On March 12, 2020 the Department of Justice (DOJ) ended a longstanding practice of allowing the inclusion of environmentally beneficial projects in legal settlements with EPA. These projects, known as “Supplemental Environmental Projects” (SEPs), offset the environmental harm caused by the defendant. For decades, SEPs have resulted in significant environmental benefits, helping affected communities recover or avoid future harmful emissions.[1] Eliminating the use of SEPs in the settlement process removes one of the only enforcement tools that directly address harm done to local communities when facilities violate environmental laws. The March announcement is the culmination of a multi-step effort by the Trump Administration to limit and ultimately eliminate SEPs.
As defined by EPA, a 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.”[2] These projects vary in size but provide meaningful benefits to local communities harmed by an environmental violation. For example, in 2019, DOJ and EPA reached a settlement with a chemical company that included $1.6 million for SEPs, including lead abatement projects and donation of air monitoring equipment to local government entities.
SEPs allow EPA to act to protect public health and the environment in ways that couldn’t otherwise be achieved through traditional penalties, which don’t themselves remedy the harms that non-compliance with pollution and waste control requirements cause. Under the Obama administration, EPA and DOJ used SEPs to remedy disproportionate impacts of pollution, including pollution arising from non-compliance, on communities of color and low-income communities.
EPA’s Policy
Since the 1990s, EPA has issued numerous policies specific to SEPs.[3] These policies evolved over time partially in response to various legal concerns raised.[4] In 2015, EPA again updated its SEP policy. The 2015 guidelines for EPA staff considering SEPs in enforcement negotiations required that SEPs have a sufficient nexus to the underlying violation and be designed to reduce:
- The likelihood that similar violations will occur in the future;
- The adverse impact to public health and/or the environment to which the violation at issue contributes; or
- The overall risk to public health and/or the environment potentially affected by the violation at issue.
The policy also clarified that EPA couldn’t manage or control SEP funds, and a project couldn’t fulfill an existing statutory obligation or circumvent a statutory prohibition. SEPs also couldn’t provide in-kind support or additional resources to carry out activities performed by EPA. These requirements were designed to ensure any SEPs incorporated into an enforcement settlement didn’t violate the law.
The 2015 policy allowed EPA to decrease a settlement penalty to reflect the estimated cost of implementing the SEP, as long as it did not exceed 80% of the estimated penalty cost. It also specifically encouraged the use of SEPs where residents affected by the violation at issue are part of communities where there are environmental justice concerns. In addition to environmental justice, the 2015 policy highlighted other pieces of EPA’s mission that SEPs may appropriately further, including: protecting children’s health, promoting pollution prevention, encouraging the development of innovative technologies, and addressing climate change.
DOJ’s Policy Changes
Starting in 2017, the Attorney General and DOJ’s Environmental and Natural Resources Division (ENRD) issued a series of policy memoranda that curtail DOJ and agencies’ authority to reach settlements that include payments to third-party organizations. This culminated in a March 2020 memo expressly prohibiting DOJ from agreeing to any settlements that include SEPs.
On June 5, 2017, then-Attorney General Jeff Sessions prohibited DOJ from entering into settlement agreements that include payments to third-party organizations. The prohibition applied to nearly all federal civil and criminal cases, but it included an exception for “an otherwise lawful payment or loan…that [directly] remedies the harm that is sought to be redressed, including, for example, harm to the environment….”
Assistant Acting Attorney General for ENRD Jeffrey H. Wood issued a guidance memo to ENRD attorneys in January 2018 outlining how to comply with the AG’s 2017 memo in environmental cases. The guidance narrowed the connection between a potential SEP and the alleged harm needed for approval. It required a more specific showing that a project considered for inclusion in the settlement (and thus resulting in a “third party payment”) would directly remedy the harm at issue. In Clean Air Act cases involving stationary sources, for example, the memo noted that SEPs that mitigate emissions of the same pollutant in the same airshed would meet the “directly remedies the harm that is sought to be redressed” standard in the AG’s 2017 memo. It provided other examples of such acceptable projects for mobile sources, Clean Water Act, vessel pollution, and CERCLA cases.
Acting AAG Wood’s 2018 memo also argued that payments to governmental entities were “not expressly within [the] scope” of the restrictions in AG Session’s June 5, 2017 memo and provided additional guidance to ENRD attorneys considering settlements that would involve projects resulting in payments to federal, state, territorial and tribal governments. He noted such payments “must have a clear nexus to the environmental harm that is sought to be remedied, and such payments shall be reasonably designed to repair the harm to the environment that is sought to be redressed.”
The Attorney General subsequently issued a memo in November 2018 that limited the terms allowable for consent decrees and settlements with state and local governments. Of particular importance for the use of SEPs was a requirement that consent decrees not be used “to achieve general policy goals or to extract greater or different relief from the defendant than could be obtained through agency enforcement authority or by litigating the matter to judgment.”
