Author Archives: rwsmith

Risk-Ranking Coal Ash Impoundments

February 12, 2016. The 2014 Coal Ash Management Act, Session Law 2014-122 , required the Department of Environmental Quality (then the Department of Environment and Natural Resources) to propose classifications for coal ash impoundments in the state as High, Intermediate or Low Risk. The risk classification determines both how quickly the impoundment must be closed and whether closure requires removal of the coal ash for beneficial reuse or disposal in a lined landfill. Only Low Risk impoundments can be closed by de-watering and capping the coal ash in place. The General Assembly designated Dan River Steam Station, Riverbend, Asheville and the Sutton Plant as high risk by law; DEQ and the Coal Ash Management Commission have responsibility for classifying the remaining 10 coal ash sites.

Statutory Criteria for Risk Classification. The law, in G.S. 130A-309.211, listed factors to be considered in classifying the impoundments:

(1)        Any hazards to public health, safety, or welfare resulting from the impoundment.

(2)        The structural condition and hazard potential of the impoundment.

(3)        The proximity of surface waters to the impoundment and whether any surface waters are contaminated or threatened by contamination as a result of the impoundment.

(4)        Information concerning the horizontal and vertical extent of soil and groundwater contamination for all contaminants confirmed to be present in groundwater in exceedance of groundwater quality standards and all significant factors affecting contaminant transport.

(5)        The location and nature of all receptors and significant exposure pathways.

(6)        The geological and hydrogeological features influencing the movement and chemical and physical character of the contaminants.

(7)        The amount and characteristics of coal combustion residuals in the impoundment.

(8)        Whether the impoundment is located within an area subject to a 100‑year flood.

(9)        Any other factor the Department deems relevant to establishment of risk.

DEQ’s Proposed Risk Classifications. On January 29, 2016, DEQ released a report providing information to support proposed classifications for most coal ash impoundments. (Several impoundments have temporary classifications pending complete information on impacts to water supply wells.) DEQ has based its risk classifications on three “key factors” — one each for groundwater, surface water and dam safety risks:

♦ Groundwater Risk Factor: The number of people served by water supply wells within 1500 feet and down-gradient of the impoundment’s compliance boundary that are potentially or known to be exposed to groundwater contamination related to the impoundment. DEQ used a scale based on the number of people affected by well contamination: 0 people = Low Risk; 11-20 people = Intermediate Risk and > 30 people = High Risk. Transitional classifications of Low/Intermediate Risk and Intermediate/High Risk cover the gaps between the three basic categories.

♦ Surface Water Risk Factor: The impoundment’s location relative to the 100-year floodplain. Impoundments located outside of the 100-year floodplain or contained by a stream valley embankment with an engineered discharge (such as a spillway) have been classified as Low Risk. Impoundments sited along the run of a river, in the floodplain, and within the 100-year flood level are classified as High Risk.

♦ Dam Safety: Structural integrity and maintenance as reflected in dam safety inspections. Impoundments that received a Notice of Deficiency identifying non-structural deficiencies at the last dam safety inspection have been classified as Intermediate Risk. Impoundments that received a Notice of Deficiency identifying structural deficiencies at the last inspection have been classified as High Risk. One important note — a number of impoundments have a High Risk dam safety rating because of structural deficiencies identified in the last inspection, but DEQ has discounted that factor in the overall facility risk rating by assuming the impoundments will be Low Risk once the structural deficiencies has been corrected.

Other Risk Factors. The DEQ report describes a number of “other considerations” that were not given the same weight in risk classification as the key factors. “Other considerations” for groundwater and surface water risk include significant site conditions such as: toxicity of contaminants exceeding groundwater standards; the extent of groundwater contamination; proximity of coal ash to the water table; potential impact of groundwater contamination on surface waters; location of the impoundment in a stream or drainage way; the water quality classification and use of nearby surface waters; and proximity to a drinking water intake.

How DEQ Arrived at Each Proposed Classification. The exact method DEQ used to arrived at the overall classification for each site is something of a mystery. We know the three “key factors” largely drove the classification because the report tells us that. But there is no explanation of how (or whether) DEQ also used the information on “other considerations” or even how the three key factors were weighted.

Example: Buck Steam Station. Looking in greater depth at the classification of one coal ash facility provides a little more insight into DEQ’s classification decisions. DEQ has temporarily given Buck Steam Station a Low-Intermediate classification until the department receives additional information on impacts to water supply wells. If no well users near Buck Steam Station are affected by contamination associated with the impoundments (or well users have an alternate water source), DEQ intends to classify the Buck impoundments as Low Risk. Well impacts will be the deciding factor in the proposed classification. Buck rated as Low Risk under the key factor for surface water impacts because the impoundments are outside the 100-year flood plain. The three impoundments at Buck rated as High Risk for dam safety, but DEQ assumed the impoundments would be Low Risk once the deficiencies have been corrected.

Looking beyond the three key factors, however, Buck rated as high risk on a number of other groundwater and surface water parameters including: contaminants exceeding state groundwater standards at or beyond the compliance boundary; proximity of coal ash to the water table; and discharge of contaminated groundwater to surface waters. It rated Intermediate risk based on the use of adjacent surface waters (the Yadkin River has been classified for water supply) and proximity to a drinking water intake. On some other parameters related to surface water, Buck Steam Station rated as low or intermediate risk. See pages 92-99 for the entire list of risk ratings for the Buck impoundments.

The Buck classification seems to be fairly representative. Overall, the “other considerations” discussed at great length in the report are irrelevant to DEQ’s proposed classifications. The one exception has to do with groundwater; after focusing the “key factor” for groundwater on impacts to down-gradient water supply wells, DEQ has deferred classification of several sites to get additional information on up-gradient and side-gradient wells. It is also unclear how DEQ weighted different risk levels for the three key factors to arrive at an overall classification. The Cape Fear Steam Station was ranked Low Risk for groundwater (no impacted wells); High Risk for surface water (all of the impoundments are in the 100-year floodplain); and High Risk for half of those impoundments because of dam safety deficiencies. But the facility as a whole received a classification of Intermediate Risk.

There may be more method to the proposed classifications than it appears. It is possible that DEQ weighted the key factors and “other considerations” or viewed some conditions as mitigating others. Since the report does not provide any explanation, it is difficult to know. The Coal Ash Management Act itself did not provide any guidance on how to translate nine statutory criteria into three risk classifications. Normally, that gap would be filled through rulemaking. In the absence of rules (or even a clear explanation in the DEQ report), it is hard to identify the principles underlying the classification decisions. The approach to groundwater risk classification may be particularly controversial since an impoundment that contains a very large volume of coal ash; extends below the water table; has documented groundwater standard violations at or beyond the compliance boundary; and discharges contaminated groundwater to surface water could be classified as Low Risk as long as no existing water supply wells users are affected.

Next Steps. DEQ has scheduled public meetings on the proposed classifications as required under the law. Those meetings will take place in March. The final decisions on classification will be made by the Coal Ash Management Commission. (Assuming the Commission can be reconstituted in time; see an earlier post on the Commission’s inability to act because appointments to the Commission violated the N.C. Constitution.)

Appointments to Environment/Energy Commissions Violated N.C. Constitution

February 1, 2016. On January 29, 2016, the N.C. Supreme Court issued a decision in McCrory v. Berger — a lawsuit filed by Governor Pat McCrory to challenge the constitutionality of two recent state laws that created new executive branch commissions dominated by legislative appointees. The ruling in the Governor’s favor means the three commissions cannot act until the General Assembly changes the statutes governing commission appointments.

Background. The lawsuit concerned appointments to the Coal Ash Management Commission, the Oil and Gas Commission, and the Mining Commission. The Coal Ash Management Act of 2014 gave the Coal Ash Management Commission authority to (among other things) make final decisions on closure of coal ash impoundments. The 2014 Energy Modernization Act eliminated the Mining and Energy Commission (created in 2012) and divided its regulatory responsibilities between a new Oil and Gas Commission and a reconstituted Mining Commission. In each case, the legislature gave itself the power to appoint a majority of the commission members.

The lawsuit filed by Gov. McCrory argued the legislative appointments violated the N.C. Constitution. In March of 2015, a special panel of three superior court judges ruled in the Governor’s favor, concluding that the N.C. Constitution bars legislative appointments to commissions that have executive authority. “Executive authority” generally means authority to implement existing laws as distinct from legislative authority to adopt new laws. See an earlier post on the superior court decision.

N.C. Supreme Court opinion. The N.C. Supreme Court opinion disagrees with the superior court decision on one key point — the Supreme Court ruled that the N.C. Constitution does not entirely bar the legislature from making appointments to executive branch commissions. The court interpreted the Constitution’s “appointments clause” to allow the legislature to make appointments to statutorily-created offices including commission seats. The court ruled, however, that legislative appointments to the Coal Ash Management Commission, Oil and Gas Commission and Mining Commission violated the separation of powers clause in Art. I, § 6 of the N.C. Constitution, which requires that “[t]he legislative, executive, and supreme judicial powers of the State government shall be forever separate and distinct from each other.”

The court concluded that the appointments scheme for the three executive branch commissions interfered with the Governor’s constitutional duty to insure that state laws are faithfully executed:

In light of the final executive authority that these three commissions possess, the Governor must have enough control over them to perform his constitutional duty. The degree of control that the Governor has over the three commissions depends on his ability to appoint the commissioners, to supervise their day-to-day activities, and to remove them from office.

