Supplemental Environmental Projects Have Been Eliminated, Local Communities To Feel The Pain

Tonkon Torp LLP

Tonkon Torp LLP

On March 12, 2020, the U.S. Department of Justice (DOJ) ended the long-standing policy of its Environment and Natural Resources Division to allow the use of supplemental environmental projects (SEPs) to offset monetary penalties assessed to private parties by the federal government, including the U.S. Environmental Protection Agency (EPA), for violations of environmental laws.

The reasons for this decision are set out in a memo by Jeffrey Bossert Clark, Assistant Attorney General (AAG) to the DOJ’s Environment and Natural Resources Division. Together with AAG Clark’s memo from August 21, 2019, which addressed the same issue vis-à-vis states and local governments, SEPs may now no longer be used by the federal government in consent decrees and judicial compromise settlements – no matter whether the party agreeing to implement the SEPs is a state or local government or private party.

An SEP is “an environmentally beneficial project or activity that is not required by law, but that a defendant agrees to undertake as part of the settlement of an enforcement action.” Monetary penalties due to the EPA can be offset by a certain percentage to fund an approved SEP, generally not to exceed 80 percent of the penalty.

This program has benefitted local communities and organizations for decades. Some consider SEPs a more beneficial use of funds than placing them in the U.S. Treasury because they are intended to address the environmental harm arising from underlying violations. Businesses often favor SEPs because it allows them to perform projects that improve their public image.

Some examples of SEPs provided by the EPA include a Maryland utility installing photovoltaic cells at two schools and a local environmental center; a New Jersey oil refinery installing electrical hookups to decrease pollution from truck idling; and a Colorado industrial gas compression company agreeing to purchase wind power from its servicing utility over a five-year period.

The DOJ’s about-face in its SEP policy is significant because most environmental enforcement actions are resolved through settlement agreements and consent decrees, and the EPA has been using SEPs since the 1980s. [Memo at page 6] However, according to AAG Clark, SEPs take money out of the U.S. Treasury and thereby violate the spirit, if not the letter, of the Miscellaneous Receipts Act, which is intended to protect Congress’ constitutional power of the purse, as well as the Antideficiency Act, which prohibits government officials from expending funds (or incurring financial obligations) in excess of appropriations. [Memo at page 11].

AAG Clark also analyzed the EPA’s SEP policy and rejected the bases on which the EPA supports SEPs, leaving the EPA little, if any, opportunity to modify its SEP policy to conform to the DOJ’s new policy. However, the memo was issued by AAG Clark only to the staff of the DOJ’s ENRD. Because the EPA regularly uses SEPs in administrative settlements that do not require the DOJ’s ENRD approval, it may consider those settlements not subject to the new DOJ directive, but that is yet to be determined.

The change in policy applies to current and future cases, but not to SEPs that are already being implemented, nor to settlement agreements or consent decrees already approved by the DOJ.

AAG Clark ended his memo by stating that he will next review the use of SEP-like devices in the criminal context.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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