Biden Administration Issues Sweeping Salvo of Sanctions Against the Russian Energy Sector
On January 10, 2025, in a final action to, among other things, deter Russian aggression on the international stage, the US Department of the Treasury enacted sweeping new sanctions on the Russian energy sector. Specifically, the sanctions package includes:
Determination authorizing sanctions on any person to operate or have operated in Russia’s energy sector;
Determination banning provision of US petroleum services to Russia and
Imposition of blocking sanctions against major players in the oil and gas markets, vessels in the so-called “shadow fleet,” certain traders of Russian oil, Russian maritime insurers and Russian oilfield service providers.
Below we explain these actions and how they substantially increase the sanctions risks associated with Russian energy both for and beyond the directly impacted entities, as well as the General Licenses (GLs) that accompany the sanctions.
Russian Sanctions Regime Overview
On April 15, 2021, President Biden issued Executive Order (E.O.) 14024, “Blocking Property With Respect To Specified Harmful Foreign Activities of the Government of the Russian Federation,” which established a national emergency by which Treasury’s Office of Foreign Asset Controls (OFAC) could impose sanctions against individuals and entities furthering specified harmful foreign activities of Russia, with a focus on national security. This national emergency is separate from that related to the crisis in Ukraine, which is addressed in E.O. 13660 and its progeny.
Section 1(a)(i) of E.O. 14024 authorizes sanctions on certain sectors of the Russian economy as determined by Treasury and the State Department. Over the past four years, OFAC has used this authority to sanction numerous sectors of the Russian economy, such as the technology and defense sectors. However, concerns about disruptions to energy prices worldwide, and particularly in relation to European allies, has caused OFAC to stop short of sanctioning the entire Russian energy sector. Until now.
Energy Sector Sanctions (Energy Sector Determination)
Under the Energy Sector Determination OFAC has authority to sanction any party that it determines to operate or to have operated in the Russian energy sector. This determination, which took effect on January 10, 2025, exposes all persons in the energy sector to sanctions risk but it does not automatically impose sanctions on all such entities. FAQ 1214.
OFAC will, in the coming days, issue regulations defining impacted activities in Russia’s oil, nuclear, electrical, thermal and renewable sectors. FAQ 1213. This definition will be similar to the energy sector definition set forth under the Ukraine/Russia-Related sanctions in 31 CFR 589.311 but includes additional language identifying specific activities and petroleum products, reflecting developments since the Department of the Treasury issued the relevant determination on that issue pursuant to E.O. 13662 in 2014.
Prohibition on Petroleum Services to Russia (Services Determination)
The Services Determination, which comes into effect on February 27, 2025, prohibits US persons from providing, directly or indirectly, most petroleum services to Russia. OFAC plans to issue regulations defining “petroleum services” to include those related to oil exploration, production, refining, storage, transportation, distribution and marketing, among others. Significantly, however, OFAC confirmed this determination does not ban all US services for maritime transportation of Russian oil, provided services comply with applicable price caps and do not involve blocked parties. FAQ 1217.
Blocking Sanctions
In addition to these sectoral sanctions determinations, OFAC imposed blocking sanctions on numerous entities by adding them to the Specially Designated Nationals (SDN) list. Blocking sanctions freeze assets or other property of the SDN, and immediately impose a blanket prohibition against US entities, directly or indirectly, transacting with or for the benefit of the assets. This prohibition extends to entities owned more than 50 percent by SDNs. Further, US law makes it a crime to “violate, attempt to violate, conspire to violate, or cause a violation of any” US sanction, and US regulators interpret this language broadly to encompass any transaction in which a non-US entity causes the sanctioned funds of an SDN to pass through the US banking system by simply transacting in US dollars.
Notable new SDNs include:
183 vessels in the so-called “shadow fleet” that has been helping Russia evade sanctions, including vessels owned by Sovcomflot that had previously been protected by GL 93, which OFAC revoked as part of this sanctions package. In December 2024, the United Kingdom Office of Sanctions Implementation (OFSI) added 20 ships to its sanctions list, bringing the number of shadow fleet vessels sanctioned by the UK to 93.
Two of Russia’s biggest oil producers and exporters, Gazprom Neft and Surgutneftegas, and numerous subsidiaries. OFSI simultaneously imposed sanctions on these producers, on the same day that OFAC and OFSI signed a Memorandum Of Understanding outlining a framework for collaboration in the sanctions space.
A network of traders of Russian oil that are either linked to the Russian government or have otherwise suspicious ownership.
More than 30 Russian oilfield services providers.
Russian maritime insurers Ingosstrakh Insurance and Alfastrakhovanie.
Secondary Sanctions Risk
The impact of these determinations and updates to the SDN list, themselves sweeping, extend even beyond the impact described above through secondary sanctions, which are measures meant to deter third parties from transacting with directly sanctioned entities. Secondary sanctions impose penalties on entities that engage in the same dealings prohibited under primary sanctions, even when there is nothing in the transaction that triggers a US nexus, such as the involvement of a US person or US dollars. These sanctions are typically triggered upon a determination that a non-US entity has “knowingly” engaged in a “significant transaction” with an SDN. Secondary sanctions can range from denial of an export license or loans from US financial institutions to designating the third party an SDN in their own right, depending on the severity of the conduct.
General Licenses
In recognition of the significant impact of this raft of sanctions, OFAC issued several GLs in connection with these measures, mostly creating wind-down periods.
GL 8L authorizes wind down activities transactions with 12 enumerated financial institutions for a “any transaction related to energy” until March 12, 2025.
GL 115A authorizes wind down activities transactions with 12 enumerated financial institutions for transactions “related to civil nuclear energy” until June 30, 2025.
GL 117 authorizes the wind down of transactions involving Gazprom Neft, Surgutneftegas, and certain additional entities until February 27, 2025.
GL 118 authorizes certain transactions related to debt or equity of, or derivative contracts involving, Gazprom Neft, Surgutneftegas, and certain additional entities until February 27, 2025.
GL 119 authorizes certain transactions involving Gazprom Neft related to diplomatic and consular mission operations outside of Russia until February 27, 2025.
GL 120 authorizes limited safety and environmental transactions and the unloading of cargo involving certain newly sanctioned persons and vessels until February 27, 2025.
GL 121 authorizes provision of petroleum services for three projects until June 28, 2025: the Caspian Pipeline Consortium, Tengizchevroil, and Sakhalin-2.
Ultimate Impact
The effectiveness of these sanctions will ultimately be determined by the Trump administration, which will be responsible for either enforcing them or rolling them back. While the incoming administration has indicated an intent to roll back many Biden-era policies, it is impossible to predict to any degree of utility if and when these particular measures will be reversed. This is a fluid area, and companies potentially impacted by the sanctions should remain on high alert. At a minimum, any company that transacts in any way with the Russian energy sector should immediately evaluate their exposure and prepare for the sanctions to be enforced in full.
PHMSA Suggests Tighter CO2 Pipeline Safety Regulations Amid Growing Infrastructure for Carbon Capture
On January 15, 2025, the Pipeline and Hazardous Materials Safety Administration (PHMSA) of the U.S. Department of Transportation released a pre-publication version of a notice of proposed rulemaking (NPRM) that would propose new safety regulations for pipelines that transport carbon dioxide (CO2). The NPRM would extend PHMSA’s regulatory oversight to pipelines transporting CO2 in all phases, to include the first-ever safety requirements for pipelines transporting CO2 in gas and liquid-phase, while also reinforcing existing standards for transporting CO2 in its supercritical phase. This much-anticipated NPRM introduces several significant and targeted proposals that would create a uniform nationwide set of safety regulations for CO2 transportation by pipeline. Comments on the proposal will be due 60 days after the NPRM is published in the Federal Register.
