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A m e r i c a n

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This book is printed on paper containing more than 50% recycled fiber,

including 20% post-consumer fiber.

This publication was prepared by the Secretariat of the Commission for

Environmental Cooperation (CEC). The views contained herein do not

necessarily reflect the views of the CEC, or the governments of Canada,

Mexico or the United States of America.

For more information about this or other publications from the CEC,

contact:

Commission for Environmental Cooperation

393, rue St-Jacques Ouest, bureau 200

Montréal (Québec) Canada H2Y 1N9

Tel.: (514) 350-4300

Fax: (514) 350-4314

E-mail: info@ccemtl.org

http://www.cec.org

ISBN: 2-89451-308-9

© Commission for Environmental Cooperation, 1998

ALL RIGHTS RESERVED.

Legal Deposit - Bibliothèque nationale du Québec, 1998

Legal Deposit - Bibliothèque nationale du Canada, 1998

Disponible en français – ISBN: 2-89451-304-6

Disponible en español – ISBN: 2-89451-306-2
PROFILE

In North America, we share vital natural resources including air,

oceans and rivers, mountains and forests. Together, these natural resources are the basis of a rich network of ecosystems that sustain our livelihoods and well-being. If they are to continue being a source of future

life and prosperity, these resources must be protected. Protecting the

North American environment is a responsibility shared by Canada,

Mexico and the United States.

The Commission for Environmental Cooperation (CEC) is an international organization whose members are Canada, Mexico and the

United States. The CEC was created under the North American Agreement on Environmental Cooperation (NAAEC) to address regional environmental concerns, help prevent potential trade and environmental

conflicts and to promote the effective enforcement of environmental

law. The Agreement complements the environmental provisions of the

North American Free Trade Agreement (NAFTA).

The CEC accomplishes its work through the combined efforts of its

three principal components: the Council, the Secretariat and the Joint

Public Advisory Committee (JPAC). The Council is the governing body

of the CEC and is composed of the highest-level environmental authorities from each of the three countries. The Secretariat implements the

annual work program and provides administrative, technical and operational support to the Council. The Joint Public Advisory Committee is

composed of fifteen citizens, five from each of the three countries, and

advises the Council on any matter within the scope of the Agreement.

MISSION

The CEC facilitates cooperation and public participation to foster

conservation, protection and enhancement of the North American environment for the benefit of present and future generations, in the context

of increasing economic, trade and social links among Canada, Mexico

and the United States.

VII
LAW AND POLICY PROGRAM

The Law and Policy Program of the CEC addresses regional priorities regarding obligations and commitments in the NAAEC related to

environmental standards and their implementation. The program monitors and reports regional trends in implementing and enforcing environmental standards, including innovations in regulation, economic

instruments and voluntary initiatives. The program also addresses

NAAEC commitments to public participation in processes for establishing and enforcing environmental standards.

The program is delivered in two parts. The first part, Environmental Standards and Performance, focuses on NAAEC objectives of strengthening regional cooperation in the development and improvement of

environmental laws and regulations, as well as making private standards more compatible. It provides a regional forum for the exchange of

alternative domestic strategies for implementing improved environmental standards, mechanisms for public participation in standard setting processes and exchange of methodologies. The program also

supports the implementation of processes directed at greater regional

compatibility of environmental technical regulations, standards and

conformity assessment procedures consistent with NAFTA, as well as

promoting the compatibility of voluntary standards in the private sector.

The second part of the program, Enforcement Cooperation, responds directly to the Parties’ obligations for the effective enforcement of

their respective environmental laws and regulations. In response to the

Council mandate to ensure regional cooperation in enforcement, the

program supports a regional forum of senior enforcement officials. It

also addresses alternative approaches to effective enforcement and private access to remedies.

VIII NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
TABLE OF CONTENTS

Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI

Voluntary Measures to Ensure Environmental Compliance:

A Review and Analysis of North American Initiatives . . . . . . . . . 1

Environmental Management Systems and Compliance:

Report to the Council of the Commission for Environmental

Cooperation on Results and Recommendations Pursuant

to Council Resolution 97-05 . . . . . . . . . . . . . . . . . . . . . . . 263

IX

ACKNOWLEDGMENTS

In addition to the individuals and organizations specifically

acknowledged within each report, the CEC wishes to acknowledge the

following for their work in the preparation and edition of this compendium: Janine Ferretti, Greg Block, Linda Duncan, Carla Sbert and

Stéphanie Johnson.

Marc Paquin

Editor, North American

Environmental Law and Policy

XI

VOLUNTARY MEASURES TO

ENSURE ENVIRONMENTAL

COMPLIANCE

A REVIEW AND ANALYSIS OF

NORTH AMERICAN INITIATIVES

VOLUNTARY MEASURES TO ENSURE

ENVIRONMENTAL COMPLIANCE

A REVIEW AND ANALYSIS OF

NORTH AMERICAN INITIATIVES

Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143

The United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195

3

ACKNOWLEDGMENTS

The Commission for Environmental Cooperation (CEC) wishes to

acknowledge the contribution of the many persons who contributed

their time and expertise to the design of this project and production of

the studies of voluntary compliance in the three countries. While the

project was initiated by the CEC Secretariat, credit is also due to many

persons who provided information, ideas and editing assistance. We

wish to acknowledge the work of the legal consultants who prepared the

three studies:

· for the Canada Country Report: Dr. Dianne Saxe and John

Moffet of Resource Futures International. Darlene Pearson

assisted with revisions to the section on ISO 14000.

· for the Mexico Country Report: Lic. Juan Francisco Torres

Landa R. and Lic. Wilehaldo Cruz Bressant. Lic. José Antonio

Ortega Rivero, Corporación Radian, S.A. de C.V. provided a

peer review, particularly for the section on ISO 14000.

· for the United States Country Report: Keith Welks, Esq. and

Carmen Korleski.

We are also grateful to the many government officials who assisted

the Secretariat in the selection of the voluntary mechanisms for review,

in participating in interviews and in reviewing report drafts. The North

American Working Group on Environmental Enforcement and Compliance Cooperation gave generous assistance and cooperation in ensuring

that the three studies accurately reflected current law, policy and practice. We are similarly appreciative of the many government officials and

others who shared information and insights about their innovative programs. It will be understood that the information and opinions contained herein are those of the authors and do not necessarily reflect the

views of the governments of Canada, Mexico or the United States or of

the CEC.

We hope the studies will provide a useful contribution to the continuing North American dialogue about voluntary approaches to com5
pliance and lead to the implementation of effective environmental

enforcement and compliance programs. Since the date of the initiation of

the voluntary compliance project, a number of related initiatives have

been sponsored by the CEC, including the 1996 North American

Dialogue on Environmental Law and the regional public consultation

led by the CEC Joint Public Advisory Committee (JPAC). Proceedings

of both dialogues can be reviewed on the CEC homepage:

<http:// www.cec.org>.

Linda F. Duncan

Head, Law and Enforcement Cooperation Program

Commission for Environmental Cooperation

6 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
PREFACE

Background to the CEC Voluntary Compliance Project

These studies were commissioned by the CEC Secretariat in 1995 in

response to considerable interest expressed by the North American public, regulated industry and government agencies about the proliferation

of a broad spectrum of “voluntary” approaches to environmental compliance. Our research indicated that voluntary mechanisms encompassed a broad spectrum of private and public initiatives. Those

mechanisms initiated by the private sector were usually directed at

improving environmental performance, reducing pollution control

costs or ensuring competitiveness. Government-initiated programs

were generally authorized by law or policy as a complement to more traditional enforcement responses. In some instances, the programs provided incentives to industries that exceed regulatory standards, while

others would replace regulatory controls.

Focus and Objectives of the Project

In determining the focus of the studies in this project, the CEC Secretariat decided it would be appropriate to concentrate on the commitments and obligations under the North American Agreement on

Environmental Cooperation (NAAEC). The NAAEC obligates the

Parties to effective enforcement of their respective environment laws,

with the aim of achieving high levels of environmental protection and

compliance through appropriate government action. Further, it prescribes a framework for effective enforcement which, in addition to

more traditional enforcement activities, includes “seeking assurances of

voluntary compliance and compliance agreements” and “promoting

environmental audits.” The review therefore focuses on a survey of

experiences of North American environmental enforcement agencies in

using voluntary initiatives as a component of their environmental

enforcement and compliance strategies. Consistent with the NAAEC

objective, these studies aim to:

· increase public knowledge about the use of voluntary

approaches to environmental compliance, and

7
· support the Parties in their pursuit of improved mechanisms for

enforcing environmental laws and enhancing the record of compliance.

Methodology

To undertake the studies, the Secretariat brought together a team

of North American lawyers and other experts with extensive knowledge

and expertise in environmental enforcement. The first challenge faced

by the team was defining the term “voluntary compliance.” It became

evident that “voluntary compliance” encompasses a broad spectrum of

initiatives or measures, from industry-formulated and implemented

codes of practice external to the regulatory system, to a broad array of

government-initiated alternative routes for achieving compliance. The

team then set about attempting to categorize the array of initiatives.

One category included privatization of enforcement responsibilities (e.g., monitoring, inspection), through a delegation of compliance

roles from government to industry, the community or a third party. A

second category included environmental trade-offs or mechanisms for

opting out of binding provisions. Under these mechanisms a facility is

exempted from legal requirements in return for agreeing to a binding

undertaking to achieve the same environmental objective through an

alternative route. A third category of “voluntary” mechanisms included

activities initiated solely at the volition of a regulated party, which may

improve the potential for compliance with legal obligations, for example, environmental audits or ISO 14001. A fourth category of “voluntary” initiatives was agreed to include actions initiated by private parties

to improve environmental performance, but not necessarily first and

foremost to ensure compliance with legally prescribed environmental

standards or procedures.

As the focus of the study was evaluation of experiences in utilizing

“voluntary approaches” for enhancing compliance with environmental

laws, the review focused on only those categories of voluntary mechanisms. Consequently, the selected mechanisms were either directed at

effecting compliance, exceeding compliance or in some cases providing

alternative means for measuring compliance. The information about the

selected mechanisms, which is contained in these studies, is for the most

part based on interviews with the government officials responsible for

their implementation, or drawn from documents or reports related to

those mechanisms. Every attempt was made to describe accurately the

purpose and intent of the voluntary mechanisms and to convey the perspectives of the agencies that were interviewed.

8 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
Study Criteria

For the purpose of evaluating a particular voluntary mechanism,

the team of consultants established the following criteria reflective of the

NAAEC enforcement framework and principles:

1. Legal Authority – Is there statutory authority for use of the

mechanism and, if so, were policies and procedure legally prescribed for its use and application?

2. Efficacy as a measure for improving compliance – What has

been the effect of the mechanism on regulatory compliance

levels?

3. Relationship and effect on other enforcement and compliance

programs, policies and responses – Who has authority or

responsibility for developing and applying the mechanism? Is

it under the direction of the enforcement agency? Have real or

potential conflicts with other enforcement and compliance

mechanisms been considered and addressed? Is the issue of

officially induced error addressed? Is there potential for

agency capture? Does the mechanism affect the probability of

regulatory negligence?

4. Impact on standard of care – What is the impact on the standard of care for the regulated industry (the issue of due diligence), or on the ability of government to meet its obligations

to enforce the law or generally to protect the environment or

human health? What, if any, is the effect on mistake of fact or

law?

5. Third-party impacts – Is there transparency in the process of

applying the mechanism? Are there provisions for rights of

appeals or for ensuring accountability in use of the mechanism? Is there any process for evaluating and reporting on

compliance impacts? Are common law remedies affected?

6. Accountability – Does the introduction of the mechanism

result in any shift in accountability for enforcement and compliance?

7. Fairness – Does the nature or application of the mechanism

introduce any unfairness or inequity amongst sectors, individVOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 9
ual regulatees or jurisdictions? If so, have those issues been

addressed? Does it impact on the “level playing field”? Does it

address the potential for “free-riders”?

The consultants endeavored to take into account the relevance of

these criteria to the unique legal and policy context within which each

mechanism evolved. Except where otherwise specifically stated, the

evaluation of the mechanisms represents the opinions of the consultant

team. Variations in style and approach to the application of the criteria

are reflective of the unique analytical approaches of the members of the

study team. Lastly, while every effort was made to provide timely and

accurate information, due to the length of time taken in preparing the

study, some material may be dated.

10 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
CANADA

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

2. Jurisdiction and Mandate for the Environment . . . . . . . . . . 20

2.1 Federal Environmental Legislation. . . . . . . . . . . . . . 21

2.2 Provincial Environmental Legislation . . . . . . . . . . . . 21

3. What Is Voluntary Compliance? . . . . . . . . . . . . . . . . . . 22

3.1 What is “Voluntary”? . . . . . . . . . . . . . . . . . . . . . 22

3.2 What is “Compliance”? . . . . . . . . . . . . . . . . . . . . 23

3.3 What is “Due Diligence”? . . . . . . . . . . . . . . . . . . . 25

4. Compliance Plans and Agreements . . . . . . . . . . . . . . . . 25

4.1 Federal Government Proposals . . . . . . . . . . . . . . . . 26

4.2 Yukon Environment Act. . . . . . . . . . . . . . . . . . . . 29

4.3 Ontario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

4.3.1 Compliance Guidelines . . . . . . . . . . . . . . . . 30

4.3.2 Program Approvals . . . . . . . . . . . . . . . . . . 32

4.4 Quebec. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

4.5 New Brunswick. . . . . . . . . . . . . . . . . . . . . . . . . 37

4.6 Manitoba . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

11
4.7 Other Canadian Jurisdictions . . . . . . . . . . . . . . . . . 40

4.8 Legal Authority. . . . . . . . . . . . . . . . . . . . . . . . . 41

4.9 Contracts and Consideration . . . . . . . . . . . . . . . . . 41

4.9.1 What Consideration can the Regulator

provide? . . . . . . . . . . . . . . . . . . . . . . . . . 42

4.9.2 What Consideration can the Company offer? . . . . 43

4.10 Efficacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

4.11 Relationship with other Enforcement Mechanisms . . . . 51

4.11.1 Officially Induced Error . . . . . . . . . . . . . . . . 52

4.11.2 Abuse of Process . . . . . . . . . . . . . . . . . . . . 55

4.11.3 Regulatory Negligence . . . . . . . . . . . . . . . . 58

4.12 Third-Party Impacts . . . . . . . . . . . . . . . . . . . . . . 60

4.13 Accountability . . . . . . . . . . . . . . . . . . . . . . . . . 61

4.14 Fairness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

4.15 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

5. Regulatory Delegation: The Proposed Federal Regulatory

Efficiency Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

5.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . 67

5.2 Legal Authority. . . . . . . . . . . . . . . . . . . . . . . . . 68

5.3 Impact on Compliance. . . . . . . . . . . . . . . . . . . . . 71

5.4 Relationship with other Government Activities . . . . . . 71

5.5 Impact on the Regulatory Standard of Care. . . . . . . . . 72

5.6 Accountability . . . . . . . . . . . . . . . . . . . . . . . . . 73

12 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
5.7 Fairness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

5.8 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

6. Lender Liability Agreements . . . . . . . . . . . . . . . . . . . . 75

6.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . 75

6.2 Legal Authority. . . . . . . . . . . . . . . . . . . . . . . . . 79

6.3 Efficacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

6.4 Fairness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

6.5 Relationship with other Enforcement Mechanisms . . . . 81

6.6 Accountability . . . . . . . . . . . . . . . . . . . . . . . . . 81

6.7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

7. Environmental Audit Privilege Policies in Canada . . . . . . . . 82

7.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . 82

7.2 Privilege Law in Canada . . . . . . . . . . . . . . . . . . . 83

7.3 Federal and Ontario Policies . . . . . . . . . . . . . . . . . 84

7.3.1 Canadian Environmental Protection Act:

Enforcement and Compliance Policy . . . . . . . . 84

7.3.2 The Ontario Policy and Guideline on Access

to Environmental Evaluations . . . . . . . . . . . . 85

7.3.3 Legal Authority. . . . . . . . . . . . . . . . . . . . . 86

7.3.4 Impact on Compliance. . . . . . . . . . . . . . . . . 86

7.3.5 Relationship with other Enforcement and

Compliance Mechanisms . . . . . . . . . . . . . . . 89

7.3.5.1 Impact on Enforcement Activities . . . . . . 89

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 13
7.3.5.2 Regulatory Negligence . . . . . . . . . . . . 91

