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Environment & Energy Report

Justice Department Ponders Nixing Environmental Settlements Tool

Oct. 30, 2019, 10:00 AM

The Justice Department may end a nearly 30-year practice of letting companies make amends for pollution-related violations by performing environmentally beneficial projects, a department official told Bloomberg Environment.

Stopping the use of supplemental environmental projects (SEPs) would go against the wishes of many in the business community, because the projects offer a way to lower the amount of fines while serving as positive public relations for a company.

SEPs have traditionally been used to let businesses and individuals volunteer to do environmentally beneficial projects in exchange for lower fines for transgressions. The Trump administration has already set new restrictions on the use of SEPs in cases involving state or local governments, and is now weighing whether to restrict their use even further.

One prominent example of a project came in December 2018, when an Arkansas-based chemical facility owned by Georgia-Pacific Chemicals LLC agreed to spend $1.8 million on three SEPs to resolve air pollution violations. Under the settlement, the company was required to build a pulp mill collection tank and oxygen injection system, as well as conduct fence-line monitoring for hydrogen sulfide.

Internal Analysis

An internal Justice Department analysis of the policy is now underway, said the Justice official, who spoke on condition of anonymity to discuss the department’s thinking. No decisions have been made yet, the official added. “We can’t prejudge what the outcome will be until it happens.”

But possible outcomes could range from a ban on SEPs for all defendants, including private businesses, to a limit on how much fines could be reduced through their use, said Francis X. Lyons, a former Justice environmental enforcement attorney in the Clinton administration and now an attorney with Schiff Hardin LLP.

The number of SEPs the federal government issues has gradually been falling in recent years. From 2010 to 2015, Justice agreed to an average of 14.2 SEPs per year, but since then the yearly average has fallen to 9.3.

Fines to U.S. Treasury

Some former federal officials said they see clear signs that SEPs are on their way out.

One clue came in August, when Jeffrey Bossert Clark, assistant attorney general of Justice’s Environment and Natural Resources Division, issued a memo prohibiting SEPs in settlements involving state and local governments. Instead, defendants should pay customary fines, in full, to the U.S. Treasury, Clark wrote.

In that memo, Clark wrote that Congress hasn’t explicitly authorized SEPs. He also said the division believes SEPs raise constitutional issues concerning the power of the purse.

Proponents of SEPs “should have Congress provide for it explicitly, just like there are some situations where Congress has provided for it specifically,” the official said.

‘Truly Bad Actors’

SEPs are already getting closer scrutiny by top officials at the Justice environment division, lengthening the timeline for resolving cases, said David T. Buente Jr., Justice’s former head of environmental enforcement during the Ronald Reagan and George H.W. Bush administrations.

Erik Baptist, a former EPA deputy assistant administrator in the Office of Chemical Safety and Pollution Prevention during the Trump administration, said Clark “wants to focus on the truly bad actors. He wants to look at the people who actually pollute, not just the ones who fail to check the right form.”

The Business Roundtable, American Petroleum Institute, American Chemistry Council, U.S. Chamber of Commerce, and National Mining Association declined to comment on their views of SEPs.

‘Make Amends for the Harm’

Buente, now an attorney with Sidley Austin LLP, said SEPs are popular among his industry clients who are defending against enforcement actions.

“Every client seems to want to do it to reduce the cash amount of the penalty,” he said.

In some cases, SEPs can be used to boost an industry’s environmental performance. Obama-era EPA enforcement chief Cynthia Giles pointed to a 2015 court-approved settlement involving Clean Air Act violations by Noble Energy Inc., which agreed to conduct a $1 million study of emissions of air pollutants from storage tanks.

“What that allowed to happen was all the other players in the oil and gas industry would get the benefit of the research and analysis and money that the company devoted to figuring this out, so that other companies could fix these problems at their own facilities,” said Giles, now a guest fellow at Harvard Law School’s Environmental & Energy Law Program.

“They’re a way for the violating city or company to take action to attempt to make amends for the harm they caused their community,” Giles said.

‘Promote Public Participation’

Nevertheless, a clampdown on SEPs is consistent with Republican claims to be “the law and order party,” said Baptist, now a partner with Wiley Rein LLP.

“They believe if you do the crime, you should do the time,” he said. “If you have to pay a penalty, you should pay the penalty.”

Beveridge & Diamond attorney John Cruden, former head of Justice’s environment division during the Obama administration, declined to speculate on any potential policy changes at the department. But he said SEPs help enforcement officials reach settlements with parties and promote environmental stewardship and environmental justice.

“The SEPs promote public participation and involvement, as they are usually local in nature,” he said.

To contact the reporters on this story: Stephen Lee in Washington at stephenlee@bloombergenvironment.com; Ellen M. Gilmer in Washington at egilmer@bloombergenvironment.com

To contact the editors responsible for this story: Gregory Henderson at ghenderson@bloombergenvironment.com; Chuck McCutcheon at cmccutcheon@bloombergenvironment.com