In an August 2019 memo, Assistant Attorney General for ENRD Jeffrey Bossert Clark (who replaced Acting AAG Wood) concluded that “[b]ecause SEPs exceed what is required by law, proposed consent decrees and settlements containing them are generally precluded” by the AG’s November 2018 policy memo. The August 2019 memo also indicated that AAG Clark would undertake a broader review of SEP use in settlements.
On March 12, 2020, AAG Clark released the conclusions of his broader review of SEPs in a memo expanding his prohibition on SEPs to matters involving private parties (the August 2019 memo having applied only to settlements with state or local governments). Under the new policy, ENRD will cease using SEPs in settlements for any litigation it’s involved in. The memo officially revokes the January 2018 memo written by Acting AAG Wood that determined that ENRD could still consider certain types of SEPs after the AG’s third-party payment prohibition. AAG Clark did acknowledge specific statutory authority for EPA to use SEPs for diesel emissions reduction but went on to describe more restrictive requirements to gain ENRD’s approval of such SEPs.[5]
AAG Clark argues that SEPs violate the Miscellaneous Receipts Act and are “in serious tension with important aspects of our constitutional tradition.” The Miscellaneous Receipts Act requires that penalties received by the government must go to the treasury for Congress to appropriate. In the memo, AAG Clark argues that SEPs essentially divert such penalties that would otherwise go to the treasury to environmentally beneficial projects. The “constitutional tradition” concern is that these funds are not allocated by Congress but rather EPA and DOJ in the process of settlement negotiations. AAG Clark argues that despite its significant nexus test and other requirements, EPA’s 2015 policy “establishes a mathematical relationship between the cost of a SEP and diminution of a penalty” and that such a “conversion rate” illustrates the inappropriateness of SEPs.[6]
These conclusions contradict decades of EPA policy and DOJ practice. The DOJ has previously worked with EPA to revise its SEP policies to address legal concerns. The current leadership is taking a very different approach. The final footnote of the March 12th memo notes that AAG Clark intends to review the use of “SEP-like devices” in criminal cases as well. We are likely to see another policy memo regarding those matters.
Implications of the Policy Change
The immediate impacts of this policy may be felt most acutely in communities harmed by polluters. By removing this settlement tool, DOJ decreases the likelihood that violators will direct significant money to communities that are disproportionately affected by violators’ polluting activities. It extinguishes a key tool for EPA to use in pursuit of the more challenging goals within its mission, such as ensuring environmental justice and addressing the causes and impacts of climate change.
Doing away with SEPs may also impede efficient resolution of enforcement actions. In his March 2020 memo, AAG Clark acknowledges the support for SEPs across disparate parties including regulated entities, advocacy organizations, state and local governments, and many within the executive branch. Such widespread agreement on the benefits of SEPs shows how useful they can be in finding common ground in protracted settlement negotiations. Eliminating SEPs may make it harder to come to agreement on settlement terms and result in more resources expended in negotiations and trial activities.
How far DOJ’s legal theories reach may soon be tested in court. In an ongoing enforcement case, DOJ refused to include in the final settlement agreement a SEP that was part of settlement negotiations prior to the policy change.[7] A proposed consent decree – without the SEP – was lodged with the court. Sierra Club, an intervenor-plaintiff in the case, then pursued a separate agreement with the defendant, but without DOJ, that has the same terms as the previously-agreed-upon SEP. On May 22, 2020, Sierra Club asked the judge to enter that agreement in addition to the proposed consent decree. DOJ has opposed the motion, and the court’s decision could provide a first look at how courts view the legal underpinnings of the recent policy shift at DOJ.
For more information on changes to EPA’s settlement practices, see:
[1] For an in-depth discussion of SEPs, related actions by the current administration, and ideas for agencies to avoid legal controversies over SEPs, see Kakade, Seema M., Remedial Payments in Agency Enforcement (March 28, 2019). 44 Harvard Environmental Law Review, Forthcoming; U of Maryland Legal Studies Research Paper No. 2019-05. Available at SSRN: https://ssrn.com/abstract=3361746.
[2] See EPA’s 2015 SEP Update at 1.
[3] See Kakade at 128-131 for a discussion of SEPs in civil penalty policies; see also EPA’s 2015 SEP Update for a discussion of prior policies dating back to 1998.
[4] See AAG Clark’s March 12, 2020 memo at 6-7 discussing the evolution of these policies.
[5] See FN 19 of AAG Clark’s 2020 memo (“Of course, in situations where Congress has authorized SEPs, such SEPs are lawful. See Aug. 2019 Memo at 13. In this vein, 42 U.S.C. § 16138 authorizes EPA to accept diesel emissions reduction SEPs. Even then, however, Congress required any diesel-emissions reduction SEPs to satisfy certain criteria, including that the SEPs be “related to the underlying alleged violations.” 42 U.S.C. § 16138. […]”).
[6] See page 7 of AAG Clark’s 2020 memo.
[7] US v. DTE Energy, No. 2:10-cv-13101 (E.D. Mich.).