Manufacturers and the changing environmental landscape: Beware

The growing awareness in the United States regarding carbon emissions and their effect on the environment and weather patterns, have produced an increase in environmental litigation and some important decisions from the United States Supreme Court. Many states and environmental groups have filed lawsuits in an effort to get the judicial system to force cuts in greenhouse gas emissions. On June 20, 2011, the high court issued an 8-0 opinion (with Justice Sonia Sotomayor recused) in the case of American Electric Power Co. v. Connecticut. The unanimous decision reversed the Second Circuit Court of Appeals in New York and reaffirmed the Supreme Court’s 2007 decision that carbon dioxide emissions are subject to federal regulation under the Clean Air Act. The Court further held that the Environmental Protection Agency (EPA) has the sole authority to regulate the greenhouse gas.

The interesting part about this case, at least as far as manufacturing is concerned, is that the case began with a 2004 lawsuit in which the plaintiffs — eight states, New York City, and three land trusts – brought public nuisance claims against four private power companies and the federal Tennessee Valley Authority. The plaintiffs alleged that the power companies are the five largest emitters of carbon dioxide in the country, and their greenhouse gas emissions are significantly contributing to global warming and thus impinge on public rights by threatening human health and safety. The plaintiffs sought to have a federal judge order the companies to decrease their emissions of carbon dioxide. The District Court dismissed the suit, holding that the case presented a political question unsuitable for judicial review. The Second Circuit reversed, which would allow the case to proceed, and the Supreme Court granted certiorari.

The Supreme Court issued an opinion written by Justice Ruth Bader Ginsburg rejecting the lawsuit against the power companies. The Court found that the Clean Air Act displaces the plaintiffs’ right to sue under federal common law, stating that “the test is simply whether the statute speaks directly to the question at issue.” In other words, common law claims cease to exist when Congress has drafted federal legislation that governs the same activity. The Court also encouraged judicial restraint in cases like these, reasoning that the EPA is better suited to handle greenhouse regulations. Justice Ginsburg focused on the fact that federal judges are not equipped with the scientific, technological, and economic resources that the agency possesses to deal with these complex issues. “It is altogether fitting that Congress designated an expert agency, here, EPA, as best suited to serve as primary regulator of greenhouse gas emissions,” Justice Ginsburg wrote. “The expert agency is surely better equipped to do the job than individual district judges issuing ad hoc, case-by-case injunctions.”

The Supreme Court’s decision may impact industry in Illinois, both positively and negatively. On the surface, the holding is a win for power companies and manufacturers and provides the industry with some regulatory clarification. Electric utilities and other manufacturers that produce greenhouse gases know, at least for the time being, that they will only have to comply with one set of federal standards: those implemented by the EPA. Had the Court ruled in favor of the plaintiffs, these businesses would have been doubly burdened by having to adhere to judicially created standards and then further adapting them to meet whatever regulations the EPA ultimately enacts. For now, the Supreme Court has provided manufacturers with a clearer view of regulatory progression, something the industry has been demanding for years.

While the Court held in favor of the plaintiffs, states and environmentalists took away some victories as well. One of the big issues in the case was whether the plaintiffs had Article III standing to even bring these claims. The Court upheld the Second Circuit’s affirmation of standing, thus leaving the door open for conservation groups and private land trusts to assert claims in the future. The Court also did not decide the issue of whether the Clean Air Act preempts state common law nuisance claims. It expressly left these actions available to future litigants to be decided by lower courts.

And for the second time in four years, the Supreme Court made it clear that it trusts the EPA to make decisions on important environmental issues. Environmentalists are pleased that the government has taken a firm stance on climate change and view the ruling as a call to action for the EPA. They posit that the ruling places an unquestionable duty on the EPA to impose emission regulations on certain industries, something the agency has not done despite the Court’s 2007 ruling in Massachusetts v. EPA. In its most recent opinion, the Court noted that the EPA is currently proposing strict standards for greenhouse gas emissions from fossil-fuel fired power plants and has agreed to complete its rulemaking by May 2012. While the Court’s decision reaffirms the EPA’s power to do so, whether or not the agency will retain that authority remains to be seen.

One reason for the uncertainty is that the EPA has faced strong opposition from Republicans (and a few Democrats) in Congress. These politicians are attempting to introduce bills that would limit the EPA’s regulatory powers. EPA critics fear that emission restrictions will further damage an already struggling economy by killing industry jobs and putting an unnecessary burden on taxpayers. According to a press release from its website, American Electric Power Company (“AEP”) warned that it would have to shut down five plants and reduce operations at six others to comply with the EPA’s proposed regulations. AEP estimates that this will cost about 600 power plant jobs and a net loss of approximately $40 million in annual wages.

Furthermore, manufacturers will see their bottom line affected by a sharp increase in energy costs. AEP stated that the EPA proposal would lead to higher electric rates, including increases of more than 35 percent for some businesses. Industry in the Midwest could be hit hard, with AEP warning that their “compliance plan alone would abruptly cut generation capacity in the Midwest by more than 5,400 megawatts.” And this is just one report from one utility company. Other power companies and greenhouse gas emitters are likely to face similar difficulties if the proposed regulations take effect.

And, if the EPA does retain its regulatory authority, greenhouse gas emitters are hardly the only manufacturers that will be affected. The Supreme Court’s decision has given the agency the opportunity to speed up its regulatory scheme for other environmental issues. The EPA has proposed air quality regulations, fuel regulations, air toxic regulations, hazardous materials regulations, and water quality regulations to take effect in the next decade. For example, earlier this summer the EPA released its proposed regulations for cooling water intake structures that sets a ceiling for “impingement mortality.” These regulations are designed to decrease the number of fish and other aquatic life that are killed in the process of cooling industrial facilities. When these factories draw in water from nearby lakes and rivers, fish get trapped and die in the screens covering the intake structures. The EPA gives two options to comply with the threshold: either by installing new fish screen technology or by reducing intake velocity. The rule also requires existing facilities to add new units to match the agency’s current requirements for cooling water intake structures at new facilities.

Most recently, according to a press release from the EPA’s website, the agency finalized its Cross-State Air Pollution Rule on July 7, 2011. The rule is designed to reduce power plant emissions of sulfur dioxide and nitrogen oxide that, according to the release, travel to other states and damage their environment. The EPA propounds that by 2014, the rule will reduce sulfur dioxide emissions by 73 percent and nitrogen oxide emissions by 54 percent from 2005 levels. These current and future proposals have caused many critics to lash out at the EPA for overregulation, with the National Association of Manufacturers starting a campaign called “No New Regs.” According to its website, the campaign “exposes the devastating impact the EPA’s overregulation would have on America’s prosperity and urges lawmakers to pursue a national energy policy that protects the environment and increases access to affordable domestic energy.”

Finally, it is important to note that whatever decisions the EPA does reach will be reviewable by the courts. The Supreme Court expressly gave environmental regulation power to the agency, but made it clear that the courts will be there to ensure that the EPA’s decisions are not “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” This will hardly be enough to quell industry concern, and only time will tell the ultimate victor in the highly polarized environmental battle.

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