, https://perma.cc/N49E-KQ3H.

[31] Dennis A. Shields, Cong. Research Serv., Crop Insurance Provisions in the 2014 Farm Bill 3 (2015).

[32] Id.

[33] Id.

[34] Dennis Shields, Cong. Research Serv., Federal Crop Insurance: Background 2 (2015).

[35] Cong. Budget Office, March 2016 Baseline for Farm Programs (2016), https://perma.cc/896T-TUJ9; see also Heritage Found., Addressing Risk in Agriculture (2016).

[36] U.S. Dep’t of Agric., Structure and Finances of U.S. Farms: Family Farm Report, 2014 Edition 32–33 (2014), https://perma.cc/S9YP-P6CY.

[37] Generally, the more diverse or specialized crops and livestock a farmer produces, the harder it is to obtain insurance. These policies are not designed to support small producers and the policies are administratively complex and burdensome for small farmers, with high premiums for small farmers. On the one hand, if small farmers used yield-based or revenue-based insurance policies, those farmers would need to purchase insurance for each crop, which requires producing a significant volume of each single crop to justify the paperwork and setting up a contracted purchase price from a processor. On the other hand, whole farm insurance policies base policies on average adjusted gross revenue of the farm, regardless of the variety of products the farmer grows. This type of policy is more appropriate for diversified farmers, but may still be too cumbersome for small farms to participate. See Jeff Schahczenski, Nat’l Sustainable Agric. Info. Serv., Crop Insurance Options for Specialty, Diversified, and Organic Farmers (2012), https://perma.cc/64P6-CTRC; Nat’l Sustainable Agric. Coal., Have Access Improvements to the Federal Crop Insurance Program Gone Far Enough?, NSAC’s Blog (July 28, 2016), https://perma.cc/PT37-RNNL.

[38] Shields, Federal Crop Insurance: Background, supra note 35, at 1.

[39] Linda Prokopy et al., Farmers and Climate Change: A Cross-National Comparison of Beliefs and Risk Perceptions in High-Income Countries, 56 Envtl. Mgmt. 492, 497 (2015).

[40] Bruce Babcock, Environmental Working Group, Cutting Waste in the Crop Insurance Program 10 (2013).

[41] Id.

[42] C. O’Connor, NRDC Issue Paper 13-04-A, Soil Matters: How the Federal Crop Insurance Program Could Be Reformed to Encourage Low-risk Farming Methods with High-reward Environmental Outcomes (2013).

[43] See, e.g., Heritage Found., Addressing Risk in Agriculture (2016).

[44] NSAC, 10 Ways USDA Can Address Climate Change in 2016, NSAC’s Blog (Dec. 30, 2015), https://perma.cc/L5AZ-NAF5.

[45] See Practical Farmers of Iowa, Cover Crops, https://perma.cc/7GHL-NVXQ.

[46] USDA’s Economic Research Service found that “[l]ands brought into or retained in cultivation due to these crop insurance subsidy increases are, on average, less productive, more vulnerable to erosion […] then cultivated cropland overall. Based on nutrient application data, these lands are also associated with higher levels of potential nutrient losses per acre.” USDA Economic Research Service, Report Summary: Environmental Effects of Agricultural Land Use Change (Aug. 2006); see also Daniel Sumner and Carl Zulauf, The Conservation Crossroads in Agriculture: Insight from Leading Economists. Economic and Environmental Effects of Agricultural Insurance Programs, The Council on Food, Agricultural and Resource Economics (2012).

[47] See Stephanie Ogburn, The Dark Side of Nitrogen, Grist (Feb. 5, 2010), https://perma.cc/9J6E-ZD9J (“About one percent of the world’s annual energy consumption is used to produce ammonia, most of which becomes nitrogen fertilizer.”).

[48] See, e.g., Anne Weir and Craig Cox, Envtl. Working Grp., Crop Insurance: An Annual Disaster (2015).

[49] Sodbuster, 16 U.S.C. § 3811 et seq.; Swampbuster, 16 U.S.C. § 3821 et seq.

[50] See Nat. Res. Conservation Serv., U.S. Dep’t of Agric., Conservation Compliance Provisions, https://perma.cc/6V9X-URBP.

[51] Id. at 7.

[52] O’Connor, Soil Matters, supra note 43, at 7.

[53] U.S. Dep’t of Agric. Climate Hubs, Mission and Vision, https://perma.cc/T46E-CSBT.

[54] Id.

[55] The existing ARS LTAR system, which conducts longterm sustainability research, could be used to inform the regional best practices communicated in outreach efforts. See Agric. Research Serv., U.S. Dep’t of Agric., Long-Term Agroecosystem Research (LTAR) Network, https://perma.cc/6XRT-FBTC.

[56] For example, manure management practices can create a public nuisance for which neighbors have little recourse. In addition, runoff from agriculture is not adequately regulated under the Clean Water Act and results in pollution to the nation’s waterways. Every year a hypoxic zone, also called a dead zone, develops where the Mississippi River dumps pollution from Midwest livestock and fertilizers into the Gulf of Mexico. See Kyle Weldon & Elizabeth Rumley, Nat’l Agric. L. Ctr., States’ Right to Farm Statutes, https://perma.cc/Y8XA-KUBR; Ada Carr, This Year’s Gulf of Mexico “Dead Zone” Will Be the Size of Connecticut, Researchers Say, Weather.com (Jun. 15, 2016), https://perma.cc/36ZZ-NKY9.

[57] Farms where the cattle range freely do not release as much methane to the atmosphere because the less consolidated manure is more likely to be absorbed into the soil rather than anaerobically digested to produce methane.

[58] Using poultry manure as a substrate can be difficult because feathers and poultry litter can clog anaerobic digesters. See Donald L. Van Dyne & J. Alan Weber, Special Article, Biogas Production from Animal Manures: What Is the Potential?, Industrial Uses/IUS-4 20, 22 (Dec. 1994).

[59] SustainGas, Sustainable Biogas Production: A Handbook for Organic Farmers 38 (2013), https://perma.cc/8354-G3A4.

[60] Digestate is the solid that is left over after biogas has been produced. Digestate can be sold or used on farm as fertilizer. It smells better than manure, is free of harmful bacteria, and contains nitrogen in a form that is more bioavailable for crops.

[61] 40 organic farms in Germany, in a region without livestock, have found it worthwhile to cooperate in supplying and transporting clover grass up to 50 km to an AD because the digestate provides them with a flexible organic fertilizer. See SustainGas, supra note 60, at 28. They find that the digestate leads to higher quality for their food crops. Id. “Biogas has to serve food production via improved nutrient supply,” one farmer says. Id.

[62] If farmers can show that they have reduced their methane emissions, they may be able to sell the carbon offsets in exchanges such as the California GHG cap and trade market. See Cal. Air Resources Bd., Compliance Offset Protocol, Livestock Projects: Capturing and Destroying Methane from Manure Management Systems (2014), https://perma.cc/68EF-2SB9.

[63] The odor-reducing benefits are viewed as especially desirable for poultry and swine farms.

[64] Biogas plants dispose of waste and sewage, making conditions healthier. Not only does the anaerobic digestion process remove pathogens, but because biogas production requires collecting manure at a central location, some unhygienic conditions are avoided. See Julia Bramley, et al., Tufts Department of Urban & Environmental Policy & Planning, Agricultural Biogas in the United States: A Market Assessment 122 (2011), https://perma.cc/Z4ER-S4SD.

[65] Livestock manure generated at cattle yards and dairy farms can contaminate surface and ground water through runoff. Anaerobic digestion sanitizes the manure to a large extent, decreasing the risk of water contamination. Id.

[66] EPA, AgSTAR Handbook: A Manual for Developing Biogas Systems at Commercial Farms in the United States, 2d. ed. 2-5 (K.F. Roos et al. eds. Feb. 2004).

[67] Id. at. 3-1. For most farms, electricity comprises 70% to 100% of energy use. Id.

[68] U.S. Dep’t of Agric., Rural Energy for America Program Renewable Energy Systems & Energy Efficiency Improvement Loans & Grants, https://perma.cc/5LE3-2QRF.

[69] This model is frequently used for wind energy production. See Agric. Research Serv., U.S. Dep’t of Agric., Wind and Sun and Farm-Based Energy Sources, Agric. Res., Aug. 2006, https://perma.cc/ZBJ9-R74Q.

This post is part of the Environmental Law Review Syndicate, a multi-school online forum run by student editors from the nation’s leading environmental law reviews.

__________________________________________

By Theodore McDowell*

The California Cap-and-Trade program has been a beacon of success for market-based environmentalism. The program masterfully incorporated the lessons learned from previous cap-and-trade initiatives by more precisely allocating emission allowances and by setting higher price floors for auctions. The ambitious emissions reduction target and extensive range of gases covered by cap-and-trade have resulted in a substantial decrease in greenhouse gas emissions across the State. But the program has recently been involved in contentious litigation, with the chief concern being whether the emission regulations exceed the authority of the California Air Resource Board. The recent Morning Star Packing Company v. California Air Resources Board decision ultimately upheld the program, providing California Cap-and-Trade with a new lease on life.[1] However, with recent federal policy demonstrating a marked shift away from ecological conservationism, the survival of the nation’s best hope for free-market environmentalism still hangs in the balance.

I. Introduction

The California Cap-and-Trade Program (“CAT”) is derived from the California Global Warming Solutions Act of 2006 (“Global Warming Act”), which requires the State to reduce its greenhouse gas (“GHG”) emissions to 1990 levels by 2020.[2] The California Air Resource Board (“CARB”) is the State regulatory agency responsible for the project.[3] In 2011, the CARB adopted cap-and-trade regulations and created the CAT to set limits on GHG emissions.[4] The first auctions for the CAT were held in 2012, and the program went into full effect on January 1, 2013.[5]

The CAT operates in two phases each year. First, a number of emission allowances are freely distributed to entities that fall under the purview of the program.[6] Second, the remaining allowances are auctioned off on a quarterly basis.[7] The free distributions are reduced annually, and eventually all the allowances will be distributed via auctions.[8] The program also permits carbon offsets to satisfy up to eight percent of an entity’s compliance obligations.[9] The ultimate objective is to create incentives for businesses to craft environmentally friendly industrial practices as the number of yearly allowances decreases over time.

The CAT also has an enormous scope, and it is the world’s second largest market-based mechanism designed to reduce GHG emissions.[10] This size makes the successful implementation of the program especially impressive. The success is due largely to a design structure that draws upon the shortcomings of previous cap-and-trade initiatives, such as the Regional Greenhouse Gas Initiative (“RGGI”) in the northeastern United States and the Emissions Trading System (“ETS”) in the European Union.

II. Lessons Learned from the Regional Greenhouse Gas Initiative

The CAT was not the first emissions marketplace in the United States. In 2009, the RGGI went into effect as a cap-and-trade marketplace for CO2 emissions in the following nine states: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont.[11] However, the RGGI has been plagued with numerous shortcomings that have frustrated the performance of the initiative and which impart several lessons on how to more effectively design a cap-and-trade system.

A. Lesson 1: Cap-and-Trade Programs Need a Broad Scope

A key drawback of the RGGI is its limited scope. The program applies exclusively to CO2 emissions and only covers electrical power plants with the capacity to generate twenty-five or more megawatts.[12] Predictably, the results of the RGGI have been underwhelming, as only 163 facilities fall under the regulatory reach of the program.[13] Furthermore, CO2 emissions merely account for twenty percent of the GHG emissions in the nine participant states—a number that shrinks even further since the RGGI only regulates the electrical sector.[14] This narrowed scope has undermined the efficacy of the RGGI so drastically that Congress considers the program’s contribution to global GHG reductions to be “arguably negligible.”[15]

B. Lesson 2: Emission Forecasts Must Be Accurate

The second significant failing of the RGGI was that it overestimated the amount of CO2 emissions among the member states.[16] In fact, the RGGI set an initial emissions cap that was above actual emissions levels.[17] This was a gross oversight that stemmed from two key defects in the RGGI’s design.

First, the RGGI emission limits for the first cap period, which ran from 2009–2013, were based on emission estimations made in 2005.[18] Between 2005 and 2009, the amount of electricity generation in the member states decreased by thirty-six percent due to energy efficiency improvements and structural changes in energy generation portfolios.[19] Second, the RGGI distorted its emission forecasts by including all electrical power plants that had the capacity to generate twenty-five or more megawatts in its estimates.[20] Limiting the emission calculations to power plants that actually generated twenty-five or more megawatts would have produced more accurate projections.

These errors have been catastrophic for the initiative. The initial regulations had no effect on most businesses, which were already emitting below the inflated emissions cap.[21] Participation in the RGGI was therefore minimal, since many of the targeted businesses had no need to reduce emissions, purchase allowances, or generate offset credits.[22] Furthermore, because the RGGI does not limit the amount of allowances that can be “banked” and used in subsequent years, many companies have stored substantial amounts of these initial surplus allowances for future use.[23]

The administrators of the RGGI have taken extreme measures to try and remedy these miscalculations. Most notably, they implemented a “revised emissions cap,” running from 2014–2020, that slashes the emission limits by forty-five percent in an effort to match actual emission levels.[24] Such radical action would not have been necessary if the initial emissions cap had been more precise.

C. Lesson 3: Auctions Need Robust Price Floors

A final pitfall of the RGGI is its undervalued price floor for auctions. The reserve price has hovered around two dollars per allowance, despite being scheduled to increase according to the Consumer Price Index (“CPI”).[25] But the fact that auctioned allowances have been sold at prices exceeding five dollars indicates that businesses are willing to pay more.[26] The program therefore severely underappreciated the corporate demand for allowances and forfeited substantial potential earnings. Moreover, by greatly undervaluing the price floor, the RGGI administrators neglected to protect against suboptimal years when allowance prices have plummeted. A higher reserve price would have preserved the revenue generation capacity of the program, even during these off years.[27]

III. Lessons Learned from the European Union’s Emission Trading System

There are also numerous lessons to be learned from the deficiencies of the European Union’s ETS, which is the world’s largest market-based mechanism for reducing GHG emissions.

 A. Lesson 1: Cap-and-Trade Programs Need Ambitious Initial Targets

At the conclusion of Phase I of the ETS, the “Learning Phase” that ran from 2005–2007, it was apparent that the initial targets for emission reductions were far too lenient.[28] Indeed, the lax regulations during Phase I only produced GHG reductions of three percent.[29] The EU was forced to compensate by crafting extreme targets for Phases II and III of the program, setting emissions goals of six percent below 2005 levels for Phase II and twenty-one percent below 2005 levels for Phase III.[30] If the EU had formulated a more ambitious target for Phase I rather than over-prioritizing the transition of members into the program, it would have avoided the need for these drastic adjustments.

B. Lesson 2: Allowances Must Be Apportioned Judiciously

Similar to the RGGI, the ETS grossly over-allocated emission allowances. In fact, ETS allowances initially exceeded the amount of actual emissions by four percent.[31] This miscalculation was devastating for Phase I of the ETS, as it enabled European businesses to emit 130 million tons more in GHGs than they had emitted prior to the implementation of the program.[32] This surplus destroyed the demand for allowances in the ETS marketplace, and auction prices fell precipitously.[33] The EU was forced to heavily reconfigure ETS allowance allocations to try and mitigate the damage caused by these initial overestimations, and it is still attempting to normalize the ETS marketplace.[34]

C. Lesson 3: Cap-and-Trade Programs Need Balanced Market Designs

The ETS has also been hamstrung by its inferior market design. Phase I of the program did not permit any allowances to be banked for future use.[35] Coupled with the initial over-allocation of allowances, this meant that most regulated entities possessed surplus allowances they had to expend by the year-end. This resulted in extreme downward price volatility at the conclusion of trading periods, as many companies attempted to dump the remainder of their emission allowances into the auctions.[36] The EU was once again forced to implement significant revisions to correct this oversight.[37] And while the ETS now permits allowances to be banked, the initial trading instability across Europe nearly destroyed the program.[38]

The EU also does not set a reserve price for ETS auctions, meaning there is no price protection for emission allowances.[39] This remains a gross oversight by the EU, as the lack of a price floor fails to account for the inevitable fluctuation of allowance prices due to changes in weather or energy price cuts. As a consequence, the ETS has lost significant revenue during periods of low auction demand where allowances have sold for pennies on the dollar, and the program will continue to be financially vulnerable until this design flaw is remedied.[40]

D. Lesson 4: Cap-and-Trade Programs Need Administrative Uniformity

Administrative inefficiencies have also plagued the ETS. The most glaring hole was the initial lack of a single registry for ETS participants.[41] Prior to 2012, each nation participating in the ETS had its own registry, which resulted in inconsistent regulation across the system.[42] The Danish registry, for example, failed to vet its registrants for two years.[43] The registry ultimately became so saturated with fraudulent companies that over ninety percent of account holders had to be deleted in 2010.[44] Even after the EU moved all participants into a single registry, the credibility lost among consumers during these initial years continues to plague the reputation of the program.

E. Lesson 5: Cap-and-Trade Programs Need Strong Cyber-Security

The final shortcoming of the ETS is that its cyber-security has been extremely assailable. “Phishing” has been one particularly vexing problem. The scam involves the creation and promotion of fake registries that solicit users to reveal their ETS identification codes. The “phishers” then use this information to carry out carbon trading transactions in legitimate registries. These deceptions have had severe economic ramifications, and as much as three million euros have been stolen in a single month.[45]

Hacking has been another key cyber-security issue for the ETS. Hackers have been able to infiltrate users’ computer systems and sell off all their allowances for immediate cash payments on the “spot market.”[46] Numerous companies have been crippled by this scam, and hackers have defrauded certain businesses of more than seven million euros worth of emission allowances.[47]

IV. The Success of the California Cap-and-Trade Program

When considering the numerous oversights of the RGGI and ETS programs, the success of the CAT is doubly impressive. This success is due to the balanced design of the CAT, which incorporates the strengths of the RGGI and ETS while mitigating their weaknesses.

A. Success 1: The CAT Has Precise Methods for Accurately Allocating Allowances

Both the RGGI and ETS erred by overestimating actual emission levels and allocating excessive allowances. The CARB avoided this mistake by crafting a precise allocation methodology that prevented surplus allowances from derailing the auction marketplace. Foremost, the CARB calculated California emission levels for the years immediately preceding the creation of the CAT to more accurately forecast future emissions. The CARB also narrowed the variability of its emissions estimates by only including emitters who had actually emitted 25,000 or more metric tons of CO2 or equivalents.[48] Emitters who merely had the capacity to emit beyond the 25,000 metric ton threshold were not included in the calculations. The greater accuracy of the CAT estimates was evidenced during the program’s first quarterly auction in 2012, where all twenty-three million allowances offered at the auction were purchased above the reserve price.[49]

B. Success 2: The CAT Began Ambitiously While Also Facilitating Transition

Another common error of the RGGI and ETS was that their design strategies over-prioritized transitioning members into their systems. The programs initially neglected to implement substantive emission reduction targets for fear of overwhelming participants, and they have subsequently instituted dramatic reforms to compensate. By contrast, the CARB recognized the need to balance the transition of members into the program against regulatory efficacy, lest one derail the other.

The CARB facilitated the transition of participants into the CAT by narrowing the scope of the first compliance period to only cover electrical and industrial sectors. It waited until the second compliance period to expand into the transportation and heating fuel sectors to provide companies time to adjust their business practices.[50] Yet the CARB also implemented considerable GHG reduction targets. The CARB initially set a 2020 reduction goal of seventeen percent below 2013 levels, which still eclipses the target of the RGGI.[51] Due to these ambitious benchmarks, the CAT has already produced “non-negligible” emission reductions and economic gains, with 2013 alone seeing GHG reductions of over a million and a half metric tons and statewide economic growth of two percent.[52] The CAT has benefitted greatly from such a stable infrastructure, and it remains on track to reach its ultimate emission reduction target by 2020.[53]

C. Success 3: The CAT Has a Broad Scope

The CARB also built off the mistakes of the RGGI by broadening the regulatory scope of the CAT. Because it only regulates CO2 emissions, the RGGI covers less than twenty percent of the GHG emissions generated across its nine participating states.[54] By contrast, the CAT emulates the ETS by also covering CO2 equivalents such as CH4, N2O and other fluorinated GHGs, resulting in more effective emission restrictions.[55] The CARB also recognized that the RGGI erred in solely regulating electrical power plants. Accordingly, the CARB extended CAT regulations into other sectors heavy in GHG emissions, such as industrial, transportation, and heating fuel sectors.[56] Because of this broader scope, the CAT already covers over 600 facilities in California, whereas the RGGI only reaches 163 facilities across nine states.[57] The CAT also covers more than eighty-five percent of California’s GHG emissions, which is almost four times the amount of GHG coverage under the RGGI.[58]

D. Success 4: The CAT Has a Balanced Market Design

The CAT also avoided the severe design blunders of the RGGI and ETS. Rather than undervaluing or ignoring auction price floors, the CARB instituted a strong reserve price of ten dollars in 2012, which has been set to increase each year thereafter by five percent (in addition to increases for inflation).[59] Allowances have consistently sold above these amounts, but the price floor has provided steady protection against downward price volatility during poor trading periods.[60] Moreover, the built-in mechanism for annual increases to the reserve price has ensured that the price floor continues to increase irrespective of CPI circumstances.[61]

The CAT further protects against precarious price drops by permitting allowances to be banked.[62] This avoids the price instability problems of the ETS by discouraging businesses from dumping surplus allowances into auctions at the end of trading periods. Nevertheless, the CAT imposes limits on the maximum amount of allowances that can be held by a business.[63] This circumvents the design flaw of the RGGI that allows businesses to bank an inordinate amount of allowances and eliminate any need to subsequently reduce emissions.[64]

The revenues generated by the CAT best demonstrate the success of its market design. The first auction raised more than $289 million, and the first compliance period generated $969 million in revenue for California.[65] Projections estimate that the CAT will generate two billion dollars or more per year as the program’s regulatory scope continues to scale upwards.[66]

E. Success 5: The CAT Has Strong Administrative and Security Practices

The CAT has also benefitted immensely from its efficient administration and strong security practices. Foremost, the CAT keeps a single registry for all its regulated entities, ensuring vigilant and orderly monitoring of all participants.[67] The cyber-security protocols of the CAT have been extremely successful as well.[68] To prevent hackers and phishers from infiltrating the program, CAT auctions take place over a four-hour window that is constantly supervised by state employees.[69] The bidders and supervisors remain undisclosed to the public, and all parties must surrender their electronic devices during the auction.[70] This “sealed bid” approach to the auctions has protected the CAT from the fraud and counterfeiting issues that tormented the RGGI and ETS.[71]

 V. A Recent Legal Challenge: Are Cap-and-Trade Auctions Tax Programs?

Despite the success of the CAT, the program has faced serious legal obstacles. The principal challenge took place in the recent Morning Star Packing Company v. California Air Resources Board case, where the plaintiffs alleged that the auctions were unconstitutional and violated California law.[72] The chief contention was that the CAT constituted a tax on companies for emitting GHGs.[73] The plaintiffs argued that the statutory authorization of the CAT, the Global Warming Act, therefore fell under the purview of California’s Proposition 13, which requires legislators to pass by two-thirds vote “any act to increase state taxes for the purpose of increasing revenue.”[74] Because the Global Warming Act was not passed by a two-thirds vote, the plaintiffs asserted that the CARB exceeded its regulatory authority when it created the CAT.[75]

The dispositive issue in the case was whether the auctions were unconstitutional taxes or whether they were permissible regulatory fees placed on tradable commodities.[76] The Sacramento superior court ultimately upheld the CAT, concluding that emission allowances were tradable commodities in a marketplace.[77] The court considered several distinctions between taxes and regulatory fees, but the chief difference seemed to be that whereas the government sets tax prices, the market determined the auction price of the emission allowances.[78] Thus, the fact that the allowances had no value independent of the California regulatory scheme did not transform the auctions into a tax program, and the allowances remained tradable commodities.[79]

Yet the superior court ruling did not mark the end of the contentious litigation. The Morning Star decision was appealed to the Sacramento appeals court, which affirmed the lower court judgment by a two-to-one majority decision.[80] In turn, the appellate court ruling was appealed to the California Supreme Court, which ultimately declined to hear the case in June of 2017.[81] What should have been a resounding victory, however, was diminished by the fact that the State Supreme Court did not issue a written opinion on the program itself.[82] Nevertheless, the affirmation of the CAT provided market-based environmentalism with a new lease on life and has galvanized California policymakers and legislators.

VI. The Aftermath of Morning Star

The ramifications of the Morning Star have already been substantial in California. State legislators quickly capitalized on the State Supreme Court’s dismissal of the case by voting to extend the CAT an additional ten years through 2030.[83] The extension produced newfound confidence in environmentalism and revitalized the market economy surrounding the CAT – whereas previous quarterly auction sales had dropped sharply, the California government sold every emission permit offered in the August 2017 auction.[84]

Yet these successes have not been replicated on a national scale. This is somewhat perplexing, as the CAT provides a workable model upon which to base the creation of a federal cap-and-trade program. In particular, Congress could convincingly argue that the Morning Star case supports the notion that cap-and-trade programs deal with tradable commodities and do not constitute tax programs. Congress could therefore avoid having to rely on the Taxing and Spending Clause of the Constitution to justify the creation of an auction program and, instead, could derive its authority from the broader powers of the Commerce Clause.