Background on CO2 Pipelines
The U.S. Department of Energy (DOE) has projected a major expansion of the nation’s CO2 pipeline network, driven by global efforts to capture and store excess CO2. According to a December 2023 Congressional Budget Office report, the number of carbon capture and storage (CCS) projects is expected to increase nearly tenfold by 2050. A substantial increase in commercial development of CO2 pipelines has occurred in the past several years and is expected to continue.
Although CO2 pipelines historically have a clean safety record, a major incident, coupled with the expanding CO2 pipeline infrastructure, prompted PHMSA to revisit the need for targeted safety regulations for pipelines transporting all phases of CO2.
PHMSA’s Proposed Rule
While PHSMA has long regulated pipelines transporting CO2 in a supercritical phase (at a 90% or more concentration of CO2 in the product stream), PHMSA’s proposed rule expands its authority over CO2 pipelines significantly, in part to address the growing need for expanded carbon capture and storage (CCS) infrastructure, driven by significant new incentives from the President’s Bipartisan Infrastructure Law and the Inflation Reduction Act. If adopted, the rule will introduce several key changes, including:
The first-of-its-kind requirements for the design, installation, operation, maintenance, and reporting of CO2 gas and liquid-phase pipelines.
New guidelines for operators converting existing pipelines to transport CO2 in different phases.
Mandates for CO2 pipeline operators to train emergency responders and ensure access to CO2 detection equipment for effective emergency management.
Enhanced public communication protocols during emergencies.
Detailed vapor dispersion analysis requirements to safeguard public health and the environment in the event of a pipeline failure.
First-of-its-kind Requirements
The proposed rule will enhance safety standards for newly constructed, replaced, relocated, or converted CO2 pipelines through the introduction of updated fracture control requirements. Among the key provisions, operators would be required to evaluate and adjust pipeline toughness based on operating conditions, ensuring fracture arrest within specific pipe lengths (320 feet for 99% probability and 200 feet for 90%), conduct toughness tests per industry, and meet toughness requirements outlined in API Specification 5L, which could lead to mandated crack arrestors.
The proposed rule also seeks to add several new sections; §§ 195.263 (Fixed vapor detection and alarm systems), 195.309 (Spike hydrostatic pressure test), 195.429 (Maintenance and testing of fixed vapor detection and alarm systems), and 195.456 (Vapor dispersion analysis). Each of these proposed new regulatory sections introduce new concepts that are prescriptive in nature and may raise practical considerations that are ripe for comment and discussion with PHMSA as the rulemaking process progresses.
Operational Guidelines
PHMSA proposes enhanced requirements for pipelines converted to CO2 and hazardous liquid service under part 195. Operators seeking to convert a pipeline to CO2 transportation would need to meet design and construction standards from subparts C and D. Specifically, pipelines converted to CO2 service must undergo a spike hydrostatic pressure test before being placed into service. Additionally, operators would be required to conduct in-line inspections within 12 months and close-interval and coating surveys within 15 months of the service initiation. These measures are designed to ensure the integrity and safety of converted pipelines by identifying and addressing any defects or issues early on.
Training Key Individuals
PHMSA’s proposed rule includes three key safety improvements for CO2 and hazardous liquid pipelines. First, it calls for enhanced training for emergency responders, ensuring they have the necessary equipment and expertise to handle pipeline emergencies, particularly asphyxiation risks. Second, the proposal mandates additional safety equipment for operators, including tools to detect hazardous vapor and gas concentrations in excavated areas. Lastly, it requires pipeline operators to communicate with affected entities and the public during emergencies, ensuring clear and consistent messaging and coordination with emergency response organizations.
Enhanced Public Communication Protocols
PHMSA’s NPRM proposes enhanced emergency response plans for CO2 pipelines, building on the Valve Rule to address safety risks. The proposal includes additional training for emergency responders, requiring operators to provide equipment and training on CO2-related emergencies, including asphyxiation risks. It also mandates the provision of safety equipment in excavated trenches and tools for detecting hazardous vapor and gas concentrations. Lastly, operators would be required to communicate with affected entities, including the public, using population density data to ensure clear, coordinated messages during emergencies. These changes aim to improve emergency response effectiveness and public safety, but details surrounding the level of training and type of equipment provided to first responders remains unclear and will need to be flushed out in comments and public meetings as the rulemaking matures.
Detailed Vapor Dispersion Analysis
PHMSA is proposing new requirements for vapor dispersion analyses for hazardous liquid and CO2 pipelines. Operators would be required to update their models every 15 months, or at least once a year, to reflect updates to software and changes in relevant factors. These updates aim to ensure that operators’ assessments of pipeline segments potentially affecting High Consequence Areas (HCAs) are accurate and based on the latest science. However, recognizing potential resource challenges, PHMSA proposed to allow operators the option to use a default 2-mile radius on either side of the pipeline as a basis for determining impacts on high consequence areas. This proposal aims to improve pipeline safety by ensuring up-to-date risk assessments and enhancing regulatory oversight.
The Big Picture
About 5,000 miles of CO2 pipelines exist in the United States, and their main purpose is to improve oil drilling operations. However, according to a 2020 Princeton research study, 65,000 miles of CO2 pipes will be required by 2050 to achieve net-zero emissions targets. As a result of worldwide CO2 collection and storage initiatives, the DOE has also predicted a large growth of the CO2 pipeline network. According to a Congressional Budget Office assessment released in December 2023, the number of CCS projects might nearly double, and by 2050, the length of CO2 pipelines could increase by 10 times their current size.
New York Courts Provide Additional Guidance on Implementation of Green Amendment
Based on recent decisions, judicial interpretation of New York’s Environmental Rights Amendment (also called the Green Amendment) continues to evolve. The Green Amendment guarantees New Yorkers a “right to clean air and water, and a healthful environment.” N.Y. Const., Art. 1, Sec. 19. Because relatively few courts have interpreted the Green Amendment since it took effect in 2022, its full impact remains uncertain. However, recent decisions suggest that courts are willing to limit the types of legal claims that may be maintained under the Green Amendment.
Green Amendment Not Retroactive and Requires a Significant Contribution to Environmental Harm
Addressing the standard for maintaining a Green Amendment claim, an Erie County Supreme Court (located in the Appellate Division’s Fourth Department) recently held that the amendment did not provide a basis for enjoining a highway redevelopment project. W. N.Y. Youth Climate Council v. NYS Dep’t of Transp., 2024 WL 5050061 (Sup. Ct. Erie Cty. Nov. 15, 2024). The court found that the operation and maintenance of a highway, which had existed for almost 60 years, did not violate the Green Amendment because the amendment did not apply retroactively. Adopting the State of New York’s position that plaintiffs must show that the project would “significantly contribute” to unclean air or water or an unhealthful environment, the court also found that the allegations did not rise to this level.
Green Amendment Does Not Alter the Regulatory Framework
A decision in the Southern District of New York has taken a more restrictive view. Chan v. U.S. Dep’t of Transp., 2024 WL 5199945 (S.D.N.Y. Dec. 23, 2024). The court denied a request to enjoin congestion pricing in New York City because plaintiffs were unlikely to succeed on their Green Amendment claim. The court found that the amendment did not create a “self-executing substantive right” to environmental standards beyond those in existing regulations. Rather, the court explained that the Green Amendment guarantees only a baseline level of clean air and water and a healthful environment, and plaintiffs must show that this constitutional minimum is not being met to have a claim. The reasoning of the Chan decision, if broadly embraced, could severely limit the availability of a private right of action under the Green Amendment.
