SEC Adopts Interpretive Guidance on Disclosure Regarding Climate Change
As described in a previous alert, the Securities and Exchange Commission ("SEC") voted on Wednesday, January 27, 2010 to adopt an interpretive release to provide guidance on existing public company disclosure requirements as they apply to business or legal developments relating to climate change. The SEC has now distributed the interpretive release itself, which can be found here. The interpretive release indicates that its purpose is to provide guidance on how to interpret existing SEC disclosure rules and requirements as applied to business and legal developments associated with climate change. For our detailed alert on the subject, click here.
SEC Issues Interpretive Guidance on Greenhouse Gases
My partner Tom Wood circulated this preliminary alert this afternoon:
"Earlier today the U.S. Securities & Exchange Commission (SEC) approved interpretive guidance intended to inform public companies how climate change must be taken into account when applying existing disclosure requirements. Specifically, the SEC's interpretative guidance highlights the following areas as examples of where climate change must be considered in crafting disclosures:
· The direct effects of existing and pending environmental regulation, legislation and international accords and treaties on the company’s business, its operations, risk factors and in Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A);
· The indirect effects of climate change legislation and regulation on a company’s business—this could include new opportunities or risks posed by legal, technological, political and scientific developments related to climate change; and
· The actual and potential effect on a company’s business and operations resulting from physical changes to the planet resulting from climate change.
"The interpretive guidance specifies that public companies must have adequate knowledge of their greenhouse gas emissions—a requirement that is consistent with recent EPA regulations requiring many (but not all) significant greenhouse gas emitters report their direct emissions starting in calendar year 2010. The SEC stated “management should ensure that it has sufficient information regarding the registrant’s greenhouse gas emissions and other operational matters to evaluate the likelihood of a material effect arising from the subject legislation or regulation.”
Unsurprisingly, the SEC said that registrants must weigh whether climate change related information is material or not. In doing so, they said that if it was a close question, the company should decide in favor of disclosure."
The complete language of the interpretive guidance has not yet been released. Corporate securities partners C. J. Voss and Ron McFall are reviewing the issue and will be issuing an Energy Law Alert on the topic. If you'd like to sign up for our Energy Law Alerts, click here.
EPA Announces "Endangerment" and "Cause or Contribute" Findings
Stoel Rives partner Tom Wood reports:
Minutes ago EPA announced its long awaited “endangerment” and “cause or contribute” findings in relation to six key greenhouse gases – carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride. While technically this announcement is of limited significance (applying only to motor vehicle emissions), the policy import of these determinations is tremendous.
In 2007, the U.S. Supreme Court held that greenhouse gases are air pollutants covered by the Clean Air Act in the Massachusetts v. EPA decision. This case arose in relation to EPA’s choice not to regulate carbon dioxide emissions from new motor vehicles. The Court held that EPA 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.
Earlier this year EPA proposed to issue the two part finding required to commence regulation of greenhouse gas emissions from new motor vehicles. This required first a finding that greenhouse gas emissions endanger public health and welfare and a second finding that emissions from new motor vehicle engines cause or contribute to greenhouse gas air pollution. The comment period for these proposed findings ended June 23, 2009 and EPA received over 380,000 public comments. Today, Lisa Jackson (EPA Administrator) signed final findings that greenhouse gases endanger both the public health and the public welfare of current and future generations and that the combined emissions of these greenhouse gases from new motor vehicles and new motor vehicle engines contribute to the greenhouse gas air pollution that endangers public health and welfare.
As a legal matter, today’s findings relate only to vehicle emissions. However, the precedent that they create will almost certainly result in substantial regulation for other source categories. It is no coincidence that this finding was announced on the first day of the Copenhagen talks on climate change. The Obama administration both wanted to show that some progress was being made in the U.S. and it wants to leverage this progress into further statutory or regulatory requirements.
Towards this goal, one of the more interesting things to come out of the determinations is the formal establishment of the new pollutant: “Well-Mixed Greenhouse Gases.” This term is now officially entered into EPA’s regulatory lexicon as a pollutant to be regulated. Well-Mixed Greenhouse Gases consists of the 6 Kyoto gases (carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride) but introduces the grouping now as a regulatory unit. It is noteworthy that vehicles are not material sources of all of these greenhouse gases and so the use of this term should be seen as setting the stage for future regulation.
Also of interest is an EPA restatement in a footnote that at this time it does not consider greenhouse gases to be a regulated air pollutant. This is of tremendous significance to stationary sources of greenhouse gases as the moment that greenhouse gases become regulated, there is the potential argument that they are subject to Title V and major new source review permitting. At the risk of understating the issue, that would be a mess of biblical proportions.
For those wishing to read all 284 pages of the findings document, it can be found at: http://www.epa.gov/climatechange/endangerment/downloads/FinalFindings.pdf
The findings are not valid until 30 days after they are published in the Federal Register. Expect publication to occur later this month.
EPA Aims to Limit Greenhouse Gas Regulations to Large Facilities
The U.S. Environmental Protection Agency (EPA) is proposing a rule that would limit future greenhouse gas (GHG) regulations under the Clean Air Act to large industrial facilities emitting the equivalent of 25,000 tons or more of carbon dioxide annually. Effectively, the application of GHG regulations will be confined to facilities such as power plants, refineries, and factories, which produce nearly 70% of U.S. GHGs. This proposal lets relatively small GHG emitters off the hook. The EPA was apparently alarmed at predicitions that the application of GHG regulations to low emitters would cause state permitting authorities to be inundated with more paperwork than they could handle with existing resources.
Under the proposed rule, 3,000 GHG emitters - mostly municipal landfills - will now be required to file for a GHG permit. The proposed rule, announced by the EPA on September 30, will be open for public comment for 60 days once it has been published in the Federal Register - which had not happened as of yesterday.
Major emitters of GHGs will also have to apply for a permit when they increase their GHG emissions by between 10,000 and 25,000 tons of carbon dioxide, although the EPA is seeking input on those levels.
EPA Issues Final GHG Reporting Rule
On the topic of Greenhouse Gas reporting, my partner Tom Wood recently circulated this "heads up" about EPA's final rule:
On September 22, 2009, EPA issued its final rule on greenhouse gas (GHG) reporting. Fossil fuel and industrial GHG suppliers, motor vehicle and engine manufacturers, and facilities that emit 25,000 metric tons or more of CO2 equivalent per year will be required to report GHG emissions data to EPA annually.
Recordkeeping obligations commence on January 1, 2010 with the first report due in 2011 (for 2010 emissions). Relaxed requirements will apply for reporting year 2010 as EPA recognizes that not all monitoring can be implemented in the weeks remaining in this year.
In a blow to the consulting industry, third party verification is not being required; sources will be able to self-certify their emissions. EPA says that its program does not preempt state reporting programs, but our hope is that with a final rule the state and regional efforts will conform to EPA’s lead.
Look for more details as Tom gives the rule a more thorough review.
