By Prof. Dr. Kirk W. Junker

 

In 1917, Pulitzer prize winner Upton Sinclair wrote the novel King Coal about underappreciated labor—specifically Colorado coal miners.[1]  By the end of the century, many subjects saw the king as a tyrant, not due to working conditions, but due to his contribution to climate change.  Nevertheless, exactly one hundred years after Sinclair’s novel, a naïve US administration promised to restore the king’s crown.  Up until 2013, coal remained the largest private-sector provider of jobs in the U.S. and is still the country’s dominant power source. Renewable and alternative energies, necessary to abet the climate crisis, are present, available and very importantly, becoming cheaper than fossil fuels.  The US has yet to implement a plan to adopt these alternatives and achieve the necessary emission reductions.

Europe’s Green Deal

Europe has followed a different path in supplying citizens with energy.  In Europe, when the Green Deal [2] was proposed, European Commission President Ursula von der Leyen praised the plan to make Europe the world’s first climate neutral continent. The European Green Deal envisages net zero carbon emissions by 2050.  “We do not have all the answers yet, today is the start of a journey, but this is Europe’s man on the moon moment.”[3] Von der Leyen and others have created a narrative of opportunity and a positive attitude that the European Green Deal will not only help to mitigate climate change, but like the US man on the moon, will provide a flag and a brand from which the EU can be recognized as a world leader.  Von der Leyen’s invocation is a reference to an event that marks becoming a world leader.  “Man on moon” was for the US not only the sign of leadership in the cold war’s space race, but set the National Aeronautics and Space Administration on a leading peacetime research and development plan.  It is not only the technology and finance that make someone a leader, it is also the legal work that enables those things to occur.

Landscape covered with wind turbines. At some places the ‘Green Vision’ has already become reality.

Germany Turning Green

As part of Germany’s contribution to the European Green Deal, Chancellor Angela Merkel has already announced a transition from coal fields to other jobs, with her government aiding the transition.[4]  Under the law, coal companies will receive 4.35 billion euros, most of which will go to just two companies, RWE and LEAG, which operate a majority of the coal extraction and processing plants. Coal workers will receive 5 billion euros in compensation for losing their jobs. And coal regions will get 40 billion Euros to improve infrastructure and invest in programs to attract new industries.[5]  Merkel’s government also convened a panel, the Commission on Growth, Structural Change and Employment (CGSCE) to develop a strategy for coal-free growth to enable it to meet a zero net emission goal by 2038.  According to CGSCE member Felix Matthes, the CGSCE is focused not just on phasing coal out, but also on what comes next. This, he said, holds an important lesson for other countries going through similar transitions.  This lesson for other countries has been learned before.

Europe Setting Worldwide Standards

Perhaps the two most obvious examples in which Europe has become the world standard setter, and in doing so, produced considerable opportunities for lawyers to work with those who need to comply with these standards, are the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) Regulation EC 1907/2006, and the General Data Protection Regulation (EU) 2016/679 (GDPR).  When one considers the extensive impact of data and energy, it is difficult to imagine two more important sectors of concern for the twenty-first century.[6]  It has been estimated that since REACH took effect in 2007,  its impact on chemical exports is directly and indirectly responsible for 54,000 Jobs.[7]  Both REACH and the GDPR have created global standards on data with significant impact on many countries, including the US.[8]  Importantly for lawyers, one of the jobs that is often created by new regulatory packages, whether it is REACH, the GDPR or the European Green Deal, is that for lawyers.  And that point brings us to the US’ market approach to energy, carbon and the climate crisis.

US Coal Industry Declining

By comparison, the belief that market forces, not planning, will direct energy in the US has ironically come true, but not in the way that the coal industry and its allies would have wanted.  As utilities began to turn more to natural gas, the coal industry continued to lose more and more of the market, with US coal consumption dropping more than twenty-five percent since 2007.  The natural gas boom and the increasing capacity of renewable energy have contributed to coal’s decline, a trend marked by a string of bankruptcies. [9]  Some coal companies, like Patriot, have been through bankruptcy more than once.  In its most recent bankruptcy, Patriot spun its nonproductive assets into a separate company that is now also failing.[10]   In addition, utilities (First Energy), battery manufacturers (Exide), refineries (Philadelphia Energy Solutions) and natural gas producers (Chesapeake) as well as others have been forced to file for bankruptcy. Moreover, stronger federal clean-air regulations contributed to the closing record numbers of power plants since 2012, according to the Energy Information Administration.