Green Amendment Cannot Compel Discretionary Agency Action
In a suit targeting government enforcement discretion, the Albany County Supreme Court (located in the Third Department) dismissed a Green Amendment claim brought against the State of New York and the New York Department of Environmental Conservation (NYSDEC). See People v. Norlite, LLC, No. 907-689-22, Doc. No. 369 (Sup. Ct. Albany Cty. Dec. 30, 2024). Plaintiffs alleged that NYSDEC violated the Green Amendment by issuing a permit for and allowing the operation of a manufacturing facility. Relying on the Fourth Department’s July 2024 decision in Fresh Air for the Eastside, Inc. v. State of New York, the trial court concluded that this claim, while styled as a request for declaratory relief, actually sought to compel agency action. Because the Green Amendment claim challenged NYSDEC’s statutory discretion, the court held that it did not have the authority to grant the relief sought and dismissed the claim.
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While these decisions are not binding in other cases, they indicate that courts tend to interpret the reach of the Green Amendment narrowly and limit the types of claims they consider permissible under it. Regulated entities in New York should continue to monitor new litigation surrounding the Green Amendment and other decisions interpreting the reach of this state constitutional provision.
State and Local Executive Orders Suspend Time-Consuming Permitting and Review Requirements for Rebuilding Los Angeles
In light of the ongoing devastation wrought by the numerous wildfires plaguing Los Angeles County, California Governor Gavin Newsom has declared a state of emergency[1] and taken immediate action in an attempt to allow Angelenos to rebuild efficiently and effectively. One such action was the issuance of Executive Order (EO) N-4-25 on January 12th to temporarily suspend two time-intensive environmental laws.[2] In response, the City of Los Angeles Mayor Karen Bass issued her own executive order (Emergency Executive Order No. 1 [LA EEO1]) just one day later to “clear the way for Los Angeles residents to rapidly rebuild the homes they lost.”[3]
EO N-4-25 will, in short, suspend the permitting and review requirements under the California Environmental Quality Act (CEQA) and Coastal Act for victims of the recent fires in Los Angeles County in order to promote the restoration of homes and businesses. In addition to confirming the waiver of CEQA review, LA EEO1 waives local discretionary review processes. These fires, which – as of the date of publication – have resulted in the destruction of more than 12,000 structures, in the midst of an undeniable housing crisis in California. These executive orders are a step in the right direction to recoup the housing stock lost over the past two weeks.
EO N-4-25
The executive order issued by Governor Newsom:
Suspends CEQA review and Coastal Act permitting related to the reconstruction of properties substantially damaged or destroyed in the wildfires. The structures eligible for this suspension must be in the substantially same location and shall not exceed 110% of the footprint and height of properties and facilities that were legally established and existed immediately before the fires.
This suspension means that applications to rebuild homes, businesses, and other structures will not have to comply with laws that are notorious for extensive approval timelines, restricting land development and proposed uses, and subject to appeals and litigation, all of which could tie up a project indefinitely.
Directs state agencies to identify additional permitting requirements, including provisions of the California Building Code, that can safely be suspended or streamlined to accelerate rebuilding and make it more affordable.
These state agencies, including Department of Housing and Community Development (HCD), the Office of Land Use and Climate Innovation, the Office of Emergency Services (OES), and the Department of General Services (DSG), need to report to the Governor within 30 days on other permitting requirements that could “unduly impede” efforts to rebuild properties damaged in the fire, updating the report every 60 days to identify other requirements acting as barriers.
HCD will coordinate with local governments to recommend procedures to establish rapid permitting and approval processes to expedite the reconstruction or replacement of residential properties, with the ultimate goal of issuing all necessary permits and approvals within 30 days.
Extends protections against price gouging under Penal Code section 396(b)-(c) on building materials, storage services, construction, emergency clean-up and other essential goods and services associated with repair and reconstruction to January 7, 2026, in Los Angeles County.
Commits the executive branch to working with the Legislature to identify statutory changes that can help expedite rebuilding while enhancing wildfire resilience and safety.
Allows property owners to transfer the base year value of property that is substantially damaged or destroyed by the disaster to the rebuilt property, which could offer a significant tax savings.
While EO N-4-25 has been heralded as “really positive” and “as an admission we can safely build housing without [the constraints of these two intensive environmental laws]” by industry leaders, including the California Building Association,[4] questions regarding the implementation of this order remain. For example, the order states that eligible projects must be substantially the same size and location, but leaves the door open as to whether the use can change. Would the order still apply if the redevelopment changed the use from single-family to a single-family home with an accessory dwelling unit (ADU) or denser residential or commercial uses?
Additionally, EO N-4-25 is silent on the rebuilding or repair of infrastructure supporting the projects eligible for application of the executive order. If infrastructure cannot be installed quickly to support the other redevelopment, it is possible the success of such eligible redevelopment is hindered by the inability to utilize the new structures due to lack of services and access. Moreover, redevelopment projects under EO N-4-25 will still need to comply with local zoning and permitting ordinances. Therefore, redevelopment projects may still need to obtain discretionary approvals (i.e., conditional use permit, coastal development permit, site plan review), which are time- and resource-consuming even without the application of CEQA or the Coastal Act. Lastly, the state executive order creates a tension with Local Coastal Programs (LCP) for applicable areas (i.e., Malibu), which are at risk of being decertified by the California Coastal Commission if the local governments approve building plans contrary to approved LCPs.
Additionally, as of late, one of the most popular issues subject to CEQA challenges has been wildfire danger. EO N-4-25 will likely be at odds with recent case law that sets the requirements for analyzing a project’s impacts on evacuation routes and wildfire risk, including People of the State of California ex rel Rob Bonta Attorney General v. County of Lake (2024) __ Cal.App.5th __. Given CEQA’s requirements for a fire risk analysis and the trend of recent caselaw, local governments – in order to avoid liability imposed by the courts – may be hard-pressed to approve projects without some sort of discretionary consideration given to the redevelopment’s impacts on fire risk and evacuation routes.
Only time will tell if the Governor’s Office will issue clarifications to EO N-4-25 that address these and other uncertainties.
LA EEO1
The executive order issued by Mayor Bass will:
Coordinate debris removal from all impacted areas, mitigates for wet weather.
This will create task forces to develop a streamlined program for debris removal and mitigate risks from rain storms, uniting with the OES and other City, County, state and federal agencies.
Clear the way to rebuild homes as they were.
This will establish a one-stop-shop to swiftly issue permits in all impacted areas, directs City departments to expedite all building permit review/inspections, bypasses state CEQA discretionary review, allows rebuilding “like for like” and waives City discretionary review processes. The City has already established a Disaster Recovery Center to serve individuals and families impacted by the fire in the Pacific Palisades, which is open 7 days a week from 9 a.m. to 8 p.m. at: 10850 Pico Boulevard, Los Angeles, California 90064
Make 1,400 units of in progress housing units available.
LA EEO1 directs the Department of Building and Safety to issue temporary certificates of occupancy for 1,400 housing units currently in the pipeline across the City.
Establish a framework to secure additional regulatory relief and resources.
