Beyond The Stacks And Tailpipes: Massachusetts To Address GHGs In The Development Sector.

By Martin R. Healy, Robert H. Fitzgerald and Aladdine D. Joroff

On the heels of its victory over the U.S. Environmental Protection Agency ("EPA") in the Supreme Court, which held that EPA has authority to regulate greenhouse gases ("GHG") under the Clean Air Act, Massachusetts is taking new steps to address GHGs, and their impact on climate change. Massachusetts was one of the earliest states to regulate carbon dioxide (CO2) emissions from electric generating sources. It has now become the first state to require developers of large real estate projects to quantify and mitigate GHG emissions from such developments. This requirement, particularly in combination with recent municipal efforts to require "green building" construction, can be expected to shape how project proponents evaluate, design and develop large projects within Massachusetts and perhaps elsewhere.

Supreme Court Confirms Federal Authority to Regulate GHGs

On April 2, 2007, the U.S. Supreme Court held, in Massachusetts et. al. v. EPA, that EPA has the authority to regulate GHG emissions from new motor vehicles, and that the Clean Air Act requires EPA to regulate such emissions if it finds that GHGs may "reasonably be anticipated to endanger the public health or welfare." Although this case, for which Massachusetts was the lead plaintiff, was decided in the context of motor vehicles, the ruling is expected to affect a broader array of industry sectors. For instance, a similar question regarding EPA's authority to regulate CO2 emissions from electric utility steam generating units was pending in the D.C. Circuit Court of Appeals awaiting the decision in Massachusetts v. EPA.

Moreover, the Supreme Court's decision could significantly increase the leverage of states and advocacy groups in their efforts to impose state, regional or federal climate change-related requirements. Although Massachusetts v. EPA clarifies the federal government's authority to regulate GHGs through the EPA, immediate action at the national level is not expected despite (or perhaps because of) the plethora of competing bills in Congress. With estimates of a year or more before Congressional consensus emerges, uncertainty remains as to the regulatory approach to GHGs at the federal level. Thus, many states are continuing to move forward with individual and regional efforts to regulate climate change.

For instance, 10 northeastern states continue to develop the legislation and/or regulations necessary to implement the Regional Greenhouse Gas Initiative, a multi-state effort to create a regional cap and trade program for GHG emissions from electric generating facilities. Just this month, Utah joined California, Arizona, New Mexico, Oregon and Washington in the early stages of developing a similar program on the west coast. Thirty-one states and one tribe have joined the Climate Registry, a collaborative effort to develop and manage a common GHG emissions reporting system. The Massachusetts decision to expand the scope of environmental review of large development projects to address GHG emissions is another example of such state action.

States and advocacy groups are resorting to the courtroom as well. California recently filed a lawsuit against one of its own counties, alleging that the county's general development plans must account for climate change issues. Other groups have challenged large-scale residential developments around the Golden State on the basis of GHGs. It is clear that efforts to curb the threat of climate change are fanning out in all directions, including challenges targeted at the real estate sector.

Massachusetts' New Policy

On April 23, 2007, the Massachusetts Executive Office of Energy and Environmental Affairs ("EOEEA") issued a Greenhouse Gas Emissions Policy (the "Policy") to be implemented under the Massachusetts Environmental Policy Act ("MEPA"). MEPA requires certain projects within the Commonwealth to undergo environmental review, similar to that required under the National Environmental Policy Act. In particular, projects conducted by either a state agency or a private developer utilizing state funds or requiring state permits or approvals are subject to environmental review, and public comment, if they exceed certain thresholds (e.g., alteration of more than 25 acres of land or the creation of more than 300 new parking spaces). The first step in the process is the filing of an Environmental Notification Form ("ENF") that generally describes the project, its potential impacts, and any required state approvals. Following agency review and public comment, an Environmental Impact Report ("EIR") may be required (by rule or by determination of the agency) which, like the Environmental Impact Statement at the federal level, is a more detailed analysis of project impacts. Following approval of the EIR, state authorities may issue the required permits and approvals for the project.

For projects to which the new Policy applies, an EIR must quantify the GHG emissions generated by the project and identify measures to avoid, minimize or mitigate such emissions. A project is subject to the Policy if an EIR is required and the project falls into one of the following categories:

the Commonwealth or state agency is a project proponent;

the Commonwealth or state agency is providing financial assistance to a private project proponent;

the project is privately funded, but requires an air permit from the Massachusetts Department of Environmental Protection; or

the project is privately funded but will generate (i) 3,000 or more new vehicle trips per day for office projects, (ii) 6,000 or more vehicle trips per day for mixed use projects that are 25% office space, or (iii) 10,000 vehicle trips per day for other projects.

As a point of reference, 3,000 trips per day could roughly correlate with an approximately 250,000-square-foot office development.

