Environmental UPDATE June 2010

The Shifting Drivers for Domestic Climate Change Policy

Although there is general agreement among the world's nations that greenhouse gas emissions cause global climate change, there is great disagreement about how to address the situation. Most notably, 184 (out of 186 eligible) countries ratified the international Kyoto Protocol treaty, but since the United States never ratified it and China and India are excluded from emission reduction obligations under the treaty, questions persist regarding its effectiveness in coping with climate change.

Thus, the world's nations met for two weeks in Copenhagen in December 2009 to discuss a more comprehensive treaty that would include the United States, China and India. Certain countries _ primarily Saudi Arabia, Cuba, Venezuela, the Sudan, Nicaragua and Bolivia _ endeavored to prevent an agreement from being reached and 13 days passed without agreement. On the final day of the Copenhagen summit, President Obama personally attended and direct negotiations led to China, India, Brazil, South Africa and the United States entering into the non-binding 3 page Copenhagen Accord. Nevertheless, it is unclear whether the Accord will have any long-lasting effect. Indeed, South Africa, Brazil, India and China all issued statements after the Accord was formed, calling it "not acceptable" and "disappointing." After Copenhagen, a more comprehensive international climate change treaty, which would limit the greenhouse gas emissions of China, the United States and India, seems unlikely in the foreseeable future.

When domestic federal climate change legislation is discussed it often takes the form of cap-and-trade proposals. Whether there will be federal legislation, however, is unclear at this time. Last year, the House of Representatives passed the American Clean Energy and Supply Act ("ACES") (also known as the Waxman-Markey Bill). In the Senate no real progress was made in 2009, and progress in 2010 is unlikely due to the election year. Nevertheless, Senators Kerry and Lieberman recently introduced a more business-friendly Senate version of the ACES bill. Alternatives to a cap-and-trade program also have been discussed. For example, many economists and some businesses argue that a tax on carbon would be preferable because it would cause energy users to consider the external costs of their usage, thereby encouraging conservation and the use of alternative energy. Senator Cantwell (D-WA) proposed as an alternative a "cap-and-permit" bill that would charge permitting fees for the right to emit greenhouse gases and that would then return the fees to the taxpayers to reduce the impact on the public of the emissions reductions.

Although the Clean Air Act is generally considered a blunt instrument for addressing climate change, the United States Environmental Protection Agency ("EPA") felt compelled to make the following endangerment finding: "The Administrator finds that the current and projected concentrations of the six key well-mixed greenhouse gases … in the atmosphere threaten the public health and welfare of current and future generations." As the EPA explained: "On April 2, 2007, in Massachusetts v. EPA, 549 U.S. 497 (2007), the Supreme Court found that greenhouse gases are air pollutants covered by the Clean Air Act. The Court held that the Administrator must determine whether or not emissions of greenhouse gases from new motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare, or whether the science is too uncertain to make a reasoned decision. … The Supreme Court decision resulted from a petition for rulemaking under section 202(a) filed by more than a dozen environmental, renewable energy, and other organizations." Having made the finding, however, the EPA will likely continue towards administrative regulatory control unless Congress acts. Accordingly, executive action may currently be the most likely avenue for climate change regulation.

Implementation of Water Quality Management Planning Rules Delayed

As described in the May 2009 Environmental UPDATE, under New Jersey's revised Water Quality Management Planning ("WQMP") rules, N.J.A.C. 7:15 et seq., which became effective July 7, 2008, planning responsibility for Wastewater Management Plans ("WMPs") shifted from separate wastewater service area designations to each county's Board of Chosen Freeholders. Under the revised WQMP rules, each county board was required to submit county-wide WMPs to the New Jersey Department of Environmental Protection (“NJDEP”) by April 7, 2009, although many counties requested extensions that NJDEP liberally granted.

The WQMP rules are somewhat controversial because they require that updated WMPs be based on development constraints and reflect a complete build-out analysis of the entire watershed. The revised rules preclude sewer service in environmentally sensitive areas and limit development outside of designated service areas. Moreover, if a county fails to submit a county-wide WMP (or receive an extension), any existing WMP is suspended, which can halt further development in that county. The rules are controversial enough that the State legislature passed a bill to weaken and delay their implementation, which Governor Corzine vetoed last year.