This instructs all City departments to report back in one week with a list of additional relief needed from state and federal regulations and requirements, as well as state and federal funding needed for recovery.
Expedite permit review and eliminate the discretionary review and other processes for “eligible projects.” An eligible project is defined as one that repairs, restores, demolishes, or replaces a structure or facility substantially damaged or destroyed by wildfires that meets certain criteria, including: (i) the structure or facility is in substantially the same location as the original structure or facility; (ii) the structure or facility does not exceed 110% of the floor area, height, and bulk of the original structure or facility; (iii) maintaining the same use, intensity, and density of the original structure or facility, i.e., no new ADUs or changes of use; and (iv) obtaining building permits for repair or reconstruction within 7 years from the date of the order.
Building permit review timelines by all City departments (including Department of Water and Power) must be completed in 30 days from the submission of a “complete application.”
Discretionary review processes are waived for eligible projects, including, but not limited to the Pacific Palisades Village Specific Plan and Pacific Palisades Village Design Review Board Guidelines. The City must review applications submitted using the streamlined ministerial review processes under Senate Bill 35 (SB 35) (Govt. Code § 65913.4). While ambiguous, it appears that while Mayor Bass is technically waiving discretionary permitting requirements, applicants may still have to file applications with the Planning Department and go through a “streamlined” entitlement process. In other words, the discretionary approvals would be processed ministerially and have the statutory review timelines for SB 35 projects, which would be 90 days from date of submittal for approval for projects less than 150 units and 180 days for projects greater than 150 units. In practice, these timelines are much longer given tribal notification requirements and preapplication forms and processes.Haul routes for eligible projects shall be approved ministerially without noticing, hearings, findings, or appeals.Clarifies that eligible projects are exempt from requirements to obtain a Coastal Development Permit under Coastal Act section 30610(g).Application of the All-Electric Building Code (Ordinance No. 187714) does not apply to eligible projects.Demolition permits are not required for structures, improvements, or facilities substantially damaged or destroyed by the wildfires.
Tiny homes, modular structures and mobile homes, are permitted for up to 3 years on the site during rebuilding.
Similar to the fires, State and local response to recent events is rapidly evolving. Sheppard Mullin will continue to provide updates as available. For more information or assistance, please contact us. Together, we can navigate this challenging period responsibly.
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FOOTNOTES
[1] Such proclamation triggers, among other things, the enforcement of price-gouging restrictions. Please see here for an article with more information.
[2] Government Code § 8571 authorizes the Governor to suspend regulatory statutes during a state of emergency upon determining that strict compliance “would in any way prevent, hinder, or delay the mitigation of the effects of the emergency.”
[3] LA EEO1 will only apply to projects within the City of Los Angeles, but not those destroyed outside the City’s jurisdictional boundaries like those destroyed by the Eaton Fire in Altadena.
[4] Pat Maio, Newsom suspends 2 environmental laws to jumpstart rebuilding in fire-damaged L.A. communities, Los Angeles Daily News, January 12, 2025, accessible here.
EPA and OSHA Sign MOU for Implementation of TSCA Section 6
The U.S. Environmental Protection Agency (EPA) announced on January 13, 2025, that it signed a long-awaited memorandum of understanding (MOU) with the Occupational Safety and Health Administration (OSHA) formalizing coordination on EPA’s work to assess and manage existing chemicals under Section 6 of the Toxic Substances Control Act (TSCA). According to EPA’s press release, “EPA and OSHA anticipate that better coordination under this MOU will result in improved workplace health and safety protections for workers using existing chemical substances under TSCA and the Occupational Safety and Health (OSH) Act and allow for effective implementation of our national workplace and environmental protection statutes.”
EPA states that continuing the existing collaboration between EPA and OSHA on workplace exposures as part of EPA’s prioritization, risk evaluation, and risk management of existing chemicals, the MOU will further facilitate information sharing in the form of notification, consultation, and coordination where appropriate. According to EPA, the agencies will share information on:
TSCA Section 6 prioritization, risk evaluation, rulemaking, and implementation efforts as it pertains to chemical hazards in the workplace;
Outreach and communication materials for stakeholders about EPA rules and OSHA requirements, including TSCA Section 6 and OSHA rules that regulate the same chemical hazards;
Inspections and enforcement activity such as each agency’s areas of focus, complaints, inspections, and potential violations where mutual interest exists; and
Protocols to ensure that confidential information is being properly exchanged between the agencies when carrying out law enforcement actions or otherwise protecting health or the environment.
EPA notes in the press release that the 2016 amendments to TSCA expanded EPA’s authority and responsibility to protect workers, requiring EPA to consider potentially exposed and susceptible subpopulations in chemical risk evaluations, a category that explicitly includes workers. According to EPA, the agencies together have the statutory responsibility to ensure the safety and health of the public and the nation’s workforce through the timely and effective implementation of federal laws and regulations, including TSCA and the OSH Act. EPA states that the chemical rules that OSHA promulgates under the OSH Act and that EPA promulgates under TSCA Section 6(a) share a broadly similar purpose, and the control measures OSHA and EPA require to satisfy the objectives of their respective statutes may overlap or coincide.
According to EPA, TSCA differs from the OSH Act in several respects, however, including jurisdiction: TSCA regulates the use of chemicals more broadly, while the OSH Act regulates health and safety in the workplace. TSCA also covers a wider range of workers that are not covered under the OSH Act, such as volunteers, self-employed workers, and some state and local government workers. As a result, EPA states that its findings and occupational risk mitigations may differ from OSHA’s. For example, while OSHA has set regulatory exposure limits for some chemicals, OSHA set most of these limits shortly after the adoption of the OSH Act in 1970. EPA notes that by contrast, the exposure limits it is establishing as part of current risk management rules “are derived from current scientific review.”
EPA notes that “[r]equirements set under TSCA must use the best available science to address unreasonable risk — identified without consideration of cost or other non-risk factors; whereas standards set under the OSH Act are constrained by requirements that OSHA prove proposed controls are economically and technically feasible.” EPA states that although it considers non-risk factors such as the effect on the national economy and technological innovation when weighing options sufficient to address the unreasonable risk under TSCA, “the differences in statutory authorities can also lead to differences between the two agencies’ regulatory approaches.”
Commentary
While we are pleased that EPA is expanding upon its views of the ever unclear jurisdictional divide between its authority under TSCA and OSHA’s authority under the OSH Act, Bergeson & Campbell, P.C. (B&C®) was a bit disappointed with the revised MOU’s lack of substance. EPA has over the years shared with the regulated community that it was working on the MOU and aware of the need to clarify responsibilities considering Lautenberg’s enactment almost nine years ago. Despite the passage of time and the buildup, the MOU is remarkably devoid of specificity and anything truly “new.” The MOU can perhaps be best summarized as “EPA will talk to OSHA,” as it does routinely, and “EPA and OSHA will refer potential violations to each other.”
That EPA has different statutory authority under TSCA from OSHA’s statutory authority under the OSH Act is of course crystal clear. OSHA’s authority does not extend to certain types of workers (volunteers, self-employed, and some government employees). What is less clear is how the federal government toggles between its two grants of authority to ensure workers are adequately protected and suitably acknowledges the protective effects of compliance with the OSH Act, including the Hazard Communication Standard (HCS) and multiple OSHA Standards, and how EPA’s regulatory actions under TSCA are duplicative of or inconsistent with the HCS. These are the areas inviting the greatest uncertainty and on which the MOU’s provisions are most silent.
