Environmental law and practice in the United States: overview
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 global guide to environment. For a full list of jurisdictional Q&As visit www.practicallaw.com/environment-guide.
Environmental Regulatory Framework
Environmental regulation and enforcement is a collaborative effort between federal, state and local authorities. The United States Congress enacts general federal environmental legislation that is further implemented through federal agencies issuing detailed regulations and enforced by those regulatory agencies (see below, Federal regulatory authorities). The judicial branch hears disputes, and interprets and makes binding decisions on what legislation means.
Many federal environmental laws delegate day-to-day administration and enforcement to state environmental agencies. Under these laws, the federal government retains residual authority to enforce federal laws if they conclude the states are not doing so sufficiently. In some instances, the federal government also retains direct enforcement authority. Except when prohibited by federal law, states are free to adopt laws and regulations that are more stringent than federal law. Accordingly, the states play a major role in environmental permitting and enforcement. Municipalities also may adopt laws that address environmental issues, provided they do not conflict with state and federal laws. Typically this allows municipalities to be stricter than state or federal law.
Federal regulatory authorities
The main federal agencies responsible for promulgating regulations and enforcing environmental laws include the:
Environmental Protection Agency (EPA). The EPA is principally responsible for implementing most federal pollution laws (see below, Federal environmental laws).
US Department of Interior (DOI). The DOI has principal control over public lands and natural resources. Along with other natural resource trustees, the DOI has the ability to bring claims for natural resource damages (NRD) under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) (Superfund) and other environmental laws. These damages are separate from claims for recovery of costs to investigate and remediate contamination. It is also the primary agency that determines which non-marine species are endangered and require special protections.
US Army Corps of Engineers (Corps). The Corps enforces permit requirements under the Rivers and Harbors Act (regulating navigation in US waters). It also enforces dredge and fill permit requirements for waters and wetlands in federal jurisdiction under the Clean Water Act (CWA).
Council on Environmental Quality (CEQ). The CEQ is part of the Executive Office of the President and co-ordinates environmental efforts among federal agencies. One of its most significant responsibilities is to issue regulations and guidance under the National Environmental Policy Act (NEPA), which requires federal agencies to prepare an environmental impact statement (EIS) for major federal actions significantly affecting the environment.
National Marine Fisheries Service (NMFS). The NMFS, which is under the National Oceanic and Atmospheric Administration, a division of the Department of Commerce, manages living marine resources and their habitats, including determining what marine species are endangered.
US Department of Justice (DOJ). The Environment and Natural Resources Division within the DOJ is responsible for representing the US in litigation involving environmental laws, and enforcing federal civil and criminal environmental laws.
Federal environmental laws
The main federal laws governing the use of land and resources include the:
Clean Water Act (CWA). This regulates the discharge of pollutants into US waters, and dredging and filling of federal wetlands. It is administered by the EPA and delegated state agencies.
Clean Air Act (CAA). This regulates emission of pollutants into the atmosphere. It is administered by the EPA and delegated state agencies.
Resource Conservation and Recovery Act (RCRA). This regulates the treatment, storage, transportation and disposal of hazardous waste.
Safe Drinking Water Act (SDWA). This establishes federal drinking water standards, including through regulating underground injection wells.
Toxic Substances Control Act (TSCA). This regulates the manufacture, importation, processing, and commercial distribution of chemicals.
Emergency Planning and Community Right-to-Know Act (EPCRA). This requires emergency planning and reporting for certain hazardous chemicals.
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) (Superfund). This imposes strict liability for investigation and remediation of hazardous substance releases. Under CERCLA, certain natural resource trustees (federal, state, or tribal governmental entities) can bring claims for natural resource damages (NRD). These damages are separate from claims for recovery of costs to investigate and remediate contamination.
National Environmental Policy Act (NEPA). This requires federal agencies to prepare an environmental impact statement (EIS) for major federal actions significantly affecting the environment.
Endangered Species Act (ESA). This regulates the conservation of threatened and endangered species and their habitats. It also controls the import, export or transportation of endangered species in interstate or foreign commerce.
Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA). This regulates the use, sale and distribution of pesticides in the US.
Oil Pollution Act (OPA). This addresses the US response to, and remediation of, oil spills. The OPA creates a fund supported by a tax on oil to cover the costs related to oil spill clean-up. It also creates liability for parties responsible for the spill for clean-up costs.
Generally, environmental regulations are strongly enforced by regulators at federal, state and local levels.
While federal enforcement can fluctuate based on political and economic considerations, the core federal enforcement programme has generally remained vigorous, especially in relation to major violations.
There is greater variability in state environmental enforcement. Some states are extremely stringent, while other states are more permissive. Certain municipalities have also developed strong environmental enforcement capabilities.
Most regulated facilities are inspected regularly by federal and state regulators, who issue administrative orders to require compliance and impose civil administrative penalties for violations. The EPA and state agencies can also commence civil and criminal enforcement actions against polluters for major offences.
Certain US environmental requirements also:
Require self-reporting of violations.
Provide causes of action for citizens to bring suits against private parties or governmental agencies to enforce the laws (see Question 3).
NGOs and citizen groups play an active role in developing environmental regulations and in ensuring that environmental laws are enforced. As part of the regulatory process, NGOs and citizen groups routinely:
Comment on proposed regulations.
