Environment 2015: Contamination and Waste Management Issues

January 14, 2015

This year is sure to bring a number of significant changes in the areas of waste management and cleanup, vapor intrusion, due diligence and issues related to real estate purchases.

Waste Management and Cleanup

Coal combustion residuals (CCR): The tumultuous four-year journey to the adoption of a federal coal combustion residuals (CCR) regulation came to an end in late December when the U.S. Environmental Protection Agency (EPA), pursuant to a court order, issued its final regulation. This guarantees that 2015 will be a year filled with uncertainty as to its interpretation, concerns over who will enforce it and legal challenges to it on a number of grounds.

The greatest uncertainty concerns the fact that EPA views this as a “self-implementing” rule, which establishes standards and deadlines for closure, assessment and corrective action at existing ponds and landfills, and location and design requirements for new ones. However, there are no provisions for permitting (or the permit shield that follows) or other agency approvals or formal delegation of the CCR regulatory program to state agencies, such as has been done with other parts of the Resource Conservation and Recovery Act (RCRA). Instead, utilities subject to the rule are to post on the web evidence of the performance of required activities, with enforcement seemingly left to states who have gone through the time-consuming rulemaking process to adopt the federal rules or to interest groups and private citizens who file citizen suits.

Conflicts with state laws may prove particularly vexing, especially in North Carolina, where closure schedules and methods (especially the state’s virtual prohibition on capping in place) are considerably different from the federal rule. And, just as litigation resulted in a court order setting a deadline for EPA to adopt the rule, so there will be litigation challenging the rule. Many environmental groups have described the rule as weak and will likely challenge many provisions of it, including the determination that CCR is not a hazardous waste and that the rule does not apply to facilities no longer generating electric power. Whether business for beneficial reuse of CCR will rebound from the uncertainty created by the four-year rulemaking effort (during which the beneficial reuse of coal ash declined every year) remains to be seen, as the new rule is basically silent on that practice, leaving its regulation to the states.

2020 RCRA corrective action goal: EPA has been working with states to meet EPA’s goal of achieving final remedies at 95 percent of the RCRA facilities that need corrective action by the year 2020. With the arrival of 2015 leaving only five years left to accomplish this goal, we expect EPA and states with delegated corrective action authority to begin a hard press to the 2020 finish line.

Hazardous waste electronic manifest system regulations : In 2002, Congress enacted the Hazardous Waste Electronic Manifest Establishment Act, which required EPA to establish a national electronic manifest (e-Manifest) system for tracking hazardous waste shipments, to replace the paper system that has been in place for decades. The Act mandated that EPA issue an e-Manifest regulation by 2013 and to establish the system by October 2015, but insufficient congressional funding has delayed its development. In January 2014, legislators finally gave EPA nearly $3.7 million to fund the system’s development.

On February 7, 2014, EPA published a final rule that provides the basic legal and policy framework for the future use of e-Manifests. The final rule specifies that electronic manifests will have the legal equivalence of paper manifests, but allows for the continued use of paper manifests. Designated facilities receiving paper manifests must each submit a copy of such manifest to the system for data processing. EPA expects to award a contract for the system’s development sometime in 2015. In a recent webinar, agency officials said the goal is to have the system fully online no later than spring 2018. EPA estimates that the system will ultimately save between 300,000 and 700,000 hours of time associated with the current system of paper manifests, and result in cost savings of more than $75 million per year.

EPA has started a second rulemaking to address user service fees as a means to fund the development and operation of the system, although EPA has indicated that public access will likely be free of charge. EPA’s goal is to have the final user fee regulation issued no later than 90 days prior to the system online-deployment date. The agency also has been working to establish the e-Manifest Advisory Board, which must include an administrator or chair, two members with expertise in information technology, three members with hazardous waste industry/user experience, and three members who are state representatives responsible for manifest processing. EPA said it is on target to meet the statutory deadline of October 5, 2015, for the board’s establishment.

Management of hazardous waste pharmaceuticals: EPA is developing a new proposal for the management and disposal of hazardous waste pharmaceuticals generated by healthcare facilities. EPA intended to add hazardous waste pharmaceuticals to the universal waste program in 2008, but public comment raised concerns about the lack of notification by the generating facilities as well as concerns about tracking of the waste. EPA has indicated that the new rule will cover pharmaceutical waste generated at healthcare facilities only if the waste meets the definition of a RCRA hazardous waste. The rule will address the notification and tracking issues raised in the 2008 public comments. Until a new rule is adopted, healthcare facilities must manage their hazardous waste pharmaceuticals in accordance with RCRA Subtitle C generator requirements.

