Green Building Law Update

Environmental Law and Sustainability for Business

Shedding Light on the Future: The Evolution of Lightbulbs in the Wake of New Energy Efficiency Standards

One hundred and forty three years after Thomas Edison received his patent for the incandescent lamp, the most important invention in history, illuminating the way for the universal use of electric light, last Friday the U.S. Department of Energy finalized new energy efficiency standards for general service lamps, which include the most common types of residential and commercial lightbulbs, having the practical effect of phasing out compact fluorescent light bulbs and what remnants of incandescent bulbs still remain, replacing them with more energy efficient LEDs.

It is not just the phenomenon that a glass bulb produces light from electricity, and as a consequence improves safety in dark places, allows students to study after dark, permits people to work at night, but so much more.

We believe that when light appears, darkness will always disappear since darkness does not really exist in and of itself. That metaphor has roots in Genesis when God’s first act is separating darkness and light so today it is not surprising that this act by one government is drawing much scrutiny.

DOE had already implemented minimum lightbulb efficiency levels that effectively banned incandescent bulbs, in furtherance of the Energy Policy and Conservation Act, which set energy levels that could not be met by energy inefficient incandescent bulbs. Last Friday’s standards, which reflect that 2007 statute’s mandate to regularly review efficiency standards, as authorized by Congress are more likely to withstand any judicial challenge, set efficiency levels that can be met by a broad variety of widely available Light Emitting Diodes (LEDs) but not by Compact Fluorescent Lamps (CFLs). CFLs, once hailed as the next big thing in energy efficient lighting, have seen their day in the sun. LEDs are already gaining market share because they provide longer lifespans and lower electricity usage, and unlike CFLs do not contain mercury.

When this rule was first proposed in January 2023 we blogged, Ban the Light Bulb to Repair the World.

Accepting the politicization of this final rule, the White House said, “over 30 years [.. really?], these updated standards will save Americans more than $27 billion on their utility bills and cut 70 million metric tons of dangerous carbon dioxide emissions, equivalent to the combined annual emissions of over 9 million homes.”

Specifically, this final rule will raise the efficiency level from 45 lumens per watt to more than 120 lumens per watt for the most common lightbulbs. Manufacturer compliance with the efficiency standards being adopted today will be required from July 25, 2028, and will apply to newly produced or imported general service lamps, not affecting continued consumer use and purchase of bulbs already manufactured; so, the federal government is not coming for your lightbulbs, but you are going to have to replace light fixtures and should likely begin that now.

With more hyperbole, DOE claims the energy savings from these standards over 30 years of shipments is approximately 4 quadrillion British thermal units, which represents a savings of 17% relative to the status quo of lightbulb energy use.

We all know, having burned our fingers on a hot light bulb, even modern incandescent bulbs (that were phased out beginning in 2007) were not energy efficient with less than 10% of electricity supplied to the bulb being converted into visible light. The remaining energy is lost as heat and a pendant percentage of GHG emissions are squandered, however, cumulatively U.S. EPA has estimated those emissions at less than 1% of total emissions, which begs the question of the economic and environmental costs of complying with this new government mandate?

But of import, we have not been able to identify a single manufacturer of LED bulbs for home or business elimination anywhere in North America; which is not surprising given that nearly 94% of that manufacturing is in China.

Last Friday DOE issued the pre-publication Federal Register final rule. The effective date of this rule is 75 days after the notice has been published in the Federal Register. Compliance with the amended standards is required on and after July 25, 2028.

We should not lose sight of the fact that the purpose of a light bulb is to produce light from electricity, something that has literally improved the lives of nearly every man, woman, and child on the planet by eliminating our dependence on Earth’s rotation for natural light. Many will lament the end of the era of light bulbs and even more will question the role of one nation’s government banning such an important technology.

All of that observed, in 2024 there is nothing wrong with doing that better than Thomas Edison in 1860, with LEDs, and repairing the planet.

__________________

Join us for our upcoming Strafford live webinar, “Greenhouse Gas Emission Laws Now Impact Commercial Leases” on Thursday, May 2, at 1 pm ET. Click this link for more information.

2024 International Energy Conservation Code is Final After Addressing Preemption

By Stuart Kaplow on April 7, 2024 Posted in Codes and Regulations, Energy, Green Building, Local Government

On March 18, 2024, the International Code Council Board of Directors voted to affirm in part and reject in part nine appeals filed by five appellants to a draft of the commercial and residential editions of the 2024 International Energy Conservation Code. The Board expressly addressed concerns that aspects of the draft 2024 IECC codes were preempted by the federal Energy Policy and Conservation Act under the Supremacy Clause of the U.S. Constitution. 

Of course, it is 2024 so there were the usual cast of climate change doomsayers who took to social media, to deride the vote by the ICC as the end of the world, but to many, they sound like the boy who cried apocalypse. I have been enjoying the Carl’s Jr, “End of the Word” hamburger since 2012, and environmental groups have been monetizing the apocalypse since “An Inconvenient Truth” was still a slide show in 1989, so doomsday porn aside, the 2024 IECC is now final and the greater concern might be the coming of the Four Horsemen of the Apocalypse.

The International Code Council is a private nongovernmental organization established in 1994 to develop a single set of national model construction codes. It brought together three different organizations that had developed three separate sets of model codes throughout the country: Building Officials and Code Administrators International, Inc. (BOCA), International Conference of Building Officials (ICBO), and Southern Building Code Congress International, Inc. (SBCCI). ICC codes are approved through a triennial process although the process for the 2024 IECC was changed from previous iterations of the IECC, using a procedure previously utilized for adopting ‘standards’ but not codes.

The Appeals

Following its own public hearing, the ICC Board determined that the scope and intent governing the 2024 IECC prohibited the inclusion of measures that did not directly affect building energy conservation within the base of the draft 2024 IECC, as the intent of both the commercial and residential 2024 IECC codes is limited to “providing minimum efficiency requirements for buildings that result in the maximum level of energy efficiency that is safe, technologically feasible, and life cycle cost effective considering economic feasibility, including potential costs and saving for consumers and building owners, and return on investment.” The Board further determined that alternative measures, including measures without direct impacts on building energy conservation, but that may reduce greenhouse gas emissions, could be included as an appendix given the intent of both the residential and commercial IECC codes provides that “[t]he code may include nonmandatory appendices incorporating additional energy efficiency and greenhouse gas reduction resources.”

