The Nickel Report

The regulated community in California may soon have additional reasons to implement supplemental environmental projects (SEPs) when settling an administrative environmental enforcement action. Under a 2009 State Water Resources Control Board (Water Board) policy, settling parties may voluntarily undertake an environmentally beneficial project in return for an offset of a portion of any civil penalty, provided that the project meets certain criteria. The Water Board has now released sweeping proposed amendments to its Policy on Supplemental Environmental Projects (draft SEP Policy) that will incentivize more projects. Most notably, the draft SEP Policy:

Will consider projects that address climate change, such as greenhouse gas emissions reductions or those that build resilience to climate change impacts on ecosystems or infrastructure.

Will allow—subject to approval—greater than 50% of any monetary assessment in administrative enforcement cases to be allocated towards SEPs that are located in or benefit disadvantaged or environmental justice communities, or communities suffering from a financial hardship, or that further the Water Board’s priority of ensuring a human right to water. Under the original policy adopted in 2009, the maximum civil penalty reduction available via performance of a SEP is capped at 50%.

Will allow up to 10% of oversight costs to be included as part of the total SEP amount for the same reasons above. Otherwise, oversight costs are paid in addition to the total SEP amount.

Establishes a new category of SEPs called “Other Projects” to allow educational outreach and other “non-traditional” water quality or drinking water-related projects to be considered for approval.

Expands the applicability of SEPs to enforcement actions prosecuted by the Division of Drinking Water and its Districts and the Division of Water Rights.

The draft SEP Policy arrives on the heels of the US Department of Justice’s apparent move to narrow the scope of acceptable SEPs in federal settlements. The revised federal policy imposes a number of limitations on acceptable SEPs and specifically precludes SEP payments to non-governmental, third-party organizations as a condition of settlement. In California, direct contributions, donations or other payments to third parties are likewise prohibited. However, SEPs that otherwise benefit third parties, e.g., the provision of replacement drinking water, as well as third party-administered SEPs, remain acceptable.

The Water Board cites various reasons for proposing a broadened SEP Policy. Of primary importance is the requirement to conform to a recent state law that instructs all SEP policies to benefit disadvantaged communities, and the related need to further the Water Board’s established missions of ensuring environmental justice and a human right to safe, clean, affordable and accessible water. Indeed, the draft SEP Policy states that settling parties are encouraged “to fund SEPs in communities where there are [environmental justice] concerns” and “to consider SEPs related to drinking water that would benefit public health and further the human right to water.” Additionally, the Water Board seeks to harmonize the draft SEP Policy with the April 2017 revision to the Water Board’s Enforcement Policy and to provide clarity and overall transparency in how the policy is implemented.

SEPs must continue to satisfy basic criteria in order to qualify for approval. For example, a SEP must consist only of measures that go above and beyond the otherwise applicable settlement obligations. The draft SEP Policy provides additional guidance as to this point: “Projects or actions that are not required, but that reflect standard industry practices, are generally not acceptable as SEPs….” In addition, SEPs must “directly benefit groundwater, surface water, or drinking water quality or quantity, and the beneficial uses of waters of the State.”  Each SEP must also have a relationship between the location of the violation or the nature of the violation.

The Water Board is not the only state agency within the California Environmental Protection Agency with an established SEP policy. The Air Resources Board, Department of Toxic Substances Control, Department of Pesticide Regulation, and CalRecycle have each developed their own SEP policies, linked here. SEPs are a popular alternative to paying 100% of any civil penalty into a state-managed fund or account, not just for the reduced penalty amount. Although implementation of a SEP arises out of an enforcement action, the settling party can still obtain the credit and community goodwill for implementing a project that benefits the environment.

Going forward, the Water Board has invited public comment on its draft SEP Policy. A public hearing to receive oral comment is scheduled for September 20; written comments are due on September 25; and a meeting to consider adoption of the final SEP Policy is scheduled for November 21. Check here for more information on the stakeholder process.