An industry attorney is pressing EPA take steps to ease the way for liable parties at contaminated sites to make greater use of cleanup liability transfers, including allowing a “portfolio” approach that packages numerous sites together in a single transfer.
Brian Israel, the chair of law firm Arnold and Porter's environmental practice group, told a June 5 EPA listening session on Superfund reform that EPA should develop model language for use in consent decrees and comfort letters to signal the agency's support for environmental liability transfers (ELTs).
An EPA Superfund reforms task force last July recommended 42 steps Administrator Scott Pruitt take to speed cleanups and redevelop sites under the Superfund program. The agency is now moving to implement those recommendations, and has sought advice from the public on several of the measures through the listening sessions -- webinars -- held this month.
The June 5 session, titled “Exploring CERCLA Environmental Liability Transfer Approaches,” focused on the task force report's recommendation number 22, which urges EPA to explore ELT approaches and other risk management tools at potentially responsible party (PRP) cleanups.
The recommendation falls under the task force report's goal of encouraging private investment and using alternative approaches to financing cleanups.
Under ELTs, a PRP pays a third party through a contractual agreement to indemnify the PRP for its obligations at a cleanup site, according to Greg Wall, with the EPA Office of Site Remediation Enforcement's regional division, who spoke on the June 5 webinar.
Wall said transfers could help PRPs focus on their active business areas if their ownership of contaminated property is no longer part of their business. Also, they could increase a PRP's financial certainty, he said. But he said companies that take on ELTs may not be interested in taking on sites where the nature and the extent of the contamination is not well defined. Therefore, he said, ELTs are not appropriate for all sites.
He noted that all ELTs must also address section 107(e) under CERCLA, which effectively prevents even the most comprehensive ELT from barring the government from pursuing a PRP for its liability for cleanup costs.
During his remarks at the listening session, Israel said there is interest from his PRP clients in taking a “portfolio approach” to ELTs, where a company with a large number of cleanup sites might try to package that liability together and sell it to an ELT company to remediate. He explained in a followup interview that PRPs wanting to take their cleanup liability off the books through ELTs come up against the challenge of pricing. Due to uncertainties over the cleanup, an ELT company often sets the price of an ELT at a premium in order to offset the cleanup liability risks it is taking on, he said.
But, he said in the interview, if a portfolio of a company's sites is pulled together in a package for an ELT company, the risk is diversified, and that premium can be lowered. He noted that such a deal would not be for everyone; the PRP must have a number of sites and enough cash to finance it, while the ELT company has to be sufficiently sophisticated and large enough to absorb that liability.
Typically, ELT companies want to develop land quickly, which is consistent with EPA's Superfund reforms, he said in the interview.
Israel suggested that EPA encourage the ELT approach by developing model language for use in a “look first” letter to tell the PRP that the agency will look first to the ELT company to manage the cleanup, rather than the PRP, and raise any issues first with the ELT company. As a practical matter, it gives the PRPs the comfort they need, he said in the interview.
He noted during his remarks that there is no downside for EPA, because if the ELT company fails to follow through, then the agency can still go after the PRP, given CERCLA's liability provisions.
He said for cases in which the PRP and the ELT company are both signing a consent decree for a cleanup with regulators, EPA could include a paragraph with similar “look first” language in it.
In the interview, he also suggested educating state agencies on these, and creating an office on liability transfers so PRPs know who to call on ELTs. Currently, the process is ad-hoc, where some regional offices may be unfamiliar with ELTs, but he said if there is a national conversation that involves states, that could go a long way to encouraging companies to use ELTs.
Israel also expressed support for EPA's recommendation that the agency establish a national workgroup to explore ELT approaches. The recommendation suggested creating a national workgroup to identify: “creative uses of insurance, annuities, indemnification and other tools for third parties interested in buying/selling the risk of cleanup; types of remedial actions, site conditions, and PRPs that stand to benefit from this risk management tool; when it is appropriate to use comfort/status letters or settlement tools to provide certainty to encourage and/or reassure PRPs contemplating using an ELT or other tool; and, whether a pilot program using these risk management tools at appropriate sites is feasible."
Asked whether the ELT recommendation or other Superfund reforms may be discontinued if Pruitt, who is under fire for ethical lapses, leaves the agency, Israel doubted the Superfund reforms would be affected. He said the task force's recommendations reflect “serious efforts” to reform Superfund's implementation. Also, he said many of them are restatements and improvements on ideas that have been percolating for a long time, independent of the EPA administrator and any political party. Many of the ideas are non-partisan, he said. -- Suzanne Yohannan (email@example.com)