The affirmation of Morning Star also provides strong persuasive reasoning for Congress to resolve the longstanding debate on whether emission allowances are “physical” (or “nonfinancial”) commodities, which are physically deliverable and consumable, or “financial” commodities that are satisfied through cash settlements.[85] Relying upon the Morning Star court’s description of allowances as being consumable and involving the physical transfer of title, Congress now has a strong basis for asserting, on the federal level, that allowances are physical commodities.[86] This would shield a federal cap-and-trade program from the administrative burdens of complying with the Commodity Exchange Act and other commercial regulations. [87]

Despite the reasoning provided by Morning Star, recent federal policy has demonstrated a marked shift away from the environmentalist approach espoused by the Obama Administration. The recent withdrawal of the Clean Power Plan, the Obama-era rule regulating greenhouse gas emissions, best evinces this change in protocol.[88] Indeed, with the Environmental Protection Agency consistently the choice target of President Trump’s proposed budget cuts, environmentalism on a national level has been placed in a precarious position.[89]

It remains to be seen whether this federal paradigm shift will take a toll on the CAT. It is certain, however, that the demise of the CAT would be the death knell for market-based environmentalism in the United States. Fortunately, the CAT has several contingency protocols to counteract market volatility. In particular, the CARB can hold unsold allowances off the market for at least nine months to compress the supply and force participants back to the auctions.[90] This foresight proved to be invaluable in the wake caused by the initial Morning Star appeal in 2016, during which time the May 2016 and August 2016 auctions only sold eleven percent and thirty-five percent, respectively, of the allowances offered.[91] The remedial mechanisms built into the CAT allowed administrators to re-stabilize the market, and the November 2016 auction resulted in the successful sale of eighty-nine percent of the offered allowances.[92] Nevertheless, these contingencies are merely stopgap solutions, and hesitation among market participants will likely resurface as Californian and national policy progress along their collision course. Until a clear and unified path towards environmentalism is forged across the nation, an ominous shadow will remain cast over the CAT.

VII. Conclusion

The CAT has been a landmark initiative for environmentalism in the United States. Incorporating lessons from the RGGI and ETS, the program has struck a masterful balance in its market design and has produced significant environmental and financial gains for California. The affirming decision of the California judiciary and recent expansion of the program by the California legislature have been beacons of hope for cap-and-trade. Despite these successes, the future of the CAT remains in doubt, plagued by an uncertain socio-political climate where federal support for environmentalism has recently waned. And while the CAT has withstood previous legal and economic challenges, it is undeniable that the decisive battle for market-based environmentalism across the United States has begun.

* J.D. 2017, University of Virginia School of Law. I would like to thank Alisha Mehta for her advice and comments and Pamela Lim for her tireless support, without which this article would not be possible.

[1] Morning Star Packing Co., et al. v. California Air Resources Board, et al., Sacramento Appellate Court, Case No. 34-2012-80001313 [hereinafter Morning Star Appellate Decision], http://documents.latimes.com/appeals-court-upholds-californias-cap-and-trade-program/.

[2] California Environmental Protection Agency, Assembly Bill 32 Overview, http://www.arb.ca.gov/cc/ab32/ab32.htm.

[3] Id.

[4] California Cap-and-Trade Program Summary, Center for Climate and Energy Solutions (Jan. 2014), https://www.c2es.org/docUploads/calif-cap-trade-01-14.pdf.

[5] Id.

[6] Id. From 2013–2015, the program covered electrical and industrial power plants that emitted 25,000 or more metric tons of CO2 or equivalent gases per year. Since 2015, fuel distributors have also been covered.

[7] Id.

[8] Id.

[9] Id. Carbon offsets are greenhouse gas emission reductions that are credited to a company that funds or participates in an activity that reduces carbon footprints in the environment.

[10] Id.

[11] Lucas Bifera, Regional Greenhouse Gas Initiative, Center for Climate and Energy Solutions 1 (Dec. 2013), https://www.c2es.org/docUploads/rggi-brief-12-18-13-updated.pdf.

[12] Jonathan Ramseur, The Regional Greenhouse Gas Initiative: Lessons Learned and Issues for Congress, Congressional Research Service 2 (Apr. 27, 2016), https://www.fas.org/sgp/crs/misc/R41836.pdf.

[13] Id.

[14] Id. at 3.

[15] Id. at 19.

[16] Id. at 3–7.

[17] Id. at 4.

[18] Id. at 4–5.

[19] Id. at 5.

[20] See id.

[21] Id. at 4–5.

[22] Id. at 3­–7.

[23] Overview of RGGI CO2 Budget Trading Program, Regional Greenhouse Gas Initiative 6 (Dec. 2007), http://www.rggi.org/docs/program_summary_10_07.pdf.

[24] Ramseur, supra note 12 at 7–8.

[25] Id. at 8–12.

[26] Id.

[27] Id.

[28] Emissions Trading in the European Union: Its Brief History, Pew Center on Global Climate Change 1–2 (Mar. 2009), https://www.c2es.org/docUploads/emissions-trading-in-the-EU.pdf.

[29] Id.

[30] Id.

[31] Tamra Gilbertson, Fraud and Scams in Europe’s Emissions Trading Systems, Climate & Capitalism, May 5, 2011, http://climateandcapitalism.com/2011/05/05/fraud-and-scams-in-europes-emissions-trading-system/.

[32] Id.

[33] Id.

[34] See id.

[35] Emissions Trading in the European Union, supra note 28 at 1–2.

[36] Id.

[37] Id.

[38] Id.

[39] Flawed Application of the Auction Reserve Price in the EU ETS, Emissions-EUETS.com (Feb. 23, 2013), http://www.emissions-euets.com/auctionsco2allowances/153-flawed-application-of-the-auction-reserve-price-in-the-eu-ets.

[40] Gilbertson, supra note 31.

[41] Id.

[42] Id.; Union Registry, European Commission, https://ec.europa.eu/clima/policies/ets/registry_en (last visited Feb. 17, 2017).

[43] Gilbertson, supra note 31.

[44] Id.

[45] Id.

[46] Id.

[47] Id.

[48] California Cap-and-Trade Program Summary, supra note 4.

[49] Dana Hull, 13 Things to Know About California’s Cap-and-Trade Program, San Jose Mercury News (Feb. 22, 2013), http://www.mercurynews.com/ci_22092533/13-things-know-about-california-cap-trade-program.

[50] California Cap-and-Trade Program Summary, supra note 4.

[51] Id.

[52] Dave Clegern, California greenhouse gas inventory shows state is on track to achieve 2020 AB 32 target, California Environmental Protection Agency (June 30, 2015), http://www.arb.ca.gov/newsrel/newsrelease.php?id=740.

[53] Id.; Michael Hiltzik, California’s cap-and-trade program has cut pollution. So why do critics keep calling it a failure?, L.A. Times (July 29, 2016), http://www.latimes.com/business/hiltzik/la-fi-hiltzik-captrade-20160728-snap-story.html.

[54] Ramseur, supra note 12 at 2.

[55] California Cap-and-Trade Program Summary, supra note 4.

[56] Id.

[57] Id.

[58] Id.; Emily Reyna, Four Reasons California Cap and Trade Had an Extraordinary First Year, Forbes (Jan. 14, 2014), http://www.forbes.com/sites/edfenergyexchange/2014/01/08/four-reasons-california-cap-and-trade-had-an-extraordinary-first-year/#58ffab0e4dfc.

[59] California Cap-and-Trade Program Summary, supra note 4.

[60] Archived Auction Information and Results, California Environmental Protection Agency, http://www.arb.ca.gov/cc/capandtrade/auction/auction_archive.htm.

[61] California Cap-and-Trade Program Summary, supra note 4.

[62] Archived Auction Information and Results, supra note 60.

[63] California Cap-and-Trade Program Summary, supra note 4.

[64] Id.

[65] Hull, supra note 47; Michael Hiltzik, Emissions cap-and-trade program is working well in California, L.A. Times (June 12, 2015), http://www.latimes.com/business/hiltzik/la-fi-hiltzik-20150613-column.html.

[66] Hiltzik, supra note 65.

[67] California Cap-and-Trade Program Summary, supra note 4.

[68] Laurel Rosenhall, Why hasn’t California’s cap and trade pollution program been the model for the U.S.?, L.A. Daily News (July 31, 2015), http://www.dailynews.com/environment-and-nature/20150731/why-hasnt-californias-cap-and-trade-pollution-program-been-a-model-for-us.

[69] Id.

[70] Id.

[71] Id.; Gilbertson, supra note 31.

[72] Morning Star Packing Co., et al. v. California Air Resources Board, et al., Sacramento Superior Court, Case No. 34-2013-80001464 [hereinafter Morning Star Superior Court Ruling]. The case was consolidated and decided jointly with California Chamber of Commerce, et al. v. California Air Resources Board, et al., Sacramento Superior Court, Case No. 34- 2012-80001313. The joint decision is available at: http://www.edf.org/sites/default/files/content/decisionchambermorningstar.pdf.

[73] Id. at 5.

[74] Id.

[75] Id.

[76] Id. at 11–14.

[77] Id. at 16–18.

[78] Id.; Allie Goldstein, Cap-and-Trade Is Not A Tax, California Court Says, Ecosystem Marketplace (Nov. 18, 2013), http://www.ecosystemmarketplace.com/articles/cap-and-trade-is-not-a-tax-california-court-says/.

[79] Goldstein, supra note 78.

[80] See generally Morning Star Appellate Decision.

[81] Dan Whitcomb, California Supreme Court Upholds Cap-and-Trade Law, CNBC (June 28, 2017), https://www.cnbc.com/2017/06/28/reuters-america-california-supreme-court-upholds-cap-and-trade-law.html.

[82] Id.; Chris Megerian, California Supreme Court Leaves in Place Decision Upholding Cap-and-Trade System, L.A. Times (June 28, 2017), http://www.latimes.com/politics/essential/la-pol-ca-essential-politics-updates-cap-and-trade-supreme-1498684764-htmlstory.html.

[83] Melanie Mason & Chris Megerian, California Legislature Extends State’s Cap-and-Trade Program in Rare Bipartisan Effort to Address Climate Change, L.A. Times (July 17, 2017), http://www.latimes.com/politics/la-pol-ca-california-climate-change-vote-republicans-20170717-story.html.

[84] California Cap-and-Trade Program: Summary of Joint Auction Settlement Prices and Results, California Air Resources Board (Aug. 2017), https://www.arb.ca.gov/cc/capandtrade/auction/results_summary.pdf.; Chris Megerian, California Cap-and-Trade Program Gets Shot in the Arm with Strong Permit Auction, L.A. Times (Aug. 23, 2017), http://www.latimes.com/politics/la-pol-sac-cap-trade-auction-results-20170823-story.html.

[85] CFTC Glossary, United Statutes Commodity Futures Trading Commission, http://www.cftc.gov/ConsumerProtection/EducationCenter/CFTCGlossary/glossary_p.

[86] See generally Morning Star Superior Court Ruling.

[87] See, e.g., 7 U.S.C. § 1a(47)(B)(ii) (2012) (excluding from the definition of “swap” “any sale of a nonfinancial commodity or security for deferred shipment or delivery, so long as the transaction is intended to be physically settled”).

[88] Daniella Diaz et al., EPA Administrator Scott Pruitt Announces Withdrawal of Clean Power Plan, CNN (Oct. 10, 2017), http://www.cnn.com/2017/10/09/politics/environmental-protection-agency-scott-pruitt-clean-power-plan/index.html.

[89] Brady Dennis & Juliet Eilperin, EPA Remains Top Target with Trump Administration Proposing a 31 Percent Budget Cut, Washington Post (May 23, 2017), https://www.washingtonpost.com/news/energy-environment/wp/2017/05/22/epa-remains-top-target-with-trump-administration-proposing-31-percent-budget-cut/?utm_term=.c5889f6eca1d.

[90] Hiltzik, supra note 53.

[91] Summary of Joint Auction Settlement Prices and Results, supra note 84.

[92] Id.

This post is part of the Environmental Law Review Syndicate, a multi-school online forum run by student editors from the nation’s leading environmental law reviews.

__________________________________________

By Matt Carlisle, Managing Editor, Vermont Journal of Environmental Law 

I. Introduction:

            Storm water is a major polluter. As one judge put it, “Storm water runoff is one of the most significant sources of water pollution in the nation, at times ‘comparable to, if not greater than, contamination from industrial and sewage sources.’”[1] Storm water “runoff may contain or mobilize high levels of contaminants, such as sediment, suspended solids, nutrients (phosphorous and nitrogen), heavy metals and other toxic pollutants, pathogens, toxins, oxygen-demanding substances (organic material), and floatables.”[2] When it storms or rains, “storm water runoff carries these pollutants into nearby streams, rivers, lakes, estuaries, wetlands, and oceans.”[3] This creates an immediate and dire need to regulate effluent from polluting storm water systems.

            Municipal storm water regulation has and is continuing to become a regulatory farce. Sloppy legislative language and short cited court rulings have dulled the tools necessary to curb polluted effluent from contaminating municipal storm water. Due to the legislative carelessness and misguided case law, municipal storm water regulation is treated as almost exempt from the Clean Water Act (CWA) because municipal storm water is not required to strictly comply with water quality standards. This paper proceeds as follows. In part one, the discussion will focus on the regulatory mechanisms of industrial and municipal storm water. Part two will discuss the judicial interpretations of industrial and municipal storm water. Part three discusses the counter arguments to the Ninth Circuit’s decision in Defenders. Finally, part four concludes with the common sense interpretation of municipal storm water regulation.

II. Storm Water regulation

            A. General Storm Water Regulation

According to the EPA “[s]tormwater runoff is generated from rain and snowmelt events that flow over land or impervious surfaces, such as paved streets, parking lots, and building rooftops, and does not soak into the ground.”[4] Consequently, “[t]he runoff picks up pollutants like trash, chemicals, oils, and dirt/sediment that can harm our rivers, streams, lakes, and coastal waters.”[5] Storm water runs into municipal or industrial conveyance systems and is discharged into the nearest water body.[6]

            The storm water conveyance system is regulated under the CWA’s National Pollution Discharge Elimination System (NPDES) authority because polluted storm water is collected, conveyed, and eventually discharged from a point source.[7] The NPDES program controls all effluents that discharge a pollutant or multiple pollutants through a permit.[8]  NPDES permits “contain limits on what you can discharge, monitoring and reporting requirements, and other provisions to ensure that the discharge does not hurt water quality or people’s health.”[9] A NPDES permit specifies “an acceptable level of a pollutant or pollutant parameter in a discharge.”[10]

            NPDES permits control effluents through effluent limitations.[11] There are two types of effluent limitations.[12] The first type is technology-based effluent limitations or TBELs.[13] These types of limitations are based on the available technology and cost of the technology that removes the specific pollutants in the effluent.[14] The second is water-quality-based effluent limitations or QBELs. QBELs are developed to achieve compliance with the established water quality standards specific to each waterbody.[15] According to §1313 of the CWA, all states must establish water quality standards for all bodies of navigable water within the state’s jurisdiction.[16] Therefore, QBELs are based on standards the state establishes for the individual water body.[17] NPDES permits include QBELs if TBELs are not enough to ensure compliance with water-quality standards.[18]

            QBELs are the safety net in the NPDES permit system.[19] QBELs ensure water quality standards when the technological limitation does not guarantee water quality attainment.[20] The CWA states that “each NPDES permit shall include… any requirements in addition to or more stringent than promulgated effluent limitations guidelines or standards under sections 301, 304, 306, 307, 318, and 405 of CWA necessary to … [a]chieve water quality standards established under section 303 of the CWA, including State narrative criteria for water quality.”[21] Thus, no matter which effluent technology the program mandates, each NPDES permit must require effluent limitations necessary to achieve the state established water-quality standards.

            Storm water effluent limitations are governed by 33 U.S.C. §1342(p). Storm water is divided into two categories: industrial and municipal.[22] According to the act, “[p]ermits for discharges associated with industrial activity shall meet all applicable provisions of this section and §1311 of this title.”[23] Municipal storm water, on the other hand, “shall require controls to reduce the discharge of pollutants to the maximum extent practicable, including management practices, control techniques and system, design and engineering methods, and such other provisions as the Administrator or the State determines appropriate for the control of such pollutants.”[24] The two, understandably, have entirely different mandates on the effluent limitation required by the Act.

            B. Industrial Storm Water:

Industrial storm water must comply with effluent limitations like all other effluent limitations in the NPDES program. According to the Code of Federal Regulations, “[s]torm water discharge associated with industrial activity means the discharge from any conveyance that is used for collecting and conveying storm water and that is directly related to manufacturing, processing or raw materials storage areas at an industrial plant.”[25] Industrial storm water is governed by §1311 of the CWA, which specifies technology- and water-quality-based requirements.[26] The type of pollutant the effluent contains dictates industrial storm water’s effluent limitation.[27] The CWA §1311 mandates that a permit must incorporate both technology and water-quality requirements.[28]

            Technology-based effluent limitations are governed by the type of pollutant the effluent contains and reflect the levels of reduction through the use of pollution-control technology.[29] For example, if the pollutant is a toxic or nonconventional pollutant, it must adhere to the “best available technology economically achievable” or BAT.[30] Additionally, if the effluent emits a conventional pollutant then the technology-based limitations are either the “best practicable control technology currently available” (BPT) or “best conventional pollutant control technology” (BCT).[31] In addition to technology-based pollution reduction, the permits must also adhere to QBELs, as mentioned above.[32] Therefore, the CWA requires industrial storm water to adhere to a technologically-based effluent limitation that correlates to the type of pollutant the Industry emits along with water quality based effluent limitations.

            C. Municipal Storm Water:

            Municipal storm water conveyance systems or municipal separate storm sewer systems (MS4) are regulated “to the maximum extent practicable.”[33] Unlike the TBELs in §1311, Congress did not define what “maximum extent practicable” (MEP) meant. The MEP standard includes “management practices, control techniques and system, design and engineering methods, and such other provisions as the Administrator or the State determines appropriate for the control of such pollutants.”[34] All MS4s must develop and implement storm water management plans in order to reduce pollutants to the maximum extent practicable.[35] Thus, the storm water management plans are the mechanism to reduce pollutants under the MEP effluent standard.

            The storm water management plans (SWMP) implement management practices, control techniques, and system design and engineering methods designed to reduce pollutants to MEP. Phase I and II SWMPs differ, but have six core elements or best management practices (BMPs) that overlap.[36] The two SWMPs include some variation of public education, public participation, illicit discharge detection, construction and post-construction runoff control, and municipal housekeeping. Once a SWMP is implemented it goes through what the EPA has coined as the iterative process.[37] The iterative process is a review and assessment of the MS4’s BMP effectiveness.[38] After the review, MS4s are supposed to revise their BMPs with the ultimate goal of meeting WQSs.[39] Currently, there are no maximum iterations or limits in the Act or EPA guidelines about how many times a SWMP can fail to attain WQSs.[40]

            MS4s regulated to the MEP standard achieve the standard by storm water management plans that implement best management practices in a narrative form, not a numeric form.[41] There are no numeric baseline criteria in the MEP standard like there are in the TBELs in §1311. Therefore, the MS4 permitting process has no numeric mandates. Therefore, water quality standards (WQS) are the only baseline that exists within the MEP standard. Thus, WQS’s are the only way to “control [] such pollutants” from municipal storm water because without a concrete standard, there is no measure of control.[42]

III. JUDICIAL INTERPRETATIONS:

            A. Judicial Interpretation of Industrial Storm Water

            Industrial storm water must conform to TBELs that are based on the effluent’s pollutant and must adhere to water-quality-based standards. When analyzing industrial storm water, the court addresses the effluent limitation accounting for both §1342[43] and §1311[44]. In California Sportfishing Prot. All. v. River City Waste Recyclers, LLC, the district court held that “[f]acility operators must meet the applicable standards for discharge of pollutants using the best available technology economically achievable (BAT) and the best conventional pollutant control technology (BCT) to prevent and reduce pollutants in storm water discharges, under Clean Water Act section 301, which regulates pollutant discharges, and section 402….”[45] According to the court, industrial storm water’s technological limitation correlates with the type of pollutant just like any other effluent under §1311.[46]

            Additionally, in Santa Monica Baykeeper v. Kramer Metals, Inc, the district court held that the NPDES “[g]eneral Permit implements the requirements of the Clean Water Act through both technology-based provisions and water quality-based standards.”[47] Courts reinforce the pollutant-based technological limitation and the water-quality effluent limitation, treating industrial storm water just like every other effluent limitation. Just as the legislation mandates, industrial storm water must comply with TBELs and QBELs established in §1311. Industrial standards are concrete and held to both the technology- and water-quality-based limitations, with emphasis on a strict compliance to WQSs.[48] The same cannot be said for municipal storm water.

            B. Judicial Interpretation of MS4’s:

                        1. NRDC v. EPA:

            Unfortunately, judicial interpretations of MS4’s MEP standard has led to an effluent limitation system that has no teeth. This body of law started in NRDC v. EPA.[49] NRDC challenged the EPA’s storm water regulations alleging that it did not develop a new, substantive standard but instead “wrote vague regulations containing no minimum criteria or performance standards” thus failing their mandate from the 1987 amendments.[50] EPA contended that narrative effluent limitations in MS4 permits are acceptable limitations.[51] Thus, according to EPA, MEP’s effluent limitation can be a narrative limitation instead of numeric.[52]

            The court based most of its reasoning on the differences between industrial and municipal storm water rules. The court in NRDC stated that “municipal storm water dischargers were subject to the same substantive control requirements as industrial and other types of storm water” before 1987. When amending the CWA, Congress “retained the existing, stricter controls for industrial storm water dischargers but prescribed new controls for municipal storm water discharge.”[53] Also, the court held that “Congress could have written a statute requiring stricter standards, and it did not.”[54] The Court continued by stating, “Congress did not mandate a minimum standards approach or specify that EPA develop minimal performance requirements.”[55] For all of these reasons, the court deferred to EPA’s narrative standard.

            Consequently, MEP’s effluent limitation became a narrative limitation. But the court’s ruling in this case became the jump-off point for a later ruling that abrogates water-quality standards in MS4 permits.[56] There are two important things that we need to take from this ruling. First, the decision in NRDC decided to defer to EPA’s interpretation that narrative effluents are acceptable effluent limitations for MS4s.[57] Second, the court quotes EPA rules in 55 FR 47990-01, which discusses the best way to achieve water quality standards through narrative limitations.[58] Therefore, the document that the court defers to for its ruling asserts the use of water-quality standards in MS4 permits, which contradicts the Ninth Circuit’s later decision in Defenders.

                        2. Defenders of Wildlife v. Browner

            In Defenders of Wildlife v. Browner, the Ninth Circuit eventually held that there was no strict requirement for MS4s to adhere to water-quality standards.[59] Defenders of Wildlife (Defenders), a citizen group, sued the EPA alleging, among other things, that “EPA acted arbitrarily, capriciously, and contrary to law in issuing NPDES storm sewer permits” to five Arizona municipalities.[60] Defenders alleged that the five permits the EPA issued to municipalities “do not assure compliance with water quality standards” because they use BMPs and not numeric water quality-based effluent limitations.[61] Furthermore, Defenders asserted that the CWA “explicitly requires all NPDES permits to contain whatever limitations are necessary to assure compliance with water quality standards (WQS) in the receiving river or lake.”[62] Defenders argued that EPA waived “the requirement to meet water quality standards” and that the waiver conflicted with the Act’s fundamental goal but also with the “Act’s longstanding approach of requiring dischargers to meet both technology-based and water quality-based limits.”[63] Defenders did not believe that the BMPs and narrative effluents would achieve water-quality standards and contended that all MS4 permits must adhere to WQSs through numeric criteria.

            The EPA conceded “that the Municipalities’ storm water NPDES permits must contain requirements as stringent as necessary to meet state water quality standards.”[64] The EPA also stated that “[t]o exempt municipal storm water discharge permits from compliance with water quality standards undercuts the goals of the 1987 amendments and the Clean Water Act as a whole.”[65] But, the EPA disagreed with the premise that numeric limitations are the only way to achieve water quality standards. The EPA asserted that the narrative “permits include effluent limitations as stringent as necessary to meet applicable water quality standards” through the MS4’s storm water management plans.[66] EPA claimed that the effluent limitations “may include ‘best management practices’ to control or abate the discharge of pollutants.”[67] Thus, EPA contends that NPDES permits must comply with water quality standards, but that BMPs in the storm water management plans are sufficient to achieve those standards.

            The Ninth Circuit sided with neither party stating that both parties ignore statutory precedent and both parties’ readings would render the section superfluous.[68] The Ninth Circuit held that MS4s are not subject to strict WQS adherence because Congress was not as strict with municipal storm water as Congress was with industrial storm water.[69] The court based it reasoning on several arguments. First, the court stops at Chevron step 1, holding that Congress’s intent was clear because it left out §1311 in the MEP standard.[70] Second, the court states that the “no-strict” standard gives meaning to the entire statute and does not render any part of the act superfluous.[71] Third, the court states that their ruling harmonizes with their previous decision in NRDC.[72] Thus, according to the court, MS4s do not have a strict compliance mandate with WQSs, making it not a mandate or requirement at all.[73]

IV. COUNTER ARGUMENTS TO THE NINTH CIRCUIT’S DECISION

            The court is incorrect on all of its reasons. First, the court applies a Chevron analysis, but the court stops at Chevron step 1, holding that Congress’s intent was clear because it left out §1311 in the MEP standard.[74] Confusingly, the court takes aim at industrial storm water and establishes that 402(p) “expressly required industrial storm-water discharges to comply with the requirements of 33 U.S.C. § 1311.”[75] Logically, as the court pointed out (as with all NPDES permits) this mandates that “industrial discharges must comply strictly with state water-quality standards.”[76] Then, the court emphasizes that Congress did not chose the same language and “required municipal storm-sewer discharges ‘to reduce the discharge of pollutants to the maximum extent practicable’” or MEP standard.[77]

            The court concluded that both EPA and Defenders “ignored precedent respecting the reading of statutes.”[78] The court quoted Russello v. United States, reasoning that “[w]here Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.”[79] The court applied a pseudo expressio unius form of interpretation and reasoned that it was “Congress’ choice to require Industrial storm-water discharges to comply with 33 U.S.C. § 1311, but not to include the same requirement for municipal discharge.”[80] And when the court read these two sections together, the court concluded that “33 U.S.C. § 1342(p)(3)(B)(iii) does not require municipal storm-sewer discharges to comply strictly with 33 U.S.C. § 1311(b)(1)(C).”[81] The court continues by stating that “33 U.S.C. § 1342(p)(3)(B) replaces the requirements of §1311 with the requirement that municipal storm-sewer dischargers ‘reduce the discharge of pollutants to the maximum extent practicable’” and that “in the circumstances, the statute unambiguously demonstrates that Congress did not require municipal storm-sewer discharges to comply strictly with 33 U.S.C. §1311(b)(1)(C).”[82]

            The court mistakenly ignores that § 402(p) is a pollution-based effluent limitation mandate, not just a mandate to water-quality based standards. Industrial storm water effluent is the same as any other effluent from industry. If the court considered this aspect of industrial storm water, it would realize that the act was not just referring to WQSs. The act, in §402(p) mandates industrial storm water to adhere to the pollutant-based effluent limitations in §1311. As stated above, TBELs are based upon the type of pollutant and the correlating technology.[83] Therefore, it is the intent of Congress that industrial storm water be treated like any other effluent limitation. What is not clear is how industrial storm water’s §1311 mandate affects municipal storm water.

