CRUDE EVALUATIONS: DO COURTS PROPERLY CONSIDER THE COSTS OF FOREIGN ENERGY RELIANCE?

By: LeeAnne Edmonds Applegate, Former Staff Member. This Comment was originally published in JNREL Vol. 20 No. 1.

Abstract by: Ramsey Groves, Staff Member

Montana Wilderness Ass'n. v. Fry, 310 F. Supp. 2d 1127 (D. Mont. 2004) was decided by the United States District Court for the District of Montana. In this crucial case, the court enjoined the continued use of a natural gas pipeline based on violations of the National Environmental Policy Act of 1969 (NEPA). In issuing the injunction, the court weighed the public interest in protecting the environment against the potential economic harm to the energy company. However, the court failed to consider the economic harm to the public. Arguably, the court erred because the policies and goals of NEPA indicate the relevance of economic harm to the public. On multiple occasions, the courts of the Ninth Circuit have exhibited faulty analysis of energy issues by refusing to consider the economic harm to the public despite the requirements of the NEPA.

The NEPA states that its goals include "identify[ing] and developing methods and procedures . . . which will insure that presently unquantified environmental amenities and values may be given appropriate consideration in decision-making along with economic and technical considerations." Thus, the NEPA states in no uncertain terms that economic impact should be considered. However, in Montana Wilderness Ass'n v. Fry, the Ninth Circuit recognized that the remedy for a NEPA violation is ordinarily an injunction, and the court stated that the factors to be considered include harm to the public and harm to the parties. The court further stated, "A third party's financial damages from an injunction generally do not outweigh potential harm to the environment." Based on this statement, the Ninth Circuit clearly places more weight on the environmental impact factor.

When balancing factors that include harm to the public, it is reasonable to expect a court to give appropriate consideration to economic harm to the public. This is certainly true when one considers the rising price of oil. This is of great importance because of the widespread use of petroleum products in our culture and the profound effect of these products on our national economy. Rising oil prices not only increase transportation and heating costs, but they also impact the costs of household items made from petroleum derivatives, such as diapers, deodorant, aspirin, dentures, golf balls, and compact discs.

Fortunately, not all circuits have the same view as the Ninth Circuit. The D.C. Circuit recognizes the value in reducing U.S. dependency on foreign oil. As such, the D.C. Circuit takes a more expansive approach by considering all of the factors articulated by Congress, including the economic harm to the public.

The Ninth Circuit clearly fails to comply with the NEPA policy of weighing economic harms. This circuit is the largest in the country geographically and includes within its jurisdiction the oil-producing states of California and Alaska. The Ninth Circuit's view is particularly troubling because, by failing to consider the impact of increased energy costs on the public, there is certainly a potential for great damage to the economy. Absent a Supreme Court decision mandating that the standards of NEPA are to be considered in their entirety, the Ninth Circuit is likely to maintain its problematic position.

The Battle Between Coal and Gas Rights Continues: Hazard Coal Corp. v. Kentucky West Virginia Gas Co.

This comment was written by former staff member Elizabeth Clevinger and published in JNREL Vol. 20. No. 1. Staff member Tanner James wrote the following abstract.

Coal and natural gas, despite the ongoing debates about their conservation, are undeniably important to modern society's history and future. Landowners of resource-rich property often grant rights of access to those entities that facilitate the extraction and use of these natural fuels. But, on occasion, conflict arises; and, courts must effectively determine the importance of each resource involved.

In Hazard Coal Corp. v. Kentucky West Virginia Gas Co., 311 F.3d 733 (6th Cir. 2002), a property dispute between a coal company and natural gas company resulted in a victory for natural gas—potentially signifying the end of an era of coal dominance. Hazard Coal Corporation owned the mineral property rights of the tract of land in question. Kentucky West Virginia Gas Company held limited rights to run pipelines through the property that would allow access and transportation of their natural gas. After years of conflict-free operation, the plaintiff sought to extract coal from the property in a location that required the natural gas pipelines to be destroyed or relocated at the expense of Kentucky West. When Kentucky West declined, this case came to trial.

Despite finding that the property agreement was violated by Kentucky West, the Court considered equity and policy, finding for the defendant. The equitable notion of acquiescence (e.g., the plaintiff knew or should have known that the defendant was violating the agreement, yet allowed the violation to continue without complaint) prevented the plaintiff from succeeding on claim of breach. Perhaps more importantly, however, is that the Court considered social policy in determining that Kentucky West should not face liability for decisions made by Hazard Coal.