Request and obtain information filed by companies with environmental regulators on company operations, including the storage and release of chemicals.
Bring lawsuits to force private parties to comply with the law.
Significantly, NGOs have broad statutory rights to bring citizen suits and seek affirmative relief from the courts if governmental regulators are not taking diligent steps to enforce the law against violators. Many environmental laws are designed to encourage these suits by awarding attorney fees to NGOs if their litigation is successful.
The US does not have an integrated permitting regime. It is not unusual for an industrial facility to require a number of permits under different environmental statutes, including separate permits for air emissions, discharges to surface water, and treatment, storage and disposal of hazardous waste. Many states and localities have their own permitting regimes, some of which are more stringent than federal law.
Not applicable (see Question 4).
Permits and regulator
The Clean Water Act (CWA) is the primary law governing water pollution. It requires a permit from the Environmental Protection Agency (EPA) (or a delegated state agency) for the discharge of pollutants into surface waters, and establishes water quality standards. The CWA also requires that parties secure a permit from the US Army Corps of Engineers (Corps) before dredging or filling US waters (including wetlands bordering federal waterways). The scope of federal jurisdiction in this area has resulted in several split Supreme Court decisions in the last decade. There is currently a major litigation challenging an EPA/Corps rule that seeks formally to define what waters are subject to the CWA. Many in industry believe the rule will capture many small or casual waters, and make permitting new projects too difficult.
Many state laws impose more stringent requirements and cover broader categories of waters and state wetlands than those covered by federal law.
There are several prohibited activities under federal law:
The CWA prohibits any discharge of pollutants into US waters, or dredging and filling of jurisdictional waters (without a permit or in violation of a permit).
The Ocean Dumping Act prohibits the dumping of materials into the ocean (without a permit or in violation of a permit).
The Safe Drinking Water Act (SDWA) prohibits the violation of drinking water standards.
Failure to obtain a permit required under the CWA, or non-compliance with permit limitations and conditions (including monitoring requirements), can subject a company to administrative, civil and/or criminal penalties of up to US$37,500 per day per violation. Although the full daily amount is rarely imposed, penalties can be substantial. Recent Supreme Court litigation has established that regulated parties can challenge the EPA's jurisdiction in court on receipt of a compliance order. Criminal penalties can also be imposed for knowing and wilful violations of the CWA. Criminal prosecutions are also common for vessels that pollute in international waters but then dock in the US. If those vessels present false record-keeping that hides the pollution activity in international waters, the false documents are a US criminal violation.
The federal Clean Air Act (CAA) is the primary law regulating air quality, including emissions from both stationary and mobile sources. However, the CAA relies on individual states to implement many of the regulatory programmes, and the states can impose more stringent requirements.
National Ambient Air Quality Standards (NAAQS) and State Implementation Plans (SIPs). The CAA has resulted in the Environmental Protection Agency (EPA) establishing NAAQS that protect human health for a number of widespread air pollutants. The CAA also regulates emissions of a number of hazardous air pollutants that are less widespread. To achieve the NAAQS, the states must develop SIPs that address emissions from stationary sources (for example, factories, power plants and refineries). SIPs are regularly updated and include emissions limitations, enforcement provisions and prohibitions on interstate air pollution. If a state fails to submit a SIP, or the EPA determines that the SIP submitted by a state is incomplete or deficient, and the state fails to correct that SIP, the EPA develops a federal implementation plan (FIP) for the state. The EPA has been very reluctant to impose a FIP on a state and take on the local regulatory and enforcement role.
New Source Performance Standards (NSPS) and Hazardous Air Pollutants (HAPs). Under the CAA, the EPA has identified a number of categories of sources where technology based emission standards have been enacted for all similar sources across the country. Similarly, for major sources of hazardous air pollutants, the EPA has enacted standards that require the maximum reduction in HAPs across an entire source category. These standards are also technology based and are referred to as "maximum achievable control technology" (MACT) standards.
Mobile sources. The CAA regulates emissions from mobile sources such as cars, trucks and non-road engines. The regime involves both the regulation of fuels composition and emissions controls on various mobile sources (for example, catalytic converters).
Stratospheric ozone protection. There is also a section of the CAA that is intended to phase out the production and use of chemicals such as CFCs that destroy stratospheric ozone.
Permits and regulator
All major stationary sources of air pollution must have permits to construct and operate. In many cases, minor sources of air pollution also require permits. All of these permits are typically issued by state or local air agencies, with EPA oversight of the major source permitting.
Title V permits. Stationary sources must obtain a Title V operating permit if they have the potential to emit 100 tonnes per year or more of any air pollutant, ten tonnes per year or more of any single hazardous air pollutant, or 25 tonnes per year or more of any combination of hazardous air pollutants. A Title V permit summarises all of the applicable requirements for the emissions generating equipment at a facility, and provides emissions limits, operational requirements, pollution control requirements and record keeping and reporting requirements.
New Source Review and Prevention of Significant Deterioration (NSR/PSD). Before the construction of a major new source or a major modification of an existing source, a facility must get an NSR/PSD permit. These permits require all of the following:
Evaluation of the specific construction or modification.
Application of a stringent control technology review.
Implementation of selected control strategies or equipment.
This programme requires all new sources to look for the newest and best pollution controls.
The most common prohibited activities are:
Constructing or operating a major source of emissions without a permit.
Violating a condition of a permit.
