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Final EPA Supplemental Environmental Projects Policy Issued
Note: EPA no longer updates this information, but it may be useful as a reference or resource.
[Federal Register: May 5, 1998 (Volume 63, Number 86)]
[Notices]
[Page 24796-24804]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05my98-51]
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ENVIRONMENTAL PROTECTION AGENCY
[Docket No. 98F-FRL-6008-8]
Final EPA Supplemental Environmental Projects Policy Issued
AGENCY: Environmental Protection Agency (EPA).
ACTION: Notice.
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SUMMARY: The Environmental Protection Agency (EPA) is issuing a
revised, final EPA Supplemental Environmental Projects Policy. This
Policy supersedes the May 1995 Interim Revised Supplemental
Environmental Projects Policy. Based on experience gained implementing
the Interim Revised SEP Policy, EPA has refined and clarified this
Policy to better assist it in exercising its enforcement discretion to
establish appropriate settlement penalties and supplemental
environmental projects (SEPs) that secure significant environmental and
public health improvements.
DATES: EPA will implement this Policy effective May 1, 1998.
FOR FURTHER INFORMATION CONTACT: Ann Kline, 202-564-0119, Office of
Regulatory Enforcement, Mail Code 2248-A, United States Environmental
Protection Agency, 401 M Street, SW., Washington, DC 20460.
SUPPLEMENTARY INFORMATION: These final revisions to the EPA
Supplemental Environmental Projects (SEP) Policy refine and clarify the
1995 Interim Revised Supplemental Environmental Projects Policy for
easier implementation. The basic structure and operation of the Policy
remains unchanged. The primary purpose of this Policy is to obtain
environmental and public health protection and improvements that may
not otherwise have occurred without the settlement incentives provided
by this Policy. The final Policy retains the 1995 Policy framework for
determining whether a proposed project can be considered in
establishing an appropriate settlement penalty. In addition, this
Policy also sets out clear legal guidelines, well-defined categories of
acceptable projects and simple easy-to-apply rules for calculating and
applying the cost of a SEP in determining an appropriate settlement
penalty.
The most significant changes made to the 1995 Interim Revised
Policy include: (1) Explicit encouragement of community input into the
development of SEPs in appropriate cases; (2) a prohibition on using
SEPs to mitigate claims for stipulated penalties except in
extraordinary circumstances; and (3) the creation of an ``other''
category, under which projects that do not fit within a defined
category of this Policy but otherwise meet all other criteria of the
Policy may be approved under certain procedural requirements. A full
copy of this Policy is set forth below and also may be found at U.S.
EPA's Web site at http://www.epa.gov/oeca/sep.
Dated: April 10, 1998.
Steven A. Herman,
Assistant Administrator, Office of Enforcement and Compliance
Assurance, United States Environmental Protection Agency.
A. Introduction
1. Background
In settlements of environmental enforcement cases, the U.S.
Environmental Protection Agency (EPA) requires the alleged violators to
achieve and maintain compliance with Federal environmental laws and
regulations and to pay a civil penalty. To further EPA's goals to
protect and enhance public health and the environment, in certain
instances environmentally beneficial projects, or Supplemental
Environmental Projects (SEPs), may be part of the settlement. This
Policy sets forth the types of projects that are permissible as SEPs,
the penalty mitigation appropriate for a particular SEP, and the terms
and conditions under which they may become part of a settlement. The
primary purpose of this Policy is to encourage and obtain environmental
and public health protection and improvements that may not otherwise
have occurred without the settlement incentives provided by this
Policy.
In settling enforcement actions, EPA requires alleged violators to
promptly cease the violations and, to the extent feasible, remediate
any harm caused by the violations. EPA also seeks substantial monetary
penalties in order to deter noncompliance. Without penalties, regulated
entities would have an incentive to delay compliance until they are
caught and ordered to comply. Penalties promote environmental
compliance and help protect public health by deterring future
violations by the same violator and deterring violations by other
members of the regulated community. Penalties help ensure a national
level playing field by
[[Page 24797]]
ensuring that violators do not obtain an unfair economic advantage over
their competitors who made the necessary expenditures to comply on
time. Penalties also encourage regulated entities to adopt pollution
prevention and recycling techniques in order to minimize their
pollutant discharges and reduce their potential liabilities.
Statutes administered by EPA generally contain penalty assessment
criteria that a court or administrative law judge must consider in
determining an appropriate penalty at trial or a hearing. In the
settlement context, EPA generally follows these criteria in exercising
its discretion to establish an appropriate settlement penalty. In
establishing an appropriate penalty, EPA considers such factors as the
economic benefit associated with the violations, the gravity or
seriousness of the violations, and prior history of violations.
Evidence of a violator's commitment and ability to perform a SEP is
also a relevant factor for EPA to consider in establishing an
appropriate settlement penalty. All else being equal, the final
settlement penalty will be lower for a violator who agrees to perform
an acceptable SEP compared to the violator who does not agree to
perform a SEP.
The Agency encourages the use of SEPs that are consistent with this
Policy. SEPs may not be appropriate in settlement of all cases, but
they are an important part of EPA's enforcement program. While
penalties play an important role in environmental protection by
deterring violations and creating a level playing field, SEPs can play
an additional role in securing significant environmental or public
health protection and improvements. SEPs may be particularly
appropriate to further the objectives in the statutes EPA administers
and to achieve other policy goals, including promoting pollution
prevention and environmental justice.
2. Pollution Prevention and Environmental Justice
The Pollution Prevention Act of 1990 (42 U.S.C. 13101 et seq.,
November 5, 1990) identifies an environmental management hierarchy in
which pollution ``should be prevented or reduced whenever feasible;
pollution that cannot be prevented should be recycled in an
environmentally safe manner whenever feasible; pollution that cannot be
prevented or recycled should be treated in an environmentally safe
manner whenever feasible; and disposal or other release into the
environment should be employed only as a last resort * * *'' (42 U.S.C.
13103). Selection and evaluation of proposed SEPs should be conducted
generally in accordance with this hierarchy of environmental
management, i.e., SEPs involving pollution prevention techniques are
preferred over other types of reduction or control strategies, and this
can be reflected in the degree of consideration accorded to a
defendant/respondent before calculation of the final monetary penalty.
