A Q&A guide to environment law in the United States. This Q&A provides a high level overview of environment law in the United States and looks at key practical issues including emissions to air and water, environmental impact assessments, waste, contaminated land, and environmental issues in transactions. In addition, answers to questions can be compared across a number of jurisdictions to assist in the management of cross-border transactions (see Country Q&A tool).
This Q&A is part of the PLC multi-jurisdictional guide to environment. For a full list of jurisdictional Q&As visit www.practicallaw.com/environment-mjg.
The implementation of environmental enforcement in the US is a collaborative effort between federal, state and local authorities. The US Congress (Congress) has passed pieces of comprehensive environmental legislation addressing most major environmental issues facing the country. These laws are implemented on the federal level by several federal agencies, but primarily by the Environmental Protection Agency (EPA) (see box, The regulatory authorities). However, many of the laws provide for delegation of certain implementation efforts to state and local authorities under the supervision of the federal authorities.
State or local authorities can pass their own environmental legislation as long as it does not conflict with federal legislation. States can, under certain circumstances, impose more stringent requirements than the federal laws as long as the two sets of requirements do not conflict.
The following are the principal pieces of environmental legislation in the US and the regulatory agencies that implement them:
The Clean Air Act (CAA) is the comprehensive federal law regulating air emissions around the country. The CAA is primarily implemented by the EPA on the federal level. However, the CAA provides for the delegation of certain authorities to qualifying state and local agencies. Under the CAA, the EPA sets emission limits for certain air pollutants from certain sources for specific areas around the country. States then develop and submit to the EPA for approval state implementation plans outlining how that specific state is going to meet these emission limits. In addition, major and some minor stationary sources of air pollutants must acquire construction and operating permits (CAA).
The Clean Water Act (CWA) is the main piece of environmental legislation addressing the prevention of water pollution in the US. The CWA regulates the discharge of pollutants into federally regulated or jurisdictional waters. To that end, the CWA incorporates a number of permitting mechanisms that regulate specific types of discharge. Like the CAA, the EPA is the primary regulatory authority charged with implementing the CWA. However, the Army Corps of Engineers has been tasked with administering the dredge and fill permitting programme. Again, the federal agencies may delegate their authority under the CWA to qualifying state and local agencies.
The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) addresses the investigation and remediation of soil and groundwater contamination from hazardous substances. CERCLA set up a federal Superfund to fund remediation of contaminated land and provides mechanisms where both the government and remediating parties can recover their costs from other liable parties. The EPA implements CERCLA around the country.
The Emergency Planning and Community Right to Know Act (EPCRA) provides for emergency planning on the federal, state and local levels in relation to the release of hazardous and toxic substances. In addition, EPCRA establishes hazardous substance reporting requirements. Under EPCRA, local governments must develop emergency response plans in case of a toxic spill. Facilities handling toxic substances must report to state and local officials:
the quantities and properties of all hazardous substances handled at the facility; and
any accidental releases of such substances.
The information provided by the facilities must then be made public.
The Endangered Species Act (ESA) regulates the conservation of threatened and endangered species in the US. The ESA regulates the:
listing of animals as threatened or endangered;
protection of the habitats of the listed species;
prohibition on the taking of any such listed species; and
import, export or transport in interstate or foreign commerce of listed species.
The ESA is implemented co-operatively by the US Fish and Wildlife Service and the US National Oceanic and Atmosphere Administration.
The Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) regulates the use, sale and distribution of pesticides in the US. The EPA is the primary agency charged with implementing FIFRA. FIFRA requires that before a pesticide can be used in the US it must be registered with the EPA. To obtain EPA registration, it must be proven that the pesticide does not cause unreasonably adverse impacts on the environment.
The Marine Protection, Research, and Sanctuaries Act (Ocean Dumping Act) prohibits the transportation of material from the US or from anywhere else by a US agency or US flagged vessel for the purposes of dumping such material in the ocean. However, an entity may acquire a permit as long as the dumping will not unreasonably degrade or endanger human health, welfare, or the marine environment. The EPA has primary authority for administering the permit programme.
The National Environmental Policy Act (NEPA) establishes the national framework for environmental protection in the US. NEPA requires all branches of the government to consider the impact major federal actions will have on the environment and conduct an Environmental Assessment (EA) and/or an Environmental Impact Statement (EIS) to determine the impact of such action. All federal agencies must comply with and implement NEPA.