The agencies are urged to supplement their efforts in this regard in a few key areas. For example, the agencies should consider whether EPA or OSHA is better suited to promulgate workplace protective measures to ensure workers outside of TSCA authority are adequately protected and identify more precisely how best EPA and OSHA coordinate on hazard communication measures so that EPA does not require hazard statements on Safety Data Sheets (SDS) even though those hazards are well below the classification cutoffs under the HCS. This practice often leads to confusing or conflicting statements on an SDS, undermining the very purpose of the HCS.
The new Administration may wish to consider engaging in a more transparent public process to elicit stakeholder comments on ways to strengthen the interaction between EPA and OSHA. After all, the regulated community and other constituencies have much to contribute to identifying areas where greater clarity is needed.
December 2024 Bounty Hunter Plaintiff Claims
California’s Proposition 65 (“Prop. 65”), the Safe Drinking Water and Toxic Enforcement Act of 1986, requires, among other things, sellers of products to provide a “clear and reasonable warning” if use of the product results in a knowing and intentional exposure to one of more than 900 different chemicals “known to the State of California” to cause cancer or reproductive toxicity, which are included on The Proposition 65 List. For additional background information, see the Special Focus article, California’s Proposition 65: A Regulatory Conundrum.
Because Prop. 65 permits enforcement of the law by private individuals (the so-called bounty hunter provision), this section of the statute has long been a source of significant claims and litigation in California. It has also gone a long way in helping to create a plaintiff’s bar that specializes in such lawsuits. This is because the statute allows recovery of attorney’s fees, in addition to the imposition of civil penalties as high as $2,500 per day per violation. Thus, the costs of litigation and settlement can be substantial.
The purpose of Keller and Heckman’s latest publication, Prop 65 Pulse, is to provide our readers with an idea of the ongoing trends in bounty hunter activity.
In December of 2024, product manufacturers, distributors, and retailers were the targets of 394 new Notices of Violation (“Notices”) and amended Notices, alleging a violation of Prop. 65 for failure to provide a warning for their products. This was based on the alleged presence of the following chemicals in these products. Noteworthy trends and categories from Notices sent in December 2024 are excerpted and discussed below. A complete list of Notices sent in December 2024 can be found on the California Attorney General’s website, located here: 60-Day Notice Search.
Food and Drug
Product Category
Notice(s)
Alleged Chemicals
Fruits, Vegetables, and Mushrooms: Notices include farro porcini mushrooms, chopped spinach, capers, chili mango, flavored sunflower seeds, shiitake mushrooms, kale chips, flax seeds, artichoke quarters in brine, moringa, dried apricot, madras lentils, cactus chips, bamboo shoots, and stuffed manzanilla olives
38 Notices
Lead and Lead Compounds, and Cadmium and Cadmium Compounds
Prepared Foods: Notices include soup bowls, noodle bowls, salt & vinegar potato chips, bundt cake mix, flatbread mix, granola bars, crackers, nut butter, vegetable biryani, vegan chips, mushroom ravioli, gluten-free tortilla wraps, and plant-based ground meat
36 Notices
Lead and Lead Compounds, Cadmium, and Mercury
Seafood: Notices include Alaska pink salmon, tuna salad, mackerel in olive oil, sardines, seasoned squid, dried seaweed, fried anchovy, dried mackerel, ground shrimp, dried sea mustard seaweed, raw seaweed, and shrimp paste
32 Notices
Lead and Lead Compounds, Cadmium and Cadmium Compounds, and Mercury
Dietary Supplements: Notices include plant-based protein shakes, green powder superfood, greens, protein powder, electrolyte formula beverages, pre-workout beverages, ginkgo biloba powder and tea, and spirulina powder
26 Notices
Cadmium, Lead and Lead Compounds, Mercury and Mercury Compounds, and Perfluorooctanoic Acid (PFOA)
THC-containing Products: Notices include gummies, chocolates, soft gels, flavored beverages, and candies
13 Notices
Delta-9-tetrahydrocannabinol
Sauces: Notices include red mole, aged balsamic vinegar, sundried tomato paste, and basil pesto sauce
4 Notices
Lead and Lead Compounds
Packaged Liquids: Notices include vegetable stock and fruit-flavored beverages, and canned coconut water
4 Notices
Perfluorononanoic Acid (PFNA) and its salts, Perfluorooctanoic Acid (PFOA), and Bisphenol A (BPA)
Cosmetics and Personal Care
Product Category
Notice(s)
Alleged Chemicals
Personal Care Items: Notices include hair color, aloe vera lotions, skin toners, spot treatments, face masks, vitamin C serum, enzyme scrub, body cleaners, eye serums and creams, hair color treatments, hair gels, body wash and foaming cleansers, pain relief cream, body glow, and squirt blood
66 Notices
Diethanolamine
Cosmetics: Notices include mascara, cream makeup, matte lipstick, eyeliner pens, concealers, face primer, and cake makeup
36 Notices
Diethanolamine
Personal Care Products: Notices include shave gel, shave foam, and volumizing foam
3 Notices
Nitrous Oxide
Consumer Products
Product Category
Notice(s)
Alleged Chemicals
Plastic Pouches, Bags, and Accessories: Notices include children’s bags, beauty bags, bento bags, fanny packs, backpacks, wallets, picking bags, weight stabilizing bags, travel bags, rescuer guide packs, shoe covers, and cases for wheel sets
26 Notices
Di(2-ethylhexyl)phthalate (DEHP), Diisononyl phthalate (DINP), and Di-n-butyl phthalate (DBP)
Miscellaneous Consumer Products: Notices include orthodontic kits, keychains, back scratchers, safety flags, vinyl banners, engraved wax sealers, steering wheel covers, lamps, stethoscopes, salt and pepper shakers with PVC components, luggage tag, and vinyl roll holders
26 Notices
Di(2-ethylhexyl)phthalate (DEHP), Diisononyl phthalate (DINP), Di-n-butyl phthalate (DBP), and Lead
Hardware and Home Improvement Products: Notices include long handle hooks, garden hose splitters, coatings and paints, soldering wire, tools with PVC grips, pressure gauge, thermocouples, wing nuts, pop-up drains, propane tank adapter, and thread tape
23 Notices
Lead and Lead Compounds, Di(2-ethylhexyl)phthalate (DEHP), Diisononyl phthalate (DINP), and Perfluorooctanoic Acid (PFOA)
Clothing and Shoes: Notices include gloves made with leather, bucket hats, sandals with PVC components, golf gloves, weatherproof jackets, slides, fuzzy socks, and ski pants
22 Notices
Di(2-ethylhexyl)phthalate (DEHP), Chromium (hexavalent compounds), Perfluorooctanoic Acid (PFOA),
and Bisphenol A (BPA)
Glassware, Metals, and Ceramics: Notices include mugs, glass sets, blue multi-colored glass, metal and glass organizers, spoon rests, shakers, and soap dispenser/sponge holders
19 Notices
Lead and Lead Compounds
Miscellaneous Consumer Products: Notices include shower curtains, tablecloths, pillows, pet beds, athletic bandages, and outdoor cushions
10 Notices
Perfluorooctanoic Acid (PFOA)
Hobby Items: Notices include artist paste paints, art panels, lens mounts, pickleball paddles, jump rope, molding cream, and golf storage boot
8 Notices
Di(2-ethylhexyl)phthalate (DEHP), Di-n-butyl phthalate (DBP), Lead, Diethanolamine, and Perfluorooctanoic Acid (PFOA)
Coal Tar Epoxy
1 Notice
Bisphenol A (BPA), Epichlorohydrin, Ethylbenzene, soots, tar and mineral oils (coal tar)
There are numerous defenses to Prop. 65 claims, and proactive measures that industry can take prior to receiving a Prop. 65 Notice in the first place. Keller and Heckman attorneys have extensive experience in defense of Prop. 65 claims and in all aspects of Prop. 65 compliance and risk management. We provide tailored Proposition 65 services to a wide range of industries, including food and beverage, personal care, consumer products, chemical products, e-vapor and tobacco products, household products, plastics and rubber, and retail distribution.