Further, there is an acknowledged concern, expressed in Executive
Order 12898 on environmental justice, that certain segments of the
nation's population, i.e., low-income and/or minority populations, are
disproportionately burdened by pollutant exposure. Emphasizing SEPs in
communities where environmental justice concerns are present helps
ensure that persons who spend significant portions of their time in
areas, or depend on food and water sources located near, where the
violations occur would be protected. Because environmental justice is
not a specific technique or process but an overarching goal, it is not
listed as a particular SEP category; but EPA encourages SEPs in
communities where environmental justice may be an issue.
3. Using this Policy
In evaluating a proposed project to determine if it qualifies as a
SEP and then determining how much penalty mitigation is appropriate,
Agency enforcement and compliance personnel should use the following
five-step process:
(1) Ensure that the project meets the basic definition of a SEP.
(Section B)
(2) Ensure that all legal guidelines, including nexus, are
satisfied. (Section C)
(3) Ensure that the project fits within one (or more) of the
designated categories of SEPs. (Section D)
(4) Determine the appropriate amount of penalty mitigation.
(Section E)
(5) Ensure that the project satisfies all of the implementation and
other criteria. (Sections F, G, H, I and J)
4. Applicability
This Policy revises and hereby supersedes the February 12, 1991
Policy on the Use of Supplemental Environmental Projects in EPA
Settlements and the May 1995 Interim Revised Supplemental Environmental
Projects Policy. This Policy applies to settlements of all civil
judicial and administrative actions filed after the effective date of
this Policy, and to all pending cases in which the government has not
reached agreement in principle with the alleged violator on the
specific terms of a SEP.
This Policy applies to all civil judicial and administrative
enforcement actions taken under the authority of the environmental
statutes and regulations that EPA administers. It also may be used by
EPA and the Department of Justice in reviewing proposed SEPs in
settlement of citizen suits. This Policy also applies to federal
agencies that are liable for the payment of civil penalties. Claims for
stipulated penalties for violations of consent decrees or other
settlement agreements may not be mitigated by the use of
SEPs.<SUP>1</SUP>
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\1\ In extraordinary circumstances, the Assistant Administrator
may consider mitigating potential stipulated penalty liability using
SEPs where: (1) Despite the circumstances giving rise to the claim
for stipulated penalties, the violator has the ability and intention
to comply with a new settlement agreement obligation to implement
the SEP; (2) there is no negative impact on the deterrent purposes
of stipulated penalties; and (3) the settlement agreement
establishes a range for stipulated penalty liability for the
violations at issue. For example, if a respondent/defendant has
violated a settlement agreement which provides that a violation of X
requirement subjects it to a stipulated penalty between $1,000 and
$5,000, then the Agency may consider SEPs in determining the
specific penalty amount that should be demanded.
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This is a settlement Policy and thus is not intended for use by
EPA, defendants, respondents, courts or administrative law judges at a
hearing or in a trial. Further, whether the Agency decides to accept a
proposed SEP as part of a settlement, and the amount of any penalty
mitigation that may be given for a particular SEP, is purely within
EPA's discretion. Even though a project appears to satisfy all of the
provisions of this Policy, EPA may decide, for one or more reasons,
that a SEP is not appropriate (e.g., the cost of reviewing a SEP
proposal is excessive, the oversight costs of the SEP may be too high,
the defendant/respondent may not have the ability or reliability to
complete the proposed SEP, or the deterrent value of the higher penalty
amount outweighs the benefits of the proposed SEP).
This Policy establishes a framework for EPA to use in exercising
its enforcement discretion in determining appropriate settlements. In
some cases, application of this Policy may not be appropriate, in whole
or part. In such cases, the litigation team may, with the advance
approval of Headquarters, use an alternative or modified approach.
B. Definition and Key Characterisitics of a SEP
Supplemental environmental projects are defined as environmentally
beneficial projects which a defendant/respondent agrees to undertake in
[[Page 24798]]
settlement of an enforcement action, but which the defendant/respondent
is not otherwise legally required to perform. The three bolded key
parts of this definition are elaborated below.
Environmentally beneficial means a SEP must improve, protect, or
reduce risks to public health, or the environment at large. While in
some cases a SEP may provide the alleged violator with certain
benefits, there must be no doubt that the project primarily benefits
the public health or the environment.
In settlement of an enforcement action means: (1) EPA has the
opportunity to help shape the scope of the project before it is
implemented; and (2) the project is not commenced until after the
Agency has identified a violation (e.g., issued a notice of violation,
administrative order, or complaint).<SUP>2</SUP>
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\2\ Since the primary purpose of this Policy is to obtain
environmental or public health benefits that may not have occurred
``but for'' the settlement, projects which the defendant has
previously committed to perform or have been started before the
Agency has identified a violation are not eligible as SEPs. Projects
which have been committed to or started before the identification of
a violation may mitigate the penalty in other ways. Depending on the
specifics, if a regulated entity had initiated environmentally
beneficial projects before the enforcement process commenced, the
initial penalty calculation could be lower due to the absence of
recalcitrance, no history of other violations, good faith efforts,
less severity of the violations, or a shorter duration of the
violations.
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Not otherwise legally required to perform means the project or
activity is not required by any federal, state or local law or
regulation. Further, SEPs cannot include actions which the defendant/
respondent is likely to be required to perform:
(a) As injunctive relief <SUP>3</SUP> in the instant case;
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\3\ The statutes EPA administers generally provide a court with
broad authority to order a defendant to cease its violations, take
necessary steps to prevent future violations, and to remediate any
harm caused by the violations. If a court is likely to order a
defendant to perform a specific activity in a particular case, such
an activity does not qualify as a SEP.
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(b) As injunctive relief in another legal action EPA, or another
regulatory agency could bring;
(c) As part of an existing settlement or order in another legal
action; or, d) By a state or local requirement.
SEPs may include activities which the defendant/respondent will
become legally obligated to undertake two or more years in the future,
if the project will result in the facility coming into compliance
earlier than the deadline. Such ``accelerated compliance'' projects are
not allowable, however, if the regulation or statute provides a benefit
(e.g., a higher emission limit) to the defendant/respondent for early
compliance.
Also, the performance of a SEP reduces neither the stringency nor
timeliness requirements of Federal environmental statutes and
regulations. Of course, performance of a SEP does not alter the
defendant/respondent's obligation to remedy a violation expeditiously
and return to compliance.
