Latham & Watkins Environment, Land & Resources Department

Transcription

1 Number 815 February 19, 2009 Client Alert Latham & Watkins Environment, Land & Resources Department USEXIM and OPIC Agree to Consider More Climate Change Issues and to Tighter NEPA Requirements in their Financings The USEXIM and OPIC Settlement Agreements have immediate implications for the financing of fossil fuel, cleantech and renewable energy projects outside of the United States. As part of settlement agreements with various environmental groups and municipalities on February 6, 2008, the United States Export-Import Bank (EXIM) and the Overseas Private Investment Corporation (OPIC) have committed to increase significantly their consideration of greenhouse gases in connection credit applications for major infrastructure proposed to be sited outside of the United States. Developers of new infrastructure projects must take these climate change-related undertakings into account when seeking credit support from EXIM and OPIC. Background EXIM and OPIC provide various forms of investment assistance, including credit support, loans, guarantees and insurance, to US-based companies and investors on a wide variety of projects around the world. A substantial portion of this investment portfolio has gone to projects such as fossil fuel-fired power plants, liquified natural gas facilities, hydrocarbon exploration, production and transportation projects, and other projects in the energy infrastructure arena. As agencies of the United States government, EXIM and OPIC are subject to the National Environmental Policy Act (NEPA). NEPA is a federal environmental statute under which an agency must evaluate whether an action it undertakes (which could be a loan, permit approval or other act) could have a significant adverse effect on the environment. If it could, the agency must perform a rigorous analysis of the project and prepare an Environmental Impact Statement (EIS), which includes a discussion of the purpose of, need for and environmental consequences of the proposed action, alternatives to the proposed action, and mitigation measures to lessen any potential impacts. The agency s evaluation, in turn, is subject to public comment and hearing and potential judicial review of the decision-making process. Historically, EXIM and OPIC have asserted either that their financing activities did not constitute a major federal action triggering NEPA, or that the offshore projects that they finance typically do not impact the environment within the United States and therefore are categorically exempt from NEPA review. Seven years ago, a group of environmental organizations and cities challenged that view in Friends of the Earth, Inc., et al. v. Spinelli, et al. (Civ. No , N.D. Cal.). 1 In this case, the plaintiffs alleged that EXIM and Latham & Watkins operates as a limited liability partnership worldwide with affiliated limited liability partnerships conducting the practice in the United Kingdom, France and Italy. Under New York s Code of Professional Responsibility, portions of this communication contain attorney advertising. Prior results do not guarantee a similar outcome. Results depend upon a variety of factors unique to each representation. Please direct all inquiries regarding our conduct under New York s Disciplinary Rules to Latham & Watkins LLP, 885 Third Avenue, New York, NY , Phone: Copyright 2009 Latham & Watkins. All Rights Reserved.

2 OPIC credit support determinations are subject to NEPA review, and that the lenders had an obligation to consider the global warming implications in the United States relating to offshore projects the lenders supported. The plaintiffs accomplished two key objectives in Friends of the Earth, which drove the settlement process (and established precedent for future climate change actions arising under NEPA). First, the plaintiffs persuaded the court that they had standing to bring the suit: the court found that those who allege economic and other damages from climate change had standing to sue under NEPA. Second, they successfully argued that the use of federal dollars to finance overseas projects that emit greenhouse gases may be a sufficient nexus to trigger NEPA review (the question of whether the global warming impacts of any or all overseas projects must be evaluated under NEPA was not addressed). 2 The Settlement Agreements The settlement agreements resolve the plaintiffs claims in the Friends of the Earth matter. The settlements impose various obligations on EXIM and OPIC, including the following undertakings: (1) consideration of greenhouse gas emission impact associated with projects they support; (2) steps to reduce project emissions, including through energy efficiency efforts; (3) subject projects more rigorously to environmental review under NEPA; and (4) significant investments to promote renewable energy (as much as $250 million per Institution). The EXIM settlement requires that all financing applications for fossil fuel projects 3 filed after April 6, 2009 (or earlier, if EXIM issues a new Staff Directive before then) include a comparison of the project s CO 2 emissions to emissions on a global, national and/or industry level. This information, a record notice for each Category A and B 4 fossil fuel project as to whether NEPA review is necessary, and all non-privileged environmental review documents must be published on EXIM Bank s Web site for review and comment. EXIM also must issue a record notice for each Category A and B fossil fuel project stating its determination as to whether NEPA review is necessary and, if not, the basis for that determination (e.g., no major federal action, applicability of categorical exclusion, no potential for significantly affecting the quality of the human environment of the United States). The terms of the EXIM settlement require EXIM staff to develop and implement a carbon policy, which must (1) include financing incentives to reduce, or mitigate, carbon emissions; (2) establish a Renewable Energy Loan Guarantee Facility of $250 million offering EXIM Bank s full range of financial products to promote renewable energy projects; 5 and (3) encourage energy efficiency and a corresponding drop in project-related CO 2 emissions. The OPIC settlement terms apply to all applications filed on or after February 6, Under the settlement, OPIC is obligated to evaluate the degree to which a project emits greenhouse gases, and to treat all projects resulting in emissions of more than 100,000 tons short 6 of CO 2 equivalents per year as Category A projects, 7 which are subject to a NEPA-equivalency Environmental Impact Analysis (EIA). OPIC s Board of Directors is required to evaluate the EIA and any public comments in making its financing determination. OPIC is also required pursuant to the settlement to reduce by 20 percent over the next 10 years greenhouse gas emissions associated with its projects that emit more than 100,000 tons of CO 2 equivalents per year (consistent with an internal goal adopted by OPIC in 2007), in part by limiting new investment in projects associated with 2 Number 815 February 19, 2009

