As companies prepare their 2007 10K filings to the U.S. Securities and Exchange Commission (SEC), issues surrounding disclosure of the risks and opportunities presented by climate change loom like an iceberg awaiting the passing of the Titanic. Despite numerous appeals from a variety of sources, the SEC has yet to issue interpretive guidance describing how companies should disclose climate change impacts.

Institutional investors, groups such as Ceres, and traditional environmental groups are demanding that public companies identify and quantify the impacts of climate change on their business. As recently as two years ago, shareholder resolutions relating to climate change were rare and generally considered “nuisance” resolutions. No more. Such resolutions abound and must be treated seriously.

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Leveraging the decision in Massachusetts v. EPA, public interest groups are using the National Environmental Policy Act (NEPA) to challenge approvals of coal-fired power plants on global warming grounds. Montana Environmental Information Center v. USDA, No. 07-1311 (D. D.C. July 23, 2007).

The groups sued to enjoin Rural Utilities Service (RUS), an agency of the U.S. Department of Agriculture, from providing federal loans for construction of a coal-fired power plant. The plaintiffs asserted that the agency failed to assess adequately the proposed plant’s environmental impacts, including the impact of CO₂ emissions on global warming. The plaintiffs claimed further that the proposed plant, along with other coal-fired power plants seeking funding from RUS, “could account for a significant share of U.S. greenhouse gas emissions.” RUS’s failure to consider these cumulative impacts on global warming in its Environmental Impact Statement, according to plaintiffs, violates its obligations under NEPA to take a “hard look” at actions that could impact the environment.

The Supreme Court’s decision in Massachusetts v. EPA did not involve NEPA and did not address whether federal agencies must consider global warming potential when undertaking such actions as permit approvals or funding decisions. The Ninth Circuit’s recent decision in Center for Biological Diversity v. NHTSA, however, concluded that regardless of whether climate change is outside the control of the agency whose action is at issue, NEPA obligates the agency to assess the effects of its own actions on greenhouse gas emissions. Courts’ willingness to require agencies to consider global warming in regulatory decisionmaking will complicate previously routine actions such as funding coal-fired power plants.

Briefing in the case is slated to begin March 7, 2008 and conclude May 30, 2008.

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A federal court in California today issued a major ruling in the battle between states and the auto industry over who has the authority to regulate emissions from motor vehicles.

In Central Valley Chrysler-Jeep v. Goldstone, Judge Ishii of the Federal District Court for the Central District of California ordered that California may properly enact emissions regulations that are more strict than the federal fuel economy standards. The Plaintiffs, led by the Association of International Automobile Manufacturers, had argued that such regulations were pre-empted by federal law, specifically the Energy Policy and Conservation Act (EPCA). Read the rest of this entry »

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Seven states and the City of New York filed suit in July 2004 against the five electrical utility companies alleged to be the country’s largest emitters of carbon dioxide. In Connecticut v. American Electric Power, Inc., the plaintiffs alleged that the power plants’ carbon emissions cause a public nuisance by contributing to climate change.

Plaintiffs argue that “Defendants’ emissions of carbon dioxide, by contributing to global warming, constitute a substantial and unreasonable interference with public rights in the plaintiffs’ jurisdictions, including, inter alia, the right to public comfort and safety, the right to protection of vital natural resources and public property, and the right to use, enjoy, and preserve the aesthetic and ecological values of the natural world.” As relief, the plaintiffs sought an order capping and eventually reducing the emissions generated by defendants’ plants.

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Last month, the Kansas Department of Health and Environment (KDHE) denied an air quality permit for the proposed $3.6 billion expansion of a coal-fired power plant on grounds the emissions would contribute to global warming. The state’s denial of the permit demonstrates the extent to which concerns about climate change can derail previously routine permit proceedings, without warning or precedent.

KDHE Secretary Roderick Bremby denied the permit - over staff recommendations that the permit be issued - based on an opinion from the Kansas Attorney General indicating that state law authorizes the Secretary to address air contaminants that substantially endanger public health and welfare. Following the denial of the permit, Kansas Governor Kathleen Sebelius released a letter to the “people of Kansas” expressing her support for the decision. Governor Sebelius stated that the power plants would produce 11 million tons of carbon dioxide each year, and the impact of global warming on Kansas could be “devastating.” State lawmakers, concerned with electricity demands in the area, have responded by promising to overturn the decision.

Sunflower Electric Company filed suit in state county and appeals courts on November 16 challenging the denial of the permit on due process protection and statutory grounds. On November 27, the Chief Justice of the Kansas Supreme Court signed an order transferring the cases to the high court; a schedule for briefing and arguing the case has not yet been set.