C. Legal Guidelines
EPA has broad discretion to settle cases, including the discretion
to include SEPs as an appropriate part of the settlement. The legal
evaluation of whether a proposed SEP is within EPA's authority and
consistent with all statutory and Constitutional requirements may be a
complex task. Accordingly, this Policy uses five legal guidelines to
ensure that our SEPs are within the Agency's and a federal court's
authority, and do not run afoul of any Constitutional or statutory
requirements.<SUP>4</SUP>
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\4\ These legal guidelines are based on federal law as it
applies to EPA; States may have more or less flexibility in the use
of SEPs depending on their laws.
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1. A project cannot be inconsistent with any provision of the
underlying statutes.
2. All projects must advance at least one of the objectives of the
environmental statutes that are the basis of the enforcement action and
must have adequate nexus. Nexus is the relationship between the
violation and the proposed project. This relationship exists only if:
a. The project is designed to reduce the likelihood that similar
violations will occur in the future; or
b. The project reduces the adverse impact to public health or the
environment to which the violation at issue contributes; or
c. The project reduces the overall risk to public health or the
environment potentially affected by the violation at issue.
Nexus is easier to establish if the primary impact of the project
is at the site where the alleged violation occurred or at a different
site in the same ecosystem or within the immediate geographic
<SUP>5</SUP> area. Such SEPs may have sufficient nexus even if the SEP
addresses a different pollutant in a different medium. In limited
cases, nexus may exist even though a project will involve activities
outside of the United States.<SUP>6</SUP> The cost of a project is not
relevant to whether there is adequate nexus.
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\5\ The immediate geographic area will generally be the area
within a 50 mile radius of the site on which the violations
occurred. Ecosystem or geographic proximity is not by itself a
sufficient basis for nexus; a project must always satisfy
subparagraph a, b, or c in the definition of nexus. In some cases, a
project may be performed at a facility or site not owned by the
defendant/respondent.
\6\ All projects which would include activities outside the U.S.
must be approved in advance by Headquarters and/or the Department of
Justice. See section J.
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3. EPA may not play any role in managing or controlling funds that
may be set aside or escrowed for performance of a SEP. Nor may EPA
retain authority to manage or administer the SEP. EPA may, of course,
perform oversight to ensure that a project is implemented pursuant to
the provisions of the settlement and have legal recourse if the SEP is
not adequately performed.
4. The type and scope of each project are defined in the signed
settlement agreement. This means the ``what, where and when'' of a
project are defined by the settlement agreement. Settlements in which
the defendant/respondent agrees to spend a certain sum of money on a
project(s) to be defined later (after EPA or the Department of Justice
signs the settlement agreement) are not allowed.
5. a. A project cannot be used to satisfy EPA's statutory
obligation or another federal agency's obligation to perform a
particular activity. Conversely, if a federal statute prohibits the
expenditure of federal resources on a particular activity, EPA cannot
consider projects that would appear to circumvent that prohibition
b. A project may not provide EPA or any federal agency with
additional resources to perform a particular activity for which
Congress has specifically appropriated funds. A project may not provide
EPA with additional resources to perform a particular activity for
which Congress has earmarked funds in an appropriations committee
report.<SUP>7</SUP> Further, a project cannot be used to satisfy EPA's
statutory or earmark obligation, or another federal agency's statutory
obligation, to spend funds on a particular activity. A project,
however, may be related to a particular activity for which Congress has
specifically appropriated or earmarked funds.
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\7\ Earmarks are instructions for changes to EPA's discretionary
budget authority made by appropriations committee in committee
reports that the Agency generally honors as a matter of policy.
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c. A project may not provide additional resources to support
specific activities performed by EPA employees or EPA contractors. For
example, if EPA has developed a brochure to help a segment of the
regulated community comply with environmental requirements, a project
may not directly,
[[Page 24799]]
or indirectly, provide additional resources to revise, copy or
distribute the brochure.
d. A project may not provide a federal grantee with additional
funds to perform a specific task identified within an assistance
agreement.
D. Categories of Supplemental Environmental Projects
EPA has identified seven specific categories of projects which may
qualify as SEPs. In order for a proposed project to be accepted as a
SEP, it must satisfy the requirements of at least one category plus all
the other requirements established in this Policy.
1. Public Health
A public health project provides diagnostic, preventative and/or
remedial components of human health care which is related to the actual
or potential damage to human health caused by the violation. This may
include epidemiological data collection and analysis, medical
examinations of potentially affected persons, collection and analysis
of blood/fluid/ tissue samples, medical treatment and rehabilitation
therapy.
Public health SEPs are acceptable only where the primary benefit of
the project is the population that was harmed or put at risk by the
violations.
2. Pollution Prevention
A pollution prevention project is one which reduces the generation
of pollution through ``source reduction,'' i.e., any practice which
reduces the amount of any hazardous substance, pollutant or contaminant
entering any waste stream or otherwise being released into the
environment, prior to recycling, treatment or disposal. (After the
pollutant or waste stream has been generated, pollution prevention is
no longer possible and the waste must be handled by appropriate
recycling, treatment, containment, or disposal methods.)
Source reduction may include equipment or technology modifications,
process or procedure modifications, reformulation or redesign of
products, substitution of raw materials, and improvements in
housekeeping, maintenance, training, inventory control, or other
operation and maintenance procedures. Pollution prevention also
includes any project which protects natural resources through
conservation or increased efficiency in the use of energy, water or
other materials. ``In-process recycling,'' wherein waste materials
produced during a manufacturing process are returned directly to
production as raw materials on site, is considered a pollution
prevention project.
In all cases, for a project to meet the definition of pollution
prevention, there must be an overall decrease in the amount and/or
toxicity of pollution released to the environment, not merely a
transfer of pollution among media. This decrease may be achieved
directly or through increased efficiency (conservation) in the use of
energy, water or other materials. This is consistent with the Pollution
Prevention Act of 1990 and the Administrator's ``Pollution Prevention
Policy Statement: New Directions for Environmental Protection,'' dated
June 15, 1993.
