Environmental UPDATE November 2008

Environmental UPDATE November 2008
The November 2008 Riker Danzig Environmental Update
Global Climate Change Legislation

Highlights Of The Draft New Jersey Energy Master Plan

New Jersey Is The Proper Forum for Insurance Coverage Disputes for New Jersey Sites

Court Relaxes Standard Governing Whether Experts Can Establish CERCLA Liability

NJDEP and The Legislature Work Towards Site Remediation Reform

NJDEP Rules Proposed For Readoption With Changes

NJDEP’s Propsed Changes For Use Of Recyclable Materials Likely Will Increase the Cost of Development

Legislative Update


Global Climate Change Legislation

New Jersey Governor Jon Corzine and the state legislature have proposed far-reaching goals to reduce emissions of greenhouse gases ("GHGs") that are considered a cause of global climate change. As a result, new laws and regulation of GHGs are virtually certain to come, and soon. The questions, then, are (1) what will be the scope of the laws?, (2) who will they apply to?, and (3) how should businesses prepare now? In broad strokes, this article addresses these questions.

GHGs include (in order of relative atmospheric abundance) water vapor, carbon dioxide ("CO2"), methane ("CH4"), nitrous oxide ("N2O"), ozone and chlorofluorocarbons ("CFCs"), as well as numerous other less prevalent gases. Policy-makers, however, have generally focused their legislative and regulatory proposals on CO2, CH4, N2O, sulfur hexafluoride ("SF6"), hydrofluorocarbons ("HFCs") and perfluorocarbons ("PFCs"), which we refer to in this article as the carbon dioxide equivalent ("CO2e") gases. Carbon dioxide equivalency refers to the number of tons of CO2 gas emissions that has the same global warming potential as a ton of a particular CO2e gas.

On July 6, 2007, New Jersey enacted its first legislation to regulate emissions of the CO2e gases, the Global Warming Response Act, N.J.S.A. 26:2C-37 et seq. The Act requires the New Jersey Department of Environmental Protection ("NJDEP") to develop regulations to monitor statewide CO2e gas emissions, to identify all significant sources of those emissions, and to require reporting of emissions from entities deemed to be significant sources. Furthermore, it requires the NJDEP, in conjunction with other State agencies, to make policy recommendations as to how New Jersey can achieve the following two goals: by 2020, reduce CO2e gas emissions to the 1990 level; and by 2050, reduce emissions to 80 percent below the 2006 level.

In February 2008, New Jersey circulated its draft "New Jersey Greenhouse Gas Inventory and Reference Case Projections 1990-2020" required by the Global Warming Response Act. The report quantifies New Jersey's 1990 and 2005 CO2e gas emissions at 127.8 million metric tons ("MMt") and 145.1 MMt, respectively. Based on the Act's mandates, those emissions translate into maximum CO2e gas emissions in 2020 of 127.8 MMt and in 2050 of 116.1 MMt. These represent significant reductions because the baseline case projects - if there were no emissions reductions mandated - 2020 emissions at 164.3 MMt CO2e.

The draft report identifies the primary sources of CO2e gas emissions, which in order of contribution are power production, building occupancies and transportation. The Regional Greenhouse Gas Initiative or "RGGI" targets power production. Nationally, transportation may be the next target for reductions through mandatory increases in fuel efficiency. In New Jersey, however, an analysis of CO2e gas emissions sources suggests the State will also need to target building occupancies (homes, offices and other workspaces).

As NJDEP was working on its draft report, on January 13, 2008, the State enacted the "RGGI Act", N.J.S.A. 26:2C-45 et seq. RGGI is a cooperative effort by eleven of the Northeastern and Mid-Atlantic states, including New Jersey, to reduce CO2 emissions from electric power plants through a multi-state cap-and-trade program with a market-based emissions trading system.

Under the RGGI Act, all facilities that have the capacity to generate at least 25 megawatts of electrical output (with some limited, specified exceptions) must obtain "allowances" for emissions of CO2, the total number of which will be capped by the NJDEP consistent with RGGI. Allowances will be auctioned pursuant to a process being developed by the NJDEP and the RGGI states. While New Jersey has not yet participated in an auction, the first auction was held this year. The total number of allowances available to the market will be reduced in successive auctions.