7.3.6 Impact on the Standard of Care. . . . . . . . . . . . 92

7.3.7 Third-Party Impacts . . . . . . . . . . . . . . . . . . 92

7.3.8 Accountability . . . . . . . . . . . . . . . . . . . . . 92

7.3.9 Fairness . . . . . . . . . . . . . . . . . . . . . . . . . 92

7.4 The Nova Scotia Environment Act: Section 70 . . . . . . . 93

7.4.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . 93

7.4.2 Impact on Compliance. . . . . . . . . . . . . . . . . 93

7.4.3 Impact on Third Parties . . . . . . . . . . . . . . . . 95

7.4.4 Fairness . . . . . . . . . . . . . . . . . . . . . . . . . 95

7.4.5 Public Response . . . . . . . . . . . . . . . . . . . . 96

7.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

8. ISO 14000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

8.1 What is ISO 14000? . . . . . . . . . . . . . . . . . . . . . . . 98

8.2 Management Systems and Due Diligence . . . . . . . . . 100

8.3 Legal Authority . . . . . . . . . . . . . . . . . . . . . . . . 104

8.4 Efficacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

8.5 Relationship with other Mechanisms . . . . . . . . . . . . 105

8.5.1 Will ISO 14000 replace Regulation? . . . . . . . . . 107

8.5.2 Will Companies Accredited to ISO 14001 be

Immune from Prosecution? . . . . . . . . . . . . . 108

8.5.3 Is ISO 14000 Relevant only to Large Firms? . . . . 108

14 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
8.5.4 Does Use of ISO 14000 as a Benchmark Prevent

any Public Control of Due Diligence? . . . . . . . 109

8.6 Abuse, Negligence . . . . . . . . . . . . . . . . . . . . . . 111

8.7 Impact on the Standard of Care . . . . . . . . . . . . . . . 112

8.8 Third-Party Impacts . . . . . . . . . . . . . . . . . . . . . 112

8.9 Accountability, Transparency . . . . . . . . . . . . . . . . 112

8.10 Fairness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

8.11 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . 115

9. Environmental Memoranda of Understanding . . . . . . . . . 115

9.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 115

9.2 Legal Authority . . . . . . . . . . . . . . . . . . . . . . . . 117

9.3 Impact on Compliance . . . . . . . . . . . . . . . . . . . . 118

9.4 Impact on the Standard of Care . . . . . . . . . . . . . . . 119

9.5 Relationship with Enforcement and Compliance

Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

9.6 Relationship with the Ongoing Policy Development

Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

9.7 Accountability and Transparency. . . . . . . . . . . . . . 125

9.7.1 Judicial Review: The Trade-Off between

Flexibility and Certainty . . . . . . . . . . . . . . . 126

9.7.2 The Need for Clear Objectives. . . . . . . . . . . . 127

9.7.3 Reporting Provisions under MOUs . . . . . . . . . 128

9.7.4 The Need for Indicators to Measure the Impact

of the MOUs . . . . . . . . . . . . . . . . . . . . . . 128

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 15
9.8 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130

Cases Cited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

Appendix: List of Interviews . . . . . . . . . . . . . . . . . . . . . . 140

16 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
1. INTRODUCTION

The appropriate measure of the success of environmental law is not the

number of convictions obtained in a year, or the dollar value of the fines

[...] Environmental law should aim at least to preserve, and perhaps to

improve, the existing environmental quality [...] Compliance by the violator in a timely manner, without further intervention or violations, is the

desired result.1

Today, as governments face a compelling need to do more with

less, they are searching for ways to motivate more “compliance” with

less publicly funded enforcement. This report analyses and critiques

how Canadian jurisdictions use voluntary compliance as a component

of environmental enforcement.

Section 2 of this report briefly summarizes the Canadian environmental legislative framework. Section 3 introduces the concept of “voluntary compliance” in the context of Canadian environmental law. The

next six sections examine particular initiatives now being used or considered by Canadian regulators. This review is not intended to be

exhaustive, but focuses on six representative approaches from across

Canada:

· compliance policies that permit compliance plans and agreements (Section 4);

· statutory authority for regulatory exemptions (Section 5);

· lender liability exemption agreements (Section 6);

· audit privilege policies (Section 7);

· ISO 14000 certification (Section 8); and

· pollution prevention memoranda of understanding (Section 9).

17

1. Government of New Brunswick 1994.
These approaches share key themes and raise related problems.

While Sections 4 and 5 review practices and provisions specifically

designed to encourage individual parties subject to environmental regulation to develop plans ensuring compliance, Section 6 reviews a recent

effort by the federal government to develop broad authorization for parties subject to a wide range of regulatory obligations to negotiate alternative compliance obligations.

Sections 7 and 8 also review closely related subjects. The discussion

of government policies vis-à-vis environmental self audits in Section 7

highlights the relationships between these policies and the previously

described policies on compliance plans and agreements. Section 8 then

emphasizes the relationship between self auditing and broader initiatives to promote environmental management systems, such as ISO

14000.

Finally, Section 9 reviews some of the recent federal and provincial

initiatives to promote environmental memoranda of understanding

(MOUs) supporting pollution prevention. While conceptually distinct

from each of the above measures, MOUs raise many similar issues – for

example, the relationship of voluntary measures to existing compliance

obligations, and the need for transparency and accountability in government-supported non-regulatory initiatives.

The current interest in voluntary compliance in all three NAFTA

countries stems from a combination of powerful forces that no regulator

can ignore. One of the major forces is economic, in these days of cutbacks

and restraint. Voluntary compliance measures are widely believed to

offer savings by:

· reducing resource costs for the regulatory authority;2

· reducing costs for the regulated community, by enhancing flexibility for compliance and avoiding unproductive expenditures;

· redirecting resources from lawyers and other defense costs into

measures that protect the environment; and

· reducing demands on the judicial system (including courts and

administrative tribunals).

18 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

2. In individual cases, voluntary measures may cost much less than a prosecution or

administrative hearing. However, it is not clear that regulators will have overall

reductions in cost as a result. This will require further study.
Other major forces behind the development and promotion of voluntary measures in Canada include:

· Environmental problems have evolved from those that are primarily local and caused by major polluters, to those that are

more diffuse and have numerous sources. This has led to a corresponding expansion in the number and scope of environmental regulations, and in those to whom they apply. A primary

focus on punishment and prosecution was manageable, when

environmental “offenders” were a relatively small group with

bad intentions. However, the amount of punishing to be done

soars, and the perceived social benefit plunges, when “offenders” are ubiquitous.3

· In sharp contrast to twenty years ago, environmental standards

are now accepted as normative by most regulated communities.

Many “offenders” already believe that environmental protection is important; most will comply if they know what is

required of them. Therefore, prosecution and punishment may

not be required to induce appropriate attitudes or behavior. In

contrast, much can be lost by punishing the well-intentioned.

· There is growing recognition of the limits of “command-control” in producing desired results. Governments have

limited resources, limited control over other economic factors,

and imperfect knowledge about their behavior. Instead of being

a powerful and omniscient “father”, government is merely one

(limited) set of forces among many.4

· The earlier emphasis on end-of-pipe control has shifted to an

emphasis on pollution prevention. Pollution prevention is flexible, proactive, and closely integrated with ongoing business

management. An essential part of pollution prevention is the

internalization of responsibility for environmental outcomes.

An emphasis on voluntary measures can enhance this internalization of responsibility; emphasis on compliance with specific

government-prescribed methods of pollution control can

undermine it.

· Initiatives to promote voluntary activities may be able to harness powerful economic forces favoring improved environVOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 19

3. This is obviously related to the issue of resources.

4. See Teubner 1983, and Bregman and Jacobson 1994.
mental performance. These forces include the trade, market and

public relations advantages of a good environmental reputation, particularly environmental leadership, and the financial

benefits of effective pollution prevention.5

In responding to these forces, many governments are struggling to

integrate voluntary compliance mechanisms into their overall strategy

for effective enforcement. This means that, at least in some sectors and

for some potential offenders, governments want to help create a context

in which businesses, in their own self interest, will choose to comply. In

ecological terms, this re-imagines government more as a gardener than

as a policeman.6

These advantages cannot be realized unless governments take

active steps to change how they regulate, and how they manage regulation. There are also substantial risks, however – including potentially

reduced effectiveness, transparency and accountability. This study

describes some of these changes, and some of these risks.

2. JURISDICTION AND MANDATE FOR THE ENVIRONMENT

In Canada, both federal and provincial governments have legislative and regulatory authority over the environment, as well as an impor20 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

5. Private sector action may be stimulated by potential savings in reduced input and

waste disposal costs, concerns about public image, individual leadership, employee

action, and pressure from consumers, investors, insurers and lenders (Grabosky

1994; Schmidheiny 1992; Roy 1992). A number of economists are now questioning

the extent to which companies will continue to be able to experience “win-win”

opportunities, arguing that many of the most obvious environmental inefficiencies

have now been eliminated (Whalley and Whitehead 1994). Governments can also

play a variety of roles in promoting environmentally sound behavior. Regulations

can ensure compliance with basic environmental objectives. Indeed, a recent survey

of large Canadian businesses confirmed that regulatory compliance remains the

most important factor influencing corporate environmental behavior (KPMG 1994).

As one would expect, however, the relative influence of different factors appears to

vary in practice from sector to sector. The experience with the Accelerated Reduction

of Toxics program (ARET) suggests that some sectors can be influenced significantly

by public challenges and reporting requirements. In some cases economic instruments can create incentives for ongoing improvements. Subsidies and research and

development efforts can foster the development and dissemination of beneficial

technologies. Information and education programs can promote values and knowledge about opportunities. Certification programs can ensure the integrity of information to consumers about green products. Standards and requirements for more

open reporting can enhance accountability. And scientific monitoring can track environmental conditions and inform policy decision making.

6. Its primary goal would be to transform the business community from primitive ecosystem of “weeds” requiring constant external control, to a diverse, stable, and

self-sustaining “forest” (Hawkens 1994).
tant leadership role in integrating the environment and the economy. In

the Canadian Constitution, the “environment” as such is not specifically

mentioned. However, in practice, each level of government has jurisdictional powers which are important for effective environmental management.

Responsibilities are based on the allocation of powers related to the

environment. Federal environmental responsibility has been derived

from a number of powers especially related to fisheries, interprovincial

and international trade and commerce, criminal law and peace, order

and good government. Key provincial environmental responsibilities

derive from, among other things, jurisdiction over the management of

resources, property and civil rights, and local works and undertakings.

Agriculture in Canada is defined as a shared federal-provincial responsibility.

2.1 Federal Environmental Legislation

The federal government administers a wide range of laws: some

designed expressly to protect the environment and others intended to

regulate specific activities or businesses and containing environmental

protection provisions.7 Some statutes, such as the Canadian Environmental Protection Act (CEPA), are designed to prevent pollution of all media,

including air, water and land, during all phases of the life cycles of products, from their importation and/or manufacture to their ultimate disposal. Some – like the Arctic Waters Pollution Prevention Act, the National

Parks Act, the Canada Wildlife Act, the Migratory Birds Convention Act, the

Fisheries Act, and the Oil and Gas Production and Conservation Act – protect

specific natural resources. Some, like the Canada Water Act, are ecosystem planning tools. Others regulate specific hazardous products and

activities, such as the manufacture of pesticides and radiation-emitting

devices, the modification of weather, the installation of air pollution

equipment on motor vehicles, the production of atomic energy, and the

transportation of dangerous goods. Others regulate transportation in

general or specific modes of transportation, such as railways, shipping

or aeronautics.

2.2 Provincial Environmental Legislation

Due to their constitutional jurisdiction over “property and civil

rights,” the provinces have the principal jurisdiction for most domestic

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 21

7. Note that the CEC has compiled a comprehensive list of Canadian environmental

laws. These can be accessed on the Internet at <http://www.cec.org>.
environmental matters. Therefore, most of the enterprises that would be

candidates for voluntary compliance measures deal principally with

provincial environmental laws.

Each of the provinces has adopted one or more environmental statutes. These statutes contain a range of measures, usually including the

following:

· generally worded prohibitions against pollution, such as: “no

person shall discharge or cause or permit the discharge into the

natural environment of a contaminant that causes an adverse

effect;”8

· licensing provisions, requiring permits in order to carry on

activities that may have adverse effects on the environment;

· provisions for administrative orders, by which regulators can

order people and organizations to protect or remediate the environment; and

· requirements for the conduct of environmental assessments

prior to construction of major projects.

In 1985, Ontario was the first of the provinces to develop an aggressive enforcement program. Since that time, most of the other provinces

have become more active and successful in their environmental enforcement programs. There are now hundreds of environmental prosecutions each year across Canada. Taken together with other factors,

including the exposure of banks to the environmental liabilities of their

debtors, these programs have been very effective in increasing the attention given to environmental matters by businesses. However, environmental regulators are now facing severe resource constraints, some

responding by sharply reducing their enforcement programs and

exploring alternative approaches to compliance.

3. WHAT IS VOLUNTARY COMPLIANCE?

3.1 What is “Voluntary”?

The team conducting the study, and almost everyone interviewed

for it, had great difficulty with the term “voluntary compliance.” “Voluntary compliance,” to some, is an oxymoron. It is also a term with many

22 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

8. These prohibitions are normally enforced by prosecution.
potential meanings. “Compliance” intrinsically refers to obedience to a

legal norm, and is therefore always “required by law.” In that sense, how

can “compliance” ever be “voluntary”?

“Voluntary compliance” makes sense if we focus on the degree to

which government enforcement resources must be expended in the battle for regulatory compliance.9 Compliance is not “voluntary” when it is

obtained through directing the coercive power of the state at a particular

polluter, e.g., through a control order or prosecution. Compliance may

be referred to as “voluntary” when it is achieved without the individualized application of such force. This is how the term is generally used in

Canada. For example, the compliance guidelines of several Canadian

ministries of the environment permit regulators to use “voluntary compliance measures” to resolve problems of non-compliance. By this they

mean any act or acts that will rectify the problem and improve the company’s compliance, short of individualized compulsion.

Another way of looking at “voluntary compliance” is to focus on

what governments must do so that companies will “voluntarily” choose

to stay in compliance. In other words, it is what must governments do so

that companies will choose compliance because it is in their own self

interest.10

3.2 What is “Compliance”?

Discussions of “voluntary compliance” may also be hindered by

the absence of a common understanding of the word “compliance.” The

general public, and some regulators, understand “compliance” in the

sense of obeying a speed limit or the Criminal Code. That is, they make

two assumptions:

· everyone knows whether or not they are “in compliance,” and

· anyone who wants to be “in compliance,” can be.

Unfortunately, neither of these common sense assumptions is reliably correct for environmental law as it has developed in Canada. They

are true for non-compliance with some relatively simple requirements,

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 23

9. This is now a critical focus for most Canadian jurisdictions struggling under huge

government debts and forced to reduce their expenditures substantially.

10. Such considerations differ from measures that are strictly “voluntary,” i.e., independent of issues of compliance. The latter are not the subject of this study since, by

definition, they are not part of the duty of NAFTA governments to enforce their

own laws effectively.
such as obtaining a permit before installing certain equipment, or

respecting quantitative limits on pollutant emissions where there is

effective and reliable technology to do so.

However, this simplicity is more the exception than the rule.

Almost all environmental offenses are public welfare offenses of strict

liability. This means that mens rea (intention) is not an element of the

offense.11 Canadian prosecutors can show that a person has breached the

law merely by evidence that some contaminant (including noise or

odors) has escaped and had an adverse effect.

A review of Canadian prosecution summaries shows that a high

proportion of “non-compliance” is unintended, and was often unforeseen until it occurred. That is, the offender fell into non-compliance

because of an unintended and unexpected spill, leak, overflow, pump

breakdown or similar failure. If asked the moment before the incident

occurred, many such companies would have considered themselves to

be “in compliance.” There may be no business or government in Canada

that can be absolutely confident it is in “full compliance,” if by that one

means that it will have no emissions due to accidents, employee errors or

equipment failures.

The principal defense available to a defendant is to show “due diligence” – i.e., that it had taken reasonable precautions to prevent the

offense.12 A company that has exercised due diligence will have fewer

accidents, cause less environmental degradation, and perhaps be more

efficient and competitive. Even when it does cause pollution, a duly diligent company will not have committed any “offense,” and therefore

must be considered “in compliance” with what the law requires. As a

result, there is a substantial, although not complete, equivalence

between the concepts of “compliance” and of “due diligence.”13

24 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

11. Some scholars argue that the Charter does not permit imprisonment for any offense

unless mens rea is an element of guilt. They suggest, therefore, that all strict liability

offenses punishable by imprisonment are unconstitutional (see Brudner 1990). If

this argument is correct, all Ontario offenses of actual pollution, and many federal

offenses as well, are unconstitutional. Not surprisingly, the courts have not been

receptive to this argument.

12. R. v. Sault Ste. Marie (1978), 40 C.C.C. (2d) 353 (S.C.C.).

13. In environmental audits and other internal measures of environmental “compliance,” “due diligence” is often all that can be measured. However, the concepts are

not co-extensive: non-compliance can and does occur even to companies that are

duly diligent, particularly those saddled with old facilities. Due diligence may also

be insufficient to achieve compliance where the technology to avoid exceedances

does not exist or is not infallible. For example, INCO is required by its control order

to avoid creating specified levels of sulfur dioxide at ground level. Under normal

operating conditions and normal weather conditions, this is no problem. However,

under certain weather condition, stack emissions drop directly on the town and

aaaaaa
3.3 What is “Due Diligence”?

It is surprisingly difficult to define “due diligence”; in some ways,

it gets more difficult as time goes on. Can anyone reliably tell when they

have it? How much is enough?