There once was a time when coal was king, and courts used policy considerations to protect the interests of coal companies. If Hazard Coal Corp. v. Kentucky West Virginia Gas Co. is any indication, the pendulum is now swinging away from coal, in favor of other viable fuel resources.

“Federal Income Tax incentives for Energy from Renewable Resources”

Appearing in JNREL Vo1. 20, No.2, the following article was written by John Kaufmann. Staff member Kyle Hermanson wrote the following abstract. Readers should note that this article discusses the tax code as it existed at the time of the article's publication. Any person citing the article or engaged in tax planning should consult the current edition of the Code.

Countless experts have discussed the necessity for the United States to develop clean, renewable sources of energy in order to avoid the parade of horribles attendant upon continued dependence on fossil fuels. Despite this national dialogue, businesses and consumers have not invested heavily in renewable energy projects until recently. Two things are now beginning to make these projects cost effective. First, the tremendous increase in the cost of fossil fuel in the recent past has encouraged academics and business people alike to turn to renewable energy sources as a way to avoid the risks of price fluctuation in the fossil fuel markets. Second, the cost of energy from renewable sources is approaching that from traditional sources. Given these factors, investment in renewable energy sources presents a unique opportunity to do normative good and at the same time, to succeed economically.

When weighing an investment in a renewable energy project, one of the factors a business person needs to consider is the tax effect of the project. The Internal Revenue Code contains several sections which provide tax subsidies for users and producers of renewable energy sources. Many of these tax credits were added or amended by the American Jobs Creation Act of 2004 and Title XIII of the Energy Policy Act of 2005. The tax code implicates everything from events as small as a taxpayer adding a residential solar water heater or photovoltaic cell to events as large as an agricultural operation becoming an open-loop biomass energy facility. This article explores and explains the federal income tax benefits of renewable energy investments, listing subsidies and discussing their real effect on different classes of taxpayers.

“The Battle for the Bluegrass: An Overview of the Struggle Between Conservation and Development”

Appearing in JNREL Vol. 20, No.2 the following Note was written by former staff member Elizabeth Clevinger. Staff member J. Anthony Cash wrote the following abstract.

The Bluegrass Region of Kentucky has gained great economic benefit from its agricultural lands, particularly those utilized by the equine industry. In addition to money, these farmlands provide a cultural and aesthetic value that is unique to the region and irreplaceable. However, these farmlands can become a victim of their own success. For as with any economic boon, comes development. In the Bluegrass Region of Kentucky, such development can easily consume the farmlands that made such growth possible.

With such a clash of competing and coalescing interests, the struggle to strike a balance between development and conservation of farmland is difficult. It is made increasingly difficult because farmland is privately owned and thus protection of farmland depends upon the cooperation of landowners. However, the creation of several non-profit and governmental bodies that engage in the purchase or collection of donated easements has helped to ease this tension. The easements collected by these organizations guarantee that the land will be available for farm use in perpetuity by restricting the use of farmland upon which the easement is placed.

Even with these easements a number of factors can still affect the balance between development and conservation. First, the donation of these easements is heavily dependent on the tax deductibility of these easements. However, Congress has considered reducing the amount of the deduction granted for these types of donations. Additionally, funding for the purchase of additional easements by the local and state governments is becoming increasingly difficult because funding is drying up. Finally, the community of farmers, entrepreneurs, developers, and ordinary citizens of the Bluegrass has not decided exactly how to find the balance that is needed between development and conservation. While there is no simple answer, it is important that whatever solutions are used balance the need for conservation against the need for economic development.

“The Suitability of Government for Economic Valuation of Natural Resources and Environmental Harm”

Appearing in JNREL Vol. 20, No. 1, the following Note was written by former staff member LeeAnne Edmonds Applegate. Staff member Katie Huddleston wrote the following abstract.

Law and economics arose in the 1970's as a legal theory that promoted the application of economic principles to the law. Despite many evolutions over the past three decades, the theory has remained and has been applied to many legal fields, including environmental law. Its application in this field provides an interesting example of the theory at work and of the various criticisms made of the theory.

