Roundtable: Environment
We bring together four of the leading environmental lawyers to discuss regulatory changes, litigation, due diligence and other areas of work.
Participants
Mika Alanko
Roschier, Attorneys Ltd
Finland
Keith Davidson
Pannone LLP
England
Bateman Brendan
Clayton Utz
Australia
Clayton Utz
Australia
Who’s Who Legal: 2010 has – so far – seen major oil spills in the US, Africa and the Asia Pacific, with April’s “Deepwater Horizon” spill emerging as one of the worst environmental disasters in US history. Are environmental regulators in your jurisdiction seeking to impose new sanctions on oil exploration or transportation? How could new rules affect the practices of environmental lawyers?
Mika Alanko: Issues regarding oil transportation are considered important in Finland since the Gulf of Finland is a busy sea lane also for oil tanker traffic and the ecosystem of the already fragile Baltic Sea would be extremely vulnerable to any oil tanker accidents.
Finnish legislation concerning oil spill prevention and response measures was renewed recently and entered into force in January 2010. The bulk of legal reforms taking place had to do with implementing developments in the context of international conventions (notably MARPOL 73/78) and EU legislation. Apart from such updating, the new legislation left the substantial parts of previous legislation largely intact.
Current Finnish legislation regarding liability for oil pollution damage caused by oil tankers provides for strict liability for the owner of the vessel (with some exceptions) and a mandatory insurance requirement for Finnish vessels and vessels entering Finnish ports. The liability of the owner of the vessel is limited according to the tonnage of the vessel, provided that the owner has taken appropriate measures as described in the relevant legislation. Finnish legislation concerning liability more or less mimics international conventions. It is too early to tell whether any reforms of current legislation will materialise in the near future as a direct or indirect result of the recent major oil spills.
Sergio B Bustamante Acuña: The oil industry is the most important source of income for Mexico.
We are unaware of any new legislation seeking to impose new sanctions. Nevertheless, due to the “Deepwater Horizon” spill, Mexican Congress may review current legislation to be stricter with the imposition of sanctions.
The Federal Law of Environmental Liability project (which has been dormant for several years), is still in review in Congress, if the aforementioned project is approved, major sanctions will be applied. Recently Article 17 of Mexican Constitution was modified to incorporate a paragraph which includes the so called “class actions”. Therefore, we are of the opinion that once the specific legislation that regulates and establishes the mechanics of such class actions is issued, the aforementioned may generate numerous environmental lawsuits, including those related to natural resources, whereby the oil industry may be affected and specifically the target will be Petroleos Mexicanos (PEMEX).
If the Federal Law of Environmental Liability is approved and with the “class action” legislation in effect, the practice of environmental law, specifically litigation is going to increase dramatically.
Who’s Who Legal: Several law firms expanded their teams in the past year, with some establishing new practice groups that combine their environmental and energy functions. How pervasive is the crossover between environmental and energy law in your jurisdiction?
Brendan Bateman: The crossover in Australia is significant. Complex approval processes exist in most Australian jurisdictions to obtain project approvals and environmental licences for major resource and energy projects. The ability to obtain such approvals in a timely manner and on suitable terms can impact greatly on the viability of the project. We are often required to work closely with clients and resource and energy lawyers to navigate these approval processes at an early stage of a project.
Mika Alanko: Although there is perhaps no formal or wide spread crossover between environmental and energy law - at least if environmental law and energy law are defined narrowly - I feel there is a very clear and distinct practical overlap between the two fields of law. The broader your perception of the scope of each field of law, the more evident this juncture becomes.
If we take a look at environmental law in Finland, it can easily be argued that it encompasses pollution prevention, environmental liability, extraction and use of natural resources (water, soil, minerals, forest biomass), nature conservation, planning and zoning, construction permits, and so forth. Use and extraction of natural resources is obviously of the highest relevance for any business active in the energy sector. Furthermore, the operation of plants or facilities in the energy sector is subject to rules and regulations concerning for example environmental permitting, land use and construction, and nature conservation. So there exists a clear and obvious link to environmental law for the legal practitioner, who is active in the energy sector.
