Greenhouse Gas Regulations

The United States Securities and Exchange Commission (“SEC”) is reviewing sustainability. On April 13, 2016 the SEC issued a “Concept Release” seeking public comments on 340 topics relating to business and financial disclosure requirements for publicly-traded companies under Regulation S-K. See 81 Fed. Reg. 23916 (April 22, 2016) (“CR”). Several topics addressed the disclosure of company information relating to sustainability and public policy issues. Such issues, including climate change, resource scarcity, corporate social responsibility (“CSR”), and good corporate citizenship, are often referred to generically as environmental, social, and governance (“ESG”) concerns.  C.R., p. 206. The concepts of CSR and ESG overlap greatly if not entirely, and precise definitions of these terms are lacking. In this article, the terms “sustainability” and “ESG” will be used interchangeably in the context of corporate reporting. Many of the largest companies in the U.S. voluntarily publish annual sustainability reports and/or website ESG content. At issue is to what extent ESG reporting by publicly-traded companies should be required by SEC regulations.

On April 20, 2016, the U.S. Senate passed the Energy Policy Modernization Act of 2016 (the Act) by a vote of 85-12. If signed into law, the bipartisan bill would impact manufacturing operations across industries by promoting energy efficiency; encouraging renewable energy development; facilitating improvements in infrastructure, including grid storage; removing certain hurdles to the development and export of oil and gas, critical minerals, and other resources; and making other changes intended to keep pace with the nation’s rapidly changing energy industry.

On October 23, 2015, the U.S. Environmental Protection Agency (EPA) published in the federal register its highly anticipated final rules implementing the Clean Power Plan’s goal of significantly limiting carbon dioxide emissions from existing, new, modified, and reconstructed fossil fuel-fired electric generating units (EGUs). EPA also published its proposed model state trading rules and federal plans for implementation of the required emission reductions from existing EGUs. The rules were finalized on August 3, 2015 and published on EPA’s website at that time.

These rules, which will significantly impact the electric power sector, also have the potential to impact manufacturing operations. Businesses with high energy demands may see the effects of the rules in their electricity bills. However, the rules could also present an opportunity for manufacturers of control equipment for coal-fired steam EGUs as well as natural gas combined cycle units and zero-emitting renewable energy generating units.

In a split decision announced earlier today (Utility Air Regulatory Group v.  Environmental Protection Agency, No. 12-1146, slip op. (June 23, 2014)) the United States Supreme Court ruled the Environmental Protection Agency exceeded its authority in requiring sources of air pollution to comply with the Clean Air Act’s prevention of significant deterioration (PSD) and Title V major source permitting programs solely because of a source’s greenhouse gas emissions.  Further, the Court held that EPA is permitted to include greenhouse gas emissions in determining best available control technology (BACT) for sources that would be subject to PSD on the basis of emissions other than greenhouse gas emissions is a permissible interpretation of the Act.

As you’ve likely heard, the Environmental Protection Agency (EPA) has now officially taken the position that greenhouse gases like carbon dioxide are fair game for regulation and in fact are required to be regulated under the Clean Air Act. While this development may be cheered by environmental conservation groups and climate scientists, those who will actually have to implement the technology necessary to comply with EPA’s new regulations are less thrilled. Another pitched battle is about to take place before the Supreme Court on this issue, and large manufacturers, utilities, and other owners of large sources of greenhouse gases should take note.