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High Expectations for Climate Work

National survey shows firms anticipate regulation, more work, but hiring and revenue remain modest

Ed Bean

Fulton County Daily Report

December 01, 2008

A few years ago, clients asked Peter L. Gray if climate change was real.

These days, the McKenna Long & Aldridge attorney in Washington fields questions about the business and law of climate change, not the science. Take his insurance clients. They want to know what they should do to mitigate litigation risks, what new regulatory reporting is in the offing as well as how to prepare new products that recognize the opportunity side of climate change. Like other sectors of clients, said Gray, insurance companies are "looking at not just how to survive, but to thrive" as climate change shapes a new agenda in business, the regulatory arena and politics.

Regardless of the industry, Gray has one overriding message for clients: "Don't stay on the sidelines."

The Daily Report's Second Annual Law Firm Climate Change Survey confirms that there's a strong movement from the sidelines to the playing field of climate change, for law firms and their clients. Firms are not just anticipating climate change work -- they're counting on it.

Our survey, sent to Am Law 200 firms and selected energy, transactional and environmental boutiques across the nation, found, among other things:

• All survey respondents believe the U.S. will regulate carbon emissions within five years.

• About half of firms said they are considering adding offices or attorneys in 2009 to focus on climate change work. New York, California and Washington, D.C., were cited most often as potential locales for growth.

• Climate change work encompasses a broad portfolio, including lobbying, transactional and project finance, construction, renewable energy, intellectual property, litigation and international work related to the Kyoto Protocol and European carbon emission limits.

• Lawyers are seeing more work from climate change, though the increase is modest at all but a few firms, as is hiring. Most respondents say climate change will be somewhat to very important for their firms and clients in the future.

Until the economy went into a tailspin, Gray expected an omnibus climate change bill to pass Congress in 2009. "Now, folks are saying the prospects have dimmed because so much money has been invested in the bailout plan," he said, though he cautions that a lot will depend on what kind of leadership the new White House exerts on the issue. Regardless, he warns that "time is short."

That's because some states, notably California, are moving forward with their own climate change initiatives, which may eventually force Congress to act in order to avoid the chaos that would be created by a nationwide patchwork of laws. "The federal scheme may be forced by what's happening in the states," Gray explained.

Some states already have regional carbon emission programs. They include the Regional Greenhouse Gas Initiative, a market-based effort to reduce carbon emissions that includes 10 Northeastern and Mid-Atlantic states as participants or observers; and the Western Climate Initiative, an agreement among seven Western states and four Canadian provinces to set targets for greenhouse gas limits. Overall, more than 30 states are involved in formal efforts to limit carbon emissions or are official observers of such programs, according to the Pew Center on Global Climate Change. Georgia is not involved in any of those efforts.

California has led the way with the passage of what has become known as AB 32, the legislative tag for a set of laws that will cap the state's greenhouse gas emissions at 1990 levels by 2020 through regulations and market incentives.

Still, lawyers are waiting on Congress to prompt what could be a wave of climate change regulatory work.

To date, Congress has done relatively little, renewing a tax credit that is crucial to many alternative or renewable energy projects only at the last minute as part of the bailout bill. David M. Moore, an attorney in energy and environmental practice groups at Troutman Sanders in Atlanta said he had several clients place hydroelectric projects on the back burner earlier this year because of the uncertainty over the tax credit.

"The problem has been, the term [for tax credits] has been for one or two years and we've had to depend on Congress to renew them," said Moore, a former GC for a Georgia environmental group who has clients who depend on the tax credit to build "small hydro," environmentally low-impact projects that harness the power of currents and tides. But water projects typically face licensing hurdles, so the uncertainty makes clients reluctant to commit. "It's been a struggle," he said.

Some of the more likely agents to drive change and create more predictability in the regulatory arena include a broad-based bill similar to the Lieberman-Warner Climate Security Act; the development of federal or a multiplicity of state regulations that copy California's AB 32; the U.S. Environmental Protection Agency's proposed rulemaking in response to Massachusetts v. EPA, the 2007 U.S. Supreme Court ruling that said the EPA has the authority to regulate carbon emissions as a pollutant under the Clean Air Act; and what some attorneys hope will be a permanent tax credit for renewable energy projects.

"It depends on the details," said Robert D. Mowrey, chair of Alston & Bird's energy and sustainability practices, "but if you look at any of the major federal proposals out there, the list of legal issues is very, very long. There are issues of compliance, carbon markets, carbon credits, issues around allocations and allowances and distribution of allowances, and the list goes on and on."

Mowrey said Alston & Bird has close to 100 lawyers across its offices involved in some way in energy and sustainability issues. The firm's pickup in September of 83-lawyer Weston Benshoof Rochefort Rubalcava & MacCuish in Los Angeles and Ventura County "was in part attractive to us because of their degree of specialization in environmental issues, especially climate change," he said.

Even now, in the absence of federal carbon constraints, firms are seeing their climate change-related practices grow.