            The court’s interpretation leaves two issues. First, by addressing other parts of the act, as the court does in its reasoning, it seems that the congressional intent was to ensure that WQSs are met. As discussed the below, other parts in the act point toward this interpretation. Second, even if the intent is not easily discerned, it means there is an ambiguity, thus requiring the court to go to step two of the Chevron Analysis. If the court went to step two, it would have to defer to the EPA’s interpretation, which concludes that WQSs are necessary requirements to the NPDES permit.[84]

            It seems logical that the MEP standard is the technology based standard for municipal storm water. And that MEP does not, however, replace the water quality based standard that is required by the Act and Code.[85] Intent in favor of water quality standards is readily ascertained from the Act because looking at the CWA as whole, all parts of the Act point toward the intent to mandate strict compliance of water quality standards. First §1311(c), the mechanism that controls point source pollution, explicitly states, “in order to carry out the objective of this chapter there shall be achieved … any more stringent limitation, including those necessary to meet water quality standards.”[86] Second, 40 CFR 122.44 explicitly mandates that NPDES permits must include “any requirements in addition to or more stringent than promulgated effluent limitations guidelines … necessary to … [a]chieve water quality standards established under section 303 of the CWA.”[87] Third, the act mandates that states enact water quality standards for the purpose of NPDES permits, effluent limitations, and ultimately water quality improvement.[88] Thus, all parts of the act show congressional intent that favors strict compliance to water quality standards.

            Furthermore, the court ignores the context of the rest of the section, especially §1342(p)(2)(E). The Act states that if “the Administrator or the State … determines that the storm water discharge contributes to a violation of a water quality standard or is a significant contributor of pollutants to waters of the United States” the Administrator or State can mandate a NPDES permit from the storm water discharger.[89] This particular section is called Residual Designation Authority, and if the Administrator determines that a non-regulated storm water discharger contributes to a water quality standard violation, the EPA or Administrator can bring the discharger within the NPDES permitting authority.[90] It would be illogical, at best, to include a way to bring a storm water discharger that has not been named in the Act under the NPDES permitting authority for WQS violations and yet allow a no-strict WQSs approach to a storm water discharger already under the NPDES permitting authority. Thus, the storm water discharger that is originally unregulated is strictly held to WQSs; yet, according to the Ninth Circuit, MS4s are not strictly held to WQSs even if they are specifically regulated under the CWA.[91] Section 1342(p)(2)(E) demonstrates the illogical nature of allowing MS4s, a specified discharger under the CWA, to fail to strictly adhere to WQSs when the Act can mandate a non-CWA-specified storm water discharger to attain a permit for WQS violations.

            EPA has also explicitly expressed, in a legal memorandum in addition to their brief before the Ninth Circuit, that MEP was not supposed to supplant WQS attainment.[92] In 1991, a legal opinion issued by EPA’s general counsel explained that the MEP standard was only meant to modify the technology-based requirement of §301.[93] The opinion states that one can read §1342 (p)(3)(B)(iii) “as modifying only technology-based requirements for municipal storm water (i.e., MEP substitutes for BAT/BCT); any WQ-based requirements would still be necessary in a municipal permit, even if those requirements are more stringent than ‘practicable.’”[94]

            According to the legal opinion, the MEP is the new technology standard used for MS4s, however, WQSs still apply.[95] EPA’s general counsel also stated, “[t]he only interpretation by EPA to date, contained in its proposed rulemaking, has been that WQS would continue to apply to permits for municipal storm water discharges.”[96] Therefore, MEP is the technology used to attain the WQSs that the states have set. In 1996, EPA implicitly affirmed their legal opinion stating that numeric effluent limitations would be substituted by “best management practices … and expanded or better tailored BMPs in subsequent permits … to provide for the attainment of water quality standards.”[97] According to EPA, WQSs have always been part of the NPDES permit requirements regardless of the category of discharge.

            Furthermore, if congressional intent is not clear, courts must defer to EPA. If congressional intent is ambiguous, Chevron analysis mandates that EPA’s interpretation should stand as long as the interpretation is not arbitrary or capricious.[98] Since EPA’s view on mandating WQSs as part of MS4s is within its scope of the CWA and serves the purpose of the Act, the court will have no choice but to defer to EPA. Thus, regardless of intent or ambiguity, water-quality standards must be part of every MS4 NPDES permit and must require strict compliance.

            The second argument that the court mentions is that the ‘no-strict’ standard gives meaning to the entire statute and does not render any part of the act superfluous.[99] The court states that if it applies a strict water quality mandate on MEP, then it would render §1342(p)(3)(B)(iii) meaningless because “the more stringent requirements of that section always would control,” thus making MEP superfluous.[100] The court misses its mark on three accounts.

            First, the court’s reasoning does not pass logical muster. The court contends that because §1311(c) will always be stricter, it will render the MEP standard superfluous. The court provides no evidence of this. Additionally, there are plenty of occasions where WQSs are more stringent than the effluent limitations. Such is the purpose of WQSs; they are ambient requirements that act as a safety net when effluent limitations are not enough.[101] The court misinterprets the Act. WQSs are the baseline standard.[102] If the effluent limitation is not enough, then there needs to be stricter controls of that very effluent limitation. For example, if a MS4 is not meeting WQSs, then the MEP standard it uses will be stricter, just like 40 CFR 122.44 requires. But, the standard is still MEP.

            Second, the court’s ruling renders parts of the CWA superfluous in its ruling. As stated above as examples of congressional intent, there are three main parts of the CWA that the court renders superfluous. First, it renders §1311(c) meaningless because it states that it does not apply to MS4s even though the section specifically states that any more stringent limitations necessary to meet water-quality standards must be included in NPDES permits in order to carry out the objectives of the Act.[103] Second, the court ignores that 40 CFR § 122.44 explicitly mandates that NPDES must have requirements that ensure WQS attainment.[104] Finally, the court ignores that the Act mandates that states enact water-quality standards.[105] Thus, in an attempt to not render the MEP standard superfluous, the court renders three other substantial parts of the Act superfluous.

            In addition to rendering other parts of the Act superfluous, the court renders the MEP effectively superfluous. By creating the no-strict standard, courts have interpreted that WQSs play no part in MS4 permits. As an example of this consequence in action, in Maryland Dep’t of Environment v. Anacostia Riverkeeper, a state court held that MS4s do not need to adhere to WQSs, period.[106] Environmental groups challenged NPDES permits that were issued to several counties by the Maryland Department of the Environment (MDE), contending that the NPDES permits failed to comply with the state water-quality standards or the TMDL limits.[107] In the opinion directly quoting the Ninth Circuit’s Defender language, the court expressly stated, “MS4s are not subject to the requirement of imposing effluent limitations ‘necessary to meet water quality standards.’”[108] The court stated that the MEP standard established by Congress is a “broad requirement for MS4s and that 33 USC 1342(p)(3)(B)(iii) ‘imposes no minimum standard or requirement on MDE other than to establish controls for MS4s to reduce the discharge of pollutants.’”[109] The holding is an impermissible extension of Defenders, and contradicts the clear mandate that all NPDES permits must adhere to WQSs.[110]

            Furthermore, courts are ignoring the purpose of the storm water management plans because there is no strict compliance to WQSs. In Jones Creek, a district court held that “the EPA’s regulations state that this requirement [SWMPs] is satisfied merely by implementing the best management practices listed in the MS4 permit” and “[w]hether those BMPs actually reduce pollutants in the stormwater is immaterial.”[111] The court concluded that because a MS4 permit only requires the county “to ‘implement and enforce’ it’s [sic] SWMP, and because the undisputed facts on the record are that it has implemented and enforced its SWMP to some degree, Columbia County has not violated its NPDES permit by failing to enforce the SWMP as a matter of law.”[112] This court held that as long as a MS4 has a SWMP, whether that plan reduces pollutants is irrelevant. Thus, according to this court, SWMPs are nothing more than a meaningless, or as the Ninth Circuit puts it, superfluous pieces of paper whose impacts are irrelevant. Therefore, without WQSs as the baseline, courts can view SWMPs as superfluous. Furthermore, without WQSs as a strict baseline standard, the MEP is effectively rendered superfluous and meaningless.

            The final reason the court gives for its ruling is that its decision is supported by the NRDC case. But requiring MS4s to adhere to WQSs is also supported by the court’s decision in NRDC. The court held that industrial and municipal are different, which the two are. The court also held that industrial’s effluent limitations are stricter, which they are. Industrial storm water has to adhere to pollutant-based technology standards and water quality based standards. MS4s just have to adhere to water-quality-based standards. There is no conflict with the Ninth Circuit’s ruling in NRDC.

V. THE COMMON SENSE READING OF MEP

            First, the industrial mandate of §402(p) should be read to mandate industrial storm water’s adherence to a pollutant-based effluent limitations listed in §1311 of the Act. Thus, the effluent limitation is based on whether it is a conventional, nonconventional, or toxic pollutant, just like every other effluent limitation from industrial activity.[113]

            Second, the MEP standard should be read according to the EPA legal memorandum by which the MEP standard is nothing more than the effluent technology standard that MS4s must abide by. Because of the wide array of pollutants that storm water produces, MEP’s flexibility allows for a better tailored effluent limitation. The SWMP allows for assessment of these different pollutants, but the MEP standard must still produce an effluent that does not interfere with water-quality standards. From a practical standpoint, this type of reading is common sense. Thus, industrial storm water must adhere to the higher standard of pollutant-based technology standards and MS4s must adopt a SWMP that adheres to WQSs set by the state. If they fail, then their SWMP must increase its efficacy, just like the iterative process that exists today. The only difference is that if the SWMP fails, it is still in violation of the CWA because it failed to attain WQSs. Holding MS4’s feet to the fire is the only way to clean up MS4 effluent.

VI. CONCLUSION

            Storm water is a major challenge in this country. Yet, the tools and regulations are in place. The EPA has NPDES permitting authority that uses technological limitations and water-quality-based limitations. The only issue is shortsighted judicial interpretation that conflates a different standard with no standard at all.

            Finally, §1342(p) must be read to include strict adherence to WQSs. Strict adherence is the only way to be consistent with the goals of the Act. It is consistent with all parts of the Act. And finally, it is consistent with EPA’s interpretation of the dynamic between technology-based effluents and water-quality-based effluent limitations. Thus, MS4s must strictly comply with WQSs.

[1] Envtl. Def. Ctr., Inc. v. U.S. Envtl. Prot. Agency, 344 F.3d 832, 840 (9th Cir. 2003) (citing Richard G. Cohn–Lee and Diane M. Cameron, Urban Stormwater Runoff Contamination of the Chesapeake Bay: Sources and Mitigation, The Environmental Professional Vol. 14, p. 10, at 10 (1992)).

[2] Id.

[3] National Pollutant Discharge Elimination System—Regulations for Revision of the Water Pollution Control Program Addressing Storm Water Discharges, 64 FR 68722-01.

[4] Problems with Stormwater Pollution, National Pollutant Discharge Elimination System (NPDES), Envtl. Protection Agency, https://www.epa.gov/npdes/npdes-stormwater-program (last visited May 3, 2017).

[5] Id.

[6] Steven Strom, Kurt Nathan, Jake Woland, Site Engineering for Landscape Architects 157 (5th ed. 2009).

[7] 33 USC §1311(a); 33 U.S.C. §1362(12).

[8] National Pollution Discharge Elimination System, NPDES Permit Basics, Envtl. Protection Agency, https://www.epa.gov/npdes/npdes-permit-basics (last visited Feb. 2, 2017).

[9] Id.

[10] Id.

[11] See 33 U.S.C. §1311.

[12] See generally id.

[13] Id.

[14] See generally id. §1311(b); see also Theodore Garrett, Overview of the Clean Water Act, in The Clean Water Act Handbook 4 (Mark A. Ryan 3d ed. 2011) (“Technology-based requirements are designed to reflect the levels of effluent quality achievable through the use of the pollution control technology.”).

[15] Id.

[16] 33 U.S.C. §1313.

[17] Id.

[18] Id. §1311(b)(1)(C); 40 CFR 122.44(d).

[19] Karen M. McGaffey and Kelly F. Moser, Water Pollution Control Under the National Pollutant Discharge Elimination System, in The Clean Water Act Handbook 34 (Mark A. Ryan 3rd ed. 2011) (QBELs developed to achieve compliance with established water quality standards and “are included in NPDES permits if technology-based limitations alone are not sufficient to ensure compliance with applicable water quality standards.”); see also 33 U.S.C §1311(b)(1)(C); 33 USC §1312(a); 33 USC §1313(e)(3)(A); 40 C.F.R. §122.44(d).

[20] 33 USC §1311(b)(1)(C) (mandating “any more stringent limitation, including those necessary to meet water quality standards”).

[21] 40 C.F.R. § 122.44(d)(1); see also 1311(b)(1)(C).

[22] 33 U.S.C. § 1342.

[23] Id. § 1342(p)(3)(A).

[24] Id. § 1342(p)(3)(B).

[25] 40 C.F.R. § 122.26(b)(14).

[26] 33 U.S.C. § 1342(p)(3)(A).

[27] Id. §1311.

[28] Theodore Garrett, Overview of the Clean Water Act, in The Clean Water Act Handbook 4 (Mark A. Ryan 3rd Ed. 2011).

[29] 33 USC §1311; Id. (reduction reflects the type of pollutant and applicable technology).

[30] Id. §1311(b)(2)(C).

[31] Id. §1311(b)(1)(A).

[32] Id. §1311(b)(2)(C); see also McGaffey, supra note 20, at 34.

[33] 33 U.S.C. §1342(p)(3).

[34] Id. § 1342(p)(3)(B).

[35] 40 C.F.R. 122.26(d)(2)(iv) (involving large to med MS4s; 40 C.F.R. 122.34 (involving small MS4s).

[36] see generally 40 C.F.R. 122.26(d)(2)(iv); 40 C.F.R. 122.34.

[37] John H. Minan, Municipal Separate Storm Sewer System (Ms4) Regulation Under the Federal Clean Water Act: The Role of Water Quality Standards?, 42 San Diego L. Rev. 1215, 1249 (2005).

[38] 40 C.F.R. 122.26(d)(2)(v); 40 C.F.R. 122.34(g).

[39] 40 C.F.R. 122.26(d)(2)(v); 40 C.F.R. 122.34(g).

[40] 40 C.F.R. 122.26(d) (no text on minimum iterations); 40 CFR 122.34 (no text on minimum iterations).

[41] See Tualatin Riverkeepers v. Oregon Dep’t of Envtl. Quality, 235 Or. App. 132, 141–42, 230 P.3d 559, 564 (2010) (quoting Interim Permitting Approach for Water Quality–Based Effluent Limitations in Storm Water Permits, 61 Fed Reg 43,761–01 (Aug 26, 1996) (EPA considers the use of best management practices appropriate in permitting of municipal storm water based on typical lack of information on which to base numeric water quality-based effluent limitations)).

[42] 33 U.S.C. § 1342(p)(3)(B) (MEP standard mandates that the storm water management plan consisting of BMP’s have “control of such pollutants.”).

[43] 33 U.S.C. §1342 is §402 in the Clean Water Act legislation.

[44] 33 U.S.C. §1311 is §301 in the Clean Water Act legislation.

[45] No. 214CV01452KJMCKD, 2016 WL 4679791, at *5 (E.D. Cal. Sept. 6, 2016).

[46] 33 U.S.C. §1311 (technology requirement based on whether pollutant is toxic, conventional, or non-conventional).

[47] 619 F. Supp. 2d 914, 919 (C.D. Cal. 2009).

[48] Defs. of Wildlife v. Browner, 191 F.3d 1159, 1164 (9th Cir. 1999) (using industrial’s strict §1311 mandate as a basis for a municipal storm water to a non-strict WQS standard).

[49] Nat. Res. Def. Council, Inc. v. U.S. Envtl. Prot. Agency, 966 F.2d 1292 (9th Cir. 1992);

National Pollutant Discharge Elimination System Permit Application Regulations for Storm Water Discharges, 55 FR 47990-01.

[50] Id. at 1308; National Pollutant Discharge Elimination System Permit Application Regulations for Storm Water Discharges, 55 FR 47990-01.

[51] Nat. Res. Def. Council, Inc., 966 F.2d at 1308.

[52] Id.

[53] Id.

[54] Id.

[55] Id.

[56] See generally Id.

[57] Id.

[58] National Pollutant Discharge Elimination System Permit Application Regulations for Storm Water Discharges, 55 FR 47990-01 (Under the Field Screening Program “state water quality standards should be utilized along with focusing on actual quality in the reaches of a stream.”) (Under Storm Water Quality Management Plans “EPA requested comments on the process and methods for developing appropriate priorities in management programs proposed in applications and how the development of these priorities can be coordinated with controls on other discharges to ensure the achievement of water quality standards and the goals of the CWA.”).

[59] 191 F.3d 1159, 1164 (9th Cir. 1999).

[60] Brief for Petitioner at 26, Defs. of Wildlife v. Browner, 191 F.3d 1159, 1165 (9th Cir.) (No. 98-71080) (1999 WL 33617766).

[61] Id. at 17.

[62] Id. at 14-15.

[63] Id. at 15.

[64] Brief for Respondent at 20, Defs. of Wildlife v. Browner, 191 F.3d 1159, 1165 (9th Cir.) (No. 98-71080) (1999 WL 33617766).

[65] Id. at 24.

[66] Id.

[67] Id. at 24–25.

[68] Defs. of Wildlife v. Browner, 191 F.3d 1159, 1164 (9th Cir. 1999).

[69] Id.

[70] Id.

[71] Id.

[72] Id.

[73] Id.

[74] Id.

[75] Id.

[76] Id.

[77] Id.

[78] Id.

[79] Id. (quoting Russello v. United States, 464 U.S. 16, 23, 104 S. Ct. 296, 78 L. Ed. 2d 17 (1983)).

[80] Id.

[81] Id.

[82] Defs. of Wildlife, 191 F.3d at 1165.

[83] Garrett, supra note 28, at 4.

[84] Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 843 (1984) (“[I]f the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute.”).

[85] 33 U.S.C. §1311; 40 CFR 122.44(d).

[86] Id. § 1311.

[87] 40 C.F.R. § 122.44.

[88] 33 U.S.C. § 1313(a)

[89] Id. § 1342(p)(2)(E).

[90] Id.

[91] See generally Defs. of Wildlife, 191 F.3d at 1164.

[92] Interim Permitting Approach for Water Quality-Based Effluent Limitations in Storm Water Permits, 61 FR 43761-01.

[93] Id.

[94] Id.

[95] See id.

[96] Id.

[97] Id. (emphasis added).

[98] Chevron, supra note 79, at 843.

[99] Defs. of Wildlife, 191 F.3d at 1165.

[100] Id.

[101] Garrett, supra note 28, at 4.

[102] Id.

[103] 33 U.S.C §1311(b).

[104] 40 C.F.R 122.44.

[105] 33 U.S.C. § 1313(a).

[106] Maryland Dep’t of Env’t v. Anacostia Riverkeeper, 447 Md. 88, 104, 134 A.3d 892, 901 (2016), reconsideration denied (May 20, 2016).

[107] Id.

[108] Id. at 913.

[109] Id.

[110] 33 U.S.C. § 1342(a)(2) (requiring that the administrator prescribe conditions for permits to assure compliance with the requirements in §1311 which includes water quality standards).

[111] Jones Creek Inv’rs, L.L.C v. Columbia Cty., Ga., 98 F. Supp. 3d 1279, 1300 (S.D. Ga. 2015), reconsideration denied sub nom. Jones Creek Inv’rs, LLC v. Columbia Cty., Georgia, No. CV 111-174, 2016 WL 593631 (S.D. Ga. Feb. 12, 2016).

[112] Id.

[113] 33 U.S.C. §1311.

This post is part of the Environmental Law Review Syndicate, a multi-school online forum run by student editors from the nation’s leading environmental law reviews.

__________________________________________

By Garrett Lenahan, UCLA School of Law, JD Candidate 2017

Scoping Plan Background

Two prominent pieces of Californian legislation that seek to address climate change are Assembly Bill 32 (“AB 32”) and Senate Bill 32 (“SB 32”). AB 32 required California to reduce its greenhouse gas (“GHG”) emissions to the 1990 level by 2020. It tasked the Air Resources Board with creating a Scoping Plan for reaching those levels. The original scoping plan contained a range of programs that would reduce GHG emissions from cars, trucks, fuels, industry, and electricity generation. SB 32 now requires the Air Resources Board to ensure that statewide GHG emissions are reduced to 40 percent below the 1990 level by 2030. The proposed Scoping Plan Update builds on the programs from the original Scoping Plan under AB 32 and includes some new ones.[1] Programs under the Proposed Scoping Plan include the Cap and Trade Regulation, the Low Carbon Fuel Standard, the Renewable Portfolio Standard, the Sustainable Community Strategies, the Sustainable Freight Action Plan, and the Mobile Source Strategy, among others.

The proposed Scoping Plan Update is comprehensive and commendable. However, it does lead to a few potential questions and issues. This paper will address two potential concerns regarding the transportation sector in particular. The transportation sector emits the most greenhouse gases of any economic sector in the state, so it is vital to reaching the SB 32 goal.[2] The first concern is whether the new administration under President Trump will revoke California’s waiver to regulate tailpipe emissions and how that affects the Scoping Plan. The second issue about the Scoping Plan is whether California will be able to install adequate infrastructure across the state to accommodate the increased number of zero emission vehicles.

Vulnerability of CA’s Waiver

            The statutory text of the Clean Air Act grants California alone the ability to ask the EPA administrator for a waiver to regulate pollution from vehicle tailpipes more strictly than the federal government.[3] Ordinarily, states are prohibited from regulating vehicle emissions. When California sought to regulate greenhouse gases from vehicles, the Obama administration granted the waiver in a 2009 deal with the auto industry that established national standards on GHG emissions from vehicles.[4] As part of the deal, California harmonized its rules for GHGs with the federal government.

In 2013, California received another waiver to regulate GHG emissions for model year vehicles 2017-2025. However, there are indications that the Trump administration may roll back the national standards and also revoke California’s waiver to regulate GHGs from tailpipes.[5] The California Air Resources Board nonetheless decided to move forward with its model year 2022-2025 standards for GHGs.[6] If the Trump administration revokes California’s waiver, then California will be unable to regulate GHGs from vehicles because it will be federally preempted.

