Category Archives: climate change

IS THIS THE FINAL GOODBYE TO MY CHILDHOOD?

By Saloni Wadhwa, September 25th, 2017

On a bright Sunday afternoon, a long time ago, a young girl, about 10 years old, jogged along a quiet street with a robust and large Labrador retriever leading her. Her father walked behind laughing merrily at the duo’s silly antics. “Scruffy!” she yelled in desperation, praying that her arm wouldn’t pop out of its socket with the leash strapped on to it. The large dog halted and started sniffing a patch of green grass, just as he always did. She quickly handed the leash to her father and slipped her hand into his warm, loving one. The little girl loved this routine; especially the cool shade that the trees on the street provided her. She loved the perfect arch that the trees made, creating a tunnel of lush green in a myriad of hues. The spectacle of the Gulmohar tree during summer engulfed by fiery red flowers which would later fall, creating a “red” carpet, of sorts was indeed a sight to behold!

That perfect story was my childhood. I grew up in a quiet, peaceful city called Mysore (Mysuru now). Mysore: with its awe-inspiring Chamundi Hills, its historic architecture in the form of the Mysore Palace, and its renowned zoo: the Sri Chamarajendra Zoological Gardens, is a world-famous heritage city. The city has always had an old-world charm to it. It is a mix of the colonial world with the architecture of the Rajas of India. It is surrounded by National Parks and Wildlife Sanctuaries and is very close to the famous Western Ghats. Among all of the things that I admired about this city, the one thing that I prized was its weather. Of course, like any normal city, there was monsoon, summer, winter, autumn and spring. However, none of these seasons had extremes and thus we always enjoyed a pleasant climate all through the year.

Fast forward to today: I have read articles almost every summer of “The Highest Temperature” being recorded through the history of summers. I have seen the KRS Dam Reservoir: Mysore, the nearby Mandya and Bangalore’s major source of water, plunging into oblivion due to delayed monsoons. So much so, that the headlines in local newspapers were pictures of an omelet being made directly on the scalding tar roads of the city! Most importantly, I too have personally felt the changes: I have seen the extremes that I prided Mysore for never having. With all of these changes that are slowly and subtly occurring, I wonder if it is our fault. My beautiful tunnel of trees, one that I cherished as a child, and one that I knew had the supernatural ability to secure and protect me, the one that was the reason my parents bought our house, “Blossom” now just remains a pocket of trees outside my house. All of the other trees have vanished; brutally chopped because they were causing problems with overhead communication signals. The birds that flocked my street and filled the air with their musical sounds have been silenced. Scruffy does not pause to sniff anymore. The street increasingly looks barren, as do other parts of the city. Does development mean a goodbye to nature? Can development not occur sustainably, hand-in-hand with the environment? And most importantly, is this the end of my childhood?

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Hurricane Harvey – More exposures in the mix than just water and wind!

The full damage and devastation caused by Hurricane Harvey is not yet known and will likely be felt for months to come. While the most pressing issues facing Insureds at this time are the devastating impacts of water and/or wind damage, we all learned some unfortunate lessons from Hurricane Sandy and Katrina specifically caused during storm surges and/or flooding (and after the water recedes) which lead to unexpected clean-up costs and/or pollution legal liability issues (including but not limited to):

  • Historic/Pre-Existing Contamination – Properties having historical or pre-existing contamination could be disturbed and, subsequently, carry pollutants to multiple locations resulting in the cross-contamination of various parts of the property and/or neighboring properties.
  • Landfill Containment Breaches – Heavy water infiltration can cause landslides carrying with it pollutants and/or contaminated waste water into nearby waterways or sensitive third-party receptor areas.
  • Floating Drums of Chemicals and Storage Tanks – Drums containing hazardous waste and storage tanks containing oils and other chemicals could be raised afloat and damaged during transport from their original locations, thereby distributing pollutants downstream.
  • Sewerage Authorities System Back-ups – Sewerage authorities have limited storage and processing capacity, therefore, large unanticipated volumes of water could result in the overflow and/or release of raw untreated sewage.
  • Mold Damage – Mold can grow at alarming rates given proper moisture, temperature range and food source (cellulose-based substrate) following a saturation event.

While property policies may include some pollution-related coverage, it’s imperative that insureds, if they have environmental insurance policies, place their carriers on notice, carefully follow the environmental claim reporting instructions and fully understand any “emergency response” coverage provisions and policy nuances.

It’s prudent for insureds to report their environmental claim to their carriers immediately. If cost estimates for remedial activities are available, they should be sent to the carrier for approval. When submitting proposals, request that the carrier approve the costs as “reasonable and necessary” pending a coverage determination.

 

This piece was originally posted as an op-ed for the Willis Towers Watson Wire. That article can be found here.