From the standpoint of law and economics, commercial transactions that produce environmental effects result in market failure. In such transactions, the environmental effects of consumer activities are not included in the price of such activities. Rather, these additional costs are borne by the larger society, people outside of the actual commercial transaction. In economic terms, this is a market failure. Therefore, government regulation has evolved in an effort to rectify this market failure by making the cost of such transactions to the consumer more closely approximate the larger cost of the activity to society.

The modern trend is to rectify market failure through the use of a "sin tax." A "sin tax" uses tax incentives to promote environmentally beneficial behavior, while imposing taxes for environmentally damaging behavior. The major problem with this approach is that to determine the appropriate amount for the "sin tax," the government must calculate the value of the environment and the societal cost of damage to it.

There are two main theories as to how to make these seemingly impossible valuations. Preservationists seek to set the tax according to an evaluation of the intrinsic value of the environment in its natural state. Conservationists, on the other hand, think the tax should be set according to the value of the environment as a resource. For example, when a tree is cut down, preservationists would value that tree in accordance with its function of air purification, soil retention, animal habitat, etc. Conservationists would set the value of the tree based on the value of the lumber that could be derived from it.

Aside from these two theories on valuation, there are two methods of economic valuation that can be used in setting the taxes. First is the Market Price Method. This method is useful when a market actually exists for the parts of the environment sought to be valued, such as products or resources derived there from. The current market price for the "commodity" is measured and studied for changes over time. This method is useful because it uses actual, easily identifiable and understandable data. However, it has limited applicability because of the limited markets for the environment and environmental goods. The market price may also bad indicator of the true, underlying value to society of such goods and activities, merely perpetuating the problem of market failure.

The other option is the Contingent Value Method. This method involves surveys in which people are interviewed about various hypothetical situations and asked to put a dollar value on an environmental service or commodity. This method has the benefit of being more flexible than the Mark Price Method. However, critics cite the time and effort that must be put into designing such surveys, the lack of actual observation of consumer behavior and the possibly inaccurate results that could result from it.

“The Outsiders: Broadening the Scope of Standing in the Whistleblower Actions in Light of Anderson v. U.S. Dep’t of Labor”

Former staff member Dawn Franklin wrote the following comment appearing in JNREL Vol. 20 No. 2. Staff member Sunni Harris wrote the following abstract.

In 1972, Congress passed the first Whistleblower Provision to protect employees that were discriminated against because they testified or filed suit under the Water Pollution Act. Since 1972, almost every state has enacted whistleblower statues to protect those bringing suits under environmental bills. However, as law surrounding this area matures, the question has become whether anyone other than employees and "authorized representatives of employees" have standing to bring a whistleblower claim against a company.

The court in Anderson v. Dep't of Labor, 422 F.3d 1155 (10th Cir. 2005), seems to answer this question in the negative. In this case, the mayor of Denver appointed the Plaintiff to serve as a political appointee on Metro Reclamation District's ("Metro") board in hopes that she would represent the aims of Metro's employee union ("OCAW"). Metro is a wastewater treatment plant. When the plaintiff discovered that Metro was planning to accept treatment wastewater from a Superfund site, she immediately spoke out against the plan to the public and press. As a result, Metro threatened the plaintiff with censorship and other sanctions. In response, the plaintiff filed a suit alleging that Metro's actions violated seven environmental whistleblower provisions.

The Anderson court held that the plaintiff's status as a political appointee precluded her from bringing a lawsuit against Metro pursuant to whistleblower statutes. The court's reasoning was two-fold. First, it determined that the plain language and congressional intent of the whistleblower statutes excluded her from the scope of their protection. Second, it determined that Anderson could not serve two masters. Specifically, Anderson could not be both an agent for the state of Colorado as a political appointee and an authorized representative of the OCAW board.

The Anderson court seems to underestimate the value of non-employee whistleblowers. Non-employees, including political appointees such as the plaintiff, should not fear retaliation from an employer upon reporting employer violations. Without the protection of the law to allow them to perform their jobs feely, a nonemployee's job becomes nearly impossible. Thus, in the future, courts should expand protection of whistleblower statutes to cover non-employees.

“Watch Your Speed... The EPA is Ticketing in Brazoria County v. Texas Commission on Environmental Quality”

Appearing in JNREL Vol. 21. No.1, the following comment was written by former staff member Haley Prevatt. Staff member Andrew Leung wrote the following abstract.

