On Friday, the U.S. Department of the Interior (DOI) announced proposed changes to certain methods used to assess natural resource damages for hazardous substance releases under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) and the Clean Water Act. DOI’s current natural resource damage assessment (NRDA) regulation (43 CFR Part 11) offers two approaches, a simplified model-based Type A method for a limited set of environments and a more comprehensive, complex Type B approach applicable at all sites. The Type A approach is the subject of DOI’s proposed rulemaking, which modifies the Type A with the goal of making it more flexible and useful.
Why Two Types of Approaches?
The Type A assessment, used primarily for marine and coastal environments, relies on a computer model to estimate injury to natural resources and assign monetary damages based on limited data about the location and type of hazardous material released. In contrast, the Type B approach specifies a broad framework for choosing among several methodologies for quantifying natural resource injuries and determining restoration using site-specific data. While the current Type A offers a highly streamlined approach, it is rarely used due to its restrictive scope, which limits its applicability to relatively low-impact, single-substance spills affecting specific aquatic environments (coastal and marine environments and the Great Lakes) with expected damages of $100,000 or less.
The Type B procedure outlined in the NRDA regulations has broader applicability and often requires intensive field data collection, analysis, and interpretation. Type B assessments can be more prescriptive, especially when trustees wish to maintain rebuttable presumption (if they fully comply with the Type B procedures), and have often proven to be lengthy, expensive, and contentious.
Why the Update?
The Type A rule was promulgated in 1997. As explained in Friday’s Federal Register notice, DOI views the existing rule as inefficient and inflexible; therefore, it seeks to replace the current Type A models with a more flexible and adaptable rule that more closely resembles the current Type B process. According to DOI, the agency’s intent is to “reformulate the Type A Rule as a procedural structure for negotiated settlements by utilizing tools tailored to incidents of smaller scale and scope.” The new rule looks to formalize beneficial practices that have evolved since the Type A Rule was promulgated in 1997 by incorporating “well-established methodologies such as HEA [habitat equivalency analysis], REA [resource equivalency analysis], and other relatively simple models to assess natural resource injury in smaller incidents that do not necessarily warrant the more prescriptive Type B procedures.” DOI asserts this construct “aligns better with the original statutory purpose of providing a streamlined and simplified assessment process as a companion to the more complex Type B Rule.”
Administrative Updates
The proposed revisions detail the criteria under which trustees may use the new Type A procedures. These include:
- Requirements to invite involvement by potentially responsible parties (PRPs) and co-trustees,
- Reporting requirements for documents and content,
- Standards for establishing an administrative record, and
- Procedures for public comment.
The proposed Type A procedures may be used for claims expected to be less than $3 million (not including reasonable assessment costs). This ceiling increases to $5 million for claims stemming from hazardous materials release over a relatively short time (e.g., discrete spill event) involving one or only a few Potentially Responsible Parties (PRPs). At least one PRP must agree to use Type A, and appropriate tolling agreements must be in place for at least 1 year to temporarily suspend the statute of limitations.
Under the proposed rule, PRPs would retain the ability to reject a trustee’s use of Type A. Both Type A and Type B procedures could be used for the same release, provided costs associated with the Type B procedure are reasonable (i.e., the increased accuracy outweighs the increased cost) and measures are in place to prevent double recovery. After the Type A assessment is completed and the trustee report is finalized, trustees may enter into settlement agreements with PRPs. As in the current rule, recovered damages are used by the trustee to fund restoration, or PRPs can implement restoration themselves.
Technical Review
Beyond the administrative requirements summarized above, the proposed rule offers significantly less detail on specific technical approaches. The proposed rule briefly references “average data,” “existing models,” a “procedural structure,” and citations to methodologies commonly used in Type B assessments, such as HEA, REA, and economic methods like benefits transfer. The proposed language hints at the applicability of Type A to technical aspects of NRDA, such as assessing injuries to habitats and ecological productivity, lethal and sublethal injuries to individual organisms within discrete species or guilds, and impairments to human or cultural use and enjoyment of natural resources. Practitioners may recognize an alignment with the previously mentioned injury quantification and scaling methodologies like HEA, REA, and benefits transfer.