3. Pollution Reduction
If the pollutant or waste stream already has been generated or
released, a pollution reduction approach--which employs recycling,
treatment, containment or disposal techniques--may be appropriate. A
pollution reduction project is one which results in a decrease in the
amount and/or toxicity of any hazardous substance, pollutant or
contaminant entering any waste stream or otherwise being released into
the environment by an operating business or facility by a means which
does not qualify as ``pollution prevention.'' This may include the
installation of more effective end-of-process control or treatment
technology, or improved containment, or safer disposal of an existing
pollutant source. Pollution reduction also includes ``out-of-process
recycling,'' wherein industrial waste collected after the manufacturing
process and/or consumer waste materials are used as raw materials for
production off-site.
4. Environmental Restoration and Protection
An environmental restoration and protection project is one which
enhances the condition of the ecosystem or immediate geographic area
adversely affected.<SUP>8</SUP> These projects may be used to restore
or protect natural environments (such as ecosystems) and man-made
environments, such as facilities and buildings. This category also
includes any project which protects the ecosystem from actual or
potential damage resulting from the violation or improves the overall
condition of the ecosystem.<SUP>9</SUP> Examples of such projects
include: Restoration of a wetland in the same ecosystem along the same
avian flyway in which the facility is located; or purchase and
management of a watershed area by the defendant/respondent to protect a
drinking water supply where the violation (e.g., a reporting violation)
did not directly damage the watershed but potentially could lead to
damage due to unreported discharges. This category also includes
projects which provide for the protection of endangered species (e.g.,
developing conservation programs or protecting habitat critical to the
well-being of a species endangered by the violation).
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\8\ If EPA lacks authority to require repair of the damage
caused by the violation, then repair itself may constitute a SEP.
\9\ Simply preventing new discharges into the ecosystem, as
opposed to taking affirmative action directly related to preserving
existing conditions at a property, would not constitute a
restoration and protection project, but may fit into another
category such as pollution prevention or pollution reduction.
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In some projects where a defendant/respondent has agreed to restore
and then protect certain lands, the question arises as to whether the
project may include the creation or maintenance of certain recreational
improvements, such as hiking and bicycle trails. The costs associated
with such recreational improvements may be included in the total SEP
cost provided they do not impair the environmentally beneficial
purposes of the project and they constitute only an incidental portion
of the total resources spent on the project.
In some projects where the parties intend that the property be
protected so that the ecological and pollution reduction purposes of
the land are maintained in perpetuity, the defendant/respondent may
sell or transfer the land to another party with the established
resources and expertise to perform this function, such as a state park
authority. In some cases, the U.S. Fish and Wildlife Service or the
National Park Service may be able to perform this
function.<SUP>10</SUP>
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\10\ These federal agencies have explicit statutory authority to
accept gifts of land and money in certain circumstances. All
projects with these federal agencies must be reviewed and approved
in advance by legal counsel in the agency, usually the Solicitor's
Office in the Department of the Interior.
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With regard to man-made environments, such projects may involve the
remediation of facilities and buildings, provided such activities are
not otherwise legally required. This includes the removal/mitigation of
contaminated materials, such as soils, asbestos and lead paint, which
are a continuing source of releases and/or threat to individuals.
5. Assessments and Audits
Assessments and audits, if they are not otherwise available as
injunctive relief, are potential SEPs under this category. There are
three types of projects in this category: a. Pollution prevention
assessments; b. environmental quality assessments; and
[[Page 24800]]
c. compliance audits. These assessments and audits are only acceptable
as SEPs when the defendant/respondent agrees to provide EPA with a copy
of the report. The results may be made available to the public, except
to the extent they constitute confidential business information
pursuant to 40 CFR part 2, subpart B.
a. Pollution prevention assessments are systematic, internal
reviews of specific processes and operations designed to identify and
provide information about opportunities to reduce the use, production,
and generation of toxic and hazardous materials and other wastes. To be
eligible for SEPs, such assessments must be conducted using a
recognized pollution prevention assessment or waste minimization
procedure to reduce the likelihood of future violations. Pollution
prevention assessments are acceptable as SEPs without an implementation
commitment by the defendant/respondent. Implementation is not required
because drafting implementation requirements before the results of an
assessment are known is difficult. Further, many of the implementation
recommendations may constitute activities that are in the defendant/
respondent's own economic interest.
b. Environmental quality assessments are investigations of: The
condition of the environment at a site not owned or operated by the
defendant/respondent; the environment impacted by a site or a facility
regardless of whether the site or facility is owned or operated by the
defendant/respondent; or threats to human health or the environment
relating to a site or a facility regardless of whether the site or
facility is owned or operated by the defendant/respondent. These
include, but are not limited to: investigations of levels or sources of
contamination in any environmental media at a site; or monitoring of
the air, soil, or water quality surrounding a site or facility. To be
eligible as SEPs, such assessments must be conducted in accordance with
recognized protocols, if available, applicable to the type of
assessment to be undertaken. Expanded sampling or monitoring by a
defendant/respondent of its own emissions or operations does not
qualify as a SEP to the extent it is ordinarily available as injunctive
relief.
Environmental quality assessment SEPs may not be performed on the
following types of sites: sites that are on the National Priority List
under CERCLA section 105, 40 CFR part 300, appendix B; sites that would
qualify for an EPA removal action pursuant to CERCLA section 104(a) and
the National Oil and Hazardous Substances Pollution Contingency Plan,
40 CFR 300.415; and sites for which the defendant/respondent or another
party would likely be ordered to perform a remediation activity
pursuant to CERCLA section 106, RCRA section 7003, RCRA 3008(h), CWA
section 311, or another federal law.
c. Environmental compliance audits are independent evaluations of a
defendant/respondent's compliance status with environmental
requirements. Credit is only given for the costs associated with
conducting the audit. While the SEP should require all violations
discovered by the audit to be promptly corrected, no credit is given
for remedying the violation since persons are required to achieve and
maintain compliance with environmental requirements. In general,
compliance audits are acceptable as SEPs only when the defendant/
respondent is a small business or small community.<SUP>11</SUP>
<SUP>12</SUP>
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\11\ For purposes of this Policy, a small business is owned by a
person or another entity that employs 100 or fewer individuals.
Small businesses could be individuals, privately held corporations,
farmers, landowners, partnerships and others. A small community is
one comprised of fewer than 2,500 persons.