In the early days of environmental regulation in Canada, due diligence seemed no more than common sense: it was not good common

sense to store waste acids in steel tanks that are prone to acidic corrosion,

to pour untreated sewage into a river, or to process flammable materials

while smoking. For less complicated businesses, it continues to be this

simple. However, it is more difficult to define due diligence for larger,

more complex businesses. In such organizations, defining and maintaining due diligence to comply with environmental, health and safety,

product safety, tax, securities and other requirements is a matter of constant juggling, where there are an infinite number of things that can go

wrong and only finite resources to manage them. The most definite

thing that can be said is that the individual circumstances play a large

role. The care warranted in each case is principally governed by the likelihood of harm, the gravity of it, the available alternatives, the skill

required, and the extent [to which] the accused could control the causal

elements of the offense.14

Thus, for the large number of well-intentioned businesses desiring

to be in compliance but needing to be prudent with their expenditures, a

commitment to due diligence merely amounts to asking the question,

“how much is enough?”15 Part of the task of promoting voluntary compliance is therefore the necessity of defining due diligence as a concept.

4. COMPLIANCE PLANS AND AGREEMENTS

“Compliance plan” refers to a proposal, made by a regulated business to a regulator, describing its plan for resolving a problem of

non-compliance. “Compliance agreements” are plans which have

been accepted by regulators and crystallized into a legally binding

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 25

exceed air quality standards. When this happens, INCO’s only recourse is to cut

back on production or shut down completely. Therefore, one of INCO’s principal

pollution control technologies is its weather forecasting office. Despite the

best-trained staff and the most up-to-date equipment, weather forecasting is an

inexact science, and the weather does sometimes change unexpectedly.

14. R. v. Placer Developments, Ltd. (1983), 13 C.E.L.R. 42 (Yuk. Terr. Ct.); R. v. Gonder

(1981), 62 C.C.C. (2d) 326.

15. The question is made more difficult since due diligence is evaluated in hindsight by

regulators and judges, few of whom have ever run a comparable business.
contract.16 They are the mechanisms most often intended when Canadian regulators talk of “voluntary compliance measures.” This section

examines the role given to compliance plans or agreements in Canadian

environmental enforcement laws and policies.

4.1 Federal Government Proposals

The Canadian Environmental Protection Act (CEPA) does not specifically refer to “voluntary compliance” in its Enforcement and Compliance Policy. It allows enforcement officials limited discretion to respond

to non-compliance with measures other than prosecution. Instead of

inviting an offender to submit a proposal for returning to compliance,

federal inspectors are limited to giving written warnings.17 Warnings

may be used when the degree of harm or potential harm to the environment, human life or health appears to be “minimal.” The regulator must

consider the nature of the violation and the effectiveness of a warning in

enjoining the violator to achieve compliance. Factors to be considered

include the violator’s history of compliance and willingness to cooperate, any corrective or enforcement action already taken, and the importance of consistency.

In December 1995, the federal government announced its intention

to amend CEPA to include negotiated settlements as part of its new, integrated approach to compliance and enforcement:18

The term “negotiated settlement” refers to an agreement reached between

a regulatee and a regulator. The goal of negotiated settlements is to

increase compliance and decrease the need to prosecute or seek an injunction. The settlement is made after the regulatee has been found to have

broken the law, in this case, CEPA and/or its accompanying regulations.

Instead of prosecuting or taking another enforcement action, the regulator

negotiates with the regulatee to identify the steps that the regulatee will

take to ensure that another violation will not occur. The agreement takes as

a starting point that the regulatee will correct the violation. It is important

26 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

16. The binding, contractual nature of these agreements does generate some dispute

about whether they are truly “voluntary.” This is part of the oxymoron problem

discussed above.

17. There is also some controversy about whether warnings are properly considered

part of “enforcement” or part of “voluntary compliance.” It was a major step in the

development of “taking enforcement seriously” when “warnings” of

non-compliance became a formalized, written step in the enforcement response to

non-compliance, and incorporated a real threat of further government action if the

non-compliance were not corrected. Thus, responses to warnings are not wholly

“voluntary” in that they are motivated by a threat of individualized coercion by the

state. On the other hand, they are included here because they represent government action that can induce compliance without coercion actually having to occur.

18. Government of Canada 1995b, excerpt from Ch. 5.
to note that compliance with the law is not negotiable – the regulatee must

comply. The only thing being negotiated is the steps that the regulatee will

take to return to a state of compliance with the law and to ensure that the

violation does not recur.

Negotiated settlements offer the regulatee and the regulator an opportunity to agree on such things, as, for example, the regulatee’s commitment

to set up better monitoring mechanisms, improve pollution prevention or

pollution control measures, or changes to the production process to

reduce the possibility of future offenses. Negotiated settlements can also

specify the type of corrective measures that the regulatee will take to clean

up environmental damage resulting from the offense or the restitution

that the regulatee will offer. Settlements can include a time frame for the

regulatee’s actions, a requirement to file status reports with the regulator,

and a list of specific consequences if the regulatee fails to live up to the

terms of the settlement. Negotiated settlements do not stand alone. Under

a renewed CEPA, they would be one enforcement mechanism among a

spectrum of options and would be used in conjunction with an administrative penalty scheme either to supplement the monetary penalty or to

replace it.

As is the case with administrative monetary penalties, negotiated settlements in various forms, including assurances of voluntary compliance,

compliance plans, consent orders and consent agreements, are not new to

North American law. For example, such assurances are used in Canada in

provinces such as British Columbia, Newfoundland and Quebec in relation to business and trade practices. Compliance plans exist under the

Ontario Occupational Health and Safety Act. Consent agreements are found

in the federal Canadian Human Rights Act and Competition Act, and both the

Ontario Business Practices Act and Discriminatory Business Practices Act. The

Alberta Agricultural Service Board Act provides for “negotiations.” The US

Environmental Protection Agency uses consent orders and consent agreements.

Negotiated settlements under CEPA could include terms such as:

[...] the regulatee’s admission that a violation occurred; a plan setting out

how the regulatee would try to ensure that another violation does not

occur; the understanding that a regulatee’s failure to respect the terms of a

negotiated settlement is itself a violation; the understanding that, if the

regulatee fails to follow the terms of the settlement, the regulator will take

immediate, formal action; an agreement that the negotiated settlements

will be part of the public record; an agreement that the regulatee will file

periodic status reports with the regulator, which will be part of the public

record, to show how the regulatee is fulfilling the terms of the negotiated

settlement; and an agreement that the parties can re-negotiate the settlement if circumstances change.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 27
The federal government also announced its intention to amend

CEPA to include the related concept of “pollution prevention plans”:19

[...]

The intent of the “pollution prevention” part of a renewed CEPA would be

to shift the focus of environmental protection activities towards avoiding

or minimizing the creation of pollutants and wastes rather than trying to

manage them or clean them up after they have been created. Its goal is to

turn thinking away from pollution control and waste treatment as preferred mechanisms for protecting the environment. Canadians would be

encouraged to adopt “preventive environmental care” which encourages

environmental and economic efficiencies through waste reduction and

measures to avoid the creation of pollutants as early in an activity as possible. This approach would guide changes to existing activities and

influence decision-making right from the conception, design and planning stages of new activities.

[...]

6.3 The Government further proposes to amend CEPA to enable the

Minister to require preparation and implementation of pollution prevention plans where there is an infraction of a CEPA regulation or where there

is a finding of liability under the administrative monetary penalty system,

which is also proposed to be included in CEPA.

[...]

6.4 The “pollution prevention” part of a renewed CEPA proposes to provide authority for the Minister to formulate a model pollution prevention

plan in the form of a guideline. The guideline could be expected to contain

the following components:

· a senior-level statement of commitment to prepare and implement the

pollution prevention plan;

· a clear statement of the objectives and environmental goals for the plan,

and a schedule for meeting those goals;

· a comprehensive quantitative review of all activities including purchasing, processing, producing, generating, distributing, treating, disposing, or releasing of the substance(s) for which the plan is required;

· an identification, feasibility study, and ranking of opportunities to

avoid or minimize the production, generation, or release of the substance(s) in all activities identified above;

28 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

19. Ibid., excerpt from Ch. 6.
· a selection of options to meet the environmental goals for the plan and

preparation of a schedule for the implementation of the selected

options;

· implementation of the selected options; measurement, tracking and

evaluation of their success; and

· reporting on progress towards environmental goals.

6.5 Where a person is required to prepare a pollution prevention plan as

outlined above, it is proposed that the person would be required to submit, within a specified time limit, a formal declaration to the Minister,

indicating that a pollution prevention plan has been prepared in accordance with the guideline and the notice in theCanada Gazette. CEPA would

also be revised such that failure to submit the declaration or submission of

a false declaration, would be an offense.

4.2 Yukon Environment Act

The first statute in Canada to mention voluntary compliance

expressly is s. 158 of the Yukon Environment Act.20 It states:

1. An environmental protection officer may issue a notice of

non-compliance to a person where the environmental protection officer

believes that the person, or a development or activity under the person’s

control, is not in compliance with this Act, the regulations or a permit,

order or direction.

2. A notice under Subsection (1) shall state (a) the nature of the

non-compliance; (b) a request for voluntary compliance; (c) the steps

which should be taken to achieve compliance; and (d) the date by which

compliance should be effected.

This approach is perhaps more akin to a “warning,” because the

alleged offender plays no express role in defining its “voluntary compliance.” It is similar to other voluntary compliance plans in that it is used

to specify what the offender must do to reach compliance, and because

of its emphasis on “voluntary” action. The provision makes no mention

of prosecution immunity, but it does attempt to “shame” offenders by

publishing their names:

3. The Minister may establish a public register of notices of noncompliance and, where such a register is established, shall cause a copy of

every active notice of non-compliance to be placed on the register.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 29

20. S.Y. 1991, c. 5.
4. A register established under Subsection (3) shall be accessible to the

public without charge during normal business hours at an office of the

Government of the Yukon to be specified by the Minister.

5. Where an environmental protection officer is satisfied that a person to

whom a notice of non-compliance was issued under Subsection (1) has

effected compliance pursuant to the notice, he or she shall withdraw the

notice of non-compliance and the Minister shall then cause the copy of the

notice to be removed from the public register.

6. The Minister may cause all or part of the public register to be published.

The Yukon Enforcement and Compliance Policy mentions voluntary compliance plans when describing the range of enforcement

responses available to enforcement personnel, from written warnings to

prosecution.21 When selecting a response from this range, regulators are

required to consider:

· the nature of the violation,

· the offender’s history of compliance,

· the expected effectiveness of the measure in achieving compliance, and

· consistency with other situations.

4.3 Ontario

4.3.1 Compliance Guidelines

The Ontario Ministry of the Environment and Energy (MOEE)

compliance guideline gives an important role to compliance plans when

front-line abatement officers exercise their enforcement discretion. It:

documents the ministry’s approach and provides guidance to ministry

staff for achieving and maintaining province-wide compliance with its

legislation and regulations [...It] describes how the ministry uses both abatement and enforcement to achieve compliance, and [...] sets out [...] the

principles governing the ministry’s enforcement of laws [...]

When faced with a problem of non-compliance, each officer must

decide how to respond, and whether to invoke mandatory compliance

measures (such as prosecution or control orders). In some cases, the

30 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

21. Government of Yukon 1993.
guideline allows the officers to attempt to elicit “voluntary” compliance

without coercive mandatory measures. As a first step, each situation of

“non-compliance” must be evaluated and categorized. Immediate Ministry action is required and specified in cases of:

1. spills or similar emergencies,

2. immediate danger to human life, health or property, and

3. cases which require further investigation before the officer can

judge whether there may be an immediate danger to human

life, health or property.

In those cases where there is no emergency, and no immediate danger to human life, health or property, the provincial officer must assess

whether voluntary or mandatory compliance measures should be used.

The guidelines set out numerous criteria for not selecting voluntary

compliance measures. If the officer attempts voluntary compliance even

when these criteria apply, s/he must justify this approach in a memo

placed in the ministry file. The criteria for not attempting voluntary

compliance measures fall into two categories:

1. The seriousness of the impact of the non-compliance.22

2. The attitude of the offender.

This second criterion is expressed in several overlapping ways,

each attempting to distinguish the well-intentioned offender, who is

generally trying to achieve compliance, from one whose intentions are

not good, but is simply trying to get away with something. To distinguish one from the other, the officer is instructed to consider:

1. the offender’s compliance history, including previous occurrences of this violation and other compliance problems;

2. the cause of the particular violation, i.e., whether it was deliberate, negligent, or non negligent;

3. whether the offender shows an interest in and commitment to

voluntary compliance;

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 31

22. This is a reasonable and appropriate criterion: the greater the risk of causing material harm to people or the environment, the more important it is that the

non-compliance be halted immediately.
4. whether similar voluntary approaches have succeeded or

failed in the past; and

5. whether the offender’s general operations are in compliance

with its Ministry permits. [A person who makes a habit of

complying with Ministry requirements is a better candidate

for voluntary compliance than one who does not.]

If the officer decides that voluntary compliance measures should

be attempted, s/he explains to the offender what s/he considers to be

out of compliance and requests that the offender make a detailed plan to

resolve it. The officer’s request must be made or confirmed in writing;

the offender must respond in writing, within at most thirty days. If a

compliance plan is received on time, the guideline sets out criteria for

assessing whether the response is adequate, i.e., whether the officer has

reasonable confidence that compliance will be achieved. If the officer is

satisfied with the plan, s/he should follow up later to see if the desired

result was achieved. Some extensions to plan deadlines can be granted

for good reason and when documented in writing, but mandatory compliance measures must be instituted if progress is unsatisfactory for

more than six months or after two written warnings have been given.

4.3.2 Program Approvals

Compliance agreements are more formal versions of compliance

plans which are formally approved or accepted by the regulator. They

are contracts which exchange a limited statutory immunity from prosecution for agreed compliance measures.

Compliance agreements with polluters have been provided for in

at least two Canadian environmental statutes. The key features of these

compliance agreements are that:

· a regulator need not have proof that the company is out of compliance;

· the company’s proposal need not be restricted to reaching compliance; and

· the company is immune from prosecution for the matters covered by the agreement, as long as it complies with the agreement.

32 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
The earliest statutory provision of this type was s. 10 of the Ontario

Environmental Protection Act,23 adopted in 1971:

10.- (1) A person responsible for a source of contaminant may submit to the

Director a program to prevent or to reduce and control the discharge into

the natural environment of any contaminant from the source of contaminant. (2) When a program referred to in Subsection (1) is submitted to the

Director, the Director may, with the consent of the Minister, refer the program to the Environmental Council for its consideration and advice.24 (3)

The Director may issue a program approval, directed to the person who

submitted the program.

11.- (1) The Director shall, in a program approval, (a) set out the name of

the person to whom the approval is directed; (b) set out the location and

nature of the source of contaminant, (c) set out the details of the program,

and (d) approve the program.

A person who complies fully with a program approval is immune

from prosecution for the matters dealt with under the program.

Program approvals were designed to encourage businesses to

move gradually towards improved compliance with the Act and regulations. Program approvals were originally designed for those businesses

that took the initiative and wished to abate their polluting discharges,

whereas control orders were designed to be imposed upon the recalcitrant. Because improved environmental controls may require considerable time and expense, businesses that undertake improvement

programs were offered the important advantage of immunity from

prosecution. Such immunity also applies to those who comply with

orders.

In the early years of the Environmental Protection Act, program

approvals were relatively numerous and mandatory orders relatively

few. About five or ten formal program approvals were issued per year in

the 1970s, as the MOEE threatened, cajoled, and bargained with the

major polluters of the day. Although at that time prosecutions were few

and fines modest, immunity from prosecution was an important bargaining tool and one that a formal program approval did provide. As a

result of these approvals, of public pressure, and some high-profile

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 33

23. RSO 1990, c. E.19.

24. This is not the same as the Canadian Environmental Council established by the

Standards Council of Canada for the purposes of ISO 14000. The “Environmental

Council” referred to in the Environmental Protection Act was intended as a council

of experts, and was the 1970s equivalent of public consultation. In fact, this council

was never appointed.
prosecutions, some major polluters did substantially reduce their more

visible emissions.25

In the second decade of MOEE’s existence, program approvals fell

into disuse. Because program approvals are not based upon proof that

the business was breaking the law, it is not a punishable offense to fail to

implement a program approval.26 At worst, a defaulting business would

lose the prosecution immunity that the program would have purchased

for it, and could be directly prosecuted for any offenses it had committed. However, the MOEE may have failed to gather the necessary evidence. In practice, there were many cases in which the agreed deadlines

were not met, or where agreed upon technologies did not adequately

resolve a problem. Regulators were regularly accused of being “soft” on

polluters. Some companies received one program approval after

another, making little significant progress, without ever being sanctioned for their behavior, until the MOEE finally turned to prosecution.27

In 1985, a new government came to power with a moral mandate to

“put the environment first.” The regulatory pendulum swung massively from negotiation to hard-edged enforcement. The enforcement

branch increased five-fold, and then doubled again; prosecutions and

fines underwent similar increases. Since that time, although program

approvals have remained in the statute, the MOEE has not used them.

There were two main reasons for this disuse. For regulators, program approvals seemed less satisfactory than control orders. Substantial

regulatory resources were required to negotiate program approvals

with the company and to obtain internal department consent, both from

senior management and from the legal branch.28 The total resources con34 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

25. See, for example, the Abitibi Paper case discussed in Section 4.11.2 below.

26. While breach of an order or of a certificate of approval is an offense (s. 186(2)),

breach of a program approval is not. The only consequence of breaching a program

approval is loss of the protection from prosecution granted by s. 186(4).

