The Environmental Regulatory Landscape: Beyond The Politics, A Water Crisis Looms

Friday, March 21, 2014 - 16:53

The Editor interviews Annemargaret Connolly and Thomas D. Goslin, Partner and Associate, respectively, in the Environmental Practice at Weil Gotshal & Manges LLP, resident in the Washington, DC office.

Editor: Please tell us a little about your professional backgrounds.

Connolly: I am head of the corporate transactional practice at Weil, and I’ve been practicing environmental law at Weil for 25-plus years.

Goslin: I’ve been an associate at Weil in the Environmental Transactions group for seven years and have been practicing for 11 years.

Editor: The Supreme Court is currently hearing challenges to the EPA rules on greenhouse gas emissions, specifically whether the EPA has the authority to regulate emissions from stationary sources. Will this affect how you counsel your clients?

Connolly: The Supreme Court has already acknowledged EPA’s ability to regulate greenhouse gas, so that is not at issue. Rather, the Supreme Court is looking at a very narrow question: whether or not EPA can regulate greenhouse gases under the Prevention of Significant Deterioration (PSD) or Title V, now that it’s already made the determination that it can regulate mobile sources. The issue is getting a lot of media coverage, but the Court’s decision likely will have greater political ramifications than practical ramifications on how greenhouse gasses are regulated. Even opponents of the EPA’s regulation recognized in the oral arguments that a decision against the administration will only reduce the percentage of greenhouse gas emissions regulated under the Clean Air Act from 86 to 83 percent.

In short, Tom and I are not changing how we counsel our clients in this regard. We continue to point out that greenhouse gas emission is an important issue they need to pay attention to – regardless of the regulatory regime. We live in a global, not a local environment. Our clients must be aware of their shareholders’ concerns and demands, as well as the legal requirements.

Editor: Gina McCarthy has stated, “Climate change will be engaged over the next three years.” What do you take this to mean, given that last year President Obama used executive authority to push through his Climate Action Plan?

Connolly: What I take Gina McCarthy to mean is that the administration and the executive agencies will continue to use whatever legal authority they have, particularly the Clean Air Act, to implement the Climate Action Plan. Obviously, we’re not going to have any new statutes coming out of Congress that give EPA any more authority or that singlehandedly tackle climate change, given how deadlocked the legislative branch of our government is right now. I think that when Gina McCarthy talks about this, she’s primarily referring to the efforts to regulate greenhouse gas emissions under the Clean Air Act. I think we’ll also see some energy programs that the administration is championing, including reviving the Department of Energy loan guarantee program, advancing Department of Defense deployment of renewable energy technologies and working to improve the energy efficiency of federal buildings, all of which can be done without congressional action. We saw recently that Ms. McCarthy is working with other governments to advance carbon capture and storage technologies.

Editor: Please tell us about the Ivanpah Solar Electric Generation System in California, which is receiving criticism for BrightSource Energy’s inattention to the potential environmental impact of the system.

Goslin: You have to have a little bit of sympathy for renewable energy project developers. They’re trying to generate electricity with zero carbon emissions in an environmentally friendly manner, but it often seems that those most opposed to these projects are in the environmentalist community. Ivanpah certainly is no exception. This enormous project – a thermal solar power project that stretches over five square miles in the Mohave Desert – is composed of 350,000 mirrors that focus the sun’s rays on water towers, causing the water inside to boil and drive a turbine. This is the first project of its kind to be built in the U.S.

The permitting and planning process involved in the construction of Ivanpah – or any new energy generating asset – takes years, with numerous points along the way for interested parties to raise concerns long before ground is broken on the project. That said, there are still some who would argue that the permitting process doesn’t do enough to adequately assess environmental impacts. Others would argue that the process is too lengthy and expensive and as a result reduces the number of clean energy projects that can be developed. I think where you sit on that probably depends on where you sit on clean energy development in general.

Editor: Another contentious project is the Keystone XL Pipeline. Can we expect the project to reach U.S. governmental approval on the project this year?

Connolly: Our understanding is that the President told a group of governors last month that he’d make a decision within a couple of months. It’s possible we’ll see something soon, but given how long the decision has already been delayed and the looming prospect of a challenging midterm election for the Democrats, we may not see a decision until after the election. What does appear clear is that the President will have little political cover if he decides to block the pipeline, given that the State Department and other studies suggest that building the pipeline will have little impact on global carbon emissions.

Editor: Please comment on the perception that EPA enforcement policy has shifted to pursuing the largest violators while allowing smaller violators to ignore policy and escape penalty.

Connolly: I don’t know if that perception is accurate. Any Republican member of Congress can give you an example of how EPA has overreached and gone after the “little guy.” With that said, EPA’s budget is being cut for the fifth straight year. In fact, in 2015 EPA will receive about 20 percent less funding than it did in 2010. Given these reductions in the resources, we’re likely to see EPA using its dollars wisely – that is, in enforcements where it gets the most “bang for its buck,” which could include going after the largest violators.

