So Long to SEPs
The Department of Justice’s Environment and Natural Resources Division (ENRD) will no longer allow Supplemental Environmental Projects (SEPs) to be used in its civil settlements. In a 19-page memo dated March 12, 2020, ENRD Assistant Attorney General Jeffrey Bossert Clark makes clear his views on SEPs, building on his previous memorandum dated August 21, 2019, which prohibited the use of SEPS in settlements with state and local governments. The new memo expands the scope of affected settlements, now prohibiting the use of SEPS in settlements with private parties, based on his argument that these popular projects violate the spirit, if not also the letter of the law, and “depart  from sound enforcement practices.”
While federal agency attorneys are familiar with the arcane Miscellaneous Receipts Act and the Anti-Deficiency Act, most others are not. Yet it is these two laws that AAG Clark uses to sound the death knell for federal SEPs in judicial consent decrees during this Administration. His memorandum argues that SEPs allow the executive branch to usurp the appropriation authority granted to Congress. The Miscellaneous Receipts Act requires that funds going to the federal government are deposited into the Treasury. Similarly, the Anti-Deficiency Act prohibits expenditures beyond those that Congress has authorized. Together, these laws ensure all agency funding is directed by Congress and not supplemented by other funds. AAG Clark believes that SEPs inappropriately reduce penalties that should in fact go to the Treasury and divert those funds to other activities in violation of these two statutes.
The Clark memo is intentionally broader in scope than the earlier one. In addition to prohibiting SEPs in consent decrees, AAG Clark analyzes EPA’s SEP policy and rejects the bases on which EPA supports SEPs. This leaves EPA no room to modify its policy to conform to DOJ guidelines. Given DOJ’s very definitive legal views, it is unlikely that EPA will be able to continue SEPs in administrative settlements.
SEPs have long been used to successfully resolve complicated and protracted litigation and have been supported by the government, NGOs, and the business community alike. They have resulted in significant environmental benefits, and for some SEP supporters, they are viewed as a more beneficial use of funds than placing them in the Treasury because they are intended to address the environmental harm arising from underlying violations. This Administration previously evaluated SEPs and found they were allowed. After former Attorney General Jeff Sessions prohibited settlement payments to third parties in a 2017 memo, then Acting ENRD AAG Jeffrey Wood concluded in part that the prohibition on payments to third parties “does not prohibit, as part of a settlement, a defendant from agreeing to undertake a supplemental environmental project related to the violation, so long as it is consistent with EPA’s Supplemental Environmental Projects (SEP) Policy, which already expressly prohibits all third-party payments.” The Clark memorandum represents a change in policy within ENRD.
The Clark memo contains one narrow exception for the use of SEPs in ENRD settlements. AAG Clark notes that Congress has authorized the EPA to use SEPs to encourage the retrofitting or replacement of diesel engines to reduce diesel emissions and are lawful. The memo makes clear, however, that he believes that even this congressionally authorized SEP may be used only in mobile source cases.
The memo is effective immediately. It allows already signed consent decrees to stand and does not require re-opening any settlements based on the inclusion of SEPs. However, the memo is clear that no additional consent decrees will be approved if they contain SEPs, no matter how close to completion they might be. AAG Clark concludes his memo by stating that his focus to date has been “exclusively on civil SEPs,” noting that he will next “review of the use of SEP-like devices in the criminal sphere,” so there is likely more to come.
Importantly, this internal DOJ memorandum does not apply to States, many of whom have developed their own independent SEP authorities. And, it does not address the previously common practice wherein federal consent decrees resolved state claims by including state SEPs, which the federal government need not approve.