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Top 3 Articles from Pro's Sustainability Coverage

 
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Only July 1, POLITICO Pro expanded to cover the politics and policy of sustainability. From the circular economy, energy and carbon emissions, finance and ESG, supply chain management, governance and more — POLITICO Pro's newest coverage area will bring you the latest from the topic at the center of business and policy conversations. Here are three of the top sustainability articles from POLITICO Pro over the last week. 

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Top 3 Sustainability Articles

  1. EPA's Wheeler proposes no change to smog standard
  2. Can a new kind of insurance take the place of FEMA?
  3. European Commission plans a new system to avoid hazardous chemicals

EPA's Wheeler proposes no change to smog standard

avatarBY ALEX GuiLLEN |

EPA Administrator Andrew Wheeler announced on Monday he would not tighten the federal pollution limits for smog, drawing criticism from environmentalists that the administration was protecting industries that would bear the cost of complying with a stricter standard.

The proposal (Reg. 2060-AU40), expected to be finalized later this year, would retain the 2015 ground-level standard of 70 parts per billion for ozone, the main component of smog which is linked to asthma and heart failure.

“Current scientific information continues to support the conclusion that the primary standard established in 2015 protects public health with an adequate margin of safety, including for the health of at-risk populations,” Wheeler told reporters on a conference call.

Setting smog standards has long been a political minefield given its broad economic impacts, and even caused headaches for former President Barack Obama during his reelection campaign almost a decade ago. Smog particularly harms older adults, children, asthmatics and people with heart conditions, but is a difficult pollutant to control given much of it is caused by tailpipe pollution and other fossil fuel combustion.

Environmentalists have long pushed for the ozone standard to be much lower, arguing the public health benefits were too great to ignore.

The standard should be set “no higher than 60 [ppb],” said Paul Billings, senior vice president for advocacy at the American Lung Association.

Industry groups that would have faced greater regulation were the standard tightened quickly praised the proposal. It "will help the U.S. continue to reduce emissions, protect public health consistent with the Clean Air Act and enable economic growth," said Frank Macchiarola, senior vice president of policy, economics and regulatory affairs at the American Petroleum Institute.

The ozone standard, which EPA is supposed to review and potentially revise every five years, has long been one of the most important environmental regulations in U.S. history, both because of the massive health benefits over the decades and because industry and businesses worry about the costs of complying with the regulatory requirements if they are strengthened.

Like many other pollutants, ozone disproportionately affects people of color. Studies have found Black Americans are more likely to live in areas with poor ozone air quality, and asthmatic Black children are more likely to be hospitalized or die from the condition than white children. In addition, outdoor workers, who are more likely to be people of color, face greater exposure to ozone pollution.

Ozone pollution may also exacerbate the Covid-19 virus. While Harvard researchers have connected long-term exposure to particulate matter with an increased Covid-19 mortality rate, experts said similar work has not yet been undertaken with regards to ozone exposure.

However, ozone has long been known to exacerbate lung infections. Research published in 2019 found ozone and PM exposure were associated with increased risk of acute respiratory distress syndrome, or ARDS, a common ailment of Covid-19 patients, even at levels below the current EPA standards.

“We certainly took a look at vulnerable populations,” Wheeler said. “As an asthmatic myself, I consider that to be very important.”

In deciding against strengthening the standard, Wheeler has significant support from EPA’s internal scientists and outside advisers.

EPA's career experts last year recommended making no change. That was backed up by all but one member of the agency's Clean Air Scientific Advisory Committee, whose seven members were appointed during the Trump administration.

But environmentalists and public health advocates charge that Trump EPA officials influenced the process to reach this outcome.

Several experts chosen for seats on CASAC have histories of questioning the public health benefits of further reducing pollution limits. And critics say none of the seven members has expertise in epidemiology, a key facet of studying air quality standards.

In addition, Wheeler departed from a standard practice of forming a subcommittee of subject-matter experts to help CASAC review EPA’s ozone work. Instead, he formed a “pool” of experts that had a more limited consulting role. Wheeler was more likely to appoint industry nominees than academics, as POLITICO reported in December, and several of those he picked had connections to the defunct Utility Air Regulatory Group, a coalition of coal-heavy utilities.

Along with a cramped review timeline that drew complaints from CASAC’s own members, the review process shows that “EPA is not really interested in fairly evaluating all of the emerging science since the last review,” said Vijay Limaye, an environmental health scientist at the Natural Resources Defense Council and former EPA scientist.

“It seems like the timeline is driving these decisions of a foregone conclusion rather than the science, which would certainly be a pattern with this administration,” he added.

It’s not clear whether Wheeler’s departure from the usual scientific review process will influence future legal challenges. The courts traditionally give significant credence to CASAC’s opinion. And Wheeler on Monday said he is confident the rule will “withstand legal scrutiny.”