 

35611dba53fbc67f528efedc5630ec43Anthony Wagar

Anthony is a Executive Vice President and the National Sales Leader for Willis Towers Watson’s Environmental practice based in New York. He has close to 20 years of experience from a regulatory, underwriting and brokerage perspective. He blogs on matters relating to environmental risk, exposures and insurance.

Latest Episode of the Kleinman Center’s Energy Policy Now Podcast, Featuring Andrew Light

Submitted by Andy Stone, Communications Manager, Kleinman Center for Energy Policy

The new episode is a conversation with a former State Department climate negotiator who was involved in the Paris climate deal.  He discusses the current White House debate around Paris, and the implications for global climate cooperation if the U.S. backs out.

The Trump administration has offered conflicting messages on its intention to remain a party to the 2015 Paris Climate Accord.  The question of U.S. involvement reaches a climax this week as senior advisers to the President hash out the administration’s path forward, with potentially far reaching implications for the climate deal, and for the United States’ role as a steady leader in global diplomacy.

In the latest episode of the Kleinman Center for Energy Policy’s Energy Policy Now podcast, former State Department climate negotiator Andrew Light discusses the battle in the White House over Paris, and the fate of the accord without U.S. leadership.  Light, a recent visiting scholar to the Kleinman Center, examines whether it will be possible for the U.S. to meaningfully “maintain its seat at the table” of climate dialogue even as it pulls back from global climate efforts.

Light also provides insights into the negotiations leading to the Paris climate deal, and the unique political environment in the U.S. and abroad that made the agreement possible.  Light is a Distinguished Senior Fellow in the Global Climate Program at the World Resources Institute and Director of the Institute for Philosophy and Public Policy at George Mason University.

U.S. Environmental Regulatory Trends: Past, Present and Future

By Larry Cahill, CPEA, Wharton IGEL Alumni Advisory Group member

“The care of human life and happiness, and not their destruction, is the first and only object of good government.”  Thomas Jefferson

 

Thomas Jefferson was a very smart man.  Perhaps though, his view of the purpose of government has been lost over time.  Recently there has been much discussion on the economic damages inflicted by the federal government related to the regulatory burden that industry faces in the United States.  Although these discussions are not solely limited to environmental regulatory burdens, many do believe that the pendulum has swung too far in controlling industrial operations and their air, water, and waste discharges.  I am not one of those individuals.  Yes, the Cuyahoga River in Cleveland no longer catches fire.  And Pittsburgh’s success as a city is no longer defined by the smoke being emitted from the stacks of its steel industry plants.  And the hidden Love Canal surprises are hopefully behind us.  Yet, there continues to be noteworthy cases of major environmental incidents and non-compliances across the nation. The 2015 Volkswagen “clean diesel” scandal is only one of many.  Did you know that every single year for the past 20 years the U.S. Department of Justice has charged some 200 to 300 individuals with committing environmental crimes?  That might not seem like many but in total these are criminal charges against over 5,000 individuals, not simply civil charges for exceeding permit limits or discharge standards.

One could logically ask the question – Where does the U.S. stand today with regard to environmental regulations and enforcement as the country experiences a new presidential administration with an uncertain regulatory philosophy and strategy?  Are we indeed better off and is it time to take the foot off the gas or is there still much work that needs to be done?  Recent regulatory and enforcement data released by the U.S. EPA help us to better understand where we are presently as a country and where we might be headed.

Environmental Laws: The Historical Setting

The First Earth Day occurred on April 22, 1970 in the midst of a nationwide college campus strike protesting the Vietnam War.  Protests in the streets all over the land.  Hmmm… Sound familiar?  That year of 1970 became a springboard for the passing of major federal environmental laws in the U.S.  As shown in Table 1, in the next two decades, some 12 critically important environmental, health and safety laws were passed.  Interestingly enough, eleven of the twelve were authorized and signed by Republican presidents; a legacy that is sometimes forgotten or ignored.  Each law, of course, required the creation of regulations to accomplish the stated goals.  And indeed that has occurred.

TABLE 1:  Major U.S. Federal Environmental Legislation (1969-1986)

No.

Year Title

Signing President

1. 1969 National Environmental Policy Act (NEPA) Nixon (R)
2. 1970 Clean Air Act (CAA) Nixon (R)
3. 1970 Occupational Safety and Health Act (OSHA) Nixon (R)
4. 1972 Federal Water Pollution Control Act (FWPCA) Nixon (R)
5. 1972 Federal Insecticide, Fungicide and Rodenticide Act (FIFRA) Nixon (R)
6. 1972 Noise Control Act (NCA) Nixon (R)
7. 1973 Endangered Species Act (ESA) Nixon (R)
8. 1974 Safe Drinking Water Act (SDWA) Ford (R)
9. 1976 Resource Conservation and Recovery Act (RCRA) Ford (R)
10. 1976 Toxic Substances Control Act (TSCA) Ford (R)
11. 1980 Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) Carter (D)
12. 1986 Emergency Planning and Community Right-to-Know Act (EPCRA) Reagan (R)