The Oil Pollution Act (OPA) addresses the US' ability to respond to and clean up oil spills. The OPA created a fund funded by a tax on oil to cover the costs related to cleaning-up spills when the responsible party cannot or will not. The OPA also requires that oil storage facilities develop plans for how they will address oil spills. The EPA and the US Coast Guard implement the regulations for specific storage facilities.
The Resource Conservation and Recovery Act (RCRA) regulates all aspects of hazardous waste used in the US. Under RCRA, the EPA has authority to regulate the generation, transport, treatment, storage and disposal of hazardous and non-hazardous solid wastes in the US.
The Safe Drinking Water Act (SDWA) protects all waters that actually or potentially will be used as drinking water in the US. Under SDWA, the EPA has authority to implement drinking water standards and requires all owners or operators of public water treatment works to comply with the standards. The EPA may also delegate implementation of the drinking water standards to qualifying state or local authorities who may also implement secondary drinking water standards.
The Toxic Substances Control Act (TSCA) regulates the production, importation, use, and disposal of certain chemical substances (excluding food, drugs, cosmetics and pesticides). Under TSCA, EPA has the authority to regulate manufacturing, reporting, record-keeping, testing, disposal, and use of these substances. TSCA regulates a broad range of substances, including:
polychlorinated biphenyls (PCBs);
asbestos;
radon; and
lead based paint.
The EPA is charged with implementing TSCA.
Most major US environmental laws provide for some type of civil and/or criminal enforcement by regulators of the requirements imposed by the laws or their implementing regulations. Enforcement measures usually include:
Self-reporting by regulated facilities.
Inspection powers by the federal or state agency.
A system to address citizen complaints.
Enforcement always depends on the resources of the relevant federal or state agencies. Due to these resource constraints, many of the environmental laws provide for citizen suits. Under these citizen suit provisions, private citizens can bring an action in court if they believe a regulated entity is violating the law and the regulatory agency is failing to enforce that law.
Environmental groups are quite active in the US. Most major environmental laws specifically provide for public participation in both the development of the environmental laws and regulations and the enforcement of these regulations.
Most environmental laws require federal or state agencies to obtain public comment before promulgating a new or revised regulation. Environmental groups are encouraged to participate and comment on proposed regulations. In addition, if an agency action harms an environmental group or one of its members, the latter can bring a legal action challenging such action.
Finally, an environmental group can also take advantage of citizen suit provisions if the agency in question is not enforcing the law.
There is no integrated permitting scheme in the US. Many of the major environmental laws incorporate permitting requirements for different activities (see Question 1). Regulated entities must acquire all necessary permits before conducting an activity.
See above, Integrated/separate permitting regime.
There is no integrated permitting regime (see Question 4).
The CWA regulates the discharge of pollutants into federally regulated bodies of water. Corresponding state or local laws can regulate the discharge of pollutants into non-federally regulated waters. In addition, the Ocean Dumping Act and the SDWA protect the quality of the nation's waters by preventing the dumping of materials into the oceans and by maintaining high standards for the nation's drinking water.
There are two permitting programmes under the CWA:
Before an entity may discharge pollutants from point sources into federally regulated water, it must obtain a National Pollutant Discharge Elimination System (NPDES) permit. The EPA or a qualifying state or local authority who has been delegated the authority administers the permitting programme. There are two types of NPDES permits:
individual permits are issued to an individual discharger; or
general permits set out requirements for an entire category of sources.
Before an entity may discharge dredge or fill material into federally regulated waters including wetlands, it must obtain a Section 404 permit. The Army Corps of Engineers administers the permitting programme in conjunction with the EPA unless the programme has been delegated to a qualified state authority. To obtain a Section 404 permit, an entity must first obtain a Section 401 water quality certification from the relevant state authority certifying that the project will not violate the state water quality standards.
The following is prohibited:
Discharging pollutants into the waters of the US without a permit or in violation of a permit, or dredging and filling jurisdictional waters without a permit or in violation of a permit (CWA).
Dumping materials into the ocean without a permit or in violation of a permit (Ocean Dumping Act).
Violating the drinking water standards (SDWA).
The EPA may issue an administrative order if it believes that an entity is violating the CWA (CWA). The order may either:
Require corrective action.
Impose civil and/or criminal penalties from US$16,000 to US$177,500 per violation, per day (as at 1 October 2012, US$1 was about EUR0.8).
The relevant federal agencies can seek judicial penalties against a violator of the CWA up to US$37,500 per violation per day (CWA).
