The Nickel Report

On Monday, December 19, the US Environmental Protection Agency released its enforcement and compliance annual results for fiscal year 2016 (FY 2016). The results compile environmental enforcement statistics for the final year of the Obama administration.

The EPA report shows the continuation of an enforcement trend focusing on high-impact, high-value cases intended by the Obama administration to deliver significant environmental and public health results and drive compliance across regulated industry. To an extent, this approach is necessitated by EPA’s limited resources. In recent years, EPA’s approved budget has either declined or been frozen by congressional appropriation. For example, EPA’s FY 2016 and FY 2015 budgets were frozen at approximately $8.1 billion in each year. By comparison, EPA’s FY 2010 budget was approximately $10.3 billion. Similarly, the number of full-time equivalent EPA employees has declined over recent years, from approximately 17,000 in FY 2010 to just over 15,000 in FY 2016. Please find more information on recent EPA appropriations and authorized full-time equivalents.

The impact of declining EPA budgets is reflected in the number of inspections and cases reported by the agency in its 2016 report. For example, EPA reports:

• In FY 2016, EPA conducted just over 13,500 inspections. This is a substantial decline from FY 2012, when EPA conducted nearly 20,000 inspections. It is even a notable decline from FY 2015, where EPA conducted over 15,000 inspections.
• EPA initiated approximately 2,400 civil judicial and administrative enforcement cases in FY 2016. This was about equal to the number of cases initiated in FY 2015, but represented a substantial drop from FY 2012 when approximately 3,000 cases were initiated by EPA.
• EPA’s criminal enforcement has seen a decrease in the number of investigations opened from over 300 in FY 2012 to less than 200 in FY 2016. This decrease can be attributed, in part, to EPA’s budget’s being able to support only 80 percent of the congressionally mandated 200 criminal agents. In its report, EPA states that “[d]espite declining budgets resulting in declines in the total number of investigations opened, the number of defendants charged remained level with the last year, reflecting the greater complexity of cases ….”

EPA’s press release for its FY 2016 enforcement results specifically highlighted the agency’s goal of “pursu[ing] high impact cases to drive compliance” and called-out, in detail, settlements with six private companies and three local governments. In its FY 2016 budget request, EPA characterizes its enforcement strategy as meaning that “EPA’s top enforcement priority will be pursuing higher impact cases, including large, complex cases that require significant investment and long-term commitment.” The importance of these complex, large enforcement cases to EPA’s reported enforcement results continues to be evident in the underlying data summarized in EPA’s enforcement statistics. For example:

• EPA reports that it obtained nearly $5.8 billion in federal administrative and civil judicial penalties from its FY 2016 enforcement actions. However, a single Clean Water Act penalty associated with the Deepwater Horizon case accounted for nearly 97 percent of these penalties. Excepting the Deepwater Horizon settlement, administrative and civil judicial penalties in FY 2016 were nearly $20 million lower than in FY 2015.
• EPA reports that its enforcement actions achieved a total of $28.4 billion in injunctive relief in FY 2016, related to requirements to take action and/or install equipment to control pollution in settlements. However, over 50 percent of this injunctive relief was related to a partial settlement with Volkswagen. Absent that particular case, however, the amount of injunctive relief would still be nearly double the relief in 2015. Although EPA recognizes that injunctive relief totals “vary widely from year to year depending on the timing of resolution of the largest cases,” this outcome may also represent increased pressure by EPA in high-profile cases to impose expansive, and generally expensive, injunctive relief as a condition of settlement.
• EPA reports that its FY 2016 enforcement actions would require companies to treat, minimize or properly dispose of 62 billion pounds of hazardous waste. However, a single RCRA case resolved in FY 2016 accounted for over 99 percent of this reported metric.

The settlement report also includes a summary on EPA’s current National Enforcement Initiatives (NEIs). These NEIs, which were formally adopted following a request for public input and became effective in October 2016, are intended to focus EPA’s limited enforcement resources on environmental issues where EPA has determined that “there is significant non-compliance with laws, and where federal enforcement efforts can make a difference.” More information on the current NEIs can be found here.

EPA’s report indicates that its current approach is to attempt to continue doing more with fewer enforcement resources. For example, EPA recognized that its resources to support federal inspections may be limited but stated that it will continue “to pursue additional means of gathering information about facility compliance, to supplement [EPA’s] on the ground inspections.” This perspective is consistent with EPA’s overall Next Generation Compliance effort, which has included an effort to develop and use innovative enforcement approaches — including data analytics and targeting — to achieve compliance results. Under its NextGen initiative, EPA is moving towards increased electronic reporting, use of advanced equipment (such as the use of Forward Looking Infrared Radar cameras to remotely assess emissions) and publicly available emissions monitoring to drive enforcement efforts. More information on EPA’s NextGen efforts can be found here.

The wildcard in drawing conclusions from this year’s enforcement statistics is how the terrain will change with the arrival of the Trump administration in early 2017. It is unknown, for example, whether the Trump administration may revisit the recently selected NEIs or reconsider the agency’s commitment to NextGen compliance efforts. Given President-elect Trump’s campaign statements, however, it would not be surprising to hear that EPA may revisit at least some NEIs. For a discussion of environmental enforcement through the presidential transition, see our previous blog post.

Additionally, although President-elect Trump has announced Oklahoma Attorney General Scott Pruitt as his nominee for EPA administrator, we do not yet know who will be nominated to serve in the critical role as assistant administrator for the Office of Enforcement and Compliance Assurance. That nomination, combined with more information on the Trump administration’s budget request for EPA in FY 2017, will provide the first tea leaves on the direction of EPA’s enforcement in coming years. Although the priorities may change, and EPA’s resources may continue to decline, we expect it is unlikely that EPA will abandon its trend of focusing heavily on a small number of high-priority, high-profile cases that lead to high penalties, substantial injunctive relief and significant press coverage.