Ecology Law Currents

From the Well Up: A California CALIFORNIA COUNTY CONFRONTS FRACKING AT THE POLLS

Malia McPherson

Malia McPherson is a 3L at Stanford Law School. This post is part of the Environmental Law Review Syndicate.

Introduction

On November 4, 2014, the voters of San Benito County passed Measure J, a voter initiative banning hydraulic fracturing (‘fracking’) and all other high-intensity petroleum operations within county lines. Under California law, only a subsequent voter initiative can overrule this fracking ban. While it is not the first county or city within California to take a stand against fracking, San Benito’s path to a successful ballot initiative was unique. Despite being dramatically outspent in the run-up to the election, the San Benito anti-fracking coalition San Benito Rising defeated industry interests through a simple strategy of basic grassroots organization. The movement was largely leaderless, it was community focused, and it represented both minority and majority interests. How did it succeed? Given the potential risks posed by fracking, and the legal context that left a regulatory ‘gap’ for Measure J to fill, the San Benito experience shows that it is indeed possible for community-centered lawyering and the voter initiative process to protect community environmental integrity on a precautionary basis against encroachment from outside interests.

I. THE RISKS POSED BY FRACKING

“Fracking” is the collective and colloquial term for the use of high volume hydraulic fracturing for fossil fuel extraction.[1] Its purpose is to extract oil and gas from rock formations deep underground (in deep shale formations) with high-pressure ‘fracking fluids’. These fluids contain “significant amounts of water, sand, and chemicals” that fracture the rock layers to free the trapped oil or gas so it can be pumped out.[2]

Although fracking as a process has been in use for decades, its environmental consequences remain significant. First, fracking is an intensive activity that requires large access roads, acres of clearing sites, drilling rig access, and storage and processing structures.[3] Once a well is drilled, millions of gallons of water are brought into the site and mixed with chemical agents, sand and emulsifiers.[4] Although the fracking fluid is 98% water, the oil and gas industries have reported that between 2005 and 2009, 29 chemicals were used in fracking fluids that were “(1) known or possible human carcinogens, (2) regulated under the Safe Water Drinking Act for their risks to human health, or (3) listed as hazardous air pollutants under the Clean Air Act.”[5] These fluids have to be kept out of normal watersheds in surface containments, or be sequestered underground – in either location these fluids have the potential to “eventually . . . migrate into and contaminate groundwater sources for waterways and drinking supplies.”[6]

EPA Unveils Final Clean Power Plan: So What’s All the Fuss About?

Eric DeBellis

Eric DeBellis is a 3L at Berkeley Law, where he is Senior Executive Editor of the Ecology Law Quarterly. This post is part of the Environmental Law Review Syndicate.

On August 3, 2015, the EPA released its highly anticipated Clean Power Plan, establishing the nation’s first greenhouse gas emissions standards for existing power plants.[1] The Clean Power Plan (“the Rule”) also is the first of its kind in another sense: it employs a unique new regulatory framework that has drawn both praise and criticism. Here, I explain the legal controversy around the Rule and preview arguments both supporters and opponents are likely to raise in court.

Background

Traditionally, the EPA has regulated air pollutants from stationary sources through region-by-region air quality standards and source-by-source emissions permits.[2] The Clean Power Plan takes a broader approach. The EPA enacted the Rule under the Clean Air Act’s seldom-invoked section 111(d).[3] As section 111(d) prescribes, the EPA set an emissions reduction target in the Rule—cutting national power sector carbon emissions to 32 percent below 2005 (historical peak) levels by 2030—and identified the “best system of emission reduction” (BSER) that makes the target attainable. The EPA then established a target for each state[4] based on that state’s potential to reduce power sector emissions through three “building blocks:” improved efficiency at fossil fuel plants, increased utilization of existing low-emitting power sources, and development of new zero- and low-emitting power sources.[5] The greater the state’s potential to improve in any of these areas, the more ambitious its target. The EPA painstakingly detailed how it calculated each state’s target to be attainable and, according to the building blocks approach, fair.[6] However, the Rule leaves compliance plan specifics to the states.

Each state has broad discretion in determining how best to achieve its target. To reduce compliance costs, states may implement a wide array of tools, including traditional source-by-source command-and-control measures, interstate cap and trade, renewable portfolio standards, energy efficiency improvements, and an abundance of other options.[7] Once a state has determined which tools will best achieve its emissions target, that state must submit an implementation plan for EPA approval. The agency will devise its own plan for any state that refuses to do so itself. Supporters have praised the Rule’s flexibility for empowering states to devise innovative strategies to minimize compliance costs.[8] Opponents have questioned whether the Clean Air Act authorizes this unorthodox, broad-sweeping approach.[9]

Supporters: A Unique Challenge Calls for a Unique Solution

The Clean Power Plan’s supporters present the Rule’s unconventional aspects as necessary to properly address the realities of climate change.[10] Regulating greenhouse gas emissions to combat climate change presents several challenges that regulating traditional pollutants does not. Generally, the EPA regulates an air pollutant because it is toxic or otherwise harmful to ingest. The agency sets a limit on the concentration of each pollutant that may persist in any region’s air and tasks states with regulating individual major sources through emissions permits.[11] This regional air quality standards approach makes sense for toxic air pollutants because emissions distribution matters. Even if the nation as a whole has low emissions levels, if one city’s air quality is poor enough to pose a health hazard, the Clean Air Act obligates the EPA and states to devise a means to improve that city’s air quality.

But the EPA is not regulating greenhouse gases for toxicity. The EPA is regulating greenhouse gases because they contribute to climate change.[12] The greenhouse gases responsible for the bulk of climate impacts mix uniformly into the atmosphere regardless of origin.[13] As a consequence, the impacts of local greenhouse gas emissions contribute to climate change on a global scale.[14] To decrease the United States’ contribution to climate change, the nation must decrease its total emissions, regardless of where those emissions cuts happen.[15] In light of this distinction, the EPA eschewed the traditional regional air quality standards approach in favor of a national reduction target.[16] Unhindered by regional distribution considerations, the agency designed the Clean Power Plan to allow states to focus their emissions reduction efforts wherever is most cost-effective.[17]

The Clean Power Plan’s other major departure from the traditional air pollution control paradigm is its “beyond the fenceline” approach. Conventional power plant air pollution regulation imposes technological and operational requirements onsite (within the plant’s “fenceline”). Many means to reduce power sector greenhouse gas emissions, such as substation and transmission line improvements, energy efficiency, carbon taxation, and connecting more renewables to the grid, lie beyond the fenceline and often are more cost-effective than a strictly on-site approach.[18] To capitalize on these opportunities to further reduce emissions at lower costs, the Clean Power Plan credits states for emissions reductions achieved through offsite measures. Further, the EPA calculated state targets under the assumption that plant operators will employ the most cost-effective methods available, regardless of whether it requires them to act outside of a plant’s fenceline. Rule proponents justify this unorthodox approach as providing needed flexibility and facilitating innovation to minimize both emissions and costs.[19] Nevertheless, critics have raised concerns that the Rule’s unorthodox approach oversteps the limits of the agency’s authority under the Clean Air Act.[20]

Opponents: The EPA May Be Exceeding Its Jurisdiction Under the Clean Air Act

Two days after the EPA published the final Clean Power Plan, sixteen states filed for an administrative stay of the Rule. The states challenging the Rule characterized it as requiring states to “entirely reorder their energy economies” or face “a potential federal takeover of significant State authority.”[21] Furthermore, the EPA rarely invokes section 111(d), leaving the scope of the agency’s authority under the provision largely unsettled. The lack of precedent on section 111(d) makes projecting a legal challenge’s outcome difficult.

Seizing upon this uncertainty, Clean Power Plan opponents have questioned the Rule’s legality since its inception.[22] Despite the long-established administrative law principle that regulations cannot be challenged until an agency promulgates a final rule, fifteen states challenged the proposed Clean Power Plan upon its publication.[23] The courts promptly dismissed these cases as premature,[24] but these states’ eagerness to align against the Clean Power Plan demonstrates that the EPA is in for a long court battle.[25] The debate over the scope of the EPA’s authority is still developing, but certain legal objections that have arisen already seem likely to arise in court as well. Here, I focus on “beyond the fenceline” jurisdiction, dueling amendments, and broader federalism concerns.

First, opponents likely will challenge the EPA’s beyond the fenceline jurisdiction.[26] The EPA calculated state targets under the assumption that it had the authority to require states to implement emission reduction strategies that go beyond on-site modifications to power plants themselves. Though the agency maintains that states can attain their targets without requiring any actions outside the energy sector’s control, the courts likely will have to decide whether BSER may include beyond the fenceline measures.[27] The EPA dropped energy efficiency—the fourth building block in the proposed rule—from the final rule in response to these jurisdictional concerns.[28] In the proposed rule, the EPA considered each state’s potential to reduce emissions via energy efficiency measures, like insulation and energy-saving appliances, with little if any nexus to power plants themselves in setting state targets.[29] By excluding the energy efficient building block from its calculations, the EPA not only adjusted some states’ targets but also made the Clean Power Plan less susceptible to a jurisdictional challenge.[30] However, even after this adjustment, the scope of the EPA’s beyond the fenceline jurisdiction remains an open question.

Second, challengers likely will highlight a drafting error by Congress when it passed section 111(d) to question whether the EPA may regulate greenhouse gas emission from power plants under the provision at all.[31] The Clean Air Act’s authors included section 111(d) as a catchall provision to cover pollution that did not fit neatly into the Act’s other categories,[32] but the Senate and the House of Representatives each passed its own version of the section. Accordingly, both versions contain language intended to prevent redundant application of 111(d) and another Clean Air Act provision to the same emissions. Due to an oversight by the members of both houses, Congress never reconciled the two versions.[33] The House version makes 111(d) inapplicable to any emission source already subject to regulation under section 112.[34] The EPA already regulates power plants under rule 112, and so does the Clean Power Plan.[35] Thus, the House language would invalidate the Clean Power Plan outright.[36] The Senate version bars the EPA from regulating the same pollutant from the same source under two rules.[37] The EPA never has regulated greenhouse gases from existing power plants before, so the Senate version would allow the Clean Power Plan.[38] Naturally, the EPA follows the Senate language.[39] The agency maintains that its choice of the Senate version is a reasonable resolution of a genuine legal ambiguity,[40] which rule proponents argue entitles the EPA’s choice to judicial deference under the Chevron doctrine.[41] Opponents argue that a legislative drafting error does not give the EPA the authority to ignore the version it disfavors.[42]

Third, opponents likely will invoke constitutional federalism concerns.[43] Critics have emphasized one core principle in particular: the anti-commandeering doctrine.[44] According to the anti-commandeering doctrine, the federal regulation may not so coerce state agencies as to reduce them to mere extensions of the federal government.[45] Rule opponents argue that the Clean Power Plan runs afoul of the anti-commandeering principle by imposing a federal mandate to abandon certain energy sources (i.e., fossil fuels) in favor of other fuels (i.e., renewables).[46]

One potential counterargument would be that regulating any air pollutant under the Clean Air Act necessarily nudges the scales against energy generation methods that heavily emit the pollutant. Burning fossil fuels produces far more greenhouse gas emissions than generation from renewable fuels like solar and wind, so the EPA cannot limit greenhouse gas emission without putting fossil fuels at a competitive disadvantage. The states challenging the Clean Power Plan likely will argue that the EPA crossed the line by effectively ordering states to phase out fossil fuel generation, particularly from coal, in favor of lower-emitting power sources. In response, the EPA likely will maintain that the Clean Power Plan respects the anti-commandeering principles by leaving compliance specifics to states.

Conclusion

The Clean Power Plan is as ambitious as it is unique, and the legal challenges to the Rule raise many unsettled questions. The looming court battle over the Clean Power Plan will have tremendous implications for U.S. climate change policy as well as broader matters of federal agency jurisdiction. The legal community has been discussing the Clean Power Plan for over a year now, and it appears that the conversation will continue for years to come. The impending litigation should prove fascinating and will culminate in the most highly anticipated ruling on environmental law in recent memory. Clean Power Plan proponents and detractors alike eagerly await the outcome.

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[1] Press Release, White House, Fact Sheet: President Obama to Announce Historic Carbon Pollution Standards for Power Plants (Aug. 3, 2015), https://www.whitehouse.gov/the-press-office/2015/08/03/fact-sheet-president-obama-announce-historic-carbon-pollution-standards. For the full text of the final rule, see Carbon Pollution Emission Guidelines for Existing Stationary Sources; Electric Utility Generating Units, 80 Fed. Reg. 64,662 (Oct. 23, 2015) (to be codified at 40 C.F.R. pt. 60).

[2] See generally Justin E. McCarthy, Cong. Research Serv., RL30853, Clean Air Act: A Summary of the Act and Its Major Requirements (2005), http://fpc.state.gov/documents/organization/47810.pdf (surveying EPA regulation under the Clean Air Act and thereby predominantly describing regional air quality standards and source-specific emissions permits).

[3] For the exact language of Clean Air Act section 111(d), see 42 U.S.C. § 4711(d) (2012).

[4] For a map listing state targets, seeCtr. for Climate & Energy Solutions, Final State Rate-Based Targets (2015), http://www.c2es.org/federal/executive/epa/carbon-pollution-standards-map.

[5] Final Clean Power Plan vs. Draft Plan: What Has Changed?, Envtl. & Energy Study Inst. (Aug. 21, 2015), http://www.eesi.org/articles/view/final-clean-power-plan-vs-draft-plan-what-has-changed.

[6] See Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units, 80 Fed. Reg. 64,662, 64,820–26 (Oct. 23, 2015) (explaining the EPA’s methodology for calculating State targets).

[7] See, e.g., Nat’l Ass’n of Clean Air Agencies, Implementing EPA’s Clean Power Plan: A Menu of Options (2015) (explaining in detail a variety of potential compliance strategies available to States).

[8] E.g., Nat. Res. Def. Council, Understanding the EPA’s Clean Power Plan 1 (2015), http://www.nrdc.org/climate/files/cpp-national-compliance-IB.pdf; Robert Sussman, Obama’s Final Clean Power Plan: Merging Strong Climate Goals with Flexible Implementation, Brookings (Aug. 4, 2015, 4:00 PM), http://www.brookings.edu/blogs/planetpolicy/posts/2015/08/04-obama-clean-power-plan-sussman.

[9] E.g., Mitch McConnell, States Should Reject Obama Mandate for Clean-Power Regulations, Lexington Herald-Leader (Mar. 3, 2015), http://www.kentucky.com/2015/03/03/3725288/states-should-reject-obama-mandate.html; Press Release, Office of W.V. Attorney Gen., Attorney General Patrick Morrisey Denounces EPA’s Illegal, Over-Reaching Clean Power Plan (Aug. 3, 2015), http://www.ago.wv.gov/pressroom/2015/Pages/Attorney-General-Patrick-Morrisey-Denounces-EPA's-Illegal,-Over-Reaching-Clean-Power-Plan.aspx; Laurence H. Tribe, The Clean Power Plan Is Unconstitutional, Wall St. J. (Dec. 22, 2014, 7:06 PM), http://www.wsj.com/articles/laurence-tribe-the-epas-clean-power-plan-is-unconstitutional-1419293203.

[10] E.g., Nat. Res. Def. Council, supra note 8;Sussman, supra note 8.

[11] See McCarthy, supra note 2, at CRS-3 to CRS-4 (explaining the national ambient air quality standards and state implementation plan provisions of the Clean Air Act).

[12] Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act, 74 Fed. Reg. 66,496, 66,497 (Dec. 15, 2009) (finding that greenhouse gases threatened human health and the environment, warranting regulation under the Clean Air Act, because of their contribution to climate change).

[13] Id. at 66,514.

[14] Regulating Greenhouse Gas Emissions Under the Clean Air Act, 73 Fed. Reg. 44,354, 44,367 (July 30, 2008).

[15] Id.

[16] Id. at 66,514–15.

[17] Carbon Pollution Emission Guidelines for Existing Stationary Source: Electric Utility Generating Units, 79 Fed. Reg. 34830, 34,832 (June 18, 2014).

[18] David Roberts, Obama’s Carbon Rule Hangs on This One Legal Question, Grist (Feb. 9, 2015), http://grist.org/climate-energy/obamas-carbon-rule-hangs-on-this-one-legal-question/.

[19] See, e.g., id.

[20] E.g., supra note 9.

[21] Application for Administrative Stay by the State of West Virginia and 15 Other States at 2, Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electricity Generating Units; Final Rule, EPA Docket No. EPA-HQ-OAR-2013-0602 (Aug. 5, 2015), available at http://www.ago.wv.gov/Documents/WV%20-%20Administrative%20Request%20for%20Stay%20CPP.PDF.

[22] See, e.g., Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units, 80 Fed. Reg. 64,662, 64,760 n. 463 (Oct. 23, 2015).

[23] Neela Banerjee, 12 States Sue the EPA over Proposed Power Plant Regulations, L.A. Times (Aug. 4, 2014, 6:46 PM), http://www.latimes.com/business/la-fi-epa-lawsuit-20140805-story.html.

[24] Andrew Childers, Challenged to Proposed Clean Power Plan Are Premature, D.C. Circuit Says in Dismissal, Bloomberg BNA (June 10, 2015), http://www.bna.com/challenges-proposed-clean-n17179927524/.

[25] See Legal Challenges—Overview & Documents, E&E News, http://www.eenews.net/interactive/clean_power_plan/fact_sheets/legal (last updated Nov. 3, 2015) (predicting the D.C. Circuit will not rule on the merits until at least late 2016 and that an appeal to the Supreme Court likely will follow).

[26] Full disclosure: I disputed the fenceline distinction’s relevance in a piece I wrote for Ecology Law Quarterly’s annual review issue. Eric A. DeBellis, Note, In Defense of the Clean Power Plan: Why Greenhouse Gas Regulation Under Clean Air Act Section 111(d) Need Not, and Should Not, Stop at the Fenceline, 42 Ecology L.Q. 235 (2015).

[27] See Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units, 80 Fed. Reg. at 64,767 (the EPA’s response to commenters’ arguments that section 111(d) only authorizes the agency to require pollution control measures that are “integrated into the design or operations of the source itself.”).

[28] Id. at 64,673.