In addition, an individual or environmental group can bring a citizen suit against a violator if the EPA or requisite authority is not enforcing the law (CWA) (see Question 3).
See above, Clean-up/compensation.
The CAA regulates the emissions of pollutants into the air from stationary and mobile sources. Under the CAA, the EPA establishes National Ambient Air Quality Standards (NAAQS) for six criteria pollutants:
Ozone.
Lead.
Carbon monoxide.
Nitrogen dioxide.
Particulate matter.
Sulphur dioxide (SO2).
Based on these standards, the EPA then designates areas of the country as either:
"Attainment", or exceeding the air quality standards.
"Non-attainment", or failing to meet the air quality standards.
States and local authorities must then develop and submit to the EPA for approval state implementation plans for how that state will improve or maintain air quality.
The EPA also does the following (CAA):
Sets emission standards for hazardous air pollutants.
Maintains an acid rain programme that includes a market-based trading programme for sulphur dioxide.
Sets performance standards for certain categories of new sources.
Sets standards for the emissions from mobile sources such as motor vehicles, non-road vehicles and aircraft.
Under the CAA's New Source Review and Prevention of Significant Deterioration permitting programmes, all new or modified major stationary sources of air pollution must obtain a permit before undergoing any construction. The permit:
Sets construction specifications.
Sets emissions limits during construction.
Specifies the technology to be used in the new source to ensure that the new or modified sources do not further degrade the atmosphere in a particular location.
The EPA or a qualifying state or local authority who has been delegated the permitting authority issues these construction permits.
Most major and many minor sources of air pollution must also obtain a Title V operating permit. Title V operating permits are issued either by the EPA or by a qualifying state authority who has been delegated the permitting authority. Through these permits, the EPA or qualifying state authority can require that:
Certain emission control technology be used at the facility.
The facility maintain certain emission limitations.
The facility conduct certain monitoring and record-keeping to maintain compliance with the permit.
It is generally prohibited to:
Violate any emission standard or limitation.
Emit air pollutants without the requisite permit or in violation of a permit.
The EPA has a number of enforcement powers under the CAA. If it believes a violation has occurred, it can both:
Issue an administrative order requiring corrective action and/or impose civil or criminal penalties anywhere from US$3,500 to US$295,000 per violation, per day.
Bring a civil judicial action and seek penalties up to US$37,500 per violation, per day.
See above, Clean-up/compensation.
Currently, there are no national targets for reducing greenhouse gas emissions (GHGs). However, in the past couple of years, the EPA has taken a number of regulatory initiatives under the CAA to reduce GHGs from certain sources. For example, the EPA:
Issued the Greenhouse Gas Reporting Rule, which requires reporting of GHGs from large sources in the US.
Publicly determined that six GHGs in the atmosphere threaten public health, welfare and the environment and that emissions from motor vehicles contribute to this GHG pollution (Endangerment Finding). This Finding led to setting GHG emission standards for motor vehicles (Tailpipe Rule).
Issued the Greenhouse Gas Tailoring Rule which sets limits for GHGs and makes it clear when CAA permits are required for certain sources in relation to their emissions of GHGs.
Entered into two settlement agreements where it agreed to issue rules that would address GHG emissions from fossil fuel powered power plants and petroleum refineries.
Proposed a Carbon Pollution Standard for new power plants that would set national limits for carbon emissions from new fossil-fuel-fired electric utility generating units.
The Endangerment Finding, Tailpipe Rule and Tailoring Rule were upheld as valid exercises of EPA's authority under the CAA by the United States Court of Appeals for the District of Columbia Circuit.
The US is party to UNFCCC and a signatory to the Kyoto Protocol. However, the Congress did not ratify the Kyoto Protocol.
The US has taken the following measures to implement the UNFCCC:
It produces an annual inventory of GHGs and sinks.
It produces and submits a periodic National Communication of the United States (the Climate Action Report).
It contributes funding to the Global Environmental Facility, the financial mechanism of the UNFCCC.
There is no national carbon trading scheme in the US. However, there are some regional trading initiatives. For example:
The Regional Greenhouse Gas Initiative is a market-based regulatory programme between ten North-Eastern and Mid-Atlantic states that have capped CO2 emissions and hope to reduce emissions from power plants by 10% by 2018.
The Western Climate Initiative and the Midwestern Greenhouse Gas Reduction Accord are independent voluntary programmes under which member jurisdictions have agreed to work towards reducing GHGs. However:
the Midwestern Greenhouse Gas Reduction Accord has not been formally disbanded, but the accord is no longer being actively implemented by the signatory states;
the Western Climate Initiative's current goal is to begin implementing a cap-and-trade program by the end of 2012, which would trigger a three year compliance period.
