On January 6, 2010, the U.S. Environmental Protection Agency (EPA) published an Advance Notice of Proposed Rulemaking identifying three industry sectors for which it will begin the regulatory development process for financial assurance requirements under Section 108(b) of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). This proposal follows EPA's announcement in July 2009, in which it identified the hardrock mining industry as the first industry potentially to be subject to such financial assurance requirements. When the CERCLA financial assurance rule is finalized, it could have a significant financial impact on operating facilities that are not already required to obtain financial assurance under a hazardous waste permit or an enforcement order.
Background
Financial assurance is the demonstration that adequate funds will be available when needed to undertake the necessary cleanup or closure of a facility. These requirements compel facility operators to fund future environmental obligations in the event that the operator cannot (or will not) pay for the activity on its own, such as in the case of a bankruptcy. Financial assurance can be demonstrated through a number of financial mechanisms, including trust funds, surety bonds, letters of credit, insurance, a financial test or corporate guarantee. The government regulatory agency typically is the beneficiary of the financial assurance instrument.
Currently, financial assurance regulations for certain types of facilities are in place under the Resource Conservation and Recovery Act (RCRA). These regulations apply to owners and operators of hazardous waste treatment, storage and disposal, known as TSD, facilities, and require the owner or operator to submit a written estimate of the costs of closure of the facility (including the cost of any corrective action—i.e., a cleanup) as well as post-closure monitoring and maintenance costs, along with a demonstration that the owner or operator will have sufficient funds to cover these costs. Financial assurance also is required under other regulations, including among others, those governing mining operations, various other activities on federal lands, and underground or aboveground storage tanks, and it generally is required in enforcement orders issued under both RCRA and CERCLA.
There has been a perceived gap, however, in financial assurance requirements for those operating facilities that are not permitted under RCRA, but that handle "hazardous substances" (a broader category of materials than those addressed under RCRA's TSD regulations).
In fact, the EPA was required by CERCLA to promulgate regulations requiring financial assurance for operating facilities handling "hazardous substances" in 1985:
42 U.S.C. § 9608(b). In spite of this requirement, EPA never promulgated regulations requiring such financial assurance. Currently, operating facilities are not required to have financial assurance unless they have RCRA TSD permits, are subject to enforcement orders, or are subject to some other regulatory scheme.
Environmental groups have long been calling for EPA to issue these regulations, and on February 25, 2009, in Sierra Club v. Johnson, No. C 08-01409 (WHA) (N.D. Cal. 2009), the U.S. District Court for the Northern District of California ruled that the EPA must publish a notice that identifies classes of facilities, owners and operators for which financial assurance requirements will first be developed under CERCLA § 108(b). The plaintiffs in that case asserted that EPA has a nondiscretionary duty under CERCLA to publish notice of classes, and promulgate and implement regulations regarding financial assurance under CERCLA. The district court agreed, ruling that the EPA must identify and publish notice of classes as specified in CERCLA § 108(b)(1) by May 4, 2009. At the EPA's request, the district court later extended that deadline to July 10, 2009.
EPA's Proposed Rule
Although the EPA was required to propose a list of classes by July 10, 2009, on that date the EPA instead only identified classes of facilities within the hardrock mining industry as those for which it will first develop financial responsibility requirements under CERCLA § 108(b). Hardrock mining facilities include those that extract, beneficiate or process metals (e.g., copper, gold, iron, lead, magnesium, molybdenum, silver, uranium and zinc) and nonmetallic, nonfuel minerals (e.g., asbestos, gypsum, phosphate rock and sulfur).
Now, the EPA has expanded this set of industry classes to include the chemical manufacturing industry, the petroleum and coal products industries (including refineries and coal mines), and the electricity production, transmission and distribution industries. Specific classes of facilities within those industries are identified by North American Industrial Classification System (NAICS) code as follows:
In its proposed rule, the EPA stated that it relied on the
following factors to identify which facilities presented a degree
and duration of risk justifying a financial assurance requirement:
(1) amounts of hazardous substances released to the environment;
(2) the toxicity of these substances; (3) the existence and
proximity of potential receptors; (4) contamination historically
found from facilities;
(5) whether the causes of this contamination still exist; (6)
experiences from the federal cleanup programs; (7) projected costs
of federal cleanup programs; and (8) corporate structures and
bankruptcy potential. The EPA also considered whether financial
assurance requirements under CERCLA § 108(b) would effectively
relieve these risks.
The EPA also has identified the following additional classes of
facilities that require further study in order for the agency to
decide whether to develop proposed regulations: waste management
and remediation services, wood product manufacturing, fabricated
metal product manufacturing, electronics and electrical equipment
manufacturing, and facilities engaged in the recycling of materials
containing CERCLA hazardous substances.
What to Expect Next
The EPA is now accepting public comment on whether it should develop a proposed financial assurance regulation under CERCLA § 108(b) for any class or classes of facilities, or for the industry as a whole, including information demonstrating why such financial responsibility requirements would not be appropriate for those particular classes. The EPA also is seeking data to help inform its regulatory decision-making. Comments are due on February 5, 2010 (30 days from publication of the proposed rule in the Federal Register).
Any financial assurance regulations that ultimately are developed as a result of the EPA's analysis will be proposed for additional public comment. The development of these financial assurance requirements is anticipated to be complex and may result in a financial assurance regime that is different from what these industries already know. It is possible, for example, that the financial test will no longer be considered an acceptable form of financial assurance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