Editor: Please comment on Anadarko and BP’s recent filing in the U.S. Appeals Court.

Goslin: Anadarko and BP recently appealed a district court’s finding that both were automatically liable under the Clean Water Act for the 2010 Macondo well oil spill in the Gulf because they owned the well. In the appeal, BP and Anadarko argue that they are not liable because the last equipment that the oil touched before it flowed into the Gulf was the now-famous blowout preventer owned by the well’s contractor, Transocean. This is a creative argument, and I can understand why the parties would appeal the district’s court finding that they could be liable for fines and penalties upward of $1100 per barrel in a spill estimated at 4.2 million barrels. That said, I would be surprised if the Court of Appeals overturned the district court’s ruling.

Editor: What are some of the challenges to developing a statewide water policy in a state like Texas, where water needs are so diverse across the state? How integral to Texas’s water shortage is Mexico’s non-compliance with the 1944 water treaty?

Connolly: Water policy is an area of law that the Western states in particular have struggled with from day one. (We deal with the issue far less on the East Coast, but I anticipate seeing water issues here with increasing frequency.) Given the recent drought conditions and population growth in the West and Southwest, we will likely witness an explosion in the number of water rights cases and disputes. Already, last year, the Supreme Court heard a dispute between Texas and Oklahoma concerning water flowing down the Red River. Going forward, more litigation between private parties will likely arise as they begin to enforce their own water rights – or their perceived water rights.

Add to this the fact that certain groups in the area need a lot of water. For example, hydraulic fracking requires vast amounts of water, and environmental groups in Texas are raising questions about whether hundreds of millions of gallons of Texas freshwater should be mixed with chemicals and pumped into the ground when local farmers are struggling to grow their crops in drought conditions.

I think the growing dispute between Texas and Mexico concerning whether Mexico is supplying enough water under the 1944 treaty reflects an overall growing concern for the demand for freshwater, which is far outstripping the resources we have available, particularly in the Southwest. Politicians are going to have to make some very difficult choices about which groups receive water and which don’t.

Editor: Environmental concerns have squared off against landowner rights recently in the Edwards Aquifer Authority v. Bragg Pecan Farm case. This case is being called a benchmark for “takings” cases in Texas. Will you comment on the impact similar decisions will have on future environmental regulatory policy?

Goslin: The Bragg Pecan case exemplifies the wave of complexity that states will increasingly confront when trying to establish water policy. In this case, the court held that the water-permitting regime enacted in Texas, in which the amount of water that a pecan farm and others could use was restricted, constituted a taking that required compensation to the farmers. Here, we have a state that recognizes a water supply problem, puts in a program to try to ration water use, and then finds itself having to pay out nearly a million dollars to one farmer because the rationing was found to constitute a taking. If you think their water supplies are stressed, that’s nothing compared to state budgets, and cases like Bragg Pecan put these states in a bind: if you do nothing, you’re going to run out of water, and if you ration the water, you’re going to have to pay a pretty penny to the landowners.

Editor: To that end, please discuss the rise in “green technology” specifically with regard to companies investing in technology to treat wastewater for reuse.

Connolly: The prior couple of questions have reinforced that we have a real water crisis in the United States, but it’s in times of crisis when entrepreneurs and venture capital firms see opportunity and step up. I think we’ll see the harnessing of new technologies to address the water crunch. Some of the technologies already being developed involve the reuse of what is called greywater – the discarded water from sinks, bathtubs, etc. Office buildings can reuse greywater for non-potable purposes, for example, in heating and air conditioning systems. If we can get beyond the “ick” factor and accept that this kind of reuse is preferable to discharging greywater out to the treatment plants and then to our rivers, we’ll see more of it; in fact, we’re already seeing it used in new green buildings.

In addition, some companies are looking at recycling water associated with fracking. As I mentioned, fracking uses a significant volume of water. To be able to reuse that water post-fracking – rather than having it disposed of as wastewater – could be a godsend, particularly in those jurisdictions suffering most from drought conditions where fracking also occurs. With water scarcity issues arising in the West and Southwest, as well as around the world, there are many opportunities for entrepreneurs and investors to profit if they can come up with innovative solutions. Clearly a lot of experimentation will have to take place before we find solutions that really work on a large scale, but this is not an issue that is going away. In the coming years, we expect to see growth in entrepreneurial and venture capital activity in this area, particularly if governments decide to provide financial incentives to help develop emerging water efficiency and reuse technologies. For as long as demand for fresh water continues to outstrip supply, there will be a need for new technologies to help bridge that gap, whether it be on the supply side or the demand side. And if droughts persist and demand for water continues to grow, we think this will be a very attractive area for entreprenuers and their investors.

Please email the interviewees at annemargaret.connolly@weil.com or thomas.goslin@weil.com with questions about this interview.