Direct Employer Assistance and 401(k) Plan Relief Options for Employees Affected by California Wildfires
In the past week, devastating wildfires in Los Angeles, California, have caused unprecedented destruction across the region, leading to loss of life and displacing tens of thousands. While still ongoing, the fires already have the potential to be the worst natural disaster in United States history.
Quick Hits
Employers can assist employees affected by the Los Angeles wildfires through qualified disaster relief payments under Section 139 of the Internal Revenue Code, which are tax-exempt for employees and deductible for employers.
The SECURE Act 2.0 allows employees impacted by federally declared disasters to take immediate distributions from their 401(k) plans without the usual penalties, provided their plan includes such provisions.
As impacted communities band together and donations begin to flow to families in need, many employers are eager to take steps to assist employees affected by the disaster.
As discussed below, the Internal Revenue Code provides employers with the ability to make qualified disaster relief payments to employees in need. In addition, for employers maintaining a 401(k) plan, optional 401(k) plan provisions can enable employees to obtain in-service distributions based on hardship or federally declared disaster.
Internal Revenue Code Section 139 Disaster Relief
Section 139 of the Internal Revenue Code provides for a federal income exclusion for payments received due to a “qualified disaster.” Under Section 139, an employer can provide employees with direct cash assistance to help them with costs incurred in connection with the disaster. Employees are not responsible for income tax, and payments are generally characterized as deductible business expenses for employers. Neither the employees nor the employer are responsible for federal payroll taxes associated with such payments.
“Qualified disasters” include presidentially declared disasters, including natural disasters and the coronavirus pandemic, terrorist or military events, common carrier accidents (e.g., passenger train collisions), and other events that the U.S. Secretary of the Treasury concludes are catastrophic. On January 8, 2025, President Biden approved a Major Disaster Declaration for California based on the Los Angeles wildfires.
In addition to the requirement that payments be made pursuant to a qualified disaster, payments must be for the purpose of reimbursing reasonable and necessary “personal, family, living, or funeral expenses,” costs of home repair, and to reimburse the replacement of personal items due to the disaster. Payment cannot be made to compensate employees for expenses already compensated by insurance.
Employers implementing qualified disaster relief plans should maintain a written policy explaining that payments are intended to approximate the losses actually incurred by employees. In the event of an audit, the employer should also be prepared to substantiate payments by retaining communications with employees and any expense documentation. Employers should also review their 401(k) plan documents to determine that payments are not characterized as deferral-eligible compensation and consider any state law implications surrounding cash payments to employees.
401(k) Hardship and Disaster Distributions
In addition to the Section 139 disaster relief described above, employees may be able to take an immediate distribution from their 401(k) plan under the hardship withdrawal rules and disaster relief under the SECURE 2.0 Act of 2022 (SECURE 2.0).
Hardship Distributions
If permitted under the plan, a participant may apply for and receive an in-service distribution based on an unforeseen hardship that presents an “immediate and heavy” financial need. Whether a need is immediate and heavy depends on the participant’s unique facts and circumstances. Under the hardship distribution rules, expenses and losses (including loss of income) incurred by an employee on account of a federally declared disaster declaration are considered immediate and heavy provided that the employee’s principal residence or principal place of employment was in the disaster zone.
The amount of a hardship distribution must be limited to the amount necessary to satisfy the need. If the employee has other resources available to meet the need, then there is no basis for a hardship distribution. In addition, hardship distributions are generally subject to income tax in the year of distribution and an additional 10 percent early withdrawal penalty if the participant is below age 59 and a half. The participant must submit certification regarding the hardship to the plan sponsor, which the plan sponsor is then entitled to rely upon.
Qualified Disaster Recovery Distributions
Separate from the hardship distribution rules described above, SECURE 2.0 provides special rules for in-service distributions from retirement plans and for plan loans to certain “qualified individuals” impacted by federally declared major disasters. These special in-service distributions are not subject to the same immediate and heavy need requirements and tax rules as hardship distributions and are eligible for repayment.
SECURE 2.0 allows for the following disaster relief:
Qualified Disaster Recovery Distributions. Qualified individuals may receive up to $22,000 of Disaster Recovery Distributions (QDRD) from eligible retirement plans (certain employer-sponsored retirement plans, such as section 401(k) and 403(b) plans, and IRAs). There are also special rollover and repayment rules available with respect to these distributions.
Increased Plan Loans. SECURE 2.0 provides for an increased limit on the amount a qualified individual may borrow from an eligible retirement plan. Specifically, an employer may increase the dollar limit under the plan for plan loans up to the full amount of the participant’s vested balance in their plan account, but not more than $100,000 (reduced by the amount of any outstanding plan loans). An employer can also allow up to an additional year for qualified individuals to repay their plan loans.
Under SECURE 2.0, an individual is considered a qualified individual if:
the individual’s principal residence at any time during the incident period of any qualified disaster is in the qualified disaster area with respect to that disaster; and
the individual has sustained an economic loss by reason of that qualified disaster.
A QDRD must be requested within 180 days after the date of the qualified disaster declaration (i.e., January 8, 2025, for the 2025 Los Angeles wildfires). Unlike hardship distributions, a QDRD is not subject to the 10 percent early withdrawal penalty for participants under age 59 and a half. Further, unlike hardship distributions, taxation of the QDRD can be spread over three tax years and a qualified individual may repay all or part of the amount of a QDRD within a three-year period beginning on the day after the date of the distribution.
As indicated above, like hardship distributions, QDRDs are an optional plan feature. Accordingly, in order for QDRDs to be available, the plan’s written terms must provide for them.
American Airlines Breaches Fiduciary Duty of Loyalty with BlackRock ESG Funds in 401(k) Plans
Whether, and the extent to which, a plan fiduciary can consider nonpecuniary environmental, social and governance (“ESG”) objectives in selecting plan investments has been a hot-button issue for many years, with the view on such practices tending to swing back-and-forth with each new administration.
In Spence v. American Airlines, Inc., 2024 WL 733640 (N.D. Tex. 2024), Plaintiff brought a class action suit against American Airlines and its Employee Benefits Committee (“EBC”) alleging breaches of fiduciary duties of loyalty and prudence resulting from the plan fiduciaries’ investment practices. Specifically, Plaintiff argued the plan fiduciaries mismanaged retirement plan assets when the plans’ investment manager, BlackRock Institutional Trust Company, Inc. (“BlackRock”), pursued non-financial and nonpecuniary ESG policy goals through proxy voting and shareholder activism. Plaintiff claimed that including BlackRock as an investment manager harmed the financial interests of plan participants and their beneficiaries due to BlackRock pursuing socio-political outcomes rather than exclusively chasing financial returns.
It is no coincidence that this suit was filed in the Northern District of Texas. That district, and the Fifth Circuit generally, has been a popular forum for those seeking to challenge federal regulations, and the Fifth Circuit recently remanded a suit challenging the DOL’s ESG-friendly regulation back to district court.