Exceeding an emissions limit.
Failing to operate control equipment, bypassing control equipment, or making control equipment less effective.
Failing to maintain records.
Providing false or misleading information in a permit application or in response to an agency request.
Emissions that create a nuisance.
Typically, air emissions do not lend themselves well to the imposition of clean-up requirements or compensation claims. Therefore, even for violations of air quality permits, regulations or laws, claims tend to seek penalties and/or reduced future emissions (including shutting down sources). However, clean-up or compensation could apply in some cases. For example, those affected by nuisance caused by the emissions can claim compensation. In addition, courts have recently considered whether certain types of air emissions (for example, particulate matter) could be viewed as a "waste" subject to other environmental laws such as the Resource Conservation and Recovery Act (RCRA). If the RCRA or other waste-related laws applied, this would substantially increase potential clean-up liability for sources of covered air emissions.
Administrative, civil and criminal penalties can all apply to non-compliance with air quality laws and regulations. Administrative and civil penalties are the most common. Civil penalties can be as high as US$37,500 per violation per day. While less common, there are a number of violations of the CAA that can result in criminal penalties, including jail time and substantial fines. In addition, the fixes that can be required to prevent future violations, such as installing new equipment, can often be costly.
Climate change, renewable energy and energy efficiency
The US government's approach to climate change is a combination of:
Tax incentives to encourage the development of renewable energy sources.
Mandatory fuel efficiency standards for new motor vehicles.
Compliance requirements through air pollution control permits issued to new and modified sources of air emissions.
Appliance and equipment energy conservation standards.
Support of voluntary energy efficiency standards for buildings.
Additional incentives for renewable energy and energy efficiency, as well as controls on emissions of greenhouse gasses, are implemented at the state level and vary throughout the US. In 2015, the Environmental Protection Agency (EPA) adopted a broad set of regulations known as the Clean Power Plan. These set carbon emission reduction requirements from fossil fuel power plants for each state, with an expectation that emissions would be reduced by over 30% from 2005 levels by 2030. However, the United States Supreme Court stayed implementation of the Clean Power Plan pending resolution of litigation filed against the regulations. In addition, certain states have adopted their own carbon reduction goals for facilities in their states.
The US is a party to the UNFCCC. The US signed the Kyoto Protocol, but it does not bind the US as Congress has not ratified it. However, the US actively participates in international efforts to address climate change. Under the UNFCCC, the US:
Provides funding to support technology transfer, capacity building and adaptation programmes in developing countries.
Produces an annual inventory of greenhouse gas emissions and sinks.
Produces the periodic National Communication of the United States (US Climate Action Report).
There is no national carbon emissions trading programme in the US. However, a number of states have adopted carbon emissions trading programmes. In the eastern US, nine states have adopted laws under the Regional Greenhouse Gas Initiative that cap carbon dioxide emissions and require fossil fuel fired electric generating units to hold allowances in an amount corresponding to their carbon emissions. The government sells allowances in auctions. The allowances' price is controlled and they can be traded in transactions outside of the auctions.
California has adopted its own carbon emission allowance trading programme. California's programme is designed to apply to a variety of industries and to link with trading programmes in other states and Québec Province in Canada. Carbon allowance trading programmes are a compliance option that states can adopt under the federal Clean Power Plan. However, the Supreme Court has stayed implementation of the Clean Power Plan pending the resolution of litigation against the new law.
Environmental impact assessments
The National Environmental Policy Act (NEPA) requires federal agencies to document their review of major federal actions that may have a significant effect on the environment. Major federal actions include plans or projects carried out directly by federal agencies as well as the issuance of federal permits, approvals or financial assistance to private parties. Private projects that do not involve any federal permits, approvals or financial assistance are not within the scope of NEPA.
In addition to the statute and case law, legal authority under NEPA includes regulations issued by the federal Council of Environmental Quality, and regulations and guidance adopted by many federal agencies.
If a federal action may have a significant effect on the environment, NEPA compliance proceeds under one of three different tracks:
The agency determines the action is "minor" and therefore categorically exempt from further NEPA analysis.
When the action may have a significant effect on the environment, the agency prepares an Environmental Assessment (EA). If the EA concludes there will not be a significant effect on the environment, the agency issues a finding of no significant impact (FONSI).
If an EA concludes the action will have a significant effect on the environment, the agency prepares an Environmental Impact Statement (EIS). Alternatively, an agency can elect to prepare an EIS without having first prepared an EA (where, for example, the agency determines that an EA would result in a conclusion that the action will result in a significant effect on the environment).
An EIS must analyse the action's effects on a broad array of environmental resources including air and water quality, transportation (including traffic), noise, population patterns, species (including habitat), cultural resources (including aesthetics, historic and archaeological resources), and paleontological resources. An EIS must also examine the action's cumulative effects in conjunction with other, existing and reasonably foreseeable action, as well as a reasonable range of alternatives to the action. An EIS's analysis must disclose all of the federal, state and local permits necessary to carry out the action, and incorporate input from agencies with jurisdiction over or expertise regarding particular resources. A draft EIS must be released for public comment, and the agency must respond to substantive comments on the draft.
The federal agency must consider the analysis and conclusions in the EA or EIS before making a final determination as to whether to proceed with the action or not, including whether to proceed with a revised action or an alternative to the action.
