Clean Air Act Series: Regulatory Carve Out Poses Challenge to VW Criminal Case

On the Road to Cleaner Air: Jail Time for White-Collar Violators?
Part III – Loophole Poses Challenge to VW Criminal Case

By Brandon Kline, Energy Law Fellow

This is the third in a four-part series on the Clean Air Act, and the legal issues arising from the probe into a nitrogen oxide trap (a "Defeat Device" in the vernacular) alleged to have been installed in vehicles manufactured by Volkswagen of America (VW).  Part 1 described the manner in which a Defeat Device operates and why it matters for the Clean Air Act; Part 2 reviewed the nature of regulatory failure, alternatives to regulatory enforcement and evidence that VW’s actions resulted in premature deaths. This post discusses VW’s potential criminal liability for its alleged actions under federal environmental law.

More than 20 federal statutes have environmental crime provisions to protect our nation’s ecological and wildlife resources.

The U.S. Department of Justice’s (DOJ’s) Environmental Crimes Section works closely with investigators from other agencies to gather evidence for prosecutions affecting a wide range of economic activity.

Over the past two decades, DOJ concluded criminal cases against more than 1,000 individuals and 400 corporate defendants, leading to $825 million in criminal fines and restitution and 774 years of jail time.

Knowing Mental State (“Mens Rea”) Required.

A party is typically not culpable for a crime unless the act is accompanied by a guilty mind (i.e., mental state or “mens rea”).

Criminal intent serves to separate those who understand the wrongful nature of their act from those who do not, but does not require knowledge of the precise consequences that may flow from that act once aware that the act is wrongful. United States v. X-Citement Video, Inc., 513 U.S. 64, 72 (1994); see also Carter v. United States, 530 U.S. 255, 269 (2000) (“The presumption in favor of scienter requires a court to read into a statute only that mens rea which is necessary to separate wrongful conduct from 'otherwise innocent conduct.' “).  Federal courts have routinely applied this “knowing” degree of scienter to environmental statutes.

Under this standard, prosecutors must prove beyond a reasonable doubt that harm was caused to the environment or public welfare, resulting from a knowing and voluntary action by the defendant, rather than unintentional conduct that caused the infraction. The evidence required commonly turns on the degree of harm and the nature of the offense.

Under the Clean Air Act Amendments of 1990, Congress imposed severe felony penalties for the knowing release of hazardous air pollutants that endanger public health.

Thus, it seems counterfactual that the statute does not provide criminal sanctions where, as here, an automaker is alleged to have knowingly installed a device to defeat emissions controls for criteria air pollutants that are not listed as “hazardous air pollutants” under the Clean Air Act.

Factors Influencing Whether DOJ Prosecutes Environmental Crimes.

In the Harvard Law Review, Prof. David Uhlman suggests environmental prosecutions are reserved for cases with one or more of the following: (1) significant environmental harm or public health effects; (2) deceptive or misleading conduct; (3) operating outside the regulatory system; or (4) repetitive violations.

Uhlman’s research indicates one or more of these aggravating factors were present in 96% of environmental criminal prosecutions from 2005 to 2010.

To be sure, VW’s alleged actions – installing Defeat Devices in hundreds of thousands of clean diesel cars – are likely to reach all four of the Uhlman factors.

But the automaker probably won’t face criminal prosecution for that action.

Professor Rena Steinzor explains, “the one criminal charge the company and its executive are likely to escape is violating the Clean Air Act’s requirement that all cars used in the United States have operational and effective air emissions control devices (AECD) approved by the government.”

Regulatory Loophole Favors Carmakers in Criminal Violations under the Clean Air Act.

Under Title II of the Clean Air Act, which pertains to mobile sources of pollution (i.e., cars and trucks), criminal violations are expressly exempted from section 113(c)(1) – the operative criminal penalties provisions of Title II.

Moreover, the statute does not authorize EPA to refer violations of that Title to the Department of Justice for criminal prosecution. See Section 113(a)(3). Put another way, the agency charged with enforcing the nation’s emissions laws can’t even ask a DOJ lawyer to go after the bad guys.

On the other hand, the Act subjects regulated entities, such as power plants, to stiff criminal provisions for substantially similar violations.

Why the double standard? Auto makers won this regulatory carve-out after lobbying Congress, according to the Wall Street Journal.

The Act therefore appears to protect VW from prosecution for allegedly violating the statutory provisions because of an express and implied exemption from criminal prosecution.

That puts an end to VW’s legal troubles, right? Not exactly.