3 greenhouse gas emissions. On a parallel track, OPIC is required to increase support substantially to projects that use, develop or otherwise promote the use of renewable energy, either through the creation of a 10 year revolving investment fund of at least $250 million, or through preferential financing terms or other methods to attract investment in developing markets. The settlements do not preclude the plaintiffs from bringing a lawsuit under NEPA or other legal authorities with respect to any future projects receiving EXIM or OPIC support. Implications The Settlement Agreements have immediate implications for the financing of fossil fuel, cleantech and renewable energy projects outside of the United States: The terms of the EXIM settlement agreement applies to all project applications submitted after EXIM publishes a directive to implement the settlement terms, which cannot occur later than April 6, The terms of the OPIC settlement agreement applies to all financing applications submitted after February 6, Going forward, EXIM and OPIC will rigorously evaluate CO 2 emissions with respect to new financing applications for fossil projects, and information regarding such emissions will be made publicly available. An outgrowth of this lawsuit may be increased application of NEPA requirements to new project applications, as well as increased scrutiny by project opponents regarding NEPA compliance. Increased application of NEPA review could extend the project approval process significantly in some cases, and could become a flash-point for US-based lawsuits advanced by third-party opponents of new fossil infrastructure projects supported by EXIM and OPIC. The settlement agreements may, in tandem with new Administration carbon policies, signal a trend away from government-backed financial support of new fossil infrastructure projects, with a corresponding increase in support for renewable energy projects. The settlement agreements may have the further effect of influencing how other export credit agencies and private banks (including signatories to the Equator Principles) approach greenhouse gas emission issues on a portfolio basis. Sponsors considering applying for financing from either of the Institutions who are in a position to do so should consider submitting applications promptly, to avoid any uncertainty surrounding the programs being developed by the Institutions under the Settlement Agreements. Lenders and other prospective participants in such financings should monitor these programs and evaluate the extent to which their own environmental review of projects will be affected by the Institutions programs. Finally, we will continue to monitor these programs and may provide an update once the programs have been proposed or adopted. Endnotes 1 The plaintiffs include Friends of the Earth, Greenpeace, Environmental Defense, Pacific Environment, World Resources Institute, Center for International Environmental Law, Oil Change International, and the cities of Boulder, Colorado, and Arcata, Santa Monica and Oakland, California. 2 The settlements follow a March 30, 2007 decision on cross-motions for summary judgment, in which the court: (1) rejected OPIC and EXIM s argument that the impacts of global warming on the domestic environment are too remote and speculative to be considered for purposes of NEPA; (2) rejected defendants claims that the lawsuit sought extraterritorial application of NEPA; (3) held that OPIC had not established that it was exempt from NEPA; (4) determined that the record was insufficient 3 Number 815 February 19, 2009