Finally, the RGGI Act addresses integration of New Jersey's program into any future federal cap-and-trade program. There is concern that the RGGI program could be preempted. However, the early signs are that federal legislation will provide some credit for CO2e emission reductions from early adopters.

In New Jersey - with the notable exception of electrical generation facilities - businesses still have time to prepare for the paradigm shift accompanying climate change legislation.

Some ideas to consider:

1. Businesses should determine whether they have any appreciable CO2e emissions. If so, they should inventory them and start to think about ways to reduce them. This thinking should extend well beyond the traditional smokestack - look at sources of electricity, raw products for manufacturing, other energy-intensive supplies, etc. If a supplier has to change its operations to comply with climate change legislation, will that change affect your business? Many companies are ahead of the curve when it comes to GHG inventories and these early considerations.

2. Consider whether facilities can be retrofitted to comport with "green building" construction standards, such as LEED (Leadership in Energy and Environmental Design) or Green Globes. If so, businesses should consider whether the cost-savings from the reduced energy consumption merit making a change now. Alternatively, they can wait until RGGI funding or offsets may be available to help pay for a green building conversion. If they are engaged in new construction, they should evaluate the benefits of building "green." It is illustrative to consider that the European Union is, in part, achieving its Kyoto Protocol obligations by making green building mandatory. While we view green building as voluntary in the United States, that may not remain the case. NJDEP's draft GHG report, and also the Draft Energy Master Plan, suggests that building occupancies could be a primary target for regulation.

3. If they do choose to reduce their CO2e emissions in advance of federal legislation, they should consider obtaining third-party certification of the reductions. While there is no guarantee that early reductions will be credited in a federal scheme, it appears likely that some credit will be, provided that it presumably could be banked or traded. The debate over global warming may not end soon, but meaningful climate change regulation is likely to be here before you know it. Early adopters have a head start on many New Jersey businesses. Other businesses still have time, however, to prepare and take advantage of the new opportunities that will arise.

Highlights Of The Draft New Jersey Energy Master Plan

The State recently issued a new Draft Master Energy Plan setting energy production and consumption goals for the State to meet by 2020. These goals include achieving reductions in energy consumption of at least 20% by 2020; reducing peak demand for electricity by 5,700 MW by 2020; developing new low carbon emitting, efficient power plants; closing the gap between the supply and demand of electricity; and stimulating growth in renewable, alternative and innovative clean energy technologies in New Jersey.

Pending State legislation (S702) would authorize a new statewide building code to make new construction 30% more efficient. The State plans to target, one by one, more than 300,000 existing buildings each year for efficiency upgrades, and additional pending legislation (A1763) would allow New Jersey to set minimum energy efficiency standards for equipment including: residential furnaces and residential boilers; residential pool pumps; walk-in refrigerators and freezers; and single-voltage external AC to DC power supplies.

The State plans to reduce peak demand by expanding real-time pricing for commercial and industrial customers, and by expanding incentives for participation in regional demand response programs, which pay customers to reduce their loads during peak demand periods. The feasibility of smart grid technology is being studied and, if implemented, may require the changing of master meters for multi-family homes to sub-metering or individual metering of each customer's consumption.

The Draft Plan calls for the development of 1500 MW of new cogeneration capacity by 2020, through private-public partnerships, long-term low-interest financing for the construction of new facilities, and sales and tax exemptions for fuels used by efficient cogeneration facilities. In addition, the Plan calls for the State to meet 22.5% of its electricity needs through renewable sources by 2020, by investing in solar, wind, and geothermal energy, as well as landfill gas and sustainable biomass.

Finally, the State will leverage $75 million over five years through an expansion of the Edison Innovation Fund to attract over $200 million in private venture investment in clean energy companies.

New Jersey is the Proper Forum for Insurance Coverage Disputes for New Jersey Sites

Recently, the New Jersey Supreme Court decided that because of its dominant interests, New Jersey is the appropriate forum for deciding insurance coverage disputes relating to environmentally contaminated sites located within the state. Sensient Colors, Inc. v. Allstate Ins. Co., A-99/100/101-06 (N.J. January 29, 2008) Specifically, the issue in Sensient Colors was whether a second-filed New Jersey action should be dismissed in favor of a first-filed New York action.

