With Congress and the Trump administration intending to ease compliance costs for businesses, the Environmental Council of States (ECOS) recently passed a resolution to bolster the use of supplemental environmental projects (SEPs) in environmental settlements.
What Is a SEP?
If you have violated an environmental regulation, under the U.S. Environmental Protection Agency’s (EPA) SEP program, you may “voluntarily agree” to undertake an environmentally beneficial project related to the violation in exchange for mitigation of the penalty to be paid. However, SEPs can be enormously costly and cannot be part of the costs of bringing your facility back into compliance—you still have to pay for that. So all together, you have the cash penalty, the SEP costs, the costs to bring your facility up to speed, and other ancillary costs.
Let’s look at a recent example.
Falcon Petroleum and GRJH, Inc., owners of gas stations in the Northeast recently settled with the federal government over violations of underground storage tank (UST) requirements at eight service stations in New York State.
In addition to a $60,000 civil penalty and the costs of coming into compliance, the companies are required to develop and implement a SEP that requires the installation of a centralized 5-year monitoring system and remote fuel monitoring system for all UST systems in 23 facilities in New York, 2 facilities in Connecticut, and 1 facility in New Hampshire.
The companies are not allowed to deduct any expenses related to the SEP from their federal income taxes. If they halt or abandon work on the SEP, they must pay a $150,000 penalty. They are also subject to penalties if the SEP is not completed at individual facilities and if it is not operated at individual facilities for the required 5 years.
The companies can’t even benefit from any PR associated with the SEP, since any reference to the project in any of its media statements must include the fact that the project was undertaken in connection with an enforcement action.
In the resolution supporting the use of SEPs, ECOS claims the SEPs advance the public interest by providing additional environmental and public health benefits for communities adversely impacted by environmental violations and encourages the use of SEPs in national and state environmental enforcement actions.
The resolution says that EPA’s SEPs Policy, which was updated in 2015, encourages teams to consider SEPs early in the settlement process and, as appropriate, provide SEP ideas to defendants.
According to ECOS, 37 states have adopted SEP policies and make SEPs an integral part of the settlement process. State SEP policies vary with respect to implementation.
The organization also calls on the EPA and the U.S. Department of Justice to work collaboratively with ECOS to collect federal SEP examples, and to make SEPs a key part of settlement negotiations. In addition, ECOS plans to collect examples of successful state SEPs in an effort to advance the knowledge of the benefits of SEPs to the economic and social health of communities.