Clark Hill 2022 Automotive & Manufacturing Industry Outlook: Energy and Environment
AuthorsJoseph R. Brendel , Stephen A. Campbell , David Gorski , Maram T. Salaheldin
Further regulation of per- and polyfluoroalkyl substances (PFAS)
In October 2021, the U.S. Environmental Protection Agency (EPA) published its PFAS Strategic Roadmap, which contains a schedule of the agency’s anticipated activities regarding PFAS for the next three years. Automotive and manufacturing clients should look for opportunities to participate strategically in the public comment periods or other stakeholder engagement opportunities for these regulatory proposals including the following:
- EPA expects to announce a rulemaking to add more PFAS to the Toxics Release Inventory (TRI) in 2022, in addition to proposing a rule to eliminate exemptions and exclusions for PFAS reporters by categorizing the PFAS on the TRI list as “Chemicals of Special Concern” and removing the de minimis eligibility from supplier notification requirements for all “Chemicals of Special Concern.”
- EPA is developing proposed National Primary Drinking Water Regulations (NPDWRs) for Perfluorooctanoic acid (PFOA) and Perfluorooctane sulfonic acid (PFOS). EPA expects to issue a proposed regulation in Fall 2022 with proposed NPDWRs for these chemicals as well as potentially other PFAS or groups of PFAS.
- EPA plans to issue a Notice of Proposed Rulemaking in Spring 2022 to designate PFOA and PFOS as Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) hazardous substances. The hazardous substance designations would enhance the ability of government authorities to obtain information regarding the location and extent of releases of these chemicals, as well as for EPA, other agencies and private parties to seek cost recovery or contribution for costs incurred for their cleanup. In a separate but related action, EPA also announced its intention to propose designating PFOA, PFOS, Perfluorobutane sulfonic acid (PFBS), and Hexafluoropropylene oxide (HFPO) dimer acid and its ammonium salt (more commonly known as GenX) as Hazardous Constituents under the Resource Conservation and Recovery Act (RCRA). Potentially-affected entities should take steps now to identify all current and legacy PFAS applications in their operations and/or products and to evaluate past and current waste management practices not only for PFOA, PFOS, PFPB, and GenX, but also for any PFAS identified in your PFAS applications.
EV battery production and recycling issues
With increased production of electric vehicles (“EV”) spurred by both market factors, incentives and support from the Infrastructure Bill, the sourcing of necessary minerals such as lithium, cobalt, manganese, and nickel presents a potential bottleneck. Given that most minerals are produced abroad, expect EV manufacturers and mining companies to lobby Federal and state agencies to expedite the issuance of mining permits to facilities located in the United States to strengthen the domestic supply chain for U.S. EV manufacturers.
The largest shares of EV battery cells and battery packs for EVs are produced in the US, largely due to production at Tesla’s Nevada Gigafactory. The US has 27 battery manufacturing plants that are either currently active or announced. However, with the projected 145 million EVs on the road by 2030, even if the US is the dominant producer of batteries, it will require sufficient raw materials to feed those manufacturing plants, and that may mean more than mining alone.
On the back end, significant investment also will be required for facilities that recycle EV batteries as the number of such batteries reaching the end of their useful lives dramatically increases. On a positive note, as more recycling facilities come on line, the recycling process should generate substantial amounts of lithium, manganese, cobalt and nickel that should augment the supply chain for those minerals. Several major recycling projects are in various stages of development. In addition to anticipated private investment sources, the Infrastructure Bill establishes a battery manufacturing and recycling grant program administered by the Department of Energy that includes $3 billion for FY22-26 for battery manufacturing and recycling grants and $10 million for FY22 for the recycling prize and $125 million for the battery recycling programs at DOE.
The evolution of Environmental Justice (EJ) and Environmental, Social and Governance (ESG) initiatives
Building upon the groundwork laid in 2021, EJ and ESG are expected to gain more momentum, clarity, and structure in 2022. The Biden Administration has made EJ a cornerstone of its environmental agenda, including the creation of the Justice40 Initiative pursuant to President Biden’s Executive Order on “Tackling the Climate Crisis at Home and Abroad”. State regulators have also moved forward with their own EJ initiatives, such as New York’s proposed Fashion Sustainability and Social Accountability Act. Similarly, ESG has become a heightened focus area for corporate stakeholders around the world with increasingly-concrete ramifications, such as 57% of the S&P 500 tying 2021 employee incentive plans to ESG metrics. While two distinct concepts, EJ and ESG have both faced the same problems of inconsistencies and confusion due to their being subject to various interpretations, definitions, and standards. Structure and clarity may be on the horizon for both topics, however, with enforcement likely to follow thereafter.
The FY 2022-2026 EPA Strategic Plan Draft, released on October 1, 2021, identifies several EJ commitments by EPA, including the agency’s intent to increase inspections and enforcement, especially in communities characterized by EPA as overburdened or disadvantaged communities. The regulated community has already seen a few examples of the types of inspection and enforcement actions that can be expected to continue to increase, such as EPA reviews of state permitting decisions affecting EJ communities in Chicago and Michigan, where EPA raised EJ and civil rights concerns over proposed siting of industrial facilities. With the Strategic Plan expected to be finalized soon, the regulated community can expect to see more of such actions by EPA, including the following focus areas:
- Identification of EJ Communities: Early identification of which communities are considered EJ communities can assist companies in assessing their potential impacts and risks. One of the priorities identified in the Strategic Plan is the improvement of EJSCREEN, EPA’s EJ mapping tool, to increase the availability and quality of data for regulated entities, including the anticipated launch of the expanded Climate & Economic Justice Screening Tool. Individual states, such as California, are also pursuing their own EJ mapping tools, and so, regulated entities may experience a moving target in terms of the data available and/or required for their consideration when planning projects. As such, it will become increasingly important for companies to monitor EJ developments; maintain strong communication with federal, state, and local agencies; and effectively engage with local communities.
- Consideration of Cumulative Impacts Faced by EJ Communities: EJ communities experience a disproportionate share of the adverse health and environmental effects of industrial, municipal, and commercial operations or the execution of government programs and policies. Therefore, it is important for companies to accurately assess the baseline of impacts faced by EJ communities related to their operations. How such a baseline is calculated may be revised this year due to the Council on Environmental Quality’s (CEQ) proposed rulemaking to revert its implementing regulations for the National Environmental Policy Act (“NEPA”) to their pre-2020 form. Among these changes would be the return to “effects” and “impacts” referring to direct, indirect, and cumulative effects and impacts. Cumulative effects are effects resulting from the incremental impact of the action when added to other past, present, and reasonably foreseeable future actions regardless of who undertakes the other actions. 40 CFR § 1508.7 (2019). As such, permitting decisions, for example, would be required to factor in historical (and future) disproportionate impacts on EJ communities.
Both focus areas highlight the need for regulated entities, particularly those requiring environmental permits of any kind, to timely and adequately consider EJ communities to avoid later ramifications, including permit denials, inspections, enforcement actions, and more.
Similar clarification of key terms and concepts is also anticipated in 2022 related to ESG initiatives, with anticipated regulatory developments and enhanced enforcement activity to come from various regulators, including the U.S. Federal Trade Commission (FTC) and the U.S. Securities and Exchange Commission (SEC). Refer to the Clark Hill 2022 Automotive & Manufacturing Industry Outlook: ESG for additional details.
Continuing investment and ramp up in Infrastructure Bill for EV charging stations
As EV and hybrid vehicle sales continue to increase, and both automakers and regulators commit to zero emission vehicle sales, the Infrastructure Investment and Jobs Act contains complementary provisions which will invest $7.5 billion to build out a national network of public EV charging stations. Specifically, the Infrastructure Bill establishes a DOT grant program for alternative fuel corridors as well as a National Electric Vehicle Formula Program to provide additional funding to states to deploy EV charging infrastructure. State and local governments, metropolitan planning organizations, public authorities, and other public-sector entities will be eligible for the grants. As currently drafted, the bill requires applicants to describe their consideration of various issues including collaborative stakeholder engagement to foster enhanced, coordinated, public-private, or private investment, and infrastructure installation that can be responsive to technology advancements. In approving grants, DOT will consider, among other factors, the extent to which applications will improve alternative fueling corridor networks (as designated under the Act), meet current or anticipated market and geographic demands for charging or fueling infrastructure, and support a long-term competitive market for EV charging infrastructure. Half of the designated funds are also reserved for “community grants” to state and local authorities with ownership of publicly accessible transportation facilities. Eligible projects may be located on any public road or in other publicly accessible locations.
The Infrastructure Bill would also establish an EV working group to make recommendations regarding the development, adoption, and integration of light-, medium-, and heavy-duty EVs into national transportation and energy systems. Specifically, the group will issue reports on various issues including barriers and opportunities to scaling up EV adoption throughout the United States, including recommendations relating to charging infrastructure needs and charging infrastructure permitting and regulatory issues. Based on these reports, DOT will jointly develop, maintain, and update a strategy that describes the means by which the Federal Government, States, units of local government, and industry can, among other things, expand EV and charging infrastructure. The Infrastructure Bill would also amend the Public Utility Regulatory Policies Act (“PURPA”) to require that each state consider measures to promote greater electrification of the transportation sector, including the establishment of rates that promote affordable and equitable EV charging options for residential, commercial, and public EV charging infrastructure, improve the customer experience associated with EV charging, and appropriately recover the marginal costs of delivering electricity to EVs and EV charging infrastructure.
While increasing EV use and charging station incentives provide opportunities for commercial and business entities to offer additional services and attract additional customers, the full life cycle (i.e., pre-installation through removal and disposal) of an EV charging station project involves numerous practical and legal issues that must be considered. Thus, as EV adoption and associated public charging infrastructure continue to proliferate, commercial and business entities should consider the opportunities and benefits of hosting charging stations. Doing so, however, requires deliberate, thoughtful, and proactive due diligence which contemplates the long-term practical and legal issues presented by charging station selection, procurement, construction, installation, operation, and ultimate cessation.
2023 Cybersecurity and Data Privacy Laws Summit: Chicago
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