Many states have adopted "little NEPA" statutes with similar features, ranging from less to more stringent than NEPA.
Permits and regulator
If more than one federal permit or approval is required to carry out a private project, one federal agency will act as the "lead federal agency" for carrying out a NEPA review, and other agencies with jurisdiction or expertise will act as "co-operating agencies."
The adequacy of an agency's compliance with NEPA can be challenged first during the federal agency's administrative process and subsequently in federal court. Any party that has participated in the NEPA process before the agency can pursue a NEPA challenge in court. High profile and controversial private projects requiring federal permits or approvals are often the subject of NEPA challenges. If the federal action at issue in NEPA litigation is a permit or approval for a private project, the project proponent is usually a party in the litigation. Litigation relating to NEPA compliance is almost always determined solely on the basis of the record before the agency at the time the final NEPA determination is made and the permit or approval issued. Therefore, applicants have a strong interest in actively participating in the administrative process, to strengthen the administrative record.
Permits and regulator
The Solid Waste Disposal Act (SWD Act), as amended by the Resource Conservation and Recovery Act (RCRA), vests authority in the Environmental Protection Agency (EPA) and state environmental agencies to regulate the generation, transportation, storage and disposal of solid waste, including hazardous waste. The SWD Act identifies the states as the primary regulators of non-hazardous solid wastes. In addition, the EPA has delegated its authority to regulate hazardous wastes to the large majority of states.
In general, a generator of hazardous waste is responsible for characterising, storing before transporting in accordance with regulations, properly labelling, and manifesting its waste. Generators must have an EPA ID Number and conduct training, and are subject to emergency preparedness, waste minimisation, reporting and recordkeeping requirements.
Transporters of hazardous waste must have an EPA ID Number, comply with the manifest system, and comply with applicable Department of Transportation hazardous material regulations.
A treatment, storage or disposal facility (TSDF) must obtain a permit to operate.
Generators, transporters and TSDFs must comply with a complex set of regulations governing waste.
The RCRA both:
Prohibits the land disposal of untreated hazardous wastes.
Requires waste treatment standards in the form of concentration levels or a method of treatment before land disposal.
The EPA has established technical standards for the design and operation of TSDFs. These are used to establish the administrative and technical conditions under which waste at a TSDF must be managed. The permit provides the facility design and parameters for operation, including safety standards. In addition, permits typically require record keeping and reporting, emergency plans, training and financial assurance. Permitted facilities are subject to closure and post-closure requirements.
The RCRA has a corrective action programme that is designed to investigate and remediate any contamination from hazardous waste spills or releases into the environment from past or present activities at RCRA-regulated facilities.
Special rules for certain waste
States often have broader or more stringent rules and, in some cases, special regulations for specific wastes.
The RCRA includes special rules for, among others, universal wastes, cathode ray tubes, mixed radiological waste, solvent-contaminated wipes, special wastes, and used oil.
The RCRA also excludes certain wastes depending on, for example, their origin (for example, from a household, or treatment subsequent to generation, such as recycling or reuse).
At the state and local level there are increasing regulations regarding electronic equipment wastes, and requirements that retailers of these items provide recycling services to retail consumers.
The SWD Act grants inspection authority to the regulating agency. Those found in violation of the SWD Act may be subject to administrative, civil or criminal penalties.
Asbestos is regulated through a variety of different statutes and regulations, including:
The National Emission Standards for Hazardous Air Pollutants (NESHAP) under the CAA and associated regulations. The asbestos NESHAP:
establish practices that must be followed during demolition or renovation of buildings containing asbestos;
place various requirements on the handling and disposal of asbestos-containing waste.
Some states have also enacted their own regulations that are more stringent than the asbestos NESHAP.
Worker Protection Regulations promulgated by the Occupational Safety and Health Administration (OSHA) . These regulations create workplace exposure limits and require a variety of practices designed to protect employees from asbestos exposure.
The Asbestos Hazard Emergency Response Act (AHERA) (Title II of the Toxic Substances Control Act (TSCA)) and associated regulations. The Environmental Protection Agency (EPA) has promulgated various regulations under AHERA, including the Asbestos-Containing Materials in Schools Rule, which requires local educational agencies to inspect schools for asbestos-containing material and develop plans to mitigate asbestos hazards.
The Asbestos Information Act. The Asbestos Information Act requires manufacturers of certain asbestos-containing materials to submit information regarding their products to EPA.
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). CERCLA holds certain parties strictly liable for the clean-up of hazardous substances at contaminated sites, which can include asbestos in buildings or soil.
Under the NESHAP regulations, owners or operators of buildings must both:
Use certain procedures during demolition or renovation of any structure where asbestos is present.
Notify the EPA or the appropriate state agency before doing this.
Owners or operators must also follow requirements for the handling, transport and disposal of asbestos-containing materials removed from buildings. There may be more stringent state requirements to follow in states that have enacted their own asbestos regulations.
OSHA regulations require employers to ensure their employees are not exposed to asbestos fibres in excess of a certain level. To ensure compliance, employers must assess and monitor asbestos hazards and, if necessary, institute engineering controls, work practices or respiratory protection measures to reduce asbestos exposure to the permissible level or below.