Coal mining in the United States or Europe. Once a major employer, today a dying industry.

Murray Energy Bankruptcy

Some of the largest coal companies such as Peabody Energy, Alpha Natural Resources, and Arch Coal all struggled with the lower demand and weaker prices.[11] Rather than adapting to renewables, some US fossil fuel companies just try to expand markets.  Peabody, Alpha and Arch have all expanded to foreign markets, including Asia.  Despite the personal efforts of the US President, the largest private coal company in the US, Murray Energy, which employed almost 5,550 people in 2018, is the latest big coal bankruptcy. The company owned and operated and managed 18 mines, but had accumulated about $2.7 billion in debt. The company also has more than $8 billion in actual or potential liability.[12]  The bankruptcy of Murray Energy illustrates the different paths of transition that the two systems will follow for energy, jobs and the environment—one plans, the other resists change; one retrains workers, the other just goes bankrupt.  When it was brought to her attention that coal companies were going bankrupt, Ivanka Trump, invoking Marie-Antoinette, simply said “then they must learn to do something else.” [13]

Solar power plants surrounded by snowy mountains in Colorado.

US Green New Deal

Despite these clear trends, at the official level, the US has been reluctant to make a plan for change.  Like the use of “man on moon” to label the image of new program in Europe, a “Green New Deal” was introduced in the US, borrowing its name from President F. D. Roosevelt’s program of creating public works projects, public retirement pensions, aid for the elderly and aid for youth.  But the New Green Deal in the US has been dismissed as economically naïve[14] and technically unfeasible.[15]  The consequence?  Bankruptcies.  What has been correct about the US approach has been the belief that markets will react, but the reaction has not been the one for which the fossil fuel industry and the President had hoped.

Challenging Legal Issues

In this context of unplanned and forced transition, German lawyers may need to work with and against bankrupt US energy industries.  Bankruptcy for coal companies can carry the particular burden of environmental liability, and lawyers must be aware of the pitfalls to these liabilities.  US-style federalism presents unexpected complexities in most areas of legal practice, and bankruptcies with environmental liabilities, are no exception.  In the seminal case on bankrupt companies with environmental liability, the court’s opinion opens with a clear statement of the federalism problem: “This case demonstrates the difficulty encountered when two governmental policies-one federal and one state-come into arguable conflict. On the one hand, the federally created bankruptcy policy requires that the assets of a debtor be preserved and protected, so that in time they may be equitably distributed to all creditors without unfair preference. On the other hand, the environmental policies of the Commonwealth of Pennsylvania requires those within its jurisdiction to preserve and protect natural resources and to rectify damage to the environment which they have caused. The potential conflict between these two policies is presented in this case, in which the Commonwealth has attempted to force a company which has petitioned in bankruptcy to correct violations of state antipollution laws, even though this action would have the effect of depleting assets which would otherwise be available to repay debts owed to general creditors.”[16]

Chapter 11 Controversy

In the US, bankruptcy is a federal matter, not a state matter, with a foundation provided in the US Constitution’s Article 1, § 8, Clause 4.  In federal statutory law, a distinction is made between bankruptcies filed under Chapter 7 (liquidation) and Chapter 11 (reorganization).  Although environmental law has been determined to be a federal competency, it is delegated to states through the process of cooperative federalism.[17] In the US it is common to file for bankruptcy as a tool to shed debt, and Murray Energy is an example.[18] In the Murray bankruptcy, the creditors took over the company, trading debt for equity.  Murray was able to transfer some employee and retiree medical costs to the US government, while unsecured creditors got nearly nothing.[19]  With no bidders interested to take the company, the newly-formed company has retained all of the assets, even the undesirable ones.[20]  Critics point out that in Chapter 11 bankruptcies, essentially the same people who led the company to ruin continue to get paid to run it as debtors in possession afterwards.  The Chapter 11 entity typically enjoys protection from creditors through the automatic stay provision of 11 U.S. Code § 362(b)(4).[21]  An automatic stay means that a debtor can begin the process of restructuring without simultaneously paying bills and without the need to separately apply for the stay, nor any need for the court to exercise discretion.