Nationally, under the CAA, the EPA administers a market-based cap and trade programme to reduce acid rain. The programme caps the amount of SO2 that can be emitted in the US by electric power plants and provides allowances to these electric power plants that can be traded on the market.
All federal agencies must consider the environmental impacts of proposed federal projects (NEPA). To that end, these agencies must conduct an EA and/or EIS before implementing a federal project. An EA helps determine whether the proposed federal project will have potentially significant environmental impacts. Federal as well as relevant state and local authorities, and sometimes the public participate in the assessment process. The process concludes with either:
A Finding of No Significant Impact (FONSI).
If there is significant impact, the determination that an EIS is necessary.
Each agency conducts its own NEPA review. No environmental permits are necessary. However, before preparing an EIS, the agency in question must post a Notice of Intent in the Federal Register to inform the public of its action. The agency then works with the relevant state, local and interested parties to define the scope of the analysis. A draft EIS is then published and made available for public comment. After the comment period, the agency reviews/considers the comments and prepares a final EIS. After a 30-day review period, the agency can make a decision on the project. The EPA reviews and comments on all EISs.
NEPA itself does not include any penalties or enforcement provisions for failure to comply. However, failure to comply with NEPA could leave an agency facing legal action.
The RCRA authorises the EPA to regulate the generation, use, transport, storage, and disposal of hazardous and non-hazardous solid wastes. Within the scope of this authorization, the EPA has promulgated comprehensive regulations for hazardous and non-hazardous wastes from cradle to grave (that is, from creation to disposal). The EPA maintains a list of hazardous wastes. The EPA also sets standards for generators, transporters, and owners/operators of hazardous waste treatment, storage and disposal facilities (TSDF). The standards include reporting and record-keeping requirements and requirements for the clean-up of hazardous waste discharges. The EPA primarily implements these regulations. However, a qualifying state or local agency may implement its own waste programme in lieu of the EPA programme.
The RCRA requires a permit for the treatment, storage and disposal of hazardous waste. As a result, owners/operators of TSDF require a permit to operate and handle hazardous wastes. The permit outlines the waste management activities a facility must conduct and how it must conduct those activities. Permits also usually include requirements relating to:
Inspection.
Reporting.
Operation.
Maintenance.
Record-keeping.
Monitoring.
Finally, permits usually require facilities to develop emergency plans, obtain insurance and train their employees accordingly. The EPA or a qualifying state agency administers the hazardous waste permit programme.
Non-hazardous solid waste facilities may also require permits under qualifying state or local programmes.
An operator of a TSDF must obtain a permit to operate and handle hazardous waste (see above, Prohibited Activities). There may be additional requirements under state and/or local programmes.
Under the RCRA, hazardous wastes are treated separately from non-hazardous solid wastes. There are certain wastes that the EPA has determined to be hazardous because they pose a substantial threat to human health and the environment. These wastes are referred to as "listed wastes". Other wastes are determined to be hazardous because they contain one or more characteristics of typical hazardous wastes and are referred to as "characteristic wastes". These hazardous wastes are regulated more strenuously and facilities that are treating, storing and disposing of these wastes must obtain a RCRA permit to operate.
"Universal wastes" are regulated separately. These wastes are commonly used wastes such as:
Batteries.
Pesticides.
Mercury-containing equipment.
Light bulbs.
There are special regulations streamlining the management of these wastes.
Finally, non-hazardous solid wastes in the form of municipal solid waste and industrial waste are regulated separately from the above wastes either by the EPA or through a qualifying state agency.
The EPA or the qualifying state agency has the authority to require the clean-up of existing environmental problems from the mismanagement of wastes at a regulated RCRA facility (RCRA). This corrective action can be accomplished through an administrative order or an RCRA permit.
In addition, the EPA has the authority to impose civil and criminal penalties for RCRA violations. The EPA can assess an administrative penalty up to US$37,500 per violation, per day.
In the US, asbestos is regulated under two environmental laws.
Asbestos in schools is regulated under the Asbestos Hazard Emergency Response Act (AHERA), which is part of the TSCA. Local education agencies (LEA) must inspect their schools for asbestos and prepare and implement management plans to reduce the health hazard from asbestos in schools (AHERA).
