CERCLA Financial Assurance Update: Section 108(b) Remains Stalled, But New EPA Guidance for Settlement Agreements and UAOs

Posted on August 7, 2015 by Charles Efflandt

Earlier this year, I posted in this blog a discussion of EPA’s 35 year – and still unfinished – journey toward full implementation of the financial assurance (“FA”) mandate of CERCLA Section 108(b). Section 108(b) obligates EPA to identify “classes of facilities” that will be required to demonstrate financial ability to respond to future releases of hazardous substances and to promulgate rules establishing those FA requirements. Inexplicably, Section 108(b) remained dormant for 28 years. Litigation initiated by NGOs in 2009 and 2010 prompted the agency to identify the hardrock mining and several other industries as priority targets for regulation. The task of developing the FA requirements for those industries, however, remained a work-in-progress.

Ever vigilant, environmental advocacy groups filed a Petition for Writ of Mandamus in August 2014 taking EPA to task for its delays and inaction. The theme of the litigation is that (1) Section 108(b) is a critical component of CERCLA’s overall scheme, (2) EPA’s failure to issue FA rules has resulted in cleanup delays, funding shortfalls and increased public health risks, and (3) EPA’s inaction cannot be justified by competing priorities within the agency. In May of this year, the D.C. Circuit Court of Appeals issued an order requiring EPA to expedite implementation of Section 108(b) to the greatest extent possible, update its rulemaking schedule for the identified industries, and disclose to the litigants the regulatory “framework” for the hardrock mining industry, which EPA acknowledged had been completed. EPA’s website suggests that it will publish the hardrock mining rule in August 2016.

In short—the more things change, the more they stay the same. Perhaps the low priority assigned to this CERCLA provision suggests that the cleanup response track-record of even the priority industries may not justify a need to regulate under Section 108(b) - a process that will involve complex issues with significant financial consequences. Nevertheless, Section 108(b) remains the law of the land. Congress must either follow-through with its periodic efforts to amend Section 108(b) or EPA must finish this long journey. No benefit inures to the public, affected industries or the agency from the existing uncertainties and delays.

EPA’s foot-dragging in implementing Section 108(b) is in contrast with its recent action emphasizing FA as an enforcement priority in CERCLA settlement agreements and UAOs. The agency’s April 2015 Guidance to Regional Counsel is touted as the first comprehensive document issued by EPA to assist with the development of FA requirements and provide transparency in the use of its Superfund authority. Space limitations do not permit a detailed review of this 22 page guidance, which includes modified model FA language and sample documents. Some take-aways from a first read of the guidance:

  • The Guidance does not address future Section 108(b) requirements.
  • It is suggested that the EPA Regions have flexibility to include or exclude certain FA mechanisms at specific sites, BUT headquarters consultation and approval is often necessary.
  • The financial test and corporate guaranty mechanisms are perceived by EPA as having a higher risk of not achieving FA objectives and imposing increased administrative burdens on the Agency; therefore, it is suggested that those mechanisms should be used with caution.
  • The Guidance recognizes the complications arising at sites involving numerous, dissimilar PRPs, with a preference for requiring jointly-funded versus separate FA mechanisms.
  • The Guidance emphasizes the need for agency diligence in the ongoing evaluation of site conditions and costs, with increases in the initial FA amount to be required as appropriate.
  • Practical considerations for evaluating the financial test and guaranty FA options are addressed in an appendix.

Notwithstanding suggestions of flexibility in the use of FA tools on a site-by-site basis, this comprehensive new guidance does not appear to include much good news for the settling PRP. In fact, EPA’s stated concerns on the use of the financial test, corporate guaranty and insurance policy FA mechanisms could further complicate an already contentious issue in CERCLA settlement negotiations. What impact the guidance may have on FA negotiations as new sites arise, of course, remains to be seen.

CERCLA Financial Responsibility- The Continuing Efforts to Breathe Life into Section 108(b)

Posted on September 23, 2014 by Charles Efflandt

Financial responsibility is a familiar environmental law concept. Many of us have negotiated financial assurance provisions in site consent agreements. RCRA’s closure and post-closure financial responsibility requirements at treatment, storage and disposal (TSD) facilities are well-established. Financial responsibility obligations are also a component of many other federal and state environmental programs.

I suspect, however, that few practitioners are aware of a CERCLA financial responsibility provision that has been in existence since the Act’s inception. CERCLA Section 108(b) mandates that the President identify classes of facilities that will be required to demonstrate a financial ability to cleanup releases of hazardous substances.  These facilities will be obligated to provide evidence of financial responsibility that is consistent with the degree and duration of the risks associated with their production, handling, treatment, storage and disposal of hazardous substances. The requirements of Section 108(b) are intended to assure availability of funds should the businesses go bankrupt or otherwise become financially unable to conduct future environmental response actions.

Section 108(b) generally imposes two regulatory tasks on EPA: Identify the classes of facilities for which financial responsibility requirements will be developed and promulgate regulations establishing those requirements. For twenty-eight years, EPA deferred breathing regulatory life into Section 108(b). EPA’s inattention to Section 108(b) ceased to be an option in 2008. Litigation commenced by the Sierra Club and others resulted in a federal court order requiring EPA to identify industries that would be first in line for Section 108(b) rulemaking. EPA determined in 2009 that the hard rock mining industry would be its first priority. In early 2010, EPA published advance notice of its intent to regulate additional classes of Section 108(b) facilities: chemical manufacturing, petroleum and coal products manufacturing and the electric power generation, transmission and distribution industry.

Although deadlines have come and gone, to date no financial responsibility rules have been proposed. Nevertheless, the lifeless form of Section 108(b) has finally begun to stir. EPA advised Senate lawmakers in June of this year that financial responsibility requirements for the hard rock mining industry would be issued by 2016. In the meantime, the NGOs remain ever vigilant. Armed with data indicating that, particularly during the recent recession, taxpayers and disadvantaged communities suffered the adverse consequences of EPA’s inaction, environmental advocacy groups filed a Petition for Writ of Mandamus demanding that the agency promptly comply with Section 108(b)’s rulemaking requirements. In contrast, many industry groups contended that the Section 108(b) rulemaking being developed is based on a flawed analysis of potential risk and ignores the impact of existing state and federal financial responsibility laws and regulations that have achieved most of the objectives of Section 108(b). Legislation introduced in the House of Representatives in 2013, generally supported by the affected industries, included significant amendments to CERCLA Sections 108(b) and 114(d). 

Whether you believe that Section 108(b) is outdated and unnecessary, or that immediate and comprehensive implementation of its mandates is of paramount importance, I would submit that EPA’s seemingly cautious approach to Section 108(b) rulemaking is justifiable.  Considering the financial consequences, the identification of target industries must be based on a careful and comprehensive evaluation of the actual risks associated with a particular industry’s handling of hazardous substances and the historic “track-record” of that industry’s ability to financially respond to releases. The extent to which existing federal and state financial assurance programs address the identified risks must also be carefully scrutinized to avoid unnecessary cost and duplication. EPA’s selection of acceptable financial assurance mechanisms is also of critical importance. Elimination of the so-called “financial test” method, for example, may impact the capacity of financial and credit markets to provide the necessary financial assurance and adversely affect global competitiveness.

Future rulemaking that is based on a thorough and defensible analysis of actual risk and is limited to filling in any gaps in existing financial assurance programs will best serve the public, the environment and the regulated community.