Nearly 90 percent of survey respondents report that during the past year, their firm's volume of work related to global warming issues has increased. Of those, just more than a quarter -- the largest response category -- estimate that their workload has risen between 11 percent and 25 percent. About 15 percent of respondents said they saw a more than 100 percent increase; only 2 percent of respondents saw no change at all.

Firms are doing a variety of climate-change-related work. Renewable energy, transactional and project finance work and litigation top the list of work generators, followed by lobbying, construction and international work.

At King & Spalding in Atlanta, Patricia Barmeyer, head of the environmental practice group, said the firm's work encompasses everything from alternative energy to proposed nuclear power plants. In California, the firm is heavily involved in preparing clients for AB 32. In Georgia, Barmeyer represents Longleaf Energy, which is appealing a state court's ruling that an administrative law judge should not have approved a permit for a proposed South Georgia coal-fired power plant because it didn't limit the plant's carbon dioxide emissions. The decision received nationwide attention because it's the first U.S. court ruling to say CO2 emissions must be considered when building a power plant.

Mary Anne Sullivan, a partner at Hogan & Hartson in Washington and a former general counsel at the U.S. Department of Energy, emphasized the broad scope of her firm's work related to climate change, adding that the firm had an early start when it launched its climate change practice in 2001. The firm has a substantial federal lands practice in its Colorado office and has ski operator clients who are very concerned about climate change and water-related issues that will curtail the ski season. "They need that snow to stay there for good long seasons," she said.

A colleague in the federal lands practice has been helping develop solar projects on federal lands. "Utility-scale solar is very exciting, and federal lands have been slow to be receptive to renewable energy development," Sullivan said.

The firm also has a practice focused on the food industry. "We've worked with our food clients on advanced biofuels," said Sullivan, explaining that these clients didn't like corn-based ethanol, so the firm helped them focus on cellulosic ethanol and biodiesel not made from food sources. "We've worked with the food industry on this and also with advanced biofuel developers on DOE loan guarantees and funding," as well as with state-based programs, she added.

Other areas where her firm has done work include auto fuel efficiency standards and regulatory matters, litigation, the Federal Energy Regulatory Commission and helping utilities with Clean Air Act permitting.

All this added up to $15 million in revenue in 2007, said Sullivan, explaining, "You can build those kind of revenues when you can provide broad-based solutions, when you can help people from the legislative stage through the transactions through the rulemaking."

BRACED FOR LEGISLATION

As industry accepts the certainty of rulemaking, lobbyists on the issue have flooded capitol buildings. Nearly 80 percent of respondents said they'd lobbied or monitored for or against proposed legislation related to renewable energy or climate change on the state or federal level. The top talking point for these firms revolved around carbon cap-and-trade programs.

For all the expectations of regulatory and legislative change, however, law firms are moving slowly when it comes to hiring. Asked if, during the past year, they'd hired laterals whose books of business primarily were focused on climate-related work, more than 70 percent of firms surveyed said no. Of the 16 firms that did make such hires, none reported hiring more than five laterals.

That could be because, for most firms, revenue generated by climate change practices is still a relatively small segment of the bottom line. The largest proportion of respondents -- 43 percent -- said their firms generated less than $1 million in revenue from climate change work last year.

The next highest sector -- 38 percent -- reported earning between $1 million and $5 million.

Though climate change is no gold rush yet, firms are positioning themselves for growth. Nearly half of our survey respondents said they were considering either adding attorneys or opening new offices next year to focus on climate-change-related business.

The prospect of game-changing rules and regulations has caught clients' attention, of course, and King & Spalding's Barmeyer said their reactions run the gamut. But "there's at least as much interest in the opportunities as there is concern about the adverse impact," she explained. "In general, industry doesn't like uncertainty. Industry will be more comfortable once some of these questions are resolved, and then they can order their behavior accordingly."

Whether or not they embrace these changes, companies are focusing their attention on preparation. More than 90 percent of survey respondents reported that they'd seen their clients alter their business focus, internal operations or marketing in response to climate change. The industries most aware and most open to changing to meet the burgeoning market include green and brown power generators, financial services and the building and construction industry, survey respondents report.

As business leaders become more knowledgeable about climate change, McKenna Long's Gray has noticed that the tone of questions has changed when he speaks at seminars. "They want to know, should we be buying up [carbon] allowances and holding them," he said. "They want to know about carbon emissions credits and the pros and cons of measuring their carbon footprints."

"Board-level people are very focused on the details of how this is going to affect their business," Gray said, so much so that boards at many companies have appointed one of their members to oversee climate change concerns. That's become enough of a trend that Gray is helping to organize the new Association of Corporate Climate Change Officers, which he said will include C-level executives who will oversee climate change concerns at major companies. The group will hold an organizational meeting for prospective members in January at McKenna Long's Washington office. About 35 corporate representatives are expected to attend the meeting. Gray expects the group's first meeting to get right down to the business of climate change.

He added that he is a believer in the scientific consensus that climate change is real, but that hardly matters in discussions with clients. "You don't have to be a true believer to see the need to assess the impact of climate change on your company; you simply have to be focused on the bottom line."