Asbestos is regulated under the CAA and the National Emission Standard for Hazardous Air Pollutants (NESHAP) for asbestos. The asbestos NESHAP is intended to reduce the risk of the release of asbestos. As a result, the NESHAP specifies work practices and notification requirements to be followed during the renovation and demolition of buildings with asbestos. The NESHAP also prohibits the use of certain asbestos products and regulates the disposal of asbestos products.
The Occupational Health and Safety Administration (OSHA) regulates the use of asbestos in the workplace.
State and local agencies may have additional asbestos regulations.
See above, Prohibited activities.
The school management plans must be developed by an accredited management planner and approved by the state (AHERA). In addition, the inspection of the school must be conducted by an accredited inspector.
Finally, many state and local authorities require the accreditation or authorisation of individuals involved in the removal of asbestos.
Individuals who fail to comply with the asbestos regulations under AHERA and the asbestos NESHAP can be liable under both provisions. A violation of the asbestos NESHAP subjects the individual to the penalty provisions of the CAA. A violation by a LEA of AHERA's requirements may also result in civil penalties.
CERCLA regulates contaminated lands in the US.
Under CERCLA, the EPA has the authority to respond directly to releases or threatened releases of hazardous substances by investigating and remediating soil and groundwater contamination at a site. CERCLA created the Superfund to finance such actions. The EPA can take two types of action under CERCLA:
Removal actions, which are immediate actions when there is an imminent threat to human health and the environment.
Long-term investigation and remediation of a property.
The EPA also has the authority to require a potentially responsible party to conduct the remediation and/or the removal actions itself.
When a contaminated site or a release is first discovered, the site is entered onto the Comprehensive Environmental Response, Compensation and Liability Information System (CERCLIS). The EPA then assesses the site for potential contamination. The most serious sites are listed on the National Priorities List (NPL). Then the EPA conducts a Remedial Investigation/Feasibility Study to determine the nature and extent of the contamination. The EPA then issues a Record of Decision indicating what removal or remediation actions are necessary to clean up the site. The site is removed from the NPL when all actions are complete.
The EPA or another remediating party can bring an action against potentially responsible parties to recover its costs incurred in investigating and remediating contamination. The EPA can also impose administrative civil penalties or seek civil judicial penalties for certain violations of CERCLA (up to US$37,500 per violation, per day and US$107,500 per violation, per day for any subsequent violations).
A party is strictly liable for clean-up of contaminated land and/or for the costs incurred by another party or the government in the investigation and remediation of the contaminated land if at least one of the following conditions is met (CERCLA):
He is the owner/operator of the facility in question.
He was the owner/operator of the facility when the substances were disposed of.
He arranged for the disposal or treatment of the hazardous substances.
He transported the hazardous substance.
Liability under CERCLA is joint and several; one liable party may be held liable for the clean-up of the entire property even where there are two or more liable parties (see Question 17).
The current owner/operator of a facility can be liable even if he has not caused any of the contamination at the property (see above, Liable party).
A previous owner/operator of the facility can be held liable for contamination at the property if he was the owner/operator of the facility when the substances were released (see above, Liable party).
CERCLA provides a number of defences to liability. First, a party is not liable if the release was caused by:
An act of God.
An act of war.
An act or omission(s) of a third party with whom the liable party does not have a contractual relationship.
Second, certain parties may be exempt from liability, or the EPA may be inclined to settle with these parties early and focus on major contributors. These parties include:
De minimis parties (that is, parties whose contribution to the contamination is small and insignificant).
De micromis parties (that is, parties whose contribution is miniscule).
Parties who are unable to pay.
Municipal solid waste facilities.
Municipalities.
Residential homeowners.
Finally, CERCLA incorporates a number of landowner protections and exemptions:
The Innocent Landowner Defense protects landowners who buy contaminated property with no knowledge of the contamination.
The Bona Fide Prospective Purchaser Defense protects a person who buys the property even if he knows about the contamination as long as the buyer meets certain pre- and post-acquisition requirements.
The Contiguous Landowner Defense protects individuals who own property adjacent to the contaminated property if the contaminated property is the only source of the contamination.
To qualify for the above defences, the landowner must usually meet certain pre- and post-acquisition criteria and perform all appropriate inquiries prior to acquisition. In addition, a party that is otherwise liable may avoid joint and several liability if it can prove that the harm it caused is divisible from the harm caused by other responsible parties. However, this is rare, because commingling of contamination from various sources is frequently an issue.
