April 23, 2014

One Step Forward, One Step Back – NY Moves Forward on Its Environmental Self-Audit Policy as Environmental Protection Agency (EPA) Looks to Retreat

New York’s Department of Environmental Conservation (DEC) recently proposed an environmental “audit incentive” policy, which is similar to the United States’ Environmental Protection Agency’s (EPA) long standing self-audit policy. In its draft policy, DEC encourages participation by waiving or reducing penalties for environmental violations that regulated entities discover through an environmental audit, and expeditiously report and correct. Ironically, as New York moves forward with a policy designed to enhance compliance in a world where government resources are constrained, EPA has signaled that it is seeking to reduce its own program to meet budget pressures. EPA’s policy provides significant value to participants, and has been a successful means to encourage compliance. New York’s policy should do the same by providing a valuable tool for companies that voluntarily seek to achieve compliance and reduce penalty exposure. When finalized, the policy’s broader qualification standards for newly-acquired operations should be especially useful when companies acquire operations with existing compliance issues.

DEC’s Audit Policy

According to DEC, it has proposed the policy to increase compliance with environmental laws and reduce pollution. The policy aims to accomplish those goals through a series of self-reporting incentives, the most significant of which calls for enforcement penalty waivers or reductions for a broad series of environmental violations. The incentives encourage companies to audit their operations and adopt effective approaches to curb environmental violations, such as implementing environmental management systems and pollution prevention. The policy will also seek to reward those entities that go “beyond compliance” by incorporating environmental management systems and pollution prevention into their operations.

In a departure from past efforts, the draft policy goes beyond small businesses and broadly applies to any entity, including a federal, state or municipal agency, regulated under New York’s environmental laws and regulations. Entities that were subject to regulatory action within the last five years and were uncooperative, which includes failing to respond to an agency or failing to act in good faith, are excluded.

To qualify, violations must be discovered through a formal or informal environmental audit or discovered by an agency during pollution prevention or compliance assistance. Excluded violations include:

  • A violation for which the entity received a notice of violation within the last five years;
  • A violation for which the entity received a penalty waiver within the last five years;
  • A violation of a consent order;
  • A violation that involves alleged criminal conduct;
  • A violation discovered through department inspection activities and deemed appropriate for enforcement, including information requests and review of records related to inspection activities;
  • A violation reported by a member of the public or a whistleblower employee;
  • A violation required to be self-reported; and
  • A violation resulting in a natural resources damage claim, serious actual harm, or one that may have presented an imminent and substantial endangerment to human health or the environment.

Disclosure must be made within 30 days of discovery, unless the entity is newly purchased, in which case the disclosure can be made within 60 days of acquisition. Thus, acquiring companies that are aware prior to acquisition of outstanding violations or compliance issues must act relatively quickly following acquisition to avail themselves of this incentive. The draft policy states that violations should be corrected within the time frame provided by law or by DEC, but generally should not exceed 60 days from disclosure. Corrections include remediating the harm and implementing procedures to prevent future violations.

Requests for penalty waivers will be subject to review by the DEC’s Office of Environmental Justice. Generally, penalties contain two components: one for the gravity of the violation and one equal to the economic benefit to the violator for delayed compliance. The gravity component will be reduced for eligible entities that report and expeditiously correct violations. The economic benefit component will be reduced for those engaged in environmental auditing and pollution prevention in their ordinary course of business pursuant to an environmental audit agreement. DEC provides the example whereby the economic benefit portion will be reduced by the amount an entity commits to spend on pollution prevention that is not otherwise required by law.

Other policy incentives include:

  • Recognition on DEC’s website to entities that go beyond compliance;
  • Eligibility for cost sharing of up to 50% of costs related to energy reduction;
  • Priority and/or qualification for entry into various state technical and financial assistance programs,including the NY Environmental Leaders program; and
  • Avoidance of DEC inspection priority during audit inspection periods, unless DEC has a separate reason for inspection.

The public comment period on this draft policy closed on April 22nd. It is expected that a final policy will be issued sometime this year.

EPA’s Audit Policy

As New York moves forward with self-audit as a means to increase compliance, EPA has sent signals that it is seeking ways to pare back its own audit policy, despite demonstrable past success with the policy. EPA’s program functions similarly to the policy proposed by New York. Regulated entities are incentivized through penalty waivers and other means, to self-audit, report and correct violations, and implement programs that will reduce violations.

Like many federal agencies, EPA has undergone increased budget constraints. The self-audit policy is one area where EPA wants to cut costs. Andrew Stewart, the Acting Division Director, Special Litigation and Projects Division of the EPA’s Office of Enforcement and Compliance Assistance, confirmed that, whilethe policy remains in effect, EPA is reassessing how it will be employed. The policy has been in effect since 1995. Private industry groups consider it an indispensable and successful regulatory tool. The Corporate Environmental Enforcement Council(CEEC) recently submitted comments to EPA which expressed concern with the potential elimination or reduction in scope of the policy. The CEEC offered suggestions on how EPA can apply the program more efficiently, including changing the EPA’s policy of making an “eligibility decision” on every audit disclosure, even disclosures related to reporting violations.

The connection between cost cutting and elimination of self-audit is hardly self-evident. While staff resources are used to negotiate agreements and confirm that non-compliance matters have been corrected, EPA’s program appears to be a cost effective way of achieving compliance and rewarding proactive behavior in the corporate world. Though not a substitute for traditional enforcement, audit programs almost undoubtedly achieve compliance at a lesser cost in terms of personnel hours. Indeed, the CEEC indicated that benefits of the policy are substantial, and suggested that EPA has failed to correctly measure the full array of positive impacts from the policy. Furthermore, EPA has already taken some steps to help reduce the strain of implementing the policy. The electronic Audit Policy Self- Disclosure system oreDisclosure pilot program allows regulated entities to disclose violations through EPA's Central Data Exchange (CDX). A policy shift to eliminate the option of self-auditing, self-reporting and self-correction is hardly smart and efficient government. The opposition to this elimination from industry and New York’s move to essentially adopt the EPA policy is a testament to the importance of this supplemental enforcement tool.

©2014 Greenberg Traurig, LLP. All rights reserved.

About the Author

Steven C. Russo, Environmental Attorney, Greenberg Traurig Law Firm
Chair, New York Environmental Practice

Steven C. Russo chairs the firm’s New York Environmental Practice. He focuses his practice on environmental law and litigation, environmental permitting, National Environmental Policy Act (NEPA), State Environmental Quality Review Act (SEQRA) review, toxic tort litigation, environmental crimes, Brownfields redevelopment, government, energy and the environmental aspects of land use and real estate law. Steven is equally experienced litigating in federal and state courts, as well as counseling his clients with regard to environmental liability risk and due diligence,...


About the Author


Adam Silverman is an associate in Greenberg Traurig's Environmental Group.  He represents clients in a wide range of litigation, transactional and regulatory environmental matters.


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