Accordingly, the Board resolved to move several of the challenged provisions to an appendix:

Sections C406.1.1.1 and C502.3.7.1 (heat pump products)
Sections C403.4.6, C404.10, C405.2.8, R403.5.4 and N1103.5.4 (demand response)
Sections C405.14, R404.7, and N1104.7 (electric vehicle charging infrastructure)
Section C405.16 (electrical energy storage system readiness)
Sections R404.6 and N1104.6 (solar readiness)
Sections R404.5 and N1104.5 (electric readiness)

Preemption

The Board also specifically considered concerns that provisions in the draft IECC codes were preempted by the federal Energy Policy and Conservation Act. Where the Board determined there was a significant risk of preemption, it decided to move those provisions to a resource with a cautionary note regarding the risk of preemption:

Appendix CG (all-electric commercial) and Appendix RE (all-electric residential): moved to resource due to significant risk of preemption based on recent cases
Appendix CD Section CD101.1 and Table CD101.1 (prescriptive glide path to net zero): moved to resource due to significant risk of preemption based on an inability to comply with minimum efficiency equipment
Appendix RG (glide path to net zero): retained as an appendix with a cautionary note regarding the limited compliance options for minimum efficiency equipment in specific climate zones

Finalization of the 2024 IECC

The Board’s determinations mark the conclusion of the 2024 IECC development process. The residential and commercial codes are now final.

Of import, the 2024 IECC builds on the 2021 edition and is anticipated to improve energy efficiency by roughly 6.5% for residential buildings and by 10% for commercial buildings.

Huge Implications

This is a big deal because versions of the IECC are in use or have been adopted in 48 states (.. although adoption of the latest 2021 version, in the 3 year cycle, was only by 5 states) because wide earlier adoption was a prerequisite for access to Federal grants in aid.

In states like Maryland where the Maryland Building Performance Standards, require each local jurisdiction to adopt the IECC, but “may not adopt any amendments that weaken the requirements of the IECC” the implications of this action by the ICC Board are dramatic; saving the entire state from mandatory all electric commercial and residential building codes which would have had the effect of banning natural gas and ultimately determined to be “without effect” as preempted by federal law. Of course, Maryland and other jurisdictions could still incorporate additional greenhouse gas reduction measures, electrical vehicle charging infrastructure, energy storage systems, electric readiness, and demand responsive controls; although such is not expected and any such state would be a regulatory outlier.

__________________

Join us for our upcoming Strafford live webinar, “Greenhouse Gas Emission Laws Now Impact Commercial Leases” on Thursday, May 2, at 1 pm ET. Click this link for more information.

Settlement Portends Broad Failure in Attempts to Ban Natural Gas

By Stuart Kaplow on March 31, 2024 Posted in Federal, GHG, State

The City of Berkeley is going to repeal its regulation that prohibits the installation of natural gas piping within newly constructed buildings.

Last week the California Restaurant Association announced that the group and the City of Berkeley entered into a settlement agreement immediately halting enforcement of the City’s ‘first in the nation’ ban on natural gas piping as the City Council takes steps to repeal the 2019 ordinance after the U.S. Court of Appeals for the 9th Circuit refused to reconsider its 2023 ruling that the ban is “without effect” as preempted by Federal law under the Supremacy Clause of the U.S. Constitution.

Berkeley’s city attorney, Farimah Faiz Brown confirmed to print media sources that the city has ceased enforcement of the ban.

This government surrender has significant negative implications for other state and local laws across the country that would have the effect of banning the use of natural gas in favor of the cause célèbres, all electric buildings.

That forced retreat was buttressed, in the same week by the March 18, 2024 vote by the International Code Council Board of Directors on the 2024 International Energy Conservation Code to move mandatory all electric building provisions in the proposed code to a non-mandatory appendix (.. more on this below).

We blogged on January 2, 2024, Federal Appeals Court Delivers Coup De Grace in Berkeley Attempt to Ban Natural Gas, when the Ninth Circuit, which the Court had last year found regulations having the effect of banning natural gas were expressly preempted by federal statute, when that court denied a petition to rehear the case.

The law is clear. Nearly everything important can be gleaned from the first paragraph of that January opinion,

“By completely prohibiting the installation of natural gas piping within newly constructed buildings, the City of Berkeley has waded into a domain preempted by Congress. The Energy Policy and Conservation Act (“EPCA”), 42 U.S.C. § 6297(c), expressly preempts State and local regulations concerning the energy use of many natural gas appliances, including those used in household and restaurant kitchens. Instead of directly banning those appliances in new buildings, Berkeley took a more circuitous route to the same result. It enacted a building code that prohibits natural gas piping in those buildings from the point of delivery at a gas meter, rendering the gas appliances useless.”

You could also read our blog post from last year, after the original decision in this case, describing that attempts by state and local governments to ban natural gas in buildings in favor of all electric buildings are superseded by federal law, under the Supremacy Clause, Court Saves Gas Stoves from the Government.

Naysayers had suggested the Ninth Circuit’s second opinion in this challenge, denying the motion to reconsider, was somehow weaker or stepping back from the unequivocal finding of express federal preemption, but this settlement takes the wind out of their sails. The new text in the reissued court opinion in January includes, “that the Berkeley ordinance cut to the heart of what Congress sought to prevent – state and local manipulation of building codes for new construction to regulate the natural gas consumption ..”

To be clear, that amended opinion leaves no doubt, .. based on its text, structure, and context, that EPCA expressly preempts building codes like Berkeley’s ordinance that ban natural gas piping within new buildings. EPCA’s preemption provision extends broadly including to regulations that address gas fueled appliances themselves and building codes that concern the use of natural gas. By enacting EPCA, Congress ensured that States and localities could not prevent consumers from using energy in their homes and businesses. In this instance, EPCA thus preempts Berkeley’s building code, which prohibits natural gas piping in new construction buildings from the point of delivery at the gas meter.