CERCLA exempts secured lenders who hold ownership in a CERCLA facility only to protect their security interest from liability provided they do not participate in the management of the facility. Such a lender can foreclose on a CERCLA facility and maintain his exemption as long as he attempts to sell or re-lease the property or otherwise divest itself of the property at the earliest practicable, commercially reasonable time using commercially reasonable means.
See above, Lender liability.
A person who has incurred costs associated with the investigation or clean-up of a property can bring an action against other potentially responsible parties to recover those costs.
CERCLA also has a citizen suit provision where an individual can bring an action against another party who is in violation of CERCLA or against the federal government for failure to perform a duty required by CERCLA.
Generally, pre-acquisition environmental liabilities are not inherited by the buyer in an asset sale unless one of the following applies:
The successor explicitly agrees to assume the liabilities.
The transaction is considered a de facto merger.
The successor is a mere continuation of the predecessor.
The transaction was fraudulent.
The successor continues substantially the same business operations as the predecessor.
However, under CERCLA, current owners of property who may not have owned the property at the time of the disposal of hazardous substances are also strictly liable for contamination as a result of a release of hazardous substances. These owners are not liable for contaminations if they qualify for a statutory defence (see Question 15, Limitation of liability).
A buyer in a share sale inherits the liability of the previous owner because, despite the change in ownership, the corporate entity is the same. The buyer of the shares does not personally acquire the liability, but the company retains all environmental liabilities it had before the share sale.
Sellers can retain environmental liability in a number of circumstances:
Under CERCLA, the owner of the property remains strictly liable for the contamination of land even after an asset sale.
For any negligence and/or releases during the sale or due diligence period.
Sellers can contract to limit their environmental liabilities in the sale and purchase agreement. However, sellers cannot contract out of environmental liabilities they may have to the government.
An individual shareholder is not usually held liable for the environmental liabilities of the company unless:
The shareholder participated individually in the conduct that resulted in the environmental liability.
The company who is liable is no longer in business.
The company does not have sufficient assets to pay for the liabilities.
There is no federal law requiring a seller to disclose environmental information to a buyer. However, many states have passed legislation requiring sellers to inform prospective buyers of hazardous substance contamination in certain real estate transactions.
See above, Asset sale.
The scope and frequency of environmental due diligence assessments in business transactions are directly proportional to the severity of the federal government's enforcement of the environmental laws. When the federal government enforces the environmental laws more vigorously, there is a corresponding growth in environmental due diligence assessments.
Environmental due diligence is usually conducted in relation to real estate transactions. Potential buyers conduct environmental due diligence to assess their potential liability from environmental contamination and possibly help them qualify for a CERCLA landowner defence (see Question 15, Limitation of liability).
Two types of environmental assessments are usually conducted:
Phase I environmental assessment. This is the typical pre-transaction assessment of the property in question where site records are reviewed, personnel are interviewed, and the site is visually inspected. According to the EPA, if a landowner follows the American Society For Testing And Materials Phase I Environmental Assessment standards then the landowner has done "all appropriate inquiries" (AAI) to qualify for the CERCLA landowner defences (see Question 15, Limitation of liability).
Phase II environmental assessment. If the Phase I assessment indicates that there is contamination, a Phase II assessment can be conducted. There are no federal standards for a Phase II assessment.
Many states and local authorities also have standards for Phase I and Phase II assessments.
Environmental consultants are almost always used to conduct environmental due diligence assessments. In addition, to satisfy the AAI requirement the Phase I assessment must be conducted by an environmental professional.
Usually, a consultant will present the client with its standard contract provisions. However, it may be possible for a client to negotiate other terms. The following issues should be and are usually covered in consultant engagement letters and contracts:
The party that will be liable for arranging the disposal of hazardous substances during the assessment process.
Indemnities that will flow from the client to the consultant.
The consultant's liabilities and limitation thereof.
Any waiver of claims by the client.
Any waiver of damages for site damage during the consultant's work.
Specification of parties to the transaction or third parties that can have access to and/or can rely on the assessment.
The consultant's duty, if any, to maintain certain insurance coverage.
Environmental warranties and indemnities are often inserted in individual transaction agreements for asset sales. These warranties and indemnities often cover both known and unknown liabilities. Liabilities are also often divided temporally in terms of the seller retaining historic liability. The warranties usually cover assurances that:
Any remediation efforts conducted by the seller were conducted in accordance with all applicable laws.
The seller will continue to conduct any remediation efforts already underway at the site.