 

Environmental Regulations: The Current Setting

All federal regulations, including those created by the EPA, are codified in the Code of Federal Regulations (CFR), published annually by the Government Printing Office.  That is, each year the CFR is released to the public and it contains all current and updated regulations effective on July 1st of that year.  The individual volumes for each year are usually available in January or February of the following year.  The EPA is responsible for the 37 volumes of Title 40 of that Code.  By early 2017 the EPA had released the 2016 CFRs effective July 1, 2016.  The total page count for EPA’s Title 40 regulations in 2016 was 27,074, the most on record. (See Figure 1) Combined with OSHA’s 3,096 pages in Title 29 there were, for the first time, over 30,000 pages in total, with EPA regulations accounting for 90% of that total.

In taking a closer look at the data, some interesting additional facts emerge.  For example:

  • Recent Growth.  There was an approximately 800 page, or 3%, increase in the number of pages in Title 40 in 2016.  This increase was almost twice as large as the total page count in 1972, the first year of regulatory codification.
  • Distribution by Media.  Approximately 66% of the pages in Title 40 are devoted to Clean Air Act regulations.  This represents roughly 17,750 pages, meaning that the Clean Air Act alone has almost six times as many pages of regulations than all of OSHA’s Title 29 Code.
FIGURE 1: Growth of U.S. EPA Regulations (1972-2016)

Fig1

  • Comparison with the U.S. Tax Code.  By comparison, the 30 thousand pages of EHS regulations is only about 40% of the total page count of ~75,000 pages in the federal tax code.
  • Comparison with the Dow.  Interestingly, if one does the calculations for the 1972-2016 period, there is a 95% statistical correlation between the growth of environmental regulations and the growth of the Dow Jones Industrial Average (DJIA).  Granted this is some outside-the-box thinking, but could this mean that regulatory growth is good for the economy!?

Will Environmental Regulations Continue to Grow?

Will the growth of federal environmental regulations continue or has it peaked?  One way to anticipate the answer to the regulatory growth question is to take a look at the Agency’s Semi-Annual Regulatory Agenda, which was last released on November 17, 2016 (as part of the Executive Branch’s Unified Agenda) in the Federal Register.  This is a spring and fall requirement for all regulatory agencies[i].  In November the EPA listed 203 additional regulations (not pages, but individual regulations) that either had been recently promulgated (but not yet codified) or were under development.

Eventually, all of these new regulations will be added to Title 40, continuing the growth, unless there is a concerted effort to halt the regulatory development process; more on that later in this chapter.  It is very interesting to note, as depicted in Figure 2, that each of EPA’s Semi-Annual Regulatory Agendas from 1999 to 2011 listed somewhere between 350 and 450 regulations under development, a consistency that is stunning.  This means that for over a decade, there were always around 400 regulations under development on the docket.  Interestingly, there has been a dramatic reduction in the number of regulations listed to roughly 200 from years 2012 to 2016.  Maybe the regulatory pipeline is beginning to empty.

FIGURE 2: EPA Semi-Annual Regulatory Agenda Trends

Fig2

Yes, there are still regulatory gaps

In spite of the fact that there are now over 27 thousand pages of federal environmental regulations, there remain some additional risks and vulnerabilities that have yet to be addressed appropriately at the federal level.  Three of those that have surfaced on environmental audits of industrial facilities over the past 30 years are:

  • Water Storage Tanks. For large firewater and other water supply above-ground storage tanks, there is no requirement for tank integrity testing or secondary containment protections.  These tanks are often located adjacent to electrical substations and transformers in utility areas where a tank breach could short out the entire electrical system of the site and possibly the surrounding community.  And history tells us that large volumes of unexpected water releases can do considerable damage to facility equipment.  In 2011 a tsunami disabled the backup generators at the Fukushima, Japan nuclear power plant resulting in a meltdown of three nuclear reactors.  One global consumer products company has recognized this water storage issue as an unacceptable risk and has developed a corporate standard that requires secondary containment for all above ground storage tanks worldwide.
  • Hazardous Waste Storage.  Hazardous waste stored at 90-day accumulation areas require only that drums and containers be labeled, physically intact, and inspected weekly.  Surprisingly there is no federal requirement that containers be placed on an impervious surface incorporating secondary containment protections.  Thus, a pretty much unlimited amount of containers and drums holding hazardous waste can be stored directly on the ground for up to 3 months at these locations. Several states, including Massachusetts, have recognized this as a gap and require additional protections such as secondary containment for accumulations areas.
  • Accidental Discharges of Hazardous Substances.  Spill Prevention, Control and Countermeasure (SPCC) Planning requirements promulgated under Section 112.7 of the Clean Water Act regulations are designed to prevent the accidental release of only oil-containing substances into the nation’s waters.  Facilities subject to the regulations must develop an SPCC Plan that is certified by a Professional Engineer and must provide appropriate containment and/or diversionary structures or equipment to prevent a discharge of oil. New Jersey is one state that has recognized that regulating only oil in this way is a gap and has promulgated Discharge Prevention, Containment and Countermeasure (DPCC) regulations that cover not only oil but numerous other hazardous substances.