CERCLA: Federal courts continue to grapple with fundamental questions of statutory interpretation under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), despite more than 10 and five years passing since two seminal CERCLA decisions of the United States Supreme Court.

In the 2004 Cooper Industries, Inc. v. Aviall Services, Inc. decision, the court completely upended the common understanding of the interplay between Section 107 cost recovery actions and Section 113 contribution actions. Recent cases have focused on which type of action − and more importantly, which statute of limitation − applies when a party has entered into a settlement with a governmental entity. The Sixth Circuit’s July 2014 decision inHobart Corp. v. Waste Management of Ohio is the latest Circuit Court case (following the Seventh Circuit’s July 2013 decision in Bernstein v. Rankert) to examine this issue. There, the court examined whether the language of an administrative settlement agreement and order on consent (ASAOC) resolved “some or all” of the parties’ liability to the United States or a state, such that it constituted an “administrative settlement” for CERCLA purposes. It did, and therefore costs incurred under that administrative settlement could be recovered only in a Section 113 contribution action, which has a three-year statute of limitations. Although a statute of limitations “trigger” is not explicitly supplied in the statute, the Hobart court reasoned that the signing of the ASAOC was the “most logical.” The Supreme Court has before it a recently filed petition for a writ of certiorari requesting review of the decision in Hobart. Parties entering into CERCLA settlements must be mindful of the recent decisions and the potential effects on potential cost recovery.

The Supreme Courts’ 2009 Burlington Northern & Santa Fe Railway Company v. United States decision was considered by many to breathe new life into divisibility as a means of avoiding the harshness of joint and several liability. The lower courts had almost without exception, until recently, denied even the most sophisticated of arguments that the harm at a site was divisible and therefore capable of apportionment. In September 2014, however, the Seventh Circuit provided a glimmer of hope for potentially responsible parties hoping to assert divisibility. In United States v. P.H. Glatfelter Co., potentially responsible party NCR argued that, while it had contributed to PCBs in the Fox River, that harm was divisible and capable of apportionment. The district court rejected the argument but the Seventh Circuit held that the lower court had oversimplified the nature of the sediment contamination and proposed treatment and remanded the case for further proceedings to allow NCR to show the extent to which it contributed to PCB concentrations. There is, therefore, a Circuit Court decision to which those asserting divisibility of harm in a CERCLA case can point.

Definition of “solid waste”: On January 13, 2015, EPA published a new rule modifying its 2008 definition of solid waste (DSW). EPA claims these modifications will result in resource conservation and economic benefits by encouraging certain types of in-process recycling and remanufacturing. Some recycling industry groups and special interest advocacy groups disagree with that assessment and are critical of the proposed amendments to the 2008 DSW. Only two criteria of proof of the legitimacy of the recycling operation were necessary under the Bush-era DSW, while proof of four criteria will be required under the proposed amendments. In a move applauded by certain groups, the amended DSW adds a public participation requirement for recyclers who seek to operate under a variance. Some believe that litigation is certain to follow if the finalized DSW is adopted as amended. .

Vapor Intrusion

EPA vapor intrusion guidance: EPA issued its 2013 draft “Final Guidance for Assessing and Mitigating the Vapor Intrusion Pathway from Subsurface Sources to Indoor Air” (VI Guidance) and draft “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 previously was 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 were anticipated in 2014, but now are expected in 2015. EPA emphasized the importance of assessing the potential for vapor intrusion as part of 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.

TCE : EPA Region 9 and other EPA regions and state agencies issued guidance in 2014 for the assessment and management of trichloroethene (TCE) sites. Addressing on-site and off-site vapor will create challenges for owners and project managers.

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 E1527-13 in November, and EPA followed on December 30 with a new regulation effective that day providing that E1527-13 meets AAI. EPA subsequently published a rule on October 6, 2014, that provides for the deletion of the E1527-05 standard on October 6, 2015. This means that the regulations currently allow the use of either ASTM Standard E1527-05 or E1527-13 to meet AAI, but all are advised to switch to the newer standard especially for acquisitions of real property that may close on or after October 6, 2015. 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 and 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 and rural land standards 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 and 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) proposed new 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. The comment period closed on December 12, 2014. The regulations were originally proposed in 2009 and withdrawn in 2011.

One of the more troubling aspects of the proposed regulations is 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 expiration of the deadline for notification, which is 30 days after the regulations become effective. 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.

These regulations 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 2015 and beyond, as its regulations could serve as a possible template for other state disclosure laws.

For more information on the foregoing, please contact any of the authors.