The Policy comes into effect in phases. Effective immediately, conditions will be included in the scoping documents for EIRs requiring project proponents to (i) identify and describe sources of project-related GHG emissions, and (ii) propose measures to avoid, minimize, or mitigate such emissions. Actual quantification of expected GHG emissions will not be required until the Commonwealth has completed a standardized protocol for such analysis. A MEPA advisory committee is expected to develop a GHG measurement protocol for public notice by July of this year.

In considering GHG emissions from a proposed project, applicants must consider all six of the GHGs covered by the Kyoto Protocol, namely, CO2, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and, sulphur hexafluoride. Applicants must also consider both "direct" emissions, e.g., stack emissions from a proposed operation, and "indirect" emissions, e.g., emissions from vehicles driven by employees and generating plants supplying electricity to a proposed operation. Under many existing voluntary GHG tracking and reduction initiatives, participants focus on direct emissions; incorporating indirect emissions into the quantification process is less common. The addition of indirect emissions to the analysis functions as a type of demand-side management technique and may push developers toward measures to increase energy efficiency or to utilize alternative clean energy sources as a means of mitigation.

Although the Policy does not establish a required approach to avoid, minimize, or mitigate GHG emissions, a guidance document published by the EOEEA provides examples of the type of emission reduction techniques that project proponents will be required to implement. These include:

energy efficiency improvements (e.g., lighting, windows, roofing, building materials);

site orientation and building layout (e.g., making use of natural light, heating, cooling);

incorporation of low-impact development techniques, such as reducing the use of asphalt and increasing the amount of shade provided by building elements or landscaping (e.g., green roofs);

transportation demand management (e.g., locating near mass transit, access to shuttle or bus services, ridesharing programs, bicycle and pedestrian accommodations; zip car spaces, etc.);

on-site renewable energy and combined heat and power generation;

use of clean and alternative fuels; and

on-site reuse and recycling of construction and demolition materials and occupant waste materials.

Several of these suggested mitigation alternatives are synergetic with policies already in place in the Commonwealth and in several other states, such as the renewable portfolio standard (which promotes the development of renewable electric generation facilities) and the "Smart Growth" legislation, regulations, and policies (which, among other things, encourage development around transit areas).

Green Building Requirements

In January 2007, Boston added a new section to the City's Zoning Code which requires projects subject to detailed development impact review to be certifiable under the Leadership in Energy and Environmental Design ("LEED") Green Building Rating System, which evaluates a project's planning, design, and construction against sustainable benchmarks. Generally, projects subject to this requirement are those involving 50,000 square feet or more of new development or substantial rehabilitation.

In addition, municipalities have developed independent zoning criteria for green buildings. For example, projects in Boston may substitute up to four "Boston Green Building Credits" to replace the traditional LEED points used to obtain certifiable status. These Boston-specific criteria allow the City to focus on issues of particular local importance, including historic preservation, modernizing the electric grid, groundwater recharge and transportation demand management. Unlike the new MEPA Policy, which was issued by the EOEEA without any public process, these zoning-related requirements typically are the result of a public notice and comment process, as was the case for Boston's zoning for green buildings.

Boston is just one of a growing number of municipalities and government agencies that are promoting and incorporating green building requirements into their regulations, ordinances, and policies. According to an August 2006 report by Michael Burnham of Greenwire, at least eight federal agencies, 20 states and 55 U.S. cities already have policies that require or encourage varying levels of LEED certification for new buildings. Just last month, the Clinton Foundation, through an arrangement with several energy service companies and global banking institutions, promised to provide funding to 16 cities to renovate existing buildings with technology to lower CO2 emissions.

Conclusion

The vacuum created by the absence of comprehensive GHG regulation at the federal level is being filled through regional, state, and municipal efforts. While states have worked individually and collaboratively on the larger-scale issues of industrial and mobile source emissions, the push for broader control of GHG emissions is being felt at all levels of government. As municipalities chart and shape their future development, projects incorporating GHG strategies and green design may achieve a competitive advantage both in terms of favorable environmental review and timing to market. Moreover, this competitive advantage may not come at an economic disadvantage, as a growing number of federal, state, and municipal programs are available to offset some of the economic costs of meeting these requirements. Project proponents should consider these issues early in the design process and identify opportunities for tax or other economic benefits associated with LEED certification or GHG reduction measures. Even if Congress agrees on a national strategy for GHG regulation, it is very likely that GHG requirements at the state and local level will proliferate over time.

Goodwin Procter LLP is one of the nation's leading law firms, with a team of 700 attorneys and offices in Boston, Los Angeles, New York, San Diego, San Francisco and Washington, D.C. The firm combines in-depth legal knowledge with practical business experience to deliver innovative solutions to complex legal problems. We provide litigation, corporate law and real estate services to clients ranging from start-up companies to Fortune 500 multinationals, with a focus on matters involving private equity, technology companies, real estate capital markets, financial services, intellectual property and products liability.

This article, which may be considered advertising under the ethical rules of certain jurisdictions, is provided with the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin Procter LLP or its attorneys. [c] 2007 Goodwin Procter LLP. All rights reserved.

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