We've made some changes to EPA.gov. If the information you are looking for is not here, you may be able to find it on the EPA Web Archive or the January 19, 2017 Web Snapshot.

Financial Assurance Requirements for Hazardous Waste Treatment, Storage and Disposal Facilities

The Resource Conservation and Recovery Act (RCRA) requires all treatment, storage and disposal facilities (TSDFs) to demonstrate that they will have the financial resources to properly close the facility or unit when its operational life is over, or provide the appropriate emergency response in the case of an accidental release. The financial assurance requirements establish several mechanisms for TSDF owners to demonstrate these resources will be available when needed. These requirements place the costs of cleanups on owner/operators rather than taxpayers.

All hazardous waste management units and the TSDFs at which they are located are subject to the financial assurance requirements found at title 40 of the Code of Federal Regulations (CFR) part 264 or 265, subpart H Financial Assurance. Part 264 applies to permitted facilities and part 265 applies to facilities in operation before these rules became effective, referred to as “interim status facilities”.

On this page:


How Much Financial Assurance is Needed and What are the Requirements?

All units that manage hazardous waste are required to demonstrate financial assurance for closure. The first step in this process is preparing a closure cost estimate. Closure costs include the expenses for ceasing operation of the unit or facility and safely closing the unit and cleaning up any contamination. Post-closure care costs include long-term maintenance of the unit or facility, monitoring, and record keeping during the required post-closure care period. Units that will be clean closed (i.e., tanks, surface impoundments, or waste piles where all wastes and contaminated soils and equipment are removed) are not subject to post-closure care financial assurance requirements.

Owner/operators calculate cost estimates based on the cost of paying a third party to perform the required closure and post-closure care activities as outlined in the facility's operating permit. Cost estimates must be adjusted annually throughout the operational life of the facility to account for inflation. Owner/operators may either recalculate these costs each year, or use the Department of Commerce, Bureau of Economic Analysis' Implicit Price Deflator (IPD) to calculate the inflation factor and adjust the initial cost estimate. Instructions for using the IPD are included in the regulations (see 40 CFR section 264.142(b) or section 265.142(b)).

In cases where the owner/operators are subject to both the closure and post-closure care financial assurance requirements, they must prepare cost estimates for both closure and post-closure care activities as well as demonstrate financial assurance for each expense.

The regulations in subpart H outline how hazardous waste TSDF owner/operators should determine cost estimates, the acceptable mechanisms for demonstrating financial assurance, and the minimum amounts of liability coverage required.

Top of Page


What Financial Assurance Mechanisms and Instruments can I use?

There are several allowable financial assurance mechanisms and instruments described in the regulations that an owner/operator may use, alone or in combination, to demonstrate that they meet the closure and post-closure care financial assurance requirements. These mechanisms are described below.

Trust Fund

An owner/operator may establish a trust fund into which he or she deposits money specifically earmarked for closure and/or post-closure care. The owner/operator pays into the trust fund for a specified period of time (pay-in period) such that at the time of closure, there are sufficient funds to cover closure and/or post-closure care costs. See 40 CFR §264.143(a) or §265.143(a).

Top of Page

Surety Bond

An owner/operator may secure a guarantee from a surety company (in the form of a bond) that all closure and post-closure care requirements will be fulfilled. If the owner/operator fails to meet the requirements specified in the bond, the surety company is liable for the costs. If using a surety bond, the owner/operator must also establish a standby trust fund into which the surety company will make payments if the owner/operate fails to comply with its financial responsibilities. This money deposited into the standby trust fund can then be used to pay a third party to perform closure/post-closure. See 40 CFR §264.143(b) and (c) and §265.143(b).

An owner/operator may use two types of bonds to meet the financial assurance requirements:

  • Payment bond - guarantees that if the owner/operator fails to pay for closure and post-closure, the surety company will pay the costs into the standby trust fund.
  • Performance bond - guarantees that if the owner/operator fails to perform all the required closure and post-closure care activities, the surety company will either perform the required activities or pay sufficient funds into the standby trust fund. 