The seller has no knowledge of any environmental impairment or condition.
The seller has provided the buyer with all relevant documentation.
The facility is in full compliance with all applicable laws.
The parties usually also indemnify each other for breaches of the warranties.
Environmental warranties and indemnities are often inserted in individual transaction agreements for share sales. They are similar to warranties and indemnities used in asset sales (see above, Asset sale). Hold harmless indemnities are more difficult to enforce in situations where the seller ceases to exist, such as in share sales.
Environmental warranties and indemnities are limited by the federal environmental laws. For example, if an "as is" provision is included in a transaction, it does not provide relief from liability to government agencies under CERCLA.
The EPA keeps a number of public registers of environmental information, many of which are available to the public online. For example:
In the Enforcement and Compliance History Online (ECHO) the public can find information on inspections, permits, and enforcement actions under a number of the major environmental laws.
The Superfund Site Information database contains information on hazardous waste sites including sites on the NPL.
The Toxic Releases Inventory contains data on disposal of toxic chemicals in the US.
If the environmental information is not available online, a third party can request public information from the relevant agency through a reasonably detailed request submitted to the agency (Freedom of Information Act). However, confidential information and trade secret information are not available to the public.
Companies do not have to carry out environmental auditing. However, both federal and state governments provide incentives for companies to voluntarily conduct environmental audits. Incentives under the EPA's Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations Policy include:
The elimination of the gravity component of civil penalties.
The determination not to recommend criminal prosecution of the disclosing entity.
The continuation of the EPA's practice of not requesting copies of the voluntary audits.
Many of the major environmental laws include reporting and record-keeping requirements, where the regulated entities must maintain certain records and report certain data to the regulators. Certain permits may require similar monitoring and reporting.
Many of the major environmental laws require entities to report both to regulators and the public about environmental incidents. For example, CERCLA and CWA require entities to report releases of hazardous substances to the EPA. Similarly, EPCRA requires entities to report use and releases of toxic substances to regulators and the public. State and local authorities may also have reporting requirements.
Many of the major environmental laws provide regulators with broad access to company records and locations. For example, regulators are often allowed to:
Inspect a company's property.
Request certain information about compliance with or violation of a statute.
Access property or take other action to respond to threats to human health or the environment.
Environmental pollution coverage is generally excluded from, or very limited in, standard commercial general liability (CGL) insurance policies. However, older CGL policies written on an occurrence basis, before pollution exclusions became standard, may still provide coverage for some pollution clean-up costs.
A number of insurers offer policies that cover certain types of environmental liabilities. The most common types of policies include:
Pollution legal liability. Which provides property owners and operators coverage for pollution conditions associated with owned/operated properties, disposal sites, contracting operations and transportation exposure. The terms of these policies vary widely.
Environmental remediation cost cap. Which covers costs of site clean-up in excess of anticipated remediation costs plus an additional deductible. These policies are generally custom-drafted.
Secured creditor impaired property. Which is specifically designed to protect commercial lenders. These policies require two events to trigger coverage:
the creditor must default; and
a pollution condition must be discovered.
The policies generally cover the lesser of the:
Cost of remediation.
The outstanding balance on the loan.
Many companies are insured by pollution legal liability policies, which are widely available from many insurance providers as form policies, customised through various endorsements.
Less common environmental remediation cost cap policies are custom-written and generally only available through the largest carriers.
Secured creditor impaired property policies are not widely available and not common in the general market.
Very few environmental taxes are levied by the federal government, with most environmental taxes levied on a state or local level. Among the products and activities taxed by various states are:
Waste disposal.
Electronic waste production/disposal.
Chemicals.
Gasoline.
Tyres.
Air emissions.
Battery disposal.
Oil spill response.
There is no carbon tax.
State tax incentives are also available to promote various environmental projects including brownfield reclamation, ethanol production, and alternative energy production.
The following are the federal environmental taxes:
Oil spill liability tax. This tax applies when:
crude oil is received at a US refinery, at a rate of US$0.08 per barrel of crude oil; and
imported petroleum products enter the US for consumption, use, or warehousing, at a rate of US$0.08 per barrel.
Ozone-depleting chemical (ODC) tax. This tax is imposed on an ODC when it is first used or sold by its manufacturer or imported. The manufacturer or importer is liable for the tax. The tax rate varies by chemical.
A tax to fund the Leaking Underground Storage Tank (LUST) Trust Fund. This is a US$0.01 tax on each gallon of motor fuel sold in the US.
