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Same Tune, New Steps: Dancing Through U.S. EPA’s Update to its Policy on Supplemental Environmental Projects

Settling federal environmental enforcement actions is one of the most important environmental legal challenges faced by regulated entities, be they multi-national corporations, small family businesses, public institutions, individuals, or municipalities. Regulated entities seeking amicable and optimal settlements with the U.S. Environmental Protection Agency (EPA) and Department of Justice (DOJ) must navigate complex substantive and procedural issues, negotiate stipulated penalties, monetary penalties, response costs and damages, and injunctive relief, and always account for financial assurance, insurance, monitoring, potential third-party claims, and other requirements that structure the parties' post-settlement relationship. In short, the dance steps are multifarious and multifaceted - and your dance partner may not always appear to be the most coordinated or cooperative.

That said, one particular corner of federal environmental enforcement policy provides an opportunity to generate 'win-win' components of a settlement and create real environmental value for affected communities - Supplemental Environmental Projects (SEPs).

As explained by the EPA, a SEP “is an environmentally beneficial project or activity that is not required by law, but that a defendant agrees to undertake as part of the settlement of an enforcement action.” As part of resolving either administrative or judicial enforcement actions, a defendant may perform a SEP to offset a portion of the monetary penalty imposed, and, in doing so, can redirect penalty funds from general federal coffers to confer real environmental benefit to the affected community and improve relations with regulators and the public.

SEPs have long been available in federal environmental enforcement settlements, however, EPA guidance and policies applicable to SEPs have historically been scattered throughout a number of interrelated (and not always seamlessly interlocking) documents issued by various offices over the past two decades. The underlying policies have been characterized by various connected and complicated analyses, distinct lines of DOJ and EPA approvals (both at the Region and Headquarters and from various program offices), different sets of required and precluded project characteristics, and tangential legal restrictions derived from both environmental and fiscal federal laws and regulations. With an already complicated policy further obfuscated by its embodiment in scattered Agency sources, SEPs are likely under-utilized.

This dispersion and diversion of Agency instruction on SEPs has, thankfully, come to an end.

On March 10, EPA's Office of Enforcement and Compliance Assurance (OECA) issued a memorandum entitled "2015 Update to the 1998 U.S. Environmental Protection Agency Supplemental Environmental Projects Policy," (the "SEP Policy Update"). Lest there be any confusion, the SEP Policy Update does not fundamentally change the approval analyses or substantive requirements for acceptable SEPs. Nor does it change in any dramatic way the underlying dynamics that will render a SEP workable and desirable in a given settlement context.

The SEP Policy Update is framed as "[c]onsolidating the wealth of existing SEP guidance," and in that capacity alone it is of great value. The consolidation and organization of SEP policy and guidance documents is especially helpful on this issue because the possible use of SEPs in any given settlement is frequently only raised during more advanced stages of negotiation, and often in relation to specific monetary penalty proposals that EPA and DOJ choose to provide once other terms are negotiated. As such, delays or debates over how Agency policy should apply to potential SEP proposals can derail agreements or cause parties to abandon potentially fruitful, if administratively complicated, SEPs.

The SEP Policy Update goes further than simply collating existing documents; rather, it improves and explains Agency policy on SEPs in several important respects:

  • For the first time, the SEP Policy Update specifically instructs EPA case teams to suggest SEP ideas to defendants and encourages more proactivity among EPA and OJ attorneys in channeling community input on possible SEPs.

  • The SEP Policy Update expressly identifies USEPA priority areas that should be targeted for favorable SEP treatment by the Agency, including children’s health, Environmental Justice, pollution prevention, innovative technology, and climate change.

  • There are robust and detailed (if somewhat overlapping) provisions related to SEP “implementers” and “recipients” – third parties that may, under certain circumstances, be involved in carrying out the SEP. As before, the settling party must always remain ultimately liable for SEP performance since the SEP will reduce the monetary payment that must be paid.