\12\ Since most large companies routinely conduct compliance
audits, to mitigate penalties for such audits would reward violators
for performing an activity that most companies already do. In
contrast, these audits are not commonly done by small businesses,
perhaps because such audits may be too expensive.
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6. Environmental Compliance Promotion
An environmental compliance promotion project provides training or
technical support to other members of the regulated community to: (1)
Identify, achieve and maintain compliance with applicable statutory and
regulatory requirements or (2) go beyond compliance by reducing the
generation, release or disposal of pollutants beyond legal
requirements. For these types of projects, the defendant/respondent may
lack the experience, knowledge or ability to implement the project
itself, and, if so, the defendant/respondent should be required to
contract with an appropriate expert to develop and implement the
compliance promotion project. Acceptable projects may include, for
example, producing a seminar directly related to correcting widespread
or prevalent violations within the defendant/respondent's economic
sector.
Environmental compliance promotion SEPs are acceptable only where
the primary impact of the project is focused on the same regulatory
program requirements which were violated and where EPA has reason to
believe that compliance in the sector would be significantly advanced
by the proposed project. For example, if the alleged violations
involved Clean Water Act pretreatment violations, the compliance
promotion SEP must be directed at ensuring compliance with pretreatment
requirements. Environmental compliance promotion SEPs are subject to
special approval requirements per Section J below.
7. Emergency Planning and Preparedness
An emergency planning and preparedness project provides
assistance--such as computers and software, communication systems,
chemical emission detection and inactivation equipment, HAZMAT
equipment, or training--to a responsible state or local emergency
response or planning entity. This is to enable these organizations to
fulfill their obligations under the Emergency Planning and Community
Right-to-Know Act (EPCRA) to collect information to assess the dangers
of hazardous chemicals present at facilities within their jurisdiction,
to develop emergency response plans, to train emergency response
personnel and to better respond to chemical spills.
EPCRA requires regulated sources to provide information on chemical
production, storage and use to State Emergency Response Commissions
(SERCs), Local Emergency Planning Committees (LEPCs) and Local Fire
Departments (LFDs). This enables states and local communities to plan
for and respond effectively to chemical accidents and inform
potentially affected citizens of the risks posed by chemicals present
in their communities, thereby enabling them to protect the environment
or ecosystems which could be damaged by an accident. Failure to comply
with EPCRA impairs the ability of states and local communities to meet
their obligations and places emergency response personnel, the public
and the environment at risk from a chemical release.
Emergency planning and preparedness SEPs are acceptable where the
primary impact of the project is within the same emergency planning
district or state affected by the violations and EPA has not previously
provided the entity with financial assistance for the same purposes as
the proposed SEP. Further, this type of SEP is allowable only when the
SEP involves non-cash assistance and there are violations of EPCRA, or
reporting violations under CERCLA section 103, or CAA section 112(r),
or violations of
[[Page 24801]]
other emergency planning, spill or release requirements alleged in the
complaint.
8. Other Types of Projects
Projects determined by the case team to have environmental merit
which do not fit within at least one of the seven categories above but
that are otherwise fully consistent with all other provisions of this
Policy, may be accepted with the advance approval of the Office of
Enforcement and Compliance Assurance.
9. Projects Which Are Not Acceptable as SEPs
The following are examples of the types of projects that are not
allowable as SEPs:
a. General public educational or public environmental awareness
projects, e.g., sponsoring public seminars, conducting tours of
environmental controls at a facility, promoting recycling in a
community;
b. Contributions to environmental research at a college or
university;
c. Conducting a project, which, though beneficial to a community,
is unrelated to environmental protection, e.g., making a contribution
to a non-profit, public interest, environmental, or other charitable
organization, or donating playground equipment;
d. Studies or assessments without a requirement to address the
problems identified in the study (except as provided for in Sec. D.5
above);
e. Projects which the defendant/respondent will undertake, in whole
or part, with low-interest federal loans, federal contracts, federal
grants, or other forms of federal financial assistance or non-financial
assistance (e.g., loan guarantees).
E. Calculation of the Final Penalty
Substantial penalties are an important part of any settlement for
legal and policy reasons. Without penalties there would be no
deterrence, as regulated entities would have little incentive to
comply. Additionally, penalties are necessary as a matter of fairness
to those regulated entities that make the necessary expenditures to
comply on time: Violators should not be allowed to obtain an economic
advantage over their competitors who complied.
As a general rule, the net costs to be incurred by a violator in
performing a SEP may be considered as one factor in determining an
appropriate settlement amount. In settlements in which defendant/
respondents commit to conduct a SEP, the final settlement penalty must
equal or exceed either: (a) The economic benefit of noncompliance plus
10 percent of the gravity component; or (b) 25 percent of the gravity
component only; whichever is greater.
Calculating the final penalty in a settlement which includes a SEP
is a five step process. Each of the five steps is explained below. The
five steps are also summarized in the penalty calculation worksheet
attached to this Policy.
Step 1: Settlement Amount Without a SEP
a. The applicable EPA penalty policy is used to calculate the
economic benefit of noncompliance.
b. The applicable EPA penalty policy is used to calculate the
gravity component of the penalty. The gravity component is all of the
penalty other than the identifiable economic benefit amount, after
gravity has been adjusted by all other factors in the penalty policy
(e.g., audits, good faith, litigation considerations), except for the
SEP.
c. The amounts in steps 1.a and b are added. This sum is the
minimum amount that would be necessary to settle the case without a
SEP.
Step 2: Minimum Penalty Amount With a SEP
The minimum penalty amount must equal or exceed the economic
benefit of noncompliance plus 10 percent of the gravity component, or
25 percent of the gravity component only, whichever is greater. The
minimum penalty amount is calculated as follows:
a. Calculate 10 percent of gravity (multiply amount in step 1.b by
0.1).
b. Add economic benefit (amount in step 1.a) to amount in step 2.a.
c. Calculate 25 percent of gravity (multiply amount in step 1.b by
0.25).
d. Identify the minimum penalty amount: the greater of step 2.c or
step 2.b.<SUP>13</SUP>
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\13\ Pursuant to the February 1995 Revised Interim Clean Water
Act Settlement Penalty Policy, section V, a smaller minimum penalty
amount may be allowed for a municipality.