Top of Page

Letter of Credit

An owner/operator may obtain an irrevocable standby letter of credit from an institution that has the authority to issue such letters. The letter of credit must be equal to the amount of the cost estimate and must be increased whenever the closure cost estimate increases (i.e., either annually or when the facility is expanded). The owner/operator must also establish a standby trust fund into which the letter of credit issuing institution will pay if the owner/operator fails to meet its closure/post-closure care obligations. See 40 CFR §264.143(d) and §265.143(c).

Top of Page

Insurance

An owner/operator may obtain an insurance policy for a face value amount, at least equal to the cost estimate for closure and post-closure expenses. The face amount, which is the total amount the insurer is obligated to pay under the policy, must be increased annually and any other time the cost estimate increases. The insurer must be licensed by a state (use of offshore insurers is not allowed) and may not cancel, terminate, or fail to renew the policy unless the owner/operator fails to pay the premiums. See 40 CFR §264.143(e) and §265.143(d).

Top of Page

Financial Test

An owner/operator can meet the financial assurance requirements by passing one of the two alternative financial tests specified in the regulations. These tests demonstrate and document that the owner/operator has sufficient assets located within the United States to cover closure and post-closure care costs. See 40 CFR §264.143(f) and §265.143(e). The two alternative tests are:

  • Alternative 1 - The owner and operator must meet each of the following criteria:  
    • Net working capital equals six times current closure, post-closure, plugging and abandonment cost estimates.
    • Tangible net worth is greater than $10 million.
    • Ninety percent of total assets are located in the United States, or at least six times the current closure, post-closure and plugging and abandonment cost estimates.
    • Owners and operators must satisfy two of the following three ratios:
      • Liabilities to net worth ratio less than 2.
      • Current assets to current liabilities ratio greater than 1.5.
      • Net income (plus depreciation, depletion and amortization) to liabilities ratio greater than 0.1.
  • Alternative 2 - The owner and operator must meet each of the following criteria:  
    • Tangible net worth at least six times current closure, post-closure, plugging and abandonment cost estimates.
    • Tangible net worth is greater than $10 million.
    • Ninety percent of total assets are located in the United States, or at least six times the current closure, post-closure and plugging and abandonment cost estimates.
    • The current bond rating for the most recent bond issuance is AAA, AA, A, or BBB as issued by Standard & Poor's, or Aaa, Aa, A, or Baa as issued by Moody's. 

The owner or operator must submit updated information to the regulatory authority within 90 days after the close of each succeeding fiscal year.

Top of Page

Corporate Guarantee

An owner/operator may obtain a written guarantee from another company (the guarantor) to ensure coverage for closure/post-closure care costs. See 40 CFR §264.143(f) and §265.143(e). In order to do this, the guarantor must be one of the following:

  • Direct corporate parent company - a corporation that directly owns at least 50 percent of the voting stock of another corporation or subsidiary.
  • Corporate grandparent - a corporation that indirectly owns over 50 percent of a company through a subsidiary.
  • Sibling corporation - a corporation that shares the same parent corporation.
  • Firm – must have a “substantial business relationship” with the owner/operator. 

The guarantor must also meet the requirements of either of the two alternative financial tests listed on the page. If the owner/operator fails to perform or pay for closure and post-closure care, the guarantor must either perform the required activities or establish a trust fund to pay a third-party to perform closure and post-closure care. As with the financial test, the owner or operator must submit updated information to the regulatory authority within 90 days after the close of each succeeding fiscal year.

Top of Page


What are the Liability Requirements?

Under the RCRA liability coverage regulations (found at 40 CFR part 264 or 265, subpart H), all owners and operators of hazardous waste TSDFs are required to maintain accident liability insurance during the active life of their hazardous waste management units or facilities. This liability coverage ensures that sufficient money will be available to compensate third-parties that are either physically harmed or have property damaged by an accidental release of hazardous constituents from a hazardous waste TSDF. To demonstrate liability coverage, owner/operators can use any one or combination of the following financial mechanisms (also described above on this page):

  • Liability insurance
  • Financial test
  • Corporate guarantee
  • Letter of credit
  • Surety bond
  • Trust fund

These financial mechanisms are similar to the allowable mechanisms used to meet the closure and post-closure care financial assurance requirements. The specific requirements for use of each mechanism are spelled out in the regulations (see 40 CFR Part 264 or §265.147).