[29] Brian Palmer, Is Energy Efficiency Still a Part of the Clean Power Plan?, onEarth, http://www.onearth.org/earthwire/clean-power-plan-energy-efficiency (last visited Nov. 3, 2015).

[30] Id.

[31] The academic literature on the dueling amendments debate has been prolific and, at times, heated. See, e.g., Dan Farber, Dueling Laws and the Clean Power Plan, Legal Planet (Aug. 17, 2015) (characterizing the dueling amendments argument as industry “trying to make too big a case turn on too small a technicality”);Laurence Tribe, Professor Tribe’s Reply, Harv. L. Sch. Envtl. L. Program (Mar. 22, 2015), https://hlsenvironmentallaw.wordpress.com/professor-tribes-reply/ (rebutting Jody Freeman and Richard Lazarus by arguing that the Senate version was merely clerical in nature and Congress clearly intended to adopt the substance of the House’s version, which would not authorize the Clean Power Plan).

[32] Coral Davenport, Brothers Battle Climate Change on Two Fronts, N.Y. Times (May 10, 2014), http://www.nytimes.com/2014/05/11/us/brothers-work-different-angles-in-taking-on-climate-change.html.

[33] Jeremy P. Jacobs, Both Side Ready Arguments for Case that Could Scotch EPA Power Plants Rule, Greenwire.(Apr. 13, 2015), http://www.eenews.net/stories/1060016647.

[34] Clean Air Act Amendments of 1990, Pub. L. 101-549, § 302(a), 104 Stat. 2399, 2574 (1990).

[35] Tribe, supra note 31.

[36] Id.

[37] Clean Air Act Amendments of 1990, Pub. L. 101549, § 108(g), 104 Stat. 2399, 2467 (1990). The U.S. Code, 42 U.S.C. 7411(d) (2012), reflects the Senate language, but this is not dispositive. To quote the Supreme Court, “Though the appearance of a provision in the current edition of the United States Code is ‘pima facie’ evidence that the provision has the force of law, it is the Statutes at Large that provides the ‘legal evidence of laws.’” U.S. Nat’l Bank of Ore. v. Indep. Ins. Agents of Am., 508 U.S. 439, 448 (1993) (internal citations omitted). The Statutes at Large contains both versions, leaving the matter of which version controls open to debate.

[38] Farber, supra note 31.

[39] Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units; Final Rule, 80 Fed. Reg. 64,662, 64,715 (Oct. 23, 2015) (to be codified at 40 C.F.R. pt. 60).

[40] Id.

[41] E.g., David Doniger & Benjamin Longstreth, Grasping at Straws: Why a Legislative Glitch Will Not Exempt Power Plants from Carbon Standards, Nat. Res. Def. Council: Switchboard (Nov. 1, 2013), http://switchboard.nrdc.org/blogs/blongstreth/grasping_at_straws_why_a_legis.html.

[42] E.g., Tribe, supra note 31.

[43] See, e.g., Mario Loyola, Federal Coercion and the EPA’s Clean Power Plan, The Atlantic (May 17, 2015), http://www.theatlantic.com/politics/archive/2015/05/federal-coercion-and-the-epas-clean-power-plan/393389/ (arguing the Clean Power Plan unconstitutionally coerces States to abandon certain fuel sources in favor of others).

[44] See, e.g., Scott C. Ostdyk, A Constitutional Challenge to EPA’s “Clean Power Plan”, Law360 (Oct. 27, 2014, 2:42 PM), http://www.law360.com/articles/590762/a-constitutional-challenge-to-epa-s-clean-power-plan.

[45] Id.

[46] See, e.g., id.

From Kyoto To Paris: How Bottom-Up Regulation Could Revitalize the UNFCCC

Luke Grunbaum

Luke Grunbaum is a 3L at UCLA School of Law, where he is Editor-in-Chief of the UCLA Journal of Environmental Law and Policy. This post is part of the Environmental Law Review Syndicate.

The United Nations Framework Convention on Climate Change (UNFCCC) establishes the basic principles and goals for future international agreements on climate change. However, incorporating the ambitious policies and provisions of the UNFCCC into a binding global agreement has proven incredibly challenging. Previous attempts to create a comprehensive international climate agreement (most notably the Kyoto Protocol) have been largely unsuccessful, and many believe that the top-down approach of prior eras must either be updated or completely abandoned. This article will briefly explain some of the inadequacies of prior top-down regimes, examine the shift towards a more bottom-up approach in UNFCCC negotiations, and elaborate on some of the strengths and weaknesses of this new approach.

The Inadequacies of Top-Down Regimes in the Context of Climate Change

Adopted in 1992, the UNFCCC is an incredibly ambitious international agreement that seeks to “achieve . . . stabilization of greenhouse gas concentrations . . . at a level that [will] prevent dangerous anthropogenic interference with the climate system.”[1] With over 150 signatories (Parties) by the time it went into effect in 1994, the UNFCCC has received remarkable acceptance within the international community and today it “has near universal membership.”[2] But despite its ambitious goals, the UNFCCC is essentially a guidance document; the treaty outlines objectives, principles, and general commitments, but is comparatively lacking in terms of implementation strategies and precise policy solutions.[3] Thus, although the UNFCCC has created a general consensus on core principles and objectives, it also leaves many important decisions and details unresolved.

Passed and adopted in December 1997, the Kyoto Protocol represents the first comprehensive agreement for the reduction of global greenhouse gas emissions under the UNFCCC framework.[4] However, despite strong initial support from the international community, the Kyoto Protocol ultimately failed to induce significant emission reductions on a global scale.[5] And while the relative failure of the Kyoto Protocol is often attributed to a variety of factors, one of the Protocol’s most significant flaws was its failure to promote participation by all UNFCCC parties.[6]

The lack of comprehensive participation under the Kyoto Protocol is largely a byproduct of the agreement itself. By its explicit terms, the Kyoto Protocol only requires emission reductions from thirty-three countries during the first period of Kyoto commitments (2005-2012). Additionally, the emissions reductions required under subsequent Kyoto periods (2012-2020) have yet to enter into force due to insufficient ratification by member Parties.[7] So while it is true that the Kyoto Protocol encourages all parties (including developing countries) to adopt emission reduction targets, the agreement ultimately failed to obtain emission reduction commitments from the some of the world’s largest greenhouse gas emitters, including the United States, China, Brazil, India, South Africa and various other countries. As a result, the Kyoto Protocol has failed to provide a truly comprehensive and effective solution to this increasingly pressing issue.

INDCs: A Bottom-Up Approach Under the UNFCCC

Citing the failure of the Kyoto Protocol and the international community’s subsequent inability to reach a successive agreement, some experts have called for a fundamental overhaul of the global climate change debate. Various sources suggest that the traditional top-down approach[8] as exemplified in the Kyoto Protocol might not be the best strategy for addressing global climate change today.[9] Instead, many believe that to stand any chance of global acceptance in the near term, future climate change agreements must be significantly more flexible and provide all Parties with the opportunity to pursue those strategies and solutions that best accommodate their unique interests and priorities.[10]

Indeed, even the UNFCCC acknowledges the limitations of a traditional top-down approach in the context of climate change. At COP17 in 2011, UNFCCC Parties created the Ad Hoc Working Group on the Durban Platform for Enhanced Action (ADP), an organization responsible for “[developing] a protocol, another legal instrument or an agreed outcome with legal force under the [UNFCCC] applicable to all Parties” that will be adopted “no later than 2015.”[11] And while the desire to replace the Kyoto Protocol is not surprising, some of the main features of this new agreement signify a paradigm shift in global climate change negotiations.

To ensure an agreement is reached by 2015, the ADP devised a radical new method that attempts to encourage greater levels of participation by all UNFCCC Parties. Rather than relying upon a more formalistic top-down approach as used in the Kyoto Protocol, the ADP has asked all member Parties to create voluntary emission reduction targets that are not only achievable, but also reflect the basic policies and priorities of the UNFCCC.[12] Known as Intended Nationally Determined Contributions (INDCs), these proposals require parties to “outline national efforts towards low emissions and climate resilient development,” and identify specific policies and practices that will enable the country to reach its intended targets. [13] Moreover, there is no standard definition of what should be included in INDCs, a feature that allows Parties to formulate creative adaptation and mitigation strategies that take full advantage of their unique institutional capacities.

Strengths and Weaknesses of INDC Approach

The ADP’s new bottom-up INDC approach is noteworthy in that it is entirely voluntary; INDCs afford each Party the opportunity to set emission reduction targets independently and without regard to the efforts of other Parties. And because INDCs are completely discretionary, these commitments are likely to accurately reflect each Party’s inclination and ability to undertake climate policies in the near future. In fact, the ADP hopes that these INDCs will play an integral role in future climate change negotiations and serve as the starting point for any agreement coming out of the negotiations in Paris this year.[14]

Moreover, there are at least two reasons why this bottom-up approach may be a preferable alternative to a more legalistic top-down approach at the present time. First, INDCs offer substantial flexibility when it comes to setting emissions reductions targets and implementing policies to achieve this goal.[15] This flexibility allows the Parties to prioritize their efforts based upon their own unique economic, political, and geographic considerations and ensures that all Parties begin the transition towards a low-carbon economy at their own pace and in a cost-efficient and predictable manner.

A second important feature of the INDC system is that it poses relatively little threat to the sovereignty of individual nations. Because INDCs are not legally binding commitments, the INDC program is a far more attractive alternative for those countries that are most wary of international meddling in domestic affairs. Indeed, both the United States and China – two countries that have up until this point refused to commit to any emission reductions in formal international agreements – have submitted INDCs under the Durban platform.[16]

Yet despite its potential benefits, the INDC model cannot be considered a perfect solution since it will ultimately fail to achieve all of the ambitious policies and objectives outlined in the UNFCCC. Perhaps the biggest issue with the INDC approach is that despite widespread participation by UNFCC Parties, the current set of INDCs fail to achieve the emission reductions needed to keep climate change at manageable levels. Under the 2010 Cancun Agreements, UNFCCC Parties acknowledged that one of the main objectives of any future UNFCCC agreement should be to keep global average temperature increases below two degrees Celsius.[17] According the UNFCCC’s own estimates, however, the current INDC pledges (assuming the Parties achieve their stated goals) will only limit projected warming to 2.7 degrees Celsius (4.9 °F) – and that projection includes fairly generous assumptions regarding the post-2050 actions of UNFCCC Parties.[18]

A second potential issue with the INDC method is that it completely overlooks several key issues that have traditionally prevented the formation of a truly comprehensive climate change agreement under the UNFCCC. The UNFCCC explicitly acknowledges that developed countries are primarily responsible for the steady increase in greenhouse gas concentrations over the previous centuries, and as such, these developed countries must play a leading role in addressing climate change.[19] But despite its inherent logic, this notion of “common but differentiated responsibilities” has been notoriously difficult to operationalize within the framework of a global agreement.[20] INDCs do very little to address this contentious issue since their non-binding and unilateral nature fails to ensure that developed countries bear a disproportionate share of emission reductions and provide sufficient funding to aid in the global transition towards a low-carbon economy. Therefore, since these INDCs will serve as the foundation for future negotiations, it can be argued that the inward-looking INDC model will ultimately prevent the resolution of certain controversial issues in the near future.

Conclusion

The INDC system represents a novel solution to the previously intractable issue of global climate change. This bottom-up approach has already received unprecedented support from the international community, with over 147 Parties (75% of all UNFCCC Parties) having submitted INDCs as of October 1, 2015. Unlike prior agreements under the UNFCCC such as the Kyoto Protocol, the INDC system currently covers “approximately 85% of global greenhouse gas emissions in 2010,” including all of the top ten largest emitters.[21] But even though the INDC process is largely responsible for enhancing the scope and pace of global negotiations, we must bear in mind that this approach is not the final solution to this incredibly complicated issue. Nonetheless, it appears that the INDC system has been a success in terms of increasing participation from all Parties, and there is hope that these proposals will form a strong foundation for an agreement coming out of Paris this December.

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[1] United Nations Framework Convention on Climate Change, Article 2, May 29, 1992, U.N. Doc. A/AC.237/18 (1992), available at http://unfccc.int/files/essential_background/
convention/background/application/pdf/convention_text_with_annexes_english_for_posting.pdf) [henceforth referred to as “UNFCCC”].

[2] UNFCCC, “First steps to a safer future: Introducing The United Nations Framework Convention on Climate Change,” available at: http://unfccc.int/essential_background
/convention/items/6036.php.

[3] UNFCCC, supra note 1.

[4] Kyoto Protocol to the United Nations Framework Convention on Climate Change, Dec. 10, 1997, 37 I.L.M. 22 (1998) (entered into force Feb. 15, 2005) [hereinafter Kyoto Protocol]. See also Andrew Long, Global Integrationist Multimodality: Global Environmental Governance and Fourth Generation Environmental Law, 21 J. Envtl. & Sustainability L. 169, 183 (2015).

[5] See e.g., Jonathan Zasloff, Choose the Best Answer: Organizing Climate Change Negotiation in the Obama Administration, 103 Nw. U. L. Rev. Colloquy 330, 332 (2009) (“The Kyoto Protocol’s failure to achieve emissions reductions from the major greenhouse gas emitters suggests the need for new approaches.”); Lakshman Guruswamy, Climate Change: The Next Dimension, 9 J. Transnat’l L. & Pol’y 341, 367 (2000) (“Current efforts to include developing countries within the emission reducing framework of the Kyoto Protocol have proven unsuccessful. By any analysis, portentous implications arise from the present diplomatic deadlock with regard to the cooperation of developing countries and the rising concentrations of GHGs.”).

[6] See, e.g., Jacquelynn Kittel, The Global “Disappearing Act”: How Island States Can Maintain Statehood in the Face of Disappearing Territory, 2014 Mich. St. L. Rev. 1207, 1218 (2014) (noting that the Kyoto Protocol “has been largely unsuccessful in reducing global greenhouse gas emissions” because over 100 nations, including some of the highest emitters such as the United States and China, are exempt from emission limits under the Protocol).

[7] United Nations Climate Change Secretariat, “Frequently asked questions relating to the Doha Amendment to the Kyoto Protocol,” available at https://unfccc.int/files/
kyoto_protocol/doha_amendment/application/pdf/frequently_asked_questions_doha_amendment_to_the_kp.pdf.

[8] The term “top-down” is defined as “of or relating to a hierarchical structure or process that progresses from a large, basic unit to smaller, detailed subunits.” American Heritage Dictionary of the English Language (5th Ed., 2011).

[9] David A. Wirth, The International and Domestic Law of Climate Change: A Binding International Agreement Without the Senate or Congress?, 39 Harv. Envtl. L. Rev. 515, 521 (2015) (“The first, and to date only, protocol to the [UNFCCC] is the Kyoto Protocol . . . which specifies quantitative emission reductions . . . by thirty-three enumerated industrialized countries . . . [but] no new emission-reduction commitments for [other] Parties.”); Cinnamon P. Carlarne, Rethinking A Failing Framework: Adaptation and Institutional Rebirth for the Global Climate Change Regime, 25 Geo. Int’l Envtl. L. Rev. 1, 2-3 (2012) (“The conventional wisdom that we need one, consensus-based, comprehensive treaty is wrong or – more accurately – woefully incomplete. . . . [T]he optimistic vision of this top-down system as a great enabling device is no longer viable.”); William Boyd, Climate Change, Fragmentation, and the Challenges of Global Environmental Law: Elements of a Post-Copenhagen Assemblage, 32 U. Pa. J. Int’l L. 457, 457 (2010) (“The 2009 United Nations climate conference in Copenhagen has been widely viewed as a failure – a referendum in the eyes of many on the top-down, comprehensive approach to climate embodied in the Kyoto Protocol and carried forward in efforts to negotiate a successor regime.”).

[10] Carlarne, supra note 9 at 2-3 (“[T]he valiant efforts of the global community to negotiate a post-Kyoto treaty system have arrived at a crossroads and . . . instead of focusing on the finding the “right” pathway forward, there is a need to pursue multiple pathways. . . . We need a multilateral framework to respond to climate change and establish a global mitigation strategy.”).

[11] Report of the Conference of the Parties on its seventeenth session (2011), available at: http://unfccc.int/resource/docs/2011/cop17/eng/09a01.pdf).

[12] The ADP first established this voluntary emissions reduction framework at COP19 in 2013. For more information about this important meeting of the Parties, see “Warsaw Outcomes” (available at: http://unfccc.int/key_steps/warsaw_outcomes/items/8006.php.)

[13] Synthesis Report on the Aggregate Effect of Intended Nationally Determined Contributions (INDCs) (available at: http://unfccc.int/files/focus/indc_portal/application
/pdf/synthesis_report_-_overview.pdf) [henceforth referred to at “INDC Synthesis Report”]. For more information about INDCs and their significance for future climate change agreements, see World Resources Institute, “What is an INDC?,” (available at: http://www.wri.org/indc-definition).

[14] INDC Synthesis Report, supra note 13 (“Parties have submitted their INDCs with the understanding that they would be anchored in a broader new climate agreement that would support sustainable actions nationally and globally.”).

[15] Further Advancing the Durban Platform, Dec. 1/CP.19, U.N. Doc. FCCC/CP/2013/10/Add.1, at 3, para. 2(b) (Jan. 31, 2014).

[16] Mark Landler, U.S. and China Reach Climate Accord After Months of Talks, NY Times, Nov.11, 2014, http://www.nytimes.com/2014/11/12/world/asia/china-us-xi-obama-apec.html. To view copies of the INDCs that have already been submitted, visit the UNFCCC “Submitted INDCs” portal at http://www4.unfccc.int/submissions/indc/Submission
%20Pages/submissions.asp.

[17] UNFCCC, “The Cancun Agreements: An Assessment by the Executive secretary of the United nations Framework Convention on Climate Change,” available at http://cancun
.unfccc.int/cancun-agreements/main-objectives-of-the-agreements/ - c33.

[18] INDC Synthesis Report, supra note 13.

[19] UNFCCC, supra note 1 (“Acknowledging that the global nature of climate change calls for the widest possible cooperation by all countries . . . in accordance with their common but differentiated responsibilities and respective capabilities and their social and economic conditions.”).