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Step 3. Calculate the SEP Cost
The net present after-tax cost of the SEP, hereinafter called the
``SEP COST,'' is the maximum amount that EPA may take into
consideration in determining an appropriate penalty mitigation for
performance of a SEP. In order to facilitate evaluation of the SEP COST
of a proposed project, the Agency has developed a computer model called
PROJECT.<SUP>14</SUP> There are three types of costs that may be
associated with performance of a SEP (which are entered into the
PROJECT model): capital costs (e.g., equipment, buildings); one-time
nondepreciable costs (e.g., removing contaminated materials, purchasing
land, developing a compliance promotion seminar); and annual operation
costs and savings (e.g., labor, chemicals, water, power, raw
materials).<SUP>15</SUP>
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\14\ A copy of the PROJECT computer program software and PROJECT
User's Manual may be purchased by calling the National Technology
Information Service at (800) 553-6847, and asking for Document
#<greek-P><greek-B> 98-500408GEI, or they may be downloaded from the
World Wide Web at ``http://www.epa.gov/oeca/models/''.
\15\ The PROJECT calculated SEP Cost is a reasonable estimate,
and not an exact after-tax calculation. PROJECT does not evaluate
the potential for market benefits which may accrue with the
performance of a SEP (e.g., increased sales of a product, improved
corporate public image, or improved employee morale). Nor does it
consider costs imposed on the government, such as the cost to the
Agency for oversight of the SEP, or the burden of a lengthy
negotiation with a defendant/ respondent who does not propose a SEP
until late in the settlement process; such factors may be considered
in determining a mitigation percentage rather than in calculating
after-tax cost.
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To use PROJECT, the Agency needs reliable estimates of the costs
associated with a defendant/respondent's performance of a SEP, as well
as any savings due to such factors as energy efficiency gains, reduced
materials costs, reduced waste disposal costs, or increases in
productivity. For example, if the annual expenditures in labor and
materials of operating a new waste recycling process is $100,000 per
year, but the new process reduces existing hazardous waste disposal
expenditures by $30,000 per year, the net cost of $70,000 is entered
into the PROJECT model (variable 4).
In order to run the PROJECT model properly (i.e., to produce a
reasonable estimate of the net present after-tax cost of the project),
the number of years that annual operation costs or savings will be
expended in performing the SEP must be specified. At a minimum, the
defendant/respondent must be required to implement the project for the
same number of years used in the PROJECT model calculation. (For
example, if the settlement agreement requires the defendant/respondent
to operate the SEP equipment for two years, two years should be entered
as the input for number of years of annual expense in the PROJECT
model.) If certain costs or savings appear speculative, they should not
be entered into the PROJECT model. The PROJECT model is the primary
method to determine the SEP COST for purposes of negotiating
settlements.<SUP>16</SUP>
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\16\ See PROJECT User's Manual, January 1995. If the PROJECT
model appears inappropriate to a particular fact situation, EPA
Headquarters should be consulted to identify an alternative
approach. For example, PROJECT does not readily calculate the cost
of an accelerated compliance SEP. The cost of such a SEP is only the
additional cost associated with doing the project early (ahead of
the regulatory requirement) and it needs to be calculated in a
slightly different manner. Please consult with the Office Of
Regulatory Enforcement for directions on how to calculate the costs
of such projects.
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[[Page 24802]]
EPA does not offer tax advice on whether a regulated entity may
deduct SEP expenditures from its income taxes. If a defendant/
respondent states that it will not deduct the cost of a SEP from its
taxes and it is willing to commit to this in the settlement document,
and provide the Agency with certification upon completion of the SEP
that it has not deducted the SEP expenditures, the PROJECT model
calculation should be adjusted to calculate the SEP Cost without
reductions for taxes. This is a simple adjustment to the PROJECT model:
just enter a zero for variable 7, the marginal tax rate. If a business
is not willing to make this commitment, the marginal tax rate in
variable 7 should not be set to zero; rather the default settings (or a
more precise estimate of the business' marginal tax rates) should be
used in variable 7.
If the PROJECT model reveals that a project has a negative cost
during the period of performance of the SEP, this means that it
represents a positive cash flow to the defendant/respondent and is a
profitable project. Such a project is generally not acceptable as a
SEP. If a project generates a profit, a defendant/respondent should,
and probably will, based on its own economic interests, implement the
project. While EPA encourages regulated entities to undertake
environmentally beneficial projects that are economically profitable,
EPA does not believe violators should receive a bonus in the form of
penalty mitigation to undertake such projects as part of an enforcement
action. EPA does not offer subsidies to complying companies to
undertake profitable environmentally beneficial projects and it would
thus be inequitable and perverse to provide such subsidies only to
violators. In addition, the primary goal of SEPs is to secure a
favorable environmental or public health outcome which would not have
occurred but for the enforcement case settlement. To allow SEP penalty
mitigation for profitable projects would thwart this goal.\17\
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\17\ The penalty mitigation guidelines provide that the amount
of mitigation should not exceed the net cost of the project. To
provide penalty mitigation for profitable projects would be
providing a credit in excess of net costs.
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Step 4: Determine the SEP Mitigation Percentage and then the Mitigation
Amount
Step 4.a: Mitigation Percentage. After the SEP COST has been
calculated, EPA should determine what percentage of that cost may be
applied as mitigation against the amount EPA would settle for but for
the SEP. The quality of the SEP should be examined as to whether and
how effectively it achieves each of the following six factors listed
below. (The factors are not listed in priority order.)
<bullet> Benefits to the Public or Environment at Large. While all
SEPs benefit public health or the environment, SEPs which perform well
on this factor will result in significant and quantifiable reduction in
discharges of pollutants to the environment and the reduction in risk
to the general public. SEPs also will perform well on this factor to
the extent they result in significant and, to the extent possible,
measurable progress in protecting and restoring ecosystems (including
wetlands and endangered species habitats).
<bullet> Innovativeness. SEPs which perform well on this factor
will further the development, implementation, or dissemination of
innovative processes, technologies, or methods which more effectively:
reduce the generation, release or disposal of pollutants; conserve
natural resources; restore and protect ecosystems; protect endangered
species; or promote compliance. This includes ``technology forcing''
techniques which may establish new regulatory ``benchmarks.''
