Somewhat lost amidst all the (well deserved) COVID-19 pandemic news that comes out daily, is a decision by the Justice Department regarding the settlement of environmental enforcement cases that will likely have profound impacts. The current administration has decided to ban the use of Supplemental Environmental Projects (“SEPs”) as a tool for assisting in the resolution of enforcement cases brought by Federal agencies.
This is a monumental decision that will likely have significant and far reaching effects across the nation. First, even a cursory review of significant settlements reached by the EPA over the past 20 years demonstrates that the overwhelming majority involved some form of SEP in addition to the monetary penalty and injunctive relief. Second, because most States tend to follow EPA guidance on enforcement protocol and process, the decision will likely cause many States to similarly abandon the use of SEPs.
SEPs are generally used to assist the local community that was impacted or threatened by the alleged violations. Instead of the target paying a civil penalty to the general fund, where it is combined with all other revenues, the target could agree to lessen its penalty by agreeing to conduct some type of project that has a nexus to the local community and the type of violation involved. For example, a violation of air quality regulations could involve anything from paving local roads to replacing high polluting equipment with more environmentally friendly devices, or anything else the target might suggest as a means of improving the air quality in the affected community. The amount spent by the target is not directly offset against the penalty. In general, the agency typically required that the SEP cost 2 or 3 times as much as the penalty reduction.
Because no target was ever forced to conduct a SEP, companies were free to look to strictly the bottom line, and decide to spend less on a penalty than it would on the SEP. But because SEPs had tangible benefits to the local community, companies looking to make amends and demonstrate their commitment to regulatory compliance and the community would often times be willing to spend extra money to make sure that the money they spent was actually used locally and for environmental improvements, rather than being dumped into the general fund. Eliminating this benefit will now likely make settlements with the EPA more difficult and deprive the impacted communities of any recompense for the harm they suffered.
Further, the Justice Department has announced that it plans to seek an end to SEPs being used to help resolve citizen suits as well, although that will likely give rise to litigation, as citizen suit plaintiffs are often eager to have their targets take actions to help the local community.