The court pointed to three factors that combined to create an unconstitutional legislative interference with the Governor’s executive powers and responsibilities:

1. Each commission has authority to take final executive action (i.e., the Coal Ash Management Commission has the final authority to prioritize coal ash ponds for closure and approve final closure plans);

2. The legislature appointed a majority of the members to each commission; and

3. The legislature limited the Governor’s ability to remove commission members by allowing removal only for cause (such as misconduct).

The implication of the decision is that a separation of powers violation has occurred when all three conditions exist. The court included a footnote specifically suggesting that the outcome may be different with respect to a body like the Rules Review Commission that exercises a different kind of authority.

The court refused to address another separation of powers issue raised in the case. The Governor argued that the legislature also violated separation of powers by statutorily directing the Coal Ash Management Commission (CAMC) to operate “independently” of the executive department where it is housed. (Legislation creating the CAMC placed the commission under the Department of Public Safety.) The Supreme Court held the issue had been mooted by the portion of its decision ruling appointments to the CAMC unconstitutional. The issue could come up again if the legislature changes the appointments statute in response to the court’s decision, but leaves the “independence” provision in place.

Implications. The three commissions directly named in the case cannot act until the legislature changes the unconstitutional appointment provisions and new appointments are made. The Coal Ash Management Commission (CAMC) began meeting in 2014, but has not met since the March 2015 superior court decision that first ruled appointments to the CAMC unconstitutional. In the meantime, other pieces of the Coal Ash Management Act have moved forward; a newly appointed CAMC will need to catch up. The Oil and Gas Commission took over implementation of state laws on oil and gas development from the Mining and Energy Commission, so the court’s ruling could delay decisions related to hydraulic fracturing.

Two other pending lawsuits raising similar separation of powers issues may be affected by the McCrory v. Berger decision. The N.C. State Board of Education sued to challenge Rules Review Commission authority over rules adopted by the Board. The Board of Education raises several constitutional issues, including a separation of powers violation based on the fact that all Rules Review Commission members are legislative appointees. The McCrory v. Berger footnote about the Rules Review Commission seems to caution against assuming the court would also find RRC appointments to violate separation of powers. The footnote suggests that the Rules Review Commission’s specific function — to review and object to rules adopted by executive branch agencies — may put it in a different category than the commissions addressed in McCrory v. Berger.

Another pending separation of powers case in Wake County Superior Court challenges the constitutionality of appointments to the Mining and Energy Commission (MEC). The MEC seems to fit the McCrory v. Berger template: the commission had authority to take executive actions; the legislature made a majority of commission appointments; and the Governor only had the power to remove a commission member for cause. But the case also presents an additional question: Are actions taken by an unconstitutionally appointed commission void? Over a two-year period, the MEC developed and adopted state rules for hydraulic fracturing. Plaintiffs in the MEC case (Haw River Assembly and a Lee County property owner) have asked the Wake County judge to rule appointments to the MEC unconstitutional and void the rulemaking actions already taken by the commission. The superior court judge had delayed hearing the MEC case until the N.C. Supreme Court issued a decision in McCrory v. Berger. While the Supreme Court decision now provides a roadmap for addressing the separation of powers issue, it doesn’t provide any guidance on how a separation of powers violation affects past commission actions.

Court Refuses to Stay EPA Rule Reducing Power Plant CO2 Emissions

January 24, 2016. An earlier post described the basic requirements of a new federal rule (the Clean Power Plan) requiring existing power plants to reduce carbon dioxide (CO2) emissions. Note: That post described the draft rule out for public comment in 2014; the final rule approved by the U.S. Environmental Protection Agency in August 2015 differed from the draft rule in some details — including the specific state CO2 reduction targets — but the basic requirements did not change.

North Carolina’s Department of Environmental Quality (formerly DENR) opposed the rule early on and in October of 2015 joined 23 other states in a lawsuit challenging the final rule. (More on the McCrory administration’s objections to the EPA rule here.) Both the states and several business/industry groups attacking the rule in separate lawsuits asked the federal court to issue a preliminary injunction (or “stay”) to prevent EPA from implementing the Clean Power Plan rule until the lawsuits are resolved.

On January 21, the federal Court of Appeals for the District of Columbia denied all requests to stay implementation of the Clean Power Plan rule. The court’s order did not discuss the basis for denial in detail; the court simply said the requests failed to meet the high standards for issuance of a preliminary injunction, citing the U.S. Supreme Court decision in Winter v. Natural Resources Defense Council (2008). First, the court must be persuaded that the plaintiff is ultimately likely to win the case. A court will not give a plaintiff the immediate advantage of a stay restricting the defendant’s actions if the plaintiff’s arguments are unlikely to win out in the end. Even if the court finds the plaintiff has a likelihood of winning the case, the court will not issue a stay unless the plaintiff also shows that:

— The plaintiff is likely to suffer irreparable harm if the court doesn’t issue a preliminary injunction. In this case, the plaintiffs had to convince the court that allowing EPA to move ahead with implementation of the Clean Power Plan rule would cause immediate harm to the plaintiffs and that harm could not be remedied by a later ruling in the plaintiffs’ favor.

— The balance of equities tips in the plaintiff’s favor. In very simplified terms, the plaintiffs had to show that a stay would do more good than harm.

— An injunction is in the public interest. The public interest standard can work in favor of either the plaintiff or the defendant depending on the case. In the Winter v. Natural Resources Defense Council case, the U.S. Supreme Court decided that a preliminary injunction was not in the public interest because it would have restricted a particular type of military training exercise.

Since the Court of Appeals for the D.C. Circuit did not provide specific reasons for refusing to stay the Clean Power Plan rule, it is impossible to know exactly which of those standards the plaintiffs failed to meet. The decision doesn’t necessarily mean the court thinks the state and business/industry plaintiffs have a weak case against the rule; failure to meet the other criteria could also lead to denial of a stay. It is probably safe to say, however, that the court did not believe the states or the business/industry plaintiffs will be harmed by allowing the Clean Power Plan rule to go into effect.

In asking for a stay, the states identified two kinds of harm — waste of state resources to comply with a federal rule that may be struck down by the courts and a much more nebulous harm to state sovereignty. On the question of potentially wasted state resources, EPA pointed out: 1. the federal rule gives states until 2018 to develop a state plan to meet the CO2 reduction targets; and 2. a state can also simply opt out and let EPA develop a CO2 reduction plan for its electric utilities. The first actual CO2 reduction target comes several years after approval of the state plans. The court seemed persuaded that the long planning and implementation timeline means states will not have to sink major, unrecoverable costs into Clean Power Plan compliance before the lawsuits are resolved.

It is hard to know what the court made of the somewhat novel argument that immediate implementation of the Clean Power Plan rule would irreparably harm state sovereignty. EPA pointed out that the Clean Power Plan rule gives states a lot of flexibility in developing plans to meet the CO2 emissions reduction targets. It is also difficult to argue the Clean Power Plan rule attacks state sovereignty without going to the next — much more radical step — of arguing that the federal government has no authority to regulate to protect air quality in the first place. In any case, if the federal court strikes down the Clean Power Plan rule as either unconstitutional or beyond EPA’s statutory authority that would seem to adequately remedy any hypothetical harm to state sovereignty.

The Court of Appeals agreed to expedite the Clean Power Plan lawsuits and set the case for hearing on June 2, 2016.

Practical effects — States will continue to face a 2018 deadline for submission of CO2 reduction plans. In one way, the impact on N.C. will be minimal because the state is already on a fast track to submit a plan to EPA in 2016. The catch, however, is that the plan proposed by N.C.’s Department of Environmental Quality relies entirely on tighter emissions limits for a small set of existing coal-fired power plants and will only result in a fraction of the CO2 reductions the federal rule requires. See another post for background on the McCrory administration’s intent to submit a plan that does not take credit for CO2 reductions associated with increased renewable energy generation and energy efficiency improvements already required under state law. The shortfall in CO2 reductions in the plan being prepared by DEQ will almost certainly result in EPA disapproval. Given the federal court’s denial of a stay, N.C.’s decision to deliberately fast track an unapprovable plan may mean the state will have to revisit the plan sooner rather than later.

2015 in Review — Legislation

January 12, 2016. Some trends in environmental legislation:

Limiting Local Government Authority. After several years of legislation limiting the regulatory authority of state environmental agencies, the General Assembly turned to local government.

♦ Senate Bill 119 (Session Law 2015-264) may have the practical effect of eliminating local government authority to regulate shale gas operations under zoning, land use, stormwater, health, and sedimentation control ordinances. In 2014, Session Law 2014-4 preempted local ordinances that “would prohibit or have the effect of prohibiting oil and gas exploration, development, and production activities, or use of horizontal drilling or hydraulic fracturing for that purpose”. But the 2014 law created a presumption that local zoning and land use ordinances applicable to other types of development (such as zoning, setbacks, buffers and stormwater standards) could also apply to shale gas operations.