<bullet> Environmental Justice. SEPs which perform well on this
factor will mitigate damage or reduce risk to minority or low income
populations which may have been disproportionately exposed to pollution
or are at environmental risk.
<bullet> Community Input. SEPs which perform well on this factor
will have been developed taking into consideration input received from
the affected community. No credit should be given for this factor if
the defendant/respondent did not actively participate in soliciting and
incorporating public input into the SEP.
<bullet> Multimedia Impacts. SEPs which perform well on this factor
will reduce emissions to more than one medium.
<bullet> Pollution Prevention. SEPs which perform well on this
factor will develop and implement pollution prevention techniques and
practices.
The better the performance of the SEP under each of these factors,
the higher the appropriate mitigation percentage. The percent of
penalty mitigation is within EPA's discretion; there is no presumption
as to the correct percentage of mitigation. The mitigation percentage
should not exceed 80 percent of the SEP COST, with two exceptions:
(1) For small businesses, government agencies or entities, and non-
profit organizations, this mitigation percentage of the SEP COST may be
set as high as 100 percent if the defendant/respondent can demonstrate
the project is of outstanding quality.
(2) For any defendant/respondent, if the SEP implements pollution
prevention, the mitigation percentage of the SEP COST may be set as
high as 100 percent if the defendant/respondent can demonstrate that
the project is of outstanding quality.
If the government must allocate significant resources to monitoring
and reviewing the implementation of a project, a lower mitigation
percentage of the SEP COST may be appropriate.
In administrative enforcement actions in which there is a statutory
limit (commonly called ``caps'') on the total maximum penalty that may
be sought in a single action, the cash penalty obtained plus the amount
of penalty mitigation credit due to the SEPs shall not exceed the
limit.
Step 4.b: SEP Mitigation Amount.
The SEP COST (calculated pursuant to step 3) is multiplied by the
mitigation percentage (step 4.a) to obtain the SEP mitigation amount,
which is the amount of the SEP cost that may be used in potentially
mitigating the preliminary settlement penalty.
Step 5: Final Settlement Penalty
5.a. The SEP mitigation amount (step 4.b) is then subtracted from
the settlement amount without a SEP (step 1.c).
5.b The greater of step 2.d or step 5.a is the minimum final
settlement penalty allowable based on the performance of the SEP.
F. Liability for Performance
Defendants/respondents (or their successors in interest) are
responsible and legally liable for ensuring that a SEP is completed
satisfactorily. A defendant/respondent may not transfer this
responsibility and liability to someone else, commonly called a third
party. Of course, a defendant/respondent may use contractors or
consultants to assist it in implementing a SEP.\18\
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\18\ Non-profit organizations, such as universities and public
interest groups, may function as contractors or consultants.
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[[Page 24803]]
G. Oversight and Drafting Enforceable SEPS
The settlement agreement should accurately and completely describe
the SEP. (See related legal guideline 4 in Sec. C above.) It should
describe the specific actions to be performed by the defendant/
respondent and provide for a reliable and objective means to verify
that the defendant/respondent has timely completed the project. This
may require the defendant/respondent to submit periodic reports to EPA.
The defendant/respondent may utilize an outside auditor to verify
performance, and the defendant/respondent should be made responsible
for the cost of any such activities. The defendant/respondent remains
responsible for the quality and timeliness of any actions performed or
any reports prepared or submitted by the auditor. A final report
certified by an appropriate corporate official, acceptable to EPA, and
evidencing completion of the SEP and documenting SEP expenditures,
should be required.
To the extent feasible, defendant/respondents should be required to
quantify the benefits associated with the project and provide EPA with
a report setting forth how the benefits were measured or estimated. The
defendant/respondent should agree that whenever it publicizes a SEP or
the results of a SEP, it will state in a prominent manner that the
project is being undertaken as part of the settlement of an enforcement
action.
The drafting of a SEP will vary depending on whether the SEP is
being performed as part of an administrative or judicial enforcement
action. SEPs with long implementation schedules (e.g., 18 months or
longer), SEPs which require EPA review and comment on interim milestone
activities, and other complex SEPs may not be appropriate in
administrative enforcement actions. Specific guidance on the proper
drafting of settlement documents requiring SEPs is provided in a
separate document.
H. Failure of a SEP and Stipulated Penalties
If a SEP is not completed satisfactorily, the defendant/respondent
should be required, pursuant to the terms of the settlement document,
to pay stipulated penalties for its failure. Stipulated penalty
liability should be established for each of the scenarios set forth
below as appropriate to the individual case.
1. Except as provided in paragraph 2 immediately below, if the SEP
is not completed satisfactorily, a substantial stipulated penalty
should be required. Generally, a substantial stipulated penalty is
between 75 and 150 percent of the amount by which the settlement
penalty was mitigated on account of the SEP.
2. If the SEP is not completed satisfactorily, but the defendant/
respondent: a) made good faith and timely efforts to complete the
project; and b) certifies, with supporting documentation, that at least
90 percent of the amount of money which was required to be spent was
expended on the SEP, no stipulated penalty is necessary.
3. If the SEP is satisfactorily completed, but the defendant/
respondent spent less than 90 percent of the amount of money required
to be spent for the project, a small stipulated penalty should be
required. Generally, a small stipulated penalty is between 10 and 25
percent of the amount by which the settlement penalty was mitigated on
account of the SEP.
4. If the SEP is satisfactorily completed, and the defendant/
respondent spent at least 90 percent of the amount of money required to
be spent for the project, no stipulated penalty is necessary.
The determinations of whether the SEP has been satisfactorily
completed (i.e., pursuant to the terms of the agreement) and whether
the defendant/respondent has made a good faith, timely effort to
implement the SEP should be reserved to the sole discretion of EPA,
especially in administrative actions in which there is often no formal
dispute resolution process.
I. Community Input
In appropriate cases, EPA should make special efforts to seek input
on project proposals from the local community that may have been
adversely impacted by the violations.<SUP>19</SUP> Soliciting community
input into the SEP development process can: Result in SEPs that better
address the needs of the impacted community; promote environmental
justice; produce better community understanding of EPA enforcement; and
improve relations between the community and the violating facility.
Community involvement in SEPs may be most appropriate in cases where
the range of possible SEPs is great and/or multiple SEPs may be
negotiated.
