Should Someone be Reading The SEP Policy its Last Rights?

Posted on December 5, 2019 by Heidi Friedman

Chances are if you have been on either side of a settlement for an environmental violation over the past 20 years, you have discussed and/or negotiated a supplemental environmental project (SEP) as part of the overall resolution of a matter.  SEPs are projects that go beyond what is required by law, although the projects do have to have a “nexus” to the violation being addressed.  Settling parties can receive a credit toward mitigation of the civil penalty for a portion of the value of funds spent on implementing SEPs, and SEPs are the favorite child of many since a quality SEP can close the gap on a contentious penalty negotiation – visualize a bridge that pops up bringing two sides together.  Instead of building these bridges, the Asst. Attorney General’s August 21, 2019 Memorandum analogizes SEPs to elephants explaining that “Congress does not ‘hide elephants in mouseholes’ (citing Gonzales v. Oregon, 546 U.S. 243, 267 (2006)) and if Congress had intended the use of such a “controversial miscellaneous-receipt-circumvention device[], it would not have done so without mentioning SEPs by name.”  And while the elephant/mousehole analysis relates specifically to an interpretation of the 2018 Clean Water Act Amendments, it still seems challenging to think of such a long-accepted settlement tool as now being the elephant in the room. 

The August 2019 memorandum all but eliminates SEPs for civil consent decrees and settlement agreements with state and local governments, which at first read may be seem a narrow focus.  Yet, the grounds set forth in that memo and related analysis provide a clear path for this Administration to fully exterminate this elephant or at least put it to rest for now.  One recent example is in July 2017, when DOJ modified a finalized settlement with Harley Davidson in a Clean Air Act case by removing the SEP.  This left the American Lung Association without its project to retrofit or change out wood-burning fireplaces and left Harley Davidson paying a larger penalty.  From the defense side of things, many companies favor SEPs since a SEP can allow the company to support an innovative project that can truly benefit a community’s local environment.  And to be transparent, there can also be potential tax advantages while penalties are not tax deductible. Keep in mind that the SEP does not replace the payment of a penalty, it supplements and somewhat mitigates the potential penalty payment that might have been sought and obtained.

Yet, what we are seeing is a clear signal that money is the only path to resolution.  The crux of Clark’s analysis and any debate over SEPs is that SEPs are seen as “…mechanisms for sidestepping the power of the purse.”  (citing to H.R. Rep. 115-72, at 5-6) or said in another way, “…implicating Congress’ constitutional power over appropriations.”  The Clark view is that Congress should be able to spend its penalty funds as it pleases whether its defense spending or the opioid crisis, without any nexus to the alleged violation, and thus, allowing a SEP to direct funds in a manner that serves narrower statutory purposes interferes with this autonomy.  Don’t get me wrong, we need government intervention in the opioid crisis, but do we further the purpose of our environmental laws when we are just collecting as much penalty money as possible?  Using environmental penalty policies to fund another defense tank for example seems counter intuitive to the intent of the Clean Water Act or the Clean Air Act in the first place.  While I am certainly not a constitutional scholar, I do know that we have the judiciary reviewing and approving SEPs as part of the Consent Decree process providing a further check on the scope and direction of this often favored alternative. 

For you elephant lovers out there, EPA does seem to be keeping the policy alive and well at the moment as the memo is not even posted to the SEP page on its website.  According to the EPA 2018 enforcement statistics, the value of SEPs in settlements jumped from 17.75M in 2017 to 28.93M in 2018.   Further, in FY2018, EPA enforcement cases included 100 SEPS.   Looking at the last 10 years (2008 to 2018), the total value of 1,418 SEPS was $577M. This is not peanuts no matter how you look at it, but here’s hoping we are able to keep the elephant alive and well.



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