[20] See, e.g., Stathis N. Palassis, The IMOS Climate Change Challenge: Application of the Principle of Common But Differentiated Responsibilities and Respective Capabilities, 6 Wash. & Lee J. Energy, Climate, & Env’t 160, 164-71 (2014).

[21] INDC Synthesis Report, supra note 13.

Is CITES Endangered?

Liz Rasheed

Liz Rasheed is a 3L at New York University, where she is Submissions Editor for Environmental Law Journal. This post is part of the Environmental Law Review Syndicate.

Introduction: What is Illicit Wildlife Trafficking?

Illicit wildlife trafficking refers to “any environment-related crime that involves the illegal trade, smuggling, poaching, capture or collection of endangered species, protected wildlife (including animals and plants that are subject to harvest quotas and regulated by permits), derivatives or products thereof.”[1] Many species are targeted by specific international markets, while some are targeted by a multiplicity of markets. For example, tigers are sold live as exotic pets, yet skinned for rugs, while their bones are sold for “medicinal” uses in Asia.[2] Many reptiles and amphibians are commonly targeted for the exotic pet trade, as are primates and tropical birds.[3] Still others are being driven to extinction due to their perception as “fine cuisine” in certain markets.[4] Most notably, illicit animal-derived goods, such as ivory carvings, animal-skin rugs, and taxidermy mountings are seen as status symbols in many parts of the world, and the existence of a market for “canned hunting” of endangered animals on private game reserves makes it increasingly easy for illicit trafficking syndicates to launder illegally poached hides under the façade of legal hunts.[5]

The growth of e-commerce in the global marketplace has made facilitation of illegal transactions increasingly efficient for would-be consumers while protecting their anonymity, and has thus made effective prosecution increasingly difficult. The International Fund for Animal Welfare found in a recent study that the number of online advertisements for CITES Appendix I-listed species in China alone had increased by 279 percent in the past six years, jumping from 544 advertisements identified in 2008 to 2,106 in 2014.[6] Furthermore, the widespread use of social media seems to have facilitated new means of contact between buyers and sellers.[7]

What is Reasonable?: The Consideration of Economic Effects in Reasonable and Prudent Alternatives Under the Endangered Species Act

Gillian Schroff

Gillian Schroff is a 3L at Lewis and Clark Law School, where he is Form & Style Editor for Environmental Law. This post is part of the Environmental Law Review Syndicate.

I. Introduction

Although only a few inches in size, the delta smelt (Hypomesus transpacificus) has become a topic of intense debate in water-scarce California. When the United States Fish and Wildlife Service (FWS or Service) determined that these small fish were a threatened species in 2005, the Service invoked the significant protections of § 7 of the Endangered Species Act (ESA)[1] and water agencies that managed the delta smelt’s habit were suddenly precluded from diverting water in ways that could negatively affect the fish.

The rivers that flow into the delta provide water to around two-thirds of Californians and large amounts of farmland.[2] FWS’s determination that the diversions would endanger the delta smelt and were therefore prohibited was criticized as “put[ting] fish above the needs of millions of Californians.”[3] When the cutback in water diversions began, farmers who had depended on the diversions were forced to institute alternative methods, including abandoning fertile land.[4] The problem was exacerbated by the fact that there was no other source of water in the region to irrigate the fields.[5] As of 2010, estimates suggested that there had been $2.2 billion in agricultural losses as a result of the decrease in water diversions. [6]

FWS proposed Reasonable and Prudent Alternatives (RPAs) that would allow the water diversions to continue, but even those required that the diversions to be limited to protect the delta smelt.[7] According to the plaintiffs, this alternative failed to resolve the water supply problems for farmers who had previously relied on water diversions from the agency.[8] As a result, various water agencies and farmers challenged the Service’s decision in the case San Luis and Delta-Mendota Water Authority v. Jewell.[9]

Because of conflicts like those at issue in San Luis, the ESA has been a source of contention, with environmental groups, private parties, and the courts debating the propriety of protecting endangered species at the expense of economic development. On one end of the spectrum, the Supreme Court held in Tennessee Valley Authority v. Hill (TVA)[10] that economic considerations are not relevant to Reasonable and Prudent Alternative (RPA) determinations.[11] Alternatively, the Fourth Circuit has held that economic considerations must be included in the analysis of RPAs.[12] In San Luis the Ninth Circuit adhered to the holding of TVA and held that the consideration of economic effects on private parties was inappropriate for an RPA analysis.[13]

Despite the complicated nature of the San Luis conflict and the significant economic effects that the FWS’s decision may have on farmers, the Ninth Circuit correctly determined that the economic effects on these private third parties did not need to be explicitly analyzed in the RPAs. The text of the ESA and the stated purpose of the ESA indicate that economics are not relevant to RPAs. In addition, RPAs do not restrict the options of agencies, but simply identify one way for the agency to proceed, despite the jeopardy determination, and the ESA already allows for the consideration of economics in the exemption provision. Finally, allowing for the consideration of economics in the creation of RPAs would impair the functioning of the ESA and would not clearly advance any goal that the private parties could hope to accomplish.

Trying to Find a Balance: Agricultural Land Conservation vs. Development in the Green Mountain State

Kristen Mae Rodgers

Kristen Mae Rodgers is Note Editor for Vermont Journal of Environmental Law. This post is part of the Environmental Law Review Syndicate.

Vermont is leading the nation in the local, sustainable food movement and the new food economy. In fact, Vermont is the frontrunner in farm stands, community supported agriculture (CSA) programs, and farmers’ markets per capita across the entire United States. According to the USDA, Vermont is one of few states to see a boom in new farms. In 2014, Vermont bucked national trends showing growth in large-scale agricultural operations, and instead favored growth in small-scale agricultural operations. These small-scale farms make up the real strength in the local food movement for the state and highlight Vermont’s community-based approach to agriculture.

The rise of new farms coupled with already well-established operations makes agriculture one of the most important facets to Vermont’s economy. Agriculture and other food related activities grew from $6.9 billion in 2007 to $8.6 billion in 2014. According to the 2014 VT Farm to Plate Annual Report, over 60,000 jobs within the state can be attributed to Vermont’s food system. Roughly 12,000 businesses in Vermont partake in the food system. Overall, Vermont is set to continue its agricultural growth into the future.

Vermont owes its booming agricultural economy to one of its most precious natural resources – soil. Soil is a finite resource in the state. Farmland with viable soils are in high demand statewide due to the growth of new farms and continuation of existing farm operations. This demand has especially impacted dairy farmers, who now have to travel substantial distances to grow enough forage for their animals. Soil integrity will play an even larger roll in the demand for farmland in the future, as climate change alters the viability of soils worldwide.

The importance of Vermont’s soils, and thus agriculture, is reflected in Vermont’s signature land use legislation. Act 250, formally named Vermont’s Land Use and Development Law (10 V.S.A. Chapter 151), ensures that development in Vermont will coincide with natural resource conservation. Act 250 specifically calls out for special consideration of “Primary Agricultural Soils”, also known as PAS. PAS as defined by 10 V.S.A. section 6001 are “. . . important farmland soils map unit[s] that the Natural Resources Conservation Service of the U.S. Department of Agriculture (NRCS) has identified and determined to have a rating of prime, statewide, or local importance.” PAS make up the backbone of Vermont’s agricultural economy.

Criterion 9(b) of Act 250 ensures that any development on farmland will be well thought out and least likely to damage PAS. Under Criterion 9(b) exist four subcriteria. The subcriteria of 9(b) call for: (1) any development to not impinge on abutting agricultural operations; (2) no other lands owned or controlled by the applicant be reasonably suited for development; (3) the development plans minimize the reduction of agricultural potential of PAS through compact development patterns; and (4) suitable mitigation will be provided for any reduction of PAS in accordance with 10 V.S.A. section 6093. Section 6093 deals with the flexibility of soil mitigation and whether onsite or offsite mitigation can occur for certain projects. Section 6093 allows for the District Commission to decide if “appropriate circumstances” exist that warrant offsite mitigation measures. The offsite mitigation decision must be consistent with local and regional plans, as well as Vermont’s codified Smart Growth Principals. Overall, this means that any development in Vermont must first and foremost protect the economic and agricultural viability of the land and surrounding villages.

In a series of recent District Commission hearings, Criterion 9(b) is going through the wringer. Act 250 allows for partial review of its 10 criteria to ensure that development plans meet specific criterion before applying for full Act 250 review. As proposed, the Green Mountain Center would create over 1 million square feet of development on rural Vermont countryside in Randolph, Vermont. The Green Mountain Center applicant is currently seeking review of Criteria 9(b) and 10. The hearings regarding Criteria 9(b) and 10 have spanned more than 6 months with no formal decision made by the District 3 Commission yet. Conservation groups like the Conservation Law Foundation and Vermont Natural Resources Council oppose the project due to its impact on farmland. The main issue at the hearings is if the Green Mountain Center developer’s plans will qualify for requested offsite mitigation. Offsite mitigation can only be allowed by the District Commission if appropriate circumstances exist. Current case law and documents from the Natural Resources Board, who oversee Act 250, give little guidance as to what appropriate circumstances mean. However, it is clear that offsite mitigation should only be favored in situations where development occurs in one of six state-designated growth centers. Because the Green Mountain Center is outside a designed growth center, the Commission is entering new territory for offsite mitigation under Act 250. One thing is for certain, the District 3 Commission’s decision will shape the way development in Vermont will occur in years to come.

A Perfect Storm for Michigan’s Renewable Portfolio Standard?

Sarah Stellberg

Sarah Stellberg is a 3L at the University of Michigan Law School, where she is Editor-in-Chief of the Michigan Journal of Environmental & Administrative Law. This post is part of the Environmental Law Review Syndicate. Click here to see the original post and leave a comment.

In his June 7, 2013 opinion in Illinois Commerce Commission v. FERC,[1] Judge Richard Posner of the U.S. Court of Appeals for the Seventh Circuit inserted two lines of dicta on the constitutionality of Michigan’s Renewable Portfolio Standard, or Public Act 295 (PA 295).[2] By discriminating in favor of in-state renewable energy, he opined that Michigan’s law “trips over an insurmountable constitutional objection. Michigan cannot, without violating the Commerce Clause of Article 1 of the Constitution, discriminate against out-of-state renewable energy.”[3] The opinion will have little precedential value—it was not necessary for the holding, not fully briefed by the parties, and not binding on the Sixth Circuit. Nonetheless, the statement sent a ripple through the energy community, casting doubt upon Michigan’s law and the many similar Renewable Portfolio Standards with preferences for homegrown renewables. Twelve of these laws have already faced lawsuits alleging out-of-state discrimination,[4] and Judge Posner’s statement may be a harbinger of things to come in Michigan.

Two years later and several hundred miles away in the state capitol, Michigan legislators began launching their own attack on PA 295. After the RPS targets are met this year, there is no legal mandate for utilities to further increase their share of renewable generation. Republican legislators have introduced a bill that would repeal the renewable portfolio standard altogether.[5] Meanwhile, the Democratic proposal would increase the RPS to 20 percent by 2022.[6]

These efforts to rewrite Michigan’s comprehensive energy policy could spell trouble for the future of the Renewable Portfolio Standard. Yet with complete repeal unlikely, perhaps clean energy advocates should welcome the bills rattling around in Lansing. This legislative debate provides the perfect opportunity to rewrite PA 295 to fend off the constitutional challenge foretold in Judge Posner’s opinion.

Dormant Commerce Clause: The Legal Standard

The Commerce Clause of the U.S. Constitution grants Congress the power “[t]o regulate Commerce . . . among the several states.”[7] While the Clause contains no explicit language to this effect, courts have long recognized a negative implication of this enumerated power, known as the “dormant Commerce Clause,” which prohibits states from discriminating against or unduly burdening interstate commerce.[8]

Dormant Commerce Clause jurisprudence distinguishes between state laws that openly discriminate and those that impose a burden upon interstate commerce. The first category—laws that discriminate facially, purposefully, or in practical effect against out-of-state economic interests—are virtually per se invalid.[9] To uphold a discriminatory law, a court must find that the law is justified by a legitimate state interest unrelated to economic protectionism and that no less discriminatory alternative is available.[10]

The second category, facially neutral statutes, is subject to a lower level of scrutiny under the Pike v. Bruce Church, Inc. balancing test and will be upheld if the law’s putative local benefit outweighs its burden on interstate commerce.[11] In practice, the test is very forgiving to states.

Unless the purported state interest appears to be illusory, courts rarely strike down state laws under the Pike test.[12]

Michigan’s Clean, Renewable, and Efficient Energy Act of 2008

Michigan’s Renewable Energy Standard is part of the 2008 Clean, Renewable, and Efficient Energy Act, or PA 295, signed into law on October 6, 2008 by then-Governor Jennifer Granholm.[13] The RPS requires Michigan electricity providers to supply at least 10 percent of their Michigan retail sales from renewable energy by 2015, with interim targets in 2012, 2013, and 2014.[14] The standard is applicable to Michigan’s investor-owned utilities, electric cooperatives, municipal electric utilities, and alternative electric supplier (AESs).[15]

Under PA 295, electric providers demonstrate compliance through the purchase and/or production of Renewable Energy Credits (RECs).[16] One REC is created for each megawatt-hour of renewable energy generation from qualified technologies, including wind, solar and solar thermal, biomass, hydroelectric, geothermal, municipal solid waste, and landfill gas.[17]

Michigan’s law contains two provisions that raise dormant Commerce Clause questions. First, eligible renewable energy systems must be located either within Michigan or within the service territory of a utility serving customers in Michigan (the “geographic sourcing restriction”).[18] Second, PA 295 grants a 1.1 REC multiplier each megawatt-hour generated from a renewable energy system built using equipment made in Michigan or constructed by a Michigan workforce (the “Michigan incentive multiplier”).[19] These two geographic restrictions lie at the heart of a potential constitutional challenge.

Michigan Incentive Multiplier Trips at Strict Scrutiny

The Michigan incentive multiplier holds little promise of withstanding judicial review under the dormant Commerce Clause. This location-based preference facially discriminates against non-Michigan entities by granting bonus RECs to renewable energy facilities constructed using Michigan equipment or labor. Comparable incentives are not provided to renewable energy producers who do not use Michigan sourced materials and labor. The effect of the multiplier, then, is to limit competition and shift business to in-state entities, thereby impeding the flow of interstate commerce. While a law that evenhandedly promotes investment in renewable power is constitutionally permissible, a preference for in-state industry is not.

Facial discrimination should be enough to strike down the Michigan Inventive Multiplier on Commerce Clause grounds. On top of that, however, contemporaneous evidence provides indications of a protectionist motive. The declared purposes of PA 295 were to promote a diversified fuel mix, promote greater energy security through the use of local resources, improve air quality, and to encourage private investment in renewable energy.[20] Of these, the only goal meaningfully served by the Michigan incentive multiplier is in-state economic development. Indeed, the Michigan Public Service Commission noted in its 2014 report on the implementation of PA 295 that the “Michigan inventive REC provision is meeting its intended purpose to encourage developers to maximize utilization of Michigan equipment and labor.” Governor Granholm was also forthright that a primary goal of PA 295 was to aid Michigan’s manufacturing industry. In an early press event on the bill, she noted: “the package will do a lot of things, but for me the most important thing is the job creation and adding a whole new sector” for Michigan's economy.[21]The dormant Commerce Clause does not prohibit states from promoting local economic development and job growth. As one commentator noted, “[n]o renewable energy mandate passed a state legislature without the promise of thousands of new jobs.”[22]However, while a law that evenhandedly promotes investment in renewable power is constitutionally permissible, one intended to preference in-state industry interests by encouraging increased consumption of local goods or services is not.[23]

Murkier Waters for the Geographic Sourcing Restriction

The constitutionality of Michigan’s geographic sourcing restriction is less certain. Public Act 295 would be easily struck down if the law banned utilities from purchasing out-of-state renewable power altogether. However, the limit on eligible renewable power does not fall into this trap. The RPS permits utilities to satisfy the 10 percent mandate with electricity generated from a renewable energy system (1) located in Michigan or (2) within the nearby service territory of a utility that also serves Michigan, which would include parts of Indiana, Ohio, Minnesota, and Wisconsin.[24] By its plain terms, therefore, the Act does not discriminate based on the territorial boundary of the state.

The Supreme Court has made clear, however, that a state law “need [not] be drafted explicitly along state lines in order to demonstrate its discriminatory design.”[25] Here, Michigan has closed its doors to power from forty-five states and most of Indiana, Ohio, Minnesota, and Wisconsin based purely on location. By limiting eligibility in this way, the state has attempted to “dr[aw] a line around itself and treat[] those inside the line more favorably than those outside the line.”[26] While a few out-of-state generators were swept under Michigan’s protective reach, the vast majority of entities were categorically excluded based on their geographic location outside the Michigan distribution network. This type of geographic Balkanization would likely amount to facial discrimination.

Even assuming that the geographic sourcing restriction is facially neutral, the law undoubtedly has the practical effect of discriminating against out-of-state renewable power producers.[27] Again, PA 295 requires RPS-eligible power to be generated within the Michigan service territory. By severely limiting a supplier's compliance options, the RPS ensures that the renewable power used to satisfy the RPS is generally produced in-state, or at least in close proximity to the state.

The delineation between a “discriminatory effect” sufficient to trigger heightened scrutiny and an “incidental burden” to which the Pike balancing would be applied is imprecise.[28]However, evidence suggests that the Michigan RPS more than “incidentally” burdens the interstate trade in renewable power. A 2015 report from the Michigan Public Service Commission indicates that “[n]inety-three percent of the energy credits used for 2013 compliance were from renewable energy generated in Michigan.”[29] Only seven percent came from renewable energy generated in Indiana, Iowa, Minnesota, and Wisconsin.[30] Furthermore, without the in-state mandate, renewable electricity produced in nearby states could be purchased far below current prices. The most recent contracts for new wind capacity in Michigan have levelized costs in the $50 to $55 per MWh range, according to a 2015 report from the Michigan PSC.[31] This exceeds the cost of other regional wind projects costs by over 30% and the nationwide average by roughly 50%.[32]

While this data does not demonstrate causation—that the RPS led to an appreciably greater use of in-state power and fewer imports than would otherwise have occurred—the data provides powerful evidence that PA 295 established a discriminatory barrier to the interstate sale and transmission of renewable energy into Michigan.