Achieving climate change mitigation targets will require extensive efforts in environmental and energy policy. Increasing the share of renewable energy in the energy mix is high on the political agenda. But in order to enable reaching this objective, different economic instruments are being implemented or planned. Therefore, another interesting affiliation between environmental law and energy law is evident within competition law, especially regarding state aid. For example, Member States of the European Union are subject to very ambitious targets regarding the increase of renewable energy by the year 2020. Different policies and measures have to be applied across the Member States of the EU in order to meet their national targets. In this respect, rules concerning state aid for environmental protection might be tested on a different scale than before. An appropriate balance between acceptable effects on competition and the achievement of ambitious targets for renewable energy needs to be struck. Here the role of lawyers with complementing experience in competition law and environmental law will come into play.
General energy policy combined with the promotion of renewable energy will also come in contact with some of the more traditional parts of energy law, for example electricity market regulation in particular. Developments in smart grids, guaranteeing market access for all suppliers, and promoting cross border networks will have an impact in integrating electricity markets. A shift towards a low carbon economy, which is fuelled by climate change regulation, renewable energy targets, and energy efficiency requirements, will fuse with the general energy policy of intensified energy market integration. In my mind, once again this demonstrates the advantages and strengths of a combined understanding of energy and environmental law.
Sergio B Bustamante Acuña: Also in Mexico, complex approval processes exist to obtain project authorisations and environmental permitting for all resources and energy projects. The combination of both environmental and energy attorneys has resulted in the success of said projects, with more efficient and responsive outcomes. Nevertheless, the environmental field (specifically the required permits eg, Environmental Impact Approval) must be the first to be explored at the early stage of the project. The synergy between environmental and energy attorneys will be a “must” in order to be more competitive and be able to better represent the interests of our clients.
Keith Davidson: Environmental lawyers with experience in distributed energy and renewables projects probably benefit the most from the cross over. In the UK, the introduction of FITs (feed-in tariffs for microgeneration) and the CRC (carbon emissions trading scheme) has opened new income streams for environmental practices and allows us to take “front of house” when marketing to the growing Clean Tech sector.
Who’s Who Legal: Many of the lawyers we spoke to reported an increase in climate change litigation over the past year. Is this the case where you are? Has there been an increase in demand for environmental due-diligence work among companies looking to avoid liability? How much of this work is being doing in-house? What other issues have arisen in this area?
Brendan Bateman: Climate change litigation in Australia has been relatively consistent in recent years, both in character and number. Most climate change litigation in Australia has generally involved challenges to decisions on administrative law grounds to grant approvals to projects. In particular, challenges have focused on the failure of the decision maker to consider, or adequately consider, the potential for the project to contribute to climate change (primarily through increased emission of greenhouse gases) or, in more limited cases, the prospect that the project itself would be impacted by predicted climate changes (such as increased risk of flood or inundation). Such litigation has been facilitated in those Australian jurisdictions (including New South Wales) which have open standing provisions which permit any person to bring proceedings to remedy or restrain a breach of a particular Act. A recent Australian case, however, has departed from this trend. Rather than challenge the determination of the statutory decision maker, the case of Gray v Macquarie Generation in the NSW Land and Environment Court involved an allegation that the respondent, the operator of Australia’s largest coal fired power station, was wilfully or negligently disposing of waste (CO2) in a manner that harmed or was likely to harm the environment without lawful authority. This is an offence under the relevant NSW environmental law and the applicants sought to bring civil enforcement proceeings in respect of the alleged offence. This is the first climate change case in Australia instigated against an operator of a facility.
Certainly in relation to due diligence work in M&A activity there has been increased focus on carbon exposure. Greenhouse reporting obligations are imposed on the Australian parent company of the operator of a facility where the emissions exceed prescribed thresholds, or where the emissions for the corporate group exceed a threshold. Consequently, the acquisition of an asset may trigger reporting obligations that may not have previously existed. The prospect of the implementation of an emissions trading scheme in Australia also places focus on identifying the extent of any potential carbon liability.