On March 24, 2010, new NJDEP Commissioner Bob Martin issued Administrative Order 2010-3, which gives county boards another year to develop their WMPs. The Order extends the submission deadline to April 7, 2011 and prevents withdrawal of existing service area designations in the meantime. The Order also establishes a public comment process whereby NJDEP may not act on any build-out analysis without first posting the draft WMP on NJDEP's web-site, inviting public comment for at least 60 days and holding at least one public meeting within the WMP agency's jurisdiction. Also, any property owner may petition to have their property included within future sewer service areas. Providing the sewer service is consistent with local zoning or master plan, or the owner has a local building permit, site plan or subdivision approval reliant on sewer service (and meets other NJDEP requirements), NJDEP must propose to include the property in the sewer service WMP. Accordingly, the Administrative Order delays implementation and softens the effects of the revised WQMP rules' most controversial effects.

The Order was excoriated by new EPA Region 2 Administrator Judith Enck as "misguided" and "bad NJDEP policy" because, the Administrator charged, it delayed water quality planning in the state. County boards still have the option to submit WMPs sooner than April 7, 2011, and several have already.

Reporting Requirements for Emissions of Greenhouse Gases

The United States Congress is currently debating climate change bills (see "The Shifting Drivers for Domestic Climate Change Policy," on page 1), which could be voted on this summer. If passed, such legislation may impact greenhouse gas ("GHG") emission reporting requirements for the future. In the meantime, however, current federal and New Jersey State reporting requirements for emissions of GHG remain in place.

In October 2009, the EPA adopted the Mandatory Reporting of Greenhouse Gases Rule. 74 Fed. Reg. 56374 (Oct. 30, 2009). In general, this rule calls for fossil fuel suppliers and industrial gas suppliers, manufacturers of vehicles and engines outside of the light-duty sector, and certain downstream facilities that emit GHG _ primarily large facilities emitting 25,000 metric tons of carbon dioxide equivalent or more of GHG emissions per year _ to submit annual emissions reports to EPA. Beginning in 2011, the reports must be submitted to EPA by March 1st of each year, and must include emissions data for the prior calendar year. These facilities must monitor and report actual _ as opposed to potential _ emissions of carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFC), perfluorochemicals (PFC), and sulfur hexafluoride (SF6), as well as other fluorinated gases. Facilities that report emissions below 25,000 metric tons of GHG for five consecutive years, or below 15,000 metric tons of GHG for three consecutive years may cease annual reporting.

New Jersey currently requires reporting to NJDEP of actual carbon dioxide and methane emissions by facilities that have the potential to emit 25 metric tons per year of volatile organic compounds or reportable quantities of other toxic air pollutants. N.J.A.C. 7:27-21.1 et seq. ("Emissions Statement Rule"). In addition, NJDEP has proposed additional monitoring and reporting requirements. The Global Warming Response Act, N.J.S.A. 26:2C-37 et seq., enacted in 2007, requires NJDEP to establish a GHG emissions reduction program. To accomplish this mandate, NJDEP must identify significant sources of GHG, provide for monitoring and reporting of emissions, and require a reduction in emissions over time.

In January 2009, the Department proposed the Greenhouse Gas Monitoring and Reporting Program Rule ("GHG Monitoring Rule"), which would expand the existing Emissions Statement Rule by requiring stationary sources to report annual emissions of 2,500 tons or more of GHG, other than carbon dioxide emissions, which are already reported under the Emissions Statement Rule. NJDEP indicated that it intended to adopt the proposed GHG Monitoring Rule because it required data reporting from certain lower quantity emitters that do not have reporting obligations under the federal Mandatory Reporting of Greenhouse Gases Rule. NJDEP delayed adoption of the GHG Monitoring Rule in order to review the federal Mandatory Reporting of Greenhouse Gases Rule; however, NJDEP's rule proposal has since expired and must be re-proposed before it can be adopted..

NJDEP Convenes Stakeholders on Site Remediation Reform

Site remediation reform continues in New Jersey as the NJDEP has convened a steering committee of stakeholders and four interested party work groups to advise the agency on implementation of the Licensed Site Remediation Professional ("LSRP") program and other site remediation reforms. In fact, the LSRP program itself arose from NJDEP's stakeholder process for site remediation reform convened in 2007. NJDEP recently proposed a number of initiatives seeking input from specific stakeholders and the public, including development of technical and administrative guidance documents, reforming the prescriptive Technical Requirements for Site Remediation ("Tech Regs"), and developing measures to assess the success of the LSRP program.

A steering committee of external stakeholders will provide guidance to NJDEP on the overall strategic direction of the LSRP program. As of March 2010, the NJDEP also has convened four workgroups of interested parties to address the following areas:

• Near Term Priorities - Identifying information gaps or training needs as necessary to ensure effective implementation of the program and developing training and materials for the regulated community, lenders, insurers, LSRPs and other consultants.
• Measures of Success - Identifying performance metrics that can be used to assess the strengths and weaknesses of the program.
• Tech Regs - Identifying the best approach and construct for technical regulations needed to implement a full LSRP program.
• Guidance documents - Drafting protocols, practices, and actions, based on science and field experience, to address technical aspects of remediation. Draft documents will be circulated to a wider audience for review prior to implementation.