Violations of the asbestos NESHAP can be penalised with fines of up to US$37,500 per day of violation. Violations of OSHA's regulations carry penalties of up to US$7,000 per violation. Both regulatory frameworks also authorise criminal penalties involving larger fines and a potential prison sentence for knowing or wilful violators. Additionally, responsible parties at contaminated sites may be liable for the costs of cleaning up asbestos under CERCLA, and manufacturers of asbestos-containing products may be liable through tort law to individuals harmed by asbestos.
Regulator and legislation
Although a number of states have enacted separate legislation addressing responsibility for contaminated land, the primary federal programme is established by the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). CERCLA was enacted in 1980 to respond to the past disposal of hazardous substances, and complements the Resource Conservation and Recovery Act, which regulates ongoing hazardous waste handling and disposal. A key component of CERCLA was the creation of a Hazardous Substance Superfund, from which the programme derives its "Superfund" nickname. The Superfund provides the Environmental Protection Agency (EPA) with funding to clean up abandoned contaminated properties. However, an underlying principle of the programme is to shift the cost of cleaning up contaminated lands from taxpayers to parties responsible for the contamination. To that end, CERCLA authorises the EPA to pursue recovery of these costs from responsible parties and to order responsible parties to clean up contaminated lands.
The EPA is responsible for administering the Superfund programme. States also have authority to respond to releases of hazardous substances under CERCLA, must participate in a clean-up within their boundaries, and can partner with the EPA or take the lead themselves.
Investigation and clean-up
CERCLA provides the EPA with broad authority to investigate both contaminated properties and the parties potentially responsible for contamination. The EPA can either:
Undertake the investigation of contamination by itself, and later seek reimbursement of its costs from responsible parties.
Compel private parties to perform these activities through the issuance of unilateral administrative orders or civil proceedings in court.
The EPA can also issue broad information requests to private parties, seeking information about their responsibility for contamination, or request access to facilities to gather information and take samples. Finally, CERCLA contains provisions requiring releases of hazardous substances in excess of certain quantities to be reported to the EPA. Once these releases are reported, the EPA can require that they be investigated and remediated.
Although CERCLA authorises the EPA and States to conduct the clean-up of contaminated land, the EPA typically exercises its authority under CERCLA to require private parties to conduct the clean-up under regulator oversight. The EPA and States must approve the clean-up plan, and private parties cannot challenge decisions about how to clean up a property until the EPA takes action to compel the party to perform or pay for the clean-up.
Most clean-ups are performed under administrative settlements and consent orders with the EPA. These settlements provide some benefits to performing parties, such as protection against suits by third parties, but also include obligations such as financial assurance requirements. The financial assurance requirements in administrative settlements require performing parties to demonstrate that they have the financial resources to complete clean-up work or to guarantee that funding is available through insurance, trust funds, surety bonds or letters of credit.
The EPA is in the process of adopting regulations requiring companies in certain industries to provide financial assurance for clean-up obligations that may arise in the future. The draft financial assurance regulations for the hardrock mining industry are expected to be issued later this year. The EPA is expected to decide later this year whether to adopt similar regulations for the chemical manufacturing, electric power, and petroleum and coal products industries.
The EPA recently issued guidelines that highlight the importance of vapour intrusion impacts in property, particularly when there are known or suspected off-site contaminant plumes. Vapour intrusion is the migration of hazardous vapour from contaminated soil or groundwater into an overlying building. It is of greatest concern at sites contaminated by volatile organic compounds (such as chlorinated solvents and gasoline constituents).
Vapour intrusion is becoming a focus for regulators in the US, causing them to reopen remediations that were thought to be complete. The EPA's guidance provides:
New recommendations for pre-emptive mitigation.
Early action at certain sites before a full vapour intrusion analysis is complete.
Advice on the use of deed restrictions and other institutional controls to restrict land use or activities that could otherwise result in unacceptable exposure to the vapour intrusion pathway.
CERCLA provides penalties of up to US$37,500 per day if a party either:
Violates its provisions (such as release reporting requirements).
Fails to comply with an EPA order.
Fails to comply with the terms of an administrative settlement with the EPA.
In addition, a party responsible for a release of hazardous substances that fails without "sufficient cause" to comply with an EPA order to clean-up contamination, may be liable for punitive damages equal to three times the costs incurred as a result of the party's refusal to comply.
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) liability is retroactive. Parties can be held liable for acts that happened before the Superfund was enacted in 1980, even if the conduct was legal at the time.
CERCLA liability can be joint and several. Any potentially responsible party (PRP) can be held liable for the entire clean-up of the site when the harm caused by multiple parties cannot be separated.
CERCLA employs strict liability. A PRP cannot argue that it was not negligent or was operating according to industry standards at the time of contamination. If a PRP sent hazardous material to a site, that party faces liability unless it qualifies for a limited number of defences.
Limitation of liability
If a party wishes to purchase a site known or suspected to be contaminated (a "brownfield" site), there is a statutory exemption from CERCLA liability if certain conditions are met. A bona fide prospective buyer of contaminated property is not deemed a PRP if it both:
Conducts all appropriate inquiries into the property before it purchases.
Exercises reasonable care in relation to existing contamination after the purchase.
The specifics of this defence are not well defined, so buyers of contaminated property in the US should exercise caution and seek appropriate technical and legal advice. Recent EPA guidance provides a similar defence to lessees or tenants of contaminated property, even if the landlord/owner is not eligible for the defence. The tenant must show that they meet all the requirements of BFPP status, except for the "all appropriate inquiries" requirement.