Defendants Breached the Fiduciary Duty of Loyalty.
The district court in American Airlines concluded that the plan fiduciaries breached their duty of loyalty by failing to act solely in the retirement plan’s best financial interest when the plan fiduciaries allowed their corporate interests to influence management and investment of plan assets. The court found it apparent that the plan fiduciaries failed to question BlackRock’s ESG activities, either because the plan sponsor’s corporate objectives were aligned with BlackRock’s ESG objectives or because the plan fiduciaries were afraid to question a large shareholder (or both).
The court took note of the following factors that showed the various corporate ties to BlackRock that were inappropriately leveraged to influence management of the plan:
BlackRock was one of American Airline’s largest shareholders.
BlackRock managed billions of dollars in plan assets at a time that it owned 5% of American Airline’s stock.
BlackRock financed roughly $400 million of American Airline’s corporate debt when American Airlines was experiencing financial difficulty.
Defendants Did Not Breach the Fiduciary Duty of Prudence.
Despite finding that the plan fiduciaries breached the duty of loyalty, the court found that their investment monitoring practices were consistent with prevailing industry practices and that the plan fiduciaries acted in a manner similar to other fiduciaries in the industry. Accordingly, the court did not find that the plan fiduciaries breached the duty of prudence when using BlackRock as an investment manager.
Recommended Actions
This case marks the largest victory for opponents of ESG investing to date and could spark a new wave of class action litigation against retirement plans. American Airlines demonstrates the need for employee benefit committees or plan sponsors to closely monitor and perform risk assessments when investing—or relying on others to invest—employee retirement assets toward ESG objectives, as well as to monitor an investment manager’s proxy voting and ESG policy goals.
CSB’s New Transparency Initiative
On January 14, 2025, the U.S. Chemical Safety and Hazardous Investigation Board (“CSB”) released Volume One of a series of detailed reports on serious accidental chemical incidents reported to CSB under the Accidental Release Reporting Rule, implemented in March 2020.[1]
Prior to July 2022, CSB incident reported was limited to basic incident data—facility name, locate, date, and outcome: fatality, serious injury, or substantial property damage. CSB’s new initiative represents a landmark shift in chemical safety transparency. The release of detailed incident summaries, including analysis of probable cause and contributing factors, creates significantly increased legal and operational risks that require immediate strategic attention.
Volume One: A Look at the Data
This initial report meticulously details 26 events from April 2020 to September 2023 across 15 states, including California, Texas, and Louisiana. The incidents, resulting in 5 fatalities, 17 serious injuries, and approximately $700 million in damages, involved refineries, chemical plants, and food processing facilities.
Volume One does not just report the what—it delves into the why, detailing various incident types and causes. This means that specifics about incidents, previously kept internal, will now be accessible to the public, including employees, communities, and competitors. As a result, companies should expect heightened scrutiny and a renewed focus on preventing incidents.
Each incident summary goes beyond a basic factual account, offering:
Detailed Chronology: A timeline of events, actions taken, and consequences.
Probable Cause Determination: A clear statement of the probable cause of the incident, often pinpointing equipment failures, process malfunctions, operational errors, or inadequate safety procedures.
Contributing Factors: A breakdown of secondary factors contributing to the incident’s severity, such as inadequate training, maintenance deficiencies, and design flaws.
Technical Specifications: Inclusion of technical data, such as pressure readings, temperatures, and quantities of materials released.
Safety Recommendations: Concrete, actionable recommendations for preventing similar incidents, directed at specific companies, industry organizations, and/or regulatory bodies.
Implications
The release of Volume One and future volumes carries significant implications for legal strategy and risk management. For example, the detailed reports may provide plaintiffs with readily accessible evidence and new avenues for legal action and argumentation. Any incidents reported to the CSB, no matter how minor, will be subject to public review and analysis. This includes the details of the incident and the CSB’s findings regarding its probable cause. CSB’s finding may also influence regulatory agencies to enact stricter enforcement and new regulations. Public awareness of incidents and associated probable causes may also affect a company’s reputation and investor or stakeholder relations.
The CSB’s new transparency initiative fundamentally changes the legal and operational environment for energy companies. Proactive analysis of Volume One and the implementation of robust safety and compliance measures are no longer optional—they are essential for mitigating future legal and reputational risks. CSB intends to make these compiled incident reports available to the public via its website “on a regular basis.”[2]
Volume One can be found here.
[1] CSB News Release, “U.S. Chemical Safety Board Announces New Safety Product to Provide the Public with More Information about Serious Chemical Incidents Reported to the Agency” (Jan. 14, 2025), available at https://www.csb.gov/-us-chemical-safety-board-announces-new-safety-product-to-provide-the-public-with-more-information-about-serious-chemical-incidents-reported-to-the-agency-/.
[2] Id.
2025 Budget Reconciliation Roadmap: Impacts and Action Steps
Overview
The budget reconciliation process is a critical legislative tool that allows Congress to pass budget-related measures with a simple majority in the Senate, bypassing the filibuster and expediting passage of significant legislative priorities. Established under the Congressional Budget Act of 1974, reconciliation is designed to align revenue and spending with Congress’ annual budget resolution. This mechanism is particularly valuable when one party controls Congress and the White House, as it allows major initiatives to advance without bipartisan support. However, reconciliation is subject to strict rules, including the “Byrd Rule,” which restricts provisions to those with direct budgetary impacts, i.e., with direct impact on either spending or revenues.
Prior Uses of Reconciliation During President Trump’s first term, budget reconciliation was a key tool for advancing significant legislative priorities, including the Tax Cuts and Jobs Act of 2017, which enacted sweeping tax changes. Similarly, the Biden Administration utilized reconciliation to pass key components of its agenda, such as the American Rescue Plan Act of 2021, which provided critical pandemic relief and economic stimulus. These examples highlight reconciliation’s utility in enacting transformative policies under unified government control.
Trump and Congressional Agenda for Reconciliation For the incoming Trump administration and Republican-majority Congress, reconciliation will be instrumental in enacting an ambitious agenda, that encompasses tax provisions, border security, energy production and deregulation, and defense funding. As stakeholders in energy, maritime, transportation, trade, defense, and railway, and Native American and Alaska Native affairs, all stakeholders should prepare for significant opportunities and risks as these measures take shape.
Reconciliation Strategy: One Bill or Two?President-elect Trump’s position on the scope and structure of reconciliation has evolved in recent weeks. While initially favoring a single comprehensive package, he has expressed openness to a two-bill strategy. The first bill would focus on energy, border security, and defense, while the second would address tax provisions and broader fiscal priorities.
House Speaker Mike Johnson (R-LA) has strongly advocated for a single reconciliation bill, arguing that it is the most efficient way to advance Trump’s agenda within the first 100 days. Johnson’s approach is supported by House Budget Committee Chairman Jodey Arrington (R-TX) and House Ways and Means Chairman Jason Smith (R-MO), who believe a unified package will maximize legislative momentum. However, Senate Republicans, including Budget Committee Chairman Lindsey Graham (R-SC), have emphasized the urgency of addressing border security and defense separately to mitigate national security risks, with tax policy changes following later this year in a second bill. This internal debate could impact the timeline and scope of reconciliation efforts.