The liability coverage regulations designate two categories for which a TSDF may be required to demonstrate liability coverage:

  • Sudden accidental occurrences - releases that are not continuous or repeated (e.g., fires and explosions). All TSDF owner/operators are required to demonstrate coverage for sudden accidental releases for at least $1 million per occurrence and an annual aggregate of at least $2 million.
  • Nonsudden accidental occurrences - take place over an extended time and involve continuous or repeated release or exposure to hazardous waste (e.g., liquid waste leaking from a surface impoundment or landfill and contaminating groundwater supplies). Only owners/operators of hazardous waste land-based hazardous waste management units (i.e., surface impoundments, landfills, land treatment units, some miscellaneous disposal units) are required to demonstrate nonsudden accidental occurrence liability coverage. An owner/operator may use one or more of the approved financial mechanisms listed above to demonstrate coverage. Minimum nonsudden accidental occurrence coverage must be at least $3 million per occurrence and an annual aggregate of at least $6 million.

An owner/operator may combine sudden and nonsudden liability coverages, provided the total coverage equals the sum of the individual requirements (i.e., a combined total of at least $4 million per occurrence and an annual aggregate of at least $8 million).

Top of Page


Covering Cleanup Costs Through Financial Assurance

Financial assurance is an important aspect of hazardous waste cleanups known as the Corrective Action program. The primary purpose of the financial responsibility requirements for corrective action is to assure that funds will be available when needed to conduct necessary corrective action measures. The intent of RCRA financial responsibility requirements is, in part, to reduce the number of TSDFs that are insolvent or abandoned by their owners and operators, leaving the costs of corrective action to be borne by the public.

Congress intended that facility owners and operators ensure that adequate funds would be available to complete the required corrective action, so contaminated TSDFs do not become the responsibility of the federal Superfund or State cleanup programs. It is important for EPA or state regulators to require facility owners and operators to obtain financial assurance when the companies are financially healthy, so that resources are set aside in the event a company hits a financial decline.

EPA recognizes that there may be some facility owners and operators that are unable or fail to provide financial assurance. Prompt enforcement action against non-compliant, financially viable entities is generally appropriate. In cases where the owner or operator is insolvent or bankrupt and is having difficulty securing financial assurance, regulators could consider requiring the owner or operator on a case-by-case basis to provide financial assurance pursuant to a compliance schedule as part of an enforcement action, while also performing the necessary corrective action. Regulators are encouraged to work with financially distressed facility owners and operators to develop practical facility-specific cleanup goals that protect human health and the environment, and to assure, using all appropriate tools that the regulated community complies with financial assurance requirements.

  • Interim Guidance: Financial Responsibility for Facilities Subject to RCRA Corrective Action - this document provides decision makers guidance in the implementation of financial responsibility requirements to ensure that owners and operators provide evidence of financial responsibility for corrective action that may become necessary in the future. This guidance will also assist the states that are authorized for Corrective Action in the implementation of financial assurance requirements.

Top of Page


Financial Assurance Resources

EPA developed several resources about RCRA financial assurance including:

  • Top Financial Assurance Tips - Provides tips on a wide range of financial assurance issues. The tips for financial assurance implementers are arranged roughly in decreasing order of importance and ascending order of difficulty within each section.
  • RCRA Subtitle C Financial Assurance Instrument Fact Sheets for Closure/Post-Closure - These fact sheets provide an overview of each instrument (Corporate Financial Test, Insurance, Letter of Credit, Surety Bond, and Trust Fund), including regulatory requirements, recommended best practices, frequently asked questions and sources of additional information.

Top of Page