A tax to fund the reclamation of abandoned mine lands, established by the Surface Mining Control and Reclamation Act of 1977. The tax rate as of 1 October 2012 is:
for coal produced by surface mining: US$0.28 per tonne of coal;
for coal produced by underground mining: US$0.12 per tonne of coal or 10% of the coal value, whichever is less; and
on the production of lignite coal: US$0.08 per tonne of coal or 2% of the coal value, whichever is less.
Federal tax incentives are also available to promote various environmental projects including brownfield reclamation, ethanol production, and alternative energy production.
Popular proposals for reform in environmental regulation over the past several years include a push for a new climate change law and reform of the existing TSCA. However, the current political climate, generally characterised by stalemate in all except the most fundamental aspects of legislation, has made it unlikely that any wholesale reforms of environmental regulations will pass Congress in the coming year.
However, this legislative stalemate has not precluded the EPA from reforming regulations within the existing frameworks. The most notable environmental reforms by the EPA address the issue of climate change. Since the beginning of 2011, the EPA has been regulating GHG emissions under the CAA. Since 2 January 2011, new or modified major stationary sources must undergo New Source Review (NSR) in relation to GHG emissions. In addition, through the Greenhouse Gas Tailoring Rule, the EPA has begun including GHG emissions into Title V permits for stationary sources of air emissions. The United States Court of Appeals for the District of Columbia Circuit recently upheld these regulations as valid exercises of EPA's authority under the CAA. On 27 March 2012, EPA proposed the first CAA standard for carbon emissions from fossil-fuel powered electric generating units.
Description. The Federal Digital System is maintained by the US Government Printing Office and provides free online access to official publications of the US government, including the United States Code where all US codified laws are published and the Code of Federal Regulations where all regulations implementing the laws are published.
Description. The Environmental Protection Agency's "Laws and Executive Orders" page includes links to pages describing the major environmental laws. The summary page for each law provides a link to the original copy of the law from the US Senate prior to codification as well as a link to the Federal Digital System.
Main activities. Implements or delegates the implementation of most major federal environmental laws.
Main activities. Implements the CWA in relation to dredge, fill, and construction related to federally regulated waters.
Main activities. Regulates federally owned lands and implements the Endangered Species Act through the Fish and Wildlife Service.
Main activities. Implements the Endangered Species Act for marine species.
Main activities. Regulates the health and safety of workers.
T +1 202 879 3797
F +1 202 626 1700
E kpholewinski@jonesday.com
W www.jonesday.com
Qualified. Pennsylvania, US, 1987; District of Columbia, US, 1989
Areas of practice. Environmental, health and safety; government regulation; trial practice; energy; administrative and agency litigation.
Recent transactions
Defending Xcel Energy against several global warming lawsuits claiming that carbon dioxide emissions contributed to global warming, resulting in property damage.
Successfully defended Ethyl Corporation against a claim seeking US$38 million for alleged PCB contamination at a property formerly owned by Ethyl Corporation.
Defending Midwest Generation and EME Homer City Generation against several separate lawsuits and enforcement actions involving the Clean Air Act.
Advising the successor company to Chrysler LLC regarding the environmental aspects of the bankruptcy claims process.
T +1 202 879 3775
F +1 202 626 1700
E deinik@jonesday.com
W www.jonesday.com
Qualified. Maryland, US, 2010; District of Columbia, US, 2011
Areas of practice. Environmental, health and safety; government regulation.
Recent transactions
Defending Midwest Generation and EME Homer City Generation against separate lawsuits and enforcement actions involving the Clean Air Act.
Defending Xcel Energy against several global warming lawsuits claiming that carbon dioxide emissions contributed to global warming, resulting in property damage.
Advising the successor company to Chrysler LLC regarding the environmental aspects of the bankruptcy claims process.
T +1 412 394 7295
F +1 412 394 7959
E jsdevore@jonesday.com
W www.jonesday.com
Qualified. Pennsylvania, US, 2009
Areas of practice. Environmental, health and safety; government regulation; airlines and aviation.
Recent transactions
Defending Midwest Generation and EME Homer City Generation against separate lawsuits and enforcement actions involving the Clean Air Act.
Advising PCS Phosphate Company, Inc. in connection with a CERCLA cost recovery action involving the Ward Transformer Superfund Site in Raleigh, North Carolina.
Advised commodity management firm Gavilon Holdings on the environmental aspects of its acquisition of DeBruce Grain, a Missouri-based agricultural company.