Mika Alanko: Litigation, which would stem directly from climate change, meaning for example liability claims for adverse effects of climate change, liability for measures taken to adapt to climate change, or other similar cases in Finland have not come to my attention.
But, the impact of the regulatory regime involved with mitigation of, and adaptation to climate change is clearly visible. In this respect the advisory role of lawyers is vital not only when it comes to the ability of highlighting possible liabilities, but also as for the ability to give advice concerning new openings in business opportunities, which climate change regulations bring about. The flexible mechanisms of the Kyoto Protocol, clean development mechanism and joint implementation, constitute a good example. And there might be much more to come in this field, generally called the international carbon market. Environmental and energy lawyers need to be able to identify the legal context where such new instruments and incentive schemes operate.
As for due diligence, I feel that for certain business sectors climate change related liabilities and risks should be included in the scope of due diligence work. At the moment it is of course hard to make accurate projections of such liabilities and risks, since this particular field of law is developing so rapidly. But, it is important to understand that climate change related regulations have two aspects, mitigation and adaptation. It is not enough to be aware of only one of them. My personal feeling is that people are generally well aware of mitigation efforts such as reduction of CO2 emissions, but adaptation and its implications sometimes escapes us lawyers. For example, adaptation to climate change can have a significant impact for real estate development projects.
Sergio B Bustamante Acuña: In Mexico there is still no climate change litigation that we are aware of. Notwithstanding the foregoing, the General Law on Climate Change project continues to be in discussion in Congress.
Once the aforementioned law is approved, I am confident that litigation will arise.
For due diligence, yes, it is work we perform on a day to day basis. Specifically, in share deals and real estate transactions which include contaminated sites. My experience is that at this time, the due diligence work is a combination between in-house and external attorneys, whereby the participation of in-house attorneys has increased.
Who’s Who Legal: Which other areas are creating work for environmental lawyers in the absence of big ticket M&A deals? Do small and mid-sized firms, without large departments devoted to transactional work, have the advantage in the current marketplace?
Mika Alanko: Environmental law related work has been fairly stable even during the economic downturn, with the exception of M&A related environmental due diligence, of course. I have not witnessed any real decline in the amount of regulatory advice or litigation involving environmental law. Quite on the contrary, it seems that the demand and need for legal advice related to environmental law is steadily increasing. There might be several reasons for this, but one is certainly the fact that the sheer amount of environmental regulation is constantly increasing at the same time as the interconnections between different regulatory instruments grow denser. In this regulatory jungle it is also all the more important to find out and understand the needs of the client.
Since the bulk of environmental law work is not related to M&A, I would say that the size of the M&A practice is irrelevant for a successful environmental practice. What is important in this respect is an ability to master a wide range of difficult aspects of environmental law in an ever increasing regulatory environment. Teamwork is in my opinion the best answer to this challenge. Environmental lawyers need to specialise, and larger firms with large teams have the upper hand as they can provide detailed and to the point advice cost effectively.
Sergio B Bustamante Acuña: In Mexico the other areas that are creating work for environmental attorneys are the water and mining activities.
Inspections from the State and Federal environmental authorities have increased resulting in a rise of administrative procedures; therefore, ending in litigations.
Lately, we also have seen the increase in consultations filed before the environmental authorities which are related to water, air and handling of hazardous materials/waste. The implementation of waste management plans has also been an area for development as well as the request for the importation/exportation of hazardous materials and waste.
Larger firms tend to have more attorneys in the environmental field, thus having more specialised experts in the area and consequently, bigger projects. Nevertheless, small and mid-sized firms also have experienced environmental attorneys that can handle all type of projects and in many cases more cost effective.
Brendan Bateman: While there has been a reduction in overall M&A activity in Australia, the economy has been remarkably resilient compared to other countries. Further, the demand for Australia’s natural resources such as coal and iron ore in Asian markets has remained high. Consequently, M&A activity in the resources and energy sector has remained relatively strong. Further, government stimulus measures have seen significant work in the construction and major projects areas. Consequently, demand for environmenal legal services has remained relatively strong overall notwithstanding any decline in industrial based M&A activity.
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