The steering committee and work groups have begun to meet with the Department. NJDEP has announced that it will continue to seek input from stakeholders through these initiatives and will provide further "Interested Party Review" as rule proposals are developed. A significant proposal to revise and re-adopt the Tech Regs and the Administrative Requirements for Remediation of Contaminated Site ("ARRCS") is expected to be issued by May 2011, in order to adopt and implement a full-scale LSRP program by May 2012.

If you buy, sell or own contaminated property, if you participate in site cleanups, or if you are an environmental professional involved in site remediation, keep apprised of new developments in the LSRP program. Ample opportunity may exist in the coming months to provide input to the NJDEP on these significant new matters, through public review and comment on formal rule proposals, interested party review of draft rule proposals, and draft guidance documents.

Steven Senior, Counsel in the Environmental Practice Group, is a member of the steering committee created to advise NJDEP on the LSRP program.

Obligation to Clean-up Found to Survive Prior Bankruptcy

The United States Seventh Circuit Court of Appeals recently upheld a District Court's grant of an injunction under the Resource Conservation and Recovery Act (“RCRA”) requiring performance of an estimated $150 million dollar cleanup of contamination associated with an oil refinery where the owner and operator's predecessor-in-interest had been through bankruptcy. United States v. Apex Oil, 579 F.3d 734 (7th Cir. 2009). Accordingly, the Court of Appeals upheld the RCRA injunction, finding it was not a dischargeable "claim" under the Bankruptcy Code.

A discharge of all pre-bankruptcy petition claims is one of the fundamental protections afforded to debtors under bankruptcy laws. To be a "claim" that is dischargeable in bankruptcy, there must be a right to payment. In considering the injunction entered against the owner/operator (Apex), the Seventh Circuit relied heavily on the fact that RCRA did not entitle the government to demand payment of cleanup costs in lieu of action, and thus, there was no "right to payment" that would make EPA's requested injunctive relief a "claim" that could be discharged in bankruptcy. Apex argued that the enormous monetary cost of complying with the injunction made it a money claim and, thus, dischargeable. The Court, however, rejected Apex's argument as inconsistent with the Bankruptcy Code, finding the cost to Apex to comply with the injunction is not equivalent to a "right to payment." Merely imposing a cost to comply, as virtually all injunctions do, does not create a right to payment and is not a dischargeable claim. Rather, it is only if injunctive relief affords a right to payment - e.g., if the injunction cannot be effectuated and money is due - that it is dischargeable.

Central to the Seventh Circuit's decision was that RCRA provides no right to monetary relief to the government or private parties. In contrast, the Comprehensive Environmental Response and Liability Act ("CERCLA") and the New Jersey Spill Act do allow the government to perform the work and then seek reimbursement. Thus, the applicability of this case to injunctive relief brought under CERCLA and/or the Spill Act is much less clear.

NJDEP in Transition

The Final Report of the NJDEP Transition Subcommittee, dated January 15, 2010 (the "Transition Report"), debuted with much fanfare as it offered sharp criticisms along with recommendations for policy, cultural and procedural overhauls across the Department. Upon closer review, however, the Transition Report reveals itself to be merely a political expression of the new administration's priorities, which were already identified by Governor Christie's stated commitments to generating business growth within the state and increasing efficiencies within the government, while maintaining reasonable environmental protections, by streamlining processes and providing a predictable climate for business. The Transition Report may be a roadmap for turning these priorities into policy, such as that appearing in recent Executive and Administrative orders, but its ultimate impact is uncertain.

The recommendations in the Transition Report attempt to focus on "creat[ing] operational and permitting efficiencies, facilitat[ing] comprehensive regulatory reform and reestablish[ing] the DEP's focus on its core mission which includes preserving, protecting and enhancing public health and the environment with an understanding that environmental policy impacts our economy." By focusing on science, technology and business, the Transition Report envisions a more efficient agency better able to meet the demands of business. To achieve this vision, the Transition Report offers a number of recommendations, complete with action items, divided into six categories _ (1) Leadership and Management; (2) Regulatory Reform; (3) Land Use Management Reinvention Without Compromising Protections; (4) Site Remediation Reform; (5) Natural Resource Stewardship; and (6) Additional Policy Recommendations, a catch-all category.