For trustees, reduced data collection, greater reliance on assumptions, and increased procedural flexibility likely translate to reduced trustee level of effort per case. If so, trustees may be able to pursue more claims, particularly small ones. Moreover, to the extent the proposed approach adds a common structure to the simplification process, there will be fewer technical issues to be negotiated with responsible parties.
Yet it is unclear in the description of the proposed rule just how structured the new process is intended to be. Because the Type B regulations do not have to be followed by the trustees (unless they wish to maintain rebuttable presumption during litigation), there is leeway under the existing rule to employ simplified approaches. Moreover, since the Type B procedures were last updated in 2008, HEA and REA are already accepted methodologies under Type B procedures. These methods are not exclusive to simplified assessments. In fact, they are commonly used for assessments spanning a wide range of complexity under a broad Type B umbrella.
Is There a There There?
Given the closer alignment of methods, Type A and Type B procedures may now differ less in terms of their available tools and more in terms of how those tools are applied or, more likely, the nature of data used with those tools. The new Type A might offer a flexible alternative to Type B in cases where trustees and PRPs agree that the application of simplifying assumptions and averaged data can be suitably used with compatible injury quantification and restoration scaling methods previously available only in Type B assessments. This apparent hybridization of the two approaches has potential to functionally transform the Type A approach from its former black-box model to a process that more closely resembles a “light” version of a full Type B assessment. However, absent a more detailed and structured restoration-based Type A procedure, it is not clear how the proposed changes will alter current practices for settling cases short of litigation, which commonly are tailored to the case at hand.
DOI appears to assume that the proposed rule’s focus on restoration of natural resources instead of monetary damages will lead to expedited assessment. That said, under the existing Type B process, the magnitude of NRDs and the economic value of public losses logically can be (and often is) equated to the cost of restoration. Depending on how the new Type A approach is implemented, there may or may not be much changed in current practice.
Implications for Trustees and PRPs
As with any proposed rulemaking, the new approach brings advantages and disadvantages to the parties affected. Much will depend on how the new approach is implemented in practice.
DOI’s goal in the proposed rulemaking is create an opportunity for a NRDA process that is faster, easier, less contentious. and less prone to litigation than current practices. If the agency is correct, the outcome of the proposed rule may be more cost-effective in how it identifies restoration for a broader range of simple, straightforward cases. This would be good for all concerned, as the need for a high degree of (expensive) accuracy falls if the expected damages are low.
Implications of the proposed rulemaking for the PRP community are a mixed bag. Expedited settlement and reduced transaction costs under the new Type A benefit trustees and PRPs alike. However, experience has shown that in the absence of field data and site-specific analyses, trustees are more likely to employ conservative assumptions to minimize the risk of under-compensating the public. Is it better public policy to get quickly to an inaccurate damage estimate in a large number of small cases?
While PRPs may find comfort in capping potential damages at $3 million to $5 million for smaller cases depending on circumstances, the potential catch is that those thresholds are based on a priori trustee estimates of damages (excluding assessment costs) and are not binding statutory limits as was the case with the previous Type A ceiling of $100,000. Moreover, it is unclear how the caps function in cases where both Type A and Type B procedures are used, and whether the caps apply to each resource evaluated using the Type A approach individually or to all resources falling under the Type A approach in aggregate.
Differences between the original Type A and Type B procedures were stark, pitting a black-box computer model against a technically rigorous, data-intensive, site-specific process with varying degrees of flexibility. The applicability of the former Type A rule was quite limited—as were the stakes when the ceiling was set at $100,000. The proposed changes to the Type A approach stand in less contrast to the existing Type B procedure, which for now will remain unchanged. While the practical, technical applications of the proposed changes are unclear, the stakes are considerably higher at $3 million to $5 million in expected damages. Despite potential pitfalls, DOI’s proposed revisions to the Type A approach appear to provide an avenue for trustees and willing PRPs to pursue settlement where damages are calculated using a less data-intensive and rigorous implementation of the existing Type B procedures.
DOI is accepting comments on the proposed rule until March 5, 2024. Regardless of how the new Type A Rule is implemented, Integral’s multidisciplinary NRDA team of ecologists, toxicologists, economists, engineers, and other subject matter experts stands ready to help navigate the dynamic NRDA landscape.
