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Environmental Settlement Policy Seen as Boon to Hard-Hit Places

May 6, 2022, 7:05 PM

Environmental justice communities stand to benefit the most from the Justice Department’s revival of a popular settlement tool for alleged polluters, according to industry lawyers and former federal officials.

The idea of using supplemental environmental projects, or SEPs, to help low-income communities of color isn’t new. But the Biden administration now appears to be specifically framing SEPs as a tool to advance environmental justice, according to Anne Austin, former head of the EPA’s air office under President Donald Trump.

“It seems that an increased emphasis will be placed on the utilization of SEPs to bring even greater benefits to EJ communities outside of existing federal statutory authorities,” said Austin, now a partner at Pillsbury Winthrow Shaw Pittman LLP.

The Justice Department announced the restored use of SEPs Thursday. The Trump administration had prohibited most uses of them.

SEPs are environmentally beneficial projects—such as restoration work, public awareness campaigns, or pollution prevention efforts—that companies can volunteer to undertake as part of their settlements for alleged violations, often in exchange for a reduction in their penalties.

SEPs provide enormous benefits for communities heavily burdened with pollution, rather than just letting the money go “to the bottomless pit of the U.S. Treasury,” University of New Mexico professor and environmental justice expert Cliff Villa said.

Villa cited a life-saving SEP project in South Valley, in the Albuquerque, N.M., metro area, where money from a water utility violation built a water passage for a wildlife refuge and a bike trail in a low-income community plagued with fatal bike accidents.

“I’ve never heard a responsible party complain about doing SEPs, not once, and I’ve never heard a community complain about having a SEP in their community,” Villa said.

‘Pivotal Step’

Steven P. Solow, the former chief of Justice’s environmental crimes section under President Bill Clinton and now a Baker Botts LLP partner, agreed that the Biden administration will now try to “look for identifiable victims of environmental violations in communities of color and low-income communities.”

Attorney General Merrick Garland also announced on Thursday a new environmental justice office within DOJ. Granta Nakayama, who led the EPA’s enforcement division under President George W. Bush, said that announcement is a “signal that DOJ intends to use SEPs to address EJ issues, and for those projects to be done in a more focused way.”

The office launch marks a “pivotal step towards addressing the ever-increasing disparities” in marginalized communities affected most by pollution and climate change, according to NAACP Environmental and Climate Justice Program manager Jane English.

“It is imperative that our leaders produce real, tangible solutions to protect Black and frontline communities and correct existing and past harms, all while initiating direct law enforcement corrective responses to egregious harms and environmental injustices, an issue that is central to the NAACP’s mission,” English said in a statement.

But one potential snag is new language that forbids the Justice Department from identifying a specific SEP project for an alleged violator to perform, according to both Solow and Nakayama.

DOJ “doesn’t want to be viewed as encouraging people to donate to specific organizations,” said Nakayama, now a partner at King & Spalding LLP. Instead, companies must present their proposed projects to the agency, which can then approve or deny them. But “it would be easier for EJ purposes” if Justice could simply steer defendants toward projects that directly help overburdened communities, Nakayama said.

Another new provision in the interim final rule is language requiring that each SEP must have a strong connection to the underlying violation, and must advance at least one of the statute’s objectives.

“That was not always the case in the past,” said Andrew Lillie, a partner at Holland & Hart LLP. “In fact, it was often easier to find projects that were reasonably close to the site of the underlying violations and ‘close enough’ to the kinds of issues at play in the legal action.”

SEP Critics

The use of SEPs was scrapped under President Donald Trump largely on the argument that they illegally funnel money away from the U.S. Treasury.

But Nakayama dismissed the notion that SEPs let companies off the hook, noting that the reduction in a monetary penalty can, at best, only equal the cost of the project. Because many SEPs require years of maintenance and oversight, they often end up costing more than the penalty reduction, he said.

“It’s easier to write a check,” Nakayama said. “But a lot of times, companies feel like, if a project will address the violations, they think that’s a good thing. They think, ‘If I’m going to pay money, I’d like to see it resolve the issue,’ rather than the money going into the general treasury.”

Austin pegged the chances of a legal challenge to Justice’s interim final rule as low.

“The optics of such moves from the regulated community would be tough to overcome in the court of public opinion,” she said.

Lillie agreed, saying SEPs are broadly welcomed by prosecutors, regulatory agencies, companies, and environmentalists because they’re “a powerful tool in a relatively limited toolbox that have the potential to provide real-world solutions, often with very tangible public benefits.”

To contact the reporters on this story: Stephen Lee in Washington at stephenlee@bloombergindustry.com; Jennifer Hijazi in Washington at jhijazi@bloombergindustry.com

To contact the editor responsible for this story: Renee Schoof at rschoof@bloombergindustry.com