Senate Bill 119 rewrites the 2014 provision to completely preempt local ordinances. The new Oil and Gas Commission (replacing the Mining and Energy Commission) now has power to preempt the application of local development ordinances even if the ordinance would not preclude shale gas development or conflict with state standards. Although the presumption in favor of zoning and land use ordinances still appears in the law, the 2015 amendments direct the Commission to preempt a local ordinance at the request of the shale gas developer if the drilling operation has received state/federal permits and the Commission finds that exploration and development

…will not pose an unreasonable health or environmental risk to the surrounding locality and that the operator has taken or consented to take reasonable measures to avoid or manage foreseeable risks and to comply to the maximum feasible extent with applicable local ordinances.

In effect, the Oil and Gas Commission can set aside any local ordinance and substitute its judgment about risk for that of local elected officials. Preemption of local ordinances could have several implications —

1. Complete preemption of local ordinances may leave gaps in basic regulation of shale gas activities since state standards do not address a number of issues normally dealt with by local government such as noise, traffic, solid waste disposal (trash — not drilling waste), and open burning.

2. The law potentially allows preemption of local stormwater ordinances needed to meet state water supply watershed protection standards; comply with federal stormwater permits; or minimize flooding. The Environmental Management Commission has adopted stormwater rules for shale gas operations, but those rules expressly recognize that additional stormwater standards may apply to a particular operation and reserve the right to apply those standards — whether implemented by DEQ or by a local government. The new preemption language in Senate Bill 119 does not recognize the possibility that local stormwater ordinances may be required under state or federal law.

3. The provision raises a question about implementation of sedimentation control requirements through local sedimentation programs. The state’s Sedimentation Pollution Control Act allows cities and counties to take over implementation of the sedimentation program. In areas with local programs, sedimentation control requirements are set and enforced through local ordinances. Nothing in Senate Bill 119 prevents the Oil and Gas Commission from preempting a local sedimentation ordinance.

♦ House Bill 44 included two provisions limiting local government authority to adopt or enforce other types of development ordinances —

Section 2 bars local governments from enforcing a “voluntary” state environmental rule, but defines “voluntary” rule in a creative way to include any state rule that has been repealed; has been adopted, but is not yet in effect; or has been “temporarily or permanently held in abeyance”. The last category would cover the Jordan Lake water quality rules that have been delayed by legislative action. Preventing local enforcement of existing Jordan Lake stormwater ordinances may have been the main purpose of the provision, but it could also raise questions about the enforceability of other local ordinances. No one has attempted to catalog all of the local ordinances that include requirements that once appeared in a now-repealed state rule or are proposed to be included in a new state rule that has not yet been adopted. The House Bill 44 provision seems to assume that local environmental ordinances always follow state regulatory action; it ignores direct grants (by the General Assembly) of local government authority to adopt ordinances to protect public health and the environment. For more on the implications of this provision, see an earlier post.

Section 13 limits local government authority to adopt riparian buffer requirements. The bill defines “riparian buffer” to mean any setback from surface waters — which could include a setback imposed for flood control. (The definition seems broader than other language in the provision specifically referring to riparian buffers for water quality protection.) Under the bill, a local government cannot adopt and enforce a riparian buffer ordinance for water quality protection that goes beyond requirements of state or federal law or the conditions of a state or federal permit unless the EMC approves the ordinance.

Shielding Evidence of Possible Environmental Violations

♦ House Bill 765 (the Regulatory Reform Act of 2015) creates a new legal privilege for information contained in an environmental audit report. (Companies use environmental audits to identify compliance problems; opportunities for waste reduction; and operational changes to reduce environmental impacts.) Information covered by the privilege does not have to be shared with regulators and cannot be used by regulatory agencies to document an environmental violation in a civil enforcement case. The privilege does not apply in a criminal case, but the vast majority of environmental enforcement actions rely on civil rather than criminal penalties. See the section on environmental audit privilege/self-disclosure immunity in this earlier post for more on the scope of the privilege.

♦ House Bill 405 allows an employer to take legal action against an employee who 1. enters a “nonpublic” area of the workplace; 2. takes photographs, makes recordings, or copies records without permission; and 3. uses those documents “against the interest of the employer”. The employer can sue the employee for monetary damages, including legal fees and a $5,000 per day penalty. Animal rights activists referred to House Bill 405 as the “Ag-Gag” bill — a term used for legislation targeting activists who go undercover on farms and in processing facilities to document animal cruelty violations. But House Bill 405 is not limited to agricultural workers or documentation of animal cruelty. The bill could also be used to punish an employee who documents illegal dumping of hazardous waste and shares the evidence with regulators or the media. See an earlier post for more on House Bill 405.

Lessening the Consequences for Some Environmental Violations.

♦ House Bill 765 grants immunity from civil penalties and fines for environmental violations that are voluntarily disclosed to state regulators. The bill defines “voluntary” disclosure; immunity would not apply to violations documented through information the company has a legal duty to report under state or federal law, for example. The bill limits how often a person (or company) can claim self-disclosure immunity — no more than once every two years; twice in a five-year period; and three times in a ten-year period. The bill never defines “civil penalties and fines”, leaving a question about the breadth of the immunity. For example, the bill is silent on whether “civil penalties and fines” includes natural resource damages such as fish kill damages assessed for a wastewater spill. For a more detailed comparison to past state and present U.S. Environmental Protection Agency enforcement policies on self-disclosed violations, see an earlier post.

♦ A provision in the budget bill (S.L. 2015-241) limits the total civil penalty for ongoing violations of the Sedimentation Pollution Control Act to $25,000 if: 1. the violator had not previously been assessed a penalty for a sedimentation violation (which does not necessarily mean the person has not previously violated the law); and 2. the violator addresses damage caused by the violations within 180 days. Previously, the law allowed the Department of Environmental Quality to assess a maximum penalty of $5,000 per violation, per day for continuing sedimentation violations. The fact that the meter on civil penalties could run until the violator addressed the problem created a powerful incentive for quick response — even though DEQ rarely assesses the maximum penalty. Quick action to correct a violation translates to less stream damage from uncontrolled erosion and sedimentation. The recent amendments have the somewhat perverse effect of assuring the violator that sedimentation violations can go uncorrected for nearly six months without resulting in an increased penalty. The provision also means that committing numerous sedimentation violations on the development site will result in the same penalty as a single violation. The new cap on continuing violation penalties also applies to penalties assessed by local sedimentation programs.

♦ House Bill 765 amends existing state laws to allow broader use of “risk-based” cleanup of environmental contamination. In a risk-based cleanup, the person responsible for environmental contamination is not required to fully restore contaminated soil and groundwater. A risk-based cleanup plan relies on a combination of limited remediation and land-use controls (such as deed restrictions) that prevent exposure to contamination remaining on the site after the partial cleanup. Groundwater cleanup costs represent a significant consequence of violating environmental laws — often exceeding penalties assessed by regulators — so allowing a more limited cleanup reduces the cost of violating the law. (It also means the groundwater may remain contaminated and unusable for a very long time.)

House Bill 765 extends the benefits of lower cost, risk-based cleanup to several categories of contaminated sites that had been excluded under the state’s 2011 law allowing risk-based remediation of industrial contamination. Two of those categories broaden the use of risk-based remediation in ways that may undermine incentives for present environmental compliance:

— New contamination incidents. House Bill 765 repeals statute language limiting use of risk-based remediation to contamination reported before the 2011 risk-based remediation law went into effect. In 2011, allowing risk-based cleanup of industrial sites was seen as an incentive for remediation of properties with longstanding contamination — often resulting from activities that had been lawful at the time. Remediation costs remained a significant incentive for present-day compliance with environmental standards. Removing the date restriction means that a risk-based cleanup will now be an option for new contamination incidents resulting from activities violating current environmental laws.

— Sites contaminated by petroleum releases from above-ground storage tanks (ASTs). There has long been a risk-based cleanup program for petroleum underground storage tanks (USTs), but UST operators also have to meet extensive regulatory standards to prevent future pollution incidents. House Bill 765 gives AST owners the benefit of risk-based cleanup without regulatory standards to prevent future releases.

Eliminating or Streamlining State Permit Requirements for Environmental Infrastructure

♦ The state budget (S.L. 2015-241) includes a provision that changes landfill permitting, allowing issuance of a single “life of site” permit to cover construction and operation of a landfill that often has a 30-year lifespan. State rules had previously required review and approval of the entire landfill site before construction, but also required each 5 or 10-year phase of the landfill to have a construction and operation permit. Landfill construction will continue to be done in phases for economic and practical reasons, but the “life of site permit” eliminates state compliance review for each new phase of the landfill. The change also seems to close the door on new permit conditions for construction or operation of later landfill phases in response to scientific or technological developments. The budget provision does not set minimum landfill inspection requirements in place of the 5 and 10-year phased permit reviews.

♦ House Bill 765 creates a new private permitting option for septic systems and other small on-site wastewater systems now permitted by local health departments. The provision allows a property owner to hire an engineer and soil scientist to approve the location and design of the system. The local health department will receive information about the system, but the engineer’s approval substitutes for a permit. It isn’t clear that the laws allows the health department to prevent construction of an engineer-certified system based on inconsistency with state siting and design standards.

Skepticism about State Water Quality Rules. The 2015 General Assembly continued to focus on water quality rules and particularly those affecting real estate development activities — such as stormwater standards, wetland and stream mitigation requirements, and riparian buffer protection rules.