California will inevitably sue if the EPA attempts to revoke its waiver. Those ensuing court battles will be lengthy and costly. There is no actual language or mechanism in the Clean Air Act mentioning the revocation of a waiver. Section 209(b) of the Clean Air Act states that the EPA Administrator “shall waive” federal preemption “if the State determines that the State standards will be, in the aggregate, at least as protective of public health and welfare.”[7] Nonetheless, there are three exceptions where “no such waiver shall be granted if the Administrator finds that – (A) the determination of the State is arbitrary and capricious, (B) such State does not need such State standards to meet compelling and extraordinary conditions, or (C) such State standards and accompanying enforcement procedures are not consistent with section 7521(a) of this title.”[8]

If the EPA attempts to revoke the waiver, California will argue that the burden is on those challenging California’s waiver to show that California has not satisfied the statutory criteria.[9] In both the 2009 waiver grant and the 2013 waiver grant, the EPA stated: “Congress recognized that California could serve as a pioneer and a laboratory for the nation in setting new motor vehicle emission standards. Congress intentionally structured this waiver provision to restrict and limit EPA’s ability to deny a waiver, and did this to ensure that California had broad discretion in selecting the means it determined best to protect the health and welfare of its citizens.”[10] The EPA must grant the waiver unless one of the three exceptions is met. According to the EPA in the 2013 waiver, this “reversal of the normal statutory structure embodies and is consistent with the congressional intent of providing deference to California to maintain its own new motor vehicle emissions program.” Furthermore, the EPA stated that “the legislative history indicates Congress quite intentionally restricted and limited EPA’s review of California’s standards, and its express legislative intent was to provide the broadest possible discretion [to California] in selecting the best means to protect the health of its citizens and the public welfare.”[11] Thus, if the new EPA administration aims to revoke California’s waiver, it will have to overcome this strong presumption in favor of California. Moreover, the Administrator has a burden to act “reasonably” when deciding whether to grant a waiver.[12]

California may argue that because there is no precedent or established procedure for revoking a waiver, the EPA should not be able to revoke its GHG waiver for vehicles. If the EPA did try to revoke the waiver, it would have to go through a rulemaking process to do so. Public notice and comment periods take significant time and would inevitably be followed by a lawsuit. Moreover, EPA would likely have to overcome its previous statements in the record supporting California’s waiver. Revoking a waiver would depart from EPA’s historical practice. Since the Clean Air Act was amended, the EPA has only denied one California waiver request. That denial was in 2008 and the EPA reversed course one year later and granted the waiver. In the 2009 waiver, the EPA claimed that the denial featured an incorrect interpretation of Section 209(b)(1). The Administrator declared that the denial was a substantial departure from the administration’s “longstanding interpretation of the Clean Air Act’s waiver provision and EPA’s history of granting waivers to California for its new motor vehicle emissions program.”[13]

Conversely, the EPA may argue that California does not need stricter motor vehicle standards for GHGs to meet compelling and extraordinary conditions under 209(b)(1)(B). EPA would then revert back to the reasoning from the 2008 waiver denial. There, EPA concluded that California’s GHG standards should be reviewed separately from the rest of its motor vehicle emission control program and that California could only promulgate standards that address local or regional pollution problems.[14] However, this reasoning was rejected in more recent waivers. In the 2013 waiver grant, the EPA said the correct interpretation was to see if California has compelling and extraordinary conditions giving rise to a need for its own motor vehicle emissions program.[15] It did not require a separate analysis for the GHG standards. The Administrator also concluded in 2009: “I have evaluated the comments received and evidence in the record and have determined that the opponents of the waiver have not met their burden in demonstrating why evidence such as the impacts of climate change on existing ozone conditions in California along with the cumulative impacts identified by proponents of the waiver (e.g., impacts on snow melt and water resources and agricultural water supply, wildfires, coastal habitats, ecosystems, etc.) is not compelling and extraordinary”.[16] Both the 2009 waiver and the 2013 waiver discussed the compelling and extraordinary conditions that merit state standards. In particular, the 2009 waiver described: “not only are California’s conditions ‘unique and arguably more severe’ (e.g. temperature impacts from global warming are more certain for states like California) but also that no other state faces the combination of ozone exacerbation, wildfire emission’s contributions, water system and coast system impacts and other impacts faced by California.”[17] California will have a strong argument, but some of the reasons for granting the waivers were largely based on agency interpretation. This leaves some wiggle room for the new administration. Although, it still has to overcome the large presumption of deference to California.

If California does lose its GHG waiver, the state may have to shift its policies under its Scoping Plan Update to compensate for that. It may need to adjust the Scoping Plan Update to create greater reductions through its other programs in order to achieve the mandated levels of reductions under SB 32. One option is focusing on other areas of transportation. In the transportation sector, the Low Carbon Fuel Standards and Zero Emission Vehicle (“ZEV”) requirements as written will likely not be enough to compensate for less stringent GHG standards for vehicles. They may need to be updated. Another option is to focus on stationary sources. Regardless, the state will likely need to update the Scoping Plan further if the GHG waiver is revoked.

ZEV Infrastructure

If California is prohibited from stringently regulating GHG emissions from vehicles, then it will be imperative that the state’s zero emissions vehicle efforts are effective under the Proposed Scoping Plan. Transportation is the largest source of emissions in the state, so increasing the number of ZEVs on the road will help mitigate the effects of less stringent fuel economy standards. Regardless of whether California loses the GHG waiver or not, the Proposed Scoping Plan still calls for dramatic increases in ZEV use. Interestingly, the ZEV program in California also requires a waiver. The waiver for the 2018-2025 model year ZEVs is found in the 2013 waiver for California’s Advanced Clean Cars program. That is the same waiver that permits California to regulate GHG emissions from vehicles, as discussed above. Consequently, the ZEV program may be vulnerable in the face of the new administration as well. It is unclear if the ZEV waiver would be simultaneously revoked if the EPA revoked the GHG waiver or if the ZEV waiver would remain in place after the GHG waiver was revoked. Assuming the program is not revoked, the expansion of ZEVs in California can help achieve the reduction goals of SB 32.

A key factor in expanding the number of ZEVs on the road is installing enough charging stations throughout the state to adequately accommodate all of the new plug-in electric vehicles (“PEVs”) vehicles under the program. Some criticisms of ZEVs include the low ranges and inconvenience. Establishing sufficient infrastructure with charging stations across the state will quell some of those concerns. As charging stations become more abundant and commonplace, consumers will be more inclined to buy them.

Executive Order B-16-2012 and the 2016 ZEV Action Plan call for infrastructure to support 1 million ZEVs by 2020. In particular, the 2016 ZEV Action Plan acknowledges the massive task at hand. It discusses a state analysis of the number of PEV charging stations required to meet ZEV goals. The 2014 analysis found that “upwards of 1,000,000 charge points are needed at homes, workplaces, and public locations by 2020. Excluding home charging, there are approximately 11,000 charge points in California, supporting more than 230,000 PEVs on the road.”[18] Moreover, the Scoping Plan Update calls for 4.2 ZEVs on the road by 2030.[19] This massive undertaking will require a significant increase in infrastructure in merely ten years to support the mandated 3.2 million additional ZEVs.

It is important that California effectively utilizes ZEV infrastructure by using renewable energy in PEV charging stations. Senate President pro Tempore Kevin De Leon recently introduced a bill that would require California to generate 100 percent of its electricity from renewable sources by 2045.[20] This ambitious goal would accelerate the state’s Renewable Portfolio Standard, which is a program utilized by the Updated Scoping Plan. It would supplement ZEV infrastructure by ensuring that PEVs are utilized most efficiently. Using electricity generated from coal or natural gas still emits greenhouse gases. Using electricity from renewable resources ensures that greenhouse gases are not emitted during the production of the electricity or during the use of the vehicle. Senate President De Leon’s bill would simultaneously accelerate the Renewable Portfolio Standard and supplement the expansion of ZEV infrastructure. Both are vital programs under the proposed Scoping Plan Update.

Conclusion

            The proposed Scoping Plan Update details numerous programs to reduce California’s greenhouse gas emissions across various sectors. The transportation sector is the largest emitter in the state. If the new EPA administration revokes California’s waiver to regulate GHG emissions from vehicles and implements a less stringent national standard, then California may have to adapt its Scoping Plan to compensate in other areas. Regardless, the Scoping Plan calls for massive expansion of ZEV infrastructure. This is a major undertaking for the state, with much still to be done. Supplementing this expansion of charging stations and vehicles with 100 percent clean energy makes sense. It will increase the GHG reductions achieved by the ZEV vehicles even further. There is great potential to reduce emissions in the transportation sector, but there are also major questions and concerns facing those reductions. California can effectively progress toward the SB 32 reduction goal if it preserves its vehicle emissions waiver and expands its ZEV infrastructure.

[1] The 2017 Climate Change Scoping Plan Update: The Proposed Strategy For Achieving California’s 2030 GHG Target, California Air Resources Board, ES1 (Jan. 20, 2017), https://www.arb.ca.gov/cc/scopingplan/2030sp_pp_final.pdf

[2] California GHG Emission Inventory – 2016 Edition, California Air Resources Board, (2016) https://www.arb.ca.gov/cc/inventory/data/data.htm

[3] 42 U.S.C. § 7543

[4] Robinson Meyer, The Coming Clean-Air War Between Trump and California, The Atlantic (Mar. 6, 2017), https://www.theatlantic.com/science/archive/2017/03/trump-california-clean-air-act-waiver-climate-change/518649/?utm_source=atlfb

[5] Id.

[6] Dale Kasler, California vs. Trump: California Regulators Move Forward on Climate Change Rules, The Sacramento Bee (Mar. 24, 2017), http://www.sacbee.com/news/politics-government/capitol-alert/article140631063.html

[7] 42 U.S.C. § 7543

[8] Id.

[9] Leanna Sweha, California Gets in the Driver’s Seat on Fuel Economy Standards, The Davis Vanguard (Mar. 27, 2017), http://www.davisvanguard.org/2017/03/california-gets-drivers-seat-fuel-economy-standards/

[10] 78 Fed. Reg. 2112, 2113; 74 Fed. Reg. 32744, 32745

[11] 78 Fed. Reg. 2112, 2127

[12] 78 Fed. Reg. 2112, 2116; Motor and Equipment Manufacturers Ass’n v. EPA, 627 F.2d 1095, 1126 (D.C. Cir. 1979).

[13] 74 Fed. Reg. 32744, 32745

[14] 78 Fed. Reg. 2112, 2126

[15] 78 Fed. Reg. 2112, 2131

[16] 74 Fed. Reg. 32744, 32746

[17] 74 Fed. Reg. 32744, 32764–32765

[18] 2016 ZEV Action Plan, Governor’s Interagency Working Group on Zero Emission Vehicles (Oct. 2016), https://www.gov.ca.gov/docs/2016_ZEV_Action_Plan.pdf

[19] California Air Resources Board, supra note 1, at 34.

[20]Chris Megerian, California Senate Leader Puts 100% Renewable Energy on the Table in New Legislation, LA Times (Feb. 21, 2017), http://www.latimes.com/politics/essential/la-pol-ca-essential-politics-updates-california-senate-leader-puts-100-1487714001-htmlstory.html

This post is part of the Environmental Law Review Syndicate, a multi-school online forum run by student editors from the nation’s leading environmental law reviews.

__________________________________________

By Andrew Miller, Senior Articles Editor for U.C. Berkeley’s Ecology Law Quarterly

Introduction

In March of 2015, the Associated Press (AP) published AP Investigation: Slaves May Have Caught the Fish You Bought.[1] It was the first in a series of articles the AP would publish over the next eighteen months detailing the squalor and oppression faced daily by thousands of Southeast Asian fishermen.[2] What caught readers’ attention, however, was not merely the unmasking of abuse.[3] It was the reference to Safeway.[4] It was the reference to Wal-Mart.[5] It was the reference to Fancy Feast.[6] It was the allegation that American consumers were complicit in the exploitation of foreign workers, and it was the knowledge that there were photographs to prove it.[7]

To date, the AP’s investigative team has helped free more than 2000 slaves in Southeast Asian fisheries, and has even uncovered similar abuse on American-flagged vessels.[8] Nevertheless, it is evident that the AP’s reporting has only scratched the surface of a deeply entrenched issue.[9] While it is difficult to quantify the scale of labor abuse in fisheries, scholars and agencies agree that fishing industry workers comprise a substantial portion of the 20.9 million people trapped in forced labor worldwide.[10]

Unfortunately, legal protections for fishery workers can be challenging to implement. Where regulatory protections exist, the burden is typically on a vessel’s flag state to administer and enforce those regulations.[11] Where a flag state cannot or will not enforce national or international law, the absence of ratified, binding legal frameworks frequently renders a port state’s authority to intervene murky.[12] As a result, flag and port state enforcement challenges have tremendous capacity to impede upstream control of the fishing industry and frustrate efforts to invoke legal protections for industry workers.

Where upstream control is ineffective, downstream consumer pressure may provide an alternative means of control. The underlying assumption is that rational, informed consumers will “vote with their wallets,” buying goods and services from responsible suppliers while severing the financial umbilical cord to noncompliant or irresponsible suppliers.[13] In theory, noncompliant suppliers must then either become compliant or perish in a competitive market. Therefore, demand-side programs that effectively correct information asymmetry—as ecolabel programs attempt to do—allow the market to influence producers’ actions without the need for states to implement or enforce command-and-control regulations.[14]

This paper will explore the potential for market tools to exert demand-side control on human rights and labor abuse in international fisheries. It will specifically examine methods to incentivize American seafood importers to better manage supply chains and de-select imports that are either untraceable or that may otherwise be linked to illegal, unreported, or unregulated (IUU) fishing. To that end, this paper will consider how demand-side tools—such as modified ecolabels—could influence how fisheries operate.

Part 1 of this paper will provide an overview of human rights abuse in the seafood industry. After discussing the role of slave labor in modern fisheries, Part 1 will examine the market penetration of slave-caught seafood in the United States and analyze the capacity of American markets to control how fish are caught. Recognizing that international fishing regulations are notoriously difficult to enforce, Part 2 of this paper will apply best practices of supply chain management and industry certification programs to the problem of labor abuse in fisheries. It will draw upon existing efforts to combat human rights and labor abuse in order to illustrate how an effective, integrated consumer-based program could be designed. The goal of this paper is not to advocate for any particular program design, but rather to demonstrate how consumer choice at home could influence how fisheries operate abroad.

It bears repeating that labor abuse in fisheries is a complex and multifaceted issue. At its worst, it may manifest as human trafficking, child labor, indentured servitude, or slavery.[15] In its simpler forms, it may involve the mistreatment of workers or the proliferation of hostile or threatening work environments.[16] It is important to recognize that no one solution will have the breadth or nuance to address every type of labor abuse; as such, this paper will not pretend to propose a catch-all solution.[17] Rather, this paper will explore the efficacy of one particular tool that could complement and buffer more nuanced solutions to individual types of abuse.

  1. An Overview of Human Rights Abuse in Fisheries

Industry surveys, U.S. State Department reports, International Labor Organization (ILO) white papers, and a seemingly endless catalogue of investigative journalism have long recognized forced labor in fisheries as a real and growing problem.[18] One could be forgiven, then, for asking why the relevant authorities have had so little success at mitigating it. This section details the present state of labor abuse in global fisheries and explores the major practical and regulatory barriers to labor abuse mitigation at both ends of the seafood supply chain. It concludes that the American import market is optimally situated to force the hand of seafood producers and encourage more effective industry oversight.

1.1  Industry Snapshot

Labor abuse in fisheries is a global problem.[19] While the media spotlight has recently lingered on Thai and Indonesian fisheries, documented cases of worker abuse have surfaced in places as disparate as Ireland, Russia, and Hawaii.[20] Offending vessels have hailed from as diverse an array of flag states, and investigators have traced slave-caught and slave-processed seafood to retailers around the world.[21] This snapshot highlights some of the most prominent cases of labor abuse in fisheries, identifies trends in worker exploitation, and underscores key market and regulatory conditions that contribute to the proliferation of forced labor in the industry.

Thailand has long been at the forefront of the modern slavery conversation.[22] The country has appeared on the U.S. Department of State’s Tier 2 Watch List for human trafficking five of the past seven years due to its central role as a “source, destination, and transit country” for victims of forced labor and sex trafficking.[23] Thai fisheries in particular have proved vulnerable to corruption, and stories of abuse in the seafood industry break with uncomfortable regularity.[24]

Most prominently, a 2015 AP investigation generated media frenzy—and even stirred calls for boycotts—when it traced the path of slave-peeled shrimp from Thai factories to American grocery stores.[25] The investigation uncovered a culture of abuse in Thailand’s premier shrimp processing region, where hundreds of off-the-books shrimp-peeling factories supply some of the world’s largest seafood companies.[26] Workers—frequently illegal migrants held against their will—peel shrimp upwards of sixteen hours per day for little to no pay.[27] Factory owners often threaten to beat them, call the police, or shoot them on the spot for unsatisfactory performance.[28]

The Thai government’s response has been abysmally impotent.[29] With the help of an escaped laborer, police raided one of the factories under investigation by the Associated Press.[30] Officers escorted workers out of the building and celebrated the raid as a victory against human trafficking.[31] Despite appearances, however, the raid was a farce.[32] Police declined to arrest the factory’s owners and operators, and those migrant laborers who had valid papers soon returned to work.[33] Migrants without papers—including the whistleblower who inspired the raid—were incarcerated for working illegally.[34] The peeling operation eventually changed venues, but off-the-books shrimp processing continues relatively unimpeded throughout the region.[35]

Unfortunately, this case is not an anomaly; it is representative of a much larger narrative that crosses international borders. Around the same time as the Thai fishery investigation, a related AP inquiry unearthed a similar story of modern slavery in Indonesia.[36] Reporters found hundreds of men—mostly Burmese migrants—trapped in an island village.[37] Some, stranded by captains of ships past, simply cannot leave the island; others are held in cages or cells barely large enough for grown adults.[38] Once at sea, trawler captains force laborers to work twenty- to twenty-two-hour shifts and routinely beat them—sometimes with toxic stingray tails.[39]

Many of these slaves were tricked or coerced into entering Indonesia and have little hope of escape.[40] Those slaves who can escape are chased into the jungle, where they must constantly avoid the grasp of paid slave catchers.[41] Although Indonesian government interventions have seen moderate success—a rescue operation spurred by the AP investigation recovered some 320 migrants—they only scratch the surface of the problem.[42] The International Organization for Migration estimates that more than 4000 foreign workers continue to face abuse in the Indonesian fishing industry.[43]

Ten-thousand kilometers across the Pacific,[44] Hawaiian fisherman face similar challenges. In a state famous for its heavily regulated fishing industry, hundreds of foreign workers across nearly 140 boats labor in a state of regulatory captivity for as little as seventy cents an hour.[45] Once in port, the workers are confined to their boats and cannot access legal resources to improve their condition.[46]

Remarkably, federal law sanctions this system.[47] Because certain Hawaiian boats are exempt from federal employment standards,[48] captains often crew their boats with cheap, foreign laborers who—if they enter the country by sea—do not even require visas.[49] Because they are not issued visas, however, the fishermen cannot leave their boats in U.S. ports.[50] With no access to government institutions and without a legally protected right to work in the United States, migrant fishermen are subject to the whims of their employers.[51] Even where government agents encounter potential labor abuse, they are generally powerless to act.[52] Nevertheless, law enforcement officials continue to tout the legality of this system.[53]

Together, the cases from Thailand, Indonesia, and Hawaii make it clear that labor abuse in the fishing industry is pervasive and varied.[54] On land or at sea, the story is often one of coercion and human trafficking; in some circumstances, the story transforms into one of overt slavery. Migrant workers, stripped of their passports by circumstance or by their employers, often bear the brunt of this abuse. Without access to the legal institutions of their port states, these workers have no recourse for the abuses they face.

Unfortunately, global trends in fish consumption and capture are poised to exacerbate the problem of labor abuse.[55] Declining fish populations drive increased competition within fisheries and force captains to run their boats further out to sea, often beyond the reach of law enforcement.[56] The increased costs and higher risk of failure associated with these changes make cheap migrant labor an attractive option for captains looking to mitigate financial risk.[57] In the absence of regulatory or market intervention, rising seafood demand and declining fish stocks mean the benefits of forced labor will continue to outweigh the costs for certain producers.[58]

1.2  Upstream Barriers to Abuse Mitigation

Although labor abuse can occur at every link in the seafood supply chain, the worst abuses are concentrated upstream in seafood producing nations.[59] It would therefore seem to follow that regulating labor practices in a particular product’s country of origin would be the key to abating systemic abuse. Upstream management of the fishing industry has proved difficult, however, in large part due to widespread enforcement challenges.[60] Regulations promulgated at the national and international levels are toothless if national actors cannot effectively implement them. Nevertheless, the majority of efforts to date have focused on upstream regulation of seafood producers.[61]

The ILO is the primary agency responsible for setting labor standards at the international level.[62] The agency’s 187 member states collectively design labor standards—published in conventions—that become binding after they are ratified by two or more member states.[63] To date, the ILO has published 188 conventions that define international labor standards for fishers,[64] migrant workers,[65] and victims of forced labor,[66] among others. The ratification mandate, however, has impeded the implementation of these conventions.[67] To date, only ten member states have ratified the 2007 Work in Fishing Convention, and the convention has not yet entered into force.[68] Likewise, several of the countries most associated with migrant abuse in fisheries have declined to ratify the 1949 and 1975 conventions on migrant workers.[69]

Even where ILO conventions are ratified and binding, however, enforcement can be problematic. While the ILO maintains a supervisory program to ensure ratified conventions are implemented,[70] and while the agency may respond to individual complaints received outside of the traditional supervisory channels,[71] the ILO still requires individual member states to serve as the proverbial boots on the ground.[72] Additionally, the success of this system hinges on the ILO’s ability to gather specific information about labor abuse.[73] In the context of fisheries, where even industry actors often struggle to supervise their supply chains, gathering the information necessary to affect change seems like an insurmountable task.[74] Thus, the ILO is often functionally limited to encouraging sovereigns to address the problem of labor abuse at the national level.[75]

This effectively renders the laws of individual sovereigns—in this case, the flag and port states of fishing vessels—the first and last line of upstream defense for fishery workers facing abuse. Unfortunately, corruption, conflicting incentives, and practical enforcement challenges act as legal kryptonite and frequently impede domestic worker protection efforts.[76]

In Thailand, for example, local corruption stymies enforcement of national laws. In one case, authorities refused to arrest the owners of a forced labor shrimp-peeling factory, despite having already raided the factory for violating labor standards.[77] It was not until a high-ranking Bangkok official intervened—on a tip from the AP—that the factory was shuttered and its owners arrested.[78]

While it serves as a potential check to local corruption, this type of national-level intervention is complicated by the conflicting incentives that many seafood exporters face. For example, Thailand must balance its policy goals with the economic value of its seafood industry. Too little regulation, and the country may face international sanctions;[79] too much, and it may strangle the very industry it is trying to reform.[80]

For its part, the U.S. government has expressly carved out an exemption to federal maritime laws that allows certain Hawaiian captains to crew their vessels with migrant workers who lack substantive legal protections. In the late 1980s, Congress passed the Commercial Fishing Industry Vessel Anti-Reflagging Act in an attempt to “‘Americanize’ the country’s fishing fleets.”[81] In relevant part, the Act requires that American citizens comprise at least 75 percent of the crew on any U.S.-flagged fishing vessel.[82] In order to protect the economic value of Hawaiian fisheries,[83] however, the Act exempts from this mandate fishing vessels that singularly pursue highly migratory species outside of the U.S. exclusive economic zone (EEZ).[84]

Due to technicalities in U.S. immigration law, captains are not required to obtain visas for migrant fishermen if those fishermen do not disembark in port.[85] Furthermore, U.S. Customs and Border Protection requires captains to hold the passports of all nonimmigrant crewmembers.[86] Thus, while migrant crewmembers are permitted to fish for highly migratory species on U.S. vessels, they cannot legally enter the United States or seek legal protections.[87] Instead, they are left vulnerable to the whims of their captains in the interest of economics.[88]

Even where resources and incentives align, however, practical difficulties often hinder on-the-ground enforcement of labor standards. As coastal ecosystems become increasingly overfished, vessels must travel farther out to sea for longer periods of time in order to turn a profit.[89] This makes it harder for authorities to detect and respond to incidents of labor abuse at sea, and compounds the effects of other enforcement barriers.[90]

Ultimately, these enforcement challenges are at the heart of the problem. Regulatory reform, however necessary, cannot effectively combat labor abuse if the implementing state does not exercise its police powers. If flag and port states cannot or will not act to prevent labor abuse in fisheries, upstream control of the industry is not possible.

1.3  Downstream Regulation in the United State

In the absence of effective upstream control of the seafood supply chain, downstream actors’ decisions must drive industry change. Until recently, American consumers were unaccountable to forced labor victims, because a loophole in the Tariff Act of 1930 permitted American companies to import slave-produced goods whenever there was insufficient domestic supply (the so-called “consumptive demand” exemption).[91] In 2016, President Obama signed The Trade Facilitation and Trade Enforcement Act (TFTEA) to close this loophole,[92] but traceability issues ensure that slave-produced seafood continues to slip through the cracks.[93] The TFTEA does not authorize a “ban on whole categories of goods from specific countries;”[94] it merely requires American importers to serve as gatekeepers via due diligence and reasonable care.[95] The TFTEA’s ability to restrict the importation of goods produced with forced labor is therefore inextricably tied to importers’ capacity to monitor their supply chains.

Critically, that monitoring capacity is not something the seafood industry is known for. Importers generally recognize that labor abuse is common, but most do not believe it is a problem in their own supply chains.[96] Because seafood and seafood products pass through such a murky chain of custody, it is often impossible to trace a particular product back to its source.[97] Even large importers who conduct site visits struggle to identify tainted products, because those products are indistinguishable from responsibly sourced products once they have left the boat or processing facility.[98] Unfortunately, if industry actors exercising reasonable care cannot identify tainted goods in their own supply chains, the TFTEA has little hope of meaningfully reducing imports of slave-produced seafood.

1.4   The Role and Potential of American Demand (consumer driven controls)

The limited capacity of statutory controls notwithstanding, American consumers possess tremendous power to influence seafood supply chains. While it is challenging to quantify the specific market penetration of slave-produced seafood in the United States (largely because these products’ trade is illegal and undocumented),[99] it is unquestionable that American demand for seafood is an imposing force in the global market.[100]

For example, in 2015, American companies imported over $18 billion in seafood and seafood products from 151 countries, accounting for 14 percent of worldwide seafood imports.[101] Much of this demand targets labor-intensive products, such as shrimp.[102] Because almost 90 percent of shrimp consumed in the United States is imported,[103] changes in demand could have dramatic consequences for global suppliers. This is particularly true for countries like Thailand, which shipped over 44 percent of its shrimp exports to the United States in 2015.[104]

Although the sum of the American seafood market is not as import-dependent as the shrimp market, there is still substantial capacity for American consumers to influence global producers.[105] In 2014, American fishermen landed 9.5 billion pounds of seafood.[106] American companies imported an additional 5.8 billion pounds of seafood and exported 3.9 billion pounds.[107] Because imports remain a sizeable component of the domestic seafood market, the decisions American consumers make at the supermarket translate into real economic impacts for fisheries abroad.[108] American consumers are therefore well positioned to serve as market-forcing entities and shape the international seafood market through competitive choice.[109]

If American consumers are to exert sufficient economic pressure on seafood producers to influence their reliance on forced labor, however, two problems need to be corrected. First, seafood retailers and importers need to have verifiable supply chains. If these sophisticated parties cannot confidently certify that their supply chains do not capitalize on labor abuse, the impact of market-forcing decisions cannot translate up those supply chains to producers. Second, information asymmetry needs to be eliminated in order to allow consumers to accurately select for responsibly sourced products.

