I first heard of intergenerational equity from Tony Oposa, an environmental lawyer and inspirational environmental advocate. Viewed through an environmental prism, the concept resonated for me in a simple phrase I often heard and said to myself: I want things to be better for my children and their children. Intergenerational equity underpins concepts such as sustainability and renewable energy. The question we ask isn’t only about what is acceptable today, but what is equitable for those that will inherit the Earth?
When we evaluate the cause of existing environmental problems and those likely to come, we see an aggregation over time of harms driven by current societal practices. A shift in environmental enforcement and application of the “polluter pays” principal could allow some benefit to come from those same environmental harms. How? The answer starts by removing what seem to be arbitrary limitations restricting funding for Supplemental Environmental Projects (SEPs) in environmental enforcement actions resulting in the underutilization of SEPs. Changes in agency interpretation, federal enforcement, and legislative action could eliminate those obstacles and aggregate money to be used for SEPs, leading to a healthier environment.
The U.S. Environmental Protection Agency (EPA) defines SEPs as “environmentally beneficial projects which a defendant agrees to undertake in settlement of an enforcement action, but which the defendant, or any other third party, is not otherwise legally required to perform.” EPA Supplemental Environmental Project Policy, 2015 Update, at 6 (SEP Policy). Recent SEPs have included projects such as changing diesel truck fleets to cleaner fuel, at an estimated cost of $5 million, and planting trees to reduce air pollution concentrations, at an estimated cost of $1.5 million. Other examples include wetlands restoration and carbon sequestration projects, to name a few. More commonly, environmental enforcement actions result in injunctive relief requiring a defendant remedy the environmental harm or correct the alleged violation, and civil penalties intended as a deterrent. Federally, SEPs are implemented through the EPA’s use of enforcement discretion in settlements, rather than final adjudication, allowing defendants to perform a SEP or hire a third party to perform the SEP. When defendants voluntarily agree to SEPs, a portion of the civil penalty paid to the U.S. Treasury is reduced. The entire civil penalty is not eliminated, and injunctive relief to remedy the underlying harm or violation is still required.
The Biden administration also views SEPs as having a special role in environmental justice. The Office of the Attorney General’s (OAG) May 5, 2022, memorandum on Guidelines and Limitations for Settlement Agreements Involving Payments to Non-Governmental Third Parties, states that SEPs “further the aims of the federal environmental laws the Justice Department is responsible for enforcing by remedying the harms to communities most directly affected by violations of those laws.”
However, there is a disconnect between the stated importance of SEPs and their use as an enforcement tool. Data recently published by EPA confirms what practitioners have long experienced: SEPs are not used in the vast majority of federal enforcement actions. According to EPA’s Enforcement and Compliance Annual Results for FY 2023, Data and Trends, EPA completed 1,791 enforcement actions, but SEPs were only implemented in 44 of them. As the report also states, between 2014 and 2023 a total of 18,955 enforcement actions were completed, with the total number of SEPs falling well behind at a mere 742. This trend is not unique; it has persisted for decades, as noted by Kenneth T. Kristl, Making a Good Idea Even Better: Rethinking the Limits on Supplemental Environmental Projects, 31 Vt. L. Rev. 217 (2007).
One of the factors limiting SEP implementation are arguments raised under the Miscellaneous Receipts Act (MRA), 31 U.S.C. § 3302, and agency interpretation of that statute. The MRA provides that government officials having possession or custody of public money, including civil penalties in federal enforcement actions, must deposit the money with the U.S. Treasury. For example, in United States v. Smithfield Foods, 982 F. Supp. 373 (E. Dist. Va. 1997) (Smithfield), the court interpreted the MRA in the context of allocating penalties in a Clean Water Act enforcement action. The court found that in the absence of statutory direction on the allocation of civil penalties, once an amount a defendant is ordered to pay is categorized as a “civil penalty,” those amounts must be paid to the U.S. Treasury. Recognizing the implications of the MRA, EPA’s SEP Policy requires that defendants agree to undertake SEPs and pay third parties for SEP implementation in settlement agreements, before liability is determined, and without characterizing those payments as civil penalties. Given the important role that SEPs hold, and can have, it is time for legislative action to allow the EPA to allocate civil penalties as SEPs even when settlements are not reached.
Additionally, EPA’s SEP policy seems unnecessarily focused on the prohibitions of the MRA rather than the, perhaps, more important limitations on the scope of the MRA as noted by the Smithfield court. For instance, in Smithfield the court recognized that payment to the general U.S. Treasury did not seem to be the most effective way of combating environmental problems but felt constrained by the MRA. Importantly limiting the breadth of those constraints, in its final footnote the court highlighted the limits of its ruling as follows: “Of course, monies paid in settlement of suits may be used to fund local environmental projects. Parties may compromise claims as they see fit.” 982 F. Supp. at 376 n.5.