Applying Strict Scrutiny

The practical effect of a finding that PA 295 discriminates against interstate commerce is fatal. In order to uphold the law, a court must find that the law serves a legitimate state interest unrelated to economic protectionism, and that no less discriminatory means to advance its legitimate local interest.[33] The geographic sourcing restriction may be justified by legitimate public health, safety, or environmental goals that go beyond economic motivation. For example, local renewable power generation can displace electricity generated from coal and natural gas plants, thereby reducing conventional air pollutants, such as sulfur dioxide (SO₂), nitrous oxides (NOx), and particulate matter, and improving local air quality and public health.[34]

However, Michigan would ultimately have difficulty mounting any defense that it lacks a non-discriminatory means to achieve these permissible state goals. The geographic sourcing restriction is a blunt method of mitigating line-losses or achieving in-state emissions reductions. Furthermore, many of these goals would arguably be better served by technology-forcing regulations for in-state power plants,[35] subsidies for in-state renewables generators, demand response or energy efficiency regulations, or purchase quotas not relying on homegrown renewable power. This point is only underscored by the decision of most states to enact similar RPSs without relying on in-state preferences. Therefore, if the geographic sourcing restriction were deemed discriminatory, it would almost certainly fail under the rigorous strict scrutiny test.

Pike Test – Finding a Legitimate Local Purpose

If the Michigan RPS is lucky enough to survive strict scrutiny, the next stop is the Pike balancing test. At this stage the court would determine whether the burdens imposed on interstate commerce by Public Act 295 are excessive in relation to a legitimate public interests served.[36]

The burden Michigan’s RPS imposes on the interstate renewable power market is certainly not insubstantial.The practical impact of Michigan’s RPS has been to preclude energy suppliers in 45 states from competing for a share of Michigan’s renewable energy demand. On the other hand, the state has not banned the import of renewable energy for purposes other than meeting the 10 percent mandate. Electricity may continue to move freely across the Michigan border through the MISO or PJM markets. Additionally, it is unclear to what extent leveling the playing field in Michigan would lead to a greater influx of out-of-state power.

At a more general level, Michigan’s law may be seen as an impediment to the goals embodied in FERC Order 888, namely unimpeded and efficient competition in the wholesale power marketplace.[37] As the share of renewable power generation increases nationwide, protectionist Renewable Portfolio Standards threaten to splinter national energy markets. Therefore, even if Michigan’s law has only an incidental burden on the regional trade in renewable energy, a court may reasonably conclude that a patchwork of preferential renewable energy laws across the nation places an unwelcome burden on interstate electricity markets.

However, Michigan should have no trouble establishing sufficient evidence of one or more of the legitimate state interests that outweigh any burden on interstate commerce. Michigan has asserted several local interests in the text of the law. PA 295 expressly aims to:

promote the development of clean energy, renewable energy, and energy optimization through the implementation of a clean, renewable, and energy efficient standard that will cost-effectively do all of the following[:]

(a) Diversify the resources used to reliably meet the energy needs of consumers in this state.

(b) Provide greater energy security through the use of indigenous energy resources available within the state.

(c) Encourage private investment in renewable energy and energy efficiency.

 

(d) Provide improved air quality and other benefits to energy consumers and citizens of this state.[38]

The economic development goal expressed in subsection (c) would not suffice as a legitimate state interest, and advertising this purpose on the face of the statute may compromise the state’s ability to justify its protectionist design on other grounds.

However, as suggested by subsections (a) and (b), renewable power does have the distinct advantage of helping insulate consumers and the state economy from electricity or fuel price spikes. Michigan consumers rely on coal and nuclear power for more than 80% of their electricity.[39] The entirety of Michigan’s coal is imported, mostly by rail from Wyoming and Montana, and to a tune of $1.2 billion dollars annually.[40] Michigan’s dependence on coal generation has been declining due to falling natural gas prices and pressure from environmental regulations, but the state also imports 75% of its natural gas needs.[41] This overreliance on imported fuels exposes the state to volatile or increasing fossil fuel prices. Furthermore, pending environmental regulations such as EPA’s Clean Power Plan and Mercury Air Toxics Rule, as well as nuclear waste disposal costs, mean that a large part of the state’s portfolio is subject to considerable regulatory risk. Renewable energy can serve as a financial hedge, reducing the state’s exposure to these risks.

Michigan’s geographic sourcing restriction may also be warranted to achieve local emissions reductions from fossil-fuel power plants, as advanced in subsection (d). The climate change impact of renewable energy accrues globally regardless of where emissions are displaced.Therefore, a state cannot justify in-state preferences on the “local” climate benefits of greenhouse gas emissions reductions. Nonetheless, renewable power generation displaces electricity generated from coal and natural gas plants, thereby reducing conventional air pollutants—sulfur dioxide (SO₂), nitrous oxides (NOx), particulate matter, mercury, and lead—and improving local air quality and public health.[42] The actual effect on air quality depends on how renewable resources are added the supply mix. Constructing a solar energy project in Michigan has a chance of displacing polluting coal plants in Michigan. Buying RECS from an Arizona solar project probably does not. Under the more forgiving Pike Balancing test, however, Michigan would have little trouble establishing a rational connection between its purposes of air quality improvement and the geographic sourcing restriction, despite evidence that in-state location is an imperfect proxy for fossil fuel emission displacement.

While PA 295 does not expressly assert any state interest related to transmission losses and infrastructural costs, this is arguably one of the greatest state interests in the eligibility restriction based on the location of the power within the state’s distribution grid. First, requiring utilities to purchase renewable power from within the state avoids some electricity transmission and distribution losses, increasing the efficiency of Michigan’s generation mix. Transmission lines waste somewhere around 6% of the power they deliver.[43] Under both PJM and MISO’s Locational Marginal Price (LMP) schemes, customers in Michigan end up paying for the cost of these marginal losses.[44] PA 295 theoretically helps minimize the distance power travels to reach its load and thus the costs of delivering renewable electricity to Michigan consumers. Second, ramping up renewable power generation often entails costly transmission investments to move power from areas where renewable power is most abundant to load centers where it will be used. Notably, however, the court in ICC v. FERC itself rejected Michigan’s argument that it should pay a lower share of MISO transmission line investments because it draws little renewable power from outside the state.[45]

Conclusion

Michigan’s geographic sourcing restriction and Michigan incentive multiplier leave the state’s RPS vulnerable to a dormant Commerce Clause challenge. Of course, it is possible that PA 295 may never be contested in court, given the law’s carve-outs for certain existing projects and special interests that would have been most likely to sue. Here, an ounce of prevention was certainly worth a pound of cure. Article III limitations such as standing may also bar a challenge on the merits, as they did in a lawsuit against renewable standards in Connecticut.[46] Nevertheless, until the preferential language in Michigan’s RPS is removed, the law will remain in jeopardy.

For this reason, policymakers in Lansing should take heed. As Public Act 295 is retooled for a new chapter in Michigan’s energy policy, they have an opportunity to shield the state’s Renewable Portfolio Standard from constitutional challenge. Rather than a Michigan incentive multiplier, the state should provide production incentives for in-state renewable energy generators.[47] Rather than a geographic sourcing restriction, the state should condition RPS eligibility on in-state benefit delivery, such as local emissions offsets. These amendments would open Michigan’s borders to a blossoming renewable energy market while maintaining the state’s forward progress on its economic, environmental, and energy development goals.

---

[1] 721 F.3d 764 (7th Cir. 2013).

[2] Mich. Comp. Laws Ann. §§ 460.1001 - 460.1195 (West, Westlaw through P.A. 2008, No. 295, § 1, Imd. Eff. Oct. 6, 2008).

[3] Ill. Commerce Comm’n, 721 F.3d at 776.

[4] State Cases, State Power Project, http://statepowerproject.org/states/.

[5] H.B. 4297, 98th Leg. Reg. Sess. (Mich. 2015), https://www.legislature.mi.gov/documents/2015-2016/billintroduced/House/htm/2015-HIB-4308.htm.

[6] The “Powering Michigan’s Future” bill package, announced by a group of Democratic lawmakers, includes House bills 4055, 4518 and 4519 and Senate bills 295, 296 and 297. See Andy Balaskovitz, Michigan Democrats propose doubling clean-energy standards, Mich. Energy News (Apr. 4, 2015), http://www.midwestenergynews.com/2015/04/23/michigan-democrats-propose-doubling-clean-energy-standards/.

[7] U.S. Const. art. I § 8, cl. 3.

[8] See, e.g.,H.P. Hood & Sons, Inc. v. Du Mond, 336 U.S. 525, 531 (1949); Pike v. Bruce Church, Inc., 397 U.S. 137, 141-42 (1970).

[9] See Philadelphia v. New Jersey, 437 U.S. 617, 624 (1978) (“[W]here simple economic protectionism is effected by state legislation, a virtual per se rule of invalidity has been erected.”); Or. Waste Sys., Inc. v. Dep't of Envtl. Quality, 511 U.S. 93, 99 (1994) (“[I]f a restriction on commerce is discriminatory, it is virtually per se invalid.”).

[10] Oregon Waste Systems,511 U.S. 93, 100-01 (1994). The Supreme Court has only once upheld a discriminatory statute under this test. Maine v. Taylor, 477 U.S. 131, 151-52 (1986) (upholding Maine's ban on the import of out-of-state baitfish because Maine had no other way to prevent the spread of parasites and the adulteration of its native baitfish species); see also Erwin Chemerinsky et al., California, Climate Change, and the Constitution, 25 Envtl. F. 50, 54 (July/Aug. 2008) (noting that only one law has survived strict scrutiny analysis).

[11] 397 U.S. at 142 (1970).

[12] Raymond Motor Transp., Inc. v. Rice, 434 U.S. 429, 449 (1978) (Blackmun, J., concurring).

[13] Mich. Comp. Laws Ann. §§ 460.1001-460.1195 (Westlaw).

[14] Id. § 460.1027.

[15] Id. §§ 460.1021(1), 23(1), 25(1).

[16] Id. § 460.1027(5).

[17] Id. Hydroelectric can include waves, tides, currents or water released through a dam. This does not include “a hydroelectric pumped storage facility or a hydroelectric facility that uses a dam constructed after the effective date Act 295 unless the dam is a repair or replacement of a dam in existence on the effective date of Act 295 or an upgrade of a dam in existence on the effective date of Act 295 that increases its energy efficiency.” Id. § 460.1011.

[18] Id. § 460.1029(1).

[19] Id. § 460.1039(c)(2).

[20] Id. § 460.1001 (emphasis added)

[21] Nathan Bomey, Granholm Says RPS Would Lead to ‘Tens of Thousands’ of Jobs, Ann Arbor Bus. Rev. (May 30, 2008, 10:57 AM), http://www.mlive.com/business/index.ssf/2008/05/granholm_says_rps_would_lead_t.html.

Governors’ statements have been used to strike down several laws under the dormant Commerce Clause. For example, in Kassel v. Consolidated Freightways Corp.,450 U.S. 662, 671 (1981), the Supreme Court considered the Iowa Governor’s articulation of an impermissible purpose—deflecting burdensome interstate traffic on Iowa’s highways—in striking down an Iowa truck ban purportedly passed for highway safety reasons. Similarly in Waste Management Holdings v. Gilmore, 252 F.3d 316, 336 (4th Cir. 2001), the Fourth Circuit struck down a Virginia cap on landfill waste based on the legislative history and the governor’s statements eliciting an discriminatory intent—to prevent Virginia from “becoming New York’s dumping grounds.”

[22] John Farrell, In-State Renewable Energy Development and the Commerce Clause, Inst. for Local Self-Reliance (Feb. 2, 2011), http://www.ilsr.org/state-renewable-energydevelopment-and-commerce-clause.

[23] See, e.g., Alliance for Clean Coal v. Miller, 44 F.3d 591, 596-97 (7th Cir. 1995) (invalidating the facially neutral Illinois Coal Act, under which coal plants in Illinois were required to install scrubbers so they would be able to continue using Illinois coal as a Clean Air Act compliance option; Illinois legislature could not do an end-run around Commerce Clause restrictions by merely “encouraging” consumption of Illinois coal); Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984) (Hawaiian excise tax on liquor sales that exempted local varieties was found purposefully discriminatory, where Hawaii’s stated purpose for the exemption was to “foster the local industries by encouraging increased consumption of their product”

[24] Mich. Comp. Laws Ann. § 460.1029(1) (Westlaw).

[25] Amerada Hess Corp. v. Director, 490 U.S. 66 (1989). In Dean Milk Co. v. Madison, 340 U.S. 349, 350 (1951), for example, the court found that a Madison city ordinance requiring all milk sold in the city to be pasteurized and bottled within a five-mile radius of the city center was facially discriminatory. Similarly, in Hunt v. Washington State Apple Advertising Commission, 432 U.S. 333, 353 (1977), the court struck down a North Carolina statute that banned the sale of apples from any states with a grading system other than USDA, even though the law precluded sales from only some states. Finally, in Camps Newfound/Owatonna, Inc. v. Town of Harrison, 520 U.S. 564, 576 (1997), the court held that a Maine property tax exemption for charitable institutions that serve mostly state residents was facially discriminatory, even though several out-of-state entities benefitted from the statute.

[26]C & A Carbone, Inc. v. Town of Clarkstown, 511 U.S. 383, 403 (1994) (O’Connor, J., dissenting).

[27] There appears to be some disagreement in the circuits as to whether discriminatory effects alone can trigger heightened scrutiny. However, Brown-Forman makes clear that heightened scrutiny applies not only when legislation is facially discriminatory, but also when a state statute or regulation’s “effect is to favor in-state economic interests over out-of-state interests . . . .” 476 U.S. 573, 579 (1986).

[28] As the Supreme Court has recognized, “there is no clear line separating close cases on which scrutiny [or tier of analysis] should apply.” Wyoming v. Oklahoma, 502 U.S. at 455 n. 12; see also Brown–Forman Distillers, Corp. v. N.Y. State Liquor Auth., 476 U.S. 573 (1986) (“We have . . . recognized that there is no clear line separating the category of state regulation that is virtually per se invalid under the Commerce Clause, and the category subject to the Pike v. Bruce Church balancing approach.”).

[29] Mich. Pub. Serv. Comm’n, Report on the Implementation of the P.A. 295 Renewable Energy Standard and the Cost-Effectiveness of the Energy Standards 7 (Feb. 13, 2015),http://www.michigan.gov/documents/mpsc/PA_295_Renewable_Energy_481423_7.pdf.

[30] Id.

[31] Id. at 30.

[32] U.S. Dep’t of Energy, Energy Efficiency & Renewable Energy, 2014 Wind Technologies Market Report Highlights 4 (Aug. 2015), http://www.energy.gov/sites/prod/files/2015/08/f25/2014-Wind-Technologies-Market-Report-Highlights.pdf.

[33] See, e.g., Hughes v. Oklahoma, 441 U.S. 322, 336 (1979).

[34] See Kristen H. Engel, The Dormant Commerce Clause Threat to Marked-Based Environmental Regulation: The Case of Electricity Deregulation, 26 Ecology L.Q. 243, 266 (1999).

[35] For example, requiring coal-fired power plants to install carbon-capture technologies.

[36] Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970).

[37] Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities, Order No. 888, 61 Fed. Reg. 21,540 (May 10, 1996).

[38] Mich. Comp. Laws Ann. § 460.1001 (Westlaw).

[39] U.S. Energy Info. Admin.,Michigan, State Profiles and Energy Estimates (2014), http://www.eia.gov/state/?sid=MI.

[40] Id.

[41] U.S. Energy Info. Admin., Michigan, Natural Gas Annual (2014), http://www.eia.gov/naturalgas/annual/pdf/table_S24.pdf.

[42] See Engel, supra note 36, at 268 n.72.

[43] U.S. Energy Info. Admin., How much electricity is lost in transmission and distribution in the United States?, Frequently Asked Questions, http://www.eia.gov/tools/faqs/faq.cfm?id=105&t=3 (last updated July 10, 2015).

[44] See MISO, Electricity Prices: Wholesale Electric Rates, 2014 Transmission Expansion Plan (July 29, 2014), http://www.misomtep.org/electricity-prices/; PJM Markets: Energy and Ancillary Services; PJM Markets: Energy and Ancillary Services, PJM State & Member Training Dep’t Slideshow (Jul. 29, 2014), http://www.naruc.org/International/Documents/Mon%20PJM%20part%202.pdf.

[45] 721 F.3d 764 (7th Cir. 2013).

[46] Allco Finance Ltd. v. Klee, No. 3:13-cv-01874-JBA, 2014 U.S. Dist. LEXIS 170674 (D. Conn. Dec. 10, 2014).

[47] Such direct subsidization does not ordinarily run afoul of the dormant Commerce Clause prohibition on discriminatory treatment of interstate commerce. See New Energy Co. of Indiana v. Limbach, 486 U.S. 269 (1988) (“The Commerce Clause does not prohibit all state action designed to give its residents an advantage in the marketplace, but only action of that description in connection with the State's regulation of interstate commerce. Direct subsidization of domestic industry does not ordinarily run afoul of that prohibition; discriminatory taxation of out-of-state manufacturers does.”).

A Leading Cause of Everything: One Industry That Is Destroying Our Planet and Our Ability to Thrive on It

Christopher Hyner

Christopher Hyner is a 3L at Georgetown University Law Center, where he is a Managing Editor for the Georgetown Environmental Law Review. This post is part of the Environmental Law Review Syndicate. Click here to see the original post and leave a comment.

Climate change. Ocean dead zones. Fisheries depletion. Species extinction. Deforestation. World hunger. Food safety. Heart disease. Obesity. Diabetes. The list goes on. There is one issue at the heart of all these global problems that is too often overlooked by private individuals and policy makers alike—our demand for and reliance on animal products. We can take a substantial step towards addressing all these problems simultaneously through reducing or eliminating our reliance on meat and dairy products. This begs the question — what are the United States’ major governmental environmental policy enforcers doing to address animal agriculture’s contribution to climate change, if anything? This piece briefly highlights two things: (1) animal agriculture is a leading cause of many major environmental problems we face globally and domestically—most importantly, climate change; and (2) animal agriculture is too often left out of the policy discussion.