♦ The state budget includes a special provision further delaying implementation of the Jordan Lake water quality rules for another 3 years or one year beyond completion of the Solar Bee pilot project (whichever is later). See an earlier post here on the 2013 legislation creating the pilot project. The rules had been developed by the state’s Environmental Management Commission to address poor water quality caused by excess nutrients reaching the lake in wastewater discharges and runoff from agricultural lands and developed areas. Since adoption of the rules, the legislature has taken repeated steps over several legislative sessions to delay compliance deadlines in the rules. This session, the legislature also barred local government enforcement of stormwater ordinances adopted to comply with the Jordan Lake rules.

♦ House Bill 765 limits regulatory authority and mitigation requirements for isolated wetlands and intermittent streams. (Isolated wetlands are wetlands that fall outside federal permitting jurisdiction under the Clean Water Act because the wetlands lack a connection to “navigable waters”.) These provisions continue a several-year legislative trend toward limiting protections for wetlands and waters to the minimum required under federal law.

♦ Some proposals to significantly roll back other water quality rules (particularly stormwater and riparian buffer rules) failed this session, but became the subject of legislatively mandated studies. Among the studies required before the April 2016 legislative session: a study of coastal stormwater rules; a study on the feasibility of entirely exempting linear utility projects (such as pipelines) from environmental standards; and an Environmental Review Commission study of the state stormwater program.

Expanding Use of Erosion Control Structures on Ocean and Inlet Shorelines

♦ A provision in the budget bill (S.L. 2015-241) changes state rules on use of sandbag structures on the oceanfront. Rules adopted by the N.C. Coastal Resources Commission have limited use of protective sandbag structures to situations where a building faces an imminent erosion threat. (These sandbag structures are substantial in size and can have many of the same long-term impacts as permanent seawalls; the rules do not apply to sandbags used to prevent water from entering a building during a flood event.) The budget bill changes the standards to allow an oceanfront property owner to install a sandbag structure to align with an existing sandbag structure on adjacent property without showing an imminent erosion threat to a building on their own property.

♦ The budget bill also increases the number of terminal groin structures that can be permitted at the state’s ocean inlets from four to six and identifies New River Inlet for location of two of the additional structures. See an earlier post for more on earlier legislation allowing construction of terminal groins as a pilot project. The latest provision continues a several-year trend of reducing regulatory requirements for approval of terminal groin projects and increasing the number of projects that can be permitted.

2015 in Review — Budget Trends

January 6, 2016. The past year brought significant changes in environmental laws, environmental rules and funding for environmental protection and conservation. Sometimes the overall picture only becomes clear at the end. First, a look at the impact of 2015 budget decisions on environmental and conservation programs.

TRENDS:

— Separation of environmental research, education and conservation programs from environmental protection programs. The state budget moved a number of nonregulatory programs from the Department of Environment and Natural Resources (DENR) to a new Department of Natural and Cultural Resources. The programs being transferred: the Division of Parks and Recreation, N.C. Museum of Natural Sciences, N.C. Aquariums, the N.C. Zoo, the Natural Heritage Program and the Clean Water Management Trust Fund (CWMTF). The new department combines those programs with historical and cultural programs previously in the Department of Cultural Resources. The 2015 reorganization continues a series of program transfers intended to reduce the state’s environment agency to just the environmental regulatory programs. (In previous legislative sessions, the General Assembly transferred the Division of Forest Resources and the Division of Soil and Water Conservation from DENR to the Department of Agriculture and Consumer Services.) In some cases, the transfers have separated regulatory and non-regulatory water quality programs originally intended to work as partners in a common effort. DENR has now been renamed the Department of Environmental Quality or “DEQ”.

— Reduction in state funding for voluntary efforts to improve and protect water quality. The General Assembly created the Clean Water Management Trust Fund (CWMTF) in 1996 to fund projects to prevent water pollution and restore water bodies impaired by pollution. CWMTF complemented the water quality regulatory program by providing incentives for voluntary measures such as preservation of riparian buffers and extension of sewer lines to areas with failing septic systems. Since 2008, the General Assembly has reduced annual appropriations to the Trust Fund by 90%. In 2014, legislation diluted the original CWMTF focus on water quality protection by authorizing use of the Trust Fund for acquisition of historic sites and development buffers around military bases. In 2013-2014, the General Assembly pulled funding away from the core CWMTF competitive grant program for use in a legislatively mandated pilot project and the 2015 budget earmarks additional funds for the Solar Bee project. (See an earlier post on Jordan Lake for background on the Solar Bee pilot project.) The 2015 reorganization has the effect of also moving the Clean Water Management Trust Fund into a new department with a focus on management of public attractions rather than environmental quality.

— Disinvestment in data collection on rare and endangered species. Since 1985, the N.C. Natural Heritage Program has researched, classified and inventoried the state’s natural resources, including rare and endangered plant and animal species. Information collected by the program can be used to document the natural resource value of property donated for conservation purposes and to assess the environmental impacts of development projects. State agencies like the Department of Transportation, local governments and private developers have relied on the Natural Heritage Program for information necessary to plan projects and meet environmental standards. Following significant cuts in the previous budget cycle, the 2015 budget reduced funding for the Natural Heritage Program by another 40%. The program now has a statewide staff of six people. Disinvestment in state collection of information on rare and endangered species will not make the requirements of the Clean Water Act and the Endangered Species Act go away. Loss of the Natural Heritage Program as a reliable and current source of information may, however, increase the amount of time and money developers have to invest to comply with those requirements.

— Less state funding to cleanup petroleum contamination from underground storage tanks/ lower cleanup standards. The budget eliminates a state fund for cleanup of petroleum contamination from small petroleum underground storage tanks (USTs) such as home heating oil tanks. The Noncommercial UST Trust Fund has assisted property owners with the cost of soil and groundwater remediation caused by leaks from farm, home and small commercial USTs. The budget allocates additional money to cover pending claims, but petroleum releases reported to DEQ after October 1, 2015 will not be eligible for funding. As a trade off for loss of state assistance with cleanup costs, the budget bill limits the amount of soil remediation DEQ can require. See an earlier post for more on the change in cleanup standards for noncommercial UST sites. Elimination of the Noncommercial UST Trust Fund means that the cost of cleaning up petroleum contamination discovered in the future will fall entirely on the homeowner, farmer or business.

The budget reduced funding for the Commercial UST Trust Fund (which helps offset the cost of cleaning up petroleum contamination from larger USTs) by $600,000. The budget also replaced the Commercial UST Trust Fund’s ongoing annual appropriation from the Highway Fund with a one-time appropriation and a requirement for legislative review to determine whether the Commercial UST Trust Fund should be continued. The Commercial UST Trust Fund operates like an environmental insurance program for the owners of large, commercial USTs. The existence of the Trust Fund allows commercial UST owners to comply with federal rules requiring tank owners to have financial assurance to cover environmental remediation costs. In the absence of the Commercial UST Trust Fund, tank owners would have to meet those requirements through self-insurance, bonding or purchase of an environmental insurance policy.

— Elimination of transfers from the Highway Fund to environmental programs. For many years, the General Assembly has earmarked a small percentage of Highway Fund revenues for environmental programs related to transportation. The most significant recipients have been the Commercial and Noncommercial UST Trust Funds, DEQ’s air quality program, and the Shallow Draft Navigation Dredging Fund. The 2015 budget replaces Highway Fund transfers to the Commercial UST Trust Fund, the Mercury Pollution Prevention Fund, and DEQ’s air quality program with onetime appropriations and directs legislative appropriations committees to study whether the transfers — and the programs receiving the transfers — should be continued in the future, funded differently or eliminated entirely. The transfers represent a significant amount of funding for the Commercial UST Trust Fund (approximately $13.3 million in 2015) and the air quality program ($7.2 million in 2015). On the other hand, the budget actually increased the transfer from the Highway Fund to the Shallow Draft Navigation Dredging Fund.

— Increased funding for oyster cultivation, water/sewer infrastructure grants, dam safety inspectors, shale gas exploration, coastal dredging and state parks. A few programs received increased funding for the two-year budget cycle. The largest budget increases went to maintenance dredging of shallow draft navigation channels at the coast ($40 million); state water/wastewater infrastructure grants for rural and economically distressed communities ($17.4 million); and the state parks system ($11 million). The budget also earmarks $500,000 for additional state testing to identify potential shale gas deposits.

— Eliminating special fund accounts for environmental permit fees. For many years, the General Assembly created “special fund” accounts in the DEQ budget for permit fees. The special fund accounts existed to insure fee revenue would be used only to support the permitting program; for example, mining permit fees went into the Mining Fund to be used exclusively to support the mining program. These special funds were “non-reverting” accounts which means any fee revenue unspent at the end of the state fiscal year rolled over into the next fiscal year budget for the permitting program instead of reverting to the state’s General Fund. Business and industry tended to support creation of special fund accounts to insure permit fees didn’t subsidize unrelated state government activities. In 2015, the General Assembly continued a several-year trend of eliminating special fund accounts and shifting fee revenue in those accounts to the General Fund budget. This year, the General Assembly eliminated special fund accounts for mining fees, stormwater fees, and soil remediation fees. State law still requires DEQ to use the fee revenue to support the permit program that generated the fees, but any unused funds will revert to the state’s General Fund at the end of the fiscal year. Once reverted to the General Fund, the legislature can appropriate the fee revenue for any purpose.