  • More detailed respondent certifications relating to information provided about the SEP to evaluate its appropriateness and worth under the SEP Policy are explained and required in settlement documentation.

  • The SEP Policy Update offers a nuanced menu of SEP stipulated penalty provisions and model settlement provisions that may be used to require a SEP in lieu of a monetary stipulated penalty as to compliance with other settlement agreement provisions in limited circumstances.

  • The SEP Policy Update walks through issues arising from SEPs performed in multi-defendant cases and the implementation of interlocking SEPs required under separate settlements with distinct defendants.

  • The SEP Policy Update retains and explains specific SEP policies applicable to particular types of cases, such as Clean Water Act settlements with municipal entities.

The SEP Policy Update is an important, if under-appreciated, achievement by EPA. Simply consolidating and tightening the diffuse and cumbersome universe of all relevant Agency policies related to SEPs is a boon to both regulator and regulated - it provides an authoritative source to guide SEP negotiations and hopefully expedite and encourage the use of this beneficial and dynamic enforcement settlement tool. Better still, the SEP Policy Update clarifies and hones the Agency's policies in several important ways that should render SEPs more targeted, impactful, accessible, and useful than ever before.

© 2019 BARNES & THORNBURG LLP

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Charles Denton Environmental Attorney
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Charlie Denton represents an array of clients in environmental and toxic tort litigation, enforcement defense, regulatory compliance solutions and pollution insurance coverage disputes. He also serves as an alternative dispute resolution (ADR) neutral mediator and arbitrator. Persistent and highly collaborative, Charlie can take complicated issues and challenges and then identify a strategic path to achieve the client’s objectives.

Charlie’s representation of industrial, municipal, institutional, educational and individual clients includes judicial and administrative environmental...

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E. Sean Griggs, Barnes Thornburg Law Firm, Indianapolis, Litigation Lawyer,
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E. Sean Griggs is a partner in Barnes & Thornburg LLP’s Indianapolis, Indiana office and a member of the Environmental Department, which was recently recognized as Tier 1 for national environmental litigation in the annual "Best Law Firms" ranking by U.S. News and Best Lawyers. He also concentrates his practice on litigation matters.

Mr. Griggs represents clients’ interests in legal actions concerning environmental matters brought by private parties and government agencies. He practices before administrative agencies, in state and federal trial courts, and in appellate tribunals. Mr. Griggs' litigation practice includes defense and prosecution of cases arising under federal and state environmental statutes, toxic tort cases, CERCLA and UST disputes, civil penalty proceedings, appellate practice, and FIFRA arbitration proceedings. He is listed in The Best Lawyers in America® in the area of Environmental Law and recognized as an Indiana Super Lawyer®.

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Jeffrey Longsworth, Barnes Thornburg Law Frim, Washington DC, Environmental Law Attorney
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Jeffrey S. Longsworth is a partner in the Washington, D.C. office of Barnes & Thornburg LLP and the D.C. administrator of the Environmental Department, which was recently recognized as Tier 1 for national environmental litigation in the annual "Best Law Firms" ranking by U.S. News and Best Lawyers. He is involved in counseling and litigating issues that arise under federal environmental laws and regulations, with an emphasis on Clean Water Act matters, especially issues involving permitting, stormwater, effluent limitations guidelines, enforcement, inspections and spill...

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Bruce White litigation attorney Barnes Thornburg
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With a practice that is national in scope, Bruce White has more than 35 years of experience in the litigation, arbitration and mediation of environmental disputes and administrative permitting and enforcement proceedings. Regardless of the difficulty or complexity of the matter, Bruce is dedicated to being client-focused and solving problems as efficiently and cost-effectively as possible.

Bruce represents industrial and commercial businesses and governmental entities in Superfund, RCRA/HSWA, TSCA, CWA, CAA and NEPA matters. He also advises on compliance with federal and state...

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