First, the interconnectedness of animal agriculture and the environment.

A multitude of environmental problems our planet faces share a common instigator: animal agriculture and our reliance on meat and dairy products. According to the United States Department of Agriculture (USDA), global agriculture—dominated by livestock production and the grains grown to support it—accounts for 30% of greenhouse gas emissions.[1] A 2006 study by the United Nation’s Food and Agriculture Organization (FAO) finds that 18% of global greenhouse gas emissions is directly attributable to livestock production, which is more than the emissions attributable to the entire transportation sector.[2] Whichever number is relied upon, agricultural emissions are only going to increase as rising incomes and urbanization drive a global dietary transition towards increased consumption of meat and dairy products.[3] The growing demand for animal agriculture is expected to be a major contributor to a roughly 80% increase in global greenhouse gas emissions from the agricultural sector.[4] This means that animal agriculture must be a central element of our efforts to mitigate climate change.

In addition to being a major contributor to climate change, animal agriculture is also one of the leading causes of many other environmental issues, including overfishing, destruction of wildlife, deforestation, and depletion of freshwater resources to hydrate livestock or irrigate fodder. According the FAO approximately 75% of the world’s fisheries are either exploited or depleted[5] due to fishing, which will likely lead to the complete depletion of currently fished fish stocks by 2048.[6] As to wildlife, in order to protect the interests of primarily the livestock industry, the USDA and Bureau of Land Management sponsor programs to kill or entrap wildlife that threaten the industry’s bottom line.[7] This has led to the decimation of wolf populations in the Pacific Northwest[8] and the mass round up of wild horses in the Midwest, which compete with cattle and sheep to graze on public lands.[9] With regard to deforestation, the World Bank has found that animal agriculture is responsible for roughly 90% of the razing of the Brazilian Amazon.[10] Lastly, but likely most critically, animal agriculture is the number one consumer of fresh water by a significant margin. Animal agriculture consumes on average 55 trillion gallons of water annually—more than 520 times the water used in hydraulic fracturing.[11] On a micro level, it takes roughly 5,000 gallons of water to produce 1lb. of beef.[12]

Enhancing biodiversity on working agricultural lands through environmental mitigation and offsets: Opportunities in Australia and the United States

Matthew Roach*

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Australian agencies have extensive experience managing working agricultural lands to enhance biodiversity. State and Commonwealth agencies are increasingly using environmental offsets as a tool to manage the impacts of development. However, working agricultural lands are generally not considered a source of potential environmental offsets, as agencies prefer that land used for offsets be wholly set aside for environmental management purposes with limited or no agricultural activities. This contrasts with the United States, where efforts are underway to use working agricultural lands for mitigation purposes.

This paper proposes that working agricultural lands can be used for environmental offsets under Australia’s Environment Protection and Biodiversity Conservation Act of 1999 (EPBC Act). There are no significant legal barriers to this occurring, and the increased use of working agricultural land for offsets could generate four positive results, by: (1) achieving long-term environmental gains; (2) addressing the shortage of land available for environmental offsets in Australia; (3) providing land owners with additional income; and (4) improving collective expertise in sustainable agriculture.

Introduction

Australia’s degraded agricultural landscapes

Australia is one of twelve biologically mega-diverse nations, but has relatively high rates of extinction and a poor record of conserving biological diversity overall. [1] Over half of Australia’s land area is used for agricultural purposes,[2] and agriculture is commonly associated with increased mortality and loss of habitat for native species, as well as overall biodiversity decline.[3] Agriculture has led—through impacts like salinization and exotic plant invasion—to habitat fragmentation, reduced landscape heterogeneity, and in some cases, complete collapse of ecological processes.[4]

In addition, some ecological consequences of past land use and changes to agricultural processes have not yet fully played out. For example, populations of long-lived trees persist in agricultural areas, giving the impression of reasonable population sizes. However, tree populations are actually declining over time because agricultural practices prevent recruitment of new trees.[5] This affects not only tree species but understory and animals dependent on tree vegetation. Under a business-as-usual scenario, species already in decline are likely to be lost.[6]

Figures 1 and 2 show land use in Australia and illustrate that a significant extent of Australia’s overall land mass is used for agriculture.

Environmental offsets under the EPBC Act

Environmental offsets involve compensating for impacts on the environment or biodiversity at one location through conservation activities at a different site.[7] In some jurisdictions, including in the United States, environmental offsets are more commonly referred to as compensatory mitigation.[8]

Under the EPBC Act, offsets are used to generate benefits through compensatory activities that “offset” the residual impacts of development after all reasonable efforts have been made to reduce, avoid, and mitigate environmental impacts. Offsets are intended to achieve “no-net-loss” to the environment. Currently, the Commonwealth Department of Environment regularly imposes offset conditions on approvals under the EPBC Act and its offsets policy.[9]

Demand for offsets, and the potential for working agricultural lands

There is enormous demand for offsets but a limited supply of suitable land. In 2010, it was estimated that the global demand for offset lands was at least 86,000 hectares per year.[10] EPBC Act offset conditions generally require that land be permanently reserved for conservation purposes and not be used for agriculture on an economic scale. This has been described as a “conservation estate” approach to offsets. Typically, approvals will permit agricultural uses of land only for fire, weed, or pest management purposes.[11] The exclusion of such a large proportion of Australia’s land area as a potential source of offsets has contributed to a shortage of land available to satisfy EPBC Act offset conditions.[12]

The use of private land and the participation of landowners are critical parts of any effort to reduce biodiversity decline. Privately managed land is an important source of biological diversity.[13] Across Australia, approximately 60 percent of land is managed by farmers or graziers.[14] Moreover, 29 percent of native vegetation and 30 percent of Victoria’s threatened species populations rely on private land.[15]

Not using working agricultural lands for offsets also increases pressure to convert agricultural land to the conservation estate, reducing the viability of Australian agriculture.[16] Numerous studies have shown that working agricultural lands can be managed for environmental purposes in a way that improves ecosystem services and prevents biodiversity decline.[17] The biodiversity value of agricultural land is particularly notable when compared to land uses that typically generate requirements for offsets, such as urban development or mining.[18]

Agricultural producers often have choices available between practices that have lesser or greater environmental impacts. One example of this is the environmental impacts of different pasture grasses. About 46 percent, or 355 million hectares of Australia, are used mainly for grazing.[19] Pasture grasses can be native, exotic, support significant biodiversity values, or be noxious and damaging weeds.[20] Choosing and managing pasture grasses according to their capacity to enhance biodiversity is an opportunity to enhance the biodiversity values of working agricultural lands.

In order to enhance biodiversity on agricultural land, land managers should undertake activities that promote beneficial environmental services such as pollination, pest control, soil fertility, and water quality.[21] Land managers should also learn how to protect and expand patches of high-quality natural habitat and retain paddock trees.[22] Moreover, land managers can enhance biodiversity through whole farm planning, changes to tree planting plans, fencing and altering tillage regimes.[23] Environmental offsets incentivize and fund such activities, ensuring that they may occur more frequently.

Applying Stakeholder Theory to Utility Regulation

Inara Scott*

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Many in the energy sector have called for a transformation of the traditional utility model to accommodate developments in distributed generation, address declining utility financial returns, and facilitate a transition to a low-carbon future.[1] These proponents envision this transformation in a number of ways. Some suggest a shift from traditional cost-of-service ratemaking to more performance-based methods.[2] Others focus on allowing competition to develop within nascent renewable and micro-grid industries.[3] Still others advocate for a new model in which the utility is a service provider and integrator of a variety of energy options, rather than a peddler of kilowatt hours.[4] All of these options appear to maintain one basic paradigm: the bilateral relationship between the utility and its regulator. More precisely, they maintain the regulatory paradigm that pits the investor-owned utility—whose fiduciary duty is to maximize returns to its shareholders[5]—against the regulator—whose goal is to protect the utility’s customers from the utility itself.

While some state legislative schemes purport to allow utility regulators to consider environmental impacts and sustainability issues,[6] the jurisprudence and history of the U.S. regulatory system has essentially locked regulators into a narrow perspective that requires utility investments and business strategies to provide only short-term economic benefits to current customers.[7] Within this restrictive perspective, utility regulators can only consider other interests to the extent that they do not result in additional costs to utility customers. This essay posits that one of the key flaws in the U.S. utility regulatory system is its requirement that utilities and regulators adopt this myopic decision-making process, which limits the potential for consideration of stakeholder interests and more comprehensive systems thinking.

As demonstrated in the corporate context, stakeholder orientation can (1) create value for the firm and improve financial performance, (2) enhance relationships with customers, employees, and regulators, and (3) improve corporate image.[8] Research suggests that positive, active stakeholder relationships are crucial to the successful implementation of environmental policies.[9] On the other hand, when stakeholders are perceived to lack power, urgency, and legitimacy, their interests become less important to firm managers.[10] While expanding the circle of interests considered by utilities and regulators will not solve other problems embedded in traditional utility regulation,[11] a broadening of the consideration of stakeholder interests will almost certainly allow for more comprehensive long-term planning, greater attention to environmental and other stakeholder concerns, and the potential for transformational policy choices.

Stakeholder Theory in the Corporate Context

In the standard model of corporate governance, most consider the basic corporate objective to be the maximization of shareholder value.[12] This principle creates legal barriers that prevent corporate directors and managers from prioritizing other interests ahead of shareholder wealth maximization.[13] In contrast, “stakeholder theory” suggests that all corporate stakeholders—broadly defined as the groups and individuals who impact or are impacted by corporate decisions—stand in relationship with each other[IS2] , and no single stakeholder group should have its interests elevated above all others.[14]

Business scholars and economists have studied and debated the adoption of stakeholder theory from normative and instrumental standpoints, considering both the efficacy of stakeholder theory for value creation and the ethical justification for considering a broad range of stakeholder interests.[15] Some instrumental stakeholder theorists argue that stakeholder theory is consistent with the maximization of shareholder value, because, inter alia, healthy communities are necessary for corporate success, and happy employees work harder and more effectively.[16] In a normative context, stakeholder theory suggests that businesses have moral responsibilities to stakeholders, and that business decisions and ethics are inescapably intertwined. This “integration thesis” asserts that all decisions have an implicit or explicit ethical view and will benefit or harm some stakeholder parties.[17] It is therefore essential to consider the impacts that business decisions have on people and communities.[18]

In the legal literature, debates over stakeholder theory always begin with the question of whether corporate actors can legally pursue such a strategy, given that the notion of fiduciary duty has been interpreted to run narrowly to shareholders.[19] In response to a series of hostile corporate takeovers, in which the drive for corporate profits resulted in harsh consequences for employees and communities, states passed constituency, or stakeholder, statutes in the 1980s and 1990s. These statutes were intended to give corporate directors and officers greater freedom to consider non-shareholder interests.[20] More recently, academics in both business and legal realms have begun to apply stakeholder theory to environmental protection and sustainability issues, examining the responsiveness of corporations to environmental stakeholder concerns.[21]

This Is Not Your Grandmother’s Electric Utility

The original utility regulation model—“Utility 1.0”—sought to provide safe, reliable, low-cost utility services as widely as possible.[22] Utilities were seen as natural monopolies, meaning that significant economies of scale in the generation and distribution of energy would lead to lower rates. Therefore, governments would need to protect, rather than dismantle, utility monopolies.[23] Regulators were expected to be a substitute for competition, acting to protect customers in a market in which utilities were granted exclusive service territories.[24] As part of the classic “regulatory compact,” the utility agreed to serve all customers, including the unprofitable ones, in return for the opportunity to earn a fair return on its investment, comparable to firms with similar risk or industry profiles.[25] The higher expense of serving non-profitable customers was folded into system-wide costs, embedding a system of cost-sharing and subsidies into utility rates. Of course, such a system worked because profitable customers had no other options for service. If they had other options and could seek out alternative, lower-cost providers, they would simply leave the system.

Figure 1: In the traditional bilateral regulatory model, the regulator, typically a public utility commission (PUC), represents customer interests in having low rates and adequate services, while the utility is expected to maximize returns to its shareholders. The regulatory compact, in which the utility agrees to serve all customers at reasonable rates in exchange for regulated monopoly status, underlies this model.

While the classic rate-setting formula, which ties utility profits to invested capital, creates a significant incentive for utilities to make capital investments,^[26] it also makes utilities wary of significant investments that may not be deemed prudent. And it reduces the incentive for utilities to invest in research and development, because utility regulators, which focus on certainty and predictability in creating customer benefits, are unlikely to deem risky new technologies to be prudent.[27] Even if a utility received approval to invest in new technologies, it would only earn back the cost of the investment plus its normal rate of return. Thus, pursuing new technologies not only costs the utility its time and effort, but also yields no additional return. Given these built-in disincentives, it is both predictable and somewhat unfair for critics to lambaste utilities for being too conservative and risk-averse.[28] Indeed, the system has been structured to make them so.

When utility infrastructure was first developed, this regulatory structure made sense. Utilities were encouraged to invest in their systems and all customers received service on a non-discriminatory basis. The regulatory compact maintained the pretense of a market-based system and limited utility profits while ensuring universal access. The system also kept interest rates low for utilities that needed significant infusions of capital, because of the certainty of cost recovery for items included in rate base.[29]

However, in the century since the creation of the regulatory compact, electric utilities and their role in society have transformed. As late as 1907, only 8 percent of United States households had electricity.[30] Thanks to Utility 1.0, that picture changed rapidly. By 1940, that number had grown to 85 percent.[31] In 2014, electric utilities are, quite simply, essential to the basic functioning of our society. We rely on the utility grid for everything from national security to the treatment of drinking water.[32] Damage to the electric grid could “create disruptions of a scale that was only hinted at by Hurricane Sandy and the attacks of Sept. 11.”[33]

Initially, utilities developed as separate entities, confined primarily to single cities or, at most, regions. Today, the situation could not be more different. The interconnected nature of the utility grid means that the actions of any single utility can affect millions of people.[34] The scale of this potential was realized in 2003, when mistakes made at a small utility provider in Ohio resulted in a massive blackout along the East Coast that affected over fifty million people and caused damages that have been estimated between $4 billion and $10 billion.[35]

New technologies and the push for the reduction of greenhouse gases have created profound environmental and privacy issues associated with utilities. In 2010, the energy sector created 87 percent of greenhouse gas emissions in the United States while electricity generation alone accounted for 42 percent of total U.S. carbon dioxide emissions.[36] Tackling climate change will clearly require innovation within the electric utility system. The “smart grid,” which is essential to the integration of distributed generation, allows utilities to collect massive amounts of energy usage data that may be as granular as when customers used a particular appliance, and for how long.[37] While creating the potential for significant improvements in energy efficiency, the smart grid also raises significant privacy issues.[38]

Today’s utilities thus have a complex and far-ranging web of stakeholders with deep interests in the way utilities are operated. Yet due to the operation of the current regulatory structure, utilities are precluded from considering the input of any stakeholders beyond current customers.

Figure 2: The current regulatory model requires the PUC to make decisions based solely on the economic interests of current customers, effectively precluding it from considering the interests of other stakeholders. In turn, the utility is prevented from considering stakeholder input because its decisions must be approved by the PUC.

Regulation Must Evolve to Consider This Web of Relationships

For decades, utilities were considered among the most stable and reliable of investments. Because they regularly returned dividends to their investors, they were considered “widow-and-orphan” stocks, meaning that they were a good choice for those needing a certainty of returns, even if they were never wildly profitable.[39] However, utility credit ratings have dropped significantly since 2001.[40] In May 2014, Barclays downgraded the entire bond market rating for the U.S. electric utility sector.[41] A number of factors have led to this declining financial position, including: (1) the growth of distributed generation and the degradation of the regulatory compact, (2) falling load growth, and (3) an increased need for investment.[42]

The inability of utilities to respond to many stakeholders has arguably exacerbated this situation. For example, utilities have been roundly criticized for their hostility toward the spread of distributed solar generation in their service territories, and have almost certainly alienated customers in the process.[43] Yet this response is hardwired into the regulatory system. As part of the regulatory compact, utilities are required to serve all customers on a non-discriminatory basis, and the cost of serving more expensive, less profitable customers is spread across the lower-cost customers. If those customers leave the system and generate their own energy, costs to other customers rise and, due to the way traditional cost-of-service rates are calculated, utilities may not be able to recover their fixed costs. Moreover, because utility profits are tied to capital investments, if the opportunity to make new generation investments is limited by the growth of distributed renewable resources, utilities lose a key aspect of their value proposition. Unless changes are made to the way utility rates are calculated or utility programs are developed, utilities should be fighting solar projects—their fiduciary duty to their shareholders requires it.

The development of new technologies, including the smart grid, provides another good example of the impact of the blinders placed on utility regulators. Spending money on research and development is unlikely to return a financial benefit to current customers, so it is rarely approved, in terms of cost recovery, by utility regulators.As a result, the firms with arguably the greatest expertise in the retail energy market are precluded from engaging in significant research and development. Even if new technologies are developed, utilities cannot invest in them until their cost is equivalent to or less than other resource options. This problem was illustrated when Virginia’s utility commission rejected a utility proposal to develop a carbon capture and sequestration project because the technology was too expensive and had not been sufficiently demonstrated.[44] Utility regulators have rejected proposals for smart grid projects—which are essential to the evolution of distributed generation and improvements in energy efficiency— simply because they do not return benefits to current customers.[45]

Policy makers have attempted to address these problems through piecemeal legislation that prioritizes certain projects, technologies, or resources, such as renewable portfolio standards or feed-in tariffs.[46] Yet, by their nature, piecemeal solutions often fail to place utilities within a larger policy context, address interrelated project impacts, or consider the impacts of various policy initiatives on unrepresented stakeholder parties. I suggest that, just as there was a call for stakeholder statutes in the 1980s and 1990s, we should be calling for utility stakeholder statutes, in order to begin to address this regulatory failure and improve the functioning of our utility system.