There are certainly other gaps as well and also existing regulations that require additional clarification.  A great example of the need for clarification are the “weekly”, “monthly”, and “annual” requirements found in many environmental regulations.  Be assured that there have been many lively discussions among site staff, regulators and auditors over whether “annual” means every 12 months or once a year.  There is a big difference in the two interpretations.

U.S. EPA Enforcement Activity Remains Substantial

The EPA has had a substantial enforcement program throughout its history.  EPA’s current Enforcement budget is approximately 10% of its total $8.1 billion budget and, for comparison purposes, is 35% more than the entire budget of the Occupational Safety and Health Administration (OSHA).  On December 19th, the EPA released its enforcement results for fiscal year 2016, which ended on September 30, 2016.[ii]  Included in those results were data on administrative, civil judicial penalties, and criminal fines assessed.

As shown in Figure 3, EPA issued $5.8 billion in civil and criminal penalties in FY2016, the most ever in history.  However, the great majority of the penalties issued were due to a $5.6 billion settlement with BP Exploration & Production for Clean Water Act violations stemming from the April 20, 2010 Deepwater Horizon blowout and subsequent oil spill.  Note further that the 2013 penalty amount of approximately $2.6 billion was impacted significantly by billion dollar penalties against Transocean and BP, again for the Deepwater Horizon incident.

FIGURE 3: U.S. EPA Enforcement Penalty Trends

Fig3

Notwithstanding the two Deepwater Horizon enforcement actions in 2013 and 2016, on average, over the past ten years the EPA has issued approximately $200 million in civil and criminal monetary penalties each year.  This should be viewed together with the over 5,000 individuals that have been charged with environmental crimes by the DOJ over the past 20 years.  These numbers are not inconsequential.  And with almost a billion dollars being spent annually by EPA on enforcement, environmental noncompliance remains a serious issue, unmatched by any other country.  As EPA has stated in its FY 2013 OECA National Program Manager Guidance, we will “aggressively go after pollution problems that make a difference in communities.  EPA will use vigorous civil and criminal enforcement that targets the most serious water, air and chemical hazards, as well as advance environmental justice by protecting vulnerable communities”.[iii]

The Cautionary Tale of December 2016

So where does that leave us?  Should there be a continuing emphasis on environmental regulatory compliance and enforcement or should we indeed take the foot off the gas as some would propose.  Well, if the fortnight in the middle of December 2016 tells us anything, this is not the time to ease up.  Take note of the following headlines taken from that very short period:

  • DuPont agrees to pay $50 million in natural resource damages to resolve claims stemming from the release of mercury in the 1930’s and 1940’s from its Waynesboro, VA plant (December 16th).
  • Michigan’s Attorney General brings more criminal charges over the Flint, Michigan water crisis, including felony charges against two former state appointees and two former city officials (December 20th).
  • Volkswagen reaches $1 billion deal with the USDOJ and California in the ongoing diesel emissions scandal (December 21st).
  • A federal jury finds DuPont liable for $2 million in compensatory damages for an individual’s cancer stemming from the dumping of Teflon manufacturing chemicals (C8) into the Ohio River. An additional 3,500 cases are pending (December 21st).
  • Shell Oil will pay $22 million to the city of Clovis, California for chemical (TCP) found in drinking water supply (December 27th).

Frankly, it’s hard to believe that all five of these incidents occurred over a two-week period in the last month of 2016.  They suggest that the U.S. is nowhere near where it needs to be with respect to the environment.  Continuing oversight is needed and both public and private sector institutions need to be held accountable for meeting, if not exceeding, regulatory requirements.

What Might Change

During the 2016 presidential campaign and now with the new Trump Administration in place concern has been expressed over the regulatory burden placed on U.S. industry and the regulated community in general.    It should be noted that this concern is nothing new.  For example, on January 18, 2011 President Obama issued Executive Order 13563, “Improving Regulation and Regulatory Review”.  The Order required a government-wide review of existing rules “to remove outdated regulations that stifle job creation and make our economy less competitive.  It’s a review that will help bring order to regulations that have become a patchwork of overlapping rules…”[iv]  In response to President Obama’s Executive Order, EPA created the Regulatory Development and Retrospective Review Tracker (Reg DaRRT), which provides information on the status of EPA’s priority rulemakings, as well as information on the status of retrospective reviews of existing regulations.  One positive outcome of the Executive Order was the July 31, 2013 issuance of a final EPA rule on solvent-contaminated wipes that reduced the regulatory burden on tens of thousands of facilities using these wipes routinely.