That analysis is precisely what the ICC Board of Directors said it considered in the internal appeals of the proposed 2024 IECC as it explained its actions regarding the prescriptive all electric building, “.. provisions in the draft IECC codes were federally preempted [by EPCA]. Where the Board determined there was a significant risk of preemption based on case law or the Board had concerns about the ability to comply with provisions using minimum efficiency equipment, the Board decided to move those provisions to a resource with a cautionary note regarding the risk of preemption.”

Moreover, it is beyond dispute from the opinion that EPCA’s preemptive scope extends beyond regulations of covered products or building codes, but also expressly includes “concerning the energy use” within buildings that contain such products, delivering a fatal blow to state and local government attempts to regulate site Energy Use Intensity (EUI) in building energy performance standards and the like. Lest there be any doubt, to ascertain what Congress meant by “energy use,” we turn to the statutory definitions. EPCA defines “energy use” as “the quantity of energy directly consumed ..” and preempts states and local governments from regulating it, whether it is disguised as a building energy performance standard site EUI or otherwise.

As we concluded an earlier blog post, “.. the only question may be how quickly extremist regulatory schemes like Maryland’s building energy performance standards regulations, with the concomitant ban of natural gas, even in existing buildings, and imposing penalties for exceeding arbitrary EUI maximums, will be vanquished.” The Maryland regulations seek not only to ban new natural gas pipe installations but to force the replacement of existing gas appliances and removal of gas piping from existing buildings (.. far more than Berkeley intended to do) and unquestionably preempted by EPCA. Of import, BEPS is on “Hold” in Maryland as a result of action by the legislature (.. not the courts) to examine more closely these issues.

The Berkeley settlement halting enforcement of the City’s ban on natural gas piping and the ICC vote eliminating the all electric building mandate from the 2024 IECC, within days of each other, portend the immediate and long term failure of state and local governments’ attempts to ban natural gas in homes and businesses.

____________________

Join us for our upcoming Strafford live webinar, “Greenhouse Gas Emission Laws Now Impact Commercial Leases” on Thursday, May 2, at 1 pm ET. Click this link for more information.

SEC Climate Disclosure Rule Stay and Venue Now in the 8th Circuit

By Stuart Kaplow on March 24, 2024 Posted in Climate Change, Federal, GHG, greenhouse gas

After this blog was posted, on April 4, 2024, the SEC, noting that it has discretion to stay its rules pending judicial review if it finds that “justice so requires,” determined to exercise its discretion to stay the Final Rule pending the completion of judicial review of the consolidated Eighth Circuit petition. In its Order Issuing Stay, the Commission did expressly state, that it “will continue vigorously defending the Final Rule.”

Much has transpired since Wednesday, March 6, 2024, when the Securities and Exchange Commission, by a 3 to 2 vote, adopted its long awaited rules to enhance and standardize climate related disclosures, including for the first time requiring greenhouse gas emission disclosures by public companies and in public offerings.

We blogged about the substantive provisions of The Enhancement and Standardization of Climate-Related Disclosures for Investors Final Rule, but before it was even published in The Federal Register, the first legal challenge was filed by ten states in federal court.

On Friday, March 15, 2024, the 5th Circuit Court of Appeals issued an Order granting an Emergency Motion for Administrative Stay and Stay Pending Judicial Review filed by Liberty Energy, Inc. and Nomad Proppant Services, LLC, in another of the cases challenging the SEC Final Rule, which unpublished two page Order did not explain the reasoning for granting the stay pending the outcome of that judicial review. But, keep reading ..

Additional federal judicial reviews were filed by the State of Louisiana, et al, the Texas Alliance of Energy Producers, et al, and the Chamber of Commerce of the United States, et al, each in the Fifth Circuit; the Ohio Bureau of Workers’ Compensation, et al in the Sixth Circuit; the State of Iowa, et al in the Eighth Circuit; and, the State of West Virginia in the Eleventh Circuit. Environmental groups also filed two challenges to the Rule, the Natural Resources Defense Council in the Second Circuit and the Sierra Club, et al, in the DC Circuit.

The SEC filed a notice of multi circuit petitions with the Judicial Panel on Multidistrict Litigation and on Thursday, March 21, 2024, the nine lawsuits pending in six federal circuits were after a random lottery, by a Consolidation Order moved into a single case to be heard in the St. Loius based 8th Circuit Court of Appeals. The case is now known as In Re: Securities and Exchange Commission, The Enhancement and Standardization of Climate-Related Disclosures for Investors, Issued on March 6, 2024, J.P.M.L., MCP No. 180, consolidation order issued 3/21/24.

A fun fact, the Congressionally created selection process to provide a means for the random selection of one circuit court of appeals to hear consolidated petitions for review of agency decisions is truly random. It has since 1988 been accomplished by a court clerk, who selects a court of appeals by lottery (i.e., spinning a drum and selecting a number at random).

Media sources have reported that the 8th Circuit Court of Appeals has 17 judges of whom 10 are active and were appointed by a Republican president with only one judge appointed by a Democrat president, so it is not characterized as a liberal venue.

Dramatically, on Friday, March 22, 2024, the 5th Circuit Court of Appeals’ unpublished Order that transferred the litigation to the 8th Circuit dissolved its prior issued stay (.. over the objection Judge Edith Jones, of one of the three judges on the panel) having the effect of restoring the SEC Final Rule.

That the Fifth Circuit’s now dissolved stay has been previously granted should necessarily not be interpreted as an indication that the Final Rule ultimately will be struck down. However, commentators have suggested the several petitioners are likely to prevail on the merits for several reasons. First, the Final Rule fails the major questions doctrine. That is, there is no clear authority in federal statute for the SEC to regulate the controversial matters of climate change. Second, the Final Rule is arbitrary and capricious because it fails to account for the SEC’s drastic change in position on what is materiality (.. to an investor in a public company). And third, the Final Rule violates the First Amendment by mandating speculative disclosures of politically charged issues using controversial international frameworks (not based on U.S. law) and effectively forces each company into political debates about climate change. Moreover, the “Rule seeks to cripple traditional energy sector, with Petitioners and the general public paying the price.”

The environmental groups, including Sierra Club which filed a petition for review, principally were heard to complain that the Final Rule omitted a requirement for companies to disclose their Scope 3 greenhouse gas emissions.

