January 31, 2023

Volume XIII, Number 31


January 30, 2023

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DOJ Policy Review of SEPs May Have Big Implications for Company Environmental Settlements

The U.S. Department of Justice (DOJ) is in the midst of a comprehensive policy review regarding the use of Supplemental Environmental Projects (SEPs) in settlements of environmental enforcement actions. This review could potentially have far-reaching implications for companies that seek to settle such actions brought by either the federal government, or in the case of a citizen suit, a non-governmental organization (NGO). It remains to be seen if the ongoing SEP policy review will result in additional limits on the use of SEPs in settlement, thus limiting the flexibility in achieving penalty mitigation that has been a hallmark of environmental enforcement case resolutions for nearly three decades.

SEPs have been popular among both governmental and non-governmental defendants in enforcement cases for nearly thirty years. SEPs allow settling parties to mitigate a portion of a civil penalty in exchange for performance of environmentally beneficial projects. Under long standing SEP policy, settling parties can receive up to a maximum of 80 percent credit towards mitigation of a portion of a civil penalty for funds expended in performance of SEPs. This policy has proven popular in local communities that benefit from the projects, and these benefits are something that is beyond what is required to achieve compliance with the law. In the early 1990s, SEPs tended to be the exception to the norm of environmental enforcement settlements. But during the later 1990s, SEPs became quite common – even typical.

It is possible that the current ongoing review of SEP policy could result in greater scrutiny of use of SEPs in settlements with companies. Further restrictions on the use of SEPs could take many forms, including limitations on the funds expended, greater scrutiny of the nexus of the SEP to the underlying violations, and even potential elimination of the use of SEPs altogether. Typically, settling parties would much prefer including a SEP as part of a settlement, rather than simply paying all of its out-of-pocket costs as a civil penalty, so further restrictions or elimination of SEPs altogether would not be a positive development for the regulated community.

It is clear that the current administration takes a much more skeptical view of the appropriateness of SEPs than any prior administration. This past August, Assistant Attorney General for the Environment and Natural Resources Division (ENRD) Jeffrey Clark issued a memorandum to all ENRD Section Chiefs outlining new limits on the use of SEPs. Under the new policy, the use of SEPs is prohibited in settlements involving state and local governments, which gives less flexibility to both state and local governments as well as DOJ enforcement attorneys in determining appropriate resolution of enforcement cases.

This latest SEP policy memorandum builds on last November’s memorandum from the Attorney General outlining policies and procedure for civil consent decrees and settlements with state and local governments. This November memorandum included a directive that consent decrees “must not be used to achieve general policy goals or to extract greater or different relief from than could be obtained through agency enforcement authority or by litigation the matter to judgment.” Part of the intent of the outlined policy was to ensure accountability of state and local governments as to their policy goals.

Building on this in reference to SEPs, Clark stated “A clearer example of a form of relief that falls within the prohibition in the November 2018 Policy is difficult to imagine.” Clark left open the possibility of limited case-by-case exceptions to the broader policy of the prohibition, under certain limited conditions, pending his further overall review of SEP policies. But Clark further stated that even if certain limitations are satisfied, “there is no guarantee that I will recommend approval . . . “of including a SEP as part of a settlement with a state or local government.”

© 2023 ArentFox Schiff LLPNational Law Review, Volume IX, Number 280

About this Author

Francis Lyons Environmental Attorney Schiff Hardin Chicago

Francis X. Lyons provides strategic counseling in sophisticated environmental law matters, with an emphasis on regulatory compliance under state and federal statutes. He draws on his past experience as a Regional Administrator for the U.S. Environmental Protection Agency (USEPA) and an environmental enforcement attorney with the U.S. Department of Justice (DOJ) to assist clients in these matters.

Far-Reaching Experience

Frank has experience advising diverse businesses on matters involving the Clean Air Act, Clean Water Act, Resource Conservation and Recovery Act (RCRA) and...