Introduction
There are many aspects to working in the field of environmental law. Under the best of circumstances, your work may focus on keeping your clients in compliance with the law. Occasionally, however, a client will be unable or, in some circumstances, unwilling to do what is required to comply with the law and you will find yourself dealing with an enforcement action.
A client comes to your law firm with a case that, to the client, amounts to a life or death scenario. They have just received a proposed agreed order from the Texas Natural Resource Conservation Commission (TNRCC) regional office for alleged violations at the client's wastewater treatment facility. The agreed order lists a series of alleged violations, technical compliance requirements, and a total penalty amount of $100,000.
Where appropriate, your firm will diligently challenge the proposed order by researching even the most minuscule aspects of the law, preparing legal arguments, presenting evidence, negotiating penalty reductions, and if necessary, taking the case before an administrative judge to protect the interest of the client.
Of course, these activities cost money. So the ultimate hope on both sides is to negotiate an agreeable settlement of the issue. As part of the settlement process a firm can seek a reduction in penalties and attempt to structure technical requirements with which the client can live. Are you aware, however, of all the options that are available to your client in resolving the case? In this process, the client also has a unique opportunity to improve the environment through an option many facilities fail to consider. It is called a Supplemental Environmental Project (SEP).
Step 1: What is an SEP?
The SEP offers the respondent the chance to put penalty dollars to work for the environment by choosing to do an environmental project, in lieu of paying penalties. In this unique approach to enforcement a respondent, as a form of retribution, can use environmental penalty dollars to improve the environment in the community where the respondent caused actual, or potential, environmental harm.
Environmentally beneficial projects have been part of the TNRCC's creative settlement process since the early 1990's. It wasn't until 1993, however, that the Legislature passed a law that firmly established the TNRCC's authority to use supplemental environmental projects in the resolution of administrative enforcement actions.1 The SEP statute gave the TNRCC authority to divert penalty dollars from administrative enforcement actions into environmentally beneficial projects in the community where the violations occurred.
In 1994 the agency integrated SEPs into the enforcement process by the development, implementation and modification of the SEP Policy. The SEP policy, as modified in 1995, provides a framework within which a respondent is held monetarily responsible for environmental violations but permits the respondent to creatively apply the penalty to an affirmative improvement in the environment. The policy establishes when an SEP is appropriate, provides guidance for the development of SEP projects, defines how SEP's can be used to offset a penalty, and describes how the agency will assign value to projects proposed.2
Step 2: What are the Standards for an SEP?
A respondent must understand that SEP's are not necessarily appropriate in all cases, or for all respondents. Under the policy, an SEP is appropriate for respondents that have corrected, or have agreed to corrective action requirements for the violations which initiated the enforcement action and remediated any pollution caused by the violations. Another factor that the agency must consider is whether the respondent has a history of noncompliance with environmental laws and regulations. If a facility has a laundry list of environmental violations and enforcement actions or a history of non-compliance with agreed orders, the respondent is not a likely candidate for the SEP program. Of course, the respondent also needs to assess its ability to implement and complete the SEP project within a reasonable time frame.
In addition, a respondent needs to be aware that not every environmental project is a good supplemental environmental project. The statute and the policy both encourage the development of projects that prevent pollution, restore the environment, provide technical and educational assistance to regulated entities faced with economic or technological hardships, improve environmental conditions by funding public works projects for surrounding communities, or clean up illegal municipal and industrial solid waste dumps. There are a variety of projects that fit in that description but the value of these project are based on a number of factors that will be discussed later.
Anyone interested in doing an SEP must know that projects proposed should have an appropriate relationship to the violation. In an effort to make sure that the punishment fits the violation the TNRCC policy emphasizes a preference for SEP's that are in the same media as the violation. So, in the scenario given above, a water quality SEP would be appropriate for the accedence of wastewater discharge limitations. If, however, one of the violations in the agreed order is the improper storage of compressed chlorine gas, a violation under the Clean Air Act, an air project would be an appropriate SEP.
Step 2: What is the Value of the SEP?
One of the most important aspects of doing an SEP is evaluating the value of any environmental projects being considered by the respondent. The SEP policy establishes two standards for determining what effect an SEP will have on offsetting the penalty amount. First, the agency will have to determine the amount of the penalty that can be offset. Second, the respondent and the agency will have to negotiate on the value of any environmentally beneficial projects under the policy standards.