But EPA's process is a potential legal weakness, said Billings.

“What was once a very careful multistep process that had the science build upon the science, this process had none of those steps,” he said. “It was just sort of one big dump of activity by CASAC. I don’t think it was a full and thorough review.”

The legal challenges may not get that far if Joe Biden wins the November election and his administration reconsiders this rulemaking.

Recent experience, however, has left environmentalists and public health advocates wary of ozone reviews conducted under a Democratic president elected during an economic downturn.

The Obama EPA launched a reconsideration of the Bush-era 2008 ozone standard of 75 parts per billion in its early days, but in September 2011, just before EPA was expected to move to tighten it to around 70 ppb, Obama personally pulled the plug. The White House cited economic concerns amid that era's financial crisis, although many critics alleged political motivations ahead of the 2012 election.

Obama's turnaround remains a sore point with environmentalists almost a decade later, even though his EPA ultimately tightened the pollution limit in 2015.

Asked about the incident, Billings, unprompted, rattled off the exact date and time of the White House meeting where advocates were informed of Obama’s decision.

“It’s one of the great frustrations of Clean Air Act implementations in the 30 years I’ve been working on the Clean Air Act,” he said. Billings declined to discuss what might happen if Biden is elected.

Wheeler recently proposed similarly retaining the particulate matter, or soot, standard without any revision (Reg. 2060-AS50), although EPA staff in that case had recommended strengthening it. Public health advocates criticized that move in public comments, and a recent study concludedreducing that standard by 2 micrograms would save 143,000 lives over a decade.

The proposal will be open for comment after being published in the Federal Register. EPA is trying to finalize the rulemaking this year, although the most recent White House regulatory agenda admitted that may slip into early 2021.


Can a new kind of insurance take the place of FEMA?

avatarBY ZACK COLMAN | 

The towns and cities dotting the Mississippi River have been a commercial spine of the American heartland for years, and for just as long have had to reckon with the sometimes violent ups and downs of the weather. In the past decade, however, they’ve been walloped by an unprecedented run of disasters. There were record droughts in 2012, which caused $35 billion in losses in the upper Midwest by curbing shipping and farm production, and record floods in 2019, which caused $6.2 billion in damage. In that time, they’ve also been hit by several hurricanes and periodic smaller droughts.

In theory, the federal government is supposed to step in after natural disasters and help municipal governments rebuild. But increasingly, the disaster relief checks aren’t arriving from Washington. Because of the sheer damage and number of storms, and the increasing frequency of floods that spark new spending requests, the federal bureaucracy is overwhelmed and an ever-polarized Congress less agile about responding. Some towns can’t afford to rebuild without those checks — so they don’t.

Consider what happened last year in Davenport, Iowa. When a spring flood hit, emergency responders saved the Quad Cities region water treatment plant, preventing a massive rainfall from overrunning the facility. But the victory was Pyrrhic. Had the deluge actually busted the plant, destroying nearby property and spoiling the water supply for nearly 170,000 people, the city would have qualified for cash from the Federal Emergency Management Agency. But because the plant was saved, it got nothing, because FEMA aid doesn’t cover structural maintenance. Now Davenport is left with a badly damaged facility desperate for repairs, and little money to do it.

“You'll see examples of that up and down the river,” said Colin Wellenkamp, executive director of the Mississippi River Cities and Towns Initiative, which works with governments along the river. “FEMA comes in and says, ‘Yeah, it looks good. You saved your town. Congratulations. Peace out.’“

As the rate of climate change-related disasters accelerates, cities and states across the country are coming to the conclusion that they need to add private insurance — big civic policies that can make up for the times Washington’s aid is too slow, too small, or simply never arrives.

One solution is a kind of municipal insurance called a “parametric policy,” explicitly designed to pay out quickly according to metrics agreed upon in advance by the insurer and municipal government. So if a storm’s wind speeds hit a certain threshold, a hurricane develops into a Category 3 or higher, soil moisture falls to dire levels or rainfall accumulates to a dangerous degree, the cities can skip the claims and inspection process; the insurer just writes the check. And if it doesn’t hit those numbers, the damage isn’t covered. Communities in all of the 10 states along the Mississippi are considering taking out parametric insurance policies.

This type of insurance, pioneered in developing countries, promises a measure of certainty for governments looking to protect themselves from financial ruin wrought by long-tail risks — the calamities officials fear but hope won’t happen on their watch. As those policies have gotten more popular, they’ve started to run into serious questions — like whether the companies are making fair calculations, whether towns are getting a fair return on their premiums, and whether their existence allows governments to punt on harder decisions about where people live and businesses operate in the first place.