RESULTS:

1. A smaller, more strictly regulatory, environment agency.

2. A reduced state commitment to voluntary water quality improvement projects and collection of information on rare and endangered species.

3. A smaller state role in cleanup of environmental contamination from privately owned petroleum underground storage tanks. (A role that may shrink further depending on the results of legislative review of the Commercial UST Trust Fund in 2016.)

4. Increased legislative control over fee revenues generated by environmental permitting programs.

5. Uncertainty about future funding for air quality programs and the Commercial UST Trust Fund.

6. Increased state investment in programs potentially affecting economic development such as state parks, water and sewer infrastructure, maintenance of navigation channels, shale gas exploration, and oyster cultivation.

Challenging Environmental Permits

November 17, 2015. The U.S. Environmental Protection Agency (EPA) recently warned the North Carolina Department of Environmental Quality (DEQ) about the possible consequences of inappropriately restricting citizen appeals of Clean Water Act (CWA) and Clean Air Act (CAA) permits. For news reports on EPA’s letter to DEQ Secretary Donald van der Vaart see the N.C. Coastal Review here and the Raleigh News & Observer here. The EPA letter of October 30, 2015 expressed concern about two recent cases in which an administrative law judge ruled in favor of DEQ without conducting a full hearing on the permit appeal. In each case, the judge concluded that conservation organizations challenging a state-issued permit failed to show the permit decision “substantially prejudiced” their rights — a threshold requirement under state law. EPA believes the decisions conflict with federal laws and rules that guarantee the right of citizens to appeal Clean Water Act and the Clean Air Act permits. EPA noted that the conflict could jeopardize North Carolina’s delegated authority to issue federal water quality and air quality permits. This post will focus on the permitting programs involved in the cases that caught EPA’s attention — Clean Air Act operating permits for large air pollutant sources (Title V permits) and Clean Water Act wastewater discharge permits (National Pollutant Discharge Elimination System or “NPDES” permits).

Delegation of Clean Air Act and Clean Water Act permitting. EPA has authority to issue both Title V permits and NPDES permits, but Congress also allowed EPA to delegate permitting authority to a state with an approved permitting program. All 50 states have approved Title V permitting programs; 46 of the 50 states have approved NPDES permitting programs. N.C. has long had delegated permitting authority for both programs. Delegation gives the state some flexibility in program implementation and allows permit applicants to interact with state rather than federal staff on permitting and enforcement issues.

Requirements for approval of a delegated program. The CAA, CWA and rules adopted by EPA set standards for state program approval. Basically, the standards require a state program to include requirements and protections consistent with federal law. After initial approval, the state must continue to meet those standards; otherwise, EPA can withdraw program approval and take over permitting in the state. EPA’s October 30, 2015 letter concerned the requirement for state programs to provide opportunity for judicial review of permit decisions.

The federal rule on NPDES program approval, 40 CFR 123.30, requires the state to provide an opportunity for judicial review of final permit decisions comparable to review available in federal court for a federal NPDES permit decision. The rule goes on to say:

A State will not meet this standard if it narrowly restricts the class of persons who may challenge the approval or denial of permits (for example, if only the permittee can obtain judicial review, if persons must demonstrate injury to a pecuniary interest in order to obtain judicial review, or if persons must have a property interest in close proximity to a discharge or surface waters in order to obtain judicial review.)

A similar requirement applies to Title V permitting programs delegated to states under the Clean Air Act. Under 40 CFR 70.4 (b)(3)(x), a state Title V program must:

Provide an opportunity for judicial review in State court of the final permit action by the applicant, any person who participated in the public participation process provided pursuant to § 70.7(h) of this part, and any other person who could obtain judicial review of such actions under State laws.

Note that “any person who participated in the public participation process” could mean literally anyone who commented during the public notice and comment period before issuance of the permit.

The North Carolina cases that attracted EPA’s attention. The EPA letter mentioned two recent N.C. permit appeals —

♦ N.C. Coastal Federation, et al v. N.C. DENR, Division of Air Quality and Carolinas Cement Company LLC (appeal of the air quality permit issued to Carolinas Cement Company for a cement plant near Wilmington known as the Titan plant). In a series of three appeals, four conservation organizations challenged the initial air quality permit for the Titan plant issued in 2012 and two sets of permit modifications approved in 2013. State law allows any “person aggrieved” by a permit decision to file a petition for a hearing; the petition for hearing must include “facts tending to establish that the agency …. has deprived the petitioner of property, has ordered the petitioner to pay a fine or civil penalty, or has otherwise substantially prejudiced the petitioner’s rights”. (G.S. 150B-23). In effect, the law requires a petitioner to identify some harm.

The petitions for hearing noted that members of the four conservation organizations live, work, boat and fish in the area around the Titan plant site and argued that air emissions and mercury deposition from the plant would affect their quality of life, health and recreational activities. In each of the three cases, the administrative law judge agreed the petitioners were “persons aggrieved” by the permit decision but nevertheless ruled that petitioners failed to show the permit decision substantially prejudiced their rights. The most recent decision also concluded that the two earlier administrative decisions settled the question of petitioners’ failure to show substantial prejudice so the issue would not be reconsidered in the context of the last permit modification. The decision has been appealed to the N.C. Court of Appeals.

♦ Pamlico-Tar River Foundation and N.C. Coastal Federation v. N.C. DENR, Division of Water Resources and Martin Marietta Materials Inc. (appeal of an NPDES permit to discharge wastewater from a Martin Marietta quarry to Blounts Creek). The two organizations appealing the permit submitted affidavits that the wastewater discharge would interfere with members’ use and enjoyment of the waters of Blounts Creek for fishing and recreation; hamper education and environmental restoration efforts undertaken by the organizations; and affect the economic interests of two organization members operating water-related businesses on Blount’s Creek. The administrative law judge’s decision dismissed the permit appeal on the grounds that the petitioners were not “persons aggrieved” by the permit decision and had failed to show substantial prejudice to their rights. A Beaufort County superior court judge overruled this decision and sent the permit appeal back to the administrative law judge.

EPA clearly believes the restrictive decisions on standing in these cases conflict with the very broad right to judicial review of permitting decisions under the Clean Water Act and Clean Air Act. A DEQ statement in response to media questions about the October 30 letter characterized the EPA concerns as a misunderstanding of state law. In each case, the judges’ rulings had come at the request of DEQ.

N.C. Environmental Legislation 2015: The Bills

October 12, 2015. The legislative session finally ended in the wee hours of September 30 and changes to state environmental laws continued to be in play until the very end. Several of the provisions discussed below were enacted as part of House Bill 765 (the Regulatory Reform Act of 2015) which has not yet been signed by the Governor. H 765 contains too many pieces to completely catalog here; some have been very controversial. The other bills referenced in the post have already become law.

Not a complete list, but some of the most significant changes affecting the environment:

“AG-GAG” LEGISLATION. House Bill 405 allows an employer to take legal action against an employee who: a. takes photographs, makes recordings, or copies records; b. in a nonpublic area of the workplace; c. without permission; and d. uses those documents “against the interest of the employer”. H 405 allows the employer to sue the employee for monetary damages, including legal fees and a $5,000 per day penalty. Animal welfare activists have characterized these kinds of bills as “ag-gag” legislation intended to prevent documentation of animal cruelty at agricultural operations. House Bill 405, however, does not just affect agricultural workers or documentation of animal cruelty. The restrictions could also affect employee efforts to document ongoing environmental violations such as improper disposal of hazardous substances. See an earlier post for more on the implications of H 405. Note: Governor Pat McCrory vetoed H 405, but the General Assembly overrode the veto to allow the bill to become law.

FRACKING. One of the final bills of the session, Senate Bill 119, severely limits local regulation of hydraulic fracturing (“fracking”) operations. First, a little background. 2014 legislation prevented local governments from banning fracking altogether, but G.S. 113-415.1 allowed cities and counties to continue to apply ordinances applicable to all development in the jurisdiction — such as zoning and stormwater ordinances — to fracking operations. The state’s Mining and Energy Commission had authority to override a local ordinance that had the effect of precluding natural gas exploration and development.

Senate Bill 119 rewrites the 2014 law to invalidate all local ordinances that directly regulate fracking, preempting ordinances that go beyond or conflict with state standards for hydraulic fracturing operations. The bill also allows the oil and gas operator to challenge the application of more general local ordinances (such as zoning and stormwater ordinances) to fracking operations. These challenges go to the state Oil and Gas Commission (which has replaced the Mining and Energy Commission in regulating oil and gas operations). The Commission will decide “whether or to what extent to preempt the local ordinance to allow for the regulation of oil and gas exploration, development, and production activities”. The 2015 amendments clearly give the Oil and Gas Commission very broad power to preempt even general development ordinances. Preemption does not require a finding that the ordinance precludes natural gas exploration and development or conflicts with state standards. As long as the natural gas operator has received state/federal permits, the bill seems to direct the Commission to preempt application of general development ordinances to fracking operations if the Commission finds that fracking

…will not pose an unreasonable health or environmental risk to the surrounding locality and that the operator has taken or consented to take reasonable measures to avoid or manage foreseeable risks and to comply to the maximum feasible extent with applicable local ordinances.

