The Biden Administration has signaled its willingness to resume the practice of including supplemental environmental projects (SEPs) in settlements by swiftly revoking Trump Administration memoranda which formally eliminated their use.  This is an important development that regulated entities can benefit from when they face investigations and enforcement proceedings.  Although further clarification from the Department of Justice is expected in this area, targets in potential enforcement actions can begin to prepare now.

What are SEPs, and what occurred in the Prior Administration?

A SEP is an environmentally beneficial project that a defendant agrees to complete as part of a settlement of an enforcement action.  The crux of a SEP is that the project is not required by law.  In exchange for performing a SEP, EPA or the Department of Justice typically seeks a smaller civil monetary penalty payable to the government than it would otherwise.

SEPs have historically been popular with settling defendants, who have felt they can benefit more from projects with concrete environmental benefits than from paying a civil penalty.  SEPs, for example, may provide opportunities to rebuild a business after a violation, or help overcome the reputational issues that come with enforcement proceedings.  They have also been popular with regulators, who have felt that they are a meaningful way to advance environmental protection.

As described in our prior post, the Department of Justice under the Trump Administration engaged in a concerted effort to eliminate SEPs.  The effort included dozens of pages of formal memoranda on the topic, culminating with a March 2020 memo that eliminated SEPs from settlements entered into by DOJ going forward.  The March 2020 memo argued that SEPs were not only unsound policy, but also illegal absent further congressional action because they violated statutes regarding agency appropriations and receipt of funds.  The latter argument was an attempt to bind future Administrations, towards permanently removing SEPs from federal enforcement.

But the Trump Administration’s efforts did not convince the Biden Administration.  Pursuant to President Biden’s day one environmental executive order, DOJ began review of a statement of policy containing some of the SEP limitations articulated in the Trump memoranda.  And, in a brief memo issued two weeks later, DOJ unceremoniously revoked all the other memoranda restricting SEPs.[1]  These actions are an extraordinary reversal in light of the Trump Administration’s purported attempts to construe governing law.  The timing of this initiative—beginning on the first day of the new Administration, well before the announcement of DOJ’s environmental leadership—also underscores the fundamental disagreement with the prior practice.

What is the current status of SEPs?

Although the Biden Administration has worked to undo the prior policies prohibiting SEPs, neither the Department of Justice nor EPA has outlined in detail the role of SEPs going forward, or what projects might qualify.  Additional guidance regarding SEPs is likely to come after political leadership at the Department of Justice is confirmed.

There has not yet been an uptick in SEPs in proposed consent decrees or administrative settlements, perhaps reflecting the fact that the new Administration has not yet offered a legal justification for the practice.  DOJ and EPA have announced at least one consent decree involving a SEP since the inauguration.  The subject matter of that project—reduction in air emissions from diesel engines—is explicitly authorized by Congress, and projects addressing such emissions continued to be authorized by the Trump Administration even as SEP restrictions were promulgated.

What can be done now to take advantage of this shift in policy?

Although the Biden Administration has not yet clarified the role of SEPs going forward or their legal basis, companies currently facing investigation and potential enforcement action need not wait for additional formal pronouncements to begin to take advantage of this shift in policy.  There are a number of concrete steps that can be taken to begin to identify and develop a potential project, including:

• Consider type and the amount of potential environmental harm. SEPs historically require a nexus with the violation the settlement resolves:  For example, a settlement for emissions of waterborne pollutants could provide for free screening for the potentially affected population for diseases tied to the release or potential land acquisition of areas that may provide natural filtering of water-borne pollutants.  Even in circumstances where there is no easily quantifiable effect on the environment (for example, a violation of recordkeeping laws) the type of harm that the law is designed to avoid will inform the scope of available projects.
• Consider the goals of the Biden Administration. EPA and DOJ are more likely to look favorably on projects that advance the new Administration’s policy agenda.  The President has announced that a major focus will be addressing climate change and environmental justice.  Given the magnitude and scope of those issues, a broad range of potential projects could be characterized as supporting these efforts, including those which reduce emissions, bolster the resilience of affected communities, and restore and expand at risk ecosystems. We also expect that the new Administration will look favorably upon projects that promote innovative approaches to addressing environmental and public health challenges.
• Engage the local community. Local environmental groups and community leaders can provide ideas for projects, help tailor ideas to better address the needs of the affected population and environment, and improve relations between the community and a violating facility.  Community engagement can also create opportunities to advance environmental justice, another key focus of the Biden Administration.  Care should be taken, however, to avoid premature disclosures of sensitive enforcement information during the outreach process.
• Look to EPA’s existing SEP policy. In 2015, the Obama administration EPA consolidated decades worth of guidance on SEPs in a comprehensive policy manual.  The Biden Administration is likely to rely on and potentially expand this existing effort, meaning that the manual remains a valuable resource.  In particular, the manual identifies categories of projects which have historically qualified as SEPs, including those which promote public health; reduce and prevent pollution; restore the environment; assess compliance or environmental health; and promote environmental compliance and emergency planning and preparedness.  Considering how these might fit with an alleged violation, the affected environment and community, and the company’s own goals is a useful way to begin thinking about potential projects now.

[1] Unlike the memoranda, the statement of policy was codified in the Code of Federal Regulations, and Trump Administration officials have publicly suggested that this may present some hurdle to renewed use of SEPs.  However, such statements of policy are not binding on the Department, and interested parties have in the past faced hurdles in enforcing them.  See Brock v. Cathedral Bluffs Shale Oil Co., 796 F.2d 533, 537 (D.C. Cir. 1986) (agencies “need not adhere to mere general statements of policy” (alterations and internal quotation marks omitted)); United States v. Mohamud, No. 10-475-KI, 2011 WL 654964, at *5 (D. Or. Feb. 23, 2011) (DOJ representing to Court that statement of policy was “not binding”); Hatfill v. Ashcroft, 404 F. Supp. 2d 104, 121 (D.D.C. 2005) (concluding that DOJ policy statement did not create a private right of action).  DOJ has not yet rescinded or modified the statement of policy; it was not addressed in the Biden DOJ’s memo.