The first element of the vision is supported by the recommendations in the Land Use Management Reinvention Without Compromising Protections category. Looking to ease the burden on businesses navigating NJDEP's complex regulatory processes, and to speed up growth and development in the state, a complete overhaul of the permitting process, complete with a new office to support businesses as they move through the regulatory process and suspension and/or reconsideration of regulations was recommended. Some of the critical action items identified to support this objective include: (a) investing in technology to streamline the permitting process and make it electronic, (b) increasing the use of General Permits and Permits by Rule; (c) developing a single cross-program Land Use Permit; and (d) developing a new, comprehensive and strategic approach to natural resource management.

The recommendations related to regulatory reform appear in the Transition Report's "Regulatory Reform" section as well as the "Site Remediation Reform" category. In addition to overhauling NJDEP's policy-making procedures to address strategic priorities, science, and the requirements of the New Jersey Administrative Procedure Act ("APA"), among other factors, the Transition Report recommended additional steps to improve the implementation of the Site Remediation Reform Act ("SRRA") and the LSRP program. The Transition Report focused on concerns regarding the use of guidance documents and obstacles to the use of professional judgment, issues of concern to much of the regulated community. Specifically, the following were recommended: (a) use of discussion and peer review of the science supporting new rulemakings; (b) assessments of the impacts on NJDEP resources and the state's economy as part of each rule-making; (c) limitations of the scope of the SRRA; (d) adherence to the APA and revising of existing guidance to bring it into compliance, as well as other restrictions related to guidance and recommendations aimed at increasing transparency, with special attention to clarifying the requirements in the areas of reuse of recycled materials, concrete and other building materials and vapor intrusion; (e) an online report submission process; and (f) reduction of overly conservative assumptions.

The vision for reestablishing NJDEP's mission is supported by recommendations in the Transition Report's "Leadership and Management" and "Natural Resource Stewardship" categories. These recommendations support the "do less with less" approach to governance by attempting to make better use of limited state resources. The Transition Report supports the use of performance metrics to set priorities and for accountability purposes, as well as top-down goal setting and strategy development, including but not limited to development of a comprehensive public lands management strategy. It proposes saving resources by studying departments and eliminating or combining them where possible while looking for ways to maximize revenues from public lands. It also recommends helping local business by reducing the regulatory burden on agriculture. This seems the area where the political nature of the Transition Report is most evident, as business concerns are packaged to focus on using resources where they can make the most impact.

While the Transition Report was initially controversial, its impact on the NJDEP has yet to be established. While NJDEP Commissioner Martin has identified leadership, management, direction, continuous operational improvements and technology as the Department's biggest needs and is determined to change the agency starting with its culture, to what extent his cultural and operational changes will reflect the recommendations in the Transition Report remains to be seen.

U.S. Supreme Court Resolves Interpretation of “Principal Place of Business” for Diversity Jurisdiction Analysis

The federal diversity jurisdiction statute provides that "a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business." 28 U.S.C. § 1332(c)(1). The Circuit courts have applied various tests including the "nerve center," "corporate activities" and "total activity" tests, as well as a combination thereof to determine a corporation's "principal place of business."

In light of the various Circuit courts' divergent and increasingly complex interpretations of the phrase "principal place of business," the Supreme Court, in Hertz Corp. v. Friend, 559 U.S. ___ (2010), set forth a single, more uniform interpretation of the statutory phrase. The Court determined that a corporation's "principal place of business" for purposes of diversity jurisdiction is the place where the corporation's officers direct, control, and coordinate the corporation's activities, i.e., the "nerve center." According to the Court, the "nerve center," in most cases, is the corporation's headquarters.

The Supreme Court determined that the "nerve center" test, while admittedly imperfect, is superior to all other possibilities because of its relative administrative simplicity. This case is significant because it sets forth a single, uniform interpretation of "principal place of business" for diversity jurisdiction analysis. As such, this decision promotes greater predictability of jurisdictional issues.

Legislative Update

SIGNED INTO LAW BY THE GOVERNOR

• S-3137 - Extends the expiration date of certain permits to December 31, 2012. Extensions are determined pursuant to the "Permit Extension Act of 2008."
• A-4341 - Authorizes increased grant funding to local governments for site remediation and redevelopment of contaminated property for renewable energy projects.
• S-3040 - Provides for covenant not to sue by operation of law upon issuance of no further action letter in certain circumstances relating to site remediations.