Penn Terra Case

One might therefore fairly believe that environmental remediation would also be stayed, which for a coal producer, can be a big legacy burden and a large part of outstanding liabilities.  However, the US Third Circuit Court of Appeals in the Penn Terra case decided that: “We decline to equate DER’s [the Department of Environmental Resources’] actions, which are those of a governmental unit enforcing the Commonwealth’s police power, with those affected by the automatic stay of Section 362(a). We therefore conclude that the suit brought by DER to compel Penn Terra to remedy environmental hazards was properly brought as an equitable action to prevent future harm, and did not constitute an action to enforce a money judgment. The automatic stay provision of  11 U.S.C. § 362 is therefore inapplicable.”[22]

Offshore wind power, as part of the Green New Deal.

Legal Work to Be Done

When fossil fuel industries go bankrupt, the state, as trustee for the public health and welfare, must assure that environmental liabilities are not abandoned. It can force new owners to take remedial action for polluting coal mine operations, although it cannot fine or penalize the new owner.[23] In the larger context, the move to carbon-free societies is creating demand for legal work on both sides of the Atlantic.  In Germany, there is work to be done to usher in the European Green Deal and phase out coal.  In the US, there has only been the promise to return coal to king, and that promise has failed.  Consequently, there is legal work to be done as the bankruptcies of coal companies pile up without a planned or assisted phase-out of coal.  Even after these companies have restructured themselves through bankruptcy, the pollutional legacy remains an environmental liability, despite the automatic stay provision found at 11 U.S. Code § 362(b)(4).

 

Prof. Dr. Kirk W. Junker holds the chair of US American Law at the University of Cologne, Germany. Junker’s fields of research and teaching focus on Comparative Law, Comparative Environmental Law, International Environmental Law, Law of the European Union, Law and Science as well as Law and Rhetoric. He is licensed to practice law in Pennsylvania and before the federal courts of the United States of America. Junker received a B.A. from Penn State University and a J.D. from Duquesne University. He earned a Ph.D. from the University of Pittsburgh.

 

 

 

 

 

[1] In his documentary on the climate crisis, An Incovenient Truth, Al Gore quoted Sinclair from King Coal: “It is hard to inform a man when his wage depends on his ignorance.”

[2] European Commission, “The Green Deal,” https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal_en

[3] Deutsche Welle, “EU lauds new Green Deal as Europe’s ‘man on moon moment’ December 11, 2019 https://www.dw.com/en/eu-lauds-new-green-deal-as-europes-man-on-moon-moment/a-51622675

[4] Dan Gearino, “What Germany Can Teach the US About Quitting Coal,” Climate News, October 15, 2020.  https://insideclimatenews.org/news/14102020/germany-coal-transition?utm_source=InsideClimate+News&utm_campaign=7b0b1a6fd4-&utm_medium=email&utm_term=0_29c928ffb5-7b0b1a6fd4-327835033

[5] Gearino.

[6] “Morgan McKinley, “GDPR is Creating Huge Job Opportunities for Legal Sector,” November, 2020 https://www.lawyer-monthly.com/2018/06/gdpr-is-creating-huge-job-opportunities-for-legal-sector/ ; Rosemary Jay, “What does GDPR mean for law firms?” November 7, 2020, https://www.ark-group.com/content/what-does-gdpr-mean-law-firms ;  Steven Lorber, Sean Illing, and Lewis Silkin, “The GDPR: one year on.,” Ius Laboris, May 24, 2019 https://iuslaboris.com/insights/the-gdpr-one-year-on/  For statistics on GDPR Employment, see, Morgan McKinley, “GDPR creates huge job opportunities for technology and legal experts,” June 11, 2018,  https://www.morganmckinley.com/uk/article/press-release-gdpr-creates-huge-job-opportunities-technology-and-legal-experts

[7] REACH aims to improve the protection of human health and the environment through the better and earlier identification of the intrinsic properties of chemical substances. This is done by the four processes of REACH, namely the registration, evaluation, authorisation and restriction of chemicals. REACH also aims to enhance innovation and competitiveness of the EU chemicals industry. The REACH Regulation places responsibility on industry to manage the risks from chemicals and to provide safety information on the substances.  Manufacturers and importers are required to gather information on the properties of their chemical substances, which will allow their safe handling, and to register the information in a central database in the European Chemicals Agency (ECHA) in Helsinki.