27. R. v. Union Carbide Canada Ltd. (1974), 20 C.C.C. (2d) 374, 6 O.R. (2d) 50 (Co. Ct.): A

program approval or order provides protection from prosecution only in relation

to the particular equipment or operation specifically governed by the approval or

order. R. v. Toronto Refiners and Smelters Ltd. (6 October 1987), (Ont. C.A) [unreported]: Compliance with a program approval or order provides protection from

prosecution only with respect to acts or omissions which occurred during the

period of the order. Re Canada, Metal Co. Ltd. and The Queen (1974), 20 C.C.C. (2d)

552, 5 O.R. (2d) 787 (H.C.J.), affd 24 C.C.C. (2d) 374, 8 O.R. (2d) 773 (C.A.): Compliance with an order before the time of prosecution but after the date contained in the

order is not full compliance and does not provide immunity from prosecution. R. v.

Johns-Manville Canada Inc. (1979), 9 C.E.L.R. 137 (Ont. Ct. (Prov. Div.)): The defendant has the onus of proving full compliance with all terms of a control order on a

balance of probabilities.

28. This resource demand is now further increased by the requirement of public consultation under the Environmental Bill of Rights.
sumed in this process are similar to those required to issue a control

order (unless the company appeals the control order to the Environmental Appeal Board). Also, control orders better fulfilled the public appetite for visible government action against polluters, as any breach of the

order would be an offense relatively easy to prosecute.

On the other side of the equation, the regulated community feared

that there was no safe way to approach the MOEE about negotiating a

program approval, as this means a company must reveal its noncompliance. Since 1985, any MOEE officer who learns of noncompliance has been required to notify the Investigations and Enforcement Branch. The branch was very enthusiastic in following up such

notices. The regulated community believes that insufficient efforts have

been made to distinguish the well-intentioned firms, who did not need

to be punished in order to take the environment seriously, from deliberate offenders; both were prosecuted.29

Some efforts were made to explore the possibility of a “preclearance” system, comparable to that used to obtain tax clearances from

the ministry of national revenue. This would allow a company to disclose their problem on a “no-name” basis, and to negotiate a resolution

without disclosing their identity. Under the tax system, the company

can legally rely on the settlement that is negotiated, provided that all relevant facts have been disclosed to the tax department. This suggestion

was scornfully rejected by the Legal Director of the day, on the grounds

that it was akin to making deals with Jack the Ripper. Thus, there was no

safe way for companies to initiate negotiations for a program approval,

and little interest by regulators in responding favorably to such an

approach.

As environmental regulation continues to mature, as government

resources become straitened and as jobs have fled, Ontario regulators

have begun to reappraise program approvals. The first sign of this reappraisal appeared in the November 1995 Policy and Guideline on Access to

Environmental Evaluations:

MOEE encourages the voluntary sharing of information by those seeking

pollution abatement through voluntary arrangements with Government.

These arrangements may provide protection from prosecution for those

who are committed to addressing environmental issues. This type of

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 35

29. On at least one occasion, a company installed a multimillion dollar pollution control system and flew several regulators up for a grand opening. When MOEE representatives arrived, they discovered that the system had malfunctioned. The

regulators prosecuted the company.
arrangement is provided for under MOEE’s current compliance policy in

the form of Program Approvals.

Under the system of Program Approvals, a person responsible for a source

of contamination may submit to a MOEE Regional Director a program to

prevent, reduce or control the discharge of any contaminant into the natural environment. The MOEE may then approve the program and allow the

business a specified period of time to implement its environmental plan.

Voluntary programs play an important role in the Ontario government’s consultation paper on regulatory reform, Responsive Environmental Regulation, released in July 1996.

4.4 Quebec

A somewhat similar pattern is apparent in s. 116.2 of the Quebec

Environmental Quality Act. This section has undergone some interesting

changes. In 1978, it read:

116.2- Prosecution prohibited – No proceedings may be instituted for an

offense against Section 20 in connection with the emission, deposit, discharge or issuance of any contaminant likely to affect adversely the life,

health, safety, welfare of comfort of human beings, to inflict damage or

otherwise prejudice the quality of the soil, the vegetation, animal life or

property, against the person responsible for the source of the contamination, if such person has submitted a depollution [i.e., pollution reduction]

program which has been approved by the Deputy Minister and if he faithfully complies with its requirements and schedule of implementation.

116.3- Notice – If the person responsible for the source of contamination

requests the approval of a depollution program contemplated in Section

116.2, he shall publish a notice in two consecutive issues of a daily newspaper circulated in the region where the source of contamination is situated.

[...]

Request transmitted – The Minister shall also transmit the request for

approval to the secretary-treasurer or clerk of the municipality where the

source of contamination is situated. The latter shall place such file at the

disposal of the public for a period of fifteen days.

116.4- Representations to the Minister – Every person, group or municipality may submit representations to the Minister until the expiry of the

period of fifteen days contemplated in Section 116.3 and the period of fifteen days following the publication of the second notice published under

Section 116.3; these periods may be wholly or partly simultaneous.

36 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
Approval – The Minister shall not issue his approval before the end of

these periods.

In 1993 this section was further amended, and now states:

116.2- Prosecution prohibited – Any person responsible for a source of

contamination not resulting from the operation of an industrial establishment contemplated by Section 31.10 may submit a depollution program to

the Minister for approval.

The 1978 version was a clear example of an Ontario-style “program

approval,” in which the government traded immunity from prosecution

for an approved compliance plan. Unlike Ontario, Quebec required that

proposed deals of this type be published for public comment before they

were concluded. However, the 1993 amendments to the Environmental

Quality Act removed the immunity from prosecution that an approved

plan used to confer.30

There is a continuum between voluntary compliance plans and

compliance agreements. Much of the analysis of compliance plans presented earlier also applies to negotiated compliance agreements.

4.5 New Brunswick

The New Brunswick compliance policy is more open to voluntary

compliance, and less wedded to maximizing prosecution. Its philosophy is quoted at the opening of this paper, and repeated here:

The appropriate measure of the success of environmental law is not the

number of convictions obtained in a year, or the dollar value of the fines

[...] Environmental law should aim at least to preserve, and perhaps to

improve, the existing environmental quality [...] Compliance by the violator in a timely manner, without further intervention or violations, is the

desired result.31

Thus, New Brunswick has an express hierarchy of enforcement

options, in which warnings and “Schedules of Compliance” are used

before investigation and prosecution:

If the inspector finds that the alleged violator did not take all reasonable

steps to prevent damage to the environment, the inspector can initiate one

or more of the following to produce compliance: warnings; schedules of

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 37

30. Oddly, the official title to s. 116.2 continues to state “prosecution prohibited,” even

though the section itself no longer provides such immunity.

31. Government of New Brunswick 1994.
compliance; ministerial orders; and injunctions. The normal course of

action is to employ each of these options progressively.

Warnings are issued where non-compliance has occurred, but, as

the document says, “the harm or potential harm to the environment,

human life, or health is thought to be minimal.” They include compliance deadlines:

If the alleged violator is unable to comply immediately with the law, a

schedule of compliance stipulating the action which must be taken to produce compliance will be drawn up. This schedule establishes a date by

which compliance must be achieved. If the person does not comply, further action will be taken by the Department.

In both cases, the regulators will follow up to verify compliance:

Follow-up inspections to verify compliance with previously agreed-upon

actions are a critical component of the process. When compliance has been

found, the enforcement process changes to a routine monitoring function.

The policy does not guarantee that “voluntary compliance” will

avoid prosecution:

As stated earlier, although the violation may have been brought into compliance, prosecution through the courts may still be brought against the

responsible person for past infractions of environmental law [...].

This, however, is strongly implied in the case of companies that

have made reasonable efforts to comply:

The following criteria will be applied by enforcement officials when considering a course of action in response to suspected violations:

Effectiveness of Achieving Desired Results – Compliance by the violator

in a timely manner, without further intervention or violations, is the desired result. Factors considered by enforcement officials are the violator’s

history of action already taken to achieve compliance.

Equitable and Consistent Enforcement – When faced with an infraction

of environmental law, inspectors will attempt to ensure fairness by considering the circumstances and how similar situations have been dealt with

before deciding how to bring about compliance [...].

The Department will pursue prosecution when [...] there is significant

harm [...and] the alleged violator does not take reasonable steps to comply

[...] a violation is repeated, warnings [are] disregarded, [...] the violation is

deliberate [...or involves substantial negligence], or the alleged violator

[...] conceals information of an offense [...]

38 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
4.6 Manitoba

The Manitoba Environment Enforcement Policy and Procedures

take a similar approach to that used in New Brunswick.32 “Warnings”

and “Negotiated Compliance” are the first enforcement options to be

considered, and are clearly described as alternatives to prosecution:

Warnings/Negotiated Compliance – Written warnings shall contain the

following information:

1. the section of the Act, Regulation, License or Permit violated,

2. a time limit by which the warning must be complied with where appropriate, and

3. a mandatory statement that failure to rectify the violation can result in

prosecution.

If a decision is made not to engage in formal prosecution as a result of

departmental negotiations, agreements are subject to the following requirements:

1. orders, agreements, directions and licenses are to be filed in the public

registry [...]

[...] The department will abandon negotiations regarding enforcement

and engage in prosecution where there is non-compliant behavior with

the department by the alleged offender, such as:

1. the alleged offender shows an unreasonable delay in responding to

departmental requests for information or other correspondence,

2. the alleged offender takes an unreasonable or uncompromising position during negotiation with the department,

3. there is insufficient reason given for non-attendance at scheduled

meetings or negotiation sessions by the alleged offender, and

4. in the opinion of the department, there is evidence that the alleged offender is delaying the progress of negotiations while the alleged offender continues to engage in an activity that may be an offense.

The policy is unusually clear in distinguishing those companies

who “need” prosecution to change their behavior from those who are

already doing what they can:

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 39

32. This section was revised on 2 March 1995.
Factors which may lead to warning and negotiations:

1. an old site or facility [is involved] and remedial action is difficult or

impossible,

2. [there are] limitations [to the] pollution control technology,

3. immediate rectification of [the] problem is financially impossible,

4. [the] pollution problem was accidental and/or not readily foreseeable,

5. there is a history of compliance on the part of the violator,

6. reasonable efforts were taken to notify the department and mitigate

the effects of the violation,

7. the infraction is of a minor nature or appears to be inadvertent, and

8. non-compliance will not endanger public health or create significant,

long term, irreversible environmental damage.

However, there is still some ambivalence about the relationship

between voluntary compliance and prosecution. In apparent contradiction to the rest of the policy, one paragraph states: “[...] the commencement of subsequent prosecutions is always an option for the department

and at no time will the commitment be made that there will be no subsequent prosecution.”

4.7 Other Canadian Jurisdictions

The Prince Edward Island Environmental Resources Enforcement

Policy and Procedures are very similar to those in Manitoba. Other provinces, such as British Columbia and Alberta, make no special provision

for voluntary compliance plans. They content themselves with allowing

abatement officers to give written warnings to some offenders, on the

assumption that well-intentioned offenders will act on the warning and

cure their non-compliance. Alberta goes further, stipulating that:

Voluntary environmental audits are not a substitute for compliance. There

is no defense to a charge or a limit on a business’s responsibility to meet

legislative requirements simply because an environmental audit was

conducted [...] The Department will not modify an enforcement response

in exchange for conducting an environmental audit [...]33

40 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

33. Enforcement Program for the Environmental Protection and Enhancement Act,

Alberta Environmental Protection, 2 September 1994.
4.8 Legal Authority

Yukon and Nova Scotia have specific statutory authority for voluntary compliance plans. Ontario has specific authority for compliance

agreements. The federal government has proposed to add such authority to CEPA.

In the other provinces there is no specific legal authority for voluntary compliance plans, for compliance agreements, or even for the compliance guidelines that permit them. In strictly legal terms, compliance

guidelines are merely internal documents for the guidance of public servants exercising their extensive statutory powers to impose mandatory

compliance mechanisms.34 Guidelines are not directly judiciable, i.e.,

persons dissatisfied with the decision-making that led to their prosecution cannot sue the regulator merely for that reason. However, compliance guidelines are made public with the specific intention that potential

offenders should govern their conduct accordingly. Thus, it is conceivable that a prosecution brought in flagrant breach of the guideline could

be an abuse of process. Those defending a prosecution might also point

to a regulator’s breach of the guideline when arguing for a lighter sentence.

It is noteworthy that the compliance guidelines do not expressly

address the relationship between the corporate offender and its officers,

directors and employees. This is a somewhat surprising omission, considering the high profile that director and officer liability has had over

the last five years. As described above, the Ontario guideline takes some

pains to prevent voluntary compliance measures from being used as a

bar to prosecution of the principal offender; for the same reason, they

would not bar prosecution of individuals related to the offender. In practice, however, it is unlikely that a regulator would prosecute individuals

associated with a company if they were satisfied with the compliance

status of the company as a whole. The only exception might be a rogue

employee no longer associated with the company, who had had a strong

personal role in committing an offense.

4.9 Contracts and Consideration

A compliance agreement is a contract. As in any contract, each side

must give something of value as consideration for the promises of the

other; without consideration, the contract is unenforceable. The quesVOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 41

34. Statutes such as the Ontario Environmental Protection Act authorize regulators to

issue orders and prosecute those who are not in compliance.
tion of what consideration each side can give illuminates one of the

essential problems of compliance agreements.

4.9.1 What Consideration can the Regulator provide?

Regulators have at most two valuable promises to offer: clarification of their regulatory requirements, and forbearance. Clarification

could potentially provide consideration by specifying the level of due

diligence demanded of a company. Companies often find it difficult to

define the required level of due diligence, and therefore to ascertain

what they must do to achieve compliance. It is arguable, although not

certain, that clarification and limitation of a due diligence requirement

could be sufficiently valuable to provide legal consideration.

However, Canadian regulators have consciously chosen not to

provide such limitation. In agreements, approvals, and orders, ministries take pains to specify that their requirements are minimum requirements and that companies must, in addition, do anything else that the

law requires. Thus, a department’s specifications are only illustrations

and not definitions of what the company must do. For this reason, it is

unlikely that they could amount to legal consideration.

Thus, the only possible consideration remaining at the regulators’

disposal is forbearance. Agreements that provide forbearance as to the

substantive requirements of the law are discussed in Section 5 on Bill

C-62, the proposed Regulatory Efficiency Act. Forbearance may also relate

to:

· punishment for non-compliance that has already occurred,

and/or

· punishment for non-compliance during a future “grace

period.”

The first type of forbearance is often used informally. One use of

forbearance, the use of warnings and compliance plans rather than prosecution, was discussed in Section 4.8 above. When prosecution does

occur and a plea bargain is contemplated, an important part of the bargaining concerns the compliance measures taken by the defendant after

the offense occurred.35 For example, in one recent case, the prosecutor

was seeking fines in excess of $125,000.00 plus jail sentences, for prolonged offenses relating to illegal waste disposal. In exchange for

42 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

35. Compliance after the charge is laid is also an important consideration in sentencing, although then it is the court and not the ministry that evaluates it.
cleanup of the site by the owner, however, a plea bargain was negotiated

that included only three charges and a fine of $10,000.00.

More formally, immunity from prosecution for past noncompliance is provided by statute in s. 70 of the Nova Scotia Environment

Act, which states:

70. (1) Any person responsible who voluntarily provides the Department

with detailed information obtained through an environmental audit or

environmental-site assessment about non-compliance with the requirements of this Act by that person, shall not be prosecuted for the

non-compliance, if the person complies with: (a) the terms of any agreement negotiated by the Minister and the person; or (b) any order issued

under Part XIII to address the non-compliance by the person.

(2) Subsection (1) does not apply if the Department is independently

aware of the non-compliance prior to receiving the information from the

person.

That Act is discussed in more detail in Section 7.4.

Compliance agreements discussed in this section rely upon the

third option: forbearance during a future grace period, in exchange for

measures to improve compliance which are to be taken during that

period.

4.9.2 What Consideration can the Company offer?

Suppose a company in this situation promises to take a series of

steps to improve its environmental performance. In practice, these are

the steps that it needs to take to achieve compliance. Is this consideration? One view is that, since compliance is already required by law,

nothing additional is offered by a promise to achieve compliance, and

therefore the company offers no consideration.36 The other view is that

consideration is provided when a party with legal obligations makes

additional promises of concrete steps that s/he will take to meet those

obligations. Although the company may suffer no legal detriment from

such promises (in that it incurs no additional legal obligations), the regulator may get a factual benefit, if the additional promises make actual

compliance more likely.37

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 43

36. This view is usually held by those who believe that compliance can and should be

obtained only through punishments and threats, not through incentives. Environmental groups often hold this view.

37. Lord Denning is among those who have argued for this position. See Ward v.

Byham, [1956] 1 W.L.R. 496 and Williams v. Williams, [1957] 1 W.L.R. 148.
There is a useful parallel to this debate in the general law of contract:

Much difficulty arises in determining whether a person who does, or promises to do, what he was already legally bound to do, thereby provides

consideration for a promise made to him.38

Professor Waddams described the problem as follows.