While commentators note that a criminal case against VW would be messy, the government may pursue a number of viable alternatives under the Clean Air Act, such as the statute’s criminal penalties for making materially false statements or omissions in connection with documentation of Clean Air Act compliance. See Section 113(c)(2).

Beyond the Clean Air Act, “VW could be charged with any of a number of crimes, including wire fraud (for selling cars that did not remotely justify the claims in its many advertisements) and making false statements to the government officials,” Steinzor wrote.

The U.S. Department of Justice Signals Individual Accountability for Corporate Wrongdoing.

In spite of the prosecutorial factors outlined by Prof. Uhlman, white-collar defendants commonly escape criminal accountability in connection with environmental crimes because of the difficulty in proving intentional conduct.

However, Deputy Attorney General Sally Quillian Yates recently issued a memorandum on “Individual Accountability for Corporate Wrongdoing” that could shift this dynamic.

 “Civil attorneys investigating corporate wrongdoing should maintain a focus on the responsible individuals, recognizing that holding them to account is an important part of protecting the public fisc (sic.) in the long term,” Yates wrote.

The Yates memo is likely to have real implications for federal investigations into corporate wrongdoing such as the VW matter.

Under this new guidance, federal investigators could be paying close attention to the scope of individual responsibility.

According to DOJ, if the Yates memo were adopted as part of environmental policy – and there has been no announcement it will – it could bring significant changes to the way that the Environmental Crime Section’s prosecutors bring criminal cases against individuals and companies that break the laws that protect our nation’s ecological and wildlife resources.

This new guidance could represent a paradigm shift for public health and welfare areas with parallel tracks of civil and criminal enforcement, such as environmental law, where crimes typically require only general intent, with simple negligence sufficient to establish criminal liability and strict liability often the standard for civil cases.

This is important: Prison time for environmental crime is the one cost that a company manager or executive cannot pass on to customers, and represents the ultimate deterrent.

 

# # #

Part IV of the Clean Air Act series concludes with an overview of recent developments, including an update on the criminal probe, as well as legal analysis of the civil complaint filed by the Department of Justice on behalf of the Environmental Protection Agency (January 2016). The complaint alleges that nearly 600,000 diesel engine vehicles had illegal defeat devices installed that impair their emission control systems and cause emissions to exceed EPA’s standards, resulting in harmful air pollution.

Do Bridges Leak? Natural Gas Sure Does – Just Ask California…

By Andrea Lang, Energy Fellow

Last week, I wrote about why Oregonians should be wary of shifting away from coal by investing in more natural gas infrastructure to power our electric grid. Besides the fact that such infrastructure would be in place for years and thus is unlikely to be a “bridge” to renewable energy, it is not necessarily less carbon intensive than other fossil fuels.  While burning natural gas results in less CO2 emissions than coal, there are also lots of methane leakages during natural gas production, storage, and transportation. And since methane is 25-37 times more potent (it depends on the timeframe considered) as a greenhouse gas than CO₂, these leakages are significant.  The ongoing methane leak in California, along with numerous other leaks across the country, illustrates the hidden climate cost of natural gas.

A methane leak in Porter Ranch, California has already leaked more than 86,000 metric tons of methane, or the equivalent of more than seven million metric tons of CO₂. That leak is expected to continue at least into late February or March. In the meantime, you can watch the methane emissions go up in real time on a methane counter created by the Environmental Defense Fund. The leak has caused California’s governor to declare a state of emergency in the area, and has resulted in thousands of evacuations. But in addition to the local impacts of the leak, it highlights one of the major problems with natural gas in terms of global climate impacts. Though invisible to the eye, the leak in California is currently the daily equivalent of driving seven million cars.

  

The California methane leak is by no means an isolated incident. A recent study concluded that for natural gas to produce more climate-friendly electricity than coal, leakage must be kept below 3.2%. However, there is a lot of uncertainty about how much leakage is actually occurring from natural gas infrastructure and whether it is in fact below that 3.2% threshold. Although the EPA has estimated that leakage rates are well under the threshold, numerous studies (see here, here, and here) have concluded that EPA may be drastically underestimating methane leakage.

Chances are, even with all of these leaked emissions, natural gas is still cleaner than coal. But the scary part (aside from the terrible local impacts of large-scale leakages like the one in California) is that nobody is totally sure about how much fugitive emissions really occur. And with natural gas being touted as the “bridge” to a renewable and sustainable energy future, it seems like a big risk to take. In the transition away from coal, we would be much better served by investing in truly green infrastructure, increasing the percent of electricity from solar, wind, and other renewable energy sources. 

Climate and Energy Initiatives From President Obama's Final SOTU: Are they Enough?

By Tyler Johnson, GEI Policy Extern

                                                                                      

President Obama addressed the nation this past Tuesday with his final State of the Union Address. The President made a number of comments regarding climate change and energy. Specifically, President Obama’s address mentioned 1) the need to revise the nation’s federal coal leasing program; 2) the need to transition the nation’s transportation system for the twenty-first century; and 3) the need to advance renewable energy development.

Coal Leasing on Federal Lands

Most significantly, Obama called for a “push to change the way we manage our oil and coal resources, so that they better reflect the costs they impose on taxpayers and our planet.” The administration followed up the claim on Friday by issuing an Executive Order to overhaul the coal mining leasing process on federal lands. The stated purpose of the Order is to “consider whether and how the program may be improved and modernized to foster the Orderly development of Bureau of Land Management (BLM) administered coal on Federal lands in a manner that gives proper consideration to the impact of that development on important stewardship values, while also ensuring a fair return to the American public.” The Order calls for a significant review of the Federal coal-mining program and a temporary pause on new leases. The US Geological Survey will also monitor greenhouse gas emissions from all resources extracted on federal lands.

According to the Executive Order, federal coal represents 41% of U.S. coal production and 10% of total US greenhouse gas emissions. Furthermore, coal royalties, currently set at 12.5% for coal surface mining, are remarkably lower than the royalties received for offshore oil and gas exploration (18.75%), and don’t adequately account for environmental costs. A Congressional report concluded that the government is missing out on billions of dollars in lost revenue due to the low royalty rate (and additional accounting failures). The Executive Order directs BLM to address whether the current rate of return on leases is fair and whether it adequately accounts for externalities such as environmental harm. A rate adjustment could thus potentially be a win for both the environment and taxpayers.

While this is a step in the right direction, more must be done. For one, enough leases already exist on federal lands to maintain the current rate of coal production for another 20 years. Recently, Parties of the UN Climate Change Conference in Paris articulated that current science suggests that zero global emissions must zero out somewhere between 2030 and 2050 to hold global warming at 1.5 degrees Celsius above pre-industrial levels. Anything above a 1.5 degree global increase is predicted to come with drastic effects for humanity, including rising sea level, increased storm intensity, drought, and more. As unrealistic as it seems to achieve zero global emissions in the next 20-30 years, that’s no excuse to not do everything possible. Due to these warnings, many groups are calling for a complete end to fossil fuel extraction on federal lands, which doesn’t seem likely from this order.

Republican backlash is another cause for concern. The temporary pause on federal coal leases and the promise of a thorough review still remain in doubt with the looming 2016 presidential election. Republicans are reportedly furious over the Order, raising legitimate concerns that a Republican victory for the White House will result in the Executive Order being withdrawn.

A 21^st Century Transportation System?

In addition to a federal coal mining lease overhaul, President Obama also referenced the need to transition to a 21^st century transportation system. On Friday, the White House released plans to invest $4 billion in automated car research. The administration has been active in other transportation initiatives as well. For example, Beyond Traffic is “an invitation to the American public—including the users, developers, owners, and operators of the transportation network and the policy officials who shape it—to have a frank conversation about the shape, size, and condition of that system and how it will meet the needs and goals of our nation for decades to come.” Also, the Smart City Challenge offers $40 million for one mid-sized city to “put forward bold, data-driven ideas to improve lives by making transportation safer, easier, and more reliable.”

These transportation initiatives sound great because they address important concerns regarding how our cities are positioned to adapt to climate change and the new energy economy. However, the actions taken by the administration again only represent first steps. Much more needs to be done. As scientists repeatedly warn, we don’t have time to wait on action. Obama was correct in stating that we need an effort akin to the space race in the 1960s. These policy initiatives, by themselves, are not enough to jumpstart such an effort. One can hardly blame the administration, however. Executive action alone can only achieve limited progress. Congress must pass new laws to effectively deal with greenhouse gas emissions. Unfortunately, up to now the current Congress has been unwilling to take action to legitimately address greenhouse gas emissions or climate change.

Advance Renewable Energy

After criticizing climate deniers, President Obama’s State of the Union address also offered an economic argument to justify adopting policies to advance renewable energy development. President Obama called for American companies to be at the forefront of the new energy economy.

The modern economy thrives on innovation. If we as a nation give into special interest groups such as coal and big oil, who argue for the status quo, we are denying ourselves a fantastic economic opportunity by inhibiting technological innovation in the new energy economy. Investing in renewable technologies will both help ensure a more sustainable environment AND help the economy grow. While the scientific alarm for a potential environmental catastrophe is enough to act on climate change, economic benefits should not be ignored as another justification for embracing renewable energy development. As an added benefit, making the economic argument more often may help persuade climate skeptics that encouraging renewable energy development is sound policy.

Last Week’s Deal on Coal and Oregon’s RPS: Why I’m Skeptical

By Andrea Lang, Energy Fellow

Credit: Oregon.gov

Last week, Oregon’s two major utilities – PacifiCorp and Portland General Electric (PGE) – came to a seemingly game-changing agreement with some environmental advocates to support a bill that would almost completely eliminate coal from the state’s electric grid while increasing the amount of renewable power. The proposed bill has some laudable goals, but as more details emerge I think renewable energy advocates and environmentalists should carefully consider where this proposal will leave us in twenty-five years, and question whether it will actually move us beyond our current business-as-usual projections.

There are essentially two major pieces of the bill that utilities agreed to support last week. First, the bill would require PacifiCorp and PGE to phase out coal by 2030. Considering Oregon currently gets around a third of its electricity from coal, phasing out coal is critically important to reducing the state’s consumption-based emissions. Second, the bill would expand Oregon’s existing renewable portfolio standard (RPS) from 25% renewables by 2025 to 50% renewables by 2040.

There is no question in my mind that getting Oregon off of coal and increasing its renewable portfolio standard are vital steps towards reducing our state’s carbon footprint. Nevertheless, without further information on the details of the bill (a draft has not yet been released), I have several preliminary concerns about the deal as it’s been reported.

1.      The compromise bill does not ramp up the RPS quickly enough, and would allow natural gas to establish an unacceptable foothold in Oregon.

Oregon is currently on track to meet its existing RPS, so extending and expanding this standard are important steps towards transitioning the state to a 100% renewable power grid. But a 50% by 2040 goal isn’t nearly ambitious enough to achieve Oregon’s greenhouse gas emissions goals. As Oregon transitions away from coal, natural gas plants will likely serve as the so-called “bridge fuel” in the state. But building more natural gas infrastructure is likely to lead to long-term reliance on fossil fuels, and not a bridge to more renewables (see Amelia Schlusser’s blog post from this summer for more detail on the fiction of natural gas as a bridge to more renewables). Moreover, with the specter of California’s current massive natural gas leak looming, there is a chance that such a leak in Oregon would offset much or all of the state’s efforts to reduce emissions in the first place. Requiring a phase-out of coal while setting the RPS so low only encourages more natural gas development in Oregon, and could give natural gas a long-term foothold in the state.

2.     Oregon’s transition away from coal is already inevitable.

Although Oregon does still get an alarming amount of its electricity from coal, the phase-out of this carbon-intensive fuel is already inevitable under existing laws and agreements. A 2009 law effectively prohibits construction of new coal-fired power plants in Oregon and prohibits utilities from entering into long-term power purchase agreements for output from out- of-state coal-fired power plants. Meanwhile, Oregon’s only existing coal-fired power plant in Boardman is already set to be retired by 2020. And according to OPB, many of PacifiCorp’s coal-fired power plants located outside of Oregon are projected to reach the ends of their useful lives within the next fifteen years. Finally, compliance with the Clean Power Plan will likely require a transition away from coal throughout the west by 2030, even without this bill. Thus, a state bill with a coal phase-out provision is likely unnecessary to achieve the important goal of transitioning Oregon off of coal.

3.     The proposed bill represents a continuation of Oregon’s piecemeal approach to climate policy.

As we detailed in our Countdown to 2050: Sharpening Oregon’s Climate Action Tools report, Oregon has a history of doling out climate policy in a piecemeal fashion. Instead of enacting a law with clear emission reduction mandates and a comprehensive and holistic approach to achieving them, Oregon has created a series of tenuously connected laws aimed at reducing emissions from a limited subset of sources and sectors without taking account of how the laws and implementing agencies might work together to reduce emissions from all sectors. While this proposed bill will undoubtedly achieve some additional emissions reductions and should encourage more renewable energy development in Oregon, it is yet another example of Oregon’s piecemeal approach to addressing climate change.

To be sure, any action to address climate change and advance renewable energy is better than inaction. Further, it may be that the devil is in the details with this bill, and that the draft that ultimately goes to the legislature will contain some provisions that alleviate some of my concerns. But, as our Countdown to 2050 report shows, Oregon can and should be doing much more to reduce greenhouse gas emissions and increase renewable energy generation. The proposed bill is a step in the right direction, but renewable energy supporters should also be wary of committing to piecemeal compromises at the expense of long-term policy shifts. By spending political capital on passing this bill, we may reduce our chances of enacting what the state really needs: comprehensive climate change legislation that includes enforceable greenhouse gas emission mandates.