This year is sure to bring a number of significant changes in the areas of waste and contamination. Areas where changes may occur are in vapor intrusion, waste management and cleanup, brownfields/due diligence and issues related to real estate purchases.
The contamination and waste management issues to follow in 2014:
- EPA Vapor Intrusion Guidance: The United States Environmental Protection Agency (EPA) issued its draft vapor intrusion guidance in 2013: “Final Guidance for Assessing and Mitigating the Vapor Intrusion Pathway from Subsurface Sources to Indoor Air” (VI Guidance) and the “Guidance for Addressing Petroleum Vapor Intrusion at Leaking Underground Storage Tank Sites” (Petroleum VI Guidance). While these guidance documents upon finalization may provide certainty as to how to investigate and assess vapor intrusion, the guidance is likely to significantly increase remediation costs, could lead to regulators reopening sites where cleanup had previously been declared closed, and may add more uncertainty to business transactions as sellers, buyers, landlords, tenants, lenders and equity investors grapple with how much sampling is enough. Final VI Guidance and Petroleum VI Guidance should be issued later this year. EPA emphasized the importance of assessing the potential for vapor intrusion in due diligence in the preamble to its final regulation allowing the use of the new ASTM Phase I standard E1527-13 for meeting All Appropriate Inquiries discussed further below. For more information on the guidance, please see “A Material Milestone For Vapor Intrusion,”Law360, May 1, 2013, and “Vapor Concerns May Perniciously Intrude Into Your Financings,” The Real Estate Finance Journal, Fall 2013.
Waste Management and Cleanup
- Hazardous Waste Electronic Manifest System Regulations: EPA was authorized by statute in 2012 to establish a hazardous waste manifest system that will replace the paper system that has been in place for decades. Instead of promulgating a new rule in 2013, EPA advised that it would address comments on a draft rule published in 2001. EPA has further announced that it will publish a draft fee regulation in 2014.
- Management of Hazardous Waste Pharmaceuticals: EPA has announced that it intends to establish management standards for hazardous waste pharmaceuticals generated by health care facilities. Although EPA initially anticipated that this rule would be published in 2013, the agency is still working to develop the proposal. EPA intended to add hazardous waste pharmaceuticals to the universal waste program in 2008, but the public comment raised concerns about the lack of notification by the generating facilities as well as tracking of the waste generated under the program. EPA has stated that the new rule will cover only pharmaceutical waste generated at health care facilities that meet the definition of an RCRA hazardous waste.
- Coal Combustion Residues (CCR): The coal ash rulemaking roller coaster may go down its final hair-raising plunge and reach the end of its ride in 2014. A tentative settlement between EPA and environmentalists in a pending lawsuit in the District of Columbia (Appalachian Voices v. McCarthy) would require the agency to complete the coal ash rule by the end of the year. The terms of the settlement will likely be disclosed by the end of January when EPA has to provide the Court with a schedule for revising its coal ash rules. However, as has been the case since this effort began in 2010, the rulemaking process may yet come to another screeching halt as House Republicans are planning to propose legislation that would eliminate the mandatory requirement that EPA review and revise its waste rules every three years, which was the basis for the environmentalists’ lawsuit. This possible legislation, combined with the fact that EPA had only recently placed coal ash rulemaking on its “long-term action list” (meaning that adoption of final regulations would not occur until sometime in 2015), signals that significant opposition to completing the rulemaking still exists. No matter how the process unfolds, the regulatory options will continue to focus on whether coal ash should be treated as a hazardous waste or some new category of special waste under RCRA. In the absence of regulatory action, environmental groups have turned to the courts with citizen suits over alleged pollution from power plant coal ash ponds, an approach that is sure to continue given that recent cases against Duke Energy and Santee Cooper resulted in consent agreements and settlements requiring the closure and remediation of a large number of such ponds. The years of uncertainty have taken their toll on the beneficial reuse of coal ash, which in 2013 declined for a third straight year, a trend that will likely continue this year as well.
- CERCLA: This year marks the 10th and fifth anniversaries of two seminal decisions of the United States Supreme Court under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). The Court’s 2004 decision in Cooper Industries, Inc. v. Aviall Services, Inc. upended longtime Superfund practitioners’ understanding of the interplay and availability of cost recovery actions under Section 107 of the statute and contribution actions under Section 113. The lower courts have continued to wrestle with that interplay. The Supreme Court has before it a recently filed petition for a writ of certiorari requesting review of the Seventh Circuit’s July 2013 decision in Bernstein v. Rankert. The Court’s 2009 decision in Burlington Northern & Santa Fe Railway Company v. U.S. limited liability for “arranger’ liability under CERCLA and breathed new life into divisibility as a means of avoiding the harshness of joint and several liability. The Court continued to admonish the lower courts to apply basic rules of statutory construction by holding that the term “arrange” should be given its plain meaning. Liability could attach, therefore, only where an entity “takes intentional steps to dispose of a hazardous substance,” and mere knowledge that some product may be spilled or leaked was not enough to prove that an entity “planned for” the disposal. Courts have struggled to apply this holding on a case-by-case basis to various factual scenarios, including the question of the “useful product” defense, and more than a dozen opinions have been issued. The exact contours of Burlington Northern continue to be debated, and appeals of decisions in this arena are currently pending in both the Fourth and Seventh Circuits, which may help further define arranger liability. Joint and several liability continues to thrive, however, as the lower courts hold defendants in cost recovery actions to higher standards of proof of divisibility than had initially been envisioned after Burlington.