  1. Mapping a Path Forward: The Potential for Fishery Certification Programs (Discussing existing solutions)

Where upstream regulation of an industry is insufficient to achieve social goals, downstream industry actors and consumers have the opportunity to drive upstream change by selectively wielding their economic power and forcing markets to react. In order for this type of downstream control to be effective, however, information asymmetries must be corrected. First, downstream industry actors need to be aware of their own supply chains and understand, to the greatest extent possible, what happens at every link in the chain.[110] Next, consumers need a way to verify that claims about supply chains and corporate practices are trustworthy.[111] Third-party certifications provide both a financial incentive to better manage supply chains and an opportunity to close the information gap between industry actors and consumers.

Third-party certifications have been used to improve the traceability and sustainability of seafood supply chains for more than a decade,[112] but their application to labor abuse in the industry is a relatively new phenomenon.[113] This section first outlines best practices in supply chain management, drawing on Nike and the Marine Stewardship Council (MSC) as examples. It then discusses an existing certification program and considers its design in light of these practices.

Nike’s infamous labor scandal at the turn of the millennium demonstrated that achieving supply chain transparency is a critical first step to combatting labor abuse by upstream parties.[114] Downstream companies cannot be accountable for the actions of their upstream suppliers if they do not know who those suppliers are or how those suppliers manage day-to-day operations. For its part, Nike struggled to characterize the day-to-day operations of factories with which it dealt directly;[115] but this problem is compounded in the seafood industry, where products pass through an increasingly murky supply chain before they are exported.[116] Even the most sophisticated of seafood importers often struggle to accurately back-trace their product past their direct suppliers.[117]

A third-party certification system that tags products at the dock could untangle those supply chains and allow importers to plainly identify every set of hands their products have passed through.[118] This serves two purposes. First, it would correct information asymmetry between seafood suppliers and importers, thereby allowing importers to make more informed decisions about their supply chains. Second, this type of chain-of-custody scheme would empower consumers to trace their purchases from “ocean to plate,”[119] allowing them to more accurately analyze the social impacts of their purchasing decisions.[120]

One major criticism of existing chain-of-custody programs—such as the MSC’s sustainability certification[121]—is that certification costs and complexity risk dampening a program’s real-world environmental impact.[122] Certifications lose their economic value if they cannot be proved to induce social benefits, or if parties believe the costs to get certified outweigh the value of the benefits rendered.[123] Any third-party certification scheme aimed at combatting labor abuse in fisheries should therefore incorporate regular audits to ensure continued compliance with program standards. Additionally, any such scheme should endeavor to share costs among the parties most capable of bearing them.

Fair Trade USA’s budding Capture Fisheries Program provides one example of these best practices in action.[124] The program reduces barriers to participation and promotes equitable cost sharing by certifying the more sophisticated importer, rather than the individual fisher. [125] It then uses a “stepwise approach” to ensure both the certificate holder and the fishers in the source fishery are contractually bound to established standards of community development, human rights, wages and working conditions, and environmental responsibility.[126] These standards increase annually from a relatively low starting point in order to prevent attainability concerns from serving as a further barrier to participation.[127] Finally, the Capture Fisheries Program unionizes fishers under a local Fisher Association, which provides on-the-ground oversight and empowers member fishers to help lead certification efforts.[128] Because each Fisher Association is created for the sole purpose of implementing the Capture Fisheries Program, these entities provide an additional level of checks for program compliance.

The Capture Fisheries Program also implements stringent rules for traceability.[129] Only licensed fishers within an established Fisher Association may sell their product as Fair Trade seafood.[130] From the moment a product reaches the dock, it is labeled and receives a Fair Trade certificate.[131] Every transaction from landing to final sale must be recorded, such that Fair Trade seafood can be traced back to the fisher who caught it.[132] Finally, to ensure compliance, certified fisheries are subject to annual audits by Fair Trade USA-approved third-party auditors.[133]

Because the Capture Fisheries Program has not yet reached the scale and recognition of MSC certification, it is difficult to quantify its relative success to date. Nevertheless, the recent proliferation of this and similar programs suggests that there is a market for third party, labor rights-based fishery certifications, and that similar certifications may be an effective tool in the labor abuse mitigation toolkit.

Conclusion

Labor abuse in fisheries is a complex and multifaceted problem. No one solution will have the breadth or nuance to address every type of abuse, and every solution will have tradeoffs. Nevertheless, it is evident that demand-side control of seafood supply chains has the potential to mitigate the use of forced labor and abusive practices in fisheries around the globe. Third-party certification schemes hold particular promise, as well-designed programs can simultaneously increase supply chain transparency and empower consumers to drive corporate social responsibility efforts.

Certification schemes that directly engage fishing communities and implement robust chain-of-custody standards will be most effective at overcoming traditional barriers to traceability. In order to encourage participation and ensure that already marginalized communities are not negatively impacted, proposed certification schemes should also carefully consider how program costs and incentives are allocated throughout the supply chain. Only by painting a direct path from ship to shelf can third-party certifications genuinely affect social change through market forces.

[1] Robin McDowell et al., AP Investigation: Slaves May Have Caught the Fish You Bought, Associated Press (Mar. 25, 2015), http://www.ap.org/explore/seafood-from-slaves/ap-investigation-slaves-may-have-caught-the-fish-you-bought.html.

[2] See generally Seafood from Slaves, Associated Press, http://www.ap.org/explore/seafood-from-slaves/ (last visited Apr. 2, 2016).

[3] Hari Sreenivasan, How the AP Uncovered Secret Slavery Behind the Seafood in Your Supermarket, PBS (Apr. 20, 2016, 6:20 PM), http://www.pbs.org/newshour/bb/how-the-ap-uncovered-secret-slavery-behind-the-seafood-in-your-supermarket/.

[4] Id.; McDowell et al., supra note 1.

[5] Sreenivasan, supra note 3; McDowell et al., supra note 1.

[6] Sreenivasan, supra note 3; McDowell et al., supra note 1.

[7] See Sreenivasan, supra note 3; see also McDowell et al., supra note 1.

[8] See Tom Kent, The Ethics of AP’s Fish Slaves Investigation, Associated Press (Apr. 8, 2016), https://blog.ap.org/behind-the-news/the-ethics-of-aps-fish-slaves-investigation; Martha Mendoza & Maggie Mason, Hawaiian Seafood Caught by Foreign Crews Confined on Boats, Associated Press (Sept. 8, 2016), http://www.ap.org/explore/seafood-from-slaves/hawaiian-seafood-caught-foreign-crews-confined-boats.html; Sreenivasan, supra note 3.

[9] See Mariah Boyle, FishWise, Trafficked II: An Updated Summary of Human Rights Abuses in the Fishing Industry 11 (2014), https://www.fishwise.org/images/pdfs/Trafficked_II_FishWise_2014.pdf [hereinafter Trafficked II].

[10] Eve de Coning, ILO, Caught at Sea: Forced Labor and Trafficking in Fisheries 2 (2013), http://www.ilo.org/wcmsp5/groups/public/—ed_norm/—declaration/documents/publication/wcms_214472.pdf; Christina Stringer & Glenn Simmons, Int’l Collective in Support of Fishworkers, Samudra Report No. 65 8 (July 2013), http://aquaticcommons.org/11301/1/Sam65_e-full.pdf; Rebecca Surtees, International Organization for Migration, Trafficked at Sea: The Exploitation of Ukrainian Seafarers and Fishers 7 (2012), http://publications.iom.int/system/files/pdf/trafficked_at_sea_web.pdf; see generally Christina Singer et al., Not in New Zealand’s Waters, Surely? Labour and Human Rights Abuses Aboard Foreign Fishing Vessels, (N.Z. Asia Inst., Univ. of Auckland Working Paper No. 11-01, 2011), http://docs.business.auckland.ac.nz/Doc/11-01-Not-in-New-Zealand-waters-surely-NZAI-Working-Paper-Sept-2011.pdf.

[11] de Coning, supra note 10, at vi.

[12]See id.

[13] Consumers Vote with Their Wallets: Hold Breached Organizations Accountable, Javelin Strategy (June 12, 2014), https://www.javelinstrategy.com/press-release/consumers-vote-their-wallets-hold-breached-organizations-accountable.

[14] See Jay S. Golden et al., Nicholas Inst. for Envtl. Policy Sols., Duke Univ., An Overview of Ecolabels and Sustainability Certifications in the Global Marketplace 10 (2010).

[15] Trafficked II, supra note 9, at 11; de Coning, supra note10, at v.

[16] Trafficked II, supra note 9; de Coning, supra note 10 at v.

[17] See de Coning, supra note 10 at vi.

[18] See Trafficked II, supra note 9, at 5–7; U.S. Dep’t of State, Trafficking in Persons Report 363 (2016), http://www.state.gov/documents/organization/258876.pdf; see also de Coning, supra note 10, at 2; Seafood from Slaves, supra note 2; Paul Eckert, Shrimp Industry Blasted for “Modern-Day Slavery,” Reuters (Apr. 23, 2008), http://www.reuters.com/article/uk-asia-shrimp-usa-idUKN2342204020080423. Surprisingly, while international reports have recognized the magnitude of the forced labor problem in fisheries, and while media frenzy has developed around individual stories of abuse, academic sources have been largely silent on the matter. See Supang Chantavanich et al., Under the Shadow: Force Labor Among Sea Fishers in Thailand, 68 Marine Pol’y 1, 2 (2016) (describing how stories of abuse “have most often been reported in the media”)); see also Melissa Marschke & Peter Vandergeest, Slavery Scandals: Unpacking Labour Challenges and Policy Responses Within the Offshore Fisheries Sector, 68 Marine Pol’y 39 (2016) (describing how the issue has been “markedly scarce in … research-based publications.”).

[19] See Seafood from Slaves, supra note 2; Surtees, supra note 10, at 15; Stringer & Simmons, supra note 10, at 7; Singer, supra note 10; Felicity Lawrence, Revealed: Trafficked Migrant Workers Abused in Irish Fishing Industry, The Guardian (Nov. 2, 2015, 8:51 AM), https://www.theguardian.com/global-development/2015/nov/02/revealed-trafficked-migrant-workers-abused-in-irish-fishing-industry.

[20] See Margie Mason et al., Global Supermarkets Selling Shrimp Peeled by Slaves, Associated Press (Dec. 14, 2015), http://www.ap.org/explore/seafood-from-slaves/global-supermarkets-selling-shrimp-peeled-by-slaves.html; Martha Mendoza, AP Report on Slave-Peeled Shrimp Spurs Call for Boycott, Associated Press (Dec. 14, 2015), http://www.ap.org/explore/seafood-from-slaves/ap-report-on-slave-peeled-shrimp-spurs-calls-for-boycott.html; Esther Htusan & Margie Mason, More Than 2,000 Enslaved Fishermen Recued in 6 Months, Associated Press (Sept. 17, 2016), http://www.ap.org/explore/seafood-from-slaves/more-than-2,000-enslaved-fishermen-rescued-in-6-months.html; Mendoza & Mason, supra note 8; Lawrence, supra note 19.

[21] See Sutrees supra note 10, at 28; Mendoza & Mason, supra note 8; Lawrence, supra note 19; Sreenivasan, supra note 3; McDowell et al., supra note 1.

[22] See Leslie Berestein Rojas, El Monte Sweatshop Slavery Case Still Resonates 20 Years Later, SCPR (July 31, 2015), http://www.scpr.org/news/2015/07/31/53458/el-monte-sweatshop-slavery-case-still-resonates-20/; U.S. Dep’t of State, Trafficking in Persons Report 50 (June 2009), http://www.state.gov/documents/organization/123357.pdf; Overfishing Drives Thai Boats to Use More Slave Labor, NBC News (Feb. 25, 2015), http://www.nbcnews.com/science/environment/overfishing-drives-thai-boats-use-more-slave-labor-n312746; see also Mason et al., supra note 20.

[23] U.S. Dep’t of State, supra note 18, at 363. Thailand briefly fell to Tier 3 in 2014 and 2015 due to the government’s failure to address (and in some cases, complicity in) human trafficking. See U.S. Dep’t of State, Trafficking in Persons Report 330 (2015), http://www.state.gov/documents/organization/245365.pdf; U.S. Dep’t of State, Trafficking in Persons Report 58 (2014), https://www.state.gov/documents/organization/226844.pdf.

[24] See U.S. Dep’t of State (2015), supra note 23, at 330; see also Zain Verjee et al., Reports Tie U.S. Retailers to Sweatshop Shrimp, CNN (Apr. 24, 2008, 4:57 PM), http://www.cnn.com/2008/US/04/24/shrimp.retailers/; Dean Irvine, Slaves at Sea: Report into Thai Fishing Industry Finds Abuse of Migrant Workers, CNN (Mar. 6, 2014, 11:29 AM), http://www.cnn.com/2014/03/06/world/asia/thailand-fishing-modern-slavery-report/; Mason et al., supra note 20.

[25] See Mason et al., supra note 20; Mendoza, supra note 20; Martha Mendoza, Nestle Confirms Labor Abuse Among its Thai Seafood Suppliers, Associated Press (Nov. 23, 2015), http://www.ap.org/explore/seafood-from-slaves/nestle-confirms-labor-abuse-among-its-thai-seafood-suppliers.html; Martha Mendoza, Obama Bans Imports of Slave Produced Goods, Associated Press (Feb. 25, 2016), http://www.ap.org/explore/seafood-from-slaves/Obama-bans-US-imports-of-slave-produced-goods.html; see also Sreenivasan, supra note 3.

[26] Mason et al., supra note 20.

[27] Id.

[28] Id.

[29] See id.

[30] Id.

[31] Id.

[32] See id.

[33] Id. Arrests were eventually made, but only after a police official in Bangkok learned about the case. Id.

[34] Mason et al., supra note 20.

[35] Id.

[36] McDowell et al., supra note 1; Robin McDowell & Margie Mason, Over 300 Slaves Rescued from Indonesia After AP Investigation into Forced Labor, Associated Press (Apr. 4, 2015), http://www.ap.org/explore/seafood-from-slaves/over-300-slaves-rescued-from-Indonesia-island-after-ap-investigation.html.

[37] McDowell et al., supra note 1.

[38] Id.

[39] Id.

[40] Id.

[41] Id.

[42] McDowell & Mason, supra note 36.

[43] Id.

[44] Distance from Jakarta, Indonesia to Honolulu, Hawaii, Google, https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=distance+jakarta+to+honolulu&* (last visited Apr. 3, 2017).

[45] Mendoza & Mason, supra note 8.

[46] Id.

[47] See id.

[48] Id.

[49] Id. American boat owners usually hire these fishermen from Southeast Asia and neighboring Pacific islands. Id. They hopscotch from airport to airport until, immediately prior to entering the United States, they are collected by American captains. Id. Because there is theoretically no need for the fisherman to ever set foot on American soil, captains (and even U.S. Customs officials) say it is unnecessary to procure visas or entry permits. Id.

[50] Id.

[51] Id.

[52] Id.

[53] See id.

[54] See Mendoza & Mason, supra note 8; Lawrence, supra note 19; McDowell et al., supra note 1; Mason et al., supra note 20.

[55] See Trafficked II, supra note 9, at Fig. 1.

[56] Id.; see also McDowell et al., supra note 1.

[57] See Trafficked II, supra note 9, at Fig. 1; see also Mendoza & Mason, supra note 8;

[58] See Trafficked II, supra note 9, at Fig. 1.

[59] See Industry Snapshot, supra Part 1.1.

[60] See Trafficked II, supra note 9, at 4, 14, 17.

[61] See International Labour Standards on Fishers, ILO, http://www.ilo.org/global/standards/subjects-covered-by-international-labour-standards/fishers/lang–en/index.htm (last visited Apr. 3, 2017); International Labour Standards on Migrant Workers, ILO, http://www.ilo.org/global/standards/subjects-covered-by-international-labour-standards/migrant-workers/lang–en/index.htm (last visited Apr. 3, 2017); International Labour Standards on Forced Labour, ILO, http://www.ilo.org/global/standards/subjects-covered-by-international-labour-standards/forced-labour/lang–en/index.htm (last visited Apr. 3, 2017); see also Trafficked II, supra note 9, at 15–16, 21–30.

[62] About the ILO, ILO, http://www.ilo.org/global/about-the-ilo/lang–en/index.htm (last visited Apr. 3, 2017).

[63] Id.

[64] How International Labour Standards are Created, ILO, http://www.ilo.org/global/standards/introduction-to-international-labour-standards/international-labour-standards-creation/lang–en/index.htm (last visited Apr. 3, 2017); see also International Labour Standards on Fishers, supra note 61.

[65] International Labour Standards on Migrant Workers, supra note 61.

[66] International Labour Standards on Forced Labour, supra note 61.

[67] Trafficked II, supra note 9, at 17.

[68] Ratifications of C188 – Work in Fishing Convention, 2007 (No. 188), ILO, http://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:11300:0::NO::P11300_INSTRUMENT_ID:312333 (last visited Apr. 3, 2017).

[69] See Ratifications of C097 – Migration for Employment Convention (Revised), 1949 (No. 97), ILO, http://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:11300:::NO:11300:P11300_INSTRUMENT_ID:312242:NO (last visited Apr. 3, 2017); Ratifications of C143 – Migrant Workers (Supplementary Provisions) Convention, 1975 (No. 143), ILO, http://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:11300:::NO:11300:P11300_INSTRUMENT_ID:312288:NO (last visited Apr. 3, 2017).

[70] How International Labour Standards are Created, supra note 64.

[71] See Steven Simpson, Enforcement of Human Rights Through ILO Machinery, American University, https://www.wcl.american.edu/hrbrief/v3i1/ilo31.htm (last visited Apr. 3, 2017).

[72] See id.

[73] When an individual reports a violation of ratified standards to the ILO, that allegation must be supported by proof. Id. It is unrealistic to expect abused fishery workers to supply that proof, and the prevalence of local corruption makes it unlikely that anyone capable of providing proof of abuse will actually report that abuse to the ILO. See Mason et al., supra note 20.

[74] See Trafficked II, supra note 9, at 6; see also McDowell et al., supra note 1; see also Mendoza, supra note 20.

[75] Simpson, supra note 71.

[76] See Mason et al., supra note 20; see also Mendoza & Mason, supra note 8; see also McDowell & Mason, supra note 36.

[77] Mason, supra note 20.

[78] Id.

[79] See Chantavanich et al., supra note 18, at 7; see also Marschke & Vandergeest, supra note 18, at 43–44.

[80] See Joanna G. Sylwester, Fishers of Men, 23 Pac. Rim L. & Pol’y J. 423, 429 (2014) (detailing the value of the Thai fishing industry and Thailand’s labor shortage); see also Naomi Jiyoung Bang, Casting a Wide Net to Catch the Big Fish: A Comprehensive Initiative to Reduce Human Trafficking in the Global Seafood Chain, 17 U. Pa. J. L. & Soc. Change 221, 227–28 (2014) (detailing value of the Thai fishing industry).

[81] See Nathan Eagle, How Foreign Crews are Able to Work Aboard US Fishing Boats, Honolulu Civil Beat (Sept. 22, 2016), http://www.civilbeat.org/2016/09/how-foreign-crews-are-able-to-work-aboard-us-fishing-boats/; see also H.R. 2598, 100th Cong. (1988), https://www.congress.gov/bill/100th-congress/house-bill/2598/actions.

[82] See 46 U.S.C. § 8103(b) (1988).

[83] See Mendoza & Mason, supra note 8.

[84] H.R. 2598, 100th Cong. § 5 (1988).

[85] Mendoza & Mason, supra note 8.

[86] U.S. Customs and Border Prot., Vessel Inspection Guide 4, 18 (2012). Customs and Border Protection defines “nonimmigrant” as “[a]ny person not a citizen or permanent resident of the United States.” Id.

[87] See Complaint at 18, Sorihin v. Nguyen, No. 16-5422 (N.D. Cal. Sept. 22, 2016).

[88] See generally Complaint, supra note 87; see also Mendoza & Mason, supra note 8.

[89] Trafficked II, supra note 9, at Fig. 1; Sylwester, supra note 80, at 424.

[90] See Trafficked II, supra note 9, at Fig. 1.

[91] Sandra Lee Bell, US Prohibits Imports Made with Forced Labor New Law is a Force to be Reckoned With, DLA Piper (Sept. 6, 2016), https://www.dlapiper.com/en/us/insights/publications/2016/09/us-prohibits-imports-forced-labor/; John M. Foote, Increased Enforcement of U.S. Forced Labor Prohibition Carries High Risks for U.S. Companies (and their International Supply Chains), Baker & McKenzie (July 12, 2016), http://bakerxchange.com/cv/961439f20d4e8806d11c1160a498f0732ee7de8b. Note that the Tariff Act of 1930, as amended by the TFTEA, specifically applies to goods produced with “forced labor.” To qualify as forced labor, work must be done involuntarily under the “menace of any penalty.” 19 U.S.C. § 1307 (2016).

[92] H.R. 644, 114th Cong. (2016), https://www.congress.gov/bill/114th-congress/house-bill/644; Bell, supra note 91; Foote, supra note 91; Mendoza, supra note 25.

[93] Trafficked II, supra note 9, at 18.

[94] U.S. Customs and Border Protection, Trade Facilitation and Trade Enforcement Act of 2015: Repeal of the Consumptive Demand Clause (Apr. 2016) https://www.cbp.gov/sites/default/files/assets/documents/2016-Apr/TFTEA_Consumptive%20Demand_FINAL_0.pdf.

[95] U.S. Customs and Border Protection, Supply Chain Due Diligence (Oct. 2016), https://www.cbp.gov/sites/default/files/assets/documents/2016-Oct/Fact%20Sheet_Forced%20Labor%20-%20Importer%20Due%20Diligence.pdf.

[96] Trafficked II, supra note 9, at 6.

[97] See Mariah Boyle, FishWise, Without a Trace II: An Updated Summary of Traceability Efforts in the Seafood Industry 10–11, 13 (August 2012), https://www.fishwise.org/images/fishwise_traceability_white_paper_august_2012.pdf; McDowell et al., supra note 1.

[98] See McDowell et al., supra note 1.

[99] See discussion of TFTEA, supra Part 1.3.

[100] See FAO, The State of World Fisheries and Aquaculture 53–54 (2016), http://www.fao.org/3/a-i5555e.pdf.

[101] 2015 Imports, Nat’l Marine Fisheries Serv., http://www.st.nmfs.noaa.gov/pls/webpls/trade_prdct_cntry_ind.results?qtype=IMP&qyearfrom=2015&qyearto=2015&qprod_name=%25&qcountry=%25&qsort=COUNTRY&qoutput=TABLE; see also FAO, supra note 100.

[102] Env’tl. Justice Found., The Hidden Costs: Human Rights Abuses in Thailand’s Shrimp Industry 4 (2013), http://ejfoundation.org/sites/default/files/public/shrimp_report_v44_lower_resolution.pdf.

[103] See id.; Lydia Mulvany, Asian Shrimp Imports are Chewing Up U.S. Suppliers, Bloomberg, (Sept. 7, 2015, 7:33 PM), http://www.bloomberg.com/news/articles/2015-09-07/all-you-can-eat-shrimp-imports-chew-up-u-s-suppliers-amid-slump.

[104] 2015 Shrimp Exports, Thai Frozen Foods Ass’n, http://www.thai-frozen.or.th/pdf/statistic/statistic_shrimp43/Export%20Shrimp%20Nov%202015.pdf (last visited March 26, 2017).

[105] See Annual Landing Results, Nat’l Marine Fisheries Serv. https://www.st.nmfs.noaa.gov/pls/webpls/MF_ANNUAL_LANDINGS.RESULTS; Nat’l Marine Fisheries Serv., Fisheries of the United States 72 (Lowther & Liddel eds., 2014).

[106] Annual Landing Results, supra note 105 (2014 is the most recent year for which data is available).

[107] See Fisheries of the United States, supra note 105, at 72; 2014 Exports, Nat’l Marine Fisheries Serv., http://www.st.nmfs.noaa.gov/pls/webpls/trade_prdct_cntry_ind.results?qtype=EXP&qyearfrom=2014&qyearto=2014&qprod_name=%25&qcountry=%25&qsort=COUNTRY&qoutput=TABLE (last visited March 26, 2017).

[108] See Trafficked II, supra note 9, at 7; see Solidarity Ctr., The True Cost of Shrimp 8 (2008); see McDowell et al., supra note 1 (The United States buys roughly 20 percent of Thailand’s total exported seafood).

[109] See Trafficked II, supra note 9, at 7; Solidarity Ctr., supra note 108, at 8.

[110] See generally Max Nisen, How Nike Solved its Sweatshop Problem, Business Insider, (May 9, 2013, 10:00 PM) http://www.businessinsider.com/how-nike-solved-its-sweatshop-problem-2013-5; see also Clelia Peters, The Rise of the Corporate Citizen: Nike’s Evolving Supply Chain, Chazen Inst., https://www0.gsb.columbia.edu/mygsb/faculty/research/pubfiles/3147/The%20Rise%20of%20the%20Corporate%20Citizen_Nikes%20Evolving%20Supply%20Chain.pdf (last visited March 26, 2017); see also Simon Zadek, The Path to Corporate Responsibility, Harv. Bus. Rev. (December 2004) http://www.foundationforeuropeanleadership.org/assets/downloads/infoItems/75.pdf; see also David J. Doorey, The Transparent Supply Chain: From Resistance to Implementation at Nike and Levi-Strauss, 103 J. Bus. Ethics 587, 587–603 (2011).

[111] See generally discussion of product identification and branding in the context of MSC certifications, supra Part 3.

[112] 2000-2009 Global Growth, Marine Stewardship Council, https://www.msc.org/about-us/our-history/2000-2009-global-growth (last visited April 13, 2017).

[113] See Trafficked II, supra note 9, at 31–33.

