Written by Gerald F. George, Davis Wright Tremaine LLP
On December 23, 2020, the federal government published its inflation-adjusted civil penalties for a variety of environmental statutes, including the Clean Air Act (CAA) and the Clean Water Act (CWA). Those $25,000 per day or per violation penalties in the original statutes have now reached substantially higher levels, mostly in the $50,000-$60,000 range, but CAA penalties could reach $100,000.
That is a predictable change. What is less predictable is how enforcement will play out in the coming year with a new administration. Will the annual inflation adjustment to civil penalties be accompanied by greater enforcement?
The Trump Administration ended the year the same way it started its term in 2017, by attempting to roll back the environmental regulations and policies applied previously. The near-term result for enforcement is unclear, in part, because virtually every change made by the Trump Administration has been challenged in court, with a uniquely low success rate for the federal government.
With many of those challenges still pending, one wonders how the Biden Administration will approach these cases. The more important question for the regulated community is the approach the Biden Administration will take toward enforcement in general. Even with the Trump changes, the incoming administration retains a lot of regulatory authority.
Two reactions seem obvious. One is resurrection of an unspoken principle for challenging regulation: be careful. You may win this case, but you will still have to deal with the regulator when the case is over. Taking a hard-nosed approach can backfire if it means the regulators will be hanging on you like a cheap suit for the next four years, or you need agency approval for an essential expansion.
More optimistically, we are almost certain to see a resurrection of Supplemental Environmental Projects (SEPs), environmentally beneficial projects implemented by a violator in connection with a settlement. SEPs have been used in EPA settlements since 1984 to create semi-win-win resolutions for alleged environmental violations.
A violator might pay a penalty, but would offset some, if not most, of that by funding an environmentally friendly project. The community and the environment would benefit from the project; the company might even pay more out of pocket, but will see its money used for something positive, not just dumped into the U.S. Treasury general fund.
While questions about the propriety of SEPs have been raised over the years, the issue had always been resolved in favor of authorizing settlement projects directly related to the violations—part of the remedy, not unappropriated “free money” for boat ramps at the local reservoir. The Trump Administration took a harder line, resulting in the EPA and Department of Justice (DOJ)’s ending the use of SEPs in settlements.
The issue of SEPs then arose in the courts in two contexts. In Michigan, the federal government settled a long-running CAA case with the violator for a civil penalty. The private plaintiff in the case settled separately with the defendant, committing to further steps to improve air quality and to implementation of an SEP. The federal government objected to the settlement, but lost last year in the district court in U.S. v. DTE Energy Co.
In an unrelated case arising in Massachusetts, an environmental group challenged the implementation of the DOJ policy. In Conservation Law Foundation v. William Barr, the federal government argued not that SEPs were barred, but whether or not the government’s acceptance of an SEP in a settlement was within its discretion.
Whether one agrees with the policy, the prosecutorial discretion position makes sense. It also means that a decision favorable to the federal government would not bar it from reverting to its prior policy authorizing SEPs.
SEPs are extremely useful in structuring settlements. A minor loss of income to the U.S. Treasury is more than offset by the environmental benefits to the public, and the parties focus their discussions on addressing environmental problems, not on trying to save a few dollars in penalties.
Further, SEPs are particularly attractive in suits involving public agencies, where cash-strapped facilities can at least put their limited funds to work on real environmental problems important to their constituencies. It is galling to see a municipality paying money into the U.S. Treasury for failure to implement treatment improvements it cannot afford, making the cost of future compliance even more unaffordable.
In any event, fights over the size of penalties are a crapshoot for everyone and may well end up costing more than they save. E.g., Citgo’s effort to defeat a major penalty demand in connection with a spill from its refinery in Louisiana ($8 million penalty at District Court reversed by a Court of Appeals, $81 million penalty imposed on remand).
The next four years of environmental enforcement litigation will be interesting to watch. But aside from the litigation over old and new regulations, I predict enforcement will look more like what existed pre Trump, if not more aggressive.
It would behoove the regulated community to be ready to return to use of the traditional tools for defense of claims involving strict liability statutes. Watch the bottom line of your business, and avoid a hostile relationship with your (we hope) friendly, but ever present regulator.
About the Author
Gerald George is a seasoned environmental attorney and litigator, with extensive experience in successfully resolving federal and state enforcement actions, natural resource damage actions, and citizen suits. Gerald also advises on regulatory matters involving air, water, waste, and environmental impact review laws. He has more than 40 years’ experience in civil lawsuits, including 30 years of handling major environmental litigation throughout the country.