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Federal Court Allows Retrospective Environmental Mitigation Penalties

Providing Boon to Enforcement But Also Opening the Door to Creative Compliance Solutions
Beveridge & Diamond, P.C., December 2, 2008

On October 14, 2008, a federal district court held for the first time that facilities found liable under the Clean Air Act’s New Source Review (“NSR”) program can be subject not only to prospective injunctive relief and penalties, but also ordered to undertake retrospective mitigation to “to remedy, mitigate, and offset” past harm.  United States, et al. v. Cinergy Corp., et al., 2008 U.S. Dist. LEXIS 81493, No. 1:99-cv-1693-LJM-JMS (S.D. Ind.).  While the court has not yet ruled on what mitigation will be required, and the ultimate decision may be appealed, it highlights that the U.S. Environmental Protection Agency (“EPA”) and state environmental agencies have powerful tools to address environmental harms, including mandating the mitigation of past impacts of air and water pollution in a manner akin to existing strategies for addressing hazardous waste or Superfund cleanup. 

While the Cinergy decision could foretell a ramping up of enforcement efforts under the Clean Air Act and other environmental laws, particularly as the Obama Administration prepares to take office, the case also suggests opportunities for companies to address environmental compliance issues with new and creative solutions.  California, for example, has already explored mitigation of greenhouse gas emissions as part of the industrial facility permitting process.  The solutions employed to date in California demonstrate that mitigation need not be rote application of emissions control technology, but could take the form of mitigation efforts tailored to the particular needs of the industrial facility, communities, and natural resources that are most directly implicated.  This may provide flexibility for companies facing permitting challenges or enforcement, and also creates business opportunities for entities in a position to supply environmental agencies and emitters with mitigation options.

United States v. Cinergy

The district court’s opinion came in the penalty phase of United States v. Cinergy Corp., an EPA-led enforcement action alleging Clean Air Act violations at Cinergy’s Wabash River coal-fired electric utility plant in Terre Haute, Indiana.  In addition to seeking prospective relief, such as the installation of pollution control technology and the imposition of permit limits, the government also sought retrospective relief in the form of “specific measures to reduce pollution beyond what is required for prospective compliance to make up for the nearly two decades of illegal pollution.”

The district court determined that it had authority to award such retrospective mitigation by virtue of Section 113(b) of the Clean Air Act, which grants federal district courts “jurisdiction to restrain [a] violation, to require compliance, to assess [a] civil penalty, to collect any fees owed the United States . . . and to award any other appropriate relief.”  42 U.S.C. § 7413(b) (emphasis added).  According to the Cinergy court, this broad grant of equitable jurisdiction in Section 113(b) allows federal courts to order defendants to take actions “to remedy, mitigate, and offset” harms to the public and the environment caused by Clean Air Act violations. 

The concept of ordering mitigation to address past environmental harm is not necessarily new, but has been debated in recent cases.  See, e.g.,
U.S. Pub. Interest Research Group v. Atlantic Salmon of Me., LLC, 339 F.3d 23, 31 (1st Cir. 2003) (ordering fallowing of aquaculture fish pens to remedy harm caused by past violations of the Clean Water Act); United States v. Deaton, 332 F.3d 698, 714 (4th Cir. 2003) (ordering filling of ditch and restoration of wetlands to remedy violations of Clean Water Act wetlands rules).  In the context of Clean Air Act enforcement, retroactive relief is not common, and raises a number of issues, particularly in the context of long-lived pollutants such as greenhouse gases or atmospheric deposition of mercury, nitrogen, and sulfur (acid rain) into water bodies or ecosystems miles downwind of the emissions source.

The Cinergy opinion stopped short of detailing what types of mitigation may be appropriate under the Act.  However, emissions offsets, which are already required on a prospective basis under the NSR program in non-attainment areas (i.e., geographic areas that are not yet in compliance with the National Ambient Air Quality Standards), are a possible option.  In addition, a recent Clean Air Act settlement in California illustrates some mitigation options beyond offsets that may be available to facilities facing claims for retrospective relief or challenges to facility siting and expanded operations.

ConocoPhillips Refinery Expansion

In an agreement with the State of California announced September 11, 2007, ConocoPhillips agreed to spend $10 million to mitigate increased greenhouse gas emissions associated with the expansion of its San Francisco-area Rodeo refinery to resolve a potential challenge from California attorney general Jerry Brown.  Some of the mitigation efforts are comparable to offsets under the NSR program, such as ConocoPhillips’ agreement to cut 70,000 metric tons of greenhouse gases a year by eliminating a calciner plant in Santa Barbara County.  But other efforts are more creative.  For example, ConocoPhillips will pay $7 million to the Bay Area Air Quality Management District to finance greenhouse gas emission reduction projects in the region and $2.8 million on California reforestation projects that would sequester 1.5 million metric tons of greenhouse gases.  The agreement even extends to mitigation beyond usual Clean Air Act offsetting in that ConocoPhillips will also pay $200,000 to restore San Pablo Bay wetlands.

California’s approach in the ConocoPhillips case is but one example of how EPA and states are looking beyond traditional enforcement tools to address environmental concerns, particularly greenhouse gas emissions.  At the same time, EPA increasingly has been willing to consider “supplemental environmental projects” or SEPs in the enforcement context.  For information about EPA’s SEP policy, see www.epa.gov/Compliance/civil/seps/index.html.

Together, the Cinergy case and the ConocoPhillips Rodeo Refinery settlement signal that creative mitigation of environmental impacts will become more widespread and accepted in environmental enforcement cases, in disputes over industrial facility siting or expansions, and potentially in land use and commercial development, as the need to reduce environmental footprints outpaces available technology-based solutions.  This trend opens the door to mitigation project developers in the areas of wetlands banking, stream bank restoration, water quality credits, species and habitat trading, brownfields, and carbon offsets to tap into this emerging market for enforcement mitigation and identify creative solutions to past environmental harms.

For more information, please contact David M. (“Max”) Williamson at (202) 789-6084 (dwilliamson@bdlaw.com), Laura K. McAfee at (410) 230-1330 (lmcafee@bdlaw.com), or Amy Lincoln at (202) 789-6016 (alincoln@bdlaw.com). 

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