[114] See generally Nisen, supra note 110; Peters, supra note 110; Zadek, supra note 110; Doorey, supra note 110.

[115] Peters, supra note 110, at 3.

[116] See McDowell et al., supra note, 1 (citing importers).

[117] See id.

[118] See Standards, Marine Stewardship Council, https://www.msc.org/about-us/standards (last visited March 26, 2017); Chain of Custody Standard, Marine Stewardship Council, https://www.msc.org/about-us/standards/chain-of-custody-standard/chain-of-custody-standard (last visited March 26, 2017).

[119] See Ocean to Plate Traceability, Marine Stewardship Council, https://www.msc.org/about-us/ocean-to-plate-traceability/ocean-to-plate-traceability (last visited March 26, 2017).

[120] See Changing Behavior, Marine Stewardship Council, https://www.msc.org/about-us/changing-behaviour (last visited March 26, 2017).

[121] See Standards, supra note 118; Chain of Custody Standard, supra note 118.

[122] See generally Wendy Goyert et al., The Promise and Pitfalls of Marine Stewardship Council Certification: Maine Lobster as a Case Study, 34 Mar. Pol’y. 1103 (2010); Claire Christian et al., A Review of Formal Objections to Marine Stewardship Council Fisheries Certifications, 161 Biological Conservation 10 (2013); Lars H. Gulbrandsen, The Emergence and Effectiveness of the Marine Stewardship Council, 33 Mar. Pol. 654 (2009).

[123] Goyert et al., supra note 122, at 1107–08, 1103; Christian et al., supra note 122, at 12–16; Gulbrandsen, supra note 122, at 658–57.

[124] Trafficked II, supra note 9, at 31; Seafood Program, Fair Trade USA, , http://fairtradeusa.org/certification/producers/seafood (last visited March 26, 2017).

[125] See generally Fair Trade USA, Capture Fisheries Program 3, http://fairtradeusa.org/sites/default/files/wysiwyg/filemanager/fish/Fair-Trade-USA-Capture-Fisheries-Standard-Infographic.pdf.

[126] Id.

[127] Id. at 4. Critically, all standards pertaining to forced labor and the protection of children must be met immediately. Id. at 6.

[128] Id. at 4, 10.

[129] Id. at 10.

[130] Id.

[131] See id.

[132] Id.

[133] Id.

This post is part of the Environmental Law Review Syndicate, a multi-school online forum run by student editors from the nation’s leading environmental law reviews.

__________________________________________

By Kacy Manahan, Symposium Editor for Environmental Law and clinician at the Earthrise Law Center at Lewis & Clark Law School

I. Introduction

The scope of the Clean Water Act’s jurisdiction has been controversial throughout the statute’s history. Reconciling the extent of Congress’ Commerce Clause authority with the reality of vast hydrological connections across the United States has been an unenviable task delegated to the United States Environmental Protection Agency (EPA) and the United States Army Corps of Engineers (the Corps). This post is a comprehensive, though certainly not exhaustive, examination of EPA’s and the Corps’ efforts to define the jurisdictional scope of the Clean Water Act. The issue is once again embroiled in litigation, and regulation is in the hands of an Administration seeking to depart substantially from prior policies. For that reason, I also discuss potential outcomes of the litigation and President Trump’s Executive Order.

II. History of the “Waters of the United States” Rule

In 1972, Congress amended the Federal Water Pollution Control Act to create what we know today as the Clean Water Act.[1] For the first time, federal jurisdiction based on the Commerce Clause power extended beyond traditional navigable waters, as the Act defined “navigable waters” to mean “waters of the United States, including the territorial seas.”[2] EPA and the Corps (the Agencies) share regulatory authority under the Act, however, EPA has ultimate authority to interpret the term “navigable waters.”[3]

A. The Regulatory Evolution of Waters of the United States

The first substantive definition of “waters of the United States” came from EPA’s Office of General Counsel in 1973.[4] EPA believed that removal of the word “navigable” from the definition evidenced congressional intent to regulate “pollution of waters . . . capable of affecting interstate commerce.”[5] The definition included navigable waters, tributaries of navigable waters, interstate waters, and interstate lakes, rivers, and streams used by interstate travelers for recreational purposes, for commercial fishing, or for industrial purposes.[6] EPA issued an official regulatory definition shortly thereafter, changing the final three categories of jurisdictional waters to intrastate waters used by interstate travelers for recreational purposes, for commercial fishing, or for industrial purposes.[7]

The Corps issued its regulatory definition in 1974, covering “those waters of the United States which are subject to the ebb and flow of the tide, and/or are presently, or have been in the past, or may be in the future susceptible for use for purposes of interstate or foreign commerce.”[8] In 1975, the United States District Court for the District of Columbia determined that Congress’ intent in defining “navigable waters” as “waters of the United States” was to assert “federal jurisdiction over the nation’s waters to the maximum extent permissible under the Commerce Clause of the Constitution” and that the term was “not limited to the traditional tests of navigability” as they appeared in the Corps’ definition.[9] The Corps was ordered to publish new regulations based on this interpretation.[10]

Ultimately, after some political controversy,[11] the Corps published an interim final rule aligning with EPA’s regulation.[12] Notably, the Corps definition included wetlands, intrastate waters used for agricultural production, and other waters that, on a case-by-case basis, may be determined by the Corps to “necessitate regulation for the protection of water quality” as defined in EPA’s guidelines.[13] In 1977, the Corps published its final definition distinguishing its jurisdiction under the Act from its jurisdiction under older laws such as the Rivers and Harbors Act.[14] The 1977 definition included five categories of waters including a Commerce Clause-based category: “All other waters of the United States not identified in Categories 1–3, such as isolated lakes and wetlands, intermittent streams, prairie potholes, and other waters . . . the destruction of which could affect interstate commerce.”[15]

The Commerce Clause category, once codified, was adopted by EPA in later regulations.[16] This basis for jurisdiction remained on the books until the latest attempt at defining “waters of the United States” in 2015.[17] By 1982, the Agencies had matching regulatory definitions (the 1982 Rule).[18]

B. Challenges to the 1982 Rule in the Supreme Court

Over the decades, the 1982 Rule faced repeated challenges in court. However, three Supreme Court rulings have fundamentally defined the jurisdiction of the Clean Water Act, influencing the Agencies’ interpretation of the 1982 Rule, and ultimately straining that interpretation to the point where revision was necessary.

1. Riverside Bayview

United States v. Riverside Bayview Homes, Inc.[19] (Riverside Bayview) originated as an enforcement action against defendants who commenced filling wetlands located on their property before the Corps took action on their permit application.[20] The issue before the Court was whether the defendants’ land fell within the Clean Water Act’s jurisdiction.[21]

The Court noted that the language, legislative history, and underlying policy of the Clean Water Act regarding its jurisdictional reach was ambiguous.[22] Based on this ambiguity, the Court analyzed the reasonableness of the Corps’ assertion of jurisdiction over adjacent wetlands.[23] The Court determined:

In view of the breadth of federal regulatory authority contemplated by the Act itself and the inherent difficulties of defining precise bounds to regulable waters, the Corps’ ecological judgment about the relationship between waters and their adjacent wetlands provides an adequate basis for a legal judgment that adjacent wetlands may be defined as waters under the Act.[24]

In deferring to the Corps, the Court upheld the 1982 Rule as permissible under the Clean Water Act.

2. SWANCC

In Solid Waste Agency of Northern Cook County v. United States Army Corps of Engineers[25] (SWANCC), the petitioner was a municipal corporation seeking to develop a parcel of real estate for use as a balefill (a type of landfill).[26] Based on a finding that migratory birds utilized gravel pits on the parcel, the Corps asserted jurisdiction, and denied the petitioner’s applications for a section 404 permit.[27]

The controversy in this case arose from language in the preamble to a Federal Register publication by the Corps suggesting that “other waters” as defined in the 1982 Rule included waters utilized by migratory birds.[28]

Distinguishing this case from Riverside Bayview, the Court planted the seed of the now-familiar “significant nexus” standard.

It was the significant nexus between the wetlands and “navigable waters” that informed our reading of the CWA in Riverside Bayview Homes. Indeed, we did not “express any opinion” on the “question of the authority of the Corps to regulate discharges of fill material into wetlands that are not adjacent to bodies of open water . . . .” In order to rule for respondents here, we would have to hold that the jurisdiction of the Corps extends to ponds that are not adjacent to open water. But we conclude that the text of the statute will not allow this.[29]

This statement arguably eliminated the entire category of “other waters” from the jurisdictional scope of the Clean Water Act. A narrower interpretation of the holding focuses on the Migratory Bird Rule. The Court chose to read the Clean Water Act “to avoid the significant constitutional and federalism questions raised by respondent’s interpretation,” meaning the Migratory Bird Rule, and therefore gave the Corps no deference.[30] The Court held that the “other waters” provision “as clarified and applied to petitioner’s balefill site pursuant to the ‘Migratory Bird Rule’ exceeds the authority granted to respondents under § 404(a) of the CWA.”[31]

The Corps interpreted this holding narrowly by issuing guidance advising regulators to no longer assert jurisdiction based on the presence of migratory birds, but to “consult legal counsel” if a water body in question might be connected with interstate commerce.[32]

3. Rapanos

In 2006, the Supreme Court issued its decision in Rapanos v. United States.[33] This decision vacated and remanded two decisions from the United States Court of Appeals for the Sixth Circuit upholding the Corps’ assertion of jurisdiction based on a “significant nexus” standard,[34] however, the contemporaneous opinion was fractured and no majority opinion emerged.[35] Justice Scalia authored the plurality opinion, joined by Chief Justice Roberts and Justices Thomas and Alito.[36] Chief Justice Roberts and Justice Kennedy wrote concurring opinions.[37] Justice Stevens authored the dissenting opinion, joined by Justices Souter, Ginsburg, and Breyer.[38]

In this 4–1–4 split, five justices agreed that the lower court decisions should be vacated.[39] Four justices agreed that the lower court decisions should be affirmed.[40] Eight justices agreed that Scalia’s test would confer jurisdiction.[41] Five justices agreed that Kennedy’s test would confer jurisdiction.[42] Since both tests were approved by a majority of the justices, a definitive test for determining the appropriate connection between traditional navigable waters and other hydrological features was once again eluded.

     i. Justice Scalia’s Plurality Opinion

The plurality simplified the jurisdictional inquiry by focusing on the word “waters”, which appears in both sections 502(7) and 502(12).[43] The plurality examined a dictionary definition of “waters” and concludes that based “[o]n this definition, ‘the waters of the United States’ include only relatively permanent, standing or flowing bodies of water.”[44]

The plurality noted that the Court in Riverside Bayview found the line between waters of the United States and dry land to be ambiguous, and therefore deferred to the Corps’ determination.[45] Without pointing to any particular language from SWANCC, the plurality stated that in SWANCC the Court rejected the notion that ecological considerations can provide an independent basis for jurisdiction.[46] Based on this assumption, the plurality added a second requirement to its jurisdictional test: “[O]nly those wetlands with a continuous surface connection to bodies that are ‘waters of the United States’ in their own right, so that there is no clear demarcation between ‘waters’ and wetlands, are ‘adjacent to’ such waters and covered by the Act.”[47]

The plurality’s test therefore requires a determination that 1) the “adjacent” water is relatively permanent, and 2) that there is a continuous surface connection to the “adjacent” water.[48]

     ii. Justice Kennedy’s Concurrence

In his concurring opinion, Justice Kennedy’s view of the “significant nexus” standard suggests that it is more than an indicator of “adjacency”—he found that Riverside Bayview stood for the proposition that “the connection between a nonnavigable water or wetland and a navigable water may be so close, or potentially so close, that the Corps may deem the water or wetland a ‘navigable water’ under the Act.”[49] Justice Kennedy characterized SWANCC as standing for the inverse: if there is “little or no connection” between a nonnavigable water and a traditional navigable water, then that water is not jurisdictional.[50]

His concurrence discusses how a “significant nexus” may be established: “[W]etlands possess the requisite nexus, and thus come within the statutory phrase ‘navigable waters,’ if the wetlands, either alone or in combination with similarly situated lands in the region, significantly affect the chemical, physical, and biological integrity of other covered waters more readily understood as ‘navigable.’”[51]

     iii. Aftermath of Rapanos

Because there is no single “logical subset” from which a clear rule can be divined, courts have disagreed on how to apply the law. Nonetheless, most courts agreed that a water was jurisdictional under the Act at least where Justice Kennedy’s significant nexus test was satisfied, and no court has held that a water is jurisdictional only if it meet’s the plurality’s “continuous surface connection” requirement. [52] In 2008, the Agencies issued a guidance document instructing regulators as to what waters were now considered jurisdictional considering the Supreme Court’s opinion.[53]

III. The Current Status of the 2015 Clean Water Rule

Accepting Justice Kennedy’s invitation to clarify CWA jurisdiction through a new rulemaking,[54] the Agencies promulgated the final Clean Water Rule (2015 Rule) on June 29, 2015.[55] Several states, industry groups, and environmental stakeholders challenged the 2015 Rule on the day of promulgation.[56] One day before the effective date, a district court judge in North Dakota granted a temporary injunction in favor of state petitioners.[57] Meanwhile, the Agencies sought to transfer nine district court cases for centralized pretrial proceedings.[58] The United States Judicial Panel on Multidistrict Litigation denied the government’s motion based on a lack of discovery or questions of fact.[59] By the end of 2015, over one hundred parties had filed twenty-three petitions for review in the courts of appeals, and almost one hundred parties had filed seventeen district court complaints.[60]

A. The Sixth Circuit’s Jurisdictional Ruling

Many petitions originating in the courts of appeals were consolidated in the Sixth Circuit.[61] Determining that state petitioners had demonstrated a substantial possibility of success on the merits, the court issued a nationwide stay of the Clean Water Rule which remains in place today.[62] Several petitioners then moved to dismiss their own petitions due to lack of jurisdiction.[63] Before a panel of judges, petitioners and intervenors argued that the Clean Water Act’s judicial review provision, section 509(b)(1), should be read narrowly to exclude the 2015 Rule from its scope.[64] The federal defendants, on the other hand, argued that either sections 509(b)(1)(E) or 509(b)(1)(F) could be used to invoke court of appeals jurisdiction.[65]

Judge McKeague, delivering the opinion of the court, agreed with federal defendants that section 509(b)(1)(E) applied because the 2015 Rule “indirectly produce[d] various limitations on point-source operators and permit issuing authorities.”[66] Furthermore, § 509(b)(1)(F) applied as well, since the extension of jurisdiction found in the 2015 Rule “indisputably expand[ed] regulatory authority and impact[ed] the granting and denial of permits in fundamental ways.”[67] Judge Griffin, concurring in the judgment, did so only because of circuit precedent.[68] Therefore, petitioners’ and intervenors’ motions to dismiss were denied, and the Sixth Circuit retained jurisdiction based on section 509(b)(1)(F).[69]

B. The Supreme Court Case

Sixth Circuit intervenor National Association of Manufacturers petitioned the Supreme Court for writ of certiorari in September 2016.[70] The Court granted the petition on the following issue:

[W]hether the Sixth Circuit erred when it held that it has jurisdiction under 33 U.S.C. § 1369(b)(1)(F) to decide petitions to review the waters of the United States rule, even though the rule does not “issu[e] or den[y] any permit” but instead defines the waters that fall within Clean Water Act jurisdiction.[71]

At the time of this writing, opening briefs are due to be filed on April 27, 2017[72]

IV. President Trump’s Executive Order and the Future of Rulemaking and Litigation

The election of Donald Trump undoubtedly ushered in the beginnings of a seismic shift in federal environmental policy. On February 28, 2017, President Trump signed an Executive Order directing the Agencies to review the 2015 Rule for consistency with the following policy: “It is in the national interest to ensure that the Nation’s navigable waters are kept free from pollution, while at the same time promoting economic growth, minimizing regulatory uncertainty, and showing due regard for the roles of the Congress and the States under the Constitution.”[73] The Agencies are next directed to “publish for notice and comment a proposed rule rescinding or revising the rule, as appropriate and consistent with law.”[74] Finally, the Order mandates that the Agencies “shall consider interpreting the term ‘navigable waters,’ . . . in a manner consistent with the opinion of Justice Antonin Scalia” in Rapanos.[75] A rule defining “waters of the United States” in accordance with this Order would represent a significant and unprecedented narrowing of Clean Water Act jurisdiction. Notably, this Executive Order has no immediate regulatory effect. However, for the remainder of this post, the discussion will assume that the Agencies share the interests of the State petitioners, and will seek a litigation strategy leading to the collapse of the 2015 Rule.

As a result of the Executive Order, the federal respondents in National Ass’n of Manufacturers v. United States Department of Defense sought to hold the Supreme Court briefing schedule in abeyance. This motion was denied, however, after facing opposition from several parties.[76]

A. Potential Outcomes of Current Litigation

Based on federal respondent’s failure to convince the Court to hold briefing in abeyance, it is likely that the Court will decide the jurisdictional issue before the 2015 Rule’s revision or rescission. Once litigation returns to the Sixth Circuit or the district courts (depending on the ruling), it is unclear whether a court will decide the merits of the 2015 Rule. If the Agencies take regulatory action either before or shortly after the litigation becomes active again, those who petitioned for review of the 2015 Rule may find their petitions mooted.

A two-part test determines mootness: a case is moot if “(1) it can be said with assurance that there is no reasonable expectation that the alleged violation will recur, and (2) interim relief or events have completely and irrevocably eradicated the effects of the alleged violation.”[77] “When both conditions are satisfied it may be said that the case is moot because neither party has a legally cognizable interest in the final determination of the underlying questions of fact and law.”[78] Undoubtedly, the Agencies’ action in rescinding or revising the rule would qualify as “interim relief or events,” but there is a question of whether a rescission means that “no reasonable expectation that the alleged violation will recur,” or in the event of a revision, whether it has “completely and irrevocably eradicated the effects of the alleged violation”.[79] Additionally, an exception to mootness occurs when a petitioner demonstrates that: “(1) the challenged action was in its duration too short to be fully litigated prior to its cessation or expiration, and (2) there [is] a reasonable expectation that the same complaining party [will] be subjected to the same action again.”[80]

As an example, if the Agencies rescind the 2015 Rule without immediately replacing it with a new rule, the “capable of repetition yet evading review” exception may apply regarding certain claims. In another scenario, if a revision of the 2015 Rule presents many of the same issues, then the effects of the alleged violations are not completely and irrevocably eradicated and litigation may continue. On the other hand, if the Agencies are not prepared to rescind or revise the 2015 Rule upon resumption of litigation, and they attempt to argue that the case is moot by virtue of the Executive Order’s expression of intent alone, it is unlikely that such an argument will meet the Davis test for mootness.

Precedent from the United States Court of Appeals for the Ninth Circuit suggests that if the Agencies cannot immediately revise or rescind the rule, they may have another option—a consent judgment. In Turtle Island Restoration Network v. United States Department of Commerce[81] (Turtle Island), the court held that no Administrative Procedure Act[82] (APA) rulemaking procedure was necessary when environmental plaintiffs and federal defendants entered into a consent decree vacating a portion of a final rule, temporarily reinstated the previous rule, and remanded the rule to the agency to reconsider a new rule.[83] Industry defendant-intervenors appealed the consent decree and cited the United States Court of Appeals for the District of Columbia Circuit’s decision in Consumer Energy Council of America v. Federal Energy Regulatory Commission[84] (Consumer Energy) for the proposition that notice and comment is required prior to repeal.[85] The Ninth Circuit distinguished Consumer Energy by finding the concerns motivating the agency in that case to be different from those raised during the original rulemaking and noting that no party in that case had suggested repeal as a remedy.[86] In Turtle Island, the environmental plaintiffs sought repeal for reasons that they had raised during the initial rulemaking.[87] The court also noted that no substantive changes were made to the rule—repealing the provision at issue simply reinstated the prior rule.[88]

In a more recent Ninth Circuit opinion, the court simultaneously reaffirmed its holding in Turtle Island while limiting the types of consent decrees that may alter a regulation:

It follows that where a consent decree does promulgate a new substantive rule, or where the changes wrought by the decree are permanent rather than temporary, the decree may run afoul of statutory rulemaking procedures even though it is in form a “judicial act.” […] We therefore hold that a district court abuses its discretion when it enters a consent decree that permanently and substantially amends an agency rule that would have otherwise been subject to statutory rulemaking procedures.[89]

Together, Turtle Island and Conservation Northwest v. Sherman create the following positive rule: If a consent decree repeals or vacates an agency action, the legal effect is to restore the status quo, and if this restoration is temporarily subject to further agency action—the substance of which remains within the agency’s discretion—then the consent decree may be upheld.[90]

Entering a consent decree may be an attractive option if federal defendants see it as the quickest escape route from litigation. However, petitioners who prefer the 2015 Rule to the prior rule will likely object to the decree. If objection is unsuccessful, the court may consider whether all petitioners’ claims have been mooted by the terms of the consent decree.

B. Possible Regulatory Actions

Shortly following the issuance of President Trump’s Executive Order, the Agencies published a notice of their intent to engage in a rulemaking consistent with that Order.[91]

It is unlikely that they will accomplish this task quickly. Considering the nine-year gap between Rapanos and the final 2015 Rule, the prospect of a final rule occurring within the current administration is questionable. In the meantime, the Agencies may attempt to use a guidance document similar to the 2008 guidance issued after Rapanos. A guidance document based on the plurality in Rapanos will be less susceptible to challenge if implemented while the 1982 Rule is in force, as opposed to the 2015 Rule, which relies heavily on the “significant nexus” test. However, any guidance document that substantively changes the legal meaning of a regulation may be set aside by a court if challenged.[92]

Therefore, if the federal defendants are unable to dispose of the 2015 Clean Water Rule via litigation, they may attempt to revoke the 2015 Rule without immediately replacing it. Such a revocation may be subject to challenges based on procedure, substance, or both. If the Agencies fail to utilize APA notice and comment procedures in revoking the 2015 Rule, a court could invalidate the revocation.

In Consumer Energy, federal defendants argued that their revocation of the rule at issue rendered the case moot.[93] However, the court held that the Federal Energy Regulatory Commission’s revocation order was invalid because the agency did not follow APA rulemaking procedures: “The value of notice and comment prior to repeal of a final rule is that it ensures that an agency will not undo all that it accomplished through its rulemaking without giving all parties an opportunity to comment on the wisdom of repeal.”[94] Substantive challenges to a revocation, rescission, or revision are discussed in the following section.

C. Challenging a New Rule

The oft-cited Motor Vehicle Manufacturers Ass’n of the United States v. State Farm Mutual Automobile Insurance Co.[95] stands for the proposition that “an agency changing its course by rescinding a rule is obligated to supply a reasoned analysis for the change beyond that which may be required when an agency does not act in the first instance.”[96] This case arose when the Reagan Administration, in a nationwide deregulation effort, rescinded a rule requiring auto makers to install either airbags or passive restraints.[97]

However, in Federal Communications Commission v. Fox Television Stations, Inc.[98] (Fox Television), the Court clarified its ruling: “[O]ur opinion in State Farm neither held nor implied that every agency action representing a policy change must be justified by reasons more substantial than those required to adopt a policy in the first instance.”[99] The Court explained that the distinction being made in State Farm was between a § 706(1) review of a failure to act and a § 706(2)(A) review of agency action, not initial and subsequent agency action as in a rulemaking and rescission.[100]

Describing the support required for a change, the Fox Television Court highlighted that an agency must “[1)]display awareness that it is changing position,” and it is sufficient if the record shows that “[2)] the new policy is permissible under the statute, [3)] that there are good reasons for it, and [4)] that the agency believes [the new policy] to be better.”[101] The fourth element is similar to a free space in bingo—the agency’s change in policy “adequately indicates” its belief that the new policy is better.[102]

Fox Television says an agency must “provide a more detailed justification than what would suffice for a new policy created on a blank slate”: When 1) “its new policy rests upon factual findings that contradict those which underlay its prior policy” or 2) “when its prior policy has engendered serious reliance interests that must be taken into account.”[103] In these scenarios, “a reasoned explanation is needed for disregarding facts and circumstances that underlay or were engendered by the prior policy.”[104]

Although it seems relatively easy for an agency to justify a change in policy based on the Fox Television standard, a question remains regarding what role the extensive scientific record used to justify the 2015 Rule may play in challenging a new rule.[105]

Ninth Circuit precedent emerging from the Bush-era “Roadless Rule” provides useful guidance for how a court may handle a changed policy. In a case regarding the “Tongass Exemption” to the Roadless Rule, the court held that the United States Department of Agriculture’s 2003 Record of Decision (ROD) adopting the Tongass Exemption (which was based on the 2001 Roadless Rule Final Environmental Impact Statement) was arbitrary and capricious based on a Fox Television analysis of the change in policy.[106] In the 2001 ROD for the Roadless Rule, the agency found that “the long-term ecological benefits to the nation of conserving these inventoried roadless areas outweigh the potential economic loss to southeast Alaska communities from application of the Roadless Rule.”[107] In the 2003 ROD for the Tongass Exemption, however, the agency reversed its policy based on “concern about economic and social hardship that application of the roadless rule’s prohibitions would cause in communities throughout Southeast Alaska.”[108]

The Ninth Circuit found that the agency “made factual findings directly contrary to the 2001 ROD and expressly relied on those findings to justify the policy change.”[109] The court was careful to note that agencies are entitled to give more weight to certain concerns, but may not “simply discard prior factual findings without a reasoned explanation.”[110] The finding at issue was the necessity of the Roadless Rule to maintain important roadless area values.[111] The 2001 ROD made this finding, but the 2003 ROD found that the Roadless Rule was unnecessary because roadless values were protected by the Tongass Forest Plan.[112] The agency concluded that the sufficiency of the Forest Plan struck a new balance in its analysis, causing socioeconomic concerns to outweigh the benefits of the Roadless Rule’s protections.[113] The court found that the 2003 ROD violated the APA because the agency provided no reasoned explanation for “why an action that it found posed a prohibitive risk to the Tongass environment only two years before now poses merely a ‘minor’ one.”[114]

However, the Agencies may reevaluate their policy choices based on the facts available to them if the statute permits the resulting rule. In National Ass’n of Home Builders v. United States Environmental Protection Agency,[115] the D.C. Circuit rejected petitioners’ argument that the amendment of a rule was invalid because the promulgating agency merely revisited old arguments rather than basing its amendment on new facts or circumstances.[116] The court held that “a reevaluation of which policy would be better in light of the facts” is permissible, as Fox Television made clear that “this kind of reevaluation is well within an agency’s discretion.”[117]

The court also rejected petitioner’s contention that “because the [r]ule eliminates a provision that was consistent with congressional intent, the Court should not defer to EPA in making such a decision.”[118] The court held that “the fact that the original [rule] was consistent with congressional intent is irrelevant as long as the amended rule is also permissible under the statute.”[119] However, it was also emphasized that EPA found the rule’s amendment to promote “to a greater extent, the statutory directive.”[120] The court noted that “it was hardly arbitrary or capricious for EPA to issue an amended rule it reasonably believed would be more reliable, more effective, and safer than the original rule.”[121]

Again, assuming that any new rule will be promulgated pursuant to the Executive Order, the rule will likely follow the standard enunciated by the late Justice Scalia in Rapanos. A petitioner may have an uphill battle in arguing that such a policy is not permitted by the Clean Water Act—not only is the plain language of the Act uncommonly vague, but an interpretation crafted by a Supreme Court justice and accepted as sufficient to establish jurisdiction by a majority of the Court is uncommonly valid. However, those who wish to see a more protective rule may be able to argue congressional intent despite the D.C. Circuit’s holding in National Ass’n of Home Builders—since EPA, in that case, believed its new regulation increased conformity with the purpose of the statute rather than deviated from it.[122]

V. Conclusion

Although it is difficult to see clearly into the future, those who have studied or practiced administrative law know that APA notice and comment rulemaking requires substantial resources. To develop an administrative record supporting a rule based on Justice Scalia’s plurality in Rapanos may take years. Once the rule is final, it will face opposition from many directions. In the case of Clean Water Act jurisdiction, a change in the regulatory landscape affects a wide swath of interests—state sovereignty, landowner rights, industry flexibility, human health, conservation, and recreation. Considering that even a guidance conforming with Justice Scalia’s test could be subject to judicial review, there seems to be no tool that the Trump Administration can utilize to rapidly change the regulatory landscape of the Clean Water Act. In the words of former President Barack Obama, “the federal government and our democracy is not a speedboat, it’s an ocean liner.”[123]

[1] Federal Water Pollution Control Act Amendments of 1972, Pub. L. No. 92-500, 86 Stat. 816 (codified as amended at 33 U.S.C. §§ 1251–1388 (2012)).

