The Nickel Report

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.

In Michigan v. EPA, 135 S. Ct. 2699 (2015), the Supreme Court held that the cost of regulation is an essential factor that EPA must consider when deciding whether to regulate.  Id. at 2707.  According to the Court, “[a]gencies have long treated cost as a centrally relevant factor when deciding whether to regulate.”

In subsequent regulatory proceedings, however, EPA has offered different views as to what Michigan’s cost mandate means.  At the end of the Obama Administration, EPA said Michigan only means that it need determine whether the costs of a regulatory action are “affordable” or can be “absorbed” by the regulated industry.  81 Fed. Reg. 24,421.  More recently, EPA has said that its earlier statement “does not meet the statute’s requirements to fully consider costs,” and that the Supreme Court’s decision in Michigan requires that it “meaningfully consider cost within the context of a regulation’s benefits.”  84 Fed. Reg. at 2675.

As noted in previous blog posts, Assembly Bill 617’s (AB 617) Community Air Protection Program (CAPP) is limited in effect to specific, named communities included in it. Thus, stationary sources not located in a CAPP included community are not regulated by CAPP. However, AB 617’s new requirements are not limited to CAPP. AB 617 also requires the California Air Resources Board (CARB) to develop new regulations for criteria pollutant and toxics emissions reporting. The new regulation, titled “Regulation for the Reporting of Criteria Air Pollutants and Toxic Air Contaminants” (CTR Regulation) is not yet finalized, but the current draft will apply to stationary sources throughout California, regardless of whether they are located in a CAPP community.

Last week, the Fifth Circuit found that Lloyd’s syndicates may not subrogate against an additional insured and may not force that additional insured to arbitration. Lloyd’s Syndicate 457 v. FloaTEC, LLC, No. 17-20550 (5th Cir. Apr. 17, 2019).

The case arose out of an oil platform in the Gulf of Mexico called Big Foot, owned and operated by Chevron. Chevron contracted with FloaTEC to engineer steel tendons to moor Big Foot to the ocean floor. The contract between Chevron and FloaTEC contained an arbitration provision.

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Over the past several decades, significant tension has developed between the federal role in overseeing and authorizing certain types of energy infrastructure projects and states' roles in regulating water quality under the cooperative federalism structure of the Clean Water Act (CWA or the Act). This tension has played itself out in various contexts, but the most pronounced in recent years has been the battle over CWA Section 401 water quality certifications for energy infrastructure projects, in particular interstate natural gas pipelines.

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On Wednesday, April 10, President Trump signed an Executive Order (EO), titled Promoting Energy Infrastructure and Economic Growth, that requires the US Environmental Protection Agency (EPA) and other federal agencies to undertake a series of regulatory actions to clarify the Clean Water Act (CWA) § 401 water quality certification (WQC) process. CWA § 401 provides states with the opportunity to evaluate the potential water quality impacts from discharges of proposed projects by certifying whether the discharge will comply with applicable water quality standards. States can waive this requirement, and if they do not act within “a reasonable period of time (which shall not exceed one year) after receipt” of a request for certification, waiver is automatic. 33 U.S.C. § 1341(a). A handful of states have relied on this process to thwart the development of energy infrastructure projects, either by denying certification due to concerns unrelated to water quality (such as opposition to hydraulic fracturing, climate change concerns, etc.) or by ignoring the statutory time period to reach a determination.

State environmental regulators are beginning to develop plans designed to meet more stringent air quality standards under the Clean Air Act (CAA), including standards to protect against unhealthful levels of ground-level ozone. In doing so, many states are looking more closely at a factor that contributes to their air quality problems but that they lack any authority to address: the phenomenon of air pollution carried by prevailing winds into their jurisdictions from emission sources located not only outside their own state borders but outside the US itself. The issue of international contributions to air quality concerns has gained currency in part due to the many challenges states face in meeting the stringent nationwide air quality standards for ground-level ozone that the US Environmental Protection Agency (EPA) adopted in 2015.

Everyone can agree that environmental assessments should be based on the best science. The “best” science, however, is an ever-advancing standard. Despite budget uncertainties and other hurdles, EPA scientists often pioneer new methods of assessment capable of detecting smaller and smaller increments of environmental impact. Although it may take years for EPA to develop and demonstrate a new method, stakeholders may benefit from paying attention to the development process and seeking opportunities to participate in it.

On March 21, 2019, the Federal Energy Regulatory Commission (Commission or FERC) held its monthly open meeting. Highlights of the meeting included the following:

• Electric Transmission Incentives Policy (Docket No. PL19-4-000)
  • The Commission issued a Notice of Inquiry (NOI) seeking comments on the scope and implementation of its electric transmission incentives regulation and policy.
  • Section 219 of the Federal Power Act directs the Commission to use transmission incentives to help ensure reliability and reduce the cost of delivered power by reducing transmission congestion. The Commission issued Order No. 679 in 2006 to establish its approach to transmission incentives and set forth a series of potential incentives that it would consider. The Commission subsequently refined its approach in a 2012 policy statement.
  • The NOI seeks comments in response to questions addressing many matters, including several that have not previously been addressed by the Commission’s transmission incentive policy, including:

A recently successful effort by Wisconsin utility MGE Energy to exclude an environmental proposal from its proxy statement may signal a new approach for boards of directors to consider when managing vexatious shareholder proposals.