4 to determine whether the illustrative projects used for summary judgment constituted major federal actions under NEPA and required an EIS; and (5) held that it would be unable to rule on the issue of causation until it determined whether the projects would have gone forward without OPIC or EXIM assistance. 3 For purposes of this Agreement, the term fossil fuel projects means the following: coal-fired or gas-fired power plants, oil fields, oil pipelines, gas fields, gas pipelines, refineries, liquefied natural gas plants, and fuels derived from tar sands, oil shale, coalbed methane and peat projects. 4 Under the EXIM settlement, Category A includes large greenfield projects and major extensions to large projects (such as hydroelectric, mining, forestry, commercial oil and gas development, pipelines, transmission lines, chemical plants, refineries, thermal power plants greater than 140 MWe, pulp and paper, and industrial processing plants that have the potential to cause significant adverse environmental effects) and projects located in or impacting a sensitive site. Category A applications require submission of an EIA and related documentation describing the environmental effects of the project. Category B projects include expansions, upgrades and projects having limited environmental impact. Category B projects do not require submission of an EIA, but do require submission of environmental information sufficient to establish whether the project and any associated impacts meets relevant host-country environmental guidelines and applicable international guidelines. 5 Renewable energy projects do not include fossil fuel-related, gas (other than methane captured from livestock, landfill or noncoalbed extraction operations), nuclear power, large dam and large-scale bio-fuel projects. 6 One-hundred thousand tons (short, US) of CO 2 equivalents per year currently is a commonly accepted threshold in analyzing climate change impacts in the context of international financing in developing countries. Pursuant to the settlement, if the World Bank Group and/ or International Finance Corporation reduce their threshold to a lower level, OPIC must provide notice to the plaintiffs as to whether it also plans to reduce its threshold within 45 days of any such World Group and/or IFC change. 7 Under the OPIC settlement, Category A projects are those that are likely to have significant adverse environmental impacts that are sensitive (e.g., irreversible, affect sensitive ecosystems, involve involuntary resettlement, etc.), diverse or unprecedented. Projects within this category include, for example, large-scale industrial plants, crude oil refineries, large thermal power projects (200 megawatts or more), major installations for smelting of cast iron and steel and production of nonferrous metals, chemical manufacture and transportation projects, transportation infrastructure projects, major oil and gas developments and pipelines, landfills, construction or significant expansion of dams and reservoirs, pulp and paper manufacturing projects, mining projects, forestry/large scale logging projects, large scale wastewater treatment and solid waste processing facilities, large-scale reclamation projects, large-scale agriculture involving the intensification or development of previously undisturbed land, and all projects with potentially major impacts on people or serious socioeconomic concerns. 4 Number 815 February 19, 2009

5 If you have any questions about this Client Alert, please contact one of the authors listed below: Joel H. Mack James R. Barrett Kellie N. Ortega Or any of the following attorneys listed to the right. Office locations: Abu Dhabi Barcelona Brussels Chicago Doha Dubai Frankfurt Hamburg Hong Kong London Los Angeles Madrid Milan Moscow Munich New Jersey New York Northern Virginia Orange County Paris Rome San Francisco Shanghai Silicon Valley Singapore Tokyo Client Alert is published by Latham & Watkins as a news reporting service to clients and other friends. The information contained in this publication should not be construed as legal advice. Should further analysis or explanation of the subject matter be required, please contact the attorneys listed below or the attorney whom you normally consult. A complete list of our Client Alerts can be found on our Web site at If you wish to update your contact details or customize the information you receive from Latham & Watkins, please visit to subscribe to our global client mailings program. Abu Dhabi Barcelona José Luis Blanco Brussels Howard Rosenblatt Chicago Cary R. Perlman Doha Dubai Frankfurt Ulrich Wuermeling Hamburg Christian Edye Hong Kong Joseph A. Bevash London Andrew C. Moyle Los Angeles Gene A. Lucero Lucinda Starrett Robert A. Wyman Madrid José Luis Blanco Milan Fabio Coppola Moscow Mark M. Banovich Munich Volkmar Bruckner New Jersey Gary P. Gengel New York David S. Langer Northern Virginia Eric L. Bernthal Orange County Paul N. Singarella Paris Olivier Delattre Rome Fabio Coppola Kelley M. Gale Robert M. Howard San Francisco Karl S. Lytz Shanghai Rowland Cheng Silicon Valley Ora T. Fisher Singapore Mark A. Nelson Tokyo Hisao Hirose Claudia O Brien William K. Rawson Number 815 February 19, 2009