[2] Clean Water Act, 33 U.S.C. § 1362 (2012); Stephen P. Mulligan, Cong. Research Serv., R44585, Evolution of the Meaning of “Waters of the United States” in the Clean Water Act 1 (2016).

[3] See 33 U.S.C. § 404 (2012) (describing the duties of the Corps and EPA in permitting discharge of dredged or fill material); Administrative Authority to Construe § 404 of the Federal Water Pollution Control Act, 43 Op. Att’y Gen. 197 (1979).

[4] Office of Gen. Counsel, U.S. Envtl. Prot. Agency, Meaning of the Term “Navigable Waters” (Feb. 6, 1973), reprinted in Office of Gen. Counsel, U.S. Envtl. Prot. Agency, A Collection of Legal Opinions: December 1970–December 1973, at 295 (1975).

[5] Id.

[6] Id.

[7] See National Pollutant Discharge Elimination System, 38 Fed. Reg. 13,528, 13,529 (May 22, 1973) (current version codified at 40 C.F.R. § 230.3 (2016)).

[8] Permits for Activities in Navigable Waters or Ocean Waters, 39 Fed. Reg. 12,115, 12,119 (Apr. 3, 1974) (current version codified at 33 C.F.R. § 328.3 (2016)); see also 33 C.F.R. § 209.260 (1974)) (providing detailed information regarding how navigability was determined).

[9] Nat. Res. Def. Council, Inc. v. Callaway, 392 F. Supp. 685, 686 (D.D.C. 1975).

[10] Id.

[11] Mulligan, supra note 2, at 9.

[12] Compare Permits for Activities in Navigable Waters or Ocean Waters, 40 Fed. Reg. 31,320, 31,324–25 (July 25, 1975) (the Corps’ definition), with 40 C.F.R. § 125.1(p) (1974) (EPA’s definition at the time of the Corp’s promulgation).

[13] 40 Fed. Reg. at 31,324–25.

[14] Rivers and Harbors Act of 1899, 33 U.S.C. §§ 401–418, 502, 687 (2012); Regulatory Programs of the Corps of Engineers, 42 Fed. Reg. 37,122, 37,127 (July 19, 1977); Mulligan, supra note 2, at 10 n.64.

[15] 42 Fed. Reg. at 37,127–28, 37,144 (codified at 33 C.F.R. § 323.2(a) (1978)); Mulligan, supra note 2, at 10.

[16] See Consolidated Permit Regulations, 45 Fed. Reg. 33,290, 33,424 (May 19, 1980) (codified at 40 C.F.R. § 122.3 (1981)).

[17] Mulligan, supra note 2 at 10.

[18] 40 C.F.R. § 122.3 (1982), Interim Final Rule for Regulatory Programs of the Corps of Engineers, 47 Fed. Reg. 31,794, 31,810 (July 22, 1982).

[19] 474 U.S. 121 (1985)

[20] Id. at 124.

[21] Id. at 126.

[22] Id. at 132.

[23] See generally Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984) (establishing a two-part test to determine whether to grant an agency deference in interpreting a statute).

[24] Riverside Bayview, 474 U.S. at 134.

[25] 531 U.S. 159 (2001).

[26] Solid Waste Agency of N. Cook Cty. v. U.S. Army Corps of Eng’rs, 998 F. Supp. 946, 948 (N.D. Ill. 1998), aff’d, 191 F.3d 845 (7th Cir. 1999), rev’d, 531 U.S. 159 (2001).

[27] Id.

[28] Final Rule for Regulatory Programs of the Corps of Engineers, 51 Fed. Reg. 41,206, 41,216–17 (Nov. 13, 1986).

[29] SWANCC, 531 U.S. at 167–68 (2001) (citation omitted) (alteration in original).

[30] Id. at 174.

[31] Id. (citation omitted).

[32] Matthew B. Baumgartner, SWANCC’s Clear Statement: A Delimitation of Congress’s Commerce Clause Authority to Regulate Water Pollution, 103 Mich. L. Rev. 2137, 2147–48 (2005).

[33] Rapanos v. United States, 547 U.S. 715 (2006).

[34] United States v. Rapanos, 376 F.3d 629 (6th Cir. 2004); Carabell v. U.S. Army Corps of Eng’rs, 391 F.3d 704 (6th Cir. 2004).

[35] Rapanos, 547 U.S. at 757.

[36] Id. at 718.

[37] Id. at 757 (Roberts, CJ., concurring); id. at 759 (Kennedy, J., concurring in judgment).

[38] Id. at 787 (Stevens, J., dissenting). Justice Breyer also wrote a separate dissent. Id. at 811 (Breyer, J., dissenting).

[39] Id. at 757 (plurality opinion); id. at 787 (Kennedy J., concurring in judgment).

[40] Id. at 810 (Stevens, J., dissenting).

[41] Id.

[42] Id.

[43] Id. at 732 (plurality opinion). Section 502(7) defines “navigable waters to mean “the waters of the United States, including the territorial seas.” 33 U.S.C. § 1362(7) (2012). Section 502(12) defines “discharge of a pollutant” to mean “any addition of any pollutant to navigable waters from any point source.” Id. § 1362(12).

[44] Rapanos, 547 U.S. at 732.

[45] Id.

[46] Id. at 741–42.

[47] Id. at 742.

[48] Id.

[49] Id. at 767 (Kennedy, J., concurring in judgment) (emphasis added).

[50] Id.

[51] Id. at 779–80.

[52] E.g., United States v. Robison, 505 F.3d 1208 (11th Cir. 2007) (applying Justice Kennedy’s test because it is the least disruptive to prior case law); United States v. Gerke, 464 F.3d 723 (7th Cir. 2006) (same); United States v. Donovan, 661 F.3d 174 (3d Cir. 2011) (finding jurisdiction under either Justice Kennedy’s or Justice Scalia’s test); United States v. Bailey, 571 F.3d 791 (8th Cir. 2009) (same); United States v. Johnson, 467 F.3d 56 (1st Cir. 2006) (same); United States v. Cundiff, 555 F.3d 200 (6th Cir. 2009) (finding jurisdiction in situations where at least Justice Kennedy’s test would be met); N. Cal. River Watch v. City of Healdsburg, 496 F.3d 993 (9th Cir. 2007) (same).

[53] U.S. Envtl. Prot. Agency & U.S. Dep’t of the Army, Clean Water Act Jurisdiction Following the U.S. Supreme Court’s Decision in Rapanos v. United States & Carabell v. United States (Dec. 2, 2008), https://perma.cc/XE8Q-UJ53.

[54] Rapanos, 547 U.S. at 780–81.

[55] Clean Water Rule: Definition of “Waters of the United States”, 80 Fed. Reg. 37,054 (June 29, 2015).

[56] E.g., Complaint, Texas v. U.S. Envtl. Prot. Agency, No. 3:15-cv-00162 (S.D. Tex. June 29, 2015); Complaint, North Dakota v. U.S. Envtl. Prot. Agency, No. 3:15-cv-00059-RRE-ARS (D.N.D. June 29, 2015); Complaint, Murray Energy Corp. v. U.S. Envtl. Prot. Agency, No. 1:15-cv-00110-IMK (N.D.W. Va. June 29, 2015).

[57] North Dakota v. U.S. Envt’l Prot. Agency, 127 F. Supp. 3d 1047, 1060 (2015)

[58] In re Clean Water Rule: Definition of “Waters of the United States,” 140 F. Supp. 3d 1340, 1340–41 (J.P.M.L. 2015).

[59] Id. at 1341.

[60] Federal Defendant’s Notice of Appeal of Ruling at 2 n.1, North Dakota v. U.S. Envtl. Prot. Agency, No. 3:15-cv-00059-RRE-ARS (D.N.D. Nov. 24, 2015), 2015 WL 10642813.

[61] Murray Energy Corp. v. U.S. Dep’t of Def. (In re U.S. Dep’t of Def.), 817 F.3d 261, 264 (6th Cir. 2016), cert. granted sub nom. Nat’l Ass’n of Mfrs. v. Dep’t of Def., 137 S. Ct. 811 (2017).

[62] Ohio v. U.S. Army Corps of Eng’rs (In re Envtl. Prot. Agency), 803 F.3d 804 (6th Cir. 2015).

[63] Murray Energy Corp., 817 F.3d at 264.

[64] Id. at 265; 33 U.S.C. § 1369(b)(1) (2012).

[65] Murray Energy Corp., 817 F.3d at 266, 270–71. Section 509(b)(1)(E) provides review of the Administrator’s action “in approving or promulgating any effluent limitation or other limitation under section 1311, 1312, 1316, or 1345 of this title.” 33 U.S.C. § 1369(b)(1)(E) (2012). Section 509(b)(1)(F) providing review of the Administrator’s action “in issuing or denying any permit under section 1342 of this title.” Id. § 1369(b)(1)(F).

[66] Murray Energy Corp., 817 F.3d at 270.

[67] Id. at 272.

[68] Id. at 275 (Griffin, J., concurring in judgment) (citing Nat’l Cotton Council of Am. v. U.S. Envt’l Prot. Agency, 53 F.3d 927 (6th Cir. 2009)). In National Cotton Council of America, the Sixth Circuit held that section 509(b)(1)(F) authorizes review of regulations governing the issuance of permits. 53 F.3d at 933.

[69] Murray Energy Corp., 817 F.3d at 274 (majority opinion).

[70] Petition for a Writ of Certiorari, Nat’l Ass’n of Mfrs. v. U.S. Dep’t of Def., No. 16-299 (U.S. Sept. 2, 2016), 2016 WL 4698748.

[71] Id.

[72] Nat’l Ass’n of Mfrs (U.S. Apr. 6, 2017) (No. 16-299) (order further extending the time to file Petitioner’s Brief on the Merits to April 27, 2017).

[73] Restoring the Rule of Law, Federalism, and Economic Growth by Reviewing the “Waters of the United States” Rule, Exec. Order No. 13,778, § 1, 82 Fed. Reg. 12,497 (Mar. 3, 2017).

[74] Id. § 2(a).

[75] Id. § 3.

[76] Nat’l Ass’n of Mfrs, 2017 WL 1199467 (U.S. Apr. 3, 2017) (mem.) (order denying motion of federal respondents to hold the briefing schedule in abeyance).

[77] Los Angeles County v. Davis, 440 U.S. 625, 631 (1979) (citations and quotation marks omitted).

[78] Id.

[79] Id.

[80] Murphy v. Hunt, 455 U.S. 478, 482 (1982) (quoting Weinstein v. Bradford, 423 U.S. 147, 149 (1975) (per curiam)). This exception is commonly known as the “capable of repetition, yet evading review” exception. Id.

[81] 672 F.3d 1160 (9th Cir. 2012).

[82] 5 U.S.C. §§ 551–559, 701–706, 1305, 3105, 3344, 4301, 5335, 5372, 7521 (2012).

[83] 672 F.3d at 1164.

[84] 673 F.2d 425, 446 (D.C. Cir. 1982).

[85] Turtle Island, 672 F.3d. at 1168 (citing Consumer Energy, 673 F.2d at 446).

[86] Id. at 1169.

[87] Id.

[88] Id.

[89] Conservation Nw. v. Sherman, 715 F.3d 1181, 1187 (9th Cir. 2013).

[90] Turtle Island, 672 F.3d at 1167–69; Conservation Nw., 715 F.3d at 1187.

[91] Intention to Review and Rescind or Revise the Clean Water Rule, 82 Fed. Reg. 12,532 (Mar. 6, 2017).

[92] See Appalachian Power Co. v. U.S. Envtl. Prot. Agency, 208 F.3d 1015 (D.C. Cir. 2000).

[93] Consumer Energy, 673 F.2d at 445.

[94] Id. at 446.

[95] 463 U.S. 29 (1983).

[96] Id. at 42.

[97] Id. at 36–38.

[98] 556 U.S. 502 (2009).

[99] Id. at 514.

[100] Id. at 515.

[101] Id.

[102] Id.

[103] Id.

[104] Id. at 516.

[105] See generally Office of Research & Dev., U.S. Envtl Prot. Agency, EPA/600/R-14/475F, Connectivity of Streams and Wetlands to Downstream Waters: A Review and Synthesis of the Scientific Evidence (2015), https://perma.cc/7V2L-ZLQ8

[106] See Organized Vill. of Kake v. U.S. Dep’t of Agric., 795 F.3d 956, 969 (9th Cir. 2015).

[107] Id. at 967 (internal quotations omitted).

[108] Id. (internal quotations omitted).

[109] Id. at 968.

[110] Id.

[111] Id.

[112] Id.

[113] Id.

[114] Id. at 969.

[115] 682 F.3d 1032 (D.C. Cir. 2012).

[116] Id. at 1037–38.

[117] Id. at 1038.

[118] Id. at 1036 (internal quotations omitted).

[119] Id.

[120] Id. at 1039.

[121] Id.

[122] Id.

[123] The President’s News Conference, 2016 Daily Comp Pres. Doc. 777, at 8–9 (Nov. 14, 2016).

This post is part of the Environmental Law Review Syndicate, a multi-school online forum run by student editors from the nation’s leading environmental law reviews.

__________________________________________

By Sevren Gourley a J.D. Candidate, Class of 2017, at the University of Virginia School of Law and the Editor-in-Chief of the Virginia Environmental Law Journal. This post is part of the Environmental Law Review Syndicate (ELRS).

Coastal municipalities are struggling to address the uncertain future risks created by sea level rise. Conventional models of ex ante protection and ex post relief are both too costly and often insufficient to mitigate the impacts of climate change. Sea level derivative instruments provide an alternative model for financing adaptation projects that allow municipalities to transfer the risk of climactic uncertainty to parties willing and able to take a counter position. Two sea level derivative instruments—a sea level default swap and a nuisance flooding futures contract—are proposed. They are designed to reduce the risk that a given sea-level rise adaptation project will be either under or over protective while providing additional capital for project development. Due to the lack of a ready counterparty with obvious need to hedge, markets for these sea level derivatives may be susceptible to excessive speculation. However, trading would be subject to regulation by the Commodity Futures Exchange Commission—facilitating a funding adaptation for coastal municipalities.

I.  Introduction

Regardless of public debate on the anthropogenicity of climate change, the existence of sea level rise is not in dispute. Although models have predicted that the U.S. economy will receive a net benefit as global temperatures rise,[1] the costs of sea-level fluctuation will be born disproportionately by coastal governments facing local impacts. Nuisance flooding—tidal flooding of private property and public infrastructure caused by an exceedance of historic tide levels—has become commonplace in coastal municipalities and is projected to increase in frequency.[2] In addition, there is a strong correlation between sea level fluctuation and storm related property damage. Even modest sea level rise magnifies storm impacts. Climate prediction models project a range of future increases in coastal storm surge frequency and intensity.[3] This is likely to hit coastal communities hard.

The costs of relief and repair can easily exceed municipal or even state government capacity because flooding often involves widespread correlated loss. Currently, ex post flood response spending falls under the Disaster Relief Fund overseen by the Federal Emergency Management Agency (“FEMA”).[4] Expenditures from the Disaster Relief Fund have been increasing as weather events causing more than one billion dollars in damage become more frequent.[5] In addition, the National Flood Insurance Program (“NFIP”)—a public-private partnership that federally backs insurers willing to cover flood damages—has struggled under its massive debt to the U.S. Treasury in recent years.[6] The inability of NFIP to charge actuarial risk premiums to insureds and the increasing magnitude of sea level related weather damages have pushed the program to the brink of failure.[7] NFIP is currently indebted to the U.S. Treasury for more than twenty-three billion dollars and has net exposure in excess of 1.2 trillion dollars.[8] In addition, problems with claim settlement following Hurricanes Katrina and Sandy have eroded public confidence in NFIP.[9]

Adaptation projects that mitigate flood risk are economically preferable to ex post disaster relief through FEMA and/or NFIP. One widely accepted estimate approximates that each dollar spent on hazard reduction saves society an average of four relief dollars.[10] Again, the challenge is local. Municipalities have been slowed by the political drag of raising large sums of money for projects that deal with uncertain future risks. For example, the City of Miami Beach, Florida, has developed a storm water management plan to raise streets, install water pump systems, and build up sea walls to mitigate the impacts of nuisance flooding.[11] The plan comes with a price-tag of 400 million dollars and a lot of uncertainty, two factors that have generated political pushback.[12] Although the Miami Beach plan builds in a 10 million dollar adjustment for uncertain increases over predicted absolute sea level, the adjustment could be an unnecessary over-protection or it could be insufficient to cope with sea level rise within the 20-year lifespan of the project.[13] Its wisdom remains uncertain.

Federal funds are available to assist States with funding adaptation projects, but these expenditures often fall short of providing all of the support needed to implement desired adaptation strategies for coping with more extreme sea level outcomes.[14] First, these funds often come out of the same bucket used to fund disaster relief in high-risk areas, relief criticized as an unwelcome drain on federal sea-level adaptation support.[15] Second, they often provide too little. For example, contrast the Obama Administration’s pledge of 100 million dollars to assist with implementation of a sea level adaptation in Norfolk, Virginia, with the city’s 1.2 billion dollar sea level adaptation “wish list.”[16]

Coastal municipalities, as well as others along tidal waterways, are stuck. They need to be able to access capital for adaption projects but avoid spending unnecessary funds on preempting sea level predictions that never materialize. Predicting the impact of climate change on sea level is only possible within certain ranges due to the complexity of climate variables—inevitably, some adaptation projects will be over-protective and some will be under-protective.[17] Derivative contracts that “commoditize” sea levels[18] would provide a financing vehicle for adaptation projects that effectively shift this uncertainty risk onto willing counterparties. This gets municipalities away from reliance on federal grants, avoids overreliance on ex post flood relief, and limits the political pushback that may attend large-scale bond-financed projects. To illustrate how this might work, we now turn to derivative contract design.

II.  Two Sea-Level Derivatives Proposed

The idea for sea level derivatives has been around for several years. Writing shortly before the enactment of the Dodd-Frank Act, Daniel Bloch and others proposed a climate default swap wherein counterparties receive a payout in the event sea level reaches a pre-defined trigger level.[19] Bloch’s proposal is an adaptation of a weather swap of the sort that has been traded since the late 1990s.[20] In these swaps, parties with interests subject to climactic uncertainty trade financial positions with counterparties, so that the costs of the exchange to the party seeking to shed risks are paid for by the economic benefits of a favorable climactic outcome. In the sea level context, a coastal interest could sell the risk of higher than anticipated relative or absolute mean sea levels (“MSL”)[21] by taking premiums from the counterparty under an agreement to pay the counterparty in the event an agreed upon MSL is reached. Bloch’s climate default swap, and related climate default “bond,” would allow municipalities to avoid under-protective adaptive measures by transferring the risk that a given proposal is over-protective to willing private counterparties.[22] Ideally, such counterparties would have a reciprocal risk so that they would be hedging against a lower than expected sea level rise.[23]

As a simplified example of how a Bloch style sea level default swap would work, consider a municipality seeking to build a sea wall. The municipality knows with high certainty that it needs to build the first six feet because storm surges will frequently reach this height under the most conservative models. But beyond this, sea level rise projection variability makes it less clear that the municipality should build any higher. The municipality bears the risk that each extra inch of sea wall could be an unnecessary expense. So it executes a swap. The counterparty pays a premium to the municipality up front, financing the additional inches on the sea wall, in exchange for a payout in the event MSL reached a certain level within a specified period. Economically, the costs of the extra inches (plus interest) should equal the economic value of the flood avoided. So if the MSL trigger is reached and the municipality pays out, that cost is offset by the gain of staying dry created by those extra inches. If the MSL trigger is not reached, the municipality does not payout and the counterparty takes a loss. Under a “bond” type structure for a sea level default swap, a storm surge trigger could be used and reset at the beginning of each coupon period, with coupon payments by the municipality offset by the value of economic loss avoided. Redemption value adjustment may be necessary to ensure that the value of the “bond” swap tracks the real world value of flood avoidance.

Sea level default swaps do not completely hedge against the risk that adaptation projects are under-protective. The sea level could wildly exceed expectations, thus triggering a pay out and leaving the municipality to deal with flood damages—albeit lessened by the adaptation project. Or flood events could occur due to storm surges or project failures that do not involve the MSL trigger. Nuisance flooding futures are a way to hedge against this risk by commoditizing floods in the same way that markets have commoditized weather. Rather than heating degree days or cooling degree days, a futures contract can be executed on nuisance flooding inch days (“NFIs”)—quantified as the amount of flooding along vertical and horizontal metrics over an agreed upon bound. However, NFI futures suffer from two immediate problems. First, risk mitigation untethered to adaptation projects may pull capital investment away from innovation.[24] Further, this sort of loss relief is a less efficient use of capital than the loss prevention that would be facilitated by public adaptation projects.[25] Second, it is less likely that a counterparty would take a long position on NFIs for hedging than for sea level default swaps, potentially fostering a speculative market on flooding.[26] Notwithstanding these shortcomings, NFI futures can provide an alternative or supplement to conventional flood relief to guard against the risks of under-protection. To the extent that the absence of an obvious counterparty for NFI shorts and sea level default swaps fosters speculation, the applicable regulatory framework should be considered.

III. Regulatory Considerations

Sea level default swaps and NFI futures would be subject to regulation by the Commodity Futures Trading Commission (“CFTC”) under the Commodity Exchange Act (“CEA”). The CEA grants the CFTC exclusive jurisdiction over transactions involving swaps or contracts of sale of a commodity for future delivery.[27] The threshold question for regulation is therefore whether these instruments are based on an underlying “commodity” within the meaning of the CEA.[28] If so, municipalities seeking to finance adaptation projects through sea level default swaps or seeking to hedge against under-protection through NFI futures must be aware of the regulatory significance attached to such actions.

 

These instruments are based on an underlying financial “commodity” within the meaning of the CEA. Similar to weather-based derivatives, the underlier of these instruments is the occurrence of an independent measurable event—absolute or relative MSL in the case of a swap, and NFI in the case of a futures contract. The CFTC has repeatedly found that these kinds of intangible underliers are valid bases for futures contracts, even though there is no ready spot market for them and they may not be directly traded, because they represent some measure of an economic event that can be hedged against by contract.[29]

Regulation of these instruments is first scoped by how the commodity is characterized. The underlier of these instruments, as indexed measures of water levels, should be considered a financial commodity because it cannot be physically delivered and is not subject to the shared risks attending most physical commodities, such as supply fluctuation, damage, theft, or deterioration.[30] This characterization as a financial commodity accurately represents the translation of MSL or NFIs into economic gain or loss, even though the rise or fall of water is an event occurring in the physical world. Because these instruments are based on financial commodities, they are subject to CFTC jurisdiction and do not qualify for the exemptions attending to contracts for future sale or delivery of physical commodities. The regulatory import of the CFTC’s jurisdiction is further scoped by how these instruments are characterized and by whom they are exchanged.