Lenders are not held liable for contamination of a borrower's facility, provided they do not participate in the management of the facility (Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)). Merely holding a lien on contaminated property or having the unexercised capacity to influence a borrower's operations does not constitute participating in management. However, a lender can participate in management and expose itself to potential liability under CERCLA if it either:
Exercises decision-making control concerning environmental compliance related to the borrower's facility and, in doing so, undertakes responsibility for hazardous substance handling or disposal practice.
Exercises control at a level similar to that of manager of a facility. This means that the lender assumes responsibility for the day to day decision-making on environmental compliance of all or substantially all of the operational functions of the facility other than environmental compliance.
Lenders are expressly permitted to:
Inspect and monitor a borrower's facility or property.
Protect the environment from a release of contamination.
Conduct a response action, as long as those actions do not rise to the level of participation in management within the meaning of CERCLA.
Provide financial or other advice to prevent or cure a borrower's default.
Change the terms of the security interest.
CERCLA also contains a safe harbour provision that allows lenders to engage in workouts and foreclose in relation to contaminated property, without attracting environmental liability. In the workout context, a lender who did not participate in management during the life of a loan can:
Maintain a borrower's business activities.
Undertake a response action.
Sell, re-lease or liquidate the facility.
Take actions to preserve, protect or prepare the property for sale.
After foreclosure, the lender must attempt to divest itself of the property at the earliest practicable commercially reasonable time, using commercially reasonable means. The specifics of this safe harbour are determined after the fact and can often be treacherous in their application. Many state environmental laws have adopted similar safe harbours. Accordingly, lenders should be certain that their actions fall squarely within all applicable safe harbours, particularly when they become involved in a borrower's operations during workout activity, or when they foreclose on contaminated property.
Private individuals can bring actions under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and comparable state environmental laws to recover the costs of investigating and remediating contamination that migrates onto their land from an adjacent site. They can also seek relief under citizen suit provisions of numerous federal and state environmental statutes if surrounding properties are engaged in conduct that violates applicable environmental requirements. They can also bring actions under the common law for property damage, nuisance, trespass and personal injury. Statutory actions are the primary vehicle for relief because they are generally easier to bring than private common law actions. Many statutory claims permit environmental plaintiffs to recover their attorney fees and costs if litigation is successful.
Hydraulic fracturing (fracking) is an active industry in many states where appropriate geological formations exist. However, a variety of states that have potential for development have imposed total or partial bans on fracking. In addition, development has slowed recently as oil and natural gas prices have fallen to historic lows.
The overall regulatory requirements are generally a matter of state law and therefore vary from state to state. However, generally, those wishing to develop wells through hydraulic fracturing must secure permits to allow the well to be drilled and meet other regulatory requirements. These permits and requirements require those developing the well to take various measures to ensure that chemicals do not spill at the surface level and that the well has sufficient integrity to prevent underground leakage into drinking water aquifers. In addition, in some regions where water is comparatively scarce, special permissions may be required to use the water that is involved in fracturing the well through the high pressure underground injection of water, chemicals and silica. Among the issues of greatest concern are the:
Risk of spills of chemicals at the site when the well is being developed.
Risk of well integrity failure allowing contaminants to migrate underground to drinking water supplies.
Question of how to dispose of "flowback water" that occurs during well development. There is increasing attention to whether and how the permanent underground disposal of flowback water in underground injection wells may be contributing to increased seismicity in certain locations.
Another area of growing concern and regulation is the emission of methane during the well completion process, given methane's high greenhouse gas potential. The Environmental Protection Agency (EPA) is finalising new regulations to limit methane emissions during well completions.
Environmental liability and asset/share transfers
The general rule is that an asset purchaser does not inherit a seller's environmental liabilities. However, common exceptions to the general rule adopted by most states include the following:
The buyer agrees to contractually assume the seller's liabilities.
The transaction amounts to a consolidation or de facto merger.
The buyer is a mere continuation of the billing company.
The transaction was entered into fraudulently to escape liability.
Some jurisdictions have gone further and adopted a fifth exception to the general rule in the environmental liability context, referred to as the "mere continuation" or "substantial continuity" theory. This imposes liability on as asset purchaser if it continues substantially the same operations as the seller, based on a fact-specific analysis.
However, even if a buyer does not assume or otherwise inherit the seller's liabilities, the purchaser may have liability in its own capacity as a current owner or operator of a site, even with respect to environmental conditions that existed at a purchased property before the closing date.
If the stock of a company is purchased or a merger occurs, the environmental liabilities transfer with the company's stock. Therefore, all of the company's environmental liabilities, including liabilities associated with formerly owned or operated sites, off-site disposal liabilities and liabilities associated with pre-existing contamination existing at a property owned or operated by the target company, follow the stock.
An asset seller retains all environmental liabilities associated with the assets to be sold unless the buyer contractually assumes the liabilities. However, contractual allocation of liability among parties does not relieve a seller of liability to a governmental authority.
In a stock sale or merger, all of the company's environmental liabilities will follow the shares.
Generally, there is no federal statutory duty to disclose environmental information to a purchaser. However, certain states require disclosures of environmental liabilities to purchasers and governmental authorities. Certain states, including New Jersey and Connecticut, have environmental transfer laws that require:
Filings with governmental authorities in the context of certain transactions.
Investigation into and potentially remediation of contamination at properties to be transferred.
In addition, many transactions require the seller to provide representations and warranties in transaction documents, requiring the disclosure of environmental information.
The obligation to disclose information in a share sale is typically the same as in an asset sale.
It is common for environmental due diligence to be undertaken in asset and share sales, and mergers, in particular when transactions involve the acquisition of or mergers with target companies with current or historic industrial operations or the acquisition of real property. Even properties whose current uses may not suggest contamination could have significant environmental liabilities associated with past uses (such as a shopping mall built on a former landfill or a fast food restaurant built on a former gasoline service station). Areas typically included in the scope of environmental due diligence include assessments of:
Potential contamination at currently owned, operated or leased properties.
Potential contamination at formerly owned, operated or leased properties.
Potential liabilities associated with non-compliance with current environmental, health and safety regulatory, or permit requirements, or reasonably foreseeable future regulatory requirements.
Potential liabilities associated with personal injury or property damage cases associated with releases or exposure to hazardous materials.
Potential liabilities associated with the off-site disposal of hazardous wastes.
Types of assessment
Due diligence investigations vary depending on the type of company or property being purchased. Typically, a Phase I environmental site assessment is conducted, which includes a site visit, records review, database searches and agency file reviews, but no sampling. If the Phase I identifies potential contamination, a Phase II environmental investigation, that includes testing and sampling of soil and/or groundwater, may be conducted provided the seller consents. An environmental, health and safety compliance assessment is often also conducted. Compliance with current American Society for Testing and Materials (ASTM) standards for Phase I investigations may allow an asset purchaser to be eligible for the all bone fide prospective purchaser defence to liability under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) (other elements of the defence must also be met post-closing).
Environmental consultants typically conduct the assessments discussed above.
Environmental representations and warranties, environmental covenants, and environmental indemnities are typically contained in asset and stock purchase agreements. Environmental representations and warranties typically include representations relating to:
Releases of hazardous materials at currently and formerly owned, operated and leased real properties.
The seller has provided all environmental reports and other material environmental documents in its possession.
The target company's or the relevant property's compliance with environmental laws and permits.
The presence of underground storage tanks, asbestos containing materials (ACMs), or polychlorinated biphenyls (PCBs).
Past, pending or threatened environmental claims.
Off-site disposal liabilities.
Environmental indemnities provided by the target company.
Any consent decrees or agreements to which the target company is subject.
Any environmental transfer laws that will be triggered by the contemplated transaction.
Any chemical exposure liabilities of the target company.
The sellers breach of the environmental warranties provided in the contract.
Pre-closing environmental liabilities or environmental conditions.
Environmental representations, warranties and indemnities are usually subject to a cap, basket and survival period. The survival period and caps and baskets vary depending on the facts and circumstances of the transaction. However, the survival period is often longer for environmental representations than other representations. It is not uncommon for environmental representations and indemnities to survive about three to ten years.
Reporting and auditing
Federal and state environmental regulators maintain a wide variety of online information concerning:
Much of this information is accessible free, although most parties involved in environmental diligence use commercial services that aggregate the information and allow it to be sorted by using different geographic and other screens.
Information not readily accessible online can be obtained through the Freedom of Information Act (FOIA) and state equivalents. The FOIA requires an agency to disclose documents in its control unless those documents fall under a specified exemption. FOIA requests are a standard part of environmental due diligence.
Companies typically have monitoring requirements under their permits. Companies are not typically required to carry out general environmental auditing. However, many companies do so voluntarily to reduce the risk of significant civil and criminal penalties. Both the Environmental Protection Agency (EPA) and many state environmental agencies encourage companies to conduct environmental audits and provide lower penalties if violations are voluntarily discovered through an audit, and reported and cured in a timely manner.
The EPA has recently introduced an online electronic portal to make self-disclosures. Experience with this new process has been mixed and some commentators think it is not well designed for reporting complex regulatory deviations.
Clean Air Act (CAA) and Clean Water Act (CWA) permit holders must periodically report on compliance with the limitations specified in their permits. Additionally, unpermitted spills and releases to the environment in reportable quantities must be promptly reported to the appropriate authority.
The requirement to report the discovery of historic contamination is less strict than the requirement to report a new spill, although the Environmental Protection Agency (EPA) has taken the position that even historic spills should be reported in certain circumstances. Certain states require all contamination above clean-up levels to be promptly reported.
Most environmental permits require permit holders to grant regulators access to the permitted facility to inspect and review documents. In addition, most statutory and regulatory regimes provide federal and state regulators broad authority to conduct inspections and review documents.
In cases where substantial criminal violations are suspected, investigators can secure judicially approved warrants allowing them to physically seize evidence. Execution of a search warrant typically signals very substantial legal risks for a company.
Environmental insurance is currently offered by a number of insurance companies. The most common types of environmental insurance are:
Pollution legal liability policies (PLL Policies). PLL policies typically provide coverage for:
clean-up costs for unknown contamination;
third party claims for clean-up costs, and third party personal injury and property damage claims arising out of pollution incidents.
PLL policies typically contain myriad coverage exclusions, some of which are negotiable. These are the most common environmental policies and are increasingly used in transactions.
Clean-up cost cap. Clean-up cost cap policies provide coverage to the extent clean-up costs exceed original estimates. Cost cap policies typically require an approved clean-up plan. These policies have become less common in recent years.
Secured creditor policies. Secured creditor policies protect lenders if a borrower defaults on a loan or if collateral value is lost due to pollution. These policies have also become less popular given that federal and many state environmental laws contain secured creditor exemptions
Some states impose taxes on the disposal of hazardous waste. The Superfund (see Question 14, Regulator and legislation), which is used for the clean-up of hazardous waste sites when no responsible party is found, was originally financed largely from taxes on petroleum and chemical feedstocks, but those taxes are not currently in effect.
Federal and state governments offer tax breaks for environmental projects, such as the Brownfields Tax Incentive, which provides tax incentives for the clean-up and revitalisation of properties that meet specific land use and contamination requirements. Tax incentives are also given for research and development of alternative energy sources.
Proposals for reform include the following:
Climate change. Regulations to limit greenhouse gas emissions from power plants have been issued but are being challenged in court. Mobile sources, such as automobiles, have become regulated for their greenhouse gas emissions. Large major sources that are subject to the NSR/PSD programme (see Question 7, Permits and regulator) can also have their greenhouse gas emissions limited by the permitting authority.
Methane. Methane emissions from various natural gas-related activities (for example, hydraulic fracturing) are being increasingly regulated.
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) mega sites. CERCLA sites have recently included contaminated waterways (such as rivers and lakes) in addition to contaminated land and former landfills that accept industrial waste. These sites involve significant costs for remediation and investigation, and complex technical and legal issues. Potentially responsible parties (PRPs) are struggling to find ways to address these sites in a safe and cost-effective manner.
Chemical regulation. It appears increasingly likely that within the next 12 months Congress will enact major changes to the Toxic Substances Control Act (TSCA), the major statute governing chemical manufacture, import and sale.
The regulatory authorities
Environmental Protection Agency (EPA)
Main activities. Implementing federal environmental laws concerning (among others):
- Water pollution.
- Air pollution.
- Hazardous waste.
- Toxic substances.
- Contaminated properties.
Department of Justice, Environment and Natural Resources Division
Main activities. Enforcing civil and criminal pollution laws, defending environmental challenges brought against the US government, and bringing and defending cases under the wildlife protection laws.
Department of Interior
Main activities. Preservation of public lands and natural and cultural resources through:
- Protecting land and water resources.
- Maintaining recreational sites.
- Managing energy projects on federal land.
- Conserving fish and wildlife.
US Army Corps of Engineers
Main activities. Implements the Clean Water Act in relation to dredge, fill, and construction permitting, and otherwise manages federal navigational channels under the Rivers and Harbors Act.
White House Council on Environmental Quality
Main activities. Co-ordinating federal environmental efforts to ensure that federal agencies consider the effects of their policies on the environment.
National Oceanic and Atmospheric Administration, Department of Commerce
Main activities. Manages living marine resources and their habitats.
Occupational Safety and Health Administration, Department of Labor
Main activities. Regulates the health and safety of workers.
Description. A complete and up-to-date version of the US Code, containing all federal laws. Most environmental laws are codified at Title 42 of the US Code.
In addition, the EPA maintains a webpage (www2.epa.gov/laws-regulations/laws-and-executive-orders) that provides downloadable links to and summaries of many environmental laws and relevant executive orders.
The EPA also provides implementing regulations of the laws at www2.epa.gov/laws-regulations/regulations.
Ronald Tenpas, Partner
Morgan, Lewis & Bockius
Professional qualifications. Attorney, District of Columbia, Florida and Maryland
Areas of practice. Environmental litigation; energy - litigation and regulatory; congressional and independent commission investigations; environmental counseling and litigation; product liability and mass torts; white collar litigation and government investigations; corporate, finance and investment management.
Ella Foley-Gannon, Partner
Morgan, Lewis & Bockius
Professional qualifications. Attorney, California, US Court of Appeals for the Ninth Circuit, US District Court for the Central District of California, US District Court for the Northern District of California and US District Court for the Southern District of California.
Areas of practice. Energy; environmental counseling and litigation; litigation, regulation and investigations.
Rick Rothman, Partner
Morgan, Lewis & Bockius
Professional qualifications. Attorney, California, District of Columbia, Supreme Court of California, US Court of Appeals for the District of Columbia Circuit, US Court of Appeals for the Ninth Circuit, US District Court for the Central District of California, US District Court for the Eastern District of California, US District Court for the Eastern District of Michigan, US District Court for the Northern District of California, US District Court for the Southern District of California and US Supreme Court.
Areas of practice. Environmental litigation; energy regulatory; product liability and mass torts; healthcare; corporate, finance and investment management; litigation, regulation and investigations.
Duke McCall, Partner
Morgan, Lewis & Bockius
Professional qualifications. Attorney, District of Columbia, South Carolina; US Court of Appeals for the Eleventh Circuit; US Court of Appeals for the Fourth Circuit; US District Court for the District of Columbia; US District Court for the District of South Carolina; US District Court for the Western District of Michigan; US Supreme Court.
Areas of practice. Environmental counseling and litigation; litigation, regulation and investigations.
Judith Walkoff, Partner
Morgan, Lewis & Bockius
Professional qualifications. Attorney, District of Columbia, Connecticut, Florida, New York.
Areas of practice. Environmental litigation; securities and corporate governance; mergers and acquisitions; environmental counseling and litigation; private equity.