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On November 27, 2007, the State of Washington’s Energy Facility Site Evaluation Council stayed an application for a new “clean coal” power plant by Energy Northwest (a consortium of 20 public utilities in the Northwest United States), citing climate change concerns.

The Council ruled unanimously that the application failed to meet the requirements of a law enacted earlier this year, mandating that all new energy facilities include a Greenhouse Gas Reduction Program (GGRP). The statute requires that electrical generators limit greenhouse gas emissions to specified levels; any emissions above the statutory limit must be captured and sequestered permanently. Energy Northwest’s application did not contain any specific plans for emissions capture, so the Council ordered that the application process be halted until Energy Northwest offers a suitable GGRP.

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Automakers and dealers challenged California’s 2004 rules mandating emissions standards for new cars stricter than those required under federal law. Citing the Clean Air Act and the Energy Policy and Conservation Act, the plaintiffs argued that federal emissions regulations preempted the California regulations. Central Valley Chrysler-Jeep v. Witherspoon.

The Clean Air Act authorizes California to seek a waiver from EPA to create its own regulations. Plaintiffs argued, however, that Energy Policy and Conservation Act preempts a state agency from regulating fuel efficiency because any regulation requiring reduction in tailpipe carbon dioxide emissions is equivalent to the regulation of fuel efficiency. Accordingly, plaintiffs claimed, Energy Policy and Conservation Act effectively trumped the waiver provisions of the Clean Air Act.

In January 2007, the district court stayed the case and enjoined implementation of California’s regulations pending the Supreme Court’s decision in Massachusetts v. EPA. The parties briefed that issue in July 2007. California moved to dismiss the suit based on the results of the Massachusetts v. EPA decision, arguing that the remaining issues in the case are moot. The plaintiffs argue that the California rules would cause severe impacts and are still pre-empted by federal law.

Oral arguments on the motion to dismiss were heard on November 19, 2007, and a decision is expected shortly.

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The Sierra Club is challenging EPA’s issuance of a permit for a waste-coal-fired generating unit at a power plant in Utah that did not establish Best Available Control Technology (BACT) emissions limits for CO₂. In re Deseret Power Electric Cooperative (EAB Appeal No. PSD 07-03, Oct. 1, 2007).

Sierra Club asserts that because the Supreme Court has determined that CO₂ is an “air pollutant” under the Clean Air Act (CAA), EPA is obligated to establish BACT for CO₂ emissions in the permit. EPA responded that while the Supreme Court’s decision Massachusetts v. EPA confirmed that CO₂ is a “pollutant” under the CAA, it is not yet a pollutant “subject to regulation” for which BACT is required. EPA indicated that it would determine in the future whether CO₂ endangers public health or welfare, which would be the first step in EPA’s regulation of the pollutant. If EPA delays too long, however, the courts may answer the question for the agency.

The Environmental Appeals Board granted review of the permit decision on November 21, 2007.

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In a landmark decision, the Ninth Circuit Court of Appeals overturned automobile fuel economy standards issued by the National Highway Traffic Safety Administration (NHTSA) on climate change grounds. Center For Biological Diversity v. National Highway Traffic Safety Administration, No. 06-71891 (9th Cir. November 15, 2007). Citing climate change as an economic and environmental issue that NHTSA must consider when it issues new rules, the court made it clear that consideration of climate change in rulemaking proceedings is no longer optional for federal agencies.

The case involved a challenge to the most recent fuel economy standards for so-called “light trucks” – a category that includes mini-vans, sport-utility vehicles, and most pick-up trucks. NHTSA issued new standards for light trucks in 2006, calling for a modest increase in fuel economy, to be implemented for model years 2008-2011.

The plaintiffs challenged the standards on several grounds, the most significant of which concerned the process used by the agency to balance the costs and benefits of enacting a new standard. The lead plaintiff, the Center for Biological Diversity, argued that NHTSA’s failure to assign a monetary value to the reduction of carbon dioxide emissions resulting from increased fuel economy made the agency’s action arbitrary and capricious. The Ninth Circuit agreed, holding that federal law requires NHTSA to consider energy conservation when balancing the costs and benefits of fuel economy standards – including the value of the carbon dioxide emissions that would be reduced by setting the fuel economy standards at different levels.

The court also held that NHTSA’s decision that the rules would not have a substantial impact on the environment violated the National Environmental Policy Act (NEPA), and ordered that the agency to produce an Environmental Impact Statement addressing the role that vehicle emissions play in global climate change.

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