When a responsible party agrees to clean up a contaminated site under many programs, the government often demands that it provide financial assurance for the completion of the work. When hazardous substances will remain on the site, the site may require response in perpetuity. Can one specify an amount of financial assurance to secure the forever cleanup? Earlier this spring, the Pennsylvania Commonwealth Court considered that question in a case involving cleanup of a site in Ford City. See PennEnvironment v. Department of Environmental Protection, No. 566 C.D. 2024 (Pa. Commw. Ct. Mar. 11, 2025).
Sites cleaned up under the Pennsylvania Land Recycling and Environmental Remediation Standards Act (Act 2), 35 Pa. Stat. Ann. Sections 6026.101 to .908, often contain hazardous substances at material concentrations indefinitely. One can, of course, achieve a remediation standard by removing contamination so that remaining concentrations are below statewide standards or background. However, Act 2 offers advantages over other programs because it allows remediators to rely on pathway elimination to achieve a site-specific standard. One can pave over contaminated soil or assure that no one will use contaminated groundwater, for example.
Pathway elimination often entails continuing obligations into the future. In addition, even certain treatment remedies require someone to take actions like treating leachate or maintain cover or a cap for decades or even longer.
Act 2 does not require financial assurance that those future cleanup actions will occur. Act 2 is ordinarily voluntary. The sanction for failure to implement the long-tailed obligations in a cleanup plan is that the remediator, landowner, and everyone else in title loses cleanup liability protection.
But financial assurance is conventional in other cleanup programs like the corrective action program under the federal Resource Conservation and Recovery Act. It is often a component of settlements under the federal Comprehensive Environmental Response, Compensation and Liability Act; the United States may not compel provision of financial assurance in a unilateral administrative order or a judgment under Section 106(a) of CERCLA, 42 U.S.C Section 9606(a).
PennEnvironment was such a case. The party responsible for an old captive industrial waste site found itself in a decades-long administrative process to determine a remedy. Ultimately, it settled an enforcement action under the Clean Streams Law and the Solid Waste Management Act – statutes that allow unilateral imposition of a cleanup obligation—by agreeing to implement an Act 2 cleanup plan that the responsible party had submitted. DEP and the responsible party entered into a consent order and agreement to that effect. The consent order did not contain a requirement for posting of financial assurance.
PennEnvironment and the Sierra Club objected to certain features of the agreed cleanup plan and sued in federal court. The federal case settled on the terms that the remediator would add measures to its cleanup plan, post financial assurance for completion of the cleanup, and agree to a modification of the DEP consent order and agreement to that effect.
The financial assurance provision required the remediator to post financial assurance in the form of a letter of credit with standby trust account “in an amount sufficient to secure the implementation and post-closure care, including without limitation long term monitoring, operation and maintenance and replacement costs necessary to effectuate and maintain the remedy ... in perpetuity.”
A letter of credit is a promise by a financial institution to pay a certain amount upon demand by the person in whose favor the letter is issued, here the DEP. The DEP has to be able to draw on those funds over time to complete the remediation, whence the standby trust account, which also allows the lump sum to earn investment income. Because the financial institution will want to be reimbursed by the person purchasing the letter of credit should the letter be drawn, it will typically demand some sort of collateral or other security.
The DEP and the remediator in PennEnvironment came to an agreement that a letter of credit for somewhat more than $12 million would suffice based upon an estimate of the costs expected over 30 years. The environmental groups appealed on the ground that “in perpetuity” was longer than thirty years. The Environmental Hearing Board affirmed the DEP's approval of the letter of credit amount, and the environmental groups sought review in the Commonwealth Court.
The Commonwealth Court affirmed the EHB's finding that $12 million would be enough, although not because 30 years was close enough to perpetuity. The court reasoned that the remediator was required each year to certify the adequacy of the financial assurance, and so, in effect, the assurance would be perpetual. Moreover, the actual costs incurred in the early years of the agreement suggested that $12 million would overestimate the 30-year cost and therefore neither the DEP nor the EHB acted arbitrarily to conclude that the agreed amount would suffice.
That reasoning has some flaws. The financial assurance exists so that at some later time when the remediator cannot perform its obligations DEP can take over the work, thereby assuring that the cleanup occurs. If the remediator cannot perform, it likely cannot obtain additional financial assurance, and so the annual review of the adequacy of the amount will not necessarily make a difference.
But financial assurance in remediation cases raises other policy questions. Although we often like to say that in cleanup cases “the polluter pays,” in fact the polluter never pays. The stockholders, directors, officers, and employees of any enterprise at the time of historical contamination are not the same as the current people in those roles, if the business entity even continues to exist. The revenues that pay for cleanup are revenues from current operations, not the operations that caused the problem in the first place. So by requiring current operations to bear the costs of past contamination, we burden current activity to pay for the sins of past activity.
Financial assurance requirements call for that burden to be larger than the costs—or at least the ongoing current costs—of the cleanup. The remediator has to both pay for the work and to pay for the financial assurance. In the case of a letter of credit, that may be a relatively low fee, but also an encumbrance on the remediator's assets in the full amount of the letter.
Now financial assurance increases the probability that the cleanup is completed into perpetuity. But we are in a political moment when some would say that our environmental policies are too expensive overall. In their (often unexpressed) conceptual model, we are up against an overall budget for how much the United States or Pennsylvania is willing to have its economy spend on environmental protection. Financial assurance for cleanup only protects the environment in the event that the remediator fails to perform, and likely only well into the future when the politics may be different.
You can never have enough financial assurance to be certain that every contingency into perpetuity will be covered. For now, the structure set up in PennEnvironment will suffice. But recall that financial assurance is not required in Act 2 cases. If the remediator fails to perform, future cleanup can be obtained (or not) by future enforcement, and the world may look different then.
Reprinted with permission from the July 8 edition of The Legal Intelligencer © 2025 ALM Global Properties, LLC. All rights reserved.
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