Renewable Energy Post

In twin decisions handed down today, the Supreme Court, Appellate Division, Third Department upheld two local zoning laws that prohibit activities related to oil and gas development (commonly referred to as “hydraulic fracturing”) (the “zoning laws”).  The two appeals, Matter of Norse Energy Corporation USA v. Town of Dryden and Cooperstown Holstein Corporation v. Town of Middlefield challenged the zoning laws as preempted by the Oil, Gas and Solution Mining Law (“OGSML”), codified at Environmental Conservation Law (“ECL”) 23-0301 et seq.

The Court’s unanimous decision in Dryden (authored by Presiding Justice Karen Peters), held that the OGSML’s supersession clause, ECL 23-0303(2), did not preempt the Town of Dryden’s zoning law that prohibited all activities related to the exploration for, and the production and storage of natural gas and petroleum.  The central legal issue in the case was the interpretation of ECL 23-0303(2), which provides that the OGSML “shall supersede all local laws or ordinances relating to the regulation of the oil, gas and solution mining industries; but shall not supersede local government jurisdiction over local roads or the rights of local governments under the [Real Property Tax Law].”  The Court concluded that this language merely prohibited local laws relating to the regulation of the details or procedure of oil, gas and solution mining activities, but not zoning laws that have an incidental effect on those industries.  Accordingly, the Court held that “zoning ordinances are not the type of regulatory provision that the Legislature intended to be preempted by the OGSML.”

  The Court also sided with the Town of Dryden on the issue of implied preemption—that  that the zoning law conflicted with the provisions and policies of the OGSML.  First, the Court rejected the argument that the zoning law was preempted because the well spacing provisions of the OGSML cannot be complied with if municipalities are permitted to ban drilling.  (The well spacing provisions govern the acreage assigned to a specific well (the “spacing unit”) and the setbacks from the boundary of the spacing unit).  The Court ruled that the well spacing provisions concern “technical, operational aspects of drilling . . . separate and distinct from a municipality’s zoning authority,” and, therefore, they could “harmoniously coexist.”  The Court reasoned that “the zoning law will dictate in which, if any, districts drilling may occur, while the OGSML instructs operators as to the proper spacing of the units within those districts in order to prevent waste.”  Finally, the Court held that legislative policies to “maximize recovery” of oil and gas resources did not “equate to an intention to require oil and gas drilling operations to occur in each and every location where such resource is present, regardless of the land uses existing in that locale.”  The Middlefield decision, (also authored by Presiding Judge Karen Peters), relied entirely on the reasoning of Dryden to uphold a similar zoning law.

These decisions mark the first appellate-level rulings on the legality of zoning bans prohibiting hydraulic fracturing (as well as other activities under the OGSML) in New York.  The issue is widely expected to be resolved by the Court of Appeals.

Governor Andrew Cuomo, as part of his ongoing “NY-Sun” program intended to accelerate customer-sited solar electricity capacity in New York State, recently signed into law three bills which further this initiative.

Chapter 406 of the Laws of 2012 exempts the sale and installation of commercial solar energy systems—defined as systems which convert solar radiation to energy for cooking, hot water or electricity—from State sales taxes, beginning January 1, 2013, and grants municipalities (counties and cities) the power to exempt these systems from local sales tax.  New York’s similar program for residential solar energy systems continues unchanged.

Chapter 375 of the Laws of 2012 extends the existing 25% income tax credit for residential solar energy equipment expenditures to include payments for (1) leased solar energy systems under a lease of at least ten years duration and (2) purchase of power under a Power Purchase Agreement of at least ten years duration.  It should be noted that the credit continues to apply to qualified expenditures directly related to construction.

Chapter 401 of the Laws of 2012 extends the current four-year real property tax abatement in New York City for solar electric systems placed in service through the end of 2014, with the percentage of abatement for such systems changed to the lesser of (1) 2.5% of eligible expenses, (2) taxes payable in such tax year or (3) $62,500.  Owners of most commercial and residential buildings, including cooperatives and condominium associations, are eligible for the tax abatement.

The House of Representatives has set its sights on limiting the Environmental Protection Agency’s (EPA) authority to enforce several environmental laws in this country.  For example, the House voted last week to strip the EPA of all authority to regulate greenhouse gases.  Such a measure is unlikely to pass the Senate and the president has indicated he would veto such a bill; however, the House is seeking leverage to prevent regulation of greenhouse gas emissions.

One tactic is to exploit the Economy vs. Environment debate, which is based on the premise that too much environmental regulation over industrial activities kills jobs. This ignores the benefits to the economy from innovations in energy efficiency, renewable energy and domestic alternative fuel sources.  A recent manifestation of this thinking involves a proposed bill from Rep. Pete Olson, R-Texas.  According to an article on timesunion.com, Rep. Olson’s legislation would require the EPA to include in any proposed rulemaking a statement identifying any net gain or loss in domestic jobs, both direct and indirect, that would result from the regulation.  Olson stated his bill would “establish some accountability and make (the) EPA go on the record.”

As evidenced by the recent budget negotiations, the climate in Washington is clearly favorable towards substantial spending cuts, including eliminating regulations to decrease the burden on business and provide regulatory certainty.  Rep. Olson’s proposed legislation, requiring an analysis of direct and indirect impacts to employment, may create many conundrums that cannot be meaningfully resolved, leaving any information provided by the EPA to be of questionable utility.  Whether pro or con, every regulation will result in some impacts to employment that cannot be predicted with an economic model.  Jobs may be lost because of production efficiencies and the closing of antiquated facilities that cannot be updated to modern standards.  Alternatively, innovations in pollution control technology and the development, installation and monitoring of those technologies could create jobs.  Also, the EPA would have to grapple with difficult questions of geographic scale and the definitions of “direct” and “indirect” gains or losses.  Implementing such legislation could stall any rulemaking for the foreseeable future, which may be the objective.

Nevertheless, the Olson bill raises fundamental questions, such as whether the EPA must balance the economic impacts of its regulatory actions against improving environmental quality.  The EPA’s mission already includes consideration of economic growth in establishing environmental policy, and that consideration is reflected in the EPA’s greenhouse gas regulations, which target only the largest industrial emitters of greenhouse gases, leaving out small businesses.  Until the House can go “on the record” and demonstrate how greenhouse gas regulations would “put the American economy in a straitjacket, costing us millions of jobs and hundreds of billions of dollars a year,” as Rep. Joe Barton, R-Texas, has said, moving forward with legislation requiring the EPA to put a number on job gains and losses should be carefully considered.

As recently reported on energybiz.com, the GOP’s energy plan may be coming into focus as it relates to renewables. Rep. David Nunes (R-CA) has proposed new legislation called The Roadmap for America’s Energy Future. As it relates to renewable energy, Rep. Nunes states that this bill would generate billions of dollars of new lease and royalty proceeds from increased near-term development of domestic fossil fuel resources, and place them in a trust fund that “will be used to secure the long-term energy needs of our country through the deployment of affordable renewable and alternative energy options” and will result in “unprecedented investments in new forms of energy – the largest investment in renewable energy in world history”. The near-term increase in domestic fossil fuel production would “bridge” America’s energy supply needs until new, cost competitive alternative sources are available on an economy-wide basis.

Interestingly, the bill proposes using a blind “reverse auction” to select renewable technologies and projects for federal support. To receive funding from the trust fund, energy producers would bid the minimum amount of federal assistance needed to create one megawatt of renewable electricity, with the low cost bidders receiving federal support.

It will be interesting to see what public and political support develops for the Energy Roadmap, and whether Sen. Nunes’ approach for federal support of alternative and renewable energy will gain traction.