To understand the crux of what is at issue in this judicial review one need to look no further than SEC Chair Gary Gensler’s own statement before the vote approving the Final Rule, which begins explaining, “Our agency .., was set up to be merit neutral. Thus, the SEC has no role as to climate risk itself ..” but, the Chair quotes President Franklin Roosevelt who called for “complete and truthful disclosure”, to justify, “It’s in this context that we have a role to play with regard to climate-related disclosures.” That dichotomy, which some suggest is between modern science in 2024 and law, The Securities Act of 1933 (.. the statute granting the authority for the Final Rule although certainly Congress did not contemplate climate change in 1933) is now what is before the 8th Circuit.

Compellingly 25 states have now filed petitions for judicial review attacking the Final Rule. The federal judicial branch will be the ‘decider’.

Despite this litigation, including wide speculation that the 8th Circuit will reinstate a stay of the Final Rule going into effect, public companies potentially subject to the Rule should still consider carefully the Rule’s application to their organizations and begin taking the steps necessary to comply. We continue to work with companies determining the best business specific strategies for calculating greenhouse gas emissions, which by way of example, often includes amending leases to share data necessary for that calculation.

As this “final” rule continues to change rapidly and repeatedly from one position and situation to another and back again, we will continue to monitor the litigation including the expected imminent application in the 8th Circuit for a stay. We will provide updates.

____________________

Join us for our upcoming Strafford live webinar, “Greenhouse Gas Emission Laws Now Impact Commercial Leases” on Thursday, May 2, at 1 pm ET. Click this link for more information.

EV Charger Data Apocalypse

By Stuart Kaplow on March 17, 2024 Posted in Climate Change, Energy, GHG, greenhouse gas

Last week the House of Representatives passed a measure to effectively ban TikTok in the U.S. to protect Americans’ sensitive personal data from exploitation by the People’s Republic of China on national security grounds. The week before President Biden issued an Executive Order establishing protections for Americans’ sensitive personal data from sale to countries of concern.

But neither of those actions protects Americans’ personal and sensitive information, including geolocation data, financial data, and other personally identifiable information, available from electric vehicle (EV) charging equipment.

Bad actors can use this EV charger data to track Americans, pry into their personal lives, and pass that data on to other data brokers and foreign intelligence services. This data can enable intrusive surveillance, scams, blackmail, and other violations of privacy.

EV chargers are proliferating in response to President Biden’s $7.5 Billion government funding for 500,000 chargers across the country through the National Electric Vehicle Infrastructure program. New laws and legislation pending in more than 20 states, like Maryland HB 1279 require new construction to install EV charging equipment and otherwise cause parking spaces to be electric vehicle supply equipment capable or ready. Cast in a light most positive to government, this is a rush to respond to climate change, and despite that EV chargers are prime vectors for data vulnerabilities there are not yet government or other accepted protections for the data. A darker perspective might be that government is unwittingly building a mass surveillance project with an entirely new network of spying devices across the country (and the world).

In an era when the world’s most valuable resource is no longer oil, companies are collecting more of Americans’ data than ever before, and it is often legally sold and resold through data brokers. The U.S. government is the largest domestic purchaser and reseller of the data. As we have blogged about, Immigration and Customs Enforcement has used address data sold by utility companies to track down undocumented immigrants.

The line between hackers and commercial data brokers and others is fuzzy when data is sold to or otherwise accessed by countries of concern, or entities controlled by those countries (.. the largest acquirer of data worldwide are government instrumentalities in China), and data can land in the hands of foreign intelligence services, militaries, or companies controlled by foreign governments. Hence the recent Executive Order.

These risks are not merely hypothetical. In 2019, New York Times writers were able to combine a single set of bulk location data collected from cell phones and bought and sold by data brokers, which was anonymized and represented “just one slice of data, sourced from one company, focused on one city, covering less than one year” with publicly available information to identify, track, and follow “military officials with security clearances as they drove home at night,” “law enforcement officers as they took their kids to school,” and “lawyers (and their guests) as they traveled from private jets to vacation properties.”

When there is a claim data is anonymized such that it is stripped of personal identifier information, that is simply ‘silly talk’ and reverse engineering in not only almost always possible, but all but easy with modern AI solutions.

This post is about EV chargers but appreciate concerns about exploitation of personal car data, we found a gray data broker who sells niche data sets where even tires are a vector for surveillance. The dashboard lights on your car that tell you the tire pressure on your front left tire is 30 psi operate through a wireless signal from a small sensor, and companies have figured out how to use those unique identifier signals to track people. Apparently, the largest purchaser of this data is government (.. who is using it to track Americans without a warrant?). A data aggregator who is said to be doing work for Ukraine after the Russian invasion sells a portable system that detects war zone tire pressure signals.

But that is not what keeps me up at night. The nightmare may be an EV charger data apocalypse.

The Office of the Director of National Intelligence has made clear that “[o]ur adversaries increasingly view data as a strategic resource.”

Many EV charger users have considered that a bad actor could have access to a homeowner’s EV charger connected Wi-Fi network or through the smartphone apps used to control charging or simply as a smart device connected to the internet, and also access the credit card information provided in a commercial EV charger, not to mention be vulnerable to transferable malware infections, but armed with EV charger data could hackers switch on or off an EV battery or thousands of EV batteries at one time?

In the movie, Leave the World Beyond, produced by Barack and Michelle Obama, hackers attack the U.S. including through thousands of hijacked Teslas that pile up on roadways.

That was fiction, and real world damaging hacks that we know about have been relatively few, but a week following Russia’s invasion of Ukraine, a private Russian power company’s EV charging stations outside of Moscow were hacked, including displaying anti Putin video messages and disabled. This was in the same timeframe that the UK’s Isle of Wright saw pornography flash on the screens of EV chargers at public car parks.

In 2019 a now widely read study published by an NYU Tandon School of Engineering professor described “cybersecurity risks to the grid where multiple high-wattage charging stations could be used in tandem to launch an attack and potentially cause a blackout.” His analysis had less than 1,000 EV charging vehicles taking down the Manhattan power grid. The study establishes that while such an attack was not possible at the 2019 penetration level of EV chargers, it would be practical in the near future once the number of EV chargers proliferates.