Since those premiums are being paid in tax dollars, pursuing the coverage has its own political costs; citizens are questioning why their leaders, mayors and county executives are spending public money on insurance they may deem unnecessary.

Parametric insurance was created for precisely this problem — big, unpredictable waves of damage that need to be covered by civic governments. But the political and fairness questions that are arising illustrate the difficulty of coming to any kind of fair way to cover the massive damage that climate can cause.

***

Though newer to the U.S., parametric policies have existed since the late 1990s. Those covering countries against natural disasters sprouted not long after, with many crafted by the World Bank and others for emerging economies whose lifeblood — agriculture, tourism, other commodities — depends heavily on climate factors.

Recently, better data and computing technology have enabled insurers to write more sophisticated policies. That’s been mixed with climate-linked disasters increasingly hitting cash-strapped U.S. public agencies to create what the industry sees as a major growth market.

“I don’t want to call them niche but they’re certainly not mainstream,” said Kathy Baughman McLeod, senior vice president at the Atlantic Council and director of its Adrienne Arsht Rockefeller Foundation Resilience Center.

Here’s how they work, in their ideal form: Governments use public dollars to leverage a comparably smaller premium relative to the cost of self-financing disaster recovery for a substantially larger payout when the catastrophic event or certain conditions occur. FEMA’s National Flood Insurance Program is an example: It turned a $150 million premium of private market reinsurance into a $1 billion payout in 2017 when claims to the insolvent program surpassed a certain level following Hurricane Harvey, ultimately saving taxpayer dollars.

Proponents say these policies are faster and far more efficient — with cash arriving within days or weeks because assessors aren’t required to prove damages. In one famous example, Haiti, whose government was part of the multi-country Caribbean Catastrophe Risk Insurance Facility set up by the World Bank with reinsurer Munich Re and insurance broker Benfield, received payments just days after a 2010 earthquake leveled swaths of the Caribbean nation. The money can also be used to cover expenses FEMA doesn’t, such as replacing lost revenues — common when disasters flatten economies — or structural repairs, like that water treatment plant.

Taxpayers currently foot those bills. Natural catastrophes caused $232 billion in U.S. public sector economic losses, but only $71 billion was insured, said Jose Peralta, public sector risk management director at insurance firm Aon. A bulk of those losses stemmed from business interruptions, ruined roadways and other things FEMA funds won’t touch.

“There's just increasing concern about what kind of future disaster world we're going to be facing and that's driven attention and how we finance these events because losses are just going up,” said Carolyn Kousky, executive director of the Wharton Risk Management and Decision Processes Center at the University of Pennsylvania. “It's getting sort of unsustainable for the public sector to be paying for all of this.”

***

As these policies have grown, so have their critics, who say governments are at an information disadvantage when negotiating with insurers over terms — the parameters can be set to benefit the insurer. As a result, losses can pile up without triggering coverage. What’s more, taking out insurance can encourage elected officials to avoid making adjustments to keep property and people out of harm’s way in the first place.

Private insurance is not a cure-all for climate-linked disasters that, according to the National Oceanic and Atmospheric Administration, have tallied $1.16 trillion in damages over the past 15 years.

One argument is the familiar one about disaster insurance: moral hazard. Some activists and risk managers worry that officials with good insurance might delay difficult, structural shifts to keep people protected from climate change.

Parametric policies offer a false sense that rebuilding in the same areas will continue to be an option, said Rachel Cleetus, climate and energy policy director with the Union of Concerned Scientists. Local governments in search of property tax revenue must reconsider how they encourage development near shorelines and wildfire-prone wilderness, as areas that suffer repeated blows will find the bottom falling out of their markets, she said. So while parametric policies might present a short-term tool for funding recoveries, those payouts need to be combined with better land-use decisions.

“The risk is going to start getting uninsurable in some places,” she said.

Governments might also pay for ineffective coverage, said Jonathan Gale, chief underwriting officer for reinsurance with AXA XL, which offers parametric policies. Unlike more traditional insurance, there remains a potential for damaging, costly events that fail to meet payout triggers. This “basis risk” is greater with parametric products than conventional indemnity insurance, in which assessors evaluate damage before approving claims.

Peralta, of Aon, said smaller governments also might lack capacity to accurately assess their risk and purchase unnecessarily pricey coverage. That risk exists despite advancements in computing, satellite technology and data enabling insurers to tailor coverage for more events with greater precision. Critics believe insurance companies — which hold over $450 billion in fossil fuel stocks and bonds, according to the Sunrise Project, an environmental group pressuring financial companies to divest from fossil fuels — wield a sizable information advantage over customers.