[8] A. Mucci, L. Cerulus,  & H. Von Der Burchard.,  “Data fight emerges as last big hurdle to EU-Japan trade deal,”  Politico, January 28, 2018, https://www.politico.eu/article/eu -japan-trade-deal-caught-up-in-data-flow-row-cecilia-malmstrom/  and European Union, “Factsheet EU-Japan Strategic Partnership Agreement,” July 27, 2018, https://eeas.europa.eu/headquarters/headquarters-homepage_en/48461/EU-Japan%20Strategic%20Partnership%20Agreement

[9] Armstrong Energy Inc. and Mississippi Minerals filed for bankruptcy in 2017. Mission Coal and Westmoreland Coal filed for bankruptcy in 2018. Trinity Coal, Piney Woods Resources Inc., Cloud Peak Energy, Cambrian Holding,  Blackjewel and Blackhawk Mining all filed for bankruptcy in 2019. Murray, Cloud Peak and Revelation Energy/Blackjewel were among the nation’s top 10 producers in 2018, according to the Energy Information Administration. Daniel Moritz-Rabson, “Eleven Coal Companies Have Filed for Bankruptcy Since Trump Took Office,“ Newsweek, October 30, 2019. https://www.newsweek.com/eight-coal-companies-have-filed-bankruptcy-since-trump-took-office-1468734

[10] See, Taylor Kuykendall, “Murray Energy finds bankruptcy exit path, discloses $15.7M founder settlement,” July 28, 2020,   https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/murray-energy-finds-bankruptcy-exit-path-discloses-15-7m-founder-settlement-59606511

For the docket on the case, see https://cases.primeclerk.com/MurrayEnergy/

[11] Howard Rothman, “King Coal Losing Grip on Its Crown,” September 10, 2013, https://www.fool.com/investing/general/2013/09/10/king-coal-losing-grip-on-its-crown.aspx

[12] Moritz-Rabson.

[13] Greg Graziosi, “Ivanka mocked after unveiling Trump team’s new jobs website,” Independent, July 14, 2020,  https://www.independent.co.uk/news/world/americas/us-politics/ivanka-trump-donald-job-website-a9619351.html

[14] On October 27, 2020, The Sustainable Development Solutions Network (SDSN) published “Zero Carbon Action Plan,” New York: Sustainable

Development Solutions Network (SDSN) 2020, which may serve to address those critics of the “New Green Deal,” who insisted it was technologically unfeasible.   The SDSN includes environmental lawyers Vicki Arroyo, Michael Gerrard and John Dernbach.

[15] There are examples such as the offshore wind farm on Lake Erie, but the question has been raised whether it will ever be built.  The project, known as “Icebreaker,” would be the first freshwater wind farm in North America. But after more than a decade, it is still only a proposal.

[16] See, Penn Terra Limited, v. Department of Environmental Resources, Commonwealth of Pennsylvania, 733 F.2d 267 (3d Cir. 1984).

[17] See, Kirk W. Junker and Michael J. Heilman, “United States’ Environmental Law as Foreign Law,” in US Law for Civil Lawyers (Nomos, 2020) pp. 305 – 335, p. 317

[18] Valerie Volcovici, “Murray Energy files for bankruptcy as U.S. coal decline continues,” Reuters, October 29, 2019, https://www.reuters.com/article/us-usa-coal-bankruptcy/murray-energy-files-for-bankruptcy-as-u-s-coal-decline-continues-idUSKBN1X81SB

[19] Alex Wolf, Murray Energy Bankruptcy Plan Approved Over Creditor Objections, August 31, 2020,  https://news.bloomberglaw.com/bankruptcy-law/murray-energy-bankruptcy-plan-approved-over-creditor-objections

[20] Jonathan Randles, “Coal Company Murray Energy Poised to Exit Bankruptcy,” Wall Street Journal, August 31, 2020, https://www.wsj.com/articles/coal-company-murray-energy-poised-to-exit-bankruptcy-11598907720 ;

[21] (a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title, . . .  operates as a stay, applicable to all entities . . ..

(b) The filing of a petition under section 301, 302, or 303 of this title, or of an application under section 5(a)(3) of the Securities Investor Protection Act of 1970, does not operate as a stay—

(4) under paragraph (1), (2), (3), or (6) of subsection (a) of this section, of the commencement or continuation of an action or proceeding by a governmental unit or any organization exercising authority under the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on Their Destruction, opened for signature on January 13, 1993, to enforce such governmental unit’s or organization’s police and regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or proceeding by the governmental unit to enforce such governmental unit’s or organization’s police or regulatory power.

[22] See, Penn Terra Limited, v. Department of Environmental Resources, Commonwealth of Pennsylvania, 733 F.2d 267 (3d Cir. 1984).

[23] See, Penn Terra Limited, v. Department of Environmental Resources, Commonwealth of Pennsylvania, 733 F.2d 267 (3d Cir. 1984).

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