In the SEP process, it is necessary to first determine what percentage of the penalty may be offset by the TNRCC. The SEP policy limits the offset of a penalty to no more than 50 percent of the penalty amount, unless the project offers extraordinary environmental benefits. For a $100,000 penalty, your client may be able to divert $50,000 dollars into an environmental project. In recognition of the hardships that face many small and rural communities throughout the state, however, the policy provides an exception for governmental entities. A federal, state or local government which often suffers from lack of funding, anti-tax sentiments and unfunded mandates can invest the full penalty amount into environmental enhancements for the community. If your client is a town in North Central Texas, the SEP can provide an opportunity for that community to keep the $100,000 in environmental penalties at home and invest them in environmental projects that will improve the quality of life for its citizens.
The next determination requires an evaluation of the value of any SEP projects that are proposed by the respondent. The SEP policy requires a minimum payment of one dollar for every dollar of the penalty amount that is offset. So, at a minimum, a respondent must pay into an SEP an amount equal to the amount of the penalty offset under the policy. A project that directly benefits the environment can receive a one-to-one offset. A dollar of a penalty may be offset for every dollar spent by a respondent on a project that directly benefits the environment. A directly beneficial project is a project that results in a discernible improvement in the environment. It is typically measurable by the amount of pollution reduced, the quantity of the waste cleaned up or the acreage of habitat that is restored or protected as a result of the SEP.
If the project indirectly benefits the environment, or benefits the respondent, the agency will require a higher offset ratio. An indirectly beneficial project may be worth two dollars to each dollar of the penalty that is remitted by the agency. Projects that benefit the respondent may require a 3 to 1, 4 to 1 or higher expenditure. So, for a $100,000 penalty, a private company may find that they will have to spend $100,000 on an indirectly beneficial project in order to offset $50,000 of their $100,000 administrative penalty. If a project benefits the respondent, the agency will account for the economic benefit of the project by increasing the ratio.
Ultimately, the value of an SEP will be relative to the respondent and the facts of the case. As already stated, the media of the violation is a factor in determining what kind of SEP is appropriate and is an element of consideration in determining the value of the project. In a state as large as Texas, each area has a variety of unique ecosystems, community needs and environmental problems. An environmental enhancement project in Beaumont, Texas will, in most cases, be valued differently in El Paso or Amarillo. Each community has priorities based on their environmental needs, the assets available in their community and the challenges posed by their very different ecosystems. These factors are all taken into consideration.
Step 3: What is the future for SEPs?
In the past, SEP's have been credited to large organizations like Dow Chemical, Elf Atochem and Union Pacific. A recent highlight of the SEP program is the effort of the TNRCC to ensure the program's accessibility to respondents with small penalties, as well as those with large penalty amounts. Through third party agreements, the agency can permit a donation by a TNRCC respondent to a high quality environmental project being done by another party.
The TNRCC currently has agreements in place with a number of parties that offer a variety of parties that have the expertise, unique skills or special supports necessary for the successful implementation of high-quality environmental projects.3 This allows small businesses and governmental organizations, which do not have the economic fortitude, or the expertise, to develop, negotiate, and manage their own SEP, to have the same access to the SEP program as larger organizations. The number of respondents participating in the SEP program have grown steadily.4 The number of SEPs done by respondents is sure to grow with the agency's current efforts to make the program more accessible to all respondents.
Conclusion
Over the last eight years, the program has provided businesses, industries and governmental organizations who have violated environmental laws with the opportunity to contribute to the improvement of the environment in their communities. SEP projects have included the development of recycling projects, the clean-up of illegal dump sites, contributions to the remediation of wetlands, and the upgrade of on-site septic systems. As a result of these projects respondents have reduced the exposure of Texans to hazardous pollutants, restored Texas watersheds, reduced the amount of waste disposed of in Texas landfills, and improved the quality of life for communities throughout the state by improving and protecting the Texas environment.
The SEP program provides violators with a positive means of benefitting the environment of the community they have impacted by their violation and diverts penalty dollars into projects that go into resolving environmental problems that plague Texas communities, preserve the State's limited natural resources, and improve the overall quality of the Texas environment. By choosing to invest penalty dollars in environmentally beneficial projects in Texas, respondents can step up to the plate and participate in improving the Texas environment, one project at a time.
1 Tex. Water Code 7.067
2 Memorandum by the Executive Director, Use of Supplemental Environmental Projects, October 26, 1995.
3 Examples of third party agreements include: the Nature Conservancy Agreement, Agreement between the TNRCC, Orange County and the Rural Development Office, Agreement between the TNRCC, Harris County and the Texas Department of Criminal Justice and the Scenic Galveston Agreement.
4
Fiscal SEP Total Ave.
Year Cost Cases Ratio
1998 $1,044,049 41 1.49:1
1997 $1,918,332 36 1.27:1
1996 $4,280,025 11 3.55:1
1995 $Ê574,666 Ê5 2.97:1