In deciding Brazoria County v. Texas Commission on Environmental Quality, 128 S.W.3d 728 (Tex. App. 2004), the Texas Appellate Court upheld legislation implementing environmental speed limits and other environmental regulations propagated by the Texas Transportation Commission as not violative of the Texas Clean Air Act, the Texas Transportation Code, and the Texas Administrative Procedure Act. "Watch Your Speed... The EPA is Ticketing in Brazoria County v. Texas Commission on Environmental Quality" examines the court's analysis and explains possible nationwide consequences of this decision.

The Federal Clean Air Act allows the Environmental Protection Agency ("EPA") to set national standards for cleanliness of ambient air, more commonly known as National Ambient Air Quality Standards ("NAAQS"). The NAAQS set permissible levels of pollutants in ambient air but do not contain a mandated method for obtaining that level. Because of the wide array of technological means available to meet NAAQS standards, each individual state has complete discretion to adopt a combination of control devices in order to meet national standards for ambient air.

In Brazoria County, the EPA found levels of pollutants elevated beyond the permissible NAASQ amounts in eight Texas counties in the Houston-Galveston area. The EPA subsequently ordered Texas to create a feasible plan to reduce pollutants to acceptable levels. In response, the Texas Commission on Environmental Quality ("TCEQ") implemented regulations which had three primary effects: (1) reducing of speed limits on state highways to 55 mph; (2) setting forth a vehicle inspection and maintenance program; and (3) prohibiting use of commercial lawn-maintenance equipment at times other than afternoon hours.

Brazoria County, one of the eight counties affected by the TCEQ regulations, brought suit against the TCEQ alleging that it exceeded its authority in promulgating the aforementioned regulations. The Court found that the implementation of the environmental speed limits ("ESLs") was an authorized act because the legislature later acted to ratify the ESLs statutorily. With respect to the vehicle inspection and maintenance and lawn-maintenance regulation, the Court held that they were beyond the scope of the Texas legislation because the regulations were implemented to meet federal NAAQS limitations.

Because the Court's decision in Brazoria County is legally sound and based primarily on precedent, it is unremarkable in that manner. One facet of the case left unaddressed by the court is the possible policy implications of the case. Here, residents of Brazoria County and eight neighboring counties were merely inconvenienced by the environmental regulations promulgated by the TCEQ. The Court's decision leaves open the possibility of more invasive regulation in Texas and the other states of the Union, perhaps even to the extent that the takings clause of the United States Constitution might be implicated.

“The Threatened and Endangered Species Recovery Act, or ‘The Wildlife Extinction Bill?’”

Appearing in JNREL Vol. 20, No.2 the following Note was written by former staff member Jacob Eaton. Staff member Jessica Drake wrote the following abstract.

When the Endangered Species Act ("ESA"), 16 U.S.C. §§ 1531-1544 (2005), was enacted, its framers designed it to meet its goals through four specific features: 1) providing discretion to the Secretary of the Interior in listing and delisting species; 2) implementing protection of species on a nationwide level; 3) giving the Secretary the power to acquire and protect from development habitats for these endangered species (a provision in the ESA termed "Critical Habitat Protection"); and 4) creating state programs supported by federal funds and abiding by federal standards. S. Rep. No. 93-307, as reprinted in 1973 U.S.C.C.A.N. 2989, 2990-2991. In the years since its inception, the ESA, while doing tremendous good in the eyes of some, has been criticized for the discretion it provides the secretary in the first feature. Criticisms also arise through the litigation of the critical habitat provision of the ESA. With respect to this provision, courts implemented a balancing test between the interests of the endangered and those of developers – a balance that endangered species all too often lost out on. Critics argue that this further frustrates the effort of ESA in its protective goals. Furthermore, opponents contend that throughout the history of the ESA, few species have moved up or off the lists in the years of protection, and that the act, therefore, does little to protect those species on the list. This lack of movement forces fewer species to be added over time and even those that should be added are often refused because of presumably more pressing concerns.

