Jenner & Block: Emissions Reporting Risks of Facilities With Complex Ownership Structures

In the second of a series of articles on the Lieberman-Warner Climate Security Act of 2007 (S.2191), Michael R. Strong of Jenner & Block's Chicago office and Edward F. Malone note that although this bill still faces significant hurdles, it is sufficiently close to becoming law that companies whose greenhouse gas (GHG) emissions would be regulated under the law should start positioning themselves for compliance with the bill’s GHG reporting requirements.

As the authors explain, S.2191s reporting requirements will be constructed by the Environmental Protection Agency, based on draft rules from the Climate Registry, which become difficult to decipher in situations in which multiple entities have stakes in a single facility.  In this Emerging Issues Commentary, Messrs. Malone and Strong examine some of the likely reporting pitfalls for facilities with complex ownership structures and suggest how to minimize the risk associated with sending those reports to regulators. To assist companies that share financial or operational responsibility for a facility to address reporting issues in their contracts with their business partners, the authors provide practical advice on such matters as seeking indemnification for fines imposed on a party for underreporting by their partners, allocating costs between the parties, and demanding the right to audit their partners’ reporting.

“When applied to facilities with multiple owners, a mandatory federal program using the Climate Registry’s alternative reporting options, but not the requirement that each query of a facility use the same method, creates opportunities for mischief, as well as innocent error,” the authors write.  “Depending on the scenario, underreporting may subject a facility’s owners to civil fines by EPA, criminal prosecution, or litigation with business partners. . . .

“Unless Congress or EPA develops practical solutions to the multi-owner reporting issues . . . stakeholders in facilities regulated under S.2191 will have to take measures to avoid compliance and litigation risks . . .,” they write.  “The problem of complex ownership structures is, as problems go, the best kind:  entirely preventable. Although it is extremely easy (and costly) to get caught intentionally or unwittingly providing too few allowances for a facility, monitoring, communication and contracting can avoid both problems.”

Subscribers to www.Lexis.com may read much more about this issue by purchasing the entire expert commentary at Jenner & Block: Emissions Reporting Risks of Facilities With Complex Ownership Structures.