Scope of Potential Legislation
Tax ProvisionsTax changes are expected to play a significant role in the reconciliation process, with the extension of the 2017 tax cuts at its core. These extensions aim to provide continued relief for businesses and high-earner individuals while reducing corporate tax rates further to enhance global competitiveness and attract investment. Additional measures under consideration include eliminating taxes on tipped income to support the service industry, eliminating taxes on Social Security benefits, simplifying the tax code by reducing brackets, and eliminating certain deductions to streamline compliance and reduce costs. A new revenue-generating mechanism involving tariffs on imports is also being proposed.
Border Security and DefenseBorder security and defense funding are poised to feature prominently in the reconciliation agenda. Significant allocations are anticipated for border wall construction, advanced surveillance technologies, and enhanced U.S. Customs and Border Protection and Immigration and Customs Enforcement operations. Simultaneously, the military will receive increased funding to address strategic vulnerabilities and modernize equipment. These measures not only aim to provide immediate legislative wins but also to mitigate pressing national security concerns.
Energy PolicyEnergy policy will focus on streamlining permitting processes for critical infrastructure projects, such as pipelines, renewable energy installations, and oil and gas export terminals. Domestic energy production will be promoted through the reduction of regulatory barriers, particularly in the oil, gas, and nuclear sectors. Further, energy independence initiatives, including incentives for clean energy and advanced technology adoption, will be advanced. However, proposals to reform environmental protections, such as the National Environmental Policy Act (“NEPA”) review process, are expected to face legal and public opposition, even as they aim to accelerate project timelines. Whether or not permitting reform meets the Byrd Rule by saving tax revenues remains to be seen.
Debt CeilingDebt ceiling adjustments are also on the table, with plans to raise the debt limit within the reconciliation package to ensure government solvency and avoid market disruptions. To secure support from conservative members, this increase will likely be paired with $2.5 trillion in spending cuts over ten years, focused on discretionary spending and the reduction of waste and inefficiencies. It remains to be seen whether these tax cuts can be balanced out simply with discretionary spending cuts. Balancing the debt limit increase with long-term fiscal sustainability will be a key focus.
Tentative Timeline and Legislative Actions
Early February: Adoption of a budget resolution with reconciliation instructions is expected, providing the framework for committees to draft detailed legislation.
March 14, 2025: Deadline to pass final fiscal 2025 spending bills to avoid a government shutdown.
Early April: House passage of the reconciliation package, with the goal of Senate approval by the end of April or early May.
May 2025: Final reconciliation measures enacted, aligning with Trump’s first 100 days.
It is important to note that this is an ambitious one-bill strategy timeline, and dates could be delayed due to lengthy negotiations. A two-bill approach may stretch until the end of the 2025 calendar year to meet the deadline for expiration of the original Trump tax cuts.
Implications for Stakeholders
EnergyIn the energy sector, increased project approvals and decreased regulatory hurdles may present significant opportunities for developers of fossil fuels, renewables, and nuclear energy. However, potential reforms of environmental protections may lead to legal risks for stakeholders. Moreover, the introduction of tariffs on imports, aimed at funding reconciliation priorities, could disrupt supply chains for energy infrastructure projects reliant on imported materials and potentially cause consumer prices to rise, creating inflation-related risks. This may be ameliorated if the incoming Administration, as reported, focuses the tariffs on only certain critical imports. This may, though, positively impact domestic energy producers due to an increased demand for low-cost, non-tariffed energy.
Maritime and TransportationThe maritime and transportation sectors stand to benefit from infrastructure investments that could drive growth in port modernization and rail projects. Streamlined regulatory approvals are expected to accelerate construction timelines, creating additional opportunities for stakeholders involved in large-scale projects. However, proposed discretionary spending cuts could reduce the availability of federal grants that support critical transportation infrastructure upgrades.
Native American/Alaska Native AffairsFor Native American and Alaska Native communities, the reallocation of federal funding poses a significant risk to vital services, including healthcare, education, and housing programs. Advocacy will be essential to ensure equitable treatment and representation in legislative negotiations. Despite these challenges, tribes, native organizations, and corporations may find opportunities to leverage energy and infrastructure investments to promote economic development, including through federal contracts, provided their interests are safeguarded in the reconciliation process.
What to Watch
Legislative DevelopmentsThe reconciliation strategy debate between a single comprehensive package and a two-bill approach will significantly shape the legislative process. Stakeholders should closely monitor the resolution of this debate, as it will determine the sequencing, timeline, and scope of legislative priorities. The progress of key committees in drafting specific provisions will also be critical to understanding how reconciliation impacts various industries.
Stakeholder AdvocacyProactive stakeholder advocacy will play a vital role in shaping favorable outcomes. Engaging with congressional offices to advocate for specific language in reconciliation provisions, particularly those impacting energy, defense, transportation, trade, and tribal programs, will be essential. Building coalitions to amplify industry voices and address shared concerns about proposed cuts or regulatory changes can further strengthen advocacy efforts.
Market ImpactsAdditionally, stakeholders should evaluate the market implications of proposed tax policies, including corporate rate reductions and import tariffs, to understand their potential impact on profitability and supply chain operations. Assessing the implications of energy deregulation measures on project feasibility and financing opportunities will also be critical. Finally, stakeholders should prepare for potential shifts in federal funding priorities, particularly those affecting grant-dependent programs and projects, to mitigate risks while seizing new opportunities.
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Cookware Association Files Federal Challenge to Minnesota’s Ban on PFAS in Cookware
The Cookware Sustainability Alliance (CSA) announced on January 9, 2025, that it has filed suit in the U.S. District Court for the District of Minnesota, seeking a preliminary injunction of Minnesota’s ban on the sale of cookware containing intentionally added per- and polyfluoroalkyl substances (PFAS). CSA v. Kessler (No. 0:25-cv-00041). According to CSA, the chemical coating on nonstick cookware contains fluoropolymers, which “are fundamentally different compounds from the chemicals that have motivated concerns about PFAS.” CSA claims that Minnesota’s ban violates the U.S. Constitution’s prohibition on individual states regulating interstate commerce and has raised other constitutional challenges to Minnesota’s statute. CSA states that it has offered to work cooperatively with Minnesota “to secure an exemption for fluoropolymer coated nonstick cookware because of their low-risk profile.”
EPA Releases Draft Risk Assessment of PFOA and PFOS in Biosolids, Will Hold Webinar on January 15, 2025
The U.S. Environmental Protection Agency (EPA) announced on January 14, 2025, a draft risk assessment of the potential human health risks associated with the presence of perfluorooctanoic acid (PFOA) and perfluorooctane sulfonic acid (PFOS) in biosolids, also known as sewage sludge. According to EPA, the findings show that there may be human health risks associated with exposure to PFOA or PFOS with all three methods of using or disposing of sewage sludge — land application of biosolids, surface disposal in landfills, or incineration. The draft risk assessment focuses on those living on or near impacted sites or those that rely primarily on those sites’ products (e.g., food crops, animal products, drinking water). EPA notes that the draft risk assessment does not model risks for the general public. EPA states that once prepared in final, the assessment will help EPA and its partners understand the public health impact of per- and polyfluoroalkyl substances (PFAS) in biosolids and inform any potential future actions to help reduce the risk of exposure. EPA has posted a pre-publication version of the Federal Register notice announcing the availability of the draft risk assessment. Publication of the notice in the Federal Register will begin a 60-day comment period. EPA will hold a webinar on January 15, 2025, at 12:00 p.m. (EST) to provide information on the draft risk assessment. The webinar will include an opportunity for questions and answers. EPA will post a recording of the webinar.