In response to these types of criticisms, Representative Pombo introduced the Threatened and Endangered Species Recovery Act of 2005 ("TESRA"), H.R. 3824, 109^th Cong. (2005) as a remedy for the existing problems faced by the ESA. In his view, the ESA has largely failed in its attempt to conserve and provide recovery for endangered/threatened species and that this new legislation will ultimately improve the success rate in this area. The TESRA deviates from the ESA in many respects, most radically with a focus on incentives to private landowners to establish conservation plans on their own. The TESRA mechanisms such as cooperative agreements between states and Indian Tribes and improved recovery plans might provide greater protection for endangered species; however, the other deviations from the ESA, those of narrower definitions, broader exceptions, and repeal of critical protections (like habitat protection), could very much outweigh the improvements.

While the push behind the TESRA is one insisting of greater conservation and preservation of endangered species, it comes in disguise. The reality of its implementation is one that will not only frustrate three of the four objectives established by the ESA but also weaken the protections afforded to the endangered and threatened species of the United States created by the ESA. Because TESRA focuses on the private property owner, it focuses less on the species that should be paramount in conservation legislation. The kinds of incentives provided to landowners would be expensive to the budget of the Act and not dependent upon actual implementation, only a proposed plan to conserve sometime in the future. With the narrow focus of the proposed Act, the criticism and problems created by the ESA will not be solved.

“Mother May I? California’s Struggle for Clean Air Under the Federal Government’s Preemptive Thumb: Engine Manufacturers Ass’n v. South Coast Air Quality Management District”

Appearing in JNREL Vol. 20 No. 2 the following comment was written by former staff member Anne Todd. Staff member Tara Hester wrote the following abstract.

The federal Clean Air Act (CAA) is superior to the laws of the states and cannot be preempted. Not only does the CAA rely on this general rule of preemption, but has explicit preemptory language as well, stating that "no state shall adopt or attempt to enforce any standard relating to the control of emissions from new motor vehicles . . . . " Engine Manufacturers Ass'n v. South Coast Air Quality Management District, 541 U.S. 246,252 (2004), involved the implementation of " Fleet Rules" issued by the South Coast Air Quality Management District (AQMD), and is centered on whether those "Fleet Rules" constituted a standard in violation of the CAA.

During World War II, Los Angeles began to see the effects of increasing industrialization in the form of severe air pollution. Due to California's distinctive air pollution problems, Congress recognized that more stringent measures would be needed to combat the poor air quality, and the CAA granted California exclusive authority to set tougher emission standards than those implemented by the federal government.

The defendant in the subject case, AQMD, has the responsibility of ensuring the Los Angeles area achieves certain air quality standards. AQMD enacted "Fleet Rules" requiring various public and private operators of area fleets of fifteen or more vehicles to buy alternative fuel or cleaner fuel vehicles when these vehicles were commercially available. The fleet rules did not regulate manufactures, but set purchase requirements for when new vehicles were needed. However, the Engine Manufactures Association (EMA) said the purchasing requirements were standards preempted by the CAA and therefore not enforceable.

The District Court's decision is centered on an extensive analysis of the preemption doctrine. The court noted that the CAA states that fleet rules must be established in areas of high pollution, and it does not seem logical that the CAA would authorize purchasing requirements in the form of fleet rules and then prohibit them as the adoption of a "standard". The Court stated that in the area of traditional local police powers, such as air pollution prevention, the presumption is that local powers are not preempted.

However, the Supreme Court took a different view, characterizing the AQMD's Fleet Rules as standards and therefore in violation of the CAA. The Court first stated that if AQMD could enact standards, then other political subdivisions could do the same, and this would undo Congress's regulatory scheme. However, the most significant error the Court made was its reliance on a textual interpretation of the CAA rather than a broader look at the preemption doctrine. As suggested by the dissent, AQMD's purchasing requirements were not mandates because they only required the purchase of lower emission vehicles that were already on the market, and were not applicable if the fleet operators required models that were unavailable in a cleaner fuel model. Also, while the fleet rules may have reduced the demand for higher emission vehicles, it would not have completely destroyed the market for them.

By disallowing AQMD's fleet Rules, the Court took away a direct route to air quality improvement and forced AQMD to work through the California legislature to get results implemented. The AQMD must go back to the long line of those awaiting Congress' attention in order to make a change affecting fuel emissions. Additionally, agencies like the AQMD will no longer be able to provide strong incentives for manufacturers to create "cleaner" vehicles. This extremely broad reading and application of preemption led the Court to essentially ignore public policy reasoning in support of air quality.