A Proposal

While the concept of adopting a stakeholder statute for utilities sounds relatively straightforward, the regulatory structure, in fact, makes it quite complicated. If regulation were to permit a utility to consider other stakeholders, rather than utility customers alone, when making resource acquisitions, numerous questions would need to be answered. What criteria should the utility commission use when determining if that resource acquisition is prudent? Should the utility be able to include the cost of that investment in its rates? How should the utility prioritize stakeholder interests? In a competitive industry, market prices for the cost of competing goods and services put natural limits on the ability of a company to incorporate stakeholder interests. In the utility sector, there is no significant competitor to provide those limits, and the PUC (public utility commission) would have to decide whether to allow utility customers to pick up the bill for stakeholder initiatives.

Though challenging, this concern should not preclude the development of a utility stakeholder statute. First, the PUC could develop a new prudence standard that does not rely solely on considerations of customer benefits. This could be addressed by creating a stakeholder board to approve utility initiatives, either by a majority or unanimous vote. Initiatives approved by the board would be deemed prudent.

The stakeholder statute could also incorporate by reference state energy policies, such as a reduction in carbon emissions or the development of distributed generation technology, that would have to be achieved by utility programs but do not directly benefit utility customers. The statute could include a cost cap, as is the case with many renewable portfolio standards,[47] permitting the utility to acquire resources or pursue other programs only in the event that its decision did not raise rates more than, for example, 10 percent above the utility’s costs absent the resource or program.

Lastly, states could form regional stakeholder groups to create energy policy plans that would be adopted and implemented at the state level. Creating regional plans and policy goals, such as the adoption of time-of-use rates, the acquisition of smart grid technologies, and the implementation of a carbon capture and sequestration project, would create the potential for regional cost sharing of new technologies and the implementation of controversial new rate structures across similarly situated utilities.

Significantly, the implementation of such stakeholder statutes would require a directive demanding the PUC to adopt programs or approve recovery for resource acquisitions that were deemed prudent under the new policy. If such a directive were not implemented, the PUC would continue to be bound by existing jurisprudence, which limits prudence to only the initiatives that return a financial benefit to current customers. Of course, the PUC would have to be included as one of the stakeholders on a regional policy taskforce or stakeholder board, in order to ensure that the PUC’s experience, foresight, and skills are brought to the table.

Conclusion

Energy usage in general, and electric generation in particular, are integral parts of the current climate-change crisis and are key to the mitigation of future carbon emissions. Working Group III of the Intergovernmental Panel on Climate Change noted that scenarios limiting global temperature increases to 2°C require “more rapid improvements of energy efficiency, a tripling to nearly a quadrupling of the share of zero- and low-carbon energy supply from renewables, nuclear energy, and fossil energy with carbon dioxide capture and storage (CCS), or bioenergy with CCS.”[48] Additionally, the first stage in President Obama’s plan to reduce U.S. carbon emissions focuses on cutting emissions from existing power plants.[49] Yet, progress toward environmental goals is regularly stymied by the utility regulatory system, which cuts off considerations of environmental impacts not directly and financially affecting current utility customers.

As noted above in Figure 1, in a traditional regulatory scheme, the utility acts in the interest of its shareholders, and the regulator acts to protect utility customers and to simulate the forces of competition. This regulatory structure limits creativity and innovation and drives short-term decision making that fails to take into account the diversity and complexity of the utility stakeholder web. Until the regulatory structure recognizes the value and importance of stakeholders beyond the immediate utility customer, the system will not evolve to address the environmental and technological challenges that it faces. The application of stakeholder theory is only one piece of a broader revolution in utility governance, but it is an essential part of this much-needed transformation.

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* Assistant Professor, College of Business, Oregon State University; J.D., Lewis & Clark Law School. Professor Scott practiced energy law for more than a decade before joining the faculty at Oregon State University. She would like to thank Jon White and the staff at Currents for their eagle eyes and meticulous editing.

[1] See, e.g., Michael T. Burr, Reinventing the Grid: How to Find a Future that Works, Pub. Utils. Fortnightly, Mar. 2014, at 20, 21 (noting that each of the various scenarios includes a decentralized transmission grid and greater service to “localized customer needs”).

[2] See Charles Goldman et al., Lawrence Berkeley Nat’l Lab., Utility Business Models in a Low Load Growth/High DG Future: Gazing into the Crystal Ball? 21­–25 (Apr. 10, 2013), available at http://
www.westgov.org/wieb/meetings/crepcsprg2013/briefing/present/c_goldman.pdf.

[3] See John Slocum, Threat from Behind the Meter: The Case for Utilities to Compete Directly with Distributed Resources, Pub. Utils. Fortnightly, July 2013, at 46–51, 57.

[4] See Elisabeth Graffy & Steven Kihm, Does Disruptive Competition Mean a Death Spiral for Electric Utilities?, 35 Energy L.J. 1, 39–43 (2014).

[5] See, e.g., Kathleen Hale, Corporate Law and Stakeholders: Moving Beyond Stakeholder Statutes, 45 Ariz. L. Rev. 823, 838 (2003) (describing “shareholder primacy norm,” which presumes that maximization of shareholder value is the primary corporate objective).

[6] See Michael Dworkin et al., Revisiting the Environmental Duties of Public Utility Commissions (2006), 7 Vt. J. Envtl. L. 1, 2 (2006).

[7] See Inara Scott, Teaching an Old Dog New Tricks: Adapting Public Utility Commissions to Meet Twenty-First Century Climate Challenges, 38 Harv. Envtl. L. Rev. 371 (2014).

[8] See Shawn L. Berman et al., Does Stakeholder Orientation Matter? The Relationship Between Stakeholder Management Models and Firm Financial Performance, 42 Acad. Mgmt. J. 488, 489–90, 503 (1999).

[9] Irene Henriques & Perry Sadorsky, The Relationship Between Environmental Commitment and Managerial Perceptions of Stakeholder Importance, 42 Acad. Mgmt. J. 87, 96 (1999) (“[S]uccessful environmental policy planning requires industry members to work with community leaders and look at environmental issues through the eyes of other special interest groups.”).

[10] See Ronald K. Mitchell et al., Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts, 22 Acad. Mgmt. Rev. 853, 878–79 (1997) (“Stakeholder salience will be high where all three of the stakeholder attributes—power, legitimacy, and urgency—are perceived by managers to be present.”).

[11] These problems are substantial and must be addressed. They include: outdated regulatory incentives tying fixed cost recovery to volumetric sales; punishing utilities for engaging in energy efficiency projects; a lack of performance-based assessments; and reliance on rising cost of service rates in an increasingly competitive market.

[12] Timothy P. Glynn, Communities and Their Corporations: Towards a Stakeholder Conception of the Production of Corporate Law, 58 Case W. Res. L. Rev. 1067, 1072–74 (2008).

[13] See Anthony Bisconti, The Double Bottom Line: Can Constituency Statutes Protect Socially Responsible Corporations Stuck in Revlon Land?, 42 Loy. L.A. L. Rev. 765, 772–76, 778–80 (2009) (reviewing fiduciary duties of directors and legal cases requiring the maximization of shareholder value).

[14] Tara J. Radin, Stakeholders and Sustainability: An Argument for Responsible Corporate Decision-Making, 31 Wm. & Mary Envtl. L. & Pol’y Rev. 363, 382–86 (2007).

[15] See, e.g., Thomas M. Jones, Instrumental Stakeholder Theory: A Synthesis of Ethics and Economics, 20 Acad. Mgmt. Rev. 404, 432 (1995) (synthesizing ethical and economic theories and arguing that stakeholder management can improve business performance); Thomas M. Jones & Andrew C. Wicks, Convergent Stakeholder Theory, 24 Acad. Mgmt. Rev. 206, 206 (1999) (proposing “convergent stakeholder theory” to bring together normative and instrumental theories previously found in distinct bodies of stakeholder literature).

[16] R. Edward Freeman et al., Stakeholder Theory: The State of the Art 11 (2010).

[17] Id. at 7. [17]

[18] Id. at 6–8. [17]

[19] See Bisconti, supra note 14.

[20] See Hale, supra note 6, at 831–32.

[21] See, e.g.,Kristel Buysse & Alain Verbeke, Proactive Environmental Strategies: A Stakeholder Management Perspective, 24 Strategic Mgmt. J. 453 (2003) (providing empirical evidence of links between environmental strategy and stakeholder orientation).

[22] See Edward Eyre Hunt, Power Comms., The Power Industry and the Public Interest 3–4, 17, 35 (Edward Eyre Hunt ed., 1944); John Bauer, Effective Regulation of Public Utilities 12-13, 16 (1925) (noting that entitlement to service and the establishment of reasonable rates are intertwined); Charles F. Phillips, Jr., The Regulation of Public Utilities: Theory and Practice 172–73 (1988) (describing goals of public utility regulation).

[23] See James K. Hall, Regulation of Public Utilities, 206 Annals Am. Acad. Pol. & Soc. Sci. 92, 93–94 (1939) (describing monopolistic characteristics of public utilities).

[24] See Phillips, supra note 23, at 163–65.

[25] See id. at 110 [25]; Bluefield Water Works & Improvement Co. v. Pub. Serv. Comm’n of W. Va., 262 U.S. 679, 692 (1923) (“A public utility is entitled to such rates as will permit it to earn a return on the value of the property which it employs for the convenience of the public equal to that generally being made at the same time and in the same general part of the country on investments in other business undertakings which are attended by corresponding, [sic] risks and uncertainties . . . .”).

[26] The seminal study by Harvey Averch and Leland Johnson argues that rate-of-return regulation has resulted in the overcapitalization of the utility industry. See Harvey Averch & Leland J. Johnson, Behavior of the Firm under Regulatory Constraint, 52 Am. Econ. Rev. 1052 (1962) (describing the phenomenon now known as the “Averch-Johnson effect”).

[27] “The rate of utility spending on research and development is less than one-tenth the average rate for all sectors of the U.S. economy and a much smaller fraction of the rate in the most productive sectors.” David Malkin & Paul A. Centolella, Results-Based Regulation, Public Utils. Fortnightly, Mar. 2014, at 28, 35.

[28] See, e.g., Brian Sheets, The Smart Grid Movement: A Different Perspective,Energy Cent.(May 29, 2013), http://www.energycentral.com/articles/article/2641 (“[T]he utility world is seen as conservative, cautious, stuffy, slow-to-change, and risk-adverse. In today's climate, this is a recipe for failure.”).

[29] See Division of Ratepayer Advocates, Cal. Pub. Utils. Comm’n, Docket A.12-04-015: Report on the Cost of Capital for Test Year 2013, 2-7 to 2-16 (2012), available at http://www.ora.ca.gov/uploadedFiles/Content/Energy/Customer_Rates/Cost_of_Capital/Report%20on%20the%20Cost%20of%20Capital%20for%20Test%20Year%202013%20%28Exhibit%20DRA-01%29.pdf (explaining the calculation of cost of capital, risk premium, and why utility cost of capital is low relative to other industries based on reduced investment risk). The Report notes, “the cost of equity capital for utilities is among the lowest of all industries in the U.S.” Id. at 2-16.

[30] See Richard Munson, From Edison to Enron: The Business of Power and What it Means for the Future of Electricity 43 (2005).

[31] Hunt, supra note 23, at 3.

[32] See Nicholas C. Abi-Samra, One Year Later: Superstorm Sandy Underscores Need for a Resilient Grid, IEEE Spectrum (Nov. 4, 2013), http://spectrum.ieee.org/energy/the-smarter-grid/one-year-later-superstorm-sandy-underscores-need-for-a-resilient-grid (noting various impacts from Superstorm Sandy, including disruption of drinking water supplies). Presidential Directive 63, signed by President Clinton in 1998, identified electric power as critical infrastructure necessary for the nation’s security and economy. See Karl A. Seger, Utility Security: The New Paradigm 4 (2003). The United States military is reliant on commercial power for continued operations at 99 percent of its facilities. Matthew L. Wald, As Worries Over the Power Grid Rise, a Drill Will Simulate a Knockout Blow, N.Y. Times, Aug. 17, 2013, at A11, available at http://www.nytimes.com/2013/08/17/us/as-worries-over-the-power-grid-rise-a-drill-will-simulate-a-knockout-blow.html?pagewanted=all.

[33] See Wald, supra note 33, at A11.

[34] In 2012, mistakes by a utility technician in Southern California resulted in a blackout affecting about nine million people in the region. See Matthew L. Wald, Combination of Errors Led to Power Loss in San Diego, N.Y. Times, May 2, 2012, at B4, available at http://www.nytimes.com/2012/05/02/science/earth/power-failure-in-west-is-tied-to-combination-of-errors.html?_r=0.

[35] The blackout of 2003 is widely attributed to cascading failures that began with an outage in Northern Ohio caused by tree limbs coming into contact with transmission wires. See JR Minkel, The 2003 Northeast Blackout—Five Years Later, Sci. Am. (Aug. 13, 2008), http://www.scientificamerican.com/article/2003-blackout-five-years-later/; see also U.S.-Canada Power System Outage Task Force, Final Report on the August 14, 2003 Blackout in the United States and Canada: Causes and Recommendations 45 (2004), available at http://energy.gov/sites/prod/files/oeprod/DocumentsandMedia/BlackoutFinal-Web.pdf; Bobby McMahon, Ten Years Later, Electric Grid Faces More Complex Challenges Despite Post-Blackout Gains, Inside FERC (Platts, McGraw Hill Fin.), Aug. 19, 2013, at 1.

[36] See U.S. Envtl. Prot. Agency, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990–2010 3-1, 3-11 (2012), available at http://www.epa.gov/climatechange/emissions/usinventoryreport.html.

[37] See Lauren Reilly, Automatic Consumer Privacy Rights Embedded in Smart Grid Technology Standards by the Federal Government, 36 Vt. L. Rev. 471, 473–77 (2011).

[38] See Peter Fox-Penner, Smart Power: Climate Change, the Smart Grid, and the Future of Electric Utilities 40–45 ,47 (2010) (discussing the advantages of, and resistances to, dynamic pricing over traditional time-of-use pricing).

[39] See John Waggoner, Investing: Utilities May Ease Some Stock Shock, USA Today (Sept. 23, 2011), http://usatoday30.usatoday.com/money/perfi/columnist/waggon/story/2011-09-22/utility-stocks/50518996/1.

[40] “In 2001, 32 percent of electric utilities earned an A- or higher credit rating. By the end of 2012, only 19 percent of electric utilities earned a rating of A- or higher. The lower rating of BBB- and below has increased from 19 percent in 2001 to 29 percent in 2012.” George Fisher, Electric Utility Credit Ratings Are Deteriorating, Seeking Alpha (Jun. 11, 2013), http://seekingalpha.com/article/1492952-electric-utility-credit-ratings-are-deteriorating.

[41] Herman K. Trabish, Barclays Downgrades Entire US Electric Utility Sector, Util. Dive (May 26, 2014), http://www.utilitydive.com/news/barclays-downgrades-entire-us-electric-utility-sector/266936/.

[42] See Fisher, supra note 41; Malkin, supra note 28, at 29–31.

[43] See, e.g., Editorial, The Koch Attack on Solar Energy, N.Y. Times, Apr. 27, 2014, at SR10, available at http://www.nytimes.com/2014/04/27/opinion/sunday/the-koch-attack-on-solar-energy.html (“This campaign [against renewable energy incentives] is really about the profits of Koch Carbon and the utilities, which to its organizers is much more important than clean air and the consequences of climate change.”).

[44] Jonas J. Monast & Sarah K. Adair, Completing the Energy Innovation Cycle: The View from the Public Utility Commission, 65 Hastings L.J. 1345, 1371–74 (2014).

[45] See, e.g., Baltimore Gas & Elec. Co. Smart Grid Initiative, Case No. 9208, Order No. 83410 (Md. Pub. Serv. Comm’n June 22, 2010), available at http://webapp.psc.state.md.us/Intranet/Maillog/orders_new.cfm (enter “83410” in “Enter Order Number” text box) (final order denying authorization for proposed smart grid initiative).

[46] See Scott, supra note 8, at 402–406.

[47] For a list of states with cost caps in their renewable portfolio standards, see Jocelyn Durkay, State Renewable Portfolio Standards and Goals,Nat’l Conf. St. Legislatures (Jan. 16, 2014), http://www.ncsl.org/research/energy/renewable-portfolio-standards.aspx.

[48] Intergovernmental Panel on Climate Change, Summary for Policymakers, in Climate Change 2014: Mitigation of Climate Change, Contribution of Working Group III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change 13 (Ottmar Edenhofer et al. eds., 2014), available at http://report.mitigation2014.org/spm/ipcc_wg3_ar5_summary-for-policymakers_approved.pdf.

[49] Climate Change and President Obama’s Action Plan, The White House, http://www.whitehouse.gov/climate-change (last visited Oct. 8, 2014).

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Copyright 2015 Inara Scott. All rights reserved.

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Preservation Is a Flawed Mitigation Strategy

Jessica Owley*

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Introduction

The objective of the Clean Water Act is to restore and maintain the chemical, physical, and biological integrity of the nation’s waters. To help achieve that objective, the Act limits the ability to dredge or fill a wetland. To do so, one must first obtain a section 404 permit. These permits, which the Army Corps of Engineers (“Corps”) issues with coordination and oversight from the Environmental Protection Agency (EPA), require project proponents to avoid, minimize, and compensate the harms of any wetland destruction or modification. Compensatory mitigation is a troubling concept in wetlands regulation because it acknowledges that wetland destruction will occur. Thus, instead of preventing wetland conversion, developers in this scenario compensate for wetlands lost. Compensatory mitigation can come in the form of restoration, creation, enhancement, and/or preservation of wetlands and other aquatic resources. Wetlands are preserved by prohibiting their conversion, often through property encumbrances like conservation easements and deed restrictions. This scenario exchanges preservation of certain wetlands for a right to degrade or destroy other wetlands.

This Article urges the Corps to eliminate its use of preservation as mitigation and to improve accountability mechanisms where private organizations, like land trusts and private mitigation banks, remain involved in wetlands permitting programs. As even the EPA acknowledges that preservation results in a net loss of wetlands, preservation is unlikely to compensate for the loss in ecological function from wetlands destruction. Additionally, because private land trusts commonly manage, monitor, and enforce preservation areas with little to no oversight by the Corps or the EPA, concerns of accountability and democracy arise. Although this Article focuses on the Clean Water Act’s section 404 program, the arguments and lessons discussed here apply to state and local wetland mitigation programs as well. Indeed, these same issues arise in all types of mitigation schemes, from endangered species habitat to prime agricultural soils.