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\19\ In civil judicial cases, the Department of Justice already
seeks public comment on lodged consent decrees through a Federal
Register notice. See 28 CFR 50.7. In certain administrative
enforcement actions, there are also public notice requirements that
are followed before a settlement is finalized. See 40 CFR part 22.
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When soliciting community input, the EPA negotiating team should
follow the four guidelines set forth below.
1. Community input should be sought after EPA knows that the
defendant/respondent is interested in doing a SEP and is willing to
seek community input, approximately how much money may be available for
doing a SEP, and that settlement of the enforcement action is likely.
If these conditions are not satisfied, EPA will have very little
information to provide communities regarding the scope of possible
SEPs.
2. The EPA negotiating team should use both informal and formal
methods to contact the local community. Informal methods may involve
telephone calls to local community organizations, local churches, local
elected leaders, local chambers of commerce, or other groups. Since EPA
may not be able to identify all interested community groups, a public
notice in a local newspaper may be appropriate
3. To ensure that communities have a meaningful opportunity to
participate, the EPA negotiating team should provide information to
communities about what SEPs are, the opportunities and limits of such
projects, the confidential nature of settlement negotiations, and the
reasonable possibilities and limitations in the current enforcement
action. This can be done by holding a public meeting, usually in the
evening, at a local school or facility. The EPA negotiating team may
wish to use community outreach experts at EPA or the Department of
Justice in conducting this meeting. Sometimes the defendant/respondent
may play an active role at this meeting and have its own experts assist
in the process.
4. After the initial public meeting, the extent of community input
and participation in the SEP development process will have to be
determined. The amount of input and participation is likely to vary
with each case. Except in extraordinary circumstances and with
agreement of the parties, representatives of community groups will not
participate directly in the settlement negotiations. This restriction
is necessary because of the confidential nature of settlement
negotiations and because there is often no equitable process to
determine which community group should directly participate in the
negotiations.
J. EPA Procedures
1. Approvals
The authority of a government official to approve a SEP is included
in the official's authority to settle an
[[Page 24804]]
enforcement case and thus, subject to the exceptions set forth here, no
special approvals are required. The special approvals apply to both
administrative and judicial enforcement actions as follows:
a. Regions in which a SEP is proposed for implementation shall be
given the opportunity to review and comment on the proposed SEP.
b. In all cases in which a project may not fully comply with the
provisions of this Policy (e.g., see footnote 1), the SEP must be
approved by the EPA Assistant Administrator for Enforcement and
Compliance Assurance. If a project does not fully comply with all of
the legal guidelines in this Policy, the request for approval must set
forth a legal analysis supporting the conclusion that the project is
within EPA's legal authority and is not otherwise inconsistent with
law.
c. In all cases in which a SEP would involve activities outside the
United States, the SEP must be approved in advance by the Assistant
Administrator and, for judicial cases only, the Assistant Attorney
General for the Environment and Natural Resources Division of the
Department of Justice.
d. In all cases in which an environmental compliance promotion
project (section D.6) or a project in the ``other'' category (section
D.8) is contemplated, the project must be approved in advance by the
appropriate office in OECA, unless otherwise delegated.
2. Documentation and Confidentiality
In each case in which a SEP is included as part of a settlement, an
explanation of the SEP with supporting materials (including the PROJECT
model printout, where applicable) must be included as part of the case
file. The explanation of the SEP should explain how the five steps set
forth in Section A.3 above have been used to evaluate the project and
include a description of the expected benefits associated with the SEP.
The explanation must include a description by the enforcement attorney
of how nexus and the other legal guidelines are satisfied.
Documentation and explanations of a particular SEP may constitute
confidential settlement information that is exempt from disclosure
under the Freedom of Information Act, is outside the scope of
discovery, and is protected by various privileges, including the
attorney-client privilege and the attorney work-product privilege.
While individual Agency evaluations of proposed SEPs are confidential,
privileged documents, this Policy is a public document and may be
released to anyone upon request.
This Policy is primarily for the use of U.S. EPA enforcement
personnel in settling cases. EPA reserves the right to change this
Policy at any time, without prior notice, or to act at variance to this
Policy. This Policy does not create any rights, duties, or obligations,
implied or otherwise, in any third parties.
Attachment.--SEP Penalty Calculation Worksheet
[This worksheet should be used pursuant to section E of the Policy.
Specific Applications of this Worksheet in a Case Are Privileged,
Confidential Documents]
------------------------------------------------------------------------
Step Amount
------------------------------------------------------------------------
STEP 1: CALCULATION OF SETTLEMENT AMOUNT WITHOUT A SEP
1.a. BENEFIT: The applicable penalty policy is $
used to calculate the economic benefit of
noncompliance.
1.b. GRAVITY: The applicable penalty policy is $
used to calculate the gravity component of the
penalty; this is gravity after all adjustments
in the applicable policy.
1.c SETTLEMENT AMOUNT without a SEP: Sum of step $
1.a plus 1.b.
STEP 2: CALCULATION OF THE MINIMUM PENALTY AMOUNT WITH A SEP
2.a 10% of GRAVITY: Multiply amount in step 1.b $
by 0.10.
2.b BENEFIT PLUS 10% of GRAVITY: Sum of step 1.a $
plus step 2.a.
2.c. 25% of GRAVITY: Multiply amount in step 1.b $
by 0.25.
2.d MINIMUM PENALTY AMOUNT: Select greater of $
step 2.c or step 2.b.
STEP 3: CALCULATION OF THE SEP COST USING PROJECT $
MODEL.
STEP 4: CALCULATION OF MITIGATION PERCENTAGE AND MITIGATION AMOUNT
4.a. SEP Cost Mitigation Percentage. Evaluate the Percent
project pursuant to the 6 mitigation factors in
the Policy. Mitigation percentage should not
exceed 80% unless one of the exceptions applies.
4.b. SEP Mitigation Amount. Multiply step 3 by $
step 4.a.
STEP 5: CALCULATION OF THE FINAL SETTLEMENT PENALTY
5.a Subtract step 4.b from step 1.c.............. $
5.b. Final Settlement Penalty: Select greater of $
step 2.d or step 5.a.
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[FR Doc. 98-11881 Filed 5-4-98; 8:45 am]
BILLING CODE 6560-50-P