“B” is already bound to deliver goods to “A.” “A” promises to pay

“B” $1000.00 for delivery. Theoretically, “A” is promising to pay $1000.00

for something he could have had for nothing. In practice, however, there

may be good reason for “A” to attempt to make more probable the actual

performance by “B” of his obligation.39

“A” may strongly prefer to pay the extra $1000, if that will permit

him/her to obtain goods that s/he urgently needs without the (much

greater) expense of suing for them.40 In the same way, there are important resource savings for a regulator when compliance can be obtained

through a compliance agreement rather than through a prosecution.

However, judges and learned authors alike have been concerned about

the risk of encouraging “B” (or others like him/her) to delay fulfillment

of his/her original obligations in the hope of obtaining some additional

benefit for performing them. Contract lawyers refer to this as a question

of “public policy”; criminal lawyers refer to it as a question of “general

deterrence.”

The courts have divided sharply on this issue:

In the case of a pre-existing duty owed by contract with a third person, the

English and Canadian courts have generally held that “A’s” promise is

enforceable [...] The American courts, however, have held that it is contrary to public policy for “B” to demand or receive money from “A” for

doing something that he is already bound to do by contract with another.

The fear is that “B” will be encouraged to threaten to break his contract

with the third person in order to secure further remuneration from “A” [...]

Where these pre-existing duties spring from statute or from agreement

with “A”, the English and Canadian courts have in general denied enforcement unless “B” promises something in addition to what he was already

bound to do [...], it can hardly be doubted that they have been influenced

by the fear of improper pressure being exerted by “B” in order to secure

extra payment for what he is already obliged to do.41

44 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

38. Treitel 1993, 85.

39. Waddams 1993, 89.

40. Gilbert Steel Ltd. v. University Construction Ltd. (1973), 36 D.L.R. (3d) 496 aff’d by 67

D.L.R. (3d) 606 (C.A.).

41. Waddams 1993, 101.
This same concern exists for compliance agreements. Why should

companies receive an enforceable promise of immunity for promising to

do what they were already obligated to do, and which law abiding companies do without a promise of immunity? Wouldn’t that simply

encourage and reward improper behavior, i.e., non-compliance?

There is another aspect to this concern. Some cases have held that

an act may constitute consideration even though there is a public duty to

do it.42 However,

[...] a person does not provide consideration by forbearing to engage in a

course of conduct that is criminal. To allow enforcement of such promises

would encourage extortion; and it is this ground of public policy, rather

than want of consideration, that accounts for most of the authorities that

establish the present rule.

Is a compliance agreement an agreement to do one or more positive acts, (which may be required by statute) or an agreement to refrain

from a course of conduct that is criminal, i.e., a type of extortion? A compliance agreement in which a company promised only “not to do it

again” may be an “agreement to refrain from a course of conduct that is

criminal.” Such an agreement would not be enforceable under common

law, and would not warrant a promise of immunity from regulators.

Both of these problems can be resolved by following the lead of the

contract courts. They usually resolve such cases by examining whether B

has offered something additional as consideration for the new contract.

For example, shipbuilders were awarded an increase in the agreed-upon

price for a ship when the currency specified in the contract was devalued. The court found that the builders had given consideration for the

increased construction price by giving a corresponding increase in their

own performance bond.43

Environmental regulators could avoid several kinds of difficulty

by insisting that a company wishing to enter a compliance agreement

provide some additional consideration, other than a bare promise to

comply with the law. A detailed agreement to take a series of specific

steps not required by statute, which will bring the company into

improved compliance, offers more than mere forbearance from criminal

conduct, and therefore could be deemed a binding contract under common law. This could avoid the legal problem of consideration. Similarly,

additional consideration could be provided each time a company

requests an extension to a deadline.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 45

42. Ibid.; Treitel 1993, 85.

43. The Atlantic Baron, [1979] Q.B. 705.
The ideal consideration for a compliance agreement would be

financial assurance that would be forfeited if the company did not live

up to the agreement. This would provide a meaningful performance

incentive in almost all cases and eliminate the old abuses that left program approvals in disrepute. It would be seen as avoiding the general

deterrence problem of rewarding non-compliance that creates incentives for undesirable behavior. It would also assist in demonstrating to

the public the legitimacy of the agreements. At least a token amount of

financial assurance should be appropriate in most cases. Alternative

forms of consideration could include additional record keeping, regular

progress reports, improved public information, grants to local agencies,

or some form of community service.

4.10 Efficacy

There are no empirical data on the impact of voluntary compliance

plans or agreements on compliance levels. However, a qualitative evaluation suggests that compliance plans can have a significant impact on

lessening the cost of achieving compliance, if they are used with care.

Regulators at Environment Canada emphasize that voluntary

measures are most effective when offered to those regulated businesses

that are out of compliance but are “well intentioned,” i.e., would prefer

to be “in compliance.” These constitute a very high proportion of some,

although not all, regulated communities. The regulated communities

most suitable for such voluntary compliance measures are those that are

out of compliance due to inadvertence; least suitable are those that

offend deliberately. For example, the Compliance and Enforcement Report

studied violations of six regulations.44 Compliance patterns and the usefulness of voluntary compliance varied dramatically among these six

groups.

Pulp and paper mills and ocean dumpers had achieved high levels

of compliance. Most violations of PCB and ozone-depleting substance

regulations occurred because the offender was unaware of the regulatory requirements. For such offenders, a warning and an opportunity to

comply were usually sufficient to produce compliance. In contrast, lack

of awareness was not a significant factor for those illegally exporting

hazardous wastes, and they would be poor candidates for voluntary

compliance. This area of deliberate, profitable offenses has now become

an enforcement priority.

46 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

44. Environment Canada 1996.
When well-intentioned companies are caught, and offered an

opportunity to comply (or face prosecution), a large number of them will

comply without prosecution. These companies may not require prosecution for specific deterrence. For them, voluntary compliance plans can

achieve an acceptable level of compliance at a lower cost to the regulator

than if they were prosecuted.45

To give a regulated business a consistent incentive to improve

compliance, and to keep the incentive as inexpensive as possible for the

regulator, compliance guidelines must consider costs and benefits both

before and after a non-complier is caught.46 In law enforcement, the parallel concept is the balance between general and specific deterrence.

On the other hand, when a provincial officer mistakenly offers voluntary compliance to a deliberate violator, both compliance and prosecution are delayed with no corresponding benefits. A deliberate violator

may ask for additional time to comply as a ploy when all s/he intends to

do with that time is to make more money, or to move his/her assets outside the jurisdiction. The Ontario compliance guideline tries to avoid

this undesirable result by setting many criteria for the use of mandatory

compliance measures, most of which are intended to identify these

offenders. However, no system is perfect; the availability of voluntary

compliance measures will sometimes let deliberate violators get away

with behavior that should not have been tolerated. Mistakes in judgment by a regulator offering voluntary compliance measures to such

persons could amount to regulatory negligence.47

More important, but harder to measure, are the impacts of voluntary measures on “general deterrence,” i.e., the incentive for offenders to

comply when they have not been caught. If not designed carefully, the

availability of such measures will actually reducethe incentive for voluntary compliance. An offender aware of such measures may reduce or

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 47

45. Compliance might be achieved more slowly than under the pressure of mandatory

compliance measures – there is nothing like prosecution to attract the attention of

senior managers. However, where voluntary compliance plans are offered only in

cases which do not endanger the life, health, or property of others, a delay in

achieving compliance may not have substantial social costs. In other words, the

social costs of a possible delay in compliance on this occasion are often outweighed

by the social benefits of avoiding prosecution. See Bardach and Kagan 1982.

46. To be effective, it is essential that the entire range of influences affecting incentives

acting upon a firm be properly coordinated, including tax policy and other economic mechanisms. See, for instance, Cassils 1991. However, economic mechanisms and tax policy are beyond the scope of this study.

47. The Nova Scotia Environment Act, s. 143, specifically exempts a wide class of government employees and agents from civil action for damages for acts or omission in

the conduct of an inspection.
delay compliance, since s/he will have a “voluntary” (and penalty-free)

opportunity to improve his/her compliance if caught. In other words, if

“voluntary compliance” plans or agreements permit an offender to

delay or reduce pre-detection compliance without any cost or adverse consequences, they create a positive incentive not to comply until the

offender is “caught.” In contrast, the opportunity to use voluntary compliance plans when non-compliance is detected can create a substantial

incentive for improved pre-detection compliance, where this opportunity

is made highly valuable, (i.e., includes some protection from prosecution)

and must be earned by previous efforts to improve compliance.

What is the best way to allow potential offenders to “earn” access

to voluntary compliance plans and agreements? Regulators want to

encourage and reward companies that manage their environmental

risks well. Companies with a high risk of environmental harm, such as

those listed in the National Pollutant Release Inventory or those handling Priority Toxic Substances, should earn this privilege through

sophisticated environmental management systems, such as registration

to ISO 14000. For those who present smaller risks, lesser measures

should be required, e.g., an external environmental audit at least every

three years, documented implementation of the audit recommendations

and appropriate employee training. These companies should not, however, become exempt from enforcement. If their management systems

repeatedly fail to achieve adequate compliance, they should lose their

privileges and be prosecuted.

To date, no Canadian jurisdiction has set such high standards for

access to voluntary compliance plans or agreements. In part, this is

because none of them have made voluntary compliance sufficiently

valuable to potential offenders. In particular, Canadian regulators have

been very reluctant to grant any protection from prosecution to those

who engage in voluntary compliance. For example, an Ontario provincial officer who receives a proposed voluntary compliance program is

allowed to judge whether it seems adequate to remedy the problem.

However, no member of the enforcement staff is allowed to provide any

assurance, written or oral, that voluntary compliance will remove the

possibility that the Ministry might proceed with prosecution for ongoing or past non-compliance.

This seemingly self-defeating provision reflects the long-standing

tension between the MOEE’s abatement and enforcement branches. The

abatement staff believe that, when enforcement is rigorous, promises of

protection from prosecution can be a powerful bargaining chip in

achieving voluntary compliance. Avoiding a prosecution has substan48 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
tial economic value to an offender who can thereby expect to save, not

only the cost of any fine that might be imposed in a prosecution (plus the

20 % tax that now applies to such fines in one province), but also the huge

drain on company resources that is entailed in defending a prosecution.

In many cases, these defense costs dwarf any potential fine. They include

the out-of-pocket expense of retaining legal counsel and expert witnesses, and huge demands on the time, attention and energy of company

managers. In addition, there may be direct and indirect costs from

adverse publicity, including reduced attractiveness to some customers,

and demoralization of employees. This can be particularly important for

smaller companies that often lack sufficient resources to defend against

prosecution and simultaneously achieve compliance.48

Enforcement officers tend to see things differently. In their view,

promises of immunity tie their hands should voluntary abatement

prove unsatisfactory. In any event, they believe that voluntary compliance will be more likely if offenders always risk punishment. In this

view, the more actual or potential offenders fear a regulator and the punishment it can mete out, the less likely they are to offend.

Abatement officers believe that an economically prudent offender

who has been caught out of compliance is more likely to file a voluntary

compliance plan and promptly carry it through when it obtains a substantial benefit for doing so. If the company will face prosecution no

matter when it complies, it obtains relatively little reward for the expenditures required to achieve compliance quickly.49 In contrast, avoidance

of $50,000 in defense costs and fines can provide sufficient payoff to justify at least $50,000 in “voluntary” abatement expenditures.

However, robust enforcement is equally important. If the company will not face prosecution, whether or not it complies, it also has no

incentive to incur the expenditures required to achieve compliance.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 49

48. In one recent case, a waste management company was constantly out of compliance because it was unloading solid waste outside its storage building. The certificate of approval required unloading to take place inside, although everyone knew

that the waste could not be safely unloaded under the low ceiling of the existing

building. Thus, compliance could be achieved only by building a new building at a

cost of about C $50,000.00. This was also the expected cost of a prosecution defense

and fine. The company could arrange to borrow C $50,000.00 but not C $100,000.00

It wanted to come into compliance, but was fearful of spending the C $50,000.00 on

the new building, lest it be unable to defend itself against the threatened prosecution. Thus, the non-compliance continued.

49. The fine imposed is likely to be somewhat reduced for an offender who has come

into compliance, as compared to that for one who has not. However, as this result

could be achieved by complying shortly before trial, the offender has little incentive to comply earlier.
Promises of protection from prosecution are worth little when the

offender has no real fear of prosecution for its offense.50 Thus, the

absence of a credible program of mandatory compliance reduces programs for voluntary compliance to mere appeals for good citizenship.

Repeated surveys of the public and of the environmental industry have

shown skepticism about the effectiveness of such appeals.51 The 1994

KPMG survey of environmental management confirmed that voluntary

government programs are among the least effective mechanisms to motivate companies to address environmental matters.52

Regulators obtain maximum compliance for their enforcement

dollar when they attach known and predictable consequences to a

potential offender’s compliance history. That is, using past violations to

influence the probable frequency of future government inspections (and

prosecutions) provides a significant incentive for pre-detection compliance.53 For example, a voluntary compliance plan is a desirable response

to a first breach, as long as second and subsequent breaches within a

period of time are responded to by predictable and aggressive increases

in regulatory scrutiny and severity. To put it into street terms, the regulator may be viewed as saying:

If you don’t do as I say you should, I will undertake a course of action neither of us really wants – checking up on you so frequently for such a long

time that you will face a compliance “hell” and I will have to spend a considerable sum on your compliance alone. Behave in a reasonable fashion

and I will offer occasional opportunities to relax [...] A “reasonable fashion” is implicitly defined as never failing two audits in a row.54

A somewhat similar structure is used by automobile insurance

companies. A first accident, if minor, may result only in a warning. However, a second minor accident, or a first major one, results in an increase

in premiums that lasts five years. Additional accidents raise the premiums even higher; a driver with five accidents in the previous five years

will see his/her premiums rise enormously. This premium structure is

effective because it always gives drivers a significant financial incentive

50 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

50. For example, the federal government launched only eight prosecutions under the

CEPA in the entire country in 1994.

51. Gallon 1995; Environics Research Group 1995.

52. KPMG 1994. The first page of the survey reports the motivating factors for addressing environmental issues. The need to comply ranks first (95 %), while the presence

of government voluntary programs is last (16 %). Thus, purely voluntary programs

unrelated to compliance but initiated by government are low on the list of what

motivates companies to address environmental issues. The survey says nothing

directly about the impact of voluntary programs on compliance.

53. Russell 1990, 146; Scholtz 1984, 179

54. Russell 1990, 155.
to exercise prudence.55 It is desirable to give companies an incentive to

strive for compliance even if they have once failed to achieve it. Thus,

environmental offenders should know that they can “earn their way

back” to voluntary compliance by steady improvement in their compliance levels.

Another key element of an effective voluntary compliance program is a credible, public method of monitoring industry performance.

The absence of a credible verification mechanism is the key weakness in

most current programs of voluntary compliance,56 and is itself sufficient

to justify widespread public skepticism.

Voluntary compliance plans do not assist regulators in dealing

with the difficult but regrettably common problem of an offender who

would like to be in compliance but lacks the assets, the cash flow, or the

management skill to achieve it. Such cases often present front-line regulators with their most difficult problems. There is no single mechanism

that will always be effective in such cases. Even prosecution to the fullest

extent of the law has often failed to bring such offenders into compliance, especially once their economic resources have been exhausted.

4.11 Relationship with other Enforcement Mechanisms

Compliance agreements, by intention, restrict the enforcement discretion of regulators. The restriction is limited by the scope of the agreement. That is, if the agreement is related to odor emissions from a tank

and the company agrees to install scrubbers for those odors according to

a certain schedule, the company will be immune from prosecution for

any odors from that tank for the agreed-upon grace period. However,

normal enforcement action would be unrestricted for other types of

non-compliance, such as failure to manifest its wastes properly.

Compliance guidelines are generally published.57 On a day-to-day

basis, they are administered by the front-line abatement staff, who use

them to decide how to respond to each of the numerous problems that

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 51

55. The good driver is rewarded both by low premiums and by a “one accident” forgiveness policy which is much appreciated by many drivers. Note that this premium system would be far less effective in encouraging driver carefulness if, after a

single accident, a driver were elevated to the maximum premium level. Although a

good driver would have a strong incentive to avoid a first offense or accident, a

poorer driver who had already had one accident would have no further incentive to

be careful, since s/he was already being treated as harshly as the system would

allow.

56. Leiss 1996.

57. Most jurisdictions provide these to the public in paper form; some also use the

Internet.
are encountered each day. When questions arise as to the meaning or

application of a guideline, front-line staff obtain direction from the line

supervisors within their Department, up to and including the Deputy

Minister, and from their legal branch. The latter are ultimately responsible for interpreting the guideline and for carrying out formal enforcement measures.

A problem arises when an offending company believes that it has

not been dealt with in accordance with established policy. The issue has

been raised, but not adjudicated. InR. v. General Chemical Canada Ltd., the

company was charged with two spills of ammonia that were due to

equipment failures.58 The defendant alleged abuse of process, since the

MOEE had not exhausted its “voluntary abatement” options before

moving to prosecution. In the end, the defendant pleaded guilty to some

charges, and the motion was never heard. The company was

fined $80,000.

A second problem arises when an offender believes itself immune

from prosecution because it has carried out voluntary compliance measures. For example, in the General Chemical case referred to above, the

defendant, a company in full compliance with the Spills Reduction Strategy (a negotiated program of heightened measures to prevent and detect

spills) alleged officially induced error, abuse of process and exercise of

due diligence on the ground that it had voluntarily done everything the

regulator had asked it to do. These problems are discussed in more detail

in the following two sections.

4.11.1 Officially Induced Error

Regulators have experienced many problems with the defenses of

officially induced error and abuse of process. By one informal estimate,

at least one out of every five cases involves some miscommunication

between the defendant and a regulator. In many of these, defendants

claim to have been told by “someone in the Department” that what they

were doing was “all right.” Courts and prosecutors view these claims

with a high degree of skepticism, particularly if they are not confirmed

in writing.

Canadian courts have developed very strict rules for the application of the defense of officially induced error. The defendant must show

that:

52 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

58. R. v. General Chemical Canada Ltd. (18 July 1985), (Ont. Ct. (Prov. Div.)) [unreported].
· it adverted to (considered) its legal position;

· it sought advice from a government official;

· the official was a person entrusted with the application and

enforcement of the law in question;

· the defendant made full and candid disclosure of all the material facts to the official;

· the official gave erroneous advice;

· the advice was apparently reasonable;

· it was reasonable in the circumstances (including the relative

expertise and knowledge of the parties) for the defendant to rely

on the official’s advice;

· the defendant did rely on that advice, innocently, and in good

faith; and

· the offense occurred as a result.59

For example, if an abatement officer employed to issue and enforce

approvals under a water protection statute were to advise an industry

that it was permitted to begin construction of a new wastewater treatment system whose approval the officer was handling, the industry

might be immune from prosecution for commencing construction without having received the approval.60

Officially-induced error is not created merely by government laxity in regulation, or even by long acquiescence in illegal conduct. Officially induced error is not made out where the defendant did not ask for

the official’s advice,61 even though government inspectors may have

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 53

59. R. v. Cancoil Thermal Corp. (1986), 27 C.C.C. (3d) 295, 11 C.C.E.L. 219 (Ont. C.A.);

retrial: R. v. Cancoil Thermal Corp. (1988), 4 W.C.B. (2d) 384 (Ont. Ct. (Prov. Div.)); N.

Kastner 1985-86, 308; P. Barton 1979-80, 314; R. v. Johnson (1987), 78 N.B.R. (2d) 19

(Q.B.); R. v. Imperial Oil Ltd., 16 September 1990, Ont. C.A.; R. v. Robertson (1984), 43

C.R. (3d) (Ont. Ct. (Prov. Div.)); R. v. Gordon (1984), 58 N.B.R. (2d) 319 (Q.B.); R. v.

Squires (1986), 6 L.W. 638 (Ont. Ct. (Prov. Div.)).

60. R. v. Morningstar, [1988] 2 C.N.L.R. 140 (Ont. Dist. Ct.) and R. v. Flemming (1980), 43

N.S.R. (2d) 249 (Co. Ct.). It can be difficult for senior regulators to prevent their staff

from triggering this defense inadvertently. Ontario regulators have devoted considerable effort, both to training their staff so that advice is given correctly, and to

cautioning more junior staff to avoid giving such advice. One side-effect is a chilling of the ability of abatement staff to give helpful advice even to well-intentioned

but ill-informed businesses, the very ones who might benefit most from it.

61. R. v. Walker (1989), 91 N.S.R. (2d) 173 (Co. Ct.); R. v. Gant (28 July 1988), (B.C. Co.

Ct.) [unreported], [1988] B.C.J. No. 1777, contra: R. v. Johnson, supra.
had knowledge of the defendant’s activities and may have failed to

object to them.

In R. v. Richardson, Richardson traded in securities in the belief that

he was a prospector and therefore permitted to do so. In fact, he was

doing no prospecting and had therefore ceased to be a prospector.62 The

Ontario Securities Commission knew about his activities; Richardson’s

legal counsel had contacted the Commission on his behalf and Commission investigators had visited Richardson’s office and assisted him to

reword the grubstake certificate he was selling. They never told him that

he was not a prospector, but there was no evidence that he had ever

asked. He was convicted.

It sometimes happens that a government employee who does not

satisfy these criteria suggests a course of action which proves to be erroneous. One follows such suggestions at one’s peril, especially if one has

other information to the contrary. For example, in R. v. Marbar Holdings

Ltd., a construction company wished to drain an excavation.63 Although

an environmental inspector warned the company that the liquid in the

excavation was toxic to fish and must be kept out of watercourses, the

municipality refused to allow the liquid in the sanitary sewer. A municipal employee may have suggested that the company use the storm

sewer. Without further inquiry, the defendants pumped the liquid out

onto the road, from which it drained into a storm sewer and thence into a

watercourse. The defendant was convicted of causing water pollution.

In Minister of the Environment v. Vautier, the defendant was disposing of wood waste by trucking it to a stream, following a suggestion

made to him by the Expropriations Board during earlier proceedings.64

Since that time inspectors from the Ministry of the Environment had

repeatedly and correctly advised that this was illegal. The defendant

was convicted.

The defense of officially induced error is akin to a type of entrapment defense. It entitles a defendant to an acquittal because it would be

unfair to convict him/her; s/he might not have committed the offense

had it not been for the negligence or bad faith of a government official

involved in the enforcement process.

The compliance guideline is designed to minimize claims of officially induced error by requiring communications about voluntary com54 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

62. R. v. Richardson (1982), 68 C.C.C. (2d) 447, 39 O.R. (2d) 438n (C.A.), leave to appeal

to S.C.C., refused 48 N.R. 228.

63. R. v. Marbar Holdings Limited (1983), 4 F.P.R. 109 (B.C. Co. Ct.).

64. Minister of the Environment v. Vautier (1982), 12 C.E.L.R. 96 (Que. S.C.).
pliance mechanisms between a department and the company to be made

or confirmed in writing and also by providing that immunity from prosecution can only be given by a senior official, also in writing. This should

be reasonably effective, but some claims of officially induced error still

arise.

4.11.2 Abuse of Process

The abuse of process defense is similar to officially induced error,

in that it entitles a defendant to an acquittal due to the negligence or bad

faith of a government official involved in the enforcement process. However, the two defenses are procedurally distinct because abuse of process is typically invoked as a preliminary objection to a prosecution and

results in a stay of proceedings, while officially induced error is typically

invoked as part of the defense case and results in an acquittal.65 The two

defenses are also conceptually distinct because, as indicated above, officially induced error has become a relatively well-defined category of

mistake of law; while in contrast, abuse of process remains vague, a

residual category of judicial discretion to refuse to hear a case which

offends the very principles of justice which the courts are intended to

uphold.66

A prosecution may be stayed as an abuse of the court’s process in

“exceptional cases” where there has been “oppression, prejudice,

harassment or manifest hardship on the accused” to a significant

degree.67 A prosecution may also be stayed as an abuse of process where

the act of launching a prosecution breaches an undertaking given to the

violator in exchange for valuable consideration, and on which the violator has relied to his detriment.68

For example, consider Abitibi Paper Company Ltd. and The Queen.69

Following lengthy negotiations with local personnel of the Ministry of

the Environment and Energy, a paper mill with serious water pollution

problems volunteered to implement a pollution abatement program. To

save time, the MOEE engineer decided that it was not necessary to forVOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 55

65. That is, matters are prevented from proceeding without being resolved by either a

conviction or an acquittal.

66. R. v. Young (1984), 13 C.C.C. (3d) 1; R. v. Jewitt, [1985] 2 S.C.R. 128, 21 C.C.C (3d) 7;

Keyowski v. The Queen (1988), 40 C.C.C. (3d) 481.

67. Re Ball and The Queen (1978), 44 C.C.C. (2d) 532 (Ont. C.A.); R. v. Jarman (1972), 10

C.C.C. (2d) 426 (Ont. C.A.), and R. v. Navro Inc. (1988), 5 W.C.B. (2d) 440 (Ont.

H.C.J.).

68. In such cases, it is a peculiar kind of mistake of fact, namely, a reasonable belief that

one would not be prosecuted.

69. Abitibi Paper Co. v. R. (1979), 24 O.R. (2d) 742 (Ont. C.A.).
malize the program through a “program approval.”70 However, he

warned the company that, should they fail to implement their program,

the MOEE would issue a control order, and would enforce it through

prosecution. Several months later, the engineer met with the company

and advised that their implementation had been satisfactory.

The MOEE then charged the company with water pollution. The

Ontario Court of Appeal ultimately ruled that the prosecution was “vexatious, unfair and oppressive,” and therefore an abuse of the judicial

process. Most of the court judgments were taken up with a legal point.71

Little was said about why this particular prosecution was abusive, except

a brief reference to “the conduct of the Crown in this case, in breach of an

undertaking by one of its senior officers”:

[T]he appellant, as a reasonable person, would conclude on a fair reading

of the [ministry’s] correspondence that it would not be prosecuted provided that it completed its program within the period of grace of December

31st, 1976.

In other words, the prosecution was not barred merely because the

company was already working hard, and successfully, to control its pollution; the prosecution was barred because those efforts had been purchased by an implied promise not to prosecute if the company took the

agreed steps by the agreed deadline. In any other context, such behavior

by a regulator would amount to breach of contract or might be stigmatized as dishonest; the courts distance themselves from such conduct by

staying the proceedings.

It is essential to note that the doctrine of abuse of process does not

enable the courts to supervise or replace the proper exercise of prosecutorial discretion. There are many cases where prosecution is unnecessary, unwise, contrary to regulatory goals, and even unfair, but where

the courts will not intervene.

For example, it is not an abuse of process for the Crown to lay multiple charges as a result of a single incident.72 Nor does long tolerance of

polluting activity by government regulators make a subsequent prosecution an abuse of process, even if launched without warning; government laxity does not give a polluter a right to continue polluting.73

56 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

70. This would have provided the mill with express immunity from prosecution.

71. For instance, whether the court had the power to stop prosecutions which were

vexatious and unfair.

72. Imperial Oil Ltd. v. The Queen (19 February 1987), (Ont. H.C.J.) [unreported], (1990) 5

C.E.L.R. (NS) 81, (1990) 75 O.R. (2d) 28.

73. R. v. Wells Foundry Ltd. (1980), 9 C.E.L.R. 141 (Ont. Ct., Prov. Div.); R. v. Zalev

Brothers Ltd., [1989] O.J. 1658 (Dist. Ct.).
The wide gap between abuse of process and unwise use of prosecutorial discretion was strikingly illustrated in a copyright infringement

case, R. v. Miles of Music Ltd. In that case, the person charged had “every

reason to regard himself as the victim of unfairness,” but the court of

appeal overturned the stay entered by the trial judge.74 The defendants

were a disc jockey and his personal company, who had carried on business for 13 years. Numerous other companies carried on the same business; none had ever been charged. The individual defendant made

several attempts to determine whether his activities were in breach of

copyright laws, and if so, if he could obtain any necessary license. He

was advised that no licenses were available, but was not asked to do anything else.

Several months later, on the complaint of a disenchanted franchisee and of the company that had refused the copyright license, police

obtained a search warrant. The police descended upon the defendants

without warning and seized all of his records, equipment and music, far

more than could possibly have been necessary as evidence. This

instantly put the defendants out of business with disastrous economic

consequences. They were later charged and convicted of copyright

offenses.

In R. v. Northwood Pulp Timber Limited, a British Columbia prosecution was dismissed as an abuse of process.75 When planning an expansion project, the mill was told that it could continue discharging alum

sludge into the river. Shortly after the expansion was completed,

Department staff demanded that they cease discharging the sludge. No

other mill in the province was required to do so, and there was no known

technology that could eliminate it. The MOEE’s proposed standard for

water returned to the river was cleaner than the water in the river. The

company was given one year to resolve the problem, on pain of prosecution. The company then “voluntarily” undertook a pilot project to control the sludge. While the pilot project worked moderately well, it did

not resolve the problem to the MOEE’s satisfaction. When this became

apparent, the defendant was charged.

The court said this was “unfair and oppressive.” The defendant

had been “singled out” by the regulators and had been assigned to

develop a solution to a complex problem in a limited time. It had made

diligent efforts in good faith to find and implement a solution, and had,

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 57

74. R. v. Miles of Music Ltd., [1989] O.J. No. 391 (C.A.).

75. R. v. Northwood Pulp Timber Ltd. (22 June 1992), (B.C. Prov. Ct.); appeal (10 November 1995) (B.C.S.C.). The acquittal was upheld on appeal, but on the ground of due

diligence. The abuse of process issue was not discussed.
with their knowledge, invested in a pilot project. Although the defendant had been unsuccessful in meeting the one-year deadline to reduce

its suspended solids to the level chosen by the department, it was the

department’s conduct which was offensive.

The opposite result occurred in R. v. Zalev Brothers Limited. Zalev

Brothers, a manufacturer with a noise problem, agreed to participate in

an experimental citizens’ environmental committee, believing that if it

did so, no charges would be laid.76 When the company was prosecuted,

it was unable to prove that the MOEE had given a clear undertaking to

this effect. Accordingly, prosecution did proceed.

4.11.3 Regulatory Negligence

A regulator cannot be held liable for regulatory negligence in

adopting a compliance guideline; this is a policy function beyond the

courts’ review. However, the courts do assert jurisdiction over such

administrative functions as policy implementation. Thus, faulty implementation of a guideline could lead to an action for regulatory negligence. Regulatory negligence claims have been arising with increasing

frequency over the last ten years, encouraged by court decisions such as

Anns v. Merton London Borough Council and Just v. the Queen in right of

British Columbia.77

A recent case illustrated the hazards that can arise in even the most

routine of Department functions. In Gauvin v. Ontario (Minister of Environment), a home owner had had a septic system installed.78 Ministry

policy requires that before a use permit is issued, the contractor must

certify that sufficient filter material has been installed to absorb the

waste, and supply waybills as evidence of the purchase and delivery of

the filter material. In this case, the permit was issued, although the contractor had not filed the necessary certificate and the waybills filed by the

contractor did not specify where the filter media had been delivered.

In fact, there was not enough filter material, and raw sewage oozed

out. The home owners had to dig up and re-bed their septic field at a cost

of $15,000. They sued both the original installer and the MOEE, and were

successful against both. The MOEE had not adequately implemented its

own policy; the policy had been adopted specifically to benefit septic

system users such as the plaintiffs and the plaintiffs had suffered a loss

as a direct result.

58 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

76. R. v. Zalev Brothers Ltd., supra, note 13.

77. [1978] A.C. 728; (1990), 64 D.L.R. (4th) 689 (S.C.C.).

78. Gauvin v. Ontario (MOEE) (29 August 1995), (Ont. Ct. (Gen. Div.)) [unreported].
The same result could occur with compliance guidelines. There are

numerous ways in which environmental non-compliance can cause

financial harm to potential claimants: failure to control noise can cause

adverse affects on the health or businesses of neighbors, polluted waste

water can harm downstream water users, dust emissions can trigger

asthma, and improper waste handling can contaminate land. To avoid

becoming liable for regulatory negligence, regulators must take reasonable steps to enforce their laws in an adequate manner, particularly

those designed to protect third parties from damage.79

Voluntary compliance plans present regulators with two sets of

risks:

1. The courts may consider voluntary compliance measures to be

intrinsically inadequate as a response to non-compliance.

Should this occur, the very use of voluntary compliance measures would expose a regulator to liability. This is unlikely to

be a serious risk: first, because compliance guidelines are not

judiciable by the courts; and second, because as this study

shows, there are many good and valuable policy reasons for

incorporating voluntary compliance plans into an overall

compliance guideline.

2. The second and more serious risk is that courts will judge regulators to have been in error in applying the guideline. Such

errors could occur if voluntary compliance measures were

used where a front-line regulator:

· did not give enough weight to public complaints, or was

unaware of complaints that had been made to another

Department representative;

· incorrectly assessed the risk potential from noncompliance;

· did not accurately judge the usefulness of a proposed voluntary compliance measure; or

· did not give sufficient priority or resources to evoking mandatory measures when the voluntary program lagged or

failed.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 59

79. Through provisions in its Environment Act, Nova Scotia has protected its officers

from most regulatory negligence claims. N.B.: The duty of care required to avoid

claims of regulatory negligence closely parallels Canada’s obligation under the

North American Agreement on Environmental Cooperation “to effectively

enforce” its environmental laws.
If this risk cannot be adequately managed, regulators will be

highly reluctant to use voluntary compliance measures, and will therefore not accrue any of their potential benefits. Potential measures to

manage this risk include: better training of the provincial officers, more

exchange of information among them as to their experience in handling

particular cases, careful documentation of the reasons for particular

decisions, a computerized follow-up system to ensure that results are

evaluated, non-compliance is punished, and a conscientious effort is

made to identify and communicate with the victims of pollution (potential claimants).

What these tools have in common is a commitment to high quality

management of each department’s regulatory function. They are comparable to the task of reducing service failures in any service organization. As indicated in the case of Gauvin v. Ontario (see above), a potential

for regulatory negligence is not unique to the problem of properly

implementing voluntary compliance.

4.12 Third-Party Impacts

The current compliance guidelines give little attention to

third-party interests. However, where inadequate compliance under a

“voluntary compliance plan” may have adverse effects upon third parties, failure to consult those parties may increase a regulator’s risk of a

lawsuit for regulatory negligence. Some compliance guidelines attempt

to avoid this problem by forbidding the use of voluntary compliance

when human life, health or property is at stake, i.e., when regulators

know of potential plaintiffs. In other cases, where regulators are not

aware of anyone who will suffer material adverse affects if compliance is

delayed, public consultation is less necessary.

The Ontario compliance guideline encourages businesses to provide indicators of progress and implies an obligation on the regulator to

follow up to ensure that compliance has been achieved. However, this is

not a public process. In the Yukon, non-compliance is a matter of public

record, since notices of non-compliance are recorded on a register until

the problem has been rectified.

There are no third-party rights of appeal from decisions to allow

voluntary measures. Voluntary compliance plans have no express

impacts on public rights to use common law remedies such as nuisance

or negligence.

Compliance agreements also have no direct impact on the common

law rights of action of third parties, such as nuisance. They might,

60 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
though, have an indirect impact on negligence claims, because the company might be able to use the compliance agreement as a strong indicator of the appropriate standard of care. Thus, it may not be negligent if it

has complied with the agreement.

There is substantial concern among some environmental groups

that increasing the use of compliance plans and agreements, which are

negotiated bilaterally, will erode the access to environmental decision-making for which they have fought so hard in the last two decades.

Some regulators and industry representatives are unsympathetic, pointing out that enforcement decisions have always been made bilaterally.

This issue has become divisive because voluntary compliance measures

blur the distinction between enforcement (where the public has traditionally had no role) and regulation/compliance (where they have

gained one).

The other impact of compliance plans and agreements on third

parties is that they may prolong the period during which those parties

are exposed to adverse impacts caused by the company. Such impacts

may occur lawfully during the grace period, or unlawfully should the

company fail to comply with the agreement and other enforcement

action be delayed. Compliance agreements that may expose others to

continued adverse effects should not be made without prior public consultation and should include financial assurance to ensure compliance

during the agreed-upon grace period.

4.13 Accountability

Accountability is one of the key issues when responsibilities formerly exercised by regulators are delegated to or shared with the private

sector:

Another part of the changing nature of government is a much greater

involvement by other parties in the design and delivery of federal programs. Examples abound: joint federal-provincial programs, contracting

out, program delivery by non-governmental organizations, delegation of

programs to client groups. In the February 1995 Budget, the government

announced a number of measures that further increase the involvement of

other parties in the delivery of federal programs.

Joint programs offer many potential benefits. The interplay of different

parties, each with different strengths and perspectives, can do much to

improve client service and save money. But it also brings additional challenges [...] when the government participates in joint arrangements, it

must take all reasonable steps to ensure that intended results are achieved.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 61
Accountability is not simply about acknowledging problems after the fact,

it is also about working to avoid them. Particularly important is up-front

agreement about the roles and responsibilities of the parties involved and

the results to be achieved.80

One of the issues is accountability within government. The

long-term responsibility for dealing with the regulated community rests

with the front-line regulators (abatement officers). However, responsibility for formal “enforcement” (particularly through prosecution) is

often transferred to a separate investigation and enforcement branch

staffed by former police officers. When non-compliance occurs, Ontario

abatement staff are required to notify the investigation staff in writing.

The abatement staff can recommend to the investigation staff that no

mandatory enforcement take place, and might do so if attempting to

negotiate a voluntary compliance measure. However, the ultimate decision whether to prosecute is not up to the abatement staff; it is made by

the legal branch and the investigators.

Voluntary compliance measures, though, are the responsibility of

the abatement staff. Thus, use of these measures may delay or avoid

shifting the responsibility for an offender from the abatement to the

enforcement staff. Internally, transparency and accountability are provided for by requiring front-line regulators to document their reasons at

every stage of the voluntary compliance process.

For the general public, there are more profound issues. Compliance plans and agreements fall in the fuzzy middle ground between regulation and enforcement. While it has become accepted that the general

public has an important role in setting environmental standards and in

issuing environmentally significant permits,81 the public has had no role

in enforcement decision making.82 There is no public consultation when

a prosecution is launched; on the contrary, it is typically kept highly confidential until the defendant has been served. Even then, there is no systematic communication of all enforcement actions to the public. Press

releases are provided at the prosecutor’s discretion, but no notice is

given to the general public.83

Current compliance guidelines treat compliance plans as enforcement decisions, i.e., as part of the prerogative of the Crown. Public con62 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

80. Auditor-General of Canada 1995.

81. These rights are given force in some jurisdictions by environmental bills of rights.

82. Even the ministries of the environment do not have the last word on this topic, it is

the prerogative of the attorneys-general to whom all prosecutors report.

83. For instance, through the Ontario Environmental Bill of Rights Registry.
sultation occurs only when a statutory instrument other than

prosecution is used to obtain compliance, whether mandatory or voluntary (i.e., an order or a program approval).84

Some environmental groups argue that ministry concurrence with

a voluntary compliance plan is equivalent to program approval, and

therefore should be the subject of public consultation. Under existing

law, this is not legally required.85 Public consultation is often unpalatable to the businesses concerned, because it delays decision making,

may risk disclosure of trade secrets, and often makes a regulator less

flexible in negotiations. Public consultation also increases resource costs

to a regulator.

However, public participation may now be essential for formal

compliance agreements, at least those with significant environmental

effects. Many members of the public no longer believe that agreements

made “behind closed doors” by government and business are fair, honorable and in their best interests. The credibility and legitimacy of negotiated agreements therefore depends upon some degree of transparency

and accountability:

[...] cooperative, negotiated frameworks for environmental protection [...]

are grounded in intensive collaborations between governments and

industry, but they are credible only when these collaborations are open,

via robust reporting rules and participatory opportunities, to detailed

scrutiny by diverse multi-stakeholder groups.86

Some public accountability for compliance plans and programs is

provided through the political process and also through the accountability provisions of some recent statutes.87

The Ontario statutes illustrate the evolution of public expectations

and rights in the area of public participation. The program approval secVOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 63

84. See Section 4.3.2.

85. Some environmental groups argue that ministry concurrence with a voluntary

compliance plan is equivalent to a program approval, and therefore should be the

subject of public consultation. Under existing Ontario law, this is not legally

required. A voluntary compliance plan, as described in the compliance guideline,

is not an “instrument” as defined in the Environmental Bill of Rights and therefore

does not require public notice.

86. Leiss 1995, 48.

87. In Ontario, voluntary abatement measures, as non-instruments, are not posted on

the environmental registry under the Environmental Bill of Rights. However, any

two persons may request the Minister to investigate allegations of non-compliance.

Where voluntary measures are being used, the Minister would presumably disclose them in his/her response to the request. Similar results occur under s. 115 of

the Nova Scotia Environment Act.
tions were adopted in 1971, at a time when the government was accepted

unquestioningly as representing the public interest. Accordingly, it did

not provide for any “public consultation”; the “public” was involved

because the government was. The 1993 Ontario Environmental Bill of

Rights reflects a very different view of the proper role of government,

and of who speaks for the “public.” The Bill of Rights, therefore, makes

extensive provisions for public consultation, when a wide variety of statutory powers are exercised. This includes the power to issue “instruments” with significant environmental effects.

Ontario Regulation 681/94 defines both control orders and program approvals to be “class 2” instruments. This means that they cannot

be made until notice of the proposed instrument has been published on

the Environmental Registry and circulated by other appropriate means

to those affected. Regulatory approval of the instrument cannot be given

until the public has had an opportunity to comment and those comments

have been considered.

The present process of entering into compliance agreements in

Ontario and Quebec is more transparent than other enforcement mechanisms, in that the public is consulted or at least notified of the existence of

the agreement. In Ontario, public participation in compliance agreements has expanded from the “Environmental Council” (which in any

case was never appointed) to the general public through the Environmental Bill of Rights. As discussed above, additional consultation is

essential where third parties are directly affected by the prolongation of

pollution.

4.14 Fairness

There is significant potential for unfairness in the use of compliance plans and agreements, especially if one offender uses a voluntary

compliance plan and goes unpunished, while another is prosecuted for

essentially the same offense. This problem arises almost any time that

front-line officers have discretionary powers that they may exercise

according to the circumstances. Some compliance guidelines deal with

this by requiring each officer to document his/her reasons for using voluntary compliance measures where, at first glance, mandatory enforcement would be appropriate.

Across regulatory jurisdictions, various regions may differ in their

interpretation of the criteria, in the weight they give to off-site impacts,

and in their tolerance of non-compliance. Thus a company in one sector

or region may be prosecuted for non-compliance, while another com64 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
pany in similar circumstances elsewhere is offered a compliance agreement. Larger firms may be more aware of the unavailability of such

agreements in some areas, and may be better able to negotiate them in

others. There is also an even greater risk of non-uniform responses by

regulators in different jurisdictions which must be addressed by

improving communication among regulators on how and when to use

this tool. Within a single jurisdiction, problems of unfairness can be minimized through policies establishing clear criteria for their use. Consistency could be encouraged through an increased discussion of case

studies among regulators. Continued review of the agreements by

department lawyers should also help to improve clarity, and some measure of a common approach.

4.15 Conclusion

Voluntary compliance plans and agreements can be a valuable and

cost effective method of improving regulatory compliance. Useful

aspects of Canadian compliance guidelines include the following:

1. Voluntary compliance plans and agreements are expressly

incorporated in an overall compliance policy.

2. Written criteria for their use are specified in writing, focusing

on the environmental impact of the non-compliance and on

the attitude and history of the offender.

3. Regulators must document in writing their rationale for offering voluntary compliance measures, especially where there

are grounds to use mandatory measures.

4. Failure to carry out the voluntary measures is monitored and

taken seriously.

5. Mandatory compliance measures must be used if voluntary

measures do not produce acceptable results within a reasonable time.

However, greater effectiveness can still be striven for:

1. Voluntary compliance plans could be made more valuable

(e.g., include some form of forbearance), and, on the other

hand, more expensive, (e.g., they should be earned by previVOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 65
ous efforts to improve compliance, as for example through

pre-detection measures that have themselves indicated a commitment to compliance, and demonstrate some objective success in maintaining compliance over a prescribed period).

They should never be offered to the deceitful, nor to the deliberate polluter.

2. Repeated non-compliance could be punished with a predictable, multi-step progression in the intensity and stringency of

enforcement.

3. Program approvals could be granted only with reticence to

companies that cause adverse environmental effects, and then

only after public consultation.

4. The company could be required to provide consideration for

the making of any agreement, and for any extensions or

amendments to it. Normally, such consideration should

include financial surety that will be forfeited if the company

fails to comply with the agreement.

5. Regulators could insist that the program produce measurable

results within a reasonable time, and should respond vigorously if this does not occur, for instance, through the company

forfeiting the financial surety.

6. A mechanism, such as pre-clearance, would enable a company

to conduct preliminary negotiations without furnishing the

regulator with evidence for a prosecution.88

7. Plans and agreements (including control orders) could focus

on environmental performance, not on the methods or technology used to achieve it.

66 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

88. This objective could also be achieved by provisions in the compliance and enforcement policy that better focus prosecution on the irresponsible firms. There would

have to be clear provisions for moderating penalties against reformed violators

sufficient to reward them but not forgiving (and therefore rewarding) the previous

lack of compliance.
5. REGULATORY DELEGATION: THE PROPOSED FEDERAL

REGULATORY EFFICIENCY ACT

5.1 Introduction

In addition to the more traditional compliance plan approach

described in the previous section, recently there has been a growing

interest in alternative ways of achieving compliance with existing regulatory obligations. This appears to be driven both by a desire to reduce

the government administrative burden and by a belief that regulations

may impose unnecessary costs on regulated parties due to their alleged

inflexibility. This section reviews an attempt by the federal government

to address these concerns by means of a proposed Regulatory Efficiency

Act (Bill C-62). Although the federal government ultimately did not proceed with the Bill past first reading, there are important lessons to be

drawn both from its content and from the reaction to it.

Bill C-62 was designed as part of an overall effort to reform the federal regulatory regime. In 1993, the Parliamentary Standing Committee

on Finance issued a special report recommending a reformed regulatory

system focused more on achieving the goals of regulation, and less on

technical requirements. In 1995 the government observed that “our federal regulatory regime is too complicated, costly and cumbersome,” and

that many federal regulations are “redundant and obsolete[... and] focus

more on technical requirements than on goals.”89 The government then

introduced a regulatory agenda comprised of eleven initiatives, including a review of all departmental regulations, a draft Regulations Act

designed to “modernize” the regulation development process, and Bill

C-62.

The provisions of Bill C-62 would have authorized regulated parties and the government to negotiate “compliance plans,” specifying

how regulatory objectives would be met and waiving specified regulatory obligations. The Bill also authorized individual Ministers and the

President of the Treasury Board to seek cabinet approval jointly in order

to designate specific regulations as subject to this regime. Once regulations were designated, the responsible Minister would then publish criteria and procedures for approval of compliance plans and publish them

in Part 1 of the Canada Gazette (the official organ for disseminating government decisions such as regulations and orders in council). Individuals or businesses subject to the designated regulation would then be

entitled to submit a proposed compliance plan to the appropriate minister.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 67

89. Government of Canada 1995c, 1.
The Bill stipulated that compliance plans would be authorized

only in relation to technical provisions, and must comply with “the principle of sustainable development” and the “protection of health and

safety.” It would have required proponents to demonstrate how the proposed compliance plan would be “at least as effective” at meeting the

regulatory objectives as the regulation, and it authorized the government to require proponents to pay for necessary analysis. The Bill also

stipulated various procedural requirements, including obligations to

consult, to publish the proposed plans in the Canada Gazette, and for post

facto review of compliance plans by an appropriate Standing Committee

of the House of Commons to determine compliance with regulatory

objectives. Finally, it would have obliged the government to monitor the

plans, with the authority to suspend or terminate the approval of a plan

immediately upon commission of an offense, a breach of a term of the

plan, or as required to deal with a threat to the safety or health of any person or to the environment. The Bill would also have authorized the government to terminate a plan on reasonable notice or as provided in the

plan.

The government’s rationale behind Bill C-62 was that if there were

alternative, cheaper ways to achieve regulatory goals, the regulatory

process should authorize those approaches. It argued in its description

of the Bill that “modern management techniques show that competitiveness and quality are not achieved by stipulating every detail of how

workers do their jobs. What is important is the result of their efforts.”

Just as workers can often find better ways to achieve their production

goals, so in the regulatory area “regulators and companies know that

they can often meet regulation goals as well or better by doing things different from the regulations.”90 The Bill was designed to allow speedy,

customized responses to such situations, since “changing regulations

for special circumstances is complicated, expensive and time consuming.”

5.2 Legal Authority

Although much of the criticism of Bill C-62 focused on its implications, some critics argued that the Bill raised constitutional and legal

problems. In a paper prepared shortly after the Bill was introduced, for

example, the secretariat to the Standing Joint Committee for the Scrutiny

of Regulations (a joint Committee of the House of Commons and the

Senate) argued that the grant of discretionary authority to set aside regulatory requirements would have been unconstitutional for a variety of

68 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

90. Government of Canada 1995c, 6.
reasons.91 The report argues that the Bill would have revived the power

of dispensation declared illegal in the 1689 Bill of Rights in England and

that it would have violated the constitutional conventions of the “rule of

law,” fairness and equality, and governmental accountability.

The claim that Bill C-62 would have violated the 1689 Bill of Rights

appears tenuous. Section XII of the Bill of Rights provides, in part, that

“no dispensation of or to any statute or any part thereof shall be allowed

but that the same shall be null and void and of no effectexcept a dispensation shall be allowed of in such statute” (emphasis added). In reviewing the

contemporary legal position on this issue, the Manitoba Court of

Appeals has stated:

The legal status of these powers today is well described in 7 Hals. (3d) 230,

para. 486, thus: “The Crown may not suspend laws or the execution of

laws without the consent of parliament; nor may it dispense with laws, or

the execution of laws; and dispensations by non obstante of or to any statute

or part thereof are void and of no effect, except in such cases as are allowed

by statute.”

Since, in Bill C-62, the power to dispense with the application of a

specific regulation was granted by Parliament and would have been

subject to review and repeal by Parliament, the validity of the problem

raised by the Joint Committee secretariat is debatable.

On the other hand, the legal capacity of the government to authorize subordinate officials to issue dispensations and variances is less

clear. In Canada, typically a law will authorize the Governor in Council

(or Lieutenant Governor in Council for provinces) to promulgate regulations with respect to specified issues. The law is clear that the Governor

in Council cannot, without legislative authorization, then authorize a

third party (e.g., an official) to grant individual dispensations or variances to the regulation. It is less clear, however, whether the Governor in

Council, by virtue of its authority to make regulations, can also issue dispensations and variances itself without explicit legislative authority to

do so.92

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 69

91. Secretariat to the Standing Joint Committee for the Scrutiny of Regulations 1995.

92. Various constitutional authorities have argued that the discretion to grant individual exceptions to a law made by a delegate must be provided explicitly or by necessary implication by Parliament (see, for example, the authorities cited in the Ninth

report of the Standing Joint Committee for the Scrutiny of Regulations, 1993, and in

the Standing Joint Committee’s report on Bill C-62, 1995). By contrast, however,

certain obiter statements in a recent Federal Court of Appeal decision imply that a

delegate empowered to make subordinate law has the power to grant dispensations from the law he or she makes, unless it appears that it was Parliament’s

aaaaaaa
Critics also raised concerns about the constitutional capacity of

Parliament to authorize negotiated arrangements which could have the

effect of imposing criminal liability on an employee of a company negotiating a compliance agreement: “citizens could be convicted and fined

or imprisoned, not because they disobeyed a law, but because they disobeyed a private agreement between a designated regulatory authority

and their employer.”93 These critics argue that this aspect of Bill C-62

would have violated the Canadian Charter of Rights and Freedoms,

which declares that Canada “is founded on principles that recognize the

rule of law.”

The implication of the “rule of law” principle for the Bill is unclear.

The “rule of law” signifies, among other things, that all are equal before

the law and that the law binds all equally. According to the Supreme

Court of Canada, this aspect of the “rule of law” requires that there be

“equality in the administration or application of the law by law enforcement authorities and the ordinary courts of the land.”94 It is not clear,

however, whether the Bill would have violated this principle, since it

arguably would have provided equal opportunity to apply for a compliance plan. The Joint Committee secretariat argued that this equality of

opportunity is illusory, since in practice only large corporations will

have been able to afford to gain the advantages of customized compliance agreements. While this is undoubtedly a valid policy consideration, it is less clear that this observation represents a legal impediment

to the Bill, particularly in light of the acknowledgment in the same report

that there already exist various legal statutory exemptions in other federal statutes.

One of the most important criticisms of the Bill, in fact, was the

observation that it would have been unnecessary in many cases. Various

federal laws already provide for regulatory exemptions and specialized

compliance plans (e.g., the Transportation of Dangerous Goods Act, s. 31,

Canada Oil and Gas Operations Act, s. 16(1), Aeronautics Act, s. 5.9, Railway

Safety Act, s. 22, Canada Grains Act, s. 116, and CEPA which, as noted in

Section 4 above, provides for the development of customized compliance plans). In other cases, it might have been expedient to revise particular Acts rather than create an omnibus authorizing statute.

70 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

intention that the delegate not have this power: Carrier-Sekani Tribal Council v. Canada (Minister of the Environment) (1992), 93 D.L.R. (4th) 198; Save the Bulkley Society v.

Canada (Minister of the Environment) (1992), 93 D.L.R. (4th) 198.

93. Secretariat to the Standing Joint Committee for the Scrutiny of Regulations 1995, 6.

94. A.G. of Canada v. Lavell, [1974] S.C.R. 1349, 1366.
5.3 Impact on Compliance

An important assumption by the proponents of the Bill was that

parties negotiating compliance agreements would be more likely to

comply with their negotiated obligations than with the regulatory obligations, allowing government officials to “reallocate scarce enforcement

resources to problem cases.”95 Proponents argued that business is reluctant to comply with patently bad regulations, and that high compliance

costs are resulting in non-compliance, loss of jobs to automation and the

failure to introduce new jobs into Canada. By contrast, they asserted, a

company would be more likely to abide by a compliance plan tailored to

its own circumstances, especially since it would have exposed itself to

public scrutiny in applying for the plan. Some critics of the Bill

responded that its impact on compliance levels would likely be negligible since few companies could be expected to go through the procedural

requirements to obtain a plan.

More important concerns were raised by those who asked about

the potential symbolic impact of the Bill on compliance. Compliance is,

at least in part, a function of social norms.96 What message would this

Bill convey about the value of regulatory compliance? The perceived

premise underlying the Bill might be that compliance can be unnecessarily costly. By offering an opportunity to comply with less onerous

requirements, would the Bill imply that compliance can be problematic

and should be avoided whenever possible (either through the negotiation of a compliance agreement, or otherwise)? More fundamentally,

what signals would the Bill convey about the acceptable level of risk in

society? Would it imply that regulated parties should question the risk

protection measures to which they are subject, simply because compliance might impose an onerous burden?

5.4 Relationship with other Government Activities

A widespread criticism of the Bill is that it would have increased,

rather than decreased, the government’s administrative burden. The Bill

would have placed the onus on proponents to demonstrate that a proposed compliance plan would meet or exceed the regulatory objectives.

The Bill would also have allowed government to require proponents to

pay for necessary analysis. Nonetheless, the requirements that both the

responsible government department (or other designated regulatory

authority) and a parliamentary committee review the proposed compliVOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 71

95. Government of Canada 1995c, 6.

96. See, for example, Roy 1992.
ance plans, and that the government publish them in the Canada Gazette,

provide for consultation, and monitor approved plans, would inevitably have imposed new administrative burdens on government.

Given the dramatic reduction in resources within government,

would Ministers have diverted resources from regulatory development

and compliance and enforcement activities to review proposed plans?

Alternatively, would they have been more likely simply to refuse to

approve any compliance plans, rendering the Bill meaningless?

Government representatives responded to these criticisms with

three assertions:

· the administration of a number of customized plans would have

been no more difficult than the application of a uniform regulation to a number of different situations;

· companies interested in convincing government to approve a

compliance plan could have been forced to develop alternative,

more efficient methods of monitoring compliance; and

· since application for a plan would have placed a spotlight on the

applicant, only companies with good records would have been

likely to apply, meaning that enforcement officials could confidently focus on other parties.

5.5 Impact on the Regulatory Standard of Care

A major concern about the Bill was that it would lead to an erosion

in standards. The Bill would have required proponents to prove that a

proposed compliance plan would meet or improve on the existing regulatory objective. Although it had not done so before introducing the Bill,

the government had undertaken to develop criteria to restrict the Bill to

regulations that “prescribe technologies, product or process standards

of a technical nature, or that are administrative or procedural in nature.”

Critics questioned whether it would be possible to develop such criteria.

More fundamentally, they argued, it would be inappropriate to assume

that “technical” specification standards are not sometimes the essence of

the regulatory objective, for those standards are often “what give regulations substance and teeth; they impose specific requirements on parties

[...] and, because they are concrete, they are in principle easy to

enforce.”97

72 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

97. Bennett 1995.
These criticisms were significant. Had the government restricted

the Bill to regulatory provisions not affecting the regulatory objective, it

appears likely that the Bill would have become too narrow in scope to be

useful. If it had applied only to minor issues like written versus electronic reporting requirements, few regulated parties would have been

willing to go to the expense of obtaining a compliance plan. Had the Bill

been broader, however, then it would have threatened to become an

instrument of deregulation.

5.6 Accountability

Regardless of the Bill’s impact on performance standards, critics

argued that it would have engendered fragmented and inconsistent

decision making, eroding the levels of transparency and accountability

ensured by the current regulatory regime. Critics also argued that the

Bill would have enhanced the potential for powerful business interests

to “capture” the government agenda “by inviting businesses, lobbyists,

and political buddies to meet privately with ministers and negotiate

profit-oriented deregulation agreements” and by empowering ministers “to accommodate the preferences of businesses, without the scrutiny and accountability of a public regulatory process.”98

There is no question that by subdividing basic regulatory obligations into particularized agreements, the Bill would have made it harder

for government to ensure uniformity, or for third parties to oversee the

decision-making process. The current reality, however, is that enforcement officials routinely exercise discretion. Indeed, proponents argued

that the regime proposed in the Bill would have been preferable, since

the discretion embodied in compliance plans will be subject to a minimal

level of scrutiny – through the requirement to consult and publish the

proposed and final plans – whereas most enforcement-level discretion

occurs almost completely behind closed doors.

Critics rejected these assertions by emphasizing the distinction

between standard-setting and standard-interpreting functions. In

recent years many environmental and health and safety regulations

have been developed in Canada on the basis of extensive consultation.

Environmentalists and other public interest advocates argue that they

struggled long and hard for the current system, which ensures them significant levels of access into the regulatory development process. They

fear that initiatives like Bill C-62 will undermine that access and thereby

undermine the capacity of the public to understand what rules are being

developed to apply to which parties in what circumstances.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 73

98. CELA 1994, 2-3.
Bill C-62 also raised troubling questions about how a private citizen could be expected to know what standard a regulated party was

required to meet: that specified by a regulation, or one stipulated in a

customized compliance plan? The Bill would have required the government to publish proposed and approved compliance plans in the Canada

Gazette – the same publication process used for regulations. Critics

argued, however, that the regulatory development process as a whole is

much more transparent, allowing interested parties to become familiar

with a regulation before it is gazetted. They also argued that the regulatory regime provides more certainty, whereas under the Bill a private

citizen would have to inquire whether the regulation still applied to a

neighboring enterprise.

The government responded to early concerns about the lack of

government accountability and transparency by adding a requirement

that parliamentary committees review each proposed plan. Critics

rejected this amendment on two grounds. First, they argued that committee oversight would have placed too much responsibility in the

hands of backbenchers, and avoided the real requirements of Cabinet

responsibility that are at the heart of parliamentary governance. Critics

also argued that scrutiny of proposed plans would have required technical skills beyond the capacity of committee members. As with departmental officials, this oversight role would have strained committee

resources with the result that they would either have rubber stamped

the plans or diverted resources and attention from their more appropriate role of policy development and review.

5.7 Fairness

Given the expense of obtaining a plan, many observers worried

that the Bill would only have been utilized by a few large companies,

raising concerns about creating an “uneven playing field.” This issue is

difficult to assess. What about the playing field ought to be level? Should

government be concerned if a company gains an economic advantage

through the development of a cheaper way to meet a regulatory objective? Is this not consistent with the basic, innovation-rewarding philosophy of the marketplace?

5.8 Conclusion

The reaction to Bill C-62 emphasizes the many difficult legal and

policy-related issues that will have to be overcome in order to delegate

the responsibility for designing and administering regulatory obligations to the private sector.

74 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
The reactions to this initiative also suggest the importance of maintaining public trust in the public policy process. The issue of trust arises

because of the various ways in which reforms of this type could alter the

balance of power between the public, the government and the regulated

parties. The public would probably end up with less input into decisions. It would also have less ability to oversee the implementation of

those decisions. How is the public to know, for example, that regulatory

objectives are being attained? Or that regulated parties are complying

with legal standards? More fundamentally, how is the public even to

know what the standards are, since these might change through the

accumulation of a series of special arrangements? Any attempt to promote reforms of this type in the future will have to address these issues at

a symbolic level as well as legally and substantively.

6. LENDER LIABILITY AGREEMENTS

6.1 Introduction

Lender liability agreements make an interesting contrast to the

Regulatory Efficiency Act. Like the REA, lender liability agreements originated as an individualized, contract-based alternative to conventional

regulation. In practice, however, negotiating such agreements on an

individual basis has proved so difficult and problematic that both regulators and the regulated community have agreed to return to a conventional, quasi-regulatory approach.

The principal difference between the REA and lender liability

agreements is that the REA proposed to establish statutory authority

allowing regulators to grant exemptions from regulatory requirements

in exchange for other desirable behavior. The lender liability agreements

did precisely the same thing without statutory authority. In the REA,

there was no limit to the regulatory requirements that could be bargained away; in lender liability agreements, what was bargained away

was the extent of liability for pre-existing problems that regulators could

impose upon non-polluters.

In this study, the term, “lender liability agreements,” refers to

those agreements negotiated between a regulator and an innocent party

who is willing, under certain conditions, to take possession of contaminated land. Most of these agreements have been negotiated with lenders

(usually mortgagees). Creditors who are contemplating re-entry on contaminated property require such agreements because of the risk that,

once in possession, they would have unlimited liability for the contamination. For example, the Ontario Environmental Protection Act allows the

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 75
MOEE to impose unlimited liability on anyone who “owns, occupies or

has charge, management and control of land,” whether or not they were

at fault in causing the contamination. Lenders, rationally desiring to

minimize cost, will not expose themselves to this risk if there is a possibility of significant contamination.

Following a landmark Alberta case that imposed liability for a

cleanup upon a secured creditor in priority to its security, lenders across

the country began to refuse to go into possession of contaminated sites.

This has threatened to cause many sites, some containing substantial

hazards, to be abandoned, even when the debtor had some valuable

assets.

Environmental regulators quickly realized that they could obtain a

better environmental result if the banks (which generally operate with a

high degree of environmental responsibility), could be induced to take

control of these sites. They could go into possession, realize on whatever

assets did remain, and use some of the funds to assess and address

urgent environmental problems that the debtor had left behind. However, the banks were adamant that they would not do so if they thereby

exposed themselves to significant liability. In fact, once regulators indicated that they considered any actions on the property to be acts of possession, the banks were afraid even to commission environmental audits

of the suspect properties. This was not the result that the regulators

desired. They soon conceded that it was in the best interests of both regulators and lenders if creditors could assess in advance what it would cost

them (from an environmental point of view) to go into possession of contaminated sites.

Thus, a practice of negotiating “lender liability agreements” was

evolved to apply to the situation when a bank proposed to take over control of a contaminated site. Initially, each site was considered separately

with individual terms negotiated for it. However, the process was rapidly standardized into two-stages: (1) a limited agreement allowing a

lender to commission an environmental audit without liability, provided that the audit was given to the regulator, and (2) a further agreement that would allow the bank to take possession of the land without

incurring more than a specified liability for the costs of cleanup. The

amount to be spent on site cleanup ranked after the fees of the trustee or

receiver, and was limited to a specified proportion of the funds recovered from the debtor’s assets. In exchange, the bank would advance its

own funds to take urgent measures, e.g., to remove hazardous wastes

from the site, and share all environmental information in its possession

with the MOEE.

76 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
As a result, both the MOEE and the banks were better off. Lenders

benefited by being able to realize profits on their security without exposing themselves to liability for the contamination caused by others. The

MOEE benefited by having a competent, cooperative, solvent person

studying the site and improving its most urgent problems, without prejudicing the MOEE’s rights against the actual polluter.

The initial agreements were difficult and time-consuming to negotiate, requiring many weeks and repeated meetings. Nevertheless,

demand was brisk because the economy was in recession and insolvencies were widespread. Creditors reported intense frustration at the

delays, and at regulators’ reluctance to conclude clear, binding agreements. Regulators reported equal frustration about the enormous additional workload that the demand for these agreements imposed, just at

the time that their own resources were increasingly strained.

There were other problems as well. One was the impossibility of

maintaining consistency and fairness between agreements on different

sites and in different regions. After all, no one knew how much the regulators should be demanding, or even what precisely they were giving

up. When lawyers in the head offices became involved, consistency

improved but at the price of even longer delays. Another problem was

what role to give to the creditor’s debtor, and/or to members of the public. They were generally excluded from the negotiations, and from the

agreement, but not all found this exclusion acceptable.

Eventually, regulators developed standardized patterns for these

agreements, which were made public informally and in speeches to the

legal profession. A year later, a standard first-stage agreement was published on the environmental registry for general public comment. After

comments were received, a formal pattern was published.99 Today it is

more difficult to persuade regulators to individualize these agreements.

The Ontario pattern includes the following elements:

1. The agreement limits the creditor’s liability for pre-existing

contamination, not for any negligence or non-compliance

which may occur while the lender is in possession of the property.

2. The Ministry does not and can not protect the creditor from

claims by third parties.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 77

99. This process resulted in The Standard Agreement between Lenders and MOEE to Clarify

Liability (PA5E0018), accessible through <www.ene.gov.on.ca/samples/search/

Ebrquery_reg.htm>.
3. The creditor must keep the Ministry and prospective purchasers or tenants fully informed of any environmental problem on

the property known to the creditor.

4. The creditor must provide the Ministry with any information

known or available to the creditor that will assist the Ministry

to pursue those responsible for the environmental problem.

5. The creditor must make some contribution to resolving the

environmental problems of the site. This may include:

· carrying out studies,

· keeping the premises secure,

· performing some cleanup,

· ensuring proper waste disposal and/or,

· dealing with newly-discovered problems.

6. The agreements typically specify a maximum amount for this

contribution.

7. The creditor can acquire the right to walk away from the property without further liability, upon giving the Ministry reasonable notice (usually twenty-one days) and having completed

the agreed-upon work.

8. The agreement may include a maximum monetary level for

the environmental responsibilities of the lender. The nature of

these levels remains variable. They may be as high as the total

net recovery of the lender from the property, some proportion

of that net recovery, a fixed dollar amount, or different percentages of the net recovery from different categories of assets

(e.g., 100 percent of the value of the land plus 50 percent of the

inventory on hand).

9. The Ministry typically demands the right to terminate the

agreement upon notice if the receiver remains in possession of

the property for a prolonged period of time, e.g., two years.

This is particularly so where the receiver is going to operate an

ongoing business.

78 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
10. If the agreement is to be incorporated in a court order (usually

in the Bankruptcy Court), the order must permit the Ministry

and other public authorities to enter the property for emergency purposes.

11. Any special provisions in the court order (e.g., a provision

deeming the receiver not to be in possession of the property)

should be expressly limited to protecting the receiver from the

Ministry issuing orders or taking enