March 01, 2015

Literary Resources

JoAnne L. Dunec

 

 

BOOKS

 

Managing Environmental Liability: Business Transactions and Brownfield Redevelopment

Lawrence P. Schnapf

Commercial real estate transactions often involve negotiations of risk and liability pertaining to environmental contamination, both known and unknown. In addition, “environmental compliance,” notes the author, “can now play a major role in the economics of corporate acquisitions, real estate transactions, and commercial lending [and n]egotiating the allocation of these liabilities has become a critical aspect of many corporate transactions.”

Commercial real estate transactions often involve negotiations of risk and liability pertaining to environmental contamination, both known and unknown. In addition, “environmental compliance,” notes the author, “can now play a major role in the economics of corporate acquisitions, real estate transactions, and commercial lending [and n]egotiating the allocation of these liabilities has become a critical aspect of many corporate transactions.”

According to the Introduction, Managing Environmental Liability (published as two, three-ring binders), is intended to “provide guidance on compliance issues for a particular operation as well as to assist in structuring and negotiating commercial real estate and corporate transactions. It is also intended as a useful starting point for litigators who become involved in cost recovery actions or post-transactional disputes.”

The book is comprised of two parts. Part I (Sources of Environmental Liability), comprised of Chapters 1 through 8, provides “the goals and requirements of the major federal and state environmental programs.” Part II (Application to Business and Corporate Transactions), comprised of Chapters 9 through 15, applies environmental law “to particular transactions or situations that present problems involving potential liability.”

Chapter 1, which provides an introduction to the contents and organization of Managing Environmental Liability, also includes an “Activity Summary” table, which provides guidance regarding the environmental law(s) and chapters applicable to a particular scenario, such as acquiring real estate or negotiating regulatory permits. A helpful glossary of acronyms is also included.

Chapters 2 through 5 cover the Clean Water Act (CWA); the Endangered Species Act (ESA); Clean Air Act (CAA); the Resource Conservation and Recovery Act (RCRA); and the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), together with an additional Chapter 5A, which addresses brownfields.

The balance of Part I addresses state environmental statutes and common law liability (Chapter 6), state environmental laws restricting property transfers (Chapter 7), and regulation of contaminants of special concern (Chapter 8) including mold, PCBs, lead-based paint, asbestos-containing materials, and vapor intrusion.

Part II provides guidance regarding different subject areas or components of transactions, commencing with negotiating environmental cleanups (Chapter 9). Chapters 10 and 11 address environmental liability for real estate and corporate transactions and liability and strategies for lenders and fiduciaries, respectively. The intersection between, and conflicting goals of, bankruptcy and environmental laws are covered in Chapter 12. Due diligence investigation and environmental audits are addressed in Chapter 13. Insurance coverage for cleanup costs is covered in Chapter 14. Finally, Chapter 15 addresses green building regulations and initiatives.

A glossary of “commonly encountered environmental terms” is included, as well as a CD with appendices for Chapters 3 through 6, 8 through 13, and 15.

PERIODICALS

Carbon Offsets

Wroblicka, E. L., “Selling Carbon Offsets: A Potential Source of Funding for Forest Conservation,” Saving Land (Spring 2014), published by the Land Trust Alliance, describes how the “burgeoning carbon offsets market for forest products” could provide new opportunities for land conservation. The author observes,

Normally the presence or absence of development rights fuels the financial engine of land conservation, not the intrinsic value of the natural resource being protected. The fact that in the carbon offsets market intact forests may have a commercial market value such that a landowner could derive an ongoing income for growing trees rather than cutting them is starting to catch people’s attention.

As noted in a sidebar, “Carbon dioxide (CO2) is one of the six primary categories of greenhouse gases in the Earth’s atmosphere. A carbon offset, or carbon credit, is a financing unit of measurement that represents the removal of one ton of carbon dioxide equivalent from the atmosphere.” Trees naturally sequester CO2, the author notes, “by removing CO2 from the atmosphere and storing it as carbon [forests] act as carbon ‘sinks’ and help lower emissions overall. When forests are disturbed by logging or conversion, they release carbon and add to greenhouse gas emissions (GHG) overall.”

According to the author, a carbon offsets market “is starting to take shape in California.” She continues, “[b]ig emitters of CO2 such as Chevron and Pacific Gas & Electric, pushed by pioneering climate legislation with stringent penalties for noncompliance, have come around to paying large forest landowners for allowing their trees [to grow naturally and] sequester CO2.”

In general, there are two kinds of carbon offset markets: voluntary and mandated cap-and-trade. The latter, the author explains, is more lucrative. In the absence of a federal cap-and-trade mandate, the states may adopt such legislation. California is one such state. According to the author,

[i]n 2006, California, the 15th largest emitter of GHG worldwide, passed the Global Warming Solutions Act (AB32) that established a goal of reducing the state’s GHG emissions to 1990 levels by 2020. The California Air Resources Board (ARB), the lead agency responsible for implementing AB32, was given explicit authority to develop market-based programs. . . . The California cap-and-trade program creates an economic incentive to reduce emissions by placing an absolute cap on the amount of GHG that can be emitted by a regulated entity. If a regulated entity exceeds its emission allowances, it must purchase more allowances or trade with other regulated entities.

In turn, the need for regulated entities to account for their emissions creates the market demand for carbon offsets. Regulated entities need to buy carbon offsets; forest landowners have carbon offsets to sell depending on the size of the forest and its ability to store carbon. To help create a supply to meet the demand for offsets, AB32 allows regulated entities that are emitting in California to purchase carbon offsets generated from projects located anywhere in the United States, except Alaska.

As a result, notes the author, “forest landowners across the country can potentially sell carbon offsets on the California regulated market, currently the largest carbon market in the world that allows managed forests to generate offset credits.”

However cautions the author, “[a]s with any groundbreaking new venture . . . there are risks.” “One of the major unknowns,” she notes, “is what will happen to the price of carbon over the long term. Many expect the price to climb in 2015 as more entities come under ARB’s regulations and are required to offset their emissions.” According to the author, “[l]andowners are entering into 100+ year contracts for which they will have ongoing expenses of verification.” If prices drop or do not cover such costs, continued management for the offsets or future sales of such encumbererd forest land may be problematic. A solution may be the creation of an endowment, the author suggests, through retention of a portion of the income “to cover the long-term costs of monitoring, similar to the funds set aside for conservation easement monitoring.”

As noted in another sidebar to the article, “[a]ccording to Climate Action Reserve, a nonprofit offsets project registry founded in 2001, land trusts involved in carbon offsets forest projects include: Audubon Society, The Conservation Fund, Downeast Lades Land Trust, New England Forestry Foundation, Pacific Forest Trust, Placer Land Trust, Redwood Forest Foundation, Sempiverens Fund and The Nature Conservancy.”

The full version of the article includes a description of forest product registration.

JoAnne L. Dunec

JoAnne L. Dunec is a real estate and land use transactional attorney who is a shareholder in Miller Starr Regalia’s Walnut Creek office.