A.  Sea Level Default Swaps

Sea level default swaps, although used to finance adaptation projects, are simply the exchange of economic streams between parties.[31] Section 1a(47) of the CEA defines a “swap” to include any agreement or contract providing for payment “dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence . . . .”[32] Swaps are also defined to include instruments that provide a basis for the exchange of payments based upon indices and/or quantitative measures.[33] “Mixed swaps”—swaps that appear to fall within the jurisdiction of both the CFTC and the Securities and Exchange Commission (“SEC”)—are subject to joint regulation.[34]

Sea level default swaps should be used only to finance adaptation projects,[35] raising the question of whether these can be characterized as bonds traditionally regulated by the SEC.[36] However, these instruments should not be characterized as bonds or other debt securities simply because they are used to finance public projects and are issued by a traditional issuer of bonds. Sea level default swaps do not entitle a borrower to repayment, but rather entitle a long position party to settlement in the event of MSL default. In addition, these instruments cannot be characterized as “security-based” because the underlier is a commodity, not a security or security-based index. Nor can they be characterized as a forward for commodity option contract that would be excluded from CFTC regulation.[37] Sea level default swaps are subject to exclusive CFTC jurisdiction.

The CFTC’s regulations on swaps are authorized and informed by the 2010 Dodd-Frank Act’s[38] reforms to the CEA. The regulations check the conduct of contract participants by requiring swap agreements to either be cleared and subject to regulation by an exchange facility, or traded off-exchange exclusively among “eligible contract participants.”[39] Considering the geographic and project specific factors that must be considered in crafting sea level default swaps to finance municipal climate adaptation, it is likely that these transactions—at least at the outset—would be off-exchange.[40] In this realm, CFTC regulations target participant conduct more than the contract terms.

“Eligible contract participants” are broken down into sub-categories with particular regulatory import. Municipalities are classified as “special entities”[41] and are provided with enhanced protections under Dodd-Frank to ensure that they receive unbiased independent advice before entering into swap transactions.[42] “Swap dealers” or “major swap participants”—which may include the financial institutions best positioned to enter into sea level default swaps with municipalities—would have to reasonably believe that coastal municipalities have truly independent representatives with sufficient knowledge to evaluate transactions, provide written representations as to fairness on that basis, act in the best interest of the municipality, and make all appropriate disclosures to the municipality.[43] The regulations do not make clear whether an eligible contract participant who is not defined as a swap dealer or major market participant[44] would have the same obligations towards a municipal counter-party. However, reporting and record keeping requirements would still apply.[45] These regulations limit the pool of eligible counterparties and would appear to shield municipalities from overtly predatory speculators.

B.  NFI Futures

Futures contracts on NFIs would be based on a standardized indexed measurement that correlates to economic losses caused by flooding related to sea-level rise. These contracts would allow municipalities—or even private property owners—to hedge against the under-protection of public adaptation projects. Although actual delivery is not contemplated, these are contracts for the future delivery of a financial commodity and are thus subject to regulation by CFTC.[46] Unlike sea level default swaps, these futures are well-suited to standardization and trade on exchanges, even though they are based on local measures.[47] This exchange access would deepen the pool of market participants and ideally allow coastal interests to better assess flood exposure through the price discovery function of futures trading.[48]

 

To allow for the trading of NFI futures on an exchange, contracts would be standardized and would need to be cleared by the CFTC.[49] Contract markets may not list contracts that are readily susceptible to manipulation, and the fact that these futures are based on an intangible commodity may raise some concern.[50] The NFI indices will have to be developed as standardized, independent, and verifiable sources of information to ensure veracity.[51] Past experience with futures pricing data has shown that self-reporting or phone call surveys are susceptible to manipulation.[52] To maintain integrity, a localized NFI index should be based on data pulled from scientific monitoring devices rather than the reporting of local residents. This should hinder attempts to manipulate that cannot also be excused as potentially legitimate market activity.[53] NFI futures contracts can thus be designed to pass muster with the CFTC, harness price discovery benefits, and hedge against under-protective adaptation projects.

Conclusion

Sea level derivatives provide a promising path for funding climate adaptation. Use of these derivatives to hedge against risks inherent in sea level rise adaptation projects is warranted in light of the mounting expense and uncertainty of adaptation as well as the increasing inability of NFIP and FEMA to mitigate flood loss. Two derivative instruments, sea level default swaps and flooding futures are proposed as vehicles to shift the risks of under-protection and over-protection onto willing and able private parties. However, the lack of an obvious counterparty need to hedge may lead to heavy speculation. This carries with it the risks that counterparties may be over exposed and that markets will be susceptible to manipulation. But these transactions would be subject to CFTC regulation either on or off an approved exchange market. They should and must be structured to comport with those regulations to avoid the problematic incentives of an overly speculative market. The uncertainty of future sea level rise demands we adapt our cities. The economic reality of flooding demands we adapt our finances. Municipalities can strategically use derivative contracts to meet these needs, funding adaptation.

[1] See, e.g., Robert Mendelsohn et al., Country-Specific Market Impacts of Climate Change (2000).

[2] William V. Sweet & Joseph Park, From the Extreme to the Mean: Acceleration and Tipping Points of Coastal Inundation From Sea Level rise, 2 Earth’s Future 579–600 (2014).

[3] Claudia Tebaldi et al., Modelling Sea Level Rise Impacts on Storm Surges Along US Coasts, 7 Envtl. Res. Letters 8–9, 014032 (2012); see also Adam B. Smith & Jessica L Matthews, Quantifying Uncertainty and Variable Sensitivity within the U.S. Billion-dollar Weather and Climate Disaster Cost Estimates, 77 Nat. Hazards 1829 (2015).

[4] Cf. Bruce R. Lindsay, Cong. Research Serv., R43537, FEMA’s Disaster Relief Fund: Overview and Selected Issues (2014).

[5] Daniel J. Weiss & Jackie Weidman, Disastrous Spending: Federal Disaster-Relief Expenditures Rise Amid More Extreme Weather, Ctr. for Am. Progress (Apr. 29, 2013, 9:03 AM), http://www.americanprogress.org/issues/green/reports/2013/04/29/61633/disastrous-spending-federal-disaster-relief-expenditures-rise-amid-more-extreme-weather; Brad Plumer, The Government is Spending Way More on Disaster Relief Than Anybody Thought, Wash. Post (Apr. 29, 2013), https://www.washingtonpost.com/news/wonk/wp/2013/04/29/the-government-is-spending-way-more-on-disaster-relief-than-anybody-thought. The National Oceanic and Atmospheric Administration documented 15 weather events causing losses in excess of one-billion dollars in 2016. Billion-Dollar Weather and Climate Disasters: Overview, NOAA, https://www.ncdc.noaa.gov/billions/ (last visited Mar. 2, 2017).

[6] Rawle O. King, Cong. Research Serv., R40650, National Flood Insurance Program: Background, Challenges, and Financial Status 1 (2012).

[7] U.S. Govt. Accountability Office, GAO-17-317, High Risk Series: Progress on Many High-Risk Areas, While Substantial Efforts Needed on Others 619 (2017).

[8] King, supra note 6, at 13; Meghan Milloy, How to Stop the U.S. Flood Insurance Program From Drowning in Debt, The Hill (Jan. 13, 2017 9:00 AM), http://thehill.com/blogs/pundits-blog/economy-budget/316981-the-federal-flood-insurance-program-is-drowning-in-debt.

[9] Frontline: Business of Disaster (PBS television broadcast May 24, 2016).

[10] Multihazard Mitigation Council, Nat’l. Inst. of Building Sci., https://www.nibs.org/?page=mmc (last visited Mar. 2, 2017).

[11] City of Miami Beach, Storm Water Management Master Plan Executive Summary ES-8–9 (2012).

[12] Jessica Weiss, Miami Beach’s $400 Million Sea-Level Rise Plan is Unprecedented, But Not Everyone Is Sold, Miami New Times (Apr. 19, 2016), http://www.miaminewtimes.com/news/miami-beachs-400-million-sea-level-rise-plan-is-unprecedented-but-not-everyone-is-sold-8398989.

[13] City of Miami Beach, supra note 11, at ES-5, ES-8.

[14] See The Role of Mitigation in Reducing Federal Expenditures for Disaster Response: Hearing before the Subcomm. on Emergency Management, Intergovernmental Relations, and the District of Columbia of the S. Comm. on Homeland Security and Governmental Affairs, 113th Cong. 2, 6–8 (2014) (statement of David Miller, Associate Administrator, Federal Insurance and Mitigation Administration).

[15] Justin Gillis & Felicity Barringer, As Coasts Rebuild and U.S. Pays, Repeatedly, the Critics Ask Why, NY Times (Nov. 18, 2012), http://www.nytimes.com/2012/11/19/science/earth/as-coasts-rebuild-and-us-pays-again-critics-stop-to-ask-why.html.

[16] Justin Gillis, Flooding of Coast, Caused by Global Warming, Has Already Begun, NY Times (Sept. 3, 2016), https://www.nytimes.com/2016/09/04/science/flooding-of-coast-caused-by-global-warming-has-already-begun.html.

[17] Daniel Bloch et al., Climate Hedging Explained 6 (2010), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1676146. Note that this uncertainty also may have negative implications for municipal bond credit ratings, although impacts to date have been negligible. See Larry Levitz et al., Sea Level Rise May Challenge Some Local US Governments, Fitch Ratings (Sept. 16, 2015 5:11 PM), http://www.fitchratings.com/site/pr/990900.

[18] To “commoditize” in this sense is to designate as an underlying commodity solely to facilitate risk transfer through derivative contracts. Weather derivatives are one example of this: parties exchange weather derivatives but it is not possible to produce, buy, or sell the underlying weather. Cf. Felix Carabello, Market Futures: Introduction to Weather Derivatives, Investopedia, http://www.investopedia.com/articles/optioninvestor/05/052505.asp (last visited Mar. 31, 2017).

[19] Daniel Bloch et al., Cracking the Climate Change Conundrum with Derivatives, 2(5) Wilmott J. 271 (2010).

[20] History of the Weather Market, Weather Risk Management Assoc., http://wrma.org/history/ (last visited Mar. 2, 2017).

[21] “Relative mean sea level” is a standardized measure of mean sea level increase—the sea level halfway between mean levels of high and low water—relative to a point the continental shelf, whereas “absolute mean sea level” measures the actual mean sea level regardless of whether surrounding land is rising or falling. Climate Change Indicators: Sea Level, EPA, http://www.epa.gov/climate-indicators/climate-change-indicators-sea-level (last visited Mar. 7, 2017).

[22] Daniel Bloch et al., Applying Climate Derivatives to Flood Risk Management, Wilmott Mag. (Nov. 2011), at 88–91.

[23] Consideration of these risks is beyond the scope of this post, but they may include property developers positioned to benefit from sea level rise or parties in other sectors that may benefit from climate change in some other way. See supra note 1 and accompanying text.

[24] David Ravensbergen, At the Limits of the Market: Why Capitalism Won’t Solve Climate Change, Desmog Canada (Aug. 29, 2013 9:58 AM), http://www.desmog.ca/2013/08/29/limits-market-why-capitalism-won-t-solve-climate-change-part-1.

[25] See supra note 10 and accompanying text. Note that Bloch’s climate default instruments can also be used for non-adaptive but necessary public expenses such as funding easement purchases to move coastal property owners away from flood prone areas. Bloch et al., supra note 22, at 95.

[26] For heating or cooling degree days, there are ready counterparties who need to hedge against the opposite outcome—farmers and energy companies compliment each other. See Travis L. Jones, Agricultural Applications of Weather Derivatives, 6(6) Int’l. Bus. & Econ. Res. J. 53, 56–57 (2007). For NFIs, it is difficult to imagine a robust market for counterparties that are not speculators beyond local repair and construction interests.

[27] 7 U.S.C. § 2(a)(1)(A) (2012).

[28] Id. §§ 1a(9), (47).

[29] See U.S. Commodity Futures Trading Comm’n., Opinion Letter (June 14, 2010), http://www.cftc.gov/idc/groups/public/@otherif/documents/ifdocs/mdexcommissionstatement061410.pdf, at 2–4 (approving contracts of certain media derivatives) (preempted by Dodd-Frank).

[30] See Statutory Interpretation Concerning Forward Transactions, 55 Fed. Reg. 39,188 (Sept. 25, 1990).

[31] See supra notes 17, 19, 21 and accompanying text.

[32] 7 U.S.C. § 1a(47)(A)(ii).

[33] Id. at §1a(47)(A)(iii). Weather swaps fall within this category.

[34] Id. at § 1a(47)(D); 15 U.S.C. § 78c(68)(D); 17 C.F.R. § 240.3a68-4 (2016); see also Dodd-Frank Wall-Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376, 1642 (Jul. 21, 2010).

[35] Sea level default swaps used otherwise may be characterized as a sort of flood insurance, excluded from regulation as a swap but inevitably plagued by the same problems as the NFIP because the effect of correlated loss is multiplied by the sector’s inefficient use of capital. See supra notes 4–9.

[36] 15 U.S.C. § 78c(a)(29).

[37] These instruments are based on financial commodities and the predominant feature is not delivery. See Athena Velie Eastwood et al., A New Era of Energy Regulation, 8 Appalachian Nat. Resources L.J. 1, 6–11 (2013); Terence Healey, Joseph Williams, & Paul J. Pantano, Jr., Energy Commodities: The Netherworld Between FERC and CFTC Jurisdiction, 33(3) Futures & Derivatives L. Rep. 1, 11–14 (2013).

[38] 124 Stat. 1376.

[39] 7 U.S.C. § 7(e). “Eligible contract participant” is defined to include municipalities and financial institutions. Id. at § 1a(18).

[40] Note, however, that Bloch and others have proposed Gaussian pricing models that may assist valuation and facilitate market access. Daniel Bloch et al., Pricing Climate Derivatives with Nonlinear Models, Wilmott Mag. (Mar. 2012), at 46.

[41] 17 C.F.R. § 23.401(c) (2016).

[42] The PFM Group, How New SEC Municipal Advisor Rules Impact Swap Advisors 1–2 (2014).

[43] 7 U.S.C. § 6s(h).

[44] See 17 C.F.R. §§ 1.3(ggg), (hhh).

[45] See 7 U.S.C. §§ 6r(a)(3)(C), (b)–(c).

[46] 7 U.S.C. § 6.

[47] City specific heating or cooling degree days provide a ready example.

[48] Cf. Sharon Brown-Hruska, Comm’r, U.S. Commodity Futures Trading Comm’n., The Functions of the Derivative Market and Role of the Market Regulator, Speech at the 2006 Planalystics GasBuyer Client Conference (May 18, 2006), available at http://www.cftc.gov/PressRoom/SpeechesTestimony/opabrownhruska-45.

[49] 7 U.S.C. § 6; 17 C.F.R. § 38.4.

[50] See 17 C.F.R. § 38.200.

[51] Gary Gensler, Libor, Naked and Exposed, NY Times (Aug. 6, 2012), http://www.nytimes.com/2012/08/07/opinion/libor-naked-and-exposed.html (opining that derivative markets work best where the underlier is observable and integrity can be verified). This is not foolproof; it still may be possible for an unscrupulous trader to physically manipulate the underlier by somehow inducing flood or otherwise move the value of the futures contract. See, e.g., Commodity Futures Trading Commission v. Amaranth Advisors LLC, 554 F. Supp. 2d 523, 528–30 (S.D.N.Y. 2008) (discussing “marking the close” manipulation); Ryan Jacobs, The Forest Mafia: How Scammers Steal Millions Through Carbon Markets, The Atlantic (Oct. 11, 2013), https://www.theatlantic.com/international/archive/2013/10/the-forest-mafia-how-scammers-steal-millions-through-carbon-markets/280419/ (discussing how intangible commodities like carbon credits are susceptible to hacking and scams).

[52] E.g., Chip Cummins, Traders’ Gas-Price Data Are Getting a Closer Look, Wall Street J. (Nov. 13, 2002), https://www.wsj.com/articles/SB1037041733443469708 (discussing problems with basing the Platts index on information volunteered by interested parties).

[53] This is necessary due to the difficulty in establishing intent where legitimate market explanations exist in enforcement actions. See In the Matter of Indiana Farm Bureau Cooperative Assoc., CFTC No. 75-14, 1982 CFTC LEXIS 25 (Dec. 17, 1982) (specific intent not established where legitimate explanation existed); see also Cargill v. Hardin, 452 F.2d 1154, 1170–71 (8th Cir. 1971) (factual specific evaluation of market actions could not be considered ordinary and were evidence of intent to manipulate).

This post is part of the Environmental Law Review Syndicate, a multi-school online forum run by student editors from the nation’s leading environmental law reviews.

__________________________________________

By Chris Erickson a J.D. Candidate at the University of Michigan Law School and a Junior Editor of the Michigan Journal of Environmental & Administrative Law. This post is part of the Environmental Law Review Syndicate (ELRS).

In November 2015, New York Attorney General Eric Schneiderman began an investigation into whether ExxonMobil made public statements about climate change that conflicted with its own internal research.[1] Schneiderman issued a subpoena to ExxonMobil ordering production of documents related to its internal climate change research and the use of that research in making strategic decisions.[2] This investigation differentiates itself from previous climate change litigation by attempting to hold companies responsible for their contributions to climate change using laws unrelated to climate change. If New York is successful in its investigation, it could signal a new wave of climate change litigation centered on issues tangentially related to climate change.

The current investigation pursues a different strategy than past approaches to climate change litigation. Climate change litigation against greenhouse gas (“GHG”) emitters usually involves violations of federal law (such as the Clean Air Act or the National Environmental Policy Act).[3] If a GHG emitter has not violated any federal or state environmental law, plaintiffs bringing an action against a GHG emitter face the difficult task of proving tort law nuisance claims.[4] Avoiding this, New York’s investigation aims to hold GHG emitters accountable by attacking something more tangible: disclosures to investors.[5] The Martin Act, a New York statute, gives broad power to the attorney general to investigate companies for finance-related“deception, misrepresentation, concealment, suppression, [or] fraud.”[6] Investigating large GHG emitters under the Martin Act allows New York to confront the problem of climate change without the difficulties of pursuing a climate change nuisance claim under tort law.

New York has been leading the movement for an increase in the disclosures companies must make about their internal climate change research. Before its current investigation, New York settled with Xcel Energy and Dynegy, Inc. in 2008 and AES Corp. in 2009, after investigating their omissions of climate change risks in SEC filings.[7] As part of the settlement agreements, the energy companies agreed to disclose their potential financial exposure due to climate change, the incorporation of their internal climate change research and projections into their overall strategic plans, and the companies’ efforts to reduce, offset, or limit their GHG emissions.[8]

Following these settlements, the federal government also sought to provide investors with information about companies’ financial exposure to various aspects of climate change.[9] In 2010, the SEC began to require companies to make certain climate change related disclosures.[10] These disclosures include the impact of climate change regulations, climate change’s effect on business trends (e.g. decreased consumer demand for goods that produce significant GHG emissions), and climate change’s physical effects (e.g. rising sea levels threatening property).[11]

These new SEC regulations give New York and other states an additional basis to investigate GHG emitters; however, it is unclear whether this government-led form of litigation will become a standard form of litigation for regulating the conduct of GHG emitters. The evolution of cigarette litigation provides insight. Individuals and families led the initial two waves of litigation but were unsuccessful due to skepticism about the emerging scientific research and vigorous opposition from cigarette companies.[12] State governments, and not individuals, assumed the lead in the third wave of litigation and sued tobacco companies for the costs of treating people with tobacco-related illnesses.[13] This approach was successful, resulting in $246 billion in settlements and the disclosure of millions of documents about the health risks of cigarettes and the deceptive marketing of cigarettes.[14]

Like cigarette litigation, climate change litigation also faces political hurdles. Congress and the attorneys general of Alabama and Oklahoma opposed New York’s investigation into ExxonMobil.[15] Lamar Smith, Chairman of the House Space, Science, and Technology Committee, subpoenaed both Schneiderman and Massachusetts Attorney General Maura Healey, seeking information regarding their investigations of ExxonMobil.[16] Both Smith and the attorneys general criticized the investigation as an infringement on the First Amendment protections that allow ExxonMobil and other companies to disagree about the science of climate change.[17]

Other states seeking to investigate GHG emitters using an approach similar to New York’s may face additional restrictions. The Martin Act gives the Attorney General of New York powers that are not available to many other attorneys general.[18] The Martin Act differs from other fraud statutes because the attorney general does not need to prove intent to demonstrate liability.[19] It also allows multiple remedies. While injunctive relief was the original remedy, the Martin Act now allows the attorney general to bring criminal or civil charges.[20] Of the seventeen attorneys general supporting New York’s investigation into ExxonMobil, only Massachusetts Attorney General Maura Healy has similarly issued a subpoena. [21]

New York may broaden its investigation as it receives more information from ExxonMobil. Potential targets include organizations that both publicly question climate change research and receive funding from GHG emitters.[22] Discrepancies between the public statements of these organizations and the internal documents of the companies providing them funding could offer more proof for attorneys general seeking charges. Because many of the large GHG emitters have funded the same climate change denying organizations (such as the Global Climate Coalition), the investigation into these organizations could ensnare other GHG emitters in similar Martin Act investigations.[23]

New York’s investigation is still young, and there is little certainty about the outcome. If successful, the investigation could encourage other states to pursue similar investigations into ExxonMobil and other large GHG emitters. Climate change litigation may follow a similar path to cigarettes and other toxic torts, in which the increasing scientific evidence does not result in litigation success until the evidence becomes “overwhelming.”[24] Until climate change science becomes overwhelmingly accepted, litigation involving residual considerations, such as fraudulent misrepresentations to investors, may be the most effective legal option for affecting companies’ contributions to climate change.

[1] Clifford Krauss, Exxon Mobil Investigated for Possible Climate Change Lies by New York Attorney General, N.Y.Times, Nov. 5, 2015, at A1.

[2] Bob Simpson, New York Attorney General Subpoenas Exxon on Climate Research, Inside Climate News, https://insideclimatenews.org/news/05112015/new-york-attorney-general-eric-schneiderman-subpoena-Exxon-climate-documents (last visited Jan. 22, 2017).

[3] Richard Dahl, A Changing Climate of Litigation, 115 Environmental Health Perspective, no. 4, A204, A206 (2007).

[4] See Douglas A. Kysar, What Climate Change Can Do About Tort Law, 41 Environmental Law, no. 1, 10739, 10739 (2011).

[5] Justin Gillis and Clifford Krauss, Exxon Mobil Investigated for Possible Climate Change Lies by New York Attorney General, N.Y.Times, Nov. 5, 2015, at A1.

[6] N.Y. Business Law § 352 (McKinney 2016).

[7] Assurance of Discontinuance Pursuant to Executive Law §63(15), In the Matter of Xcel Energy Inc., (2008) (No. 08-012) [available at http://www.ag.ny.gov/sites/default/files/press-releases/archived/xcel_aod.pdf]; Assurance of Discontinuance Pursuant to Executive Law §63(15), In the matter of Dynegy, Inc. (2008) (No. 08-132) [available at http://www.ag.ny.gov/sites/default/files/press-releases/archived/dynegy_aod.pdf]; Assurance of Discontinuance Pursuant to Executive Law §63(15), In the Matter of AES Corp., (2008) (No. 09-159), 2009 [available at http://www.ag.ny.gov/sites/default/files/press-releases/archived/AES%20AOD%20Final%20fully%20executed.pdf].

[8] See Id.

[9] Commission Guidance Regarding Disclosure Related to Climate Change, 75 Fed. Reg. 6,297, (Feb. 2, 2010) (to be codified at 17 C.F.R. pt. 211, 231, 234).

[10] Id.

[11] Id.

[12] Lincoln Caplan,Will the “Tobacco Strategy” Work Against Big Oil?, News Desk, The New Yorker, Nov. 17, 2015, http://www.newyorker.com/news/news-desk/will-the-tobacco-strategy-work-against-big-oil.

[13] Id.

[14] Id.

[15] Laurel Brubaker Calkins, Oklahoma, Alabama Accuse NY of Stifling Climate Debate, Bloomberg, https://www.bloomberg.com/news/articles/2016-03-30/oklahoma-alabama-support-exxon-mobil-in-ny-led-climate-probe (last visited Jan. 22, 2017).

[16] David Hasemyer, State Attorneys General Subpoenaed by Rep. Lamar Smith for Exxon Fraud Probe, Inside Climate News, https://insideclimatenews.org/news/13072016/lamar-smith-exxon-climate-probes-subpoenas-state-ags-eric-schneiderman-maura-healey (last visited Jan. 22, 2017).

[17] This argument appears misguided as it does not address whether ExxonMobil committed actionable fraud or deception, as determined by the Martin Act, by not disclosing internal information about climate change.

[18] See Nicholas Thompson, The Sword of Spitzer, Legal Affairs, May–June 2004, https://www.legalaffairs.org/issues/May-June-2004/feature_thompson_mayjun04.msp.

[19] State v. Rachmani Corp., 525 N.E.2d 704, 708 (N.Y. 1988).

[20] Assured Guar. (UK) Ltd. v. J.P. Morgan Inv. Mgmt. Inc., 962 N.E.2d 765, 768 (N.Y. 2011).

[21] See David Hasemyer, Exxon Widens Climate Battle, May Depose 17 State AGs Over Investigations, Inside Climate News, https://insideclimatenews.org/news/09112016/exxon-climate-change-investigation-research-scandal-state-attorneys-general (last visited Jan. 22, 2017).

[22] Clifford Krauss, More Oil Companies Could Join Exxon Mobil as Focus of Climate Investigations, N.Y.Times, Nov. 7, 2015, at B3.

[23] See Id.

[24] Richard Dahl, A Changing Climate of Litigation, 115 Environmental Health Perspective, no. 4, A204, A204 (2007).

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