On February 13, 2023, the U.S. Environmental Protection Agency’s (EPA) final rule went into effect incorporating the American Society for Testing and Materials (ASTM) E1527-21 standard into the “all appropriate inquiries” (AAI) requirement under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). E1527-21 is ASTM’s updated standard for conducting Phase I environmental site assessments (ESAs). Significantly, the E1527-21 standard clarifies that until a contaminant is listed as a hazardous substance under CERCLA, it is not required to be addressed in a Phase I ESA. This clarification excludes emerging contaminants, such as per- and polyfluoroalkyl substances (PFAS), from the required scope of a Phase I ESA even though PFAS and other emerging contaminants are increasingly the subject of environmental risk evaluation, investigation and remediation, and litigation. As discussed below, that E1527-21 does not require consideration of emerging contaminants, including PFAS, has significant implications for transactional diligence.
The ASTM standard for Phase I ESAs is evaluated by the ASTM every eight years. In November 2021, the ASTM Committee on Environmental Assessment, Risk Management and Corrective Action released E1527-21, its updated “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process.” In March 2022, EPA issued a request for comments on the incorporation of E1527-21 into AAI. AAI is a required element of a number of CERCLA liability defenses for purchasers of real property. After considering public comments on the proposed rule for several months, on December 15, 2022, EPA published the final rule in the Final Register, amending EPA’s AAI rule to allow the use of ASTM E1527-21 to satisfy AAI under CERCLA. The former ASTM E1527-13 Phase I ESA standard will continue to be accepted by EPA as meeting AAI for up to one year after the effective date (i.e., until February 13, 2024).
Updates to the standard are largely clarifying revisions to the existing ASTM E1527-13 standard. For example, changes were made to clarify certain definitions, what constitutes a data gap, and when a Phase I ESA expires. In addition, the new ASTM E1527-21 standard also requires that the consultant or “environmental professional” performing the Phase I ESA conduct a more thorough review of information sources than the prior E1527-13 standard. For example, the E1527-13 standard requires the consultant to review additional sources, such as property tax records or building department records, if the subject property is used for industrial or manufacturing purposes, but the new E1527-21 standard extends these requirements to retail properties.
One of the most notable revisions in ASTM E1527-21 is the clarification in Appendix X6.10 that a contaminant is not within the required scope of a Phase I ESA unless it is listed as a “hazardous substance” under CERCLA. Emerging contaminants, therefore, are addressed as “non-scope items,” similar to asbestos, radon, lead paint, and mold. The ASTM E1527-21 standard expressly identifies PFAS as a category of emerging contaminants and states that, where a Phase I ESA is performed to satisfy both federal and state requirements, or as directed by the user of the report, it is “permissible”—but not required—to include analysis and/or discussion of these substances in the same manner as any other non-scope consideration. The standard also provides that if and when an emerging contaminant is defined to be a hazardous substance under CERCLA, the substance will be required to be evaluated as part of Phase I reports. This is particularly significant in the context of PFAS because EPA is in the process of evaluating various PFAS compounds for potential listing as hazardous substances under CERCLA and, most recently, on September 6, 2022, EPA published a proposed rule to add two specific PFAS—perfluorooctanoic acid (PFOA) and perfluorooctane sulfonic acid (PFOS)—to the CERCLA hazardous substances list. However, that listing proposal remains pending, so PFOA and PFOS are not yet formally defined as hazardous substances under CERCLA.
ASTM E1527-21’s treatment of PFAS, and emerging contaminants generally, highlights some important considerations for transactional diligence. Parties conducting due diligence or involved in transactions for which a Phase I ESA will likely be used to assess more than just the AAI component of a CERCLA defense should be aware of what the new standard requires for PFAS and other emerging contaminants, especially as regulatory standards evolve or are adopted on a state and federal level. Specifically, parties should consider the standard both when defining the appropriate scope of work prior to hiring a Phase I consultant and when reading a completed Phase I ESA in assessing relevant business risks and liabilities. The standard, if applied strictly, allows for PFAS and other emerging contaminants to be treated in two distinct ways—either the emerging contaminants are regulated as hazardous substances under CERCLA and should be addressed in the Phase I ESA, or they are not regulated and inclusion in the Phase I ESA is optional. This dichotomy creates risk that a Phase I ESA will have missed a significant potential area of environmental concern for a transaction; a risk that is compounded by the existence of thousands of PFAS that could be subject to different regulatory standards.
There are several implications specific to PFAS that are worth emphasizing.
First, no PFAS are currently regulated as hazardous substances under CERCLA. Thus, unless evaluation of PFAS is specified as a non-scope item, a Phase I ESA may not be addressing PFAS or other emerging contaminants at all. A consultant could still certify that a Phase I ESA is ASTM-compliant without addressing obligations under applicable state law or potential liabilities and business risks present in the transaction.
Second, only PFOS and PFOA have been proposed for listing as CERCLA hazardous substances to date. In its October 2021 PFAS Strategic Roadmap, as well as its September 2022 proposed rule regarding PFOS and PFOA, EPA indicated that it is considering designating additional PFAS as hazardous substances under CERCLA. If PFOA, PFOS, and any other PFAS become CERCLA-listed hazardous substances, those PFAS will need to be addressed in order to complete an ASTM-compliant Phase I ESA. However, that same Phase I ESA may not be addressing other PFAS that will remain non-scope items because they are not yet CERCLA-listed hazardous substances, even if still under EPA evaluation.
Third, though Appendix X6.10 specifically references the potential designation of PFAS as hazardous substances under state law and the possibility that a Phase I ESA may be “performed to satisfy both federal and state requirements,” designation of a PFAS as a hazardous substance under state law does not necessarily mean that the PFAS will be addressed in the Phase I ESA. Currently, unless a PFAS is regulated as a hazardous substance under CERCLA, it would need to be specifically identified as a non-scope item to confirm that it is included in the Phase I ESA.
Fourth, even if a Phase I ESA purports to address certain types of PFAS that a particular state considers to be a hazardous substances under applicable state law, there are likely additional PFAS that are not listed as hazardous substances in that state. Given that PFAS is an umbrella term covering thousands of specific chemicals, only certain PFAS are or will be subject to state regulatory standards, and those standards may vary, perhaps significantly, by state.
Finally, it is important to remember that a Phase I ESA addresses the potential that a particular site is contaminated with hazardous substances. Many of the business risks related to PFAS fall outside of this scope of inquiry—e.g., product stewardship, supply chain management, labeling or reporting obligations, and potential toxic tort liabilities. Further review, beyond an ASTM-compliant Phase I ESA, may still be warranted.
ASTM E1527-21 clarifies how Phase I ESAs can address PFAS and other emerging contaminants, but does not require that such contaminants be addressed in the Phase I ESAs, unless and until the particular PFAS compounds are listed as CERCLA hazardous substances. Until this occurs, even an ASTM-compliant Phase I ESA may not identify PFAS-related risks or liabilities, and it may be necessary to include them as a specific non-scope component for the consultant’s scope of work. Further, the reader or user of a Phase I ESA needs to understand the consultant’s scope of work and cannot simply equate the absence of any Recognized Environmental Conditions with the absence of concerns related to PFAS or other emerging contaminants.
Given that there are thousands of different PFAS, buyers, sellers, and lenders will need to be cognizant of the differences in PFAS regulations on a federal and state-by-state basis. Parties to transactions may face significant risks associated with specific PFAS that may not be—but perhaps for risk assessment or mitigation purposes should be—considered for a particular transaction. Parties should understand what information is available for specific PFAS and should not assume that a general discussion of PFAS in a Phase I ESA is actually covering all of the relevant PFAS risk.
