The Nickel Report

On December 14, 2023, the European Parliament and the European Council reached a provisional deal on the Corporate Sustainability Due Diligence Directive (CS3D). Initially proposed by the European Commission in February of 2022, the CS3D requires certain companies to account for and mitigate adverse human rights and environmental impacts throughout their supply chains, including both their own operations as well as upstream and downstream activities. In November 2022, the European Council adopted the general approach proposed by the European Commission. Since then, the Council and the European Parliament have negotiated the parameters of the CS3D to reach a provisional agreement. While press releases from the Council, the Parliament, and the Commission all confirm an agreement has been reached, the text of the agreed upon CS3D is not yet publicly available. It is likely to be released in early 2024.

On July 20, 2022, in Naturaland Trust v. Dakota Finance, LLC, No. 21-1517, a split Fourth Circuit panel held that a state agency’s notice of violation did not “commence an action” within the meaning of 33 U.S.C. § 1319(g)(6)(A)(ii). That provision states that a Clean Water Act violation “shall not be the subject of” a citizen suit for civil penalties if a state “has commenced and is diligently prosecuting” an action with respect to the violation “under a State law comparable to” the Clean Water Act. The court also held that this provision is not jurisdictional.

On May 18, 2022, in York et al. v. Northrop Grumman Corp. Guidance and Electronics Co. Inc. et al., No. 21-cv-03251 (W.D. Mo.), a federal district court dismissed state-law tort claims for alleged groundwater contamination, finding that they were preempted by an existing Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) consent decree. The court rejected the plaintiffs’ argument that two CERCLA “savings clauses” allow their claims to proceed.

In Southern Appalachian Mountain Stewards et al. v. Red River Coal Co., Inc., 2021 WL 1182464 (4th Cir. Mar. 30, 2021), a unanimous Fourth Circuit panel recently affirmed a district court holding that an operator cannot be held liable under the Surface Mining Control and Reclamation Act (Surface Mining Act) for a discharge that is otherwise shielded from liability by the Clean Water Act (CWA).  The court’s opinion expressly relied on the Sixth Circuit’s decision in Sierra Club v. ICG Hazard, LLC, 781 F.3d 281 (6th Cir. 2015), which reached the same conclusion.

Facing growing criticism that they impede sustainable development goals, investment protections afforded by traditional international investment agreements (IIAs) are steadily eroding. Increasingly, the trend is toward provisions allowing host states greater flexibility to regulate environmental, transparency, human rights and other social impacts. At the same time, enhanced corporate social responsibility (CSR) obligations have become more common in recent IIAs.

An independent panel of academics, engineers and other experts, in November 2019, released a draft set of international standards for tailings storage facilities (TSF). During mining operations, ore is reduced into sand-sized particles and mixed with water before the valuable minerals are removed and the remaining milled rock slurry—called tailings—flows to the TSF, an engineered impoundment. It is estimated there are over 3,500 TSFs globally.

The driver for these draft international standards is two recent catastrophic failures of TSFs in Brazil. In January, a TSF owned and operated by Vale in the state of Minas Gerais, near Brumadinho, collapsed, sending a tidal wave of mid and other debris downstream that killed over 250 people. Another TSF owned and operated by Samarco failed in Minas Gerais at Mariana in November 2015, killing 19 people and spreading pollutants over 400 miles of surface waters, eventually reaching the Atlantic Ocean.

On January 9, 2020, the Council on Environmental Quality (CEQ) released its highly anticipated proposed rule to improve its National Environmental Policy Act (NEPA) regulations. The proposed changes would be the first comprehensive amendment of the NEPA regulations since their original publication in 1978. CEQ’s proposed changes are designed to streamline and speed the NEPA review process, clarify important NEPA concepts, and codify key guidance and case law. CEQ’s Proposal is informed by comments it received on last year’s Advanced Notice of Proposed Rulemaking.

NEPA requires that federal agencies analyze the environmental effects of their proposed federal actions. This means that virtually any project that requires a federal permit or authorization could be required to undergo a NEPA review. Development of broadband infrastructure, roads, bridges, oil and gas pipelines, and renewable energy facilities are just a few examples of the types of activities that could trigger NEPA. A NEPA review can take significant agency and applicant resources, can substantially delay permits and can provide a basis for a federal court challenge to the project.

In his annual letter to CEOs, Larry Fink, CEO of BlackRock expressed his belief that climate change and sustainability were important considerations in investment risk assessments. Investment based on these concepts is often captured under Environmental, Social and Governance Criteria, commonly called ESG. In his letter, Mr. Fink emphasized that he believes “we are on the edge of a fundamental reshaping of finance.”

BlackRock’s letter builds on the ever-advancing trend in corporate institutional investing over the past decade regarding the examination of corporate valuation and investment risk within the context of ESG issues, otherwise referred to as sustainable investing.

Last month, the Supreme Court held oral argument in a case that addressed cleanup obligations for potentially responsible parties (PRPs) at Superfund sites. In Atlantic Richfield Company v. Christian, a company tasked with remediating one of the nation’s largest Superfund sites is urging the Supreme Court to overturn a Montana Supreme Court decision that permitted residents to sue the company for additional restoration damages, despite its ongoing cleanup efforts under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).

On November 4, 2019, the US Court of Appeals for the Eleventh Circuit upheld the Clean Water Act (CWA) section 404 permit issued by the US Army Corps of Engineers (Corps) for the extension of an existing phosphate mine in central Florida. Center for Biological Diversity v. U.S. Army Corps of Engineers, No. 18-10541 (11th Cir. Nov. 4, 2019). The Corps permit authorizes the discharge of dredged or fill material into waters of the United States that comprise a small portion of the mining extension. Opponents challenged the permit in the Middle District of Florida, claiming the issuance of the permit violated the CWA, the National Environmental Policy Act (NEPA) by not considering “downstream” effects, and the Endangered Species Act (ESA). The district court rejected all of the claims, and the Eleventh Circuit affirmed.

In December 2018, an article in this blog flagged a petition for EPA rulemaking under the Toxic Substances Control Act (TSCA) that, if denied, had the potential to set up precedent-setting litigation on citizens’ ability to use the courts to require EPA action under TSCA. Now, nearly a year later, the scenario that article described is coming true. In a challenge to EPA’s denial of that petition, a federal district court is poised to decide what constitutes a petition for issuance of a new rule as opposed to one for amendment of an existing rule—and in the process, to decide when a court may cast aside deference to EPA and undertake its own evaluation independent of the Agency’s record and conclusions.

In the wake of the April 19 ruling by Judge Morris of the US District Court of the District of Montana that required the Department of the Interior (DOI) to conduct an environmental review on its decision to lift the coal leasing moratorium, the parties disagree on the necessary remedy and the next steps. While DOI is requesting additional time to finalize its environmental review for its decision to lift the moratorium, environmental groups and states are requesting the court vacate then-Secretary Zinke’s Secretarial Order that lifted the moratorium altogether.

On June 24, 2019, the Equator Principles Association announced the release of the draft text of the fourth revision of the Equator Principles. Known as EP4, this document includes a number of changes intended to address perceived shortcomings regarding the manner in which the current framework is applied to different countries and to enhance the focus on issues such as climate change. These changes reflect the evolving nature of transactional diligence with respect to environment, social and governance (ESG) issues.

The Bureau of Land Management (BLM) released a draft environmental assessment (EA) evaluating the potential environmental impacts of lifting the federal coal leasing moratorium. Publication of the draft EA opens a 15-day comment period that ends on June 6, 2019. This review was necessitated by the April 19 decision of the US District Court for Montana in Citizens for Clean Energy, et al v. Department of the Interior, et al. The court held that BLM’s actions in lifting the moratorium via a March 2017 secretarial order (Zinke Order) were arbitrary and capricious and in violation of National Environmental Policy Act (NEPA) because it was a major federal action for which there was no such review. The court did not immediately reinstate the coal leasing moratorium or require a specific environmental review, but instead stated that BLM had an obligation to study the environmental impacts of lifting the coal leasing moratorium and required the parties to submit additional briefing on the remedy.

The Department of Treasury and Internal Revenue Service have released Notice 2019-32 seeking comment on key issues to be interpreted in the Section 45Q carbon oxide sequestration tax credit. Congress significantly enhanced the Section 45Q tax credit in the Bipartisan Budget Act of 2018, increasing the credit from $10/ton for CO2 used as a tertiary injectant (i.e., to produce oil or gas) to $35/ton; and increasing the credit for CO2 geologically stored but not used as a tertiary injectant from $20/ton to $50/ton. See our previous blog post here for additional details on the applicable credit amounts for projects before and after enactment of the Bipartisan Budget Act and other credit amount details.

2018 was a banner year for M&A activity in the energy space, with numerous high dollar value transactions in the upstream, midstream, downstream and oil field services (OFS) segments. As investors in the public securities markets have shown a significantly decreased appetite for new issuances of equity by energy companies, the preferred exit or growth strategy for 2018 has been through strategic mergers, acquisitions or divestitures. These transactions have manifested themselves in various forms: asset acquisitions and divestitures, private equity investment into “drillcos” with strategic oil and gas companies, public-public mergers between OFS companies and upstream shale drillers, and simplification transactions by master limited partnerships (MLPs) in the midstream space. In addition to all this M&A activity, one element has become significantly more prevalent in the oil and gas industry throughout 2018 and shows no signs of letting down for 2019: water.