INTRODUCED IN SENATE

• S465 - Requires Board of Public Utilities (“BPU”) to increase credit provided when issuing Solar Renewable Energy Certificates to owners using solar equipment manufactured in New Jersey.
• S1236 - Prohibits NJDEP from mandating public access to tidal waterfront areas adjacent to critical infrastructure or requiring the purchase or improvement of off-site locations for this purpose.
• S1314 - Directs the BPU to determine whether the electric generation service market in this state is competitive and to submit a report to the Governor and the Legislature.
• S1357 - Exempts contaminated and industrially-zoned sites from affordable housing rules.
• S1406 - Establishes "New Jersey Property Assessment Clean Energy (NJ PACE) Municipal Financing Program."

INTRODUCED IN ASSEMBLY

• A2464 - Requires that all State agency rules be published in the New Jersey Register, and prohibits the use of regulatory guidance documents except under certain circumstances.
• A2029 - Requires a weekly update of the known contaminated site database.
• A2063 - Allows the regulation of small wind energy systems by municipalities.
• A188 - Establishes in NJDEP the Environmental Science Review Board and Environmental Policy Review Board to review proposed environmental regulations for consistency with planning policies and science.
• A1629 - Prohibits issuance of NJDEP permits or approvals for activities associated with offshore drilling for oil or natural gas.
• A1662 - Requires a report and public hearing prior to the recommendation of NJDEP to include a site on the Superfund list.

NJDEP Update

New Commissioner of the New Jersey Department of Environmental Protection

On March 15, 2010, the Senate Judiciary Committee confirmed Governor Chris Christie's appointment of Bob Martin as the Commissioner of the NJDEP. Commissioner Martin was an integral part in directing Governor Christie's energy policy during his campaign and was a trusted advisor of energy policy to several other Senate candidates.

Commissioner Martin is a retired consultant with Accenture LLP, the world's largest business and technology consulting firm, with energy, utility and international expertise, including utility privatization and deregulation. Further information can be found at http://www.nj.gov, www.state.nj.us/dep/. Governor Nominates Site Remediation Professional Licensing Board

On March 10, 2010, Governor Christie submitted the nominations for the Site Remediation Professional Licensing Board (the "Board") to the State Senate. The Site Remediation Reform Act requires the establishment of the Board to administer a licensing program and to enforce professional requirements associated with LSRPs. Nominees for the Board are subject to Senate consent and approval. The nominees include representatives of academia, business, environmental advocates and LSRPs themselves. Further information can be found at http://www.state.nj.us/dep//srp/srra/gov_nominations. NJDEP Announces New Brownfield Development Area Designations to Help Towns Achieve Redevelopment Goals

Following an announcement by Acting NJDEP Commissioner Mark N. Mauriello on October 6, 2009, a number of New Jersey towns have received new designations as State Brownfield Development Areas. Several New Jersey municipalities will receive assistance to accomplish their redevelopment goals through projects that stimulate economic improvement and create green jobs, specifically revival of downtown commercial districts in Lodi, Plainfield, Rahway, mixed senior-citizen housing, commercial facilities and a riverfront walk in Kearny, smart growth mixed-use development in Somerville, and development of an eco-park in Woodbridge. Further information can be found at http://www.nj.gov/dep/srp/brownfields/. Environmental Justice Advisory Council Members Appointed

On October 6, 2009, Acting NJDEP Commissioner Mark N. Mauriello appointed 15 members to the State's Environmental Justice Advisory Council. The appointments were made in accordance with Governor Jon Corzine's Executive Order and in an attempt to continue tackling the significant environmental challenges facing New Jersey's low-income and minority communities. The Advisory Council is appointed for a two year period and includes representatives from faith-based, academic, public health, environmental, civil rights, grassroots and public health organizations, as well as business and industry.

The Advisory Council is responsible for making key recommendations regarding issues such as well-being and quality of life in New Jersey's urban communities disproportionately impacted by pollution from multiple sources. In addition, the Council works to achieve coordination between State government agencies regarding the environmental challenges in these communities. Further information can be found at http://www.nj.gov/dep/ej/.

EPA Update

EPA Announces Regional Administrator For Region 2 On November 5, 2009, EPA Administrator Lisa P. Jackson announced the selection of Judith Enck to be the Agency's Administrator for EPA's Region 2, which encompasses New Jersey, New York, Puerto Rico, the U.S. Virgin Islands and seven Tribal Nations. Judith Enck had previously served as the Deputy Secretary for the Environment in New York State since 2007.

Contact

If you have any questions about the issues discussed in this newsletter, please contact any one of the attorneys in our Environmental Group. We send these newsletters to our clients and friends, free of charge, to share our thoughts on new developments in the law. Nothing in this newsletter should be relied upon as legal advice in any particular matter. © 2010 Riker Danzig Scherer Hyland & Perretti LLP.