Expanded Version: Environmental Issues GCs Must Have on Their Radar

For much of the corporate world, going green is no longer just a trend--it's a mandate.

Many factors have caused the shift, including President Obama's energy programs, a global focus on industries' effects on climate change, dwindling natural resources and the messy aftermath of the largest oil spill in U.S. history.

Faced with complex regulations and increasingly high expectations, general counsel find themselves at the helm of their companies' environmental compliance programs and sustainability initiatives. They must achieve the delicate balance of becoming green stewards while remaining corporate defenders.

But as environmental law is, by nature, exceedingly scientific and ever-changing, it can be difficult for in-house lawyers to distinguish the issues that are most affecting business at any given moment.

The five environmental topics in this article are ones impacting companies of all sizes, across all industries. GCs are wise to hone their focus on these subjects in order to better manage their departments, budgets and goals as the public and the government continue to push for corporate environmental accountability.

Read the version of this story that appeared in the April 2011 print issue of InsideCounsel.

Drying Up

Seventy percent of the Earth's surface is covered by water. It's the natural resource that, to many people, seems the most abundant, the most renewable and the most dependable.

However, 99 percent of the planet's water is unusable for humans. The majority of freshwater is frozen in glaciers and icecaps, and about 0.3 percent of the usable supply is found in rivers and lakes. The rest is nonrenewable groundwater.

States in the Southwest share water sources, so each receives a specific allotment of the supply, negotiated at length under an interstate compact known as the Colorado River Compact, signed in 1922 by seven states in the river's basin. Some states are at risk of losing their unused allotments to states that demonstrate greater need if those states choose to litigate the issue, as has happened several times in the past. The most notable of these cases is the 1963 Supreme Court case Arizona v. California, in which the court stepped in to determine each state's allotment under the agreement.

Arizona and Nevada are two states at risk for losing their unused allotments. Both receive their water from the Colorado River, which also supplies highly populated Southern Californian cities such as Los Angeles and San Diego. As states plan for the future, they must look for ways to justify their supplies, explains Venable Partner John Cooney. In many cases, he says, states will emphasize their agricultural needs because of the safety net provided by agriculture's prominent position in American policy debate.

"When I worked for a utility in Arizona, I was always dumbfounded to see what they were growing in the middle of the desert," Cooney says. "But they told me, 'That farm is actually the future of the state because we're trying to protect our water supply so it doesn't get sucked up by California, and we understand that this is a very low-value use, but as long as we're using it for agriculture, we can hold onto [our water allotment.]'"

Another way states can hold onto water allotments is by bringing in industries that use a substantial amount of water, such as paper mills. For businesses, especially those looking to relocate or expand factories and plants in the coming years, researching the available water supply in the states where facilities are proposed is vital. Experts agree that companies should be securing the necessary water supply for business operations several years out.

"At a minimum, you'd want to have an understanding as to what the required water supply would be for the useful life of your facility and hopefully longer than that, so you'd have the option of rebuilding that plant and continuing it," Cooney says.

In some cases, however, that could be easier said than done. The available freshwater supplies in the U.S. are depleting at a rapid rate. Take two of the West's main freshwater sources--the Colorado River and Lake Mead in Arizona. According to materials published by The Water Project, a non-profit dedicated to bringing clean drinking water to communities worldwide, the Colorado River is beginning to run dry in certain areas, and the U.S. Bureau of Reclamation may soon impose fines on hundreds of homeowners who currently pump water from the river illegally. The case of Lake Mead is perhaps even more jarring. The lake, which provides 90 percent of Las Vegas' drinking water and powers the hydroelectric generator at the Hoover Dam, has lost more than half of its capacity since 1998. According to The Water Project, some researchers estimate that the lake could be dry by 2021.

As national water supplies dwindle, companies--especially those whose operations are highly dependent on water--can't afford not to secure water access early. The availability of water, based both on physical supplies and on regulatory preservation measures, should be a top concern for general counsel as companies plan for future business operations. Tom Lindley, partner and chair of the environment, energy and resources practice at Perkins Coie, suggests that in-house counsel also take time to meet with outside counsel in assessing water issues.

"It all goes back to that old phrase--it's difficult to remember that your initial objective was to drain the swamp when you find yourself up to your waist in alligators," he says. "There's got to be a certain percentage of one's time and energy that's devoted to the longer-term objectives and concerns. In-house counsel obviously need to know their own business thoroughly and its requirements, but they ought to have occasional get-togethers with their outside counsel to talk about some of the longer-term issues."

Desalination Debate

With freshwater supplies drying up rapidly, science has stepped in with a solution, albeit a pricey one. Desalination, the process of converting ocean saltwater into usable fresh water, is a possible solution to water scarcity in the U.S. and elsewhere in the world. Last year, Australia announced a $13.2 billion desalination initiative in which it plans to build plants in its five largest cities that will someday allow those cities to obtain up to 30 percent of their water supply from saltwater sources.

Most environmentalists discourage desalination, due to the energy required to power the process and the significant ecological footprint it leaves. For businesses, the price tag may be the even bigger deterrent.

"The shortage would have to become more acute, and the demand would have to stay the same or increase for this to become cost-effective," says Gabrielle Sigel, co-chair of the climate and clean technology practice at Jenner & Block.

GHG Regulations

Establishing a definitive greenhouse gas (GHG) emissions policy has been a lengthy crusade, both globally and nationally. But right before Christmas, the Environmental Protection Agency (EPA) issued a new plan to regulate GHGs under the Clean Air Act.

On Dec. 23, 2010, the EPA passed a final rule that requires major utilities in the U.S. to obtain state-issued air permits in order to emit GHGs. The rule, which went into effect just a few days later on Jan. 2, affects new stationary sources and existing sources completing upgrades. To obtain a permit, utilities must prove they are controlling their emissions in the most efficient way and with the best available control technology (BACT).

In accordance with the EPA's Tailoring Rule, the permitting rule and forthcoming emissions standards only apply to the largest emitters, such as fossil fuel power plants and petroleum refineries, which contribute 40 percent of total U.S. GHG pollution, according to the EPA. The standards for power plants and refineries will be announced in July and December, respectively, and finalized in May 2012 and November 2012.

Environmental attorneys say the rules are less stringent than many industries anticipated. "Most power companies and refineries have been getting ready for carbon constraints that are stricter than what the EPA is doing under its rulemaking," says Mary Anne Sullivan, a partner in Hogan Lovells' Energy and Climate Change practices and former general counsel for the Department of Energy.

Challenges Abound

In February, Republican members of Congress--including Sen. James Inhofe, R-Okla.; Rep. Fred Upton, R-Mich.; and Rep. Ed Whitfield, R-Ky.--were proposing bills that would effectively strip the EPA of its authority to regulate GHGs. Not surprisingly, the GOP also is calling for more drastic slashes to EPA funding, already reduced by $1.3 billion in President Obama's 2012 budget.

Dozens of companies, industry associations, advocacy groups, states, government entities and lawmakers have sued the EPA. The plaintiffs allege the agency's endangerment finding--in which it deemed GHGs, including carbon dioxide (CO2), dangerous pollutants--is incorrect, and therefore the agency has no power to regulate GHGs.

Texas has been the most outspoken state opposing the emissions permits. When the permitting rule was issued, the Lone Star State refused to comply, citing economic losses that would result from the regulations. On Dec. 30, 2010, in Texas v. EPA, the D.C. Circuit granted a stay on the rules, but it was short-lived. On Jan. 12, a three-judge panel ruled that the EPA would take over Texas' permitting program.

The turbulence surrounding the EPA's rules has only increased various industries' discomfort. "When businesses see that kind of uncertainty and political bickering, they're going to attempt to delay the regulations, no matter how limited they look, and try to make them less burdensome," says Hogan Lovells Partner Patrick Raher.

Claudia O'Brien, a partner at Latham & Watkins and co-chair of the firm's Global Climate Change Practice Group, says businesses are worried about how GHG emissions changes will affect the shaky economy. "Manufacturing in this country has taken a beating in the past couple of decades, and the fear is that if you add this greenhouse gas regulation on top, ultimately you're going to force companies to curtail operations and ship overseas," she says.

CO2 Conundrum

According to Quarles & Brady Partner Cynthia Faur, "there is currently no economically or technically feasible technology to reduce greenhouse gas emissions."

And attempting to reduce emissions under the Clean Air Act leaves some experts skeptical. Mark Thimke, a partner in Foley & Lardner's Environmental Regulation Practice, says the BACT provisions of the Clean Air Act that Congress passed in 1977 were aimed at traditional pollutants, such as soot. "You had the ability to look at either product substitution or off-the-shelf equipment to control them," he says. But regulating greenhouse gases, particularly CO2, is a different story. "We're taking a different type of pollutant, for which we don't have readily available control technology, and we're grafting it onto the [Clean Air] Act," Thimke says.

All experts interviewed agreed that it would have been far easier to regulate CO2 through climate change legislation.

"There is no doubt that the Clean Air Act is a cumbersome vehicle that was never designed to deal with greenhouse gases," O'Brien says. Additionally, she notes, the state-led approach to tackling GHG emissions will be tough on cash-strapped governments. "It doesn't really make sense for the states to take the lead in something that's a global problem," O'Brien says.

Some businesses worry that these initial regulations are the first step in a grander plan involving the costly process of carbon capture and storage. "If we're moving in the direction of carbon sequestration facilities, which are at this point fairly unproven and uncertain in terms of cost and where they can be located, business is unable to predict project costs and might be hesitant to invest in particular projects," Thimke says.

Winners and Losers

As GCs grapple with the financial and logistical challenges of reducing GHG emissions, many experts recommend completing an energy audit to gauge current efficiency. They suggest examining manufacturing processes, transportation costs, weight of shipping goods and product lifecycles.

O'Brien says that within the realm of climate change regulation, there are bound to be winners and losers. "Ultimately, companies that are more efficient and can produce their product for fewer tons of greenhouse gases are going to be advantaged vis-a-vis their competitors," she says.

According to Latham & Watkins Partner Robin Hulshizer, corporate leaders must do two things as they develop their GHG compliance plans: Build and strengthen infrastructure to document and report compliance, and think about risk-mitigation functions. "Generally, mitigation strategies will include looking at technologies within your industry sector that can capture or reduce greenhouse gas emissions, examining renewable resources and exploring types of technology that can generate energy without emissions," she says.

Meanwhile, counsel should anticipate a slow-moving permitting process, and as a result, postponed projects. "You have to anticipate that there will be potential challenges to your permit, and there will be potential delays in permitting as state agencies are trying to wrap their arms around the new requirements," Faur says. "There will likely be hearings, and there may be comments from stakeholders as to your fact determinations."

No Money, More Problems

At press time, the budget battle for Fiscal Year 2012 was being waged in Washington, with many lawmakers arguing for reduced spending on environmental projects. Companies relying on government grants to fund their green projects may need to reassess the feasibility and longevity of those programs.

"As part of the drive to reduce the deficit, we're going to see a lot of incentives and tax programs for greener operations under attack," says Mary Anne Sullivan, a partner in Hogan Lovells' Energy and Climate Change practices and former general counsel for the Department of Energy. "If they are eliminated, then promises that companies may have made to their boards, shareholders and major customer groups and constituencies will suddenly be much more expensive to implement."

Toxic Torts

When plaintiffs claim they've been exposed to hazardous chemicals through buildings or contaminated products, general counsel can face messy lawsuits alleging their companies are responsible for an array of health problems.

In addition, the Environmental Protection Agency (EPA) has been issuing increasingly stringent toxicity standards for various chemicals. As businesses try to meet stricter regulations while simultaneously greening their operations, the potential for corporate liability grows. Environmental law experts say that GCs who are worried about toxic tort litigation must stay informed and seek the best help when faced with problems.

Chemical Crackdown

For in-house lawyers who are intimidated by the complex science--not to mention lengthy names--of chemical compounds, experts suggest having at least a strong base knowledge of a few major categories.

Hogan Lovells Partner Dan Dunn says there is a whole host of chemicals that are the basis of recent toxic tort lawsuits, but the most common ones are volatile organic compounds (VOCs). Present in everyday household products such as paint and cleansers, VOCs can cause health effects ranging from dizziness to central nervous system damage, according to the EPA.

The VOC trichloroethylene has frequently come under attack. "Over the years it has been the most predominant chemical of concern, simply because it's a ubiquitously used chemical for degreasing and other solvent purposes," Dunn says. Also targeted in lawsuits is perchloroethylene, which is used in the dry-cleaning process.

Heavy metals are another chemical category subject to litigation. One example is hexavalent chromium, used to produce stainless steel and prevent corrosion, among other things. This was the alleged contaminant of the groundwater in Hinkley, Calif.--that story was told in the 2000 movie "Erin Brockovich."

A compound that has recently become more stringently controlled is perchlorate, which the EPA says can affect thyroid function in humans. "[Perchlorate is] associated with a number of industrial activities, many of which were Defense Department-related in the making of munitions," Dunn says. In February, the EPA announced that it was for the first time regulating perchlorate in drinking water. The agency claims that between 5 million and 17 million Americans could be consuming water containing the chemical.

Companies that must clean up their contaminated properties should be prepared for rising costs as the EPA develops stricter regulations. "More stringent standards will impact the type and expense of remedies for cleanups," says Mary Rose Alexander, a partner at Latham & Watkins. Furthermore, she says, any company that has an environmental problem on its hands should be prepared for the possibility of litigation from day one. "Work with your environmental consultant to make sure you're following the regulations and not doing anything that will hurt your litigation defense," she says.

Staying Strong

Environmental attorneys consistently offer the same advice for GCs faced with toxic tort lawsuits: Hire experts.

"General counsel should immediately engage knowledgeable and experienced environmental and toxic tort counsel," says Dunn. "At the very beginning of these cases, there are a number of measures that can be taken to preserve evidence and begin the development of a strategy if the claims are serious."

It's also wise for GCs to assemble a team of experts in specialized fields such as toxicology and risk assessment, and contaminant fate and transport. Often the alleged source of contamination is remote from the location where a plaintiff claims exposure occurred. Scientific experts can best determine how a contaminant could or could not have traveled through surface water, groundwater or air from the point of release to the point of alleged exposure.

"For example, if a contaminant was allegedly released to the air, experts can use air dispersion modeling, which analyzes the temperature of the land, wind direction and speed, and other meteorological and physical factors that determine how a compound moved, dispersed and diluted into the atmosphere," Dunn says.

Dose-reconstruction experts can determine the exact harm an alleged contaminant presented by determining the chemical concentration at the site of alleged exposure. "The dose makes the poison," says Dunn. "To determine what the dose was at a site is a huge challenge that requires an interdisciplinary team. Getting those folks on board early on when faced with litigation is important."

The legal department should take steps to manage the litigation, too. "As a GC, you want to immediately look at what your insurance coverage is, because the defense costs could be extensive," says Mark Thimke, a partner in Foley & Lardner's Environmental Regulation Practice.

If a case does go to trial, the core of the defense should be causation. Alexander suggests a hardball approach to disproving any "junk science" presented by the plaintiffs bar. "Focus on the real science to find a way to poke holes in the plaintiff's case from the outset so that their experts get disqualified. If your company is prepared with good lawyers and experts, and you are prepared to take the case to the end, most likely, in our experience, you either win or the plaintiff's lawyers come begging to settle after you create a situation that's going to require them to spend a lot of money."

Trendy Suits

The chemicals most frequently targeted in toxic tort litigation have varied through the years.

"PCBs [polychlorinated biphenyls] became the chemical of the day in the 1970s," says Mark Thimke, a partner in Foley & Lardner's Environmental Regulation Practice. "Then we moved into the realm of dioxins. Recently we've seen some concern with the chemical commonly known as Teflon [polytetrafluoroethylene]."

Thimke foresees companies involved in nanotechnology facing increased toxic tort litigation threats because it's a growing sector continuously innovating commercial and consumer products in a variety of industries, such as electronics, medicine and power.

"The EPA is starting to look at the various aspects of nanotechnology and what those very fine chemicals can do," Thimke says.

Valuable Resource

General counsel who want to stay informed about the latest toxicity analyses of compounds should look to the Agency for Toxic Substances and Disease Registry, a federal agency of the Department of Health and Human Services.

"By law, it's charged with publishing toxicological profiles on the compounds that are found most frequently at Superfund sites," says Dan Dunn, a partner at Hogan Lovells. "A lot of the toxic tort litigation over the years has piggybacked on the government's efforts to indentify sites that need cleanup. If there are residential or other populations living in the vicinity of a Superfund site, they are primary candidates for becoming plaintiffs in suits."

Risky Business

The "go green" movement that has permeated nearly every industry in the U.S. has been a public-relations boon to companies that can successfully market their sustainability efforts to an ever-growing environmentally conscious demographic. Businesses have focused on completing micro adjustments, such as boosting recycling and installing compact fluorescent light bulbs, to macro changes, such as greening their manufacturing processes and planning LEED-certified construction projects.

But experts warn that general counsel should exercise caution when their company's executives are eager to embark on green construction projects. Although such ventures offer potential benefits, there is always the chance for costly mistakes that can lead to lawsuits.

A risk that companies in all industries can face is the possibility of owning a building or facility with poor indoor air quality resulting from renovations that were likely made with the best intentions.

"Green building concepts add to the bottom line, but GCs need to know that there is a very serious potential downside if contracts aren't looked at carefully," says Patrick Raher, a partner in Hogan Lovells' environmental group. He says it's important to scrutinize contracts for protection and verify the truth behind energy-cost reduction claims.

If contractors don't properly complete green construction modifications, the renovated building or facility can become "sick," meaning that the air inside is contaminated.

"There are many companies engaged in that kind of litigation right now," says Raher. "We have an example in which a building installed new energy-efficient windows that are now sealing in everything. But the existing carpeting and furniture is giving off fumes, and because the fumes don't escape anywhere, the employees get sick."

Critical Communications

If any GC needed a reminder that an environmental accident can become a public-relations disaster, the Deepwater Horizon oil spill drove that message home (see "One Year Later").

The human tragedy and environmental havoc the spill wreaked made it a PR nightmare for BP from day one. Statements such as CEO Tony Hayward's "I'd like my life back" didn't help. Neither did the fact that the company released estimates of the amount of oil gushing from the well that turned out to be greatly underestimated.

Some of the steps BP took to communicate with the public in the wake of Deepwater Horizon were laudable, including its contrite tone, quick promises to honor claims from those impacted and use of advertising and a website to relay information about the spill and cleanup efforts. But it appears that somehow internal communication broke down, undermining the efforts the company was putting into damage control.

"It seems like there wasn't enough communication between the PR people and the other senior executives and the lawyers," says Michele Destefano Beardslee, an associate professor of law at University of Miami School of Law. "I can't imagine an attorney OK-ing any type of press around how much oil was spilling if it was going to be inaccurate."

Lessons Learned

When a company is at fault for an environmental catastrophe, in-house counsel must take charge of the response to the press, the public, employees and shareholders.

Beardslee suggests that every company gather senior executives and PR people to discuss what BP did right and wrong in their dealings with constituencies. They can then develop a protocol for how their own company would handle a similar situation.

Beardslee likens crisis communications planning to parents sitting down with their children to discuss how to evacuate their house in case of a fire.

"Every parent talks to their kids about that," she says. "We say, 'Your job is to get out of the house and meet us at this spot.' The kid says, 'What if?' and we talk through the contingency questions. Of course we can't anticipate all the what-ifs, but we want a plan for how to generally handle it."

Beardslee says communications plans should be based on corporate culture, which will shape such decisions as to who will speak publicly, how internal communications will be handled and the chain of command. One element of a good crisis plan focuses on documenting how you would contact and communicate with your key constituencies or, as Beardslee puts it, "Who rings whose cell phone first?"

Sound Investment

Gabrielle Sigel, co-chair of the climate and clean technology practice at Jenner & Block, suggests that outside media specialists be hired to prepare the executives who will be making public statements.

"It's critically important that your planning includes how to communicate the facts and who's responsible for doing that," says Sigel. "If you don't have people who know how to do that, then get advice in advance as to how it should be handled, because many people do not have a lot of experience with media."

PR specialists often test the plan with crisis scenario exercises, which let the company's crisis team practice responses to various constituencies. This allows the participants to see the company's strengths and weaknesses and, if necessary, adjust the plan or invest in additional media training.

"PR can determine how you will be judged in the court of public opinion, and I think almost everybody agrees that how you're judged in the court of public opinion determines the outcome of legal controversies," Beardslee says. "Let's face it, most of the time they end in settlement, and your settlement power is going to go way down if everybody hates you."

Disaster Defenses

According to a February article in the interdisciplinary science journal Nature, some researchers believe that severe weather events previously expected to occur only once in a hundred years could start occurring twice as often. Experts say companies should be addressing this issue now with both preparation and policy.

"Issues dealing with snow events, increased precipitation and wind events are going to affect premiums and exclusions and how insurance policies in the future are covering them," says Gabrielle Sigel, co-chair of the climate and clean technology practice at Jenner & Block.

Another important consideration is preparing for digital disasters that could result from a climate-related crisis. Under the Sarbanes-Oxley Act, organizations are required to manage and store business records, including electronic documents, for no fewer than five years. Business continuity plans must therefore address records retention in times of crisis.

Venable Partner John Cooney says this planning includes assessing data vulnerabilities and taking basic steps such as storing backup data on a server in a different part of the country so it would be protected in the event of a climate-related disaster such as a hurricane.

Going Green

If the customer is always right, then it's time for companies across the board to up their green initiatives.

Consumers are driving demand for greener products and processes in many industries, and meeting that demand can positively impact everything from the environment to corporate culture and even the bottom line.

"We hear the voice of the customer," says Trisa Thompson, vice president of corporate responsibility at Dell, which Newsweek recently named the greenest company in America. "We're all consumers at Dell, so the internal voice is pretty strong. But there's an external voice from the customer as well. We absolutely hear from the customers about wanting to be greener and also hear great feedback on the things we do."

Those internal and external demands have led to a plethora of environmentally friendly initiatives at Dell that run the gamut from packaging to efficiency consulting.

One of Dell's key concerns is sustainability. With that in mind, the Product Development team spearheaded a search for more eco-friendly packaging. The solution was innovative: bamboo. The plant's life cycle--it grows faster than trees and is therefore more renewable--and biodegradable quality made it a perfect solution. Today, more than half of all consumer Dell laptops are shipped with bamboo cushions, and the program will grow to include commercial business laptops this spring. Thompson says more environmental packaging initiatives will be unveiled in the near future.

In addition to its packaging efforts, Dell is working actively to reduce its greenhouse gas emissions, both domestically and abroad. It has become one of the first companies to ask overseas manufacturers to report their greenhouse gas emissions.

"Most [electronics companies] have a lot of stuff manufactured overseas," Thompson says. "We understand that we just can't outsource our carbon emissions. So we're working with manufacturers to reduce that."

Reducing emissions is an area in which many companies still have room to improve. Charlie Berardesco, general counsel at Constellation Energy, says that while his company has also made an effort to reduce emissions, it's not industrywide in the energy business.

"We have a very diversified fleet of generating facilities, and we have been a proponent of climate legislation," Berardesco says. "We believe we have one of the cleanest generating fleets out there, between our nuclear plant, our natural gas fleet and our coal plants, which have already been modernized in terms of emissions. We believe that it is important that there be a national policy in this area."

Both Constellation and Dell have started offering services to help their customers go green.

"We actually install solar panels at businesses, and that business is doing very well for us because the clients want to be part of a solution package that they can get at least some, if not all, of their power from a renewable source," Berardesco says.

Dell offers a service that helps customers make their data centers more energy efficient, thereby reducing the company's carbon footprint. Thompson says Dell has also worked recently to optimize energy efficiency at its own data centers, explaining that it's important for Dell to "walk the walk."

In both cases, the companies have found ways to expand business while remaining true to their environmental goals. Even companies with less opportunity to go green on the consumer side can take steps in the right direction at the corporate level, however.

Common internal initiatives include implementing policies in favor of double-sided printing, banning plastic water bottles from the office and installing environmentally friendly lighting fixtures that are set to turn off automatically when no one is in the room.

Thompson says that, at least at Dell, the law department was in a great position to spearhead these initiatives.

"One of the great things about the law department at Dell is it's a centralized function," she says. "When you sit in the law department, you can see across all other departments, so it's interesting to start pushing for change. You can start helping other areas figure out what the laws are. They want to make the changes, and you can help."

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Melissa Maleske

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