What is different today is the approach that is being proposed by the current Administration.  President Trump has said numerous times that his goal is to eliminate as many as 75% of all existing federal regulations.  The first step in that effort was the January 30, 2017 issuance of an Executive Order: “Reducing Regulation and Controlling Regulatory Costs.”  This Order calls for every “one new regulation issued, at least two prior regulations be identified for elimination with the goal of zero incremental costs.”  As with most Executive Orders further guidance will be required and the Director of the Office of Management and Budget is required to develop that guidance.  In fact, on February 2, 2017 the White House issued guidance stating that the Order would only apply to “significant” regulations, as defined in Executive Order: “Regulatory Planning and Review”, issued by the Clinton Administration in 1993.  Significant regulations are those imposing an annual economic cost ≥$100 million.  The Director must also identify the total amount of incremental costs that will be allowed for each agency for each fiscal year.

This “one in, two out” approach, if enacted as stated, obviously will have significant impacts on federal rulemaking within all agencies including the EPA.  As stated previously, the EPA in its November 2016 Semi-Annual Regulatory Agenda listed 203 new regulations under development or review.  Will this mean that if all of these regulations are put forward that over 400 other, existing regulations must be eliminated?  As arbitrary as this sounds, the answer today is yes.

Another potential impact caused by the Executive Order would come from the new chemical requirements in the Frank R. Lautenberg Chemical Safety for the 21st Century Act signed into law on June 22, 2016.  The Act requires that the EPA evaluate and communicate the risks of existing chemicals from the current inventory of 83,000 chemicals in use in the U.S.  The first 10 chemicals were identified on November 29, 2016 and include asbestos, carbon tetrachloride, methylene chloride, and trichloroethylene.  If an assessment determines that a chemical poses an unreasonable risk the Agency must mitigate that risk within two years.  Further, for each risk evaluation completed, another must be initiated with at least 20 ongoing evaluations being conducted by the end of 2019.  Does this mean that any resultant rule addressing mitigations for a particular high-risk chemical cannot be promulgated unless two other unrelated rules are eliminated?  This seems rather arbitrary as well.  Perhaps in this and other cases the “significant regulation” threshold will have a moderating impact and the effects will not be as severe as expected.

Another regulatory reform initiative taking place but receiving considerably less attention is the use of the Congressional Review Act enacted in 1996, which allows lawmakers to take certain actions for those laws enacted during the waning days of an administration.  The Congress has already used this power to rescind EPA’s Stream Protection Rule promulgated in December 2016, which sought to protect the nation’s waterways from debris generated by coal surface mining activities.  Congress is also attempting to rescind the EPA’s revised Accidental Release Prevention Requirements contained in its Risk Management Program final rule issued on January 13, 2017.  A bill to rescind the rule has been introduced in the House as of this writing.  Historically, the Congressional Review Act has been used sparingly but this has not been the case in early 2017.

In sum, there is strong evidence that significant regulatory reform is ahead driven by a Republican Congress and Presidency.  One can only hope that logic will prevail and that protection of human health and the environment will continue as a fundamental goal for the nation.

Why the EPA’s Mission Remains Critically Important

With good reason President Nixon created the EPA in 1970.  The Agency’s basic mission is to protect human health and the environment.  This is accomplished with an $8 billion budget and 15,000 full time equivalent staff.  Although it often is not evident in our daily lives, we have all been impacted in a positive way by the Agency’s efforts and programs.  Consider if you will the scope of the Agency’s oversight and responsibilities:

  • Nationwide Facility Coverage.  Over 800,000 facilities in the U.S. generate air emissions, wastewater, and hazardous waste at a level sufficient to require regulatory oversight through mechanisms such as Title V air permits, NPDES wastewater discharge permits, and/or hazardous waste generation and disposal requirements.  That’s an average of 16,000 facilities per state where there is regulatory oversight and controls over the release of pollutants.
  • Hazardous Waste Generation.  There are over 26,000 large quantity hazardous waste generators in the U.S., generating over 33 million tons of hazardous waste annually.  These generators are required to manage the wastes properly and report to the EPA every other year on their activities.
  • Toxic Releases.  There are over 22,000 facilities in the U.S. that release listed toxic chemicals at a sufficient level to require reporting under the Toxics Release Inventory (TRI) requirements of the Emergency Planning and Community Right-to-Know Act.  Over 3.3 billion pounds of toxics were released nationally in 2015.  TRI reporting has resulted in a better understanding of pollutants in our environment and has driven a reduction over time of releases.
  • Superfund Sites.  As a result of the 1980 passage of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) some 1,188 “Superfund” sites have been cleaned up as of November 30, 2016.  However, there remain 1,337 National Priorities List (NPL) Superfund sites yet to be cleaned up.
  • Toxic Chemicals.  There are 85,000 chemicals inventoried and regulated under the Toxics Substances Control Act.  These include materials containing asbestos and PCB’s, which were considered “miracle” products when first produced.  Very few of the inventoried chemicals have undergone meaningful risk assessments to determine hazards posed to human health or the environment.  The Frank R. Lautenberg Chemical Safety for the 21st Century Act signed into law on June 22, 2016 contains provisions to assure that these assessments are conducted.