Today there are no widely implemented cyber security standards for EV chargers and the UK is one of very few countries with any legal requirements in place when it mandates credential authentication, data encryption, and information deletion options. Service providers must also provide regular software updates. Note, there is a U.S. Federal Highway Administration rule setting minimum standards and requirements for EV chargers funded under the National Electric Vehicle Infrastructure program, but that rule expressly excludes cyber security provisions out of concern that such might slow installations. I don’t think this is some secret coterie of tech companies and governments to weaponize EV chargers, but it is malfeasance at a huge scale and the transgressions will certainly do more harm than good .

And I do not lose sleep over a possible EV charger cyber apocalypse any more than a climate change apocalypse.

I am told the best thing you can do is regularly update the software in your EV charger and associated phone app. Personally, I drive a gasoline powered car.

________________________

Join us for our upcoming Strafford live webinar, “Greenhouse Gas Emission Laws Now Impact Commercial Leases” on Thursday, May 2, at 1 pm ET. Click this link for more information: https://www.sp-04.com/r/products/tlkruhhana

SEC Final Rule on Climate Change and GHG Disclosure

By Stuart Kaplow on March 10, 2024 Posted in Climate Change, Codes and Regulations, Federal, GHG, greenhouse gas

After this blog was posted, on Friday, March 15, 2024, the 5th Circuit Court of Appeals issued an Order granting an Emergency Motion for Administrative Stay and Stay Pending Judicial Review filed by Liberty Energy and Nomad Proppant Services, in one of the nine cases challenging the March 6 SEC Final Rule on Climate Change and GHG Disclosure (in advance of that Final Rule even being printed in the Federal Register), which unpublished two page Order did not explain the reasoning for granting the stay. But, ..

Then on March 21, 2024, the nine lawsuits pending in six federal circuits were after a random lottery, by a Consolidation Order of the Judicial Panel on Multidistrict Litigation, into a single case to be heard in the 8th Circuit Court of Appeals.

And on Friday, March 22, 2024, the 5th Circuit Court of Appeals’ unpublished Order that transferred the litigation to the 8th Circuit dissolved its prior issued stay having the effect of restoring the SEC Final Rule. We will follow the litigation here.

Last Wednesday by a 3 to 2 vote the Securities and Exchange Commission adopted long awaited rules to enhance and standardize climate related disclosures, including for the first time requiring greenhouse gas emission disclosures by public companies and in public offerings.

The Enhancement and Standardization of Climate-Related Disclosures for Investors Final Rule is different from the proposal released two years ago and it is more than that the proposed rule was 510 pages in length and this Final Rule is 886 pages. With the benefit of having watched the more than 2 hour live streamed SEC public meeting where the vote took place, this blog post will highlight our initial impressions of this consequential rulemaking from those 886 pages in several hundred words.

Widely reported in the media, the Final Rule eliminates the originally proposed Scope 3 GHG emission reporting (.. the devilishly difficult attempt to estimate from activities not owned or controlled by the company).

To not bury the lede, the Final Rule expressly and approvingly allows the use of carbon offsets and renewable energy certificates (RECs) requiring disclosure when they are a component of a business’ plan to achieve its disclosed climate related targets or goals. Make no mistake, this is huge.

But the changes do not alter the rule’s fundamental purpose (.. and flaw as many see it) that climate disclosures require heightened treatment and express space in SEC disclosures without authority from Congress. This Final Rule will be expensive for public companies and their shareholders and will expose companies to a myriad of previously unknown risks.

Of course, the existing SEC disclosure regime already requires companies to inform investors about material risks and trends, including those related to climate (.. 36% of annual Commission filings include climate disclosures). The Commission’s 2010 climate guidance explains how climate related issues, particularly a company’s financial condition, require annual analysis and possible disclosure. We have done a great deal of that work for public companies, their securities counsel, and their consultants and that work will grow exponentially under this new Final Rule as materiality appears now replaced by pages of prescriptive disclosures.

Specifically, the Final Rules will require most SEC registered companies to disclose:

Climate related risks that have had or are reasonably likely to have a material impact on the business’ business strategy, results of operations, or financial condition;
The actual and potential material impacts of any identified climate related risks on the business strategy, business model, and outlook;
If, as part of its strategy, a company has undertaken activities to mitigate or adapt to a material climate related risk, a quantitative and qualitative description of material expenditures incurred and material impacts on financial estimates and assumptions that directly result from such mitigation or adaptation activities;
Specified disclosures regarding a business’ activities, if any, to mitigate or adapt to a material climate related risk including the use, if any, of transition plans, scenario analysis, or internal carbon prices (leaving uncertain how to address in that transition plan that the outcome of an election would significantly alter the risk?);
Any oversight by the board of directors of climate related risks and any role by management in assessing and managing the business’ material climate related risks;
Any processes the registrant has for identifying, assessing, and managing material climate related risks and, if the company is managing those risks, whether and how any such processes are integrated into the business’ overall risk management system or processes;
Information about a business’ climate related targets or goals (e.g., we will be carbon neutral by 2040), if any, that have materially affected or are reasonably likely to materially affect the business’ business, results of operations, or financial condition;
For large accelerated filers and accelerated filers that are not otherwise exempted, information about material Scope 1 GHG emissions and/or Scope 2 emissions;
For those required to disclose Scope 1 and/or Scope 2 GHG emissions, an assurance report at the “limited assurance” level, which, for a large accelerated filer, following an additional transition period, will be at the higher “reasonable assurance” level (.. which higher level we arguably already achieve for clients today);
The capitalized costs, expenditures expensed, charges, and losses incurred as a result of severe weather events and other “natural conditions” (.. SEC Commissioner Peirce pointed out that was a crazy broad term that might have included Covid or the next pandemic), .. subject to applicable one percent and de minimis disclosure thresholds, disclosed in a note to the financial statements;
The capitalized costs, expenditures expensed, and losses related to carbon offsets and renewable energy certificates (RECs) if used as a material component of a business’ plans to achieve its disclosed climate related targets or goals, disclosed in a note to the financial statements; and
If the estimates and assumptions a registrant uses to produce the financial statements were materially impacted by risks and uncertainties associated with severe weather events and other natural conditions or any disclosed climate related targets or transition plans, a qualitative description of how the development of such estimates and assumptions was impacted, disclosed in a note to the financial statements.

