Wednesday, March 18, 2015

DTSC Invites Public Comments on Proposed Supplemental Environmental Projects Policy

This month, the California Department of Toxic Substances Control (“DTSC”) issued a Public Notice proposing a Supplemental Environmental Projects (“SEP”) Policy (“Policy”). DTSC is seeking public comment on the Policy through April 16, 2015. The final Policy will provide an option to perform a SEP in exchange for a reduction in the cash penalty paid to DTSC in response to environmental enforcement actions and, therefore, will be relevant to any party negotiating a settlement with DTSC in the future.

The Policy proposes an official framework for the incorporation of SEPs into administrative and civil settlements with DTSC. The Policy’s proposed SEP definition is virtually identical to the SEP definition contained within the U.S. EPA’s Supplemental Environmental Projects Policy issued in 1998 (“EPA Policy”), which is referenced by DTSC as one of several foundational documents supporting the development of the Policy. The DTSC Policy, however, departs from the EPA Policy in several key respects, including the maximum penalty deduction credited to a defendant for agreeing to implement a SEP (as described in greater detail below).

The Policy provides the following definitions and associated key terms:
  • A “Supplemental Environmental Project” means an environmentally beneficial project that a defendant/respondent agrees to undertake or fund in settlement of an enforcement action, which the defendant/respondent is not otherwise legally required to perform. . . .
  • Environmentally beneficial” means a SEP must improve, protect, or reduce risks to public health or the environment at large. While in some cases a SEP may provide an alleged defendant/respondent with certain benefits, there must be no doubt that the project primarily benefits public health and/or the environment.
  • In settlement of an enforcement action” means: (1) DTSC has the opportunity to shape the scope of the project before it is implemented; and (2) the project is not commenced until after DTSC has identified a violation(s), e.g., issued a notice of violation, administrative order, or complaint. Expenditures for a SEP may, in effect, be substituted in part for a penalty as part of a settlement.
  • Not otherwise legally required to perform” means the SEP is not required by any federal, state, or local law or regulation or previous administrative or judicial order.
In the Policy, DTSC proposes guidance on the prioritization and categorization of SEPs:
  • Environmental justice is listed as a priority under the Policy. DTSC will prioritize the use of SEPs that benefit a community in which potential or actual harm from the alleged violations may have occurred. A community identified within the top 25% highest scoring census tracts of the most current version of CalEnviroScreen will receive the highest priority for SEPs.
  • Categories of acceptable SEPs include those relating to Public Health, Pollution Prevention, Pollution or Hazardous Waste Reduction, Environmental Restoration and Protection, Assessment and Audits, Environmental Compliance Promotion, Enforcement Enhancement, and Emergency Planning and Preparedness. Seven of these eight categories are identical to those contained within the federal EPA Policy; the sole departure is the inclusion of the “Enforcement Enhancement” category which DTSC defines as a SEP providing for the training of enforcement and compliance staff or paying for government acquisition of surveillance equipment. Under the Policy, DTSC will also consider SEPs that do not fit into the listed categories, provided they are consistent with all other provisions of the Policy.
  • Examples of unacceptable SEPs provided by DTSC include general educational or public environmental awareness projects that lack a nexus to the community or environmental impacts identified through the enforcement action, and projects which, though beneficial to a community, are unrelated to environmental protection.
Provided that a proposed SEP is approved by DTSC in conjunction with a settlement, the Policy states that DTSC will allow a reduction of up to 25% of the monetary settlement that would otherwise be paid as a penalty (exclusive of any enforcement costs recovered by DTSC). In contrast, the existing EPA Policy permits a potentially greater credit for the performance of a SEP, as long as a defendant satisfies the minimum penalty requirement (the minimum penalty under the EPA Policy must be the greater of (i) the economic benefit of noncompliance plus 10% of the gravity calculation, or (ii) 25% of the gravity calculation). To illustrate, if the initial penalty for settlement of an alleged violation is $100,000, but the settling party wished to achieve the maximum deduction available via performance of a SEP:
  • Under DTSC’s Policy, an acceptable SEP could provide a credit of up $25,000. In other words, a defendant could perform a SEP valued at up to $25,000 and pay a penalty to DTSC of $75,000. Thus, the total cost to the defendant for the SEP and the penalty would be $100,000.
  • Under the EPA Policy a greater SEP credit would likely be available, but the calculation is more complex and depends upon the relative economic benefit and gravity components of the assessed penalty and an evaluation of what percent of the SEP cost EPA will allow to be credited to a settling party. Assuming that the penalty consisted of a $25,000 economic benefit component and a $75,000 gravity component, the “minimum penalty” that must be paid to EPA would be $32,500. Thus, performance of a SEP could provide a credit offsetting the penalty paid to EPA in an amount up to $67,500 ($100,000 minus $32,500). Under the EPA Policy, however, EPA does not provide dollar-for-dollar credit for the cost of a SEP and instead allows a credit for a maximum of 80% of the cost of a SEP. As a result, the actual penalty paid to EPA would have to be in excess of $32,500 under this example (if, e.g., the settling party spent only $67,500 on the SEP), or the cost of the SEP would have to be in excess of $67,500 to provide the maximum available reduction in the penalty as a result of the performance of a SEP.
In the Policy, DTSC provides guidance on how SEPs must be implemented following approval of a settlement:
  • SEPs may be performed in three different ways: (1) directly by the defendant; (2) by a payment made by the defendant directly to CalEPA’s 14300 Environmental Enforcement and Training Account Program or CalEPA’s Environmental Justice Small Grant Program; and/or (3) by a third party using funds provided by the defendant/respondent.  Under the third option, DTSC may approve a non-governmental organization or nonprofit to oversee the completion of the SEP provided that, among other things, administrative expenses do not exceed 10% of the cost of the SEP.
  • The Policy provides that orders or judgments authorizing a SEP must require periodic reporting to DTSC, include a schedule for project implementation, contain or reference performance standards, and provide for payment of DTSC oversight costs.
  • The Policy contains a number of provisions relating to project payment, tracking, reporting and oversight. The provisions require submission of a SEP completion report to DTSC declaring the completion of the SEP and addressing how the expected outcome or performance standards of the project were met.
DTSC has invited the public to submit comments on the draft Policy through April 16, 2015. To encourage public participation, DTSC will be hosting a series of public workshops on March 18, 19, and 26 at locations throughout California.

--Tom Boer and Sherry Jackman

For more information, contact Tom Boer at (415) 228-5413 or jtb@bcltlaw.com, or Sherry Jackman at (415) 228-5412 or sej@bcltlaw.com.

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