It is important to note that, save for the Superfund sites, all of the chemicals, wastes, releases, and discharges discussed above are being managed in compliance with existing environmental regulations.  Do we really want to eliminate 75% of these regulations resulting in fewer controls over discharges and releases?

Closure

The future of environmental regulation in the U.S. is cloudy indeed.  It is really too soon to tell exactly what might be the impact of President Trump’s Executive Order and other pending regulatory reform initiatives.  It would be prudent to keep a close watch…

 

[i] The Regulatory Flexibility Act and Executive Order 12,866 require Spring and Fall Regulatory Agendas.

[ii] U.S. Environmental Protection Agency, “Fiscal Year 2016 EPA Enforcement and Compliance Annual Results,” Office of Enforcement and Compliance Assurance, December 19, 2016.

[iii] U.S. Environmental Protection Agency, FY 2013 Office of Enforcement and Compliance Assurance (OECA), National Program Manager (NPM) Guidance, April 30, 2012, p. 6.

[iv] Obama, Barak, “Toward a 21st-Century Regulatory System”, Wall Street Journal, January 18, 2011.

Newest Knowledge@Wharton Report, Sponsored by Dow, Explores the Circular Economy

Dow Circular Economy Report Banner

The Circular Economy: From Concept to Business Reality

In an ideal world, everything manufactured by people would automatically be either re-purposed or reduced to its component parts and recycled for other uses, thus presenting a sustainable, closed loop that wasted no resources. But it’s not a perfect world, and the usual destination for our unwanted goods — especially in the U.S. — is the landfill. Can we turn that situation around?

After more than a century of linear thinking about the path products take from cradle to grave, excitement is growing among environmentalists and business leaders about the revolutionary potential of the circular economy — which fights waste by aiming to extract the maximum value from commercial goods. The recent Wharton conference on the subject, co-sponsored by Dow and Wharton’s Initiative for Global Environmental Leadership (IGEL), brought together pioneers from industry, academia, and non-profit organizations. This report extends the discussion begun at the conference by looking more in depth at the issue.

Turning Waste Streams into Value Streams

Recycling waste salvages just a tiny fraction of a product’s original value. Far more productive uses can be found through re-manufacturing, cascading materials through several lifecycles, and developing new business models that move us away from the concept of ownership all together.

Designing for the Circular Economy

Innovative companies are exploring strategies that address end-of-life issues upfront — when a product is being designed. Some are looking to extend the life of products through old-fashioned durable construction, modern modular design, and futuristic repair-before-failure. Others are developing new materials and new types of products tailored to the circular economy.

The Producer Pays

Germany enacted the first countrywide extended producer responsibility (EPR) law in 1991, and much of Europe (and Asia) followed, but there is no national EPR law in the United States. EPR’s profile is rising,  though, even in this country. The concept has gained a foothold at the state and local levels, and some companies are taking voluntary steps in the direction of EPR.

 

Download the entire report here.

Kleinman Cetner’s Energy Now Podcast – The Many Fronts of Trump’s Environmental Deregulation Effort

Submitted by Andy Stone, Communications Manager, Kleinman Center for Energy Policy

President Trump is moving forward with his campaign pledge to roll back environmental protections, most notably with his late March executive order instructing EPA administrator Scott Pruitt to withdraw the Clean Power Plan.  In the latest episode of the Kleinman Center for Energy Policy’s podcast series, Energy Policy Now, Penn law professor Cary Coglianese takes a look at the multiple legal and political tools the Trump administration is using to reduce protections, including executive orders, defunding of agencies with environmental oversight, and use of the previously obscure Congressional Review Act.   Coglianese lays out the challenges each strategy will face, and the potential for regulations to be rolled back or to endure.

 

Closely tied to the issue of climate change is the economic outlook of the electric utility industry, which is increasingly tasked with the role of enabling the transition to clean power, yet will face lower electricity demand as a result.  In a second new episode, former Pennsylvania Consumer Advocate Sonny Popowsky takes a look at the challenge that distributed energy presents to electric utilities’ profitability.  Popowsky, who is an advisory board member of the Kleinman Center, also explores the costs to consumers that could result from efforts to balance the growth of rooftop solar, energy efficiency and related technologies with the need to maintain a power grid that equitably serves all.

Energy Policy Now Podcast – Carbon Reduction Strategies

Submitted by Andy Stone, Communications Manager, Kleinman Center for Energy Policy

Two strategies stand out in the effort to reduce carbon emissions on an economy-wide scale. Carbon Cap and Trade, and Carbon Taxation, have been implemented with varying degrees of success in recent years, while taking very different approaches to reducing emissions.