The Final Rule, in another change from that proposed, permits a business to hire non auditor assurance providers, which will allow other than just the Big 4 and other large accounting firms to report on climate change and calculate GHG emissions. For more than 10 years we have been advising companies, their securities counsel, and their consultants about SEC climate change disclosures, and for nearly 20 years we have counseled clients about GHG emissions, so we believe we are uniquely qualified to do that work under this new regulatory regime.

All of that observed much of this Final Rule will Not apply to the more than 50,000 Department of Defense contractors that Congress just provided by statute, on December 23, 2023, who are not permitted to “disclose a greenhouse gas inventory or any other report on greenhouse gas emissions,” being a significant number of the approximately 12,000 companies registered with the SEC.

Among the significant unresolved issues is given that the SEC has by this Final Rule taken the position that the federal agency has broad authority to mandate climate disclosures, does this preempt California’s recently passed disclosure law (that is being challenged in court by businesses) which applies to an untold number of companies across the country and the globe that do business in California, already serving as a national standard? And how does this mesh with the EU ESG disclosure obligations for multinationals effective since January 1, 2024?

Before adopting the final rules, the Commission considered more than 24,000 comment letters, including more than 4,500 unique letters, submitted in response to the rules’ proposing release issued in March 2022.

The Final Rule will become effective 60 days following publication in the Federal Register and compliance dates will be phased in dependent on the business’ filer status, however, ..

In future blogs, we will post about the legal challenges to the Final Rule, including the case already filed by ten states in federal court in the 11th Circuit where West Virginia is the lead plaintiff (.. déjà vu West Virginia v. EPA, where the Supreme Court solidified its major questions jurisprudence and significantly curbed the EPA’s power to regulate GHG emissions without clear authority from Congress). And if environmental groups that have been heard to threaten court challenges because the rules do not go far enough, commence actions, we will blog about it.

We will also blog a detailed analysis of key requirements of the Final Rule, including methodologies for GHG emission calculation (e.g., that are inconsistent with Maryland’s proposed GHG regulations).

Even with the uncertainty arising from already commenced judicial challenges, it is of critical import that the thousands of SEC reporting companies (.. and their landlords, utilities, and others) promptly create the internal processes and commence collection of data for fiscal year 2025 disclosures and financial statements required by the Final Rule.

_________________________

Join us for our upcoming Strafford live webinar, “Greenhouse Gas Emission Laws Now Impact Commercial Leases” on Thursday, May 2, at 1 pm ET. Click this link for more information.

New York is Coming for Your Cheeseburger with Greenwashing Case

By Stuart Kaplow on March 3, 2024 Posted in Climate Change, GHG, Green Washing, greenhouse gas, greenwashing, State

This blog may sound like a broken record as we have time and again warned about the risks of a business claiming that they will be “net zero greenhouse gas emissions by 2040” or the like.

For readers who may not have heeded our warnings and even clients we have offered counsel and advice to before they make environmental marketing claims or disclosures required by governments (e.g., tenants disclosing greenhouse gas emission data to landlords under building energy performance standards (BEPS) laws and the like), reality set in this past week.

Last Wednesday, New York Attorney General Letitia James filed a lawsuit against JBS USA Food Company, the American subsidiary of the world’s largest producer of beef, alleging greenwashing in the company’s statements in a print ad and on its website “that it will achieve net zero greenhouse gas emissions by 2040 ..” in a scheme to garner climate conscious customers.

The greenwashing lawsuit filed in state court claims JBS USA engaged in deceptive acts or practices, false advertising, and repeated or persistent fraudulent or illegal conduct justifying relief ranging from an injunction for future bad acts accompanied by future audits of all consumer facing publications to a $5,000 civil penalty per violation and to “disgorgement of all ill-gotten profits, funds, and assets traceable to its fraudulent, deceptive, or illegal acts or practices.” But the biggest peril to JBS USA may be reputational risk by a coterie of environmental groups that have publicly sought to halt the company’s planned listing on the New York Stock Exchange.

The complaint figuratively and literally has the New York State government coming for your cheeseburger when it alleges, .. “Beef has the highest total greenhouse gas emissions of any major food commodity, and beef production is linked to large-scale deforestation, especially in the Amazon rainforest, which further drives climate change by releasing greenhouse gases and eliminating trees and plants that absorb and store carbon dioxide ..”

The complaint then incredibly avers, “Even if it had developed a plan to be ‘Net Zero by 2040,’ the JBS Group could not feasibly meet its pledge because there are no proven agricultural practices to reduce its greenhouse gas emissions to net zero at the JBS Group’s current scale, and offsetting those emissions would be a costly undertaking of an unprecedented degree.”

Letitia James’ filing goes on to cast in a negative light that, “Across its marketing materials, the JBS Group has made sweeping representations to consumers about its commitment to reducing its greenhouse gas emissions, claiming that it will be “Net Zero by 2040.”

The pleading’s ultimate greenwashing allegation is that having made such an aspirational statement, “The JBS Group has repeatedly and persistently made unsubstantiated and misleading environmental marketing claims to New York consumers, .. .. and has profited from its fraudulent and illegal business activities.” That allegation is founded in the apocalyptic environmental belief that net zero is not attainable from a meat processor.

What this case is truly about is made clear in Letitia James’ post on X, “The beef industry is one of the largest contributors to climate change, and JBS has falsely advertised its commitment to sustainability and endangered our planet.” So, Letitia James’ problem is with beef. And when the pleading describes that “as of 2021, the JBS Group’s estimated annual greenhouse gases were more than those of the entire country of Ireland” which ignores that one state attorney general is seeking to inject herself in the purchasing decisions of all American consumers buying the food produced by the company’s U.S. operations can process more than 200,000 cattle, 500,000 hogs and 45 million chickens a week. Despite the more than $10 Billion market cap of this Brazilian based producer of animal proteins, the Complaint avers there is nothing the company that has operations on six continents can do about its environmental impact, apparently because cows belch methane (evidently it is not an anthropogenic thing).