The Need to Protect Wetlands

Beyond their aesthetic appeal, wetlands serve many ecological functions. They provide habitat to many species of plants and animals, including migratory birds and endangered species. They serve as water recharge areas, protecting lands from flooding while filtering and purifying water. Wetlands trap sediment, providing clean water for fish and reducing water filtration costs for drinking water supplies. Wetlands also carry strong cultural and emotional attachments. For example, strong Tribal, Floridian, and American attachments to the Florida Everglades (dubbed America’s Swamp) spurred its restoration to become one of the most expansive and expensive in history.

Although important, wetlands are not extensive. They cover less than 9 percent of the Earth’s global land area.[1] Wetlands are also at risk. For example, Louisiana wetlands are disappearing at a rate of up to ninety-one square kilometers a year—one of the world’s highest rates of wetland loss.[2] California boasts the highest overall loss; 91 percent of its wetlands were lost by 2000.[3] Pollution,[4] sea-level rise,[5] extreme weather events,[6] and conversion[7] all threaten the continued existence and health of wetlands. Converting wetlands to agricultural use, for example, is a major driver of wetland loss,[8] as is housing and commercial development.[9] The dwindling number of wetlands stresses the need to protect them through mechanisms like the Clean Water Act.

 Clean Water Act Wetland Protection Framework

The Clean Water Act slows wetland conversion by prohibiting dumping material into wetlands without a valid permit. At the time the Act was passed, Congress found a permitting program (instead of imposing a complete ban on dumping) necessary because without one the country’s extensive network of wetlands would prevent desired development.[10] Congress felt that the public interest in development justified a certain level of water pollution. Thus, instead of prohibiting development outright, policy makers favored minimizing development’s impacts on wetlands. To fill a wetland, a person must apply to the local Corps district office, which then consults with the EPA regional office. The Corps then either grants the permit (allowing the project to proceed), denies the permit, or issues a permit with conditions.

The Clean Water Act’s protection of wetlands is limited in three ways. First, the statute only prohibits filling wetlands. It is not a comprehensive wetland protection statute and says nothing, for example, about draining wetlands.[11] Second, the statute only applies to “waters of the United States.” A series of Supreme Court decisions has further limited the wetlands that fall under the statute’s jurisdiction, excluding isolated wetlands from protection regardless of the ecological services and amenities they provide.[12] Finally, despite the strong prohibitory language of the statute, it does in fact allow filling of jurisdictional wetlands—it just requires developers to obtain a permit first.

A. Mitigation Requirements: Avoidance, Minimization, Compensation

A central feature of the wetlands permitting program is a requirement that permit holders mitigate the harm to wetlands caused by their project. Yet the Clean Water Act’s permitting program did not originally involve mitigation. Initially, policy makers assumed that if a proposed project was likely to lead to ecosystem disruption, the permit would be denied.[13] But concessions to politically popular programs undermined this initial assumption. Congress and the Corps reevaluated the permitting program to lessen the likelihood that the presence of wetlands would defeat development. The EPA and the Corps added mitigation requirements to their section 404(b)(1) guidelines in 1990.

The agencies defined mitigation as having three steps: avoidance, minimization, and compensation. To obtain permit approval, an applicant must first demonstrate that the project avoids adverse impacts to waters of the United States to the extent possible.[14] Next, the applicant must minimize any remaining impacts of the proposed project.[15] Finally, after the Corps is satisfied that the only remaining impacts are unavoidable (absent stopping the project), the Corps quantifies the project’s damage to wetlands and may require project proponents to compensate for that damage through “compensatory mitigation.”[16]

The section 404 mitigation scheme has some logical problems. To mitigate something means to reduce its impacts. Minimization and avoidance are thus really pre-mitigation measures. First, permit applicants should do all they can to avoid wetland impacts. Then they should do all they can to minimize any unavoidable impacts. Applicants should then mitigate the remaining unavoidable impacts. Thus, the only component of mitigation that is properly termed “mitigation” is compensation.

B. Compensation Strategies

The vast majority of section 404 permits come with conditions.[17] To issue a permit with conditions, the Corps must assess whether the remaining unavoidable impacts are acceptable. This standard is met if the Corps believes the benefits of the development project outweigh the harm to the wetland. Many permit conditions involve compensatory mitigation. According to Corps regulations, there are four acceptable compensatory mitigation strategies: establishment (or creation), restoration, enhancement, and preservation.[18] These straightforward-sounding approaches can be challenging to implement. For example, establishment involves creating a wetland where one did not exist before.[19] And wetland creation has been beset by a variety of problems with many failed projects.[20]

Restoration and enhancement projects have largely fared better than creation projects, as understandings of restoration ecology are improving these projects’ outcomes.[21] Restoration and enhancement increase the function of an existing, potentially degraded wetland through activities like removing debris and invasive species, planting wetland species, and ensuring adequate water supplies. Yet restoration projects still provide fewer acres and fewer functions than ecologists predicted.[22] After wetlands are created, restored, or enhanced, they are often encumbered with conservation easements in the hopes of preventing degradation or conversion.[23]

The final option for compensatory mitigation is preservation, which involves protecting existing wetlands in exchange for permission to destroy other wetlands. Preservation on its own does not increase wetland function or acreage.[24] Instead, it accepts a decrease in both as justified by the benefits of the development project. The Corps works with the applicant to determine the acceptable ratio of destroyed versus protected wetlands. Preservation of wetlands can occur through fee simple ownership by private preservation organizations or government agencies or, more commonly, by burdening property with conservation easements or deed restrictions.

The Clean Water Act’s language makes permit denial sound like a routine possibility, especially where projects would have significant impacts. Yet the program has not developed that way. Mitigation has become an important component of section 404’s permitting program largely because of the Corps’ and the EPA’s reluctance to deny or veto permits. The Corps processes around sixty thousand permits annually,[25] and the agency rarely denies permits.[26] EPA vetoes are even rarer.

Section 404(c) authorizes the EPA to veto permits where the proposed activity will have an “unacceptable adverse effect on municipal water supplies, shellfish beds and fishery areas (including spawning and breeding areas), wildlife, or recreational areas.”[27] The EPA defines “unacceptable adverse effect” to mean an impact “likely to result in significant degradation of municipal water supplies (including surface or ground water) or significant loss of or damage to fisheries, shellfishing, or wildlife habitat or recreation areas.”[28] The EPA has only successfully exercised this authority thirteen times since 1972, with only two post-1990 vetoes.[29] The EPA’s decisions not to veto Corps permits indicate that the EPA finds most of the adverse effects to be “acceptable.” Because permit applicants largely get permission to fill wetlands, imposing mitigation requirements is the least the Corps can do.

 Preservation Programs

After several years of section 404 program operation, multiple studies evaluated the success of the program for protecting wetlands.[30] The report card was not a good one. Reports indicated that mitigation sites were often highly degraded.[31] This information came down as developers were pushing for a more streamlined process. This led the George H.W. Bush administration to declare a policy of “No Net Loss of Wetlands” in 1989.[32] The Bush Administration blamed the failures of wetland protection on command-and-control regulations and strongly promoted the adoption of market-based incentives, like mitigation banks.[33] Although the no net loss policy originally sought to maintain wetland acreage, that approach was unsuccessful.[34] Today, the goal seems to be to maintain wetland function, and the struggle to fulfill that policy goal remains.[35]

Preservation as a mitigation strategy is particularly hard to accept in association with the federal no net loss of wetlands policy. The Corps has long noted that preservation, when implemented alone, is the least favored mitigation strategy (although the Corps does endorse preservation of restored, enhanced, and created wetlands) and should only be undertaken in “exceptional circumstances.”[36] Preserved wetlands can qualify as compensatory mitigation when they “(1) perform physical or biological functions, the preservation of which is important to the region in which the aquatic resources are located, and (2) are under demonstrable threat of loss or substantial degradation due to human activities that might not otherwise be expected to be restricted.”[37] The Corps’ reluctance to promote preservation alone is reflected in the fact that pure preservation mitigation banks do not yield as many wetland conversion credits.[38]

In some cases, preservation may protect wetlands that might have otherwise been lost to agricultural conversion or development. For example, a permittee could protect non-jurisdictional wetlands threatened by development. The Clean Water Act’s limited jurisdiction means that it cannot directly protect such areas, so covering them by compensatory mitigation programs may yield a conservation benefit even if it still represents a net loss of wetlands. Nothing requires compensatory mitigation wetlands to be jurisdictional.[39] Arguably, protected wetlands should be in the same watershed (or as some mitigation requirements state, in the same “service area”) and part of the same hydrological system.[40] A geographical or hydrological connection would explain how the protection of such wetlands might mitigate the harm caused by neighboring wetland conversion.[41]

 Conservation Easements

Most wetland mitigation projects involve conservation easements. Conservation easements are an essential tool when using preservation as a mitigation strategy, and they can prevent conversion of wetlands that have been enhanced, created, or restored. Most conservation easement statutes and programs appear to assume conservation easements are created through donations and purchases. However, increasingly, conservation easements are emerging in permitting programs like the Clean Water Act’s section 404 program.[42] In exchange for wetland discharge permits, permit applicants undertake compensatory mitigation that often involves conservation easements.

Conservation easements come into play with most section 404 mitigation plans. The goal of any type of mitigation is to keep the restored, enhanced, created, or preserved wetland a thriving wetland forever.[43] Placing conservation easements over the wetlands enables the prohibition on wetland conversion to remain on the land with subsequent changes in landownership. The conservation easement restrictions are recorded with the deed and appear in title searches. When this works properly, new landowners take ownership of the property with the understanding that the wetlands on the property must be preserved in perpetuity.[44] Where mitigation banks[45] play a role in mitigation, state law may require conservation easements to burden the banked land.[46]

Despite the important role of conservation easements in section 404 compensatory mitigation, there are no regulations or agency guidance regarding conservation easements. Some individual offices have developed templates, but these templates are not based on any specific agency policies and have not been subject to external public review.[47] Even documents like the federal mitigation banking guidelines only indicate that conservation easements can provide the needed perpetual restriction on property and give no further detail regarding the terms or holders of the conservation easements.[48]

Section 404 conservation easements can be held by either a government agency or a land trust. Although the Corps is a qualified holder under most state laws,[49] it cannot hold conservation easements because it has not been granted that ability by Congress. Many section 404 conservation easements are held by land trusts like Ducks Unlimited.[50] Accountability concerns surround the use of conservation easements. When the conservation easement holders are land trusts, these concerns are magnified and accompanied by additional privatization concerns. In particular, land trusts exacerbate problems around the shaping of conservation easement terms and the need for stewardship and enforcement.

 A. Shaping Conservation Easement Terms

Without official agency guidance, each Corps office is left to adopt its own strategy regarding conservation easements. Many offices play an integral role in crafting conservation easement language, and some offices develop model conservation easements. Without agency guidance or unified model conservation easements, land trusts have a heavy hand in shaping the agreements, giving rise to concerns that private organizations are determining section 404 mitigation measures.[51]

When a land trust negotiates the conservation easement instrument, it may have the ability to dictate terms regarding restrictions and amendment or termination.[52] Thus, the land trust, not the Corps, establishes what can and cannot happen on the land. Some conservation easements even allow for changes to the agreement with written consent of the conservation easement holder. Conservation easements that contain such language allow private organizations the opportunity to make changes on mitigation lands without public oversight or Corps approval.

Lack of public oversight is a concern for all section 404 conservation easements, regardless of holder. There is a public notice and comment process for section 404 permits, and mitigation plans often garner the most comments. Yet the permit review process does not usually include a review of the terms of the conservation easement. Often, the conservation easements are not established until after the permit is issued. The permit will include the required mitigation without detailing conservation easement terms or even stating the exact location of conservation easements involved.

Use of a mitigation bank partially alleviates these democracy concerns. The guidance for mitigation banking is more extensive and does include sample conservation easement language.[53] But that does not guarantee that the conservation easement involved will be reviewed. Mitigation banking agreements are subject to public review, but the long list of banking instrument components reviewed during that process does not include conservation easements.[54] Banks sometimes do include conservation easements under the requirements for addressing provisions for long-term management and maintenance.[55] Where mitigation banks are in place in advance of the granting of permits, the public may have some opportunity to view the site and track down the conservation easements before permit issuance.

B. Stewardship and Enforcement

Compliance with mitigation requirements is essential to a successful mitigation program that provides long-term protection of ecosystem services. Ensuring compliance with mitigation requirements involves a continued commitment to stewardship. It requires monitoring parcels, managing ecosystem health, and, perhaps most importantly, enforcing conservation easements.[56]

Evaluations suggest current enforcement strategies are inadequate because of a lack of compliance with permit conditions. A 2007 study showed that permittees only met 73 percent of permit conditions.[57] Some regions have had particular trouble. For example, a 2002 New Jersey study revealed that mitigation projects only met “[48] percent of design requirements and permit specifications.”[58] Monitoring and long-term maintenance seem to be especially problematic, as several studies have cataloged monitoring deficiencies.[59] And while 2008 regulation changes may have improved permit compliance in some respects, wetland mitigation is still beset by problems.[60]

In many cases, the Corps has turned responsibility for stewardship functions like compliance enforcement over to land trusts and private companies. As holders of conservation easements, land trusts not only play an important role in shaping the terms and conditions of the agreements but also determine whether the agreements will be enforced. In many cases, conservation easement holders are the only ones with the ability to enforce the agreements, and there is a lack of consensus on whether land trusts have a duty (as opposed to just a right) to enforce them.

The argument in favor of a land trust duty to enforce is strong.[61] Although conservation easement language does not require enforcement, and state conservation easement law is largely silent on the subject, a land trust’s status as a charitable organization may establish an obligation. Charitable organizations are prohibited from creating private benefits. Where a land trust terminates or modifies a conservation easement, it may not do so in a way that inures private benefit to the landowner or another. Arguably, a decision not to enforce a conservation easement would also give a landowner a significant private benefit, but courts have yet to address this point. Without compensation from the landowner, the land trust could risk the state attorney general’s office revoking the land trust’s charter. Furthermore, if a land trust fails to comply with its charter to protect land, it could also face dissolution by the attorney general. Similar behavior could also jeopardize an organization’s federal 501(c)(3) favorable tax status.

Of course, such repercussions depend upon whether the state attorney general offices or the IRS chooses to pursue the matter. The remedy for lack of stewardship of conservation easements is unclear. The clear threats are to the organization, possibly leading to a loss of 501(c)(3) status or loss of an organization’s charter. In many states, this would lead to a transfer of the conservation easements to another organization. Actions against the land trust, however, do not lead automatically to the preferred remedy of injunctive relief against the conservation easement violation.

None of the above-described actions involve the permit applicant, who is often no longer associated with mitigation measures when enforcement is necessary. Sometimes it is difficult to determine whether the conservation easement even arose from a permitting program. Some conservation easements specifically mention the wetlands permit that they are associated with, but many do not. Some do not even mention the Clean Water Act or indicate that they are part of a compensatory mitigation scheme.

To remedy this lack of information and subsequent lack of enforcement, all Corps offices should adopt the identification method used by the Corps district offices that have model conservation easements. This method requires specifically identifying the conservation easement’s origin, either generally as part of a section 404 permitting scheme or, better yet, naming the individual permit. A further step is to attach the permit to the conservation easement. Including this information about a conservation easement’s origin enables courts and others to understand the role the conservation easement played—that it resulted from wetland degradation and not simply a family donation. This information will be helpful if the conservation easement is ever challenged in court and if amendments are contemplated.

The Corps should also include itself as a third-party enforcer. Most states allow third-party enforcement of conservation easements (although the Corps may be able to include such a provision even if it conflicts with state conservation easement laws because the conservation easement is part of a federal scheme).[62] By establishing itself as a third-party enforcer, the Corps can remain involved throughout the life of a conservation easement and step in if a holder seems uninterested in, or incapable of, carrying out enforcement or other stewardship duties. The Corps does sometimes require third-party enforcer status for conservation easements associated with mitigation banks, and extending that practice to all section 404 conservation easements is good policy.[63]

 Conclusion

The Clean Water Act contains inconsistencies. It is a statute that declares its policy to be the elimination of all discharges into the nation’s waters but then proceeds to explain how to discharge pollutants into navigable waters. While the Clean Water Act has done much to prevent pollution, its chief function appears to be to facilitate pollution. A similar juxtaposition exists for the Clean Water Act’s attitude toward wetlands. The statute appears to prevent filling wetlands but then explains how to obtain a permit to fill wetlands in section 404. To reconcile the Clean Water Act’s goals with its operation, the Executive Branch established a policy of no net loss of wetlands. Despite endorsement by each administration since George H.W. Bush announced the policy, the goal has not been realized. Instead, mechanisms throughout the legal process enable conversion of wetlands.

Protecting wetlands while allowing for growth and development presents a hard problem. And environmental challenges like climate change and water quality degradation only make the problem harder. Faced with this onerous task, the Corps is drawing upon the strengths of private organizations like land trusts. Land trusts play a key role in mitigation programs, particularly those relying upon preservation as a compensatory mitigation technique. As a threshold, the Corps should eliminate its use of preservation as a sole mitigation strategy, even where that might mean denying permits. The Corps already recognizes that preservation is the least-favored mitigation strategy because resulting wetland loss makes it hard to assert that wetlands have been protected. And when preservation programs are used, the Corps should be more systematic by promulgating regulations or issuing guidance regarding the use of conservation easements and the role of land trusts. Land trusts can increase wetland protection, but the Corps must be careful to remain involved with mitigation projects and work to bring public oversight into the creation and long-term stewardship of these projects. In short, the Corps must find a careful balance between harnessing private power and abdicating public responsibility.

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Copyright 2014 Jessica Owley. All rights reserved.

Associate Professor, SUNY Buffalo Law School. I am indebted to the thoughtful comments and careful consideration of this piece by Amanda Leiter, Mike Lewyn, Mike Pappas, Justin Pidot, and Julia Purdy. Nicholas Fischer provided research assistance for early stages of this project. As always, the ELQ staff provided careful editing that undoubtedly improved the piece.