“All these schemes, they just scream casino economy and seem like very small bore attempts to solve a much bigger problem,” said Ross Hammond, senior strategist with Sunrise, who argued that states and cities seeking such policies should condition their purchase on insurers dropping financial support of fossil fuels that drive climate change.

But disasters are expensive, so that means parametric insurance is, too — many expect increasingly volatile insurance premiums as the industry reassesses its own exposure to climate change. To keep costs manageable, some towns and cities are banding together into insurance pools, similar to how health insurance works, to spread costs more evenly. California is exploring that approach as part of a climate change working group its insurance commissioner convened. And in an innovative approach along the Mississippi River, the United Nations has stepped in to bring towns, reinsurance companies and the transportation, tourism, agriculture and commodities businesses that depend on the river together to negotiate a shared plan.

If the ideas some towns are discussing had been in place in 2019, Wellenkamp said, they would have paid out halfway through the year given the historic flooding. Towns held back high water for months, the inundation so severe that soil liquefied and subsurface infrastructure shifted.

“Now we got to dig it up and replace it, fix it,” he added. “That’s not FEMA money. That's money we got to find somewhere else.”


European Commission plans a new system to avoid hazardous chemicals

BY  ELINE SCHAART | 07/10/2020 09:29 AM EDT

BRUSSELS — The EU’s effort to classify all existing chemicals and remove the dangerous ones isn’t working.

Thirteen years after the launch of the flagship EU’s chemicals legislation REACH, there are still thousands of hazardous chemicals on the market. That’s why the EU is considering an overhaul.

Instead of dealing with the 21,000 registered chemicals on the market, the Commission wants to switch to something called safety-by-design, according to a draft of the Chemicals Strategy for Sustainability seen by POLITICO. The basic idea — which still needs fleshing out — is that instead of dealing with hazardous chemicals once they are on the market, they should be prevented from entering the market in the first place.

Environment Commissioner Virginijus Sinkevičius reaffirmed on Thursday the EU executive’s ambition to rethink the bloc’s chemicals framework. During a debate on the strategy in the European Parliament, he said that the “transition to a safe-and-sustainable-by-design” approach would present a “major opportunity for the EU’s innovation and competitiveness.”

That’s a change from the current system, which obliges companies to register chemicals before they can be put on the market, after which national authorities have to go through them one by one to see if each chemical is safe.

However, that system hasn’t led to a chemical revolution. In 2018, hazardous chemicals represented 74 percent of the total chemical production in Europe, a percentage unchanged since 2004.

The strategy, which is expected to be published in the fall, is being drafted by the Commission’s environment department, DG ENV. However, other departments can give feedback on the document, which means the current draft and level of ambition can still be changed.

The commitment to rethink the current chemicals framework is well received by European policymakers and environmental groups.

Tatiana Santos, chemicals policy manager at the NGO European Environmental Bureau, said that “it’s high time for Brussels to start addressing the root causes of chemical pollution, instead of focusing on substituting one hazardous chemical for the next.”

Toxic chemicals

The way the system works now, if a chemical is in line for regulatory action, it’s often quickly replaced by another substance that’s very similar in its structure and toxicity. For example, an EU-wide ban of bisphenol A in thermal paper, which took effect in January, has resulted in manufacturers switching to bisphenol S — a chemical considered just as hazardous as its cousin.

“Chemistry students are taught how to develop new chemicals with regard to their functionality, but they don’t learn to look at chemicals’ intrinsic properties and their effects on health and the environment,” said Santos, a chemist by training.

MEPs in the environment committee in June called on the Commission to develop a definition for essential uses, which should be inspired by the Montreal Protocol on substances that deplete the ozone layer. Under that protocol, a controlled substance qualifies as essential only if it is necessary for the health and safety of society and there are no feasible alternatives.

The resolution is up for vote in Friday’s plenary, where it’s likely to be approved.

However, the real challenge is still to come, with conflicting studies and no clear definition of what safety-by-design actually means.

MEP Maria Arena from the Socialists and Democrats said during Thursday’s plenary debate: “We need precise definitions otherwise it will just remain a concept that companies use to greenwash their activities to the detriment of health.”

Santos from the EEB agreed that it’s essential to define what safety-by-design means in order to avoid ambiguity or different interpretations.

Bjorn Hansen, executive director at the European Chemicals Agency (ECHA), made a first attempt in June, proposing a definition of sustainable chemicals based on safety, circularity and using less energy to produce.

Industry groups meanwhile are warning that the ambition to clear the EU market of all hazardous substances is unattainable.

“We have to accept that there are a lot of hazardous substances around us, and that we will need to continue using them,” said Violaine Verougstraete, chemicals management director at Eurometaux, citing as an example carcinogenic metals that are essential in batteries or solar panels. “Our continued task is to ensure that exposure to these substances is controlled throughout any product’s lifecycle.”

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