First, they came for JBS Group, but some have observed that Tyson Foods, the world’s second largest processor of animal proteins has a net zero emission by 2050 target. And Smithfield, the largest pig and pork producer across the globe, says the company’s U.S. operations will be carbon negative by 2030. There are greenhouse gas commitments across the food production industries and increasingly by thousands of businesses across all sectors, including many of those commitments being mandated by government BEPS laws and the like that expose businesses to risks from greenwashing claims.

The Complaint in this case is an instructive read on greenwashing for all business leaders who want to mitigate their climate change risk.

We continue to advise a broad breadth of businesses about greenhouse gas emissions as well as related required disclosures and advertising claims. We would be pleased to speak with your organization.

Make no mistake, the New York State government is coming for your cheeseburger with this greenwashing case.

_________________________

Join us for a live webinar “Remove Slavery From Your Supply Chain” 30 talking points in 30 minutes, Tuesday, March 19 at 9 am ET presented by Stuart Kaplow on behalf of ESG Legal Solutions, LLC. The webinar is complimentary, but you must register here.

Hawaii Considers $25 Climate Tax

By Stuart Kaplow on February 25, 2024 Posted in Climate Change, Codes and Regulations, Environmental, State

The Hawaii legislature held a hearing last Friday on Governor Josh Green’s bill to authorize a $25 tax to create a “special fund to prevent climate crises and more effectively respond to climate crises when they occur.”

The climate levy will be on “transient accommodations” and due each time tourists to the island state check into a hotel or other short term rental with “tax revenue [allocated] to the climate health and environmental action special fund.”

The Governor articulated in the legislation, “that Hawaii’s natural environment faces significant pressure from climate change and the heavy use it receives from persons traveling to enjoy the State’s natural resources. Climate change and overuse are placing our natural and cultural resources in increasing peril by creating greater risk of fire, flood, coastal erosion, loss of reefs, and pollution of our air and water supplies threatening lives, homes, visitor accommodations, fisheries, stability of other natural systems, and irreplaceable Hawaiian cultural landscapes enjoyed by Hawaii residents and tourists.”

Arguably with its tropical climate, with trade winds from the East, the islands are getting drier and hotter. Note, it is the only U.S. state to have never recorded a subzero Fahrenheit temperature.

The legislature suggests that “while the State has many of the solutions for prevention, the State and the counties currently do not have the needed resources to implement even the highest-priority climate crises prevention measures.”

$25 might strike some as a drop in the Pacific Ocean toward repairing the planet, or even just Hawaii, but the 8 main islands, of the 137 island archipelago, had more than 9.5 million tourists last year, so maybe $68 Million (.. tourists share hotel rooms) is a start.

“It’s a very small price to pay to preserve paradise,” the Governor told The Wall Street Journal. But in his February 23, 2024, written testimony “In Strong Support” for his bill the Governor said the revenue will go to specific purposes including first to establish a state fire marshal (.. some suggest that doesn’t sound a lot like climate?).

Other countries charge tourist fees including using some or all of the proceeds on environmental matters, from Bhutan’s $200 per day per tourist to fund the gross happiness index, to the Galapagos Islands of Ecuador’s $100 per visitor entrance fee to fund infrastructure and conservation.

Last year, a similar bill by the Hawaii Governor to levy a $50 “visitor impact fee” on tourists for access to state parks and beaches failed and cynics claim the Governor simply rebranded his new proposal as this year’s “climate tax” on tourists.

Of course, this is not a carbon tax designed to reduce greenhouse gas emissions by increasing the prices of the fossil fuels that emit them when burned; to the contrary, nearly all tourists arrive in Hawaii by airplanes which account for about 4% of global greenhouse gas emissions and this levy is not about fossil fuels, but rather about raising government revenue from somewhere other than residents, where tourism is the largest sector of the economy, that had historically been a plantation economy.

Hawaii already has the highest hotel tax in the nation at 10.25% and Honolulu has its own at an additional 3%, so whatever the motive, this proposal is just more and additional ‘lodging tax.’ The Hawaii Vacation Guide recommends a family of four budget $13,495 for a 10 day vacation in the Aloha state, so will anyone really complain about another $25 whether it is efficacious in repairing the planet or not, .. certainly not the 1.4 million permanent residents of the islands who have one of the highest cost of living in the U.S., and will see this as the ultimate progressive tax.

The tax would be a first of its type for any U.S. state. Some have argued this novel initiative would violate the right of U.S. citizens to move freely between the states, but HB 2406 is expected to pass in the coming days, but, maybe do not worry visitors to Hawaii will be paying this tax any time soon; the Governor has accepted a friendly amendment to his bill by the legislature’s Committee on Energy & Environmental Protection “changing the effective date to July 1, 3000, to encourage further discussion.”

_________________________

Defense Contractor Prohibition on Greenhouse Gas Emissions Disclosures

By Stuart Kaplow on February 18, 2024 Posted in Codes and Regulations, Environmental, Federal, GHG, greenhouse gas

Department of Defense contractors are not permitted to “disclose a greenhouse gas inventory or any other report on greenhouse gas emissions.”

As governments across the United States are beginning to regulate greenhouse gas emissions, looking at the back story and teasing out the broad impact of this prohibition is worth our time.

We blogged, Government Proposes Federal Contractors and Their Suppliers Disclose GHG Emissions describing the November 14, 2022, proposed Federal Supplier Climate Risks and Resilience Rule that proposed to require greenhouse gas emission disclosures by contractors to the U.S. government, the world’s single largest buyer of goods and services. That proposed amendment to the Federal Acquisition Regulation garnered much controversy and remains under review.

Beginning at about the same time several states and a score of cities enacted building energy performance standards (BEPS) and other laws requiring not only disclosure of greenhouse gas emissions but in some instances also mandating reductions. And beyond what has been enacted, there are proposals from other federal government agencies to a host of blue states and local governments (.. yes, climate change is a partisan issue so the military mission is at risk of suffering for it).

On December 23, 2023, President Biden signed into law the National Defense Authorization Act for Fiscal Year 2024, which authorizes the Navy to purchase 13 nuclear powered attack submarines and authorizes the maximum number of active duty personnel for each of the armed forces: Army 452,000, Navy 347,000, Marine Corps 172,300, Air Force 324,700, and Space Force 9,400. Also reflecting one of the more contentious debates in Congress with the aim of a pragmatic slowing of climate change being addressed through the military mission, the Act expressly provides,

SEC. 318. PROHIBITION ON REQUIRED DISCLOSURE BY DEPARTMENT OF DEFENSE CONTRACTORS OF INFORMATION RELATING TO GREENHOUSE GAS EMISSIONS.