A pending petition for rulemaking under the Toxic Substances Control Act (TSCA) could represent the latest test of the scope of TSCA’s citizen petition provisions. Denial of this petition would tee up a precedent-setting court battle addressing citizens’ ability to force EPA to exercise its TSCA section 8 authority to require chemical data reporting. And while the petition on its face is focused on requiring additional information collection, it could have important implications for EPA’s implementation of TSCA’s amended provisions regarding regulation of existing chemicals under section 6.

On November 16, 2017, the D.C. Circuit heard oral argument in the cases challenging EPA’s 2012 rule allowing states to rely on compliance with the Cross-State Air Pollution Rule (CSAPR) to satisfy electric generating units’ “best available retrofit technology” (BART) requirements for emissions of nitrogen oxides and sulfur dioxide under the Clean Air Act (CAA). The cases are UARG v. EPA, No. 12-1342­ and consolidated cases (D.C. Cir.).

Several presidential administrations have sought to shorten the lengthy process for obtaining federal authorizations and permits, with particular attention on infrastructure projects that usually require multiple federal permits with accompanying environmental reviews. Despite consistent interest in improving this process, delays persist, in part because of how courts have interpreted the level of analysis required during these environmental reviews. This past Tuesday, President Trump issued a new Executive Order (EO) 13807: “Establishing Discipline and Accountability in the Environmental Review and Permitting Process for Infrastructure Projects.” As this EO is implemented, the big question is: How much relief can this or any other executive action provide?

Throughout the Obama administration, federal officials from the President on down touted an “all of the above” approach to energy policy.  At the same time, they pressed forward with environmental regulations—climate change rules in particular—that would have made a seismic shift in the role fossil fuels play in the nation’s energy mix.

We all know the Trump administration is poised to make major changes.  A shakeup for the EPA was a consistent theme of the Trump campaign. The President made things official in March when he signed an executive order that, among other things, called for a “review” of the Clean Power Plan (CPP), the EPA’s program to regulate greenhouse gas emissions from existing power plants, and a proposed rule regarding the CPP is now under review at the White House Office of Management and Budget. The administration has also announced plans to cut the EPA’s budget, to take a new “red team-blue team” approach to climate change science, and to pull the U.S. out of the Paris climate accord. That’s quite a lot of activity for an administration that is often accused of moving too slowly.

The federal authorizations required to construct major infrastructure and mineral-extraction projects are the product of years of administrative review and collaboration between agencies and the project proponents. Unfortunately, the issuance of those authorizations is followed quickly by legal challenges from environmental NGOs, which almost always include a demand for preliminary injunctive relief during the pendency of the challenge. If granted, these injunctions can delay the effectiveness of the authorization by years.

The effects of the regulatory reform initiatives of the Trump Administration are beginning to be felt at the Occupational Safety and Health Administration (OSHA) with the formal action by OSHA to finalize withdrawal of the “Volks Rule” regulation. On May 3, 2017, in response to a CRA resolution of disapproval, OSHA published a final rule removing amendments to OSHA’s recordkeeping regulations from the Code of Federal Regulations.

On January 11, 2017, the US Environmental Protection Agency (EPA) published a proposed rule pursuant to Section 108(b) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA or Superfund), mandating extensive and costly financial assurance requirements applicable to the hardrock mining and mineral processing industry. On the same day, EPA also announced plans to commence rulemaking to consider similar requirements for additional classes of facilities in the petroleum and coal, chemical manufacturing, and electric power generation, transmission and distribution sectors. Both proposals derive from a series of lawsuits culminating in a “sue and settle” order of the DC Circuit Court of Appeals affirming a schedule agreed to between EPA and various environmental groups to issue financial assurance regulations.

Recently, the states and federal agencies have clashed in a number of environmental rulemakings and subsequent litigation over those rules. These disagreements have raised a host of important legal and policy questions, including the proper balance of power between the states and the federal government and the communication process and overall relationship between the states and federal agencies. Recently filed litigation challenging the Stream Protection Rule, 81 Fed. Reg. 93,066 (Dec. 20, 2016), would prompt judicial review of many of these issues. But the likelihood of administrative or congressional action on this rule (through the Congressional Review Act) could preclude judicial input on these questions for now. If the rule is ultimately withdrawn or overturned, the manner in which it is may also present important federalism questions. Further complicating this process are two motions to intervene in two of these cases, filed by several environmental groups to defend the final Stream Protection Rule from being vacated or weakened.