Accordingly, under Smithfield EPA need not limit itself to a one-size-fits-all approach in the use of SEPs. Settlements between EPA and private parties can be structured “as they see fit.” EPA can also look to the language of environmental statutes with express authority to support the use of SEPs and the corresponding reduction of civil penalties in certain actions that do not result in settlement. Under the Clean Air Act, for example, courts have the statutorily granted “discretion to order that such civil penalties . . . be used in environmentally beneficial projects . . . which enhance the public health or the environment” in lieu of payment as civil penalties. 42 U.S.C. § 7604(g)(2). Albeit, that authority is limited to $100,000, far less than the cost of many SEPs. TSCA also grants EPA authority to “compromise, modify, or remit, with or without conditions, any civil penalty which may be imposed under this subsection.” 15 U.S.C. § 2615(a)(2)(C).
EPA can find further support for using enforcement discretion to emphasize SEPs rather than a larger civil penalty from the Oregon District Court’s rationale in N.W. Env’t Def. Ctr. v. Unified Sewerage Agency, 1990 U.S. Dist. LEXIS 13349, at *3 (D. Or. 1990) (Unified). There, the court upheld payment of $900,000 of civil penalties under the Clean Water Act to a trust fund for protection of an Oregon watershed impacted by the defendant’s actions. The court expressly recognized that through SEPs, the deterrent effect of civil penalties could be reconciled with the goals of environmental statutes:
The purpose of the Clean Water Act is to improve water quality, not endow the Treasury. What better use of the penalty type payments in an action like this than to facilitate water quality improvements to the affected watershed in ways which could not be required under law. These additional enhancements to water quality, the payment for which also serves as a hefty sanction to defendant, fully meet congressional intent that there be penalty aspects of Clean Water Act consent decrees to discourage other polluters.
Arguments under the MRA were not raised in that case, but the court’s rationale underscores the benefit of directing settlement monies toward environmentally beneficial projects and lends support for EPA’s use of policy interpretation to emphasize SEPs.
Given these arguments and the many available opportunities for beneficial environmental projects, the question should be: How best can money paid for deterrence in civil environmental enforcement actions serve to benefit the environment? Unfortunately, the federal SEP Policy only allows aggregation of SEPs in very limited circumstances and expressly prohibits structures that could aggregate funds to enhance, protect, and advance environmental goals from multiple enforcement proceedings or settlements. For example, the SEP Policy prohibits:
These prohibitions impose policy limitations disincentivizing the use of SEPs and largely eliminate the possibility of aggregating funds from multiple alleged violators for environmentally beneficial projects. However, some beneficial SEPs, such as those listed above, are multimillion-dollar projects that would require years to complete. The cost and scale of these projects mean they may only be considered when a defendant’s civil penalty exposure outweighs the cost of SEP implementation. Also, without the necessary experience or resources, some defendants may be unwilling or unable to oversee complex but worthwhile projects. The small number of implemented SEPs suggests that when defendants are faced with choosing between paying a higher civil penalty or undertaking a costly and time-consuming project, they opt for paying civil penalties. Or, more simply, in many enforcement actions SEPs currently are not viable considerations for defendants.
EPA policy could remove limitations disincentivizing SEPs in settlements. One approach could be to follow the guidance of Smithfield and Unified to allow settlement payments into discrete trust funds established for specific, preapproved environmentally beneficial projects that others agree to administer or implement. This would facilitate aggregating money to fund environmentally beneficial projects that would have never been considered in individual settlements. Defendants in smaller enforcement actions could also contribute to large-scale, environmentally beneficial projects they alone would not have funded.
Guidance for this structure can be gleaned from Texas. Under Texas law, the Texas Commission on Environmental Quality (TCEQ) provides prorated reduction of civil penalties for amounts that defendants contribute toward SEPs. Tex. Water Code § 7.067; see also TCEQ’s guidance, Supplemental Environmental Projects, Putting Fines to Work Closer to Home (rev. Oct. 2015). TCEQ maintains a list of preapproved SEPs, some of which are administered by third-party nonprofit organizations. Alleged violators can perform SEPs themselves or pay a portion of the penalty amount towards a pre-approved SEP a third party is responsible to perform. Amounts paid towards SEPs do not eliminate the injunctive relief of environmental enforcement actions. Alleged violators are still required to address the environmental harm they caused. At the federal level, a similar structure would remove roadblocks facing defendants deciding whether to implement a SEP or pay a larger civil penalty. Also, in states such as Texas where state laws allow contribution towards SEPs, EPA could insist the state is joined as a plaintiff in enforcement actions to allow use of the state’s SEP policy to fund SEPs.
Congress could eliminate federal restrictions on EPA’s use of SEPs with legislation specifically authorizing civil penalties to be used for environmentally beneficial projects, as they have under the Clean Air Act. Increasing the use of SEPs as an enforcement tool and supporting that structure with sound legislation to aggregate money through settlement of environmental enforcement actions could provide means to achieve real environmental progress, progress individual actors alone could not accomplish. Funds could be created to tackle the myriad environmental problems facing our communities. Aggregating and directing money toward SEPs could expand the focus of environmental enforcement to not only redress the immediate harm, but also allow the legislative intent of environmental statutes, such as protecting our air, water, and earth, to address large-scale problems and foster a better environment for future generations.