The latest episode of the Kleinman Center for Energy Policy’s Energy Policy Now podcast takes a look at the mechanisms by which these strategies seek to reduce emissions, and the political and economic considerations that may make one or the other a best fit for a particular nation or region.

The episode features James Hines, Professor of Law and Economics at the University of Michigan, and an editorial adviser to the Kleinman Center.

Corporate Responsibility and Sustainability in the Trump Administration

By: Steve Rochlin, Co-CEO, IO Sustainability, Twitter: @SteveRochlin

The trends arising from the new Trump Administration make corporate responsibility and sustainability (CR&S) more central to business success than ever. At first this may seem counter-intuitive. Yet, recent history suggests that Republican controlled Administrations and Congresses create conditions that drive companies to enhance their commitments to CR&S. Ronald Reagan issued an executive order creating a task force calling for business to do more in alleviating social problems. George W. Bush encouraged greater corporate engagement. At the same time, activism calling for business to take on greater responsibility and leadership for environmental, social, and governance (ESG) performance intensifies from NGOs, investors, and media.

The private sector will have a central and often unique relationship with the Administration. One expects the Administration to pare back environmental, safety, and other regulations; corporate taxes; reporting requirements such as those for conflict minerals and extractive industry tax and royalty payments; and engagement in international agreements from Basel III to the Paris Climate Agreement. At the same time, the Administration will advance a mix of carrots and sticks to keep domestic jobs and invest in infrastructure. The Administration will seek to redo social support systems such as the Affordable Care Act, and push education, housing, health, and welfare programs to the states. Foreign policy will mix assertive and isolationist stances. The Administration will pinpoint trade and international aid efforts to areas that are viewed to enhance security, job creation, or both.

This agenda will move forward in the first multi-media Presidency to operate and communicate at the pace of internet time. In this context CR&S will be an essential Swiss Army Knife supporting business development and sales, enterprise risk management, brand and reputation, and HR. Companies should take the following steps.

1) Rethink your approach about gaining ROI from CR&S

Executives will experience admonishments that shift from one extreme – dismantle the company’s costly and distracting ESG commitments – to the other – redouble commitments and take bold ESG leadership. Designing a clear and measurable strategy to prioritize and invest in core CR&S areas is a business essential.

Fortunately, evidence from the recently published “Project ROI” report shows CR&S if done well can bump share price up by 6%, increase sales up to 20%, reduce employee turnover by half, and deliver a host of financial risk, productivity, and reputational benefits. Project ROI gives guidance on how to achieve these results and measure outcomes.

This has never been more important as we shift away from debates about privatizing public services, to innovating business solutions for the 17 Sustainable Development Goals. The “SDGs” represent a $12 trillion opportunity that could create 380 million new jobs. Companies and business initiatives such as the Global e-Sustainability Initiative, IBM, NovoNordisk, and Unilever among many others are taking advantage. As they do, trends suggest that the mainstream investor community will intensify their positions that ESG performance represents an increasingly important predictor of financial performance.

2) Deepen voluntary ESG commitments and reporting

Reagan presciently saw the growing influence of the court of public opinion. A new landscape of organized activists and media has extra-judicial power. Over the last three decades, companies have participated in a massive global experiment to create self-policing stewardship mechanisms across a wide range of ESG issues from chemical-use, emissions, forests, fish, human rights, and many others. The more regulatory constraints are lifted, the higher expectations will rise for companies – especially the the biggest brands and leaders in every industry — to manage their impacts on the environment and communities. They’ll be expected more than ever before to hold their suppliers accountable for meeting so-called, “civic regulation.” It will be more important than ever to find the sweet spot between wider societal needs, and high priority ESG issues that require both management and reporting.

Some industry segments will take advantage, adhering to minimum legal requirements to undercut the costs of ESG compliance leaders. As corporate ESG reporting, commitments, and partnerships continue to establish the new normal for business success, the more these free riders will lose out.

3) Hew strongly to your company’s core values in taking public positions

The current Administration is inventing new ways to engage with the public using new and traditional media. Industries and brands are in the spotlight in ways never seen before. Project ROI finds that the public evaluates the authenticity of corporate responses and positions, and looks to the perceived reaction of employees as a barometer. Culture and values are core to determining where and when companies should pick sides or stay out of the fray. Every company should form a rapid response team with Corporate Communications, Government and Public Affairs, Legal, HR, and the CR&S team leaders attached at the hip.

4) Build your own constituency

The politicization of consumer purchasing behavior is maturing in Europe, and reaching adolescence in the US. Stakeholder outreach is no longer a side activity tied to sustainability requirements. Risk management will increasingly require companies to have access to their own constituent networks willing to serve as character witnesses, advocates, brand ambassadors, intermediaries, and intelligence agents as marketplaces, policy, and politics increasingly intermesh. Companies like Nestlé and Target and collaborative multi-stakeholder initiatives, are finding ways to define how ESG stakeholders can support competitive success. Companies will be wise to move from current forms of stakeholder engagement to corporate constituency development as the Tweets and messages fly.

5) Engage on agreed areas of collective need

Domestically this means jobs and infrastructure. Underneath these tent poles are a host of potential solutions and social innovations such as work force development (see Accenture and PwC), addressing economic opportunity (see Bank of America, JP Morgan Chase, and Walmart), education (see IBM,), health (see Robert Wood Johnson Foundation, Campbell Soup Company, Pfizer), and resilience.

Global companies cannot neglect emerging gaps involved in serving international issues. Now is the time to invest in creative and strategic approaches to international development.

Instruments from corporate and workplace community investment, volunteering, R&D, and cause marketing will become more strategic than ever before. The need to demonstrate progress in solving issues will outpace the need to obtain traditional photo-ops and sponsorship branding.

The bottom line is this: don’t myopically focus on the favorable tax and regulatory agenda. Companies should prepare now to be called from all quarters to partner and lead on ESG issues at an unprecedented level of intensity.

Energy Policy Now Podcast: How Alberta Overcame Discord to Enact Carbon Tax

Contributed by the Kleinman Center for Energy Policy, via Andy Stone

Carbon policy unexpectedly made headlines last week when a pair of Republican party elders proposed a national carbon tax with a few unique twists. The proposal from Treasury secretaries George Schultz and James Baker actually looks similar to the carbon tax that the Canadian province of Alberta enacted on January 1st with unusually broad buy-in from environmentalists, the energy industry (Canada’s oil sands are in Alberta), indigenous groups and government.

Energy Policy Now, the podcast from Penn’s Kleinman Center for Energy Policy, interviews Alberta’s senior diplomat to the United States on details of the tax and the collaborative process that made it reality.

Gitane De Silva, Senior Representative to the United States, discusses plan details including the rebate checks to the majority of Albertans to offset higher energy costs. De Silva also provides insights into the provincial government’s intended uses for the balance of the C$9.6 billion in tax revenue over the next five years.

IGEL at the COP22

By Eleanor Mitch, CEO and Founder of EM Strategy Consulting, Wharton alumna

The swift approval and ratification of the Paris Agreement[1] (104 countries of the 197, or 58%, have ratified the agreement!) was nothing short of “miraculous” in CIDCE[2] president Michel Prieur[3]’s words. Never before had an international agreement been so rapidly approved and adopted by so many nations in such a short span of time (approximately 1 year). Indeed, Prieur, one of the “fathers” of the principle of non-regression in environmental law, was instrumental in ensuring the addition of “this momentum is irreversible” in para.4 of the Marrakech Action Proclamation[4]. He has participated in the drafting of many international conventions since the 1970s and sees great hope in the rapid action even though we and future generations will still have to face the grave effects of climate change.

As part of this historic movement of awakening to the realities of the changes climate change must bring about, Wharton IGEL was represented with a presentation in absentia[5] by Eric Orts[6] on the implications for business of the Paris Agreement. Indeed, one of the key sectors that will be facing changes is the business sector. While markets have already chosen more sustainable energy sources in some areas (investments in wind and solar power, and Morocco boasts the world’s largest solar power plant, which just went live in 2016[7]), much more needs to be done, all throughout the supply chain, especially in Operations.

For the first time ever at a United Nations Framework Convention on Climate Change Conference of the Parties (UNFCCC-COP), an event uniting the ITC[8], IFAD[9], WTO[10], UNCTAD[11], UNFCCC[12] and UNFCCC Subsidiary Body for Implementation[13] was held to discuss how to move forward with business and trade on the Paris Agreement. During the event, Wharton IGEL Alumni Eleanor Mitch raised the point of the role of business schools, and especially IGEL’s, in leading the way to new business opportunities and innovation in sustainability. Given that Wharton graduates and those of other business schools will become business leaders, it is important to strengthen ties with the international law-making, enforcing bodies and business schools to prepare graduates to provide services and products for the challenges the world faces: environmentally displaced persons, sea-level rising, sustainable energy and consumption among others. Innovation and creativity-driven prosperity can come hand-in-hand with sustainable development.

 

[1] https://unfccc.int/resource/docs/2015/cop21/eng/l09.pdf

[2] http://cidce.org/

[3] http://cidce.org/structures-institutional/

[4] http://unfccc.int/files/meetings/marrakech_nov_2016/application/pdf/marrakech_action_proclamation.pdf

[5] Eleanor Mitch, presented for Eric Orts

[6] http://cidce.org/presentations-cop-22-cop-22-presentations/

[7] http://www.greenprophet.com/2016/02/worlds-largest-solar-power-plant-goes-live-in-morocco/

[8] http://www.intracen.org/

[9] https://www.ifad.org/

[10] https://www.wto.org/

[11] http://unctad.org/en/Pages/Home.aspx

[12] unfccc.int

[13] http://unfccc.int/bodies/body/6406/php/view/reports.php#c