Why is This Important?
For many decades, federal regulators incorporated SEPs into settlement agreements. Put simply, a SEP is a project included as part of an enforcement action that provides environmental benefits. SEPs often are implemented through a payment to a nongovernmental entity that is not otherwise part of an enforcement action. The goal is to “more fully compensate victims, remedy harm, and punish and deter future violations,” while providing a direct benefit to a community or resource negatively impacted by pollution. In order to avoid running afoul of the Miscellaneous Receipts Act, the funds used to implement a SEP cannot represent a diversion of money away from a penalty owed to the government to resolve the violations at issue in an enforcement action; instead, SEPs supplement the civil or criminal penalties otherwise imposed. SEPs are a popular enforcement tool and oftentimes are considered a “win-win” situation for the regulated entity and the impacted community: The government and defendant facilitate real benefits to a specific community and foster greater engagement between corporate entities and their local communities.
Given their popularity, SEPs have been employed numerous times to help resolve large and small enforcement actions. In the Clean Air Act context, for instance, a company agreeing to implement a SEP may be more willing to negotiate a resolution with the government if a portion of the total penalty package is applied directly to help local communities monitor and mitigate the health impacts of air pollution.
Both states and the federal government use SEPs as a key component of enforcement settlements. For example, in resolving alleged violations of California’s Low Carbon Fuel Standard, the California Air Resources Board (CARB) and Clean Energy Renewable Fuels (“Clean Energy”) agreed in 2019 that Clean Energy would undertake a mitigation project to deploy trucks with low-nitrogen oxide (NOx) natural gas engines in areas of California where air pollution levels exceeded applicable attainment standards. Through its actions, Clean Energy helped CARB study the role of low-NOx engines and renewable natural gas to mitigate pollution in the heavy-duty truck sector.
As another example, in response to an Environmental Protection Agency (EPA) enforcement action concerning, among other things, alleged failures to operate emission control equipment and monitor emissions from a landfill, the Town of Brookhaven, New York, undertook a SEP valued at approximately $305,000. The SEP plan required Brookhaven to install a solar energy conversion system on the Town’s planned mechanics garage repair shop.
Since SEPs are available only through settlement (i.e., a judge cannot order a SEP in a case that proceeds to trial), they provide a strong incentive for companies to settle and collaborate with the government. Although the negotiation of SEPs can be a time-consuming process, the efforts regulated entities put into designing and implementing a SEP can provide both financial and reputational benefits that exceed those of a traditional settlement that otherwise would provide only monetary or injunctive relief.
Note, however, that federal (and some state) SEPs are subject to several conditions, including prohibitions against projects aimed solely at public education and those funding generalized research at a college or university. In addition, a SEP “must have a strong connection to the underlying violation of law…at issue in the enforcement action.” This historically has meant that the project must involve the same pollutant or health effects involved in the underlying violation. Although DOJ cannot actively manage or implement a SEP, the Department maintains the right to reject unworthy project proposals.
Since the Biden-Harris administration’s reintroduction of SEPs, the conditions for their use remain mostly similar to those in place before the prior administration’s prohibition. Notably, however, SEPs now require approval from DOJ’s Deputy Attorney General or Associate Attorney General. This seemingly minor change may mean that projects will be scrutinized more closely for compliance with the policy.
What’s Next?
The Biden-Harris administration’s decision to restore SEPs comes amidst the backdrop of what is being framed as a “comprehensive environmental justice enforcement strategy.” Resulting from one of President Biden’s first executive orders, this strategy undoubtedly will result in more attention being paid to those groups that oftentimes suffer disproportionately from environmental harms, including communities of color, indigenous people and those with low incomes. This attention likely will manifest in a greater proportion of settlements incorporating SEPs. We also expect to see more enforcement actions brought in environmental justice communities and a heightened focus on the disproportionate nature of environmental impacts during the course of an enforcement action.