[1] Joy B. Zedler & Suzanne Kercher, Wetland Resources: Status, Trends, Ecosystem Services, and Restorability, 30 Ann. Rev. Env’t & Resources 39, 39 (2005), available at http://www.botany.wisc.edu/zedler/images/ZedlerAnnReview.pdf.

[2] Joel Bourne, Louisiana’s Vanishing Wetlands: Going, Going …, 289 Science 1860, 1860 (2000), available at http://www.sciencemag.org/content/289/5486/1860.full. Louisiana contains 40 percent of the wetlands in the contiguous forty-eight states, and accounts for 80 percent of the current wetland loss.

[3] Richard F. Ambrose, Wetland Mitigation in the United States: Assessing the Success of Mitigation Policies, 19 Wetlands (Australia) 1, 3 (2000), available at http://water.epa.gov/lawsregs/guidance/wetlands/upload/2004_10_28_wetlands_ambrose_wetlandmitigationinus.pdf.

[4] See Leon P.M. Lamers et al., Differential Responses of Freshwater Wetland Soils to Sulphate Pollution, 55 Biogeochemistry 87, 88 (2001) (explaining that sulfur pollution in freshwater wetlands is leading to a loss of biodiversity as sulphide resistant plant species outcompete characteristic plant species).

[5] See Robert J. Nicholls, Frank M.J. Hoozemans & Marcel Marchand, Increasing Flood Risk and Wetland Losses Due to Global Sea-Level Rise: Regional and Global Analyses, 9 Global Envtl. Change S69, S70 (1999), available at http://www.peconsulting.se/wp-content/uploads/2013/05/Increasing-flood-risk-and-wetland-losses-due-to-global-sea-level-rise.pdf (explaining that sea-level rise will exacerbate the 1 percent of global wetlands already being lost to human reclamation each year).

[6] See Joy B. Zedler, How Frequent Storms Affect Wetland Vegetation: A Preview of Climate-Change Impacts, 8 Frontiers Ecology & Env’t 540, 542–43 (2010) (describing how extreme weather events can shape wetland vegetation).

[7] Robert J. Nicholls, Coastal Flooding and Wetland Loss in the 21st Century: Changes Under the SRES Climate and Socio-Economic Scenarios, 14 Global Envtl. Change 69, 70–71 (2004) (stating that while flooding and sea-level rise will lead to greater loss of coastal wetlands, direct human causes are already destroying 1 percent per year).

[8] See John M. Hefner & James D. Brown, Wetland Trends in the Southeastern United States, 4 Wetlands 1 (1985) (explaining that nearly all freshwater wetland losses in the Southeast could be attributed to conversion to agriculture).

[9] See Stephen Faulkner, Urbanization Impacts on the Structure and Function of Forested Wetlands, 7 Urb. Ecosystems 89, 90–91 (2004), available at http://conservation.ufl.edu/urbanforestry/Resources/PDF%20downloads/Faulkner_2004.pdf (detailing the importance of forested wetlands and their loss to urbanization, and noting that 1.2 million hectares of forested wetlands were lost in the United States from 1975 to 1997, but that generally the information on the loss of such natural resources is lacking).

[10] Ambrose, supra note 4, at 4.

[11] The complicated case law on earth-moving operations in wetlands leaves this area of the law muddy. It appears that deep-ripping and sidecasting (methods of moving dirt around and preparing soils for agriculture and development) require a permit, while incidental fallback (where small amounts of soil fall into a wetland during earth-moving activities) does not. Thus, some drainage activities may require a permit while other activities do not, and this boundary is tricky to determine. See Kim Diana Connolly, Keeping Wetlands Wet: Are Existing Protections Enough?, 6 Vt. J. Envtl. L. 169, 186–90 (2004–2005).

[12] Rapanos v. United States, 547 U.S. 715, 759 (2006); see Solid Waste Agency of N. Cook Cnty. v. U.S. Army Corps of Eng’rs, 531 U.S. 159 (2001); United States v. Riverside Bayview Homes, 474 U.S. 121 (1985); see also Envtl. Prot. Agency, Post-Rapanos Caselaw (June 22, 2010),http://water.epa.gov/lawsregs/guidance/wetlands/upload/Post-RapanosCaselaw.pdf (listing cases that debate the definition and scope of the phrase, “waters of the United States,” in light of the 2006 Rapanos decision).

[13] See Palmer Hough & Morgan Robertson, Mitigation Under Section 404 of the Clean Water Act: Where It Comes From, What It Means, 17 Wetlands Ecology & Mgmt 15, 17 (2009) (explaining that “mitigation may not have initially been seen as a priority if it was assumed that permits for work which truly damaged wetlands would either be denied by the Corps or ‘vetoed’ by EPA under its Section 404(c) powers.”).

[14] 40 C.F.R. § 230.91(c)(2) (2014).

[15] Id.

[16] Id. § 230.91(c)(3).

[17] Final Individual Permits, U.S. Army Corps of Eng’rs, http://geo.usace.army.mil/egis/f?p=340:2:0::NO (last visited Oct. 28, 2014) (listing permit issuance decisions since 2008 and revealing few if any permits that did not come with special conditions).

[18] § 230.93(a)(2).

[19] See Alberta Env’t, Guideline for Wetland Establishment on Reclaimed Oil Sands Leases (rev. 2007 ed.), available at http://environment.gov.ab.ca/info/library/8105.pdf (discussing various methods and issues concerning the development [or establishment] of wetlands throughout); Interagency Workgroup on Wetland Restoration, An Introduction and User’s Guide to Wetland Restoration, Creation, and Enhancement 2, available at http://www.habitat.noaa.gov/pdf/pub_wetlands_restore_guide.pdf; C.C. Tanner, M.L. Nguyen & J.P.S. Sukias, Nutrient Removal by a Constructed Wetland Treating Subsurface Drainage from Grazed Dairy Pasture, 105 Agric., Ecosystems & Env’t 145, 147, 159 (2005) (referring to the establishment period as when a new wetland takes root).

[20] See William J. Mitsch & Renée F. Wilson, Improving the Success of Wetland Creation and Restoration with Know-How, Time, and Self-Design, 6 Ecological Applications 77, 78 (1996) (describing various critiques and concerns related to wetland creation and mitigation); Dennis F. Whigham, Ecological Issues Related to Wetland Preservation, Restoration, Creation and Assessment, 240 Sci. Total Env’t 31, 35 (1999) (explaining that wetland restoration projects often lack complete success because they do not “recognize that wetlands are part of larger landscapes,” and asserting that “failures far outnumber successes”); Charlene D’Avanzo, Long-term Evaluation of Wetland Creation Projects, in Wetland Creation and Restoration: The Status of the Science, Vol. II 75, 75 (Jon A. Kusler & Mary E. Kentula eds., 1989) (stating that “a great many . . . artificial wetland projects are problematic or failures” and providing several reasons for failures, including “hydrology, erosion, herbivory, and invasion by upland plants”).

[21] See Anya Hopple & Christopher Craft, Managed Disturbance Enhances Biodiversity of Restored Wetlands in the Agricultural Midwest, 61P Ecological Engineering 505, 508–09 (2013) (describing recommendations regarding soil, hydrology, and vegetation that could improve wetland restoration projects); Zedler & Kercher, supra note 2, at 60 (explaining that restoration techniques are gradually improving while also indicating challenges); see also Robert H. Hilderbrand, Adam C. Watts & April M. Randle, The Myths of Restoration Ecology, 10 Ecology & Soc’y 1, 1 (2005) (noting that many restoration projects are “not successful either in structure or function when compared with reference ecosystems”) (internal citations omitted).

[22] See David Malakoff, Restored Wetlands Flunk Real-World Test, 280 Science 371 (1999) (noting some challenges associated with restoration projects but suggesting that, given enough time, the projects might end up being more successful than current projects have been).

[23] See Interagency Workgroup, supra note 20, at 47.

[24] Indeed, for this reason it is the Corps’ least preferred method of compensation.

[25] Envtl. Prot. Agency, Clean Water Act Section 404(c) “Veto Authority,” http://water.epa.gov/lawsregs/guidance/cwa/dredgdis/upload/404c.pdf (last visited Oct. 25, 2014).

[26] See Alyson C. Flournoy, Section 404 at Thirty-Something: A Program in Search of a Policy, 55 Ala. L. Rev. 607, 644 (2004); Oliver A. Houck, Hard Choices: The Analysis of Alternatives Under Section 404 of the Clean Water Act and Similar Environmental Laws, 60 U. Colo. L. Rev. 773, 782 (1989).

[27] 33 U.S.C. § 1344(c) (2012).

[28] 40 C.F.R. § 231.2(e) (2014).

[29] Envtl. Prot. Agency, supra note 26.

[30] See Rebecca L. Kihslinger, Success of Wetland Mitigation Projects, 30 Nat’l Wetlands Newsl. 14 (2008), available at http://www.wetlandsnewsletter.org/pdf/30.02/kihslinger.pdf (reviewing studies of compensatory mitigation projects).

[31] See, e.g.,Shelley Burgin, ‘Mitigation Banks’ for Wetland Conservation: A Major Success or an Unmitigated Disaster? 18 Wetlands Ecology & Mgmt 49, 51 (2010) (describing inadequacies in wetland mitigation projects); Tammy Hill, et al., Compensatory Stream and Wetland Mitigation in North Carolina: An Evaluation of Regulatory Success 51 Envtl. Mgmt 1077, 1084 (finding lower success rates for recently constructed wetland mitigation projects compared to projects from before 2002); Elizabeth A. Hunter, et al., Improving Wetland Mitigation Site Identification Through Community Distribution Modeling and a Patch-Based Ranking Scheme, 32 Wetlands 841, 841–42 (2012)(suggesting wetland mitigation projects may be unsuccessful because they fail to plan at the watershed scale).

[32] Renee Stone, Wetlands Protection and Development: The Advantages of Retaining Federal Control,10 Stan. Envtl. L.J. 137, 143 (1991)(describing Bush’s announcement of the policy at a Ducks Unlimited event); Morgan M. Robertson, The Neoliberalization of Ecosystem Services: Wetland Mitigation Banking and Problems in Environmental Governance, 35 Geoforum, 361, 363 (2004).

[33] Robertson, supra note 33, at 363.

[34] Kihslinger, supra note 31, at 16.

[35] See R. Eugene Turner, Ann M. Redmond, & Joy B. Zedler, Count It by Acre or Function—Mitigation Adds Up to Net Loss of Wetlands, 23 Nat’l Wetlands Newsl. 5, 5 (2001).

[36] Federal Guidance for the Establishment, Use and Operation of Mitigation Banks, 60 Fed. Reg. 58,605, 58,606 (Nov. 28, 1995), available at http://www.gpo.gov/fdsys/pkg/FR-1995-11-28/pdf/95-28907.pdf.

[37] Id. at 58,609.

[38] See id.

[39] The no net loss of wetlands policy did not say no net loss of jurisdictional wetlands.

[40] Compensatory Mitigation for Losses of Aquatic Resources, 73 Fed. Reg. 19,594, 19,674 (Apr. 10, 2008) (describing the importance of hydrological function in evaluation of compensatory mitigation projects).

[41] How we characterize the benefits of wetland protection from these preservation schemes depends on what we use as our baseline or point of comparison. Do we ask what level of wetland conservation would result without the protections of the Clean Water Act, or do we consider what level of conservation we would get with a complete prohibition on wetland degradation? Most analyses seem to consider the former, then chalk up any prohibited or limited project as a success, regardless of the actual wetlands converted in the process.

[42] See generally Jessica Owley, The Emergence of Exacted Conservation Easements, 84 Neb. L. Rev. 1043 (2006). Conservation easements may also be created by condemnation or judicial proceedings, but to date this has been rare.

[43] Such a goal, particularly in light of climate change implications, is questionable. See Jessica Owley, Property Constructs and Nature's Challenge to Perpetuity, in Environmental Law and Contrasting Ideas of Nature: A Constructivist Approach 64 (Keith Hirokawa ed., 2014); Adena R. Rissman et al., Adapting Conservation Easements to Climate Change, Conservation Letters (May 1, 2014), available at http://www.landtrustalliance.org/climate-change-toolkit/adapting-conservation-easements-to-climate-change.

[44] Of course, this does not always work properly, and the stories of landowners being unaware of (or failing to understand) conservation easements burdening their property are more common than we would like. See, e.g., Feduniak v. Cal. Coastal Comm'n, 56 Cal. Rptr. 3d 591, 597 (Ct. App. 2007) (discussing how landowners were unaware of native landscaping and botanic easements on their property despite a diligent title search).

[45] Wetland mitigation banks are wetland conservation sites “designed to offset residual, unavoidable damage to the natural environment cause by development activities.” Burgin, supra note 32, at 49. In many cases, these are sites where entrepreneurs restore and protect a wetland, then sell credits to developers who need to compensate for their projects’ harm to other wetlands. Id. at 49–50.

[46] See Cal. Dep’t of Fish & Wildlife, Conservation and Mitigation Banking Guidelines 5 (2014), available at https://nrm.dfg.ca.gov/FileHandler.ashx?DocumentID=79095&inline=1.

[47] Compare U.S. Army Corps of Eng’rs, Model Conservation Easement for the Wilmington, NC District Office (rev’d Aug. 2003) http://www.saw.usace.army.mil/Portals/59/docs/regulatory/regdocs/Mitigation/conservation_easement_r8-03.pdf, with U.S. Army Corps of Eng’rs, Model Conservation Easement for the Mobile, AL District Office, available at http://www.sam.usace.army.mil/Portals/46/docs/regulatory/docs/Restrictive%20Cov/Model%20Conservation%20Easement%20for%20Individual%20Permits.pdf (last visited Oct. 25, 2014). These two model conservation easements from different Corps offices in the Southeastern United States have many differences. For example, the Wilmington office has more outright prohibitions, while the Mobile office allows modifications on prohibitions with prior approval.

[48] See 60 Fed. Reg. 58,605, 58,613 (Nov. 28, 1995). Some states have their own laws that apply to mitigation banks, and some state agencies provide guidelines and/or templates for mitigation banking conservation easements. See, e.g., Template for Mitigation and Conservation Banks in California (Mar. 2010), available at http://www.spd.usace.army.mil/Portals/13/docs/regulatory/banking/CE.pdf.

[49] Arguably, section 404 conservation easements may not even need to follow state law. See United States v. Albrecht, 496 F.2d 906, 911 (8th Cir. 1974) (holding that conservation easements negotiated and held by the U.S. Fish & Wildlife Service did not have to conform to state law prohibiting perpetual conservation easements because they were part of a federal scheme). Further, some courts might uphold exactions precisely because they are exactions. See, e.g.,Rossco Holdings, Inc. v. State,260 Cal. Rptr. 736, 742–43 (Ct. App. 1989) (holding that a landowner could not challenge a condition imposed on the granting of a permit after acquiescence to the condition). But see Trancas Prop. Owners Ass’n v. City of Malibu, 34 Cal. Rptr. 3d 334 (Ct. App. 2005) (holding that exactions must comply with state property law); Jessica Owley, Exacting Conservation Easements in California, 21 Envtl. L. News 3 (Winter 2012).

[50] See Conservation Easement Program, Ducks Unlimited, http://www.ducks.org/conservation/land-protection/conservation-easements (last visited Oct. 25, 2014).

[51] Of course, some place more faith in land trusts than in the Army Corps. The Army Corps of Engineers district offices sometimes have bad reputations with conservationists and developers alike. See Robert Haskell Abrams, Water Federalism and the Army Corps of Engineers’ Role in Eastern States Water Allocation, 31 U. Ark. Little Rock L.Rev. 395 (2009).

[52] Although the Corps issues the permit, it may simply require a certain acreage of wetlands protected by a conservation easement without dictating the terms. The permit applicant is then responsible for negotiating a conservation easement with the land trust (a conservation easement that may burden the applicant’s land or may be purchased on other land).

[53] See Federal Guidance for the Establishment, Use, and Operation of Mitigation Banks, 60 Fed. Reg. 58,605, 58,609–10 (Nov. 28, 1995), available at http://www.gpo.gov/fdsys/pkg/FR-1995-11-28/pdf/95-28907.pdf.

[54] Id.

[55] Id. at 58,612.

[56] An even more complicating discussion is determining what should be done when the impacts of climatic change or disasters mean that a protected wetland is no longer viable. This raises hard questions both for section 404 mitigation requirements and for laws governing conservation easements generally. See, e.g., Jessica Owley, Conservation Easements at the Climate Change Crossroads, 74 Law & Contemp. Probs. 199 (2011).

[57] Richard F. Ambrose, John C. Callaway & Steven F. Lee, An Evaluation of Compensatory Mitigation Projects Permitted Under the Clean Water Act Section 401 by the California State Water Resources Control Board, 1991–2002 at 40 (2007), available at http://www.waterboards.ca.gov/water_issues/programs/cwa401/docs/mitigation_finalreport_full081307.pdf; see also Kihslinger, supra note 31, at 14 (describing the results of Ambrose et al. and other studies).

[58] Kihslinger, supra note 31, at 14 (citing a study by Balzano et al.).

[59] Ambrose, supra note 4, at 15, 22.

[60] See Diane De Steven, Rebecca R. Sharitz & Christopher D. Barton, Ecological Outcomes and Evaluation of Success in Passively Restored Southeastern Depressional Wetlands, 30 Wetlands 1129, 1138 (2010).

[61] In fact, it may be easier to demonstrate a duty for land trusts, rather than state agencies, to enforce conservation easements. State agencies can generally argue that they are exercising their prosecutorial discretion not to pursue violations of conservation easements.

[62] See Turner, Redmond & Zedler, supra note 36, at 15.

[63] See Davis Urban, Director of Operations, Ecosystem Investment Partners, Michael Dennis, Counsel, Ecosystem Investment Partners, Richard Martin, Director of Forest Protection & Management, The Nature Conservancy, Land Trust Alliance, Land Trusts’ Interaction with Mitigation Banking: A Perspective from Both Sides (Oct. 2, 2012) (Workshop Handouts on file with author and available through the Land Trust Alliance) (presenters explaining that they sometimes had Corps third-party enforcement rights in conservation easements burdening private mitigation banks).

Copyright 2014 Jessica Owley. All rights reserved.

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