STATE ENVIRONMENTAL POLICY ACT. For over 40 years, the State Environmental Policy Act (SEPA) has required environmental review of projects involving expenditure of public funds or use of public lands. An earlier post provides some background on SEPA. House Bill 795 limits environmental review under SEPA to projects that: 1. involve expenditures of $10 million or more in public funds; or 2. affect 10 acres or more of public lands and result in permanent changes to the landscape. The new thresholds mean many public projects with potentially significant impacts will be exempt from SEPA review. For projects that still require SEPA review, House Bill 795 narrows the scope of review to direct project impacts — excluding indirect impacts and the combined effects of similar projects. The final version of the bill made some exceptions to these changes as applied to interbasin transfers (the movement of water from one river basin to another for water supply). All interbasin transfer proposals will continue to require SEPA review without regard to the amount of public money or public land involved and the scope of review will include direct, indirect and cumulative impacts.

In an ironic twist, H 795 requires the Department of Environmental Quality (DEQ) to create a new environmental review process for water/wastewater infrastructure projects that receive loans from the Drinking Water Revolving Loan Fund or the Clean Water Revolving Loan Fund. Federal rules require those projects to go through an environmental review equivalent to review under the National Environmental Policy Act. Eliminating SEPA review for smaller revolving loan projects had the unintended effect of shifting the projects back into a lengthier federal environmental review process. In short, legislators liberated the projects from SEPA only to create a SEPA-like environmental review process to avoid the still worse fate of federal review. The entire debate over H 795 indicated a lot of confusion about how SEPA works and the likely impact of the bill. See another post for more on the misconceptions about SEPA that seemed to shape H 795.

LOCAL ENVIRONMENTAL ORDINANCES. The legislature also took aim at local environmental ordinances. Section 2 of House Bill 44 includes a somewhat opaque provision barring local governments from enforcing “voluntary” state environmental rules. The words “voluntary” and “rule” do not generally exist in the same space; a rule, by definition is not voluntary. The provision may really be intended to stop local implementation of stormwater ordinances adopted to comply with the Jordan Lake water quality rules. Section 2 applies not just to local implementation of the elusive “voluntary” state rule, but also to implementation of state rules that have been repealed; rules that have been adopted, but are not yet in effect; or rules that are “temporarily or permanently held in abeyance”. The Jordan Lake rules fall into the last category as a result of earlier legislation delaying state implementation of the rules.

The new provision affects both issuance of new development permits and enforcement of conditions on permits that have already been issued. Barring enforcement of conditions on previously issued permits has implications for both developers and local governments. The questions that immediately come to mind (using the Jordan Lake stormwater requirements as an example): Can development already permitted under the Jordan Lake stormwater standards move ahead without meeting any stormwater requirements? or Will the development require a modified permit to reflect stormwater standards that might have applied prior to local adoption of the Jordan Lake stormwater ordinances?

Section 13 of House Bill 44 limits local government authority to adopt riparian buffer requirements. The bill defines “riparian buffer” to mean any setback from surface waters — which could include a setback imposed for flood control. But much of the provision has been written to refer specifically to riparian buffers for the protection of water quality. Under the bill, a local government cannot adopt and enforce a riparian buffer ordinance for water quality protection that goes beyond requirements of state or federal law (or the conditions of a state or federal permit) unless the Environmental Management Commission approves the ordinance.

The bill also requires riparian buffers affecting residential lots to be shown on the subdivision plat. And an unusual provision addresses development projects that meet riparian buffer requirements by designating buffers as common area or open space:

When riparian buffers are placed outside of lots in portions of a subdivision that are designated as common areas or open space and neither the State nor its subdivisions holds any property interest in that riparian buffer area, the local government shall attribute to each lot abutting the riparian buffer area a proportionate share [of the buffer area] ….for purposes of development-related regulatory requirements based on property size, including, but not limited to, residential density and nonresidential intensity calculations and yields, tree conservation purposes, open space or conservation area requirements, setbacks, perimeter buffers, and lot area requirements.

Allocating buffers designated as common area to adjacent property owners for purposes of meeting development standards may create some complications for developers. Instead of allowing common area buffers to be used to offset density limits (or other requirements) for the development as a whole, the bill requires the benefits to go to individual lot owners. For example, a lot owner may be able to build on a greater percentage of the platted lot because a proportional share of the adjacent buffer would be counted toward the lot area. But whatever flexibility the lot owner gains will be lost to the developer who can no longer use the riparian buffer common areas to offset built-on area (for example) throughout the development as a whole.

ENVIRONMENTAL AUDIT PRIVILEGE/SELF-DISCLOSURE IMMUNITY. Two of the most important changes to state environmental law can be found in House Bill 765 (the Regulatory Reform Act of 2015). The bill creates a new privilege for information a company gathers on its own environmental violations, preventing use of the information in a civil case. (The privilege does not apply in a criminal prosecution.) The bill also grants immunity from civil penalties and fines for environmental violations voluntarily disclosed to state regulators. Supporters of the bill believe these protections will encourage companies to conduct environmental audits to identify and correct environmental violations more quickly.

The bill excludes certain types of information from the audit privilege (such as data required to be reported under state and federal law). Although the bill creates some exceptions to the audit privilege, most of the exceptions require state regulators to show the violator deceptively withheld information or failed to correct violations in a timely way — which may be difficult without access to the audit information itself. H 765 protects environmental audit information from use in both civil penalty cases and in actions to compel cleanup of environmental contamination.

Although less clear, the bill may also shield environmental audit information from a private plaintiff seeking compensation for personal injury or property damage caused by an environmental violation. The section of the bill creating the audit privilege says flatly that the audit information “is privileged and, therefore, immune from discovery and is not admissible as evidence in civil or administrative proceedings”. That section of the bill does not limit the privilege to environmental enforcement cases brought by the state. On the other hand, the section of the bill on revocation of the audit privilege has been written only to allow the “enforcement agency” to ask a court to revoke the audit privilege. The bill needs to be clarified in one direction or the other — either the privilege applies only to state enforcement actions or it applies to other civil actions and the opportunity to ask for revocation of the privilege should be broader.

The self-disclosure immunity provisions in H 765 grant immunity from civil penalties and fines based on voluntary disclosure of the violation. The bill sets conditions that must be met to make a self-disclosure “voluntary”. The final version of the bill also put limits on how often a person (or company) can claim self-disclosure immunity — no more than once every two years; twice in a five-year period; and three times in a ten-year period. The bill never defines “civil penalties and fines”, leaving some questions about the breadth of the immunity being granted. For example, the bill is silent on whether “civil penalties and fines” includes natural resource damages. (An example would be fish kill damages assessed as a result of a wastewater spill.)

For a more detailed comparison to past DENR and present U.S. Environmental Protection Agency enforcement policies on self-disclosed violations, see an earlier post. Note: EPA has long opposed statutory audit privilege out of concern that withholding information from regulators will hamper effective environmental enforcement.

RISK-BASED REMEDIATION. House Bill 765 also makes changes to state laws allowing the person responsible for environmental contamination (the “responsible party”) to do a partial cleanup of groundwater and soil contamination by relying on land-use controls to limit future exposure to contamination that remains on the site. The biggest changes:

♦ Sites where contamination has migrated onto adjacent properties would become eligible for risk-based cleanup. Existing law requires contamination that has migrated off the property where it originated to be remediated to “unrestricted use standards” — meaning levels safe for any possible land use without reliance on land use controls to prevent exposure to contamination. That effectively means remediation of contaminated groundwater to meet state groundwater standards. Risk-based cleanup of contamination on adjacent properties had not been allowed because of the additional complications of managing exposure to those contaminants on property the responsible party does not control. H 765 makes a risk-based cleanup on adjacent property possible with the property owner’s permission. The cleanup would have to meet the same remediation standards applied to the source site with an additional stipulation that the remediation plan cannot cause contaminant levels on the adjacent property to actually increase.

♦ The bill removes statute language that had limited risk-based remediation to contaminated sites reported to DENR before the risk-based remediation law went into effect in 2011, allowing lower-cost, risk-based remediation as an option for future pollution events.

♦ H 765 adds new categories to an existing statutory list of sites excluded from these particular risk-based remediation provisions. The new exclusions cover coal ash disposal sites and animal waste management systems.

♦ The bill creates a separate risk-based remediation program for above-ground petroleum storage tanks (ASTs). The AST program closely follows the model of the basic risk-based remediation statute, but imposes lower fees on the person responsible for cleanup.

WHAT DIDN’T HAPPEN AFTER ALL. Other high profile (and controversial) changes came and went as the legislation session wound down. Among the proposals discarded for now:

♦ Broad changes to riparian buffer rules. Proposals to significantly roll back riparian buffer requirements for nutrient sensitive waters fell away in negotiations between the House and Senate. Instead, House Bill 44 requires a study of the buffer rules, including ways to reduce regulatory burden on owners of property platted before their adoption. The legislature did enact a few limited changes to buffer requirements. House Bill 44 directs the Environmental Management Commission to allow case-by-case modification of the requirement to maintain woody vegetation in riparian buffers if the landowner shows that alternative measures will provide equal or greater water quality protection. House Bill 765 alters state stormwater rules to (among other things) allow more intensive development in riparian buffers along shellfish waters, outstanding resource waters and high quality waters if stormwater from the development is collected, treated and discharged through the vegetated buffer. The provision doesn’t put any upper limit on the amount of impervious surface allowed in the area previously known as a buffer, so it isn’t clear how much vegetated buffer will remain to discharge the stormwater through.