There are of course other prohibitions for purposes of secrecy, security oversight, and classified access in Department of Defense procurement that bar the release of utility data, personnel population, and the like (that are the component parts of greenhouse gas emission calculation), but this law expressly prohibits the disclosure of information relating to greenhouse gas emissions.

In government speak, the National Defense Authorization Act says in describing the prohibition on disclosure requirements, “The Secretary of Defense may not require that any nontraditional defense contractor (defined as those that did not have a contract in the last year), as a condition of being awarded a contract with the Secretary, disclose a greenhouse gas inventory or any other report on greenhouse gas emissions, ..” Then in a subsection below adds “other than nontraditional defense contractors” and broadens the scope. Advice from the Office of the General Counsel of the Department of Defense is that this section will be broadly interpreted.

The Secretary of Defense may issue a waiver of this prohibition on a contract by contract basis but only “provided that the information provided is directly related to the performance of the contract.” So, not a large number of waivers are anticipated.

While we are receiving inquiries about the application of the law, it is not yet possible to gauge its import in the regulation of greenhouse gas emissions. These prohibitions apply to Defense contracts and for the life of this funding, fiscal year 2024 only, so the FAR amendment could move forward for other agencies or it might be halted entirely. There will be a great geographic disparity in application, with California and Maryland having among the greatest number of Defense contractors, those states also have greenhouse gas emission laws?

As little as two years ago greenhouse gas emission regulation by government was like the Wild West and today it is better characterized as a very crowded place, but this is still a new and emergent regulatory space where it is clear there will now be laws, and in this rare truly bipartisan action by Congress on greenhouse gas emissions, there will be businesses exempted from those laws.

_________________________

Climate Scientist Michael Mann Awarded More than $1 Million in Defamation Case

By Stuart Kaplow on February 11, 2024 Posted in Climate Change, Legal Developments

Graph from the court pleadings

Last Thursday, in a case filed in 2012 in the Superior Court of the District of Columbia, a jury found that Rand Simberg and Mark Steyn defamed Michael Mann, awarding Mann $1 in compensatory damages from each and punitive damages of $1,000 from Simberg and $1 Million from Steyn.

Let us be clear, we have great respect for the jury system in the United States, as a key component of our democracy and our freedom, and we have even more respect for jurors who are average citizens who actively participate in deciding the outcome of legal disputes; so, we are confident this six person jury got it right. But, ..

Michael Mann is a well known climate scientist whose research in studying the “paleoclimate,” or ancient climate, has featured prominently in the politically charged debate about climate change. Professor Mann filed an action for defamation and intentional infliction of emotional distress against Rand Simberg then an adjunct scholar at the Competitive Enterprise Institute, and Mark Steyn, a contributor to the National Review, Inc., who referred to an article by Simberg article in his article. Mann’s complaint claimed that the articles criticized his conclusions about global warming from tree rings (i.e., warming conditions result in wider rings), and accused him of deception and academic and scientific misconduct contained false statements that injured his reputation and standing in the scientific and academic communities. The Competitive Enterprise Institute and National Review were dismissed from the lawsuit, but with this verdict, it is expected those dismissals will now be appealed.

By way of background, in 1998 and 1999, Mann coauthored two scientific papers about global warming. The 1999 paper included a graph depicting global temperatures in the Northern Hemisphere for a millennium, from approximately 1050 through 2000. The graphical pattern is roughly horizontal for 90% of the temperature axis, reflecting a slight, long term cooling period between 1050 and 1900, followed by a sharp increase in temperature in the twentieth century. Because of its shape resembling the long shaft and shorter diagonal blade of a hockey stick, this graph became known as the “hockey stick.”

The hockey stick graph (.. as it appears in the court pleading is reproduced here) became the foundation for the conclusion that the sharp increase in temperature starting in the twentieth century was anthropogenic or caused by concentrations of CO2 in the atmosphere generated by human activity initiated by the industrial age. The hockey stick graph also became a rallying point, and a target, in the subsequent debate over the existence and cause of global warming and what, if anything, should and could be done about it.

We will not reprint Simberg and Steyn’s offensive words here, they were offensive .. when the articles compared Mann, then a professor at Penn State to convicted sex offender Jerry Sandusky, former assistant football coach at Penn State. But, ..

Some legal commentators suggest that Mann lost any moral high ground when throughout the case his attorneys characterized Simberg and Steyn as “climate deniers,” as if having opinions about the science of reporting temperatures a thousand years ago from tree rings, different from Mann was somehow a crime of moral turpitude. And then in his closing argument, Mann’s attorney John Williams compared the climate deniers in this case to election deniers, “Why do Trumpers continue to deny that he won the election?” he asked the jury. “Because they truly believe what they say or because they want to further their agenda?”

Scientists attempting to silence those who disagree with their science is wrong (.. Mann sued at least one other climatologist, in 2011 when he sued scientist Tim Ball in a Canadian Court that dismissed the case after a protracted delay), as we now see in hindsight after some of the scientist oracles of the coronavirus pandemic appear wrong today.

At a time when a recent Pew Research Center poll found just 13% of Americans have a great deal of confidence in scientists, this case will do far more harm than good. This is not the way modern science should be done by scientists. Attempting to suppress free speech about coronavirus or climate change is not consistent with the principles of the scientific method and is not a place that courts of law should go.

This case was about defamation and the jury was correct that Simberg and Steyn said offensive things about Mann analogizing his situation to that of a sex offender, defaming him. This court or a higher court may yet reduce the very large punitive damage award if not only because, as Steyn who has acted as his own counsel points out, questioning Mann’s injured reputation and standing, he has moved on from Penn State to be the Presidential Distinguished Professor of Earth & Environmental Science at the more highly regarded University of Pennsylvania.

Unfortunately, this decade plus long case (.. that is not over because appeals are all but certain) will offer little if any precedent in defamation law but will be cited for years to come as stare decisis for using the courts to suppress a debate about scientists.

_________________________