US EPA Next Generation Compliance Program Ups the Ante for Companies in the United States

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Last month, I attended the excellent Auditing Roundtable conference in Phoenix, Arizona. At the event, the lawyer Tim Wilkins from Bracewell gave a fascinating presentation of the legal complexities of the US EPA’s Next Generation compliance program. It should be noted that the program will focus on high impact industries with high risk for spills and leaks – think oil and gas, chemicals,  and similar types of operations.

The United States Environmental Protection Agency (EPA) defines the program components as follows:

  • Design regulations and permits that are easier to implement, with a goal of improved compliance and environmental outcomes.
  • Use and promote advanced emissions/pollutant detection technology so that regulated entities, the government, and the public can more easily see pollutant discharges, environmental conditions, and noncompliance.
  • Shift toward electronic reporting to help make environmental reporting more accurate, complete, and efficient while helping EPA and co-regulators better manage information, improve effectiveness and transparency.
  • Expand transparency by making information more accessible to the public.
  • Develop and use innovative enforcement approaches (e.g., data analytics and targeting) to achieve more widespread compliance.

The key element that Tim Wilkins addressed was the legal implications of the monitoring tools that were being deployed to high impact and high risk industries. Many permits issued to companies are based on modelling of emissions, not on actual measurements. This means that a company can respect its parameters and models, but if it actually exceeds the limits set in a permit or a regulation and the infraction is detected by the EPA’s new monitoring tools, it can be liable for a fine.

The EPA has explicitly said that it will use ‘any credible evidence’ to pursue polluters; this will likely be heavily based on monitoring tools, video footage and sampling. This will put increased pressure on companies with high risk activities to implement very strict and very robust controls to avoid any chance of exceeding their permitted limits as they will be more likely to be caught under the new EPA monitoring procedures.

The recent case of Volkswagen and their cheating software to change emissions during testing by the authorities reinforces the direction the EPA will take: more random testing with actual real-life monitoring programs. It will not be enough to pass a ‘test’ under specific pre-defined conditions; your operations will need to be constantly compliant in real-world environments. Testing now shows that 97% of diesel vehicles do not respect regulatory emissions standards.

Furthermore, companies will need to adopt the same or similar technology to the EPA to ensure that they know where their leaks or emission variations might lie. By installing their own air, waste and water emissions monitoring tools, they may be able to catch excess emissions before the EPA does and implement procedures to avoid undesirable pollution.

Another big element of the EPA’s program is to push for more publication of data. Their motivation is quite simple: shame. If they publish emissions and other environmental data in an open and publicly available format, companies that break the law (or even pollute a great deal while not breaking the law) will be exposed to bad publicity, further motivating them to improve their environmental practices.

Tim Wilkins also mentioned during his talk that more and more companies are leveraging the power of access to information requests and the freedom of information act to identify monitoring methods and issues at their competitors. With these types of requests you could foreseeably see how a competitor has been fined or monitored for environmental issues and use that information to improve your public standing and also inform your environmental programs and monitoring strategies to avoid facing similar issues with the EPA.

A further point was that it is absolutely critical to create a paper trail to demonstrate to the EPA that progress is being made and that there is a concerted effort to respect permitting and regulatory requirements. It will be fascinating to watch the integration of monitoring tools with regulatory updates and permitting limits in the next few years as companies gear up to deal with further EPA restrictions. This is well aligned with consumer trends towards the Internet of Things and connected devices.

A significant question that Tim Wilkins from Bracewell left the audience with was, “How do indemnity clauses in contracts apply in a world where respecting permitting limits and regulatory requirements is not enough?” What do you do if you purchase a plant that respected the regulatory requirements, but is then found to be out of compliance by the EPA’s Next Generation program? Is there an indemnity to be paid by the seller even though they respected the law? This question will certainly be clarified by the courts in the years to come and hopefully companies will continue to invest in their environmental compliance and especially their monitoring tools.