♦ Repeal of state fees supporting electronics recycling programs. The repeal proposed by the Senate turned into a legislative study of electronics recycling.

♦ Repeal or significant rollback of the state’s Renewable Energy Portfolio standard. Efforts to freeze the REPS standard at 6% of retail sales failed. (Although not before popping up in multiple bills.)

♦ LImits on the state Environmental Management Commission’s authority to adopt federal air quality standards. The proposal could have put North Carolina’s delegated Clean Air Act program at risk. In the end, the General Assembly settled for a provision prohibiting the state air quality program from enforcing federal standards for wood heaters. The provision doesn’t have any real effect since EPA has never delegated enforcement of the standard for wood heaters to the states.

The next session of the N.C. General Assembly convenes on April 25, 2016.

N.C. Environmental Legislation 2015: The Budget

October 9, 2015. Now that the General Assembly has adjourned, a look at legislative actions affecting the environment. First, the state budget for 2015-2017.

Among the most significant impacts:

♦ REORGANIZATION. The Clean Water Management Trust Fund and the Natural Heritage Program — originally intended to protect and restore water quality and identify important natural areas — have been separated from the environmental protection programs in the Department of Environment and Natural Resources (DENR). The budget transfers the CWMTF, Natural Heritage Program, Museum of Natural Sciences, state park system, N.C. Aquariums and N.C. Zoo from DENR to a newly organized Department of Natural and Cultural Resources. The move combines conservation and ecological education programs with state historic sites and cultural resources. The new department appears to be organized around management of the programs as public attractions rather than as research and education partners to state environmental protection programs. As a result of the reorganization, DENR becomes the Department of Environmental Quality (DEQ).

Whatever the merits of the move for facilities like the Museum of Natural Science and N.C. Zoo, the Clean Water Management Trust Fund and Natural Heritage Program do not fit the new department’s basic organizing principle. Unlike the “attractions”, the CWMTF and Natural Heritage Program provide no public facilities and exist primarily to protect water quality and identify important natural resources.

The General Assembly created the Clean Water Management Trust Fund (CWMTF) in 1996 to fund projects to prevent water pollution and to restore water bodies already impaired by pollution. CWMTF’s non-regulatory approach complemented water quality rules protecting state waters. Originally, CWMTF grants funded acquisition of riparian buffers to reduce polluted runoff into streams and rivers and extension of sewer lines where failing septic systems threatened surface water quality. In moving CWMTF, the 2015 budget severs its connection with other state efforts to restore and protect water quality. The move follows 2014 legislation diluting the original CWMTF focus on water quality protection by authorizing use of the Trust Fund for acquisition of historic sites and buffers around military bases.

The Natural Heritage Program researches, classifies and inventories the state’s natural resources, including endangered and rare plant and animal species. Information collected by the program can be used to document the conservation value of property and to assess the environmental impacts of projects requiring state and federal environmental permits. The program has a much closer working relationship to the environmental protection programs that remain in DENR than to public attractions like the N.C. Zoo and Aquariums. (Note: The 2013 state budget eliminated the Natural Heritage Trust Fund which had been a source of funding for conservation of important natural areas; the CWMTF has become the funding source for those projects as well.)

♦ LANDFILL PERMITTING. The budget changes landfill permitting, allowing issuance of a single “life of site” permit to cover construction and operation of a landfill that may have a 30-year lifespan. State rules had previously required review and approval of the entire landfill site before construction, but also required each 5 or 10-year phase of the landfill to have a construction and operation permit. Moving to a “life of site” permit reduces the number of permit reviews for each landfill operation, changing the permit fee schedule and cutting funding for the state’s solid waste management program by 20%. The change also reduces state oversight of landfill operations. Landfill construction will continue to be done in phases for economic and practical reasons, but the “life of site permit” eliminates state compliance review for each new phase of the landfill. The change also seems to eliminate the possibility of imposing additional permit conditions for construction or operation of later landfill phases in response to technological developments or new knowledge of risks to groundwater and other natural resources. The budget provision does not set minimum inspection requirements in place of the 5 and 10-year phased permit reviews.

The bill also creates a legislative study of local government authority over solid waste collection and disposal, including ordinances on solid waste collection; fees for waste management services; and potential for privatization. The study suggests the General Assembly may focus next on reducing local solid waste regulation. That will be a somewhat different discussion, since solid waste disposal has long been a local government responsibility so local fees and ordinances have a direct connection to city/county collection and disposal services.

♦ LEAKING PETROLEUM UNDERGROUND STORAGE TANKS. The budget eliminates a state fund for cleanup of petroleum contamination from small petroleum underground storage tanks (USTs) such as home heating oil tanks. The Noncommercial UST Trust Fund has assisted property owners with the cost of soil and groundwater remediation caused by leaks from farm, home and small commercial USTs. The budget allocates additional money to the Noncommercial UST Trust Fund to cover pending claims, but limits use of the Fund to cleanup costs associated with leaks reported to DENR by October 1, 2015. All claims for reimbursement of those costs must be filed by July 1, 2016.

The budget provision also prohibits DENR from requiring removal of petroleum-contaminated soils at noncommercial UST sites that have been classified as low risk. The problem — risk classifications have been based on groundwater impacts; a low-risk classification does not mean that contaminated soils on the property pose no health hazard. Current UST rules require remediation of contaminated soils to levels safe for the intended land use (residential versus nonresidential) without regard to the overall risk classification of the site. Soil remediation standards have been based on the potential health risks associated with exposure to petroleum-contaminated soil. Adverse health effects may include increased cancer risk since petroleum products contain a number of carcinogens. The budget provision may allow petroleum-contaminated soils to remain on residential properties at levels putting children at particular risk of adverse health effects.

♦ JORDAN LAKE WATER QUALITY RULES. The budget allocates another $1.5 million (from the Clean Water Management Trust Fund) to continue the 2013 pilot project to test use of aerators to improve water quality in the Jordan Lake system. The budget also has a special provision further delaying implementation of the Jordan Lake water quality rules for another 3 years or one year beyond completion of the pilot project (whichever is later). The rules had been developed by the state’s Environmental Management Commission to address poor water quality caused by excess nutrients reaching the lake in wastewater discharges or in runoff from agricultural lands and developed areas. See an earlier post here on the 2013 legislation creating the pilot project.

♦ COASTAL EROSION CONTROL. A special provision in the budget also changes state rules on use of sandbag seawalls and terminal groins in response to coastal erosion. State coastal management rules have only allowed use of temporary sandbag seawalls to protect a building facing an imminent threat from erosion. The same rules prohibit construction of the seawall more than 20 feet seaward of the threatened building. (These sandbag seawalls are substantial structures built on the beach in response to oceanfront erosion; the rules do not apply to sandbags used to prevent water from entering a building during a flood event.) The budget bill allows an oceanfront property owner to install a sandbag seawall to align with an existing sandbag structure on adjacent property without showing an imminent erosion threat to any building on their own property. Since the bill allows construction to align with the adjacent sandbag seawall, the new seawall may also be more than 20 feet seaward of any building. The irony here — a property owner may want to install a sandbag seawall in these circumstances out of concern that the adjacent sandbag seawall may itself cause increased shoreline erosion.

The budget bill also increases the number of terminal groin structures that can be permitted at the state’s ocean inlets from four to six and identifies New River Inlet for location of two of the additional structures. See an earlier post for more on earlier legislation allowing construction of terminal groins as a pilot project. Note: No terminal groins have been completed under the original pilot program, so the state does not yet have any data on the actual impacts of these structures.

♦ RENEWABLE ENERGY TAX CREDIT. The budget bill allows the state’s 35% tax credit for renewable energy projects to sunset on December 31, 2015. A separate bill provides a “safe harbor” for renewable energy projects already substantially underway by that date. Those projects may qualify for a one-year extension of the tax credit. See Senate Bill 372 for more on conditions that apply to the safe harbor extension.

Confession is Good for the Soul

August 6, 2015. Back to an issue mentioned briefly in earlier posts on regulatory reform legislation — efforts to make environmental audits confidential and to extend immunity from penalties to environmental violators who self-report violations. In an environmental audit, a business or industry reviews its own operations for compliance with environmental standards. The N.C. Senate has made several attempts to enact legislation protecting the confidentiality of audit reports and provide immunity for violations identified in an audit and voluntarily reported to state regulators.

The most recent version of an environmental audit privilege/immunity provision appears in the Senate version of House Bill 765. That bill is now in a conference committee to work out differences between the House and the Senate. The Senate provision has two parts:

1. The bill creates an audit “privilege” to prevent state regulators from obtaining or using an audit report in environmental enforcement. The privilege does not apply in a criminal investigation, but In practice only the most egregious, intentional violations would be referred for criminal prosecution. Agencies rely almost entirely on civil penalty assessments to enforce environmental standards and the bill would prevent use of a company’s environmental audit report in a penalty case. The audit privilege does not cover Information the company has a legal obligation to report to the state or information independently discovered by state regulators. The bill also excludes other kinds of information from the privilege (such as records gathered before or after the certified dates of the audit and information deliberately withheld from an audit report.)