- EPA Enforcement in 2014 and Beyond: The next five years do not look good for EPA’s enforcement and compliance assurance program, according to EPA’s recently released “Draft FY 2014-2018 Strategic Plan.” Out for public comment through Jan. 3, 2014, the draft five-year plan announces sweeping cuts to federal inspections, enforcement cases initiated and concluded, and environmental benefits achieved as a result. While the draft plan calls for maintaining or nominally increasing level of effort on just two enforcement activities (criminal enforcement and oversight of open consent decrees), inspections are slated to drop 33 percent, case initiations 41 percent and case conclusions 48 percent compared with baseline levels. Likewise, EPA enforcement actions will secure over 1.4 billion fewer pounds of air pollutants and 500 million fewer pounds of water pollutants. For two reasons, however, the projected cuts are not unalloyed good news for the regulated community. First, states, tribes and local governments tend to take an uneven approach to compliance and enforcement, creating uncertainty for companies that operate across multiple jurisdictions. And second, EPA retains significant enforcement resources and intends to focus them on key industrial sectors. For more information on EPA enforcement please see “EPA Enforcement Budget Cuts Not Good News for Regulated Community,” Dec. 9, 2013.
Due Diligence and Real Estate Purchases
- New ASTM Phase I Standard: EPA published the All Appropriate Inquiries (AAI) standard in 2005 and expressly provided in the regulation that AAI could be met by following ASTM “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process” E1527-05. EPA issued a direct final rule in August 2013 to amend the AAI standard to add ASTM’s then anticipated new Phase I standard E1527-13, but withdrew the rule in October after receiving adverse comments that allowing the use of both E1527-05 and E1527-13 would create confusion for the users. ASTM issued E-1527-13 in November, and EPA followed on December 30 with a new regulation effective that day providing that E1527-13 meets AAI. This means that the regulations currently allow the use of either ASTM Standard E1527-05 or E1527-13 to meet AAI. In the December 30 regulation, though, EPA announced its intent to issue a subsequent regulation proposing to eliminate E1527-05 as a standard that can be used to meet AAI. Until such time, either standard may be used to meet AAI, but with the new standard now approved those who are looking to rely on defenses to liability under CERCLA that require them to meet AAI should consider using the new standard as it is more thorough and the older standard is likely to be removed from the regulation in 2014. For more information on the new ASTM standard, please see “ASTM Releases New Phase I Standard: What Does It Really Mean for Purchasers?,” Nov. 11, 2013.
- Possible Changes to Forest & Rural Land Phase I Standard: ASTM has not yet modified its separate standard for meeting AAI for forestland and rural property, titled “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process for Forestland or Rural Property” E2247-08. As EPA has modified the AAI regulations to allow the use of E1527-13 to meet AAI, conforming changes to Forest & Rural Land standard would be helpful to avoid confusion with terminology and other differences. If a new standard is issued, a rulemaking will be necessary before a new version of E2247 could be used safely to meet AAI. For more information on the existing Forest & Rural Land Standard see “EPA Allows Use of New Phase I Environmental Site Assessment Standard for Forestland and Rural Property,” Dec. 29, 2008.
- State Notification Programs: The Maryland Department of the Environment (MDE) has announced its intent to reissue regulations in 2014 to implement a 2008 law requiring “responsible persons” to notify MDE of sampling results showing levels of contamination above certain screening levels. Regulations were originally proposed in 2009 and withdrawn in 2011. One of the more troubling aspects of the earlier draft of the regulations was the requirement on current and former owners and operators to disclose sampling results in reports in their files showing levels of contamination above the notification criteria. MDE has stated that it will exercise enforcement discretion in situations when old reports are uncovered in files after the deadline for notification has passed. How MDE will react to the information it receives, such as bringing an enforcement action under the Controlled Hazardous Substance Act (a state-level CERCLA-like statute), is unclear. How the regulations ultimately address the notification levels could have a chilling effect on commercial and industrial real estate transactions in Maryland, since sellers may be reluctant to allow purchasers to test and develop information that the seller may have to disclose to MDE. The requirement to look back at old files will also concern current and former owners and tenants. How this unfolds in Maryland will need to be closely watched in 2014, because its regulations could serve as a possible template for other state disclosure laws.
- Brownfields Funding: EPA will continue to fund a variety of brownfields grants in 2014 for assessment, cleanup and area-wide planning. New in 2014 are “Environmental Workforce Development and Job Training” grants, which EPA has advised “are provided to recruit, train, and place, unemployed and under-employed, including low-income and minority, residents historically affected by hazardous and solid waste sites and facilities with the skills needed to secure full-time, sustainable employment in the environmental field and in the assessment and cleanup work taking place in their communities.” CERCLA Section 128(a) money used by states and tribes in funding their state response programs may also see a decline at the end of 2014 for the 2015 allocations as the federal government grapples with budget cuts. States and tribes will need to consider modifications to private funding mechanisms to continue to maintain these important state response programs at current levels.
For more information on the foregoing, please contact any of the authors.