The insurance company had filed suit in New York seeking a determination under New York law as to whether there was coverage under the policy for a hazardous waste site that was located in New Jersey. The insured had purchased its insurance policies through its New York office from a New York insurance company using a New York broker. The policyholder then filed a second action in New Jersey seeking a determination of coverage under New Jersey law. The issue of which court hears the action is significant because under New York law, which is not as favorable to policyholders on coverage issues as New Jersey law, it was likely that there would be no coverage for the claim at issue.

Relying on New Jersey's "strong public policy interest in the remediation of environmental contamination within its borders," the Supreme Court found "special equity" for not deferring to the first-filed rule, which if followed would have resulted in the forum of the second-filed litigation abstaining and allowing the litigation to proceed in the forum where the suit was initially filed. Under the Supreme Court's holding, the only appropriate forum to determine coverage issues relating to contaminated sites within its borders is New Jersey. In such actions, New Jersey courts will apply New Jersey law to determine coverage issues, which is typically more beneficial to policyholders than the law of other states on coverage issues.

Court Relaxes Standard Governing Whether Experts Can Establish CERCLA Liability

In Olindo Enters. v. City of Rochester, 2008 U.S. Dist. LEXIS 17916 (W.D.N.Y. Mar. 7, 2008), the District Court for the Western District of New York refused to exclude the expert testimony of a witness, stating that criticisms of the expert's opinions were best addressed on cross-examination and went to the weight, not admissibility, of the evidence to be afforded by the finder of fact; so long as the experience and methodology of the expert were reliable, Federal Rule of Evidence 702 could be satisfied. This holding effectively limits the cases in which a motion in limine to exclude an expert's testimony or report will be successful and enhances the role of cross-examination, and the fact finder, at trial.

In that matter, Plaintiff property owners sought reimbursement of remediation costs from the Defendant city under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). Plaintiffs argued, based upon opinion and research by its expert, that Defendant city dumped ash at the site. Defendant city, relying on Daubert v. Merrell Dox, Pharm., Inc., 509 U.S. 579 (1993), tried to exclude Plaintiffs' expert. Defendant city argued that the expert opinion presented by Plaintiffs relied upon inadmissible hearsay, did not include personal observations, did not contain evidence specific to the site and contained no data. For all these reasons, Defendant city felt Plaintiffs' expert was not qualified to render an opinion and his opinions were unreliable.

The Court disagreed with Defendant city's analysis, finding that so long as the expert's professional experience and methodology were sound, that they could satisfy Federal Rule of Evidence 702. The Court felt that Rule of Evidence 702 was to be liberally construed to favor the admissibility of expert reports. The Court further concluded that the criticisms raised by Defendant went to the weight of the evidence and were best left to the finder of fact to evaluate.

This opinion provides a basis for going beyond the factors outlined in Daubert to admit an expert report and places greater emphasis on the role of cross-examination at trial in mitigating the impact of a report. By allowing the fact finder to ultimately determine the value and reliability of an expert report, the court placed an additional hurdle in front of parties seeking summary judgment and seeking to defend against speculative claims at trial.

NJDEP and The Legislature Work Towards Site Remediation Reform

2008 has been a busy year for legislators, regulators, lobbyists and other stakeholders interested in site remediation. The New Jersey Legislature and NJDEP are working on legislation to amend the Brownfields and Contaminated Site Remediation Act, N.J.S.A. 58:10B-1 et seq. NJDEP's legislative focus areas are developing a program for Licensed Site Professionals ("LSPs"), increasing NJDEP's authority to influence or select the remedy for certain contaminated sites, and expanding the use of remediation funding sources and surcharges.

Senate Bill No. 1897 ("S.1897") is the leading legislative proposal right now, having been introduced by Senator Smith in the State Senate on June 5, 2008, with the approval of NJDEP. Sparks have begun to fly over this legislative package; accordingly, other legislative proposals are expected. The Legislature is likely to take up these measures as soon as it is back in session this fall.

A new LSP program, as currently envisioned by NJDEP, would reduce NJDEP's backlog of 20,000 cases by relying on certified consultants to process many site remediation requirements, but NJDEP would remain the final arbiter of compliance with the Technical Requirements for Site Remediation ("Tech Regs") and continue to issue No Further Action Letters. If it were enacted as currently drafted, S.1897 would: