What will happen in the environmental and energy space in 2023? The last year saw transformative changes in the environmental and energy space in the form of historic spending through the federal Inflation Reduction Act, a major court decision involving hot-button topics like the regulation of greenhouse gases, and concepts like ESG reporting and environmental justice (EJ) truly becoming mainstream. Our group of environment and energy attorneys break out some “issues to watch” below.

Federal Statutory Modifications or Reinterpretations

We do not expect Congress to enact major changes to any of the main environmental statutes in 2023, nor are many cases pending now at the US Supreme Court, which would fundamentally change prevailing court interpretations, excepting one related to the federal Clean Water Act (CWA):

• Sackett v. Environmental Protection Agency, currently pending before the Supreme Court, is the CWA case. Sackett, which we discussed here, involves a question of how broadly the US Environmental Protection Agency (EPA) can read “waters of the United States” for the purposes of the Clean Water Act. This definition matters because the term represents an important boundary line between federal and state regulatory authority. As the case was the first case the Supreme Court heard this term in October, it is likely that we will see a decision in the first part of 2023. 

• With control of Congress being divided between a Democratic Senate and a Republican House next session, our Governmental Affairs colleagues predict that larger-scale regulatory reform initiatives will face a more difficult path through the legislative branch. However, there will continue to be opportunities for incremental efforts on issues that cut across parties or are focused on particular regions. Additionally, we are likely to see Congressional Republicans use their oversight capabilities to press agencies for policy changes. 

• While reform of permitting in the environmental space has been frequently discussed throughout 2022, it seems unlikely that permitting reform legislation similar to that pushed by Senator Joe Manchin (D-WV) will secure passage. 

Other Cases to Watch 

The US Supreme Court isn’t the only court in this country with impacts in this space. We wanted to note two other cases – both pending in the Fifth Circuit – to keep an eye on in 2023: 

Lousiana v. Biden evaluates Biden Administration efforts to quantify the social cost of carbon. In March 2022, the Fifth Circuit declined to uphold a district court preliminary injunction preventing the Biden administration from using the social cost of carbon as a key metric to address climate change. At that time, we provided a primer as to what the social cost of carbon is and why the Fifth Circuit stayed the injunction (see here and here). In short, the social cost of carbon is an estimate of the economic costs, or damages, of emitting one additional ton of carbon dioxide into the atmosphere, and conversely, the benefits of reducing emissions by one ton at a time. After the Fifth Circuit permitted the Biden Administration to proceed with its evaluation, the challenging states requested that the US Supreme Court step in and reinstate the district court’s stay. The Supreme Court declined to do so. The Fifth Circuit’s merits hearing occurred earlier this month and a decision is expected in 2023. The Fifth Circuit’s decision will likely rest on whether states challenging the quantification efforts had standing to challenge the efforts in federal court. 

We wrote about Environment Texas Citizen Lobby v. ExxonMobil Corporation in September when the Fifth Circuit held that an injured party could demonstrate standing to sue on a categorical basis. (See our discussion here.) This upheld a non-governmental organization (NGO) seeking to prove “categories” of violations, as opposed to demonstrating that a NGO member could prove they were harmed by individual instances of violations like flaring, smoke, haze, chemical odor, and asthma-like symptoms. The Fifth Circuit is currently considering a petition to rehear its September decision en banc to revisit whether “categorical” showings of standing are appropriate. We should know in early 2023 whether the Fifth Circuit will revisit its decision. 

Regulation of Products Not Intended for Reuse 

“Circular economy” issues will likely become more visible in 2023. We wrote recently about Bloomberg Philanthropies’ $85 million “Beyond Petrochemical” campaign and its likely impact on ESG- and “greenwashing” litigation. The press release announcing the campaign indicates that, among other things, it is intended to target plastic use, much of which is used in single-use products like plastic bags and bottles. The launch of a US-focused campaign in this space would align with worldwide trends; a Scottish ban on many single-use plastics went into effect in June 2022, and England will reportedly impose a similar ban soon. 

Plastic bags and bottles aren’t the only products which are designed with parts intended to be discarded. As we collectively grapple with how to strike the appropriate balance between consumer convenience and waste minimization, some local governments are seeking to address these issues themselves. For example, the city of Baltimore filed suit against various cigarette manufacturers to recoup the costs associated with cleaning up cigarette filter litter and the damages to natural resources and decrease in property values allegedly caused by the dumped filters. The 11-count complaint is available here and features various statutory, tort, and product liability theories as to why the manufacturers should be on the hook. This lawsuit – and others touching on the same space – will continue throughout 2023.

Emerging Contaminants 

In 2022, we wrote about continued federal efforts related to so-called “emerging contaminants,” including per- and polyfluoroalkyl substances (PFAS). (See here). Under the Safe Drinking Water Act, EPA published additional health advisories for PFAS contaminants, which are currently not subject to any national primary drinking water regulation. EPA has indicated that it plans to propose enforceable drinking water standards for two of the most widely used PFAS — PFOA and PFOS — by the end of 2022 and to have a final rule promulgating those standards in place by the end of 2023. 

On August 22, 2022, EPA issued a proposal to designate PFOA and PFOS as hazardous substances under CERCLA. (See here.) With the comment period now closed, we expect EPA to publish a final rule in the Federal Register at some point in 2023. EPA is also under a January 1, 2023, statutory deadline to finalize a rule requiring manufacturers to report information on PFAS manufactured since Jan. 1, 2011. EPA proposed some changes to that rule and requested additional comments in late 2022, suggesting the rule may not be finalized until later in 2023. 

Environmental Justice 

Environmental justice initiatives at the federal and state levels will continue in 2023. We have discussed the Biden Administration’s efforts in the EJ space repeatedly, but most recently here. The next year should see past efforts in the federal level move from setting the groundwork for future progress toward materially influencing significant permitting, compliance, and enforcement decisions. As one example, EPA has indicated that it intends to move from conducting 30% of its compliance inspections in EJ communities in fiscal 2021 to 50% in 2023. (See here.) As that happens, the regulated community is statistically more likely to need to address issues identified in EJ communities. 

Regarding EJ, there are three issues to keep an eye on in 2023:

• First, EPA has committed as part of its EJ efforts to better measuring its own performance and calibrating its efforts to relieve perceived burdens sooner than it has previously. These efforts are part of EPA’s efforts to better allow communities access to environmental data. (See here.) While these goals are laudable, how they are implemented is worth monitoring in 2023. 

• Second, EPA’s efforts in the EJ space have – to this point – raised controversy in relation to particular sites, but not on a programmatic level. Individual actions, like those taken in relation to a Chicago recycling facility (see our discussion here), over time could result in broader opposition, especially if they become politicized as have efforts related to ESG in recent weeks. Opposition to EJ policies may increase as EJ concerns drive site decisions. 

• Third is how state-focused EJ efforts will unfold. Various states are – in essence – further along in deploying state-focused EJ considerations into the regulatory space. While many states are now engaged in crafting EJ programs, provisions in “further along” programs from states like California, Colorado, Michigan, and New Jersey may be refined and deployed in other states or at the national level. 

Finalization of US ESG Regulations Requiring Environmental Disclosures 

ESG disclosures rapidly evolved throughout 2022. Two federal regulations, expected to be finalized in 2023, would require the disclosure of climate-related risks. Both proposals also require the inventorying and disclosure of greenhouse gas (GHG) emissions in a manner different than previously required. The proposal from the US Securities and Exchange Commission (SEC) requires disclosure to satisfy investor needs while the Federal Acquisition Regulation (FAR) Council requires disclosure to meet President Biden’s Climate-Related Financial Risk Executive Order (EO), issued May 20, 2021, which sets forth a policy “to advance consistent, clear, intelligible, comparable, and accurate disclosure of climate-related financial risk, including both physical and transition risks; act to mitigate that risk and its drivers . . . and achieve our target of a net-zero emissions economy by no later than 2050.” More detail on these: 

SEC’s Climate-Related Disclosures Rule: The SEC’s proposed rule would require US-registered companies and foreign private issuers to provide certain climate-related information in their registration statements and annual reports. The proposed rule would require public companies to disclose only climate-related emissions reduction targets they have already set, but it would not impose any obligation to set such targets.

Federal Acquisition Regulation Amendments: The US Department of Defense (DOD), General Services Association (GSA), and National Aeronautics and Space Administration (“NASA”) are proposing to amend the FAR to require nearly all federal contractors, whether public or private, to: 

1. Inventory and disclose their Scope 1, 2, and 3 GHG emissions as provided in the GHG Protocol; 

2. Complete an annual climate disclosure and disclose the process for evaluating climate risks and the climate-related risks, as defined through a Taskforce for Climate-related Financial Disclosure lens; and 

3. Set science-based targets to reduce their GHG emissions through the Science Based Target Initiative and have the targets validated.

As proposed, the two rules could potentially have different deadlines for compliance, complicating GHG reporting timelines for companies. A must-watch issue in 2023 will be whether the SEC and FAR Council align reporting deadlines to ease the burden on companies who could be subject to both regulations and potentially other ESG reporting regimes such as the Corporate Sustainability Reporting Directive, passed November 28, 2022, in the European Union.

Crypto Energy Use

We’ve previously written about the significant energy use which can come with cryptocurrency mining. We’re now seeing states work either to incentivize (like Kentucky’s tax incentives) or curb crypto mining. In November, New York became the first state to temporarily ban certain crypto mining operations that use the energy intensive proof-of-work authentication methods to validate blockchain transactions, which underpin blockchains like Ethereum and the Bitcoin mainnet. The law (Senate Bill 6486D) establishes a two-year ban on the state’s issuance of new permits or approval of applications to renew existing air permits for an electric-generating facility that uses carbon-based fuel and provides behind-the-meter electric energy consumed or used by crypto mining operations that use proof-of-work authentication methods. According to the state, this pause will afford it time to study the environmental and energy impact of crypto mining further. As 2023 approaches, we can expect other states to legislate on the issue of crypto energy use in ways that either promote or dissuade mining activities.

Dan H. Renberg also contributed to this article.