2. The bill offers immunity from civil penalties to a violator who voluntarily discloses an environmental violation to state regulators. (The bill does limit how often a company can claim immunity based on a self-reported violation.) Immunity would not extend to a criminal prosecution. To be considered “voluntary”, the disclosure must meet specific criteria. If there is a legal obligation to report the violation, disclosure would not be considered voluntary and the violator could not receive immunity. Other criteria in the bill condition immunity on prompt disclosure of the violation and timely action to correct the violation. See the text of the bill for a complete list of the factors used to distinguish voluntary disclosures from disclosures that would not qualify for immunity.

One way to understand the scope of the Senate proposal may be to compare it to an existing Department of Environment and Natural Resources (DENR) self-disclosure policy that has been in place since 2000 and to the U.S. Environmental Protection Agency’s enforcement policy on self-disclosed violations.

For DENR’s existing policy on enforcement discretion for self-reported environmental violations, see the DENR environmental self-audit policy (1995, updated in 2000). The longstanding DENR policy differs from the Senate proposal in several ways:

♦ The DENR policy provides guidance to DENR staff on the exercise of enforcement discretion for self-reported violations, but does not grant new legal rights to environmental violators. The Senate provision creates a both a new legal privilege (limiting the use of audit information in state enforcement cases) and statutory immunity from civil penalties.

♦ In allowing reduction or waiver of penalties for a self-disclosed violation, the DENR policy assumes full disclosure. Although the policy indicates DENR will not necessarily request the audit report, the policy encourages complete disclosure — including providing the audit report to document the existence of an internal management system to identify and correct violations. The Senate proposal tilts toward limiting both agency and public access to audit reports rather than encouraging full disclosure. Nothing in the bill assures DENR access to a full audit report, so a company could self-report a violation and provide DENR only as much information about the violation as it chooses. The one reference in the bill to the public’s right to information concerns information the company voluntarily provides DENR in self-reporting a violation.

♦ Unlike H 765, the DENR policy does not prevent the department from obtaining and using information in an environmental audit to enforce environmental standards.

♦ The DENR policy does not apply to investigative costs, natural resource damages, or to recovery (through penalties) of any economic benefit the company may have realized as a result of the violation. The Senate provision does not distinguish between different types of civil penalties and fines, so it isn’t clear whether the immunity provided under H 765 could also apply to investigative costs and natural resource damage assessments. Instead of clearly excluding recovery of economic benefit from the grant of immunity, the Senate provision makes “substantial economic benefit” a reason to consider the self-report of a violation involuntary — but puts the burden on the agency to show the company had a substantial economic benefit.

The U.S. Environmental Protection Agency also has a self disclosure policy. If a violator meets all nine conditions in the policy (including documenting use of an environmental audit or other internal environmental management system to improve compliance), EPA can completely waive penalties above recovery of any economic benefit realized as a result of the violation. If a violator meets all of the conditions in the policy other than documenting use of an environmental audit or environmental management system, EPA can reduce the part of the penalty that exceeds economic benefit recovery by 75%. EPA will not generally make a criminal referral of a violation meeting the conditions of the self-disclosure policy; the conditions tend to exclude violations likely to result in a criminal referral in any case. The federal policy does not provide legal immunity from penalties; does not apply to recovery of any economic benefit realized by the violator; and does not limit EPA’s ability to obtain and use environmental audit information in either a civil or criminal enforcement action. In fact, EPA’s self-disclosure policy makes a strong statement opposing both legal privilege for environmental audit materials and statutory immunity from penalties as inconsistent with effective enforcement of environmental standards.

So the H 765 provisions would go significantly beyond existing DENR and EPA self-disclosure policies in both creating a legal privilege shielding environmental audit reports from use in enforcement cases and in granting statutory immunity from civil penalties for many self-reported violations. The immunity provided under H 765 may also extend to investigative costs; natural resource damages; and recovery of some economic benefit realized by the violator as a result of the violation.

The Senate proposal recognizes the need for EPA approval of the privilege/immunity provisions as they apply to enforcement of federally delegated environmental programs. As a result, the provision would only go into effect following EPA review.

The North Carolina Response to EPA’s Clean Power Plan Rule

July 26, 2015. In one way, the proposed U.S. Environmental Protection Agency (EPA) rule to limit carbon dioxide (CO2) emissions from power plants — expected to be final in August — looks like a typical air quality rule. The Clean Power Plan rule sets state by state reduction goals for a pollutant (CO2) from a particular set of of sources (electric generating facilities). But the rule takes an unusual and innovative approach to meeting those goals. The rule identifies four components (or “building blocks” in EPA rule-speak ) of a plan to reduce CO2 emissions associated with power generation : 1. reducing power plant CO2 emissions (the traditional Clean Air Act approach); 2. energy efficiency measures; 3. increased electric generation from renewable energy sources; and 4. transition of electric generation facilities from coal to natural gas. In effect, the rule aims to lower CO2 emissions per kilowatt hour used and allows the states to take credit for CO2 emissions avoided through increased energy efficiency and by shifting electric generation to energy sources with low or no CO2 emissions.

The proposed EPA rule requires each state to submit a plan for meeting its CO2 reduction target by June 30, 2016. The state plan can rely on any or all of the four “building blocks” in the EPA rule; it can also include measures that fall outside those categories as long as the plan achieves the CO2 reduction target for regulated electric generation facilities. If a state fails to develop a plan, EPA can create a federal plan for the state. An earlier post provides more detail on the proposed federal rule.

The McCrory administration has opposed the Clean Power Plan rule in written comments and in testimony before Congressional committees. In part, the administration has argued that the Clean Air Act does not authorize EPA to issue a rule that relies on measures — such as energy efficiency and increased reliance on renewable energy — that go beyond limiting pollutant emissions from regulated power plants. Last week, the practical implications of that position became more clear when DENR Secretary Donald van der Vaart told a Senate committee that the McCrory administration intends to resist the flexibility offered under the federal rule and submit a CO2 reduction plan based entirely on requiring additional CO2 emission reductions at power plants.

The Secretary’s comments came as a state Senate committee debated House Bill 571, which requires DENR to develop a state CO2 reduction plan with the participation of the public and the electric utilities. DENR did not support House Bill 571, but the bill passed the House with a bipartisan majority and the support of the state’s major electric utilities and environmental organizations. Last Wednesday, the Senate Agriculture and Environment Committee took up a substitute draft of H 571 that would prohibit DENR from taking any action or expending any state resources on development of a CO2 reduction plan until all legal challenges to the federal rule had been resolved or until July 1, 2016 (whichever came later). Asked to comment on the proposed substitute bill, Secretary van der Vaart indicated that DENR would prefer to submit a CO2 reduction plan by June 30, 2016 as required under the federal rule — but a plan based entirely on reducing power plant emissions.

Based on the Secretary’s statement, the McCrory administration response to the Clean Power Plan rule puts the state in a strange place:

♦ DENR has argued for an interpretation of the Clean Air Act that would force the federal rule to be more rigid and offer the state less flexibility to meet CO2 reduction targets. (A number of environmental law experts disagree with this narrow interpretation of EPA authority; the issue will likely have to be settled in court.)

♦ Based on this narrow interpretation of EPA authority, DENR intends to develop a state CO2 reduction plan that relies entirely on further reducing CO2 emissions from power plants even though existing state policies have North Carolina on a path to achieve much (if not all) of the necessary reductions through increased renewable energy generation, greater energy efficiency, and transition of power plants from coal to natural gas. Although DENR has not provided an analysis of the state’s ability to meet the state’s CO2 reduction target based on those existing policies, others have. You can find one (an analysis by the Natural Resources Defense Council) here.

♦ Relying entirely on lowering power plant emissions could make meeting the CO2 reduction target more difficult and more costly for electric utilities and consumers. Again, DENR has not provided a comparative analysis of the cost of relying entirely on power plant pollution controls versus a comprehensive CO2 plan that takes credit for energy efficiency measures, renewable energy generation and transitioning power plants from coal to natural gas.

Most states have started planning to meet the CO2 reduction targets. Even in coal-producing states where political opposition to the EPA rule tends to be highest, state air quality agencies have begun sketching out CO2 reduction scenarios in case the rule survives the expected legal challenges. Only one state — Oklahoma — has prohibited its environmental agency from developing a plan. A recent Washington Post story reported that even coal-dominated states like Kentucky seem confident of meeting the CO2 reduction target thanks in part to recent investments in renewable energy generation. It isn’t clear that any state other than North Carolina has decided to develop a plan based solely on CO2 reductions at coal-fired power plants.

Which leaves something of a public policy mystery. A state with significant advantages in renewable energy, energy efficiency and already on the road to transitioning power plants from coal to natural gas seems to have settled on a policy that throws those advantages away. Instead of working with electric utilities, consumers and environmental organizations to develop the most cost-effective CO2 reduction plan for the state, DENR intends to unilaterally develop a plan based entirely on reducing power plant emissions. It isn’t clear why or what that policy choice could cost the state.

Note: The Senate committee approved the substitute draft of House Bill 571 on Wednesday, but offered to continue talking to DENR about the content of the bill. The bill was pulled off the Senate calendar last Thursday; when the bill reappears on the Senate calendar, there may be amendments as a result of the ongoing discussions.

Update: The original post has been revised to make it clear that state CO2 reduction plans can also rely on measures other than those covered by the four “building blocks” identified in the EPA rule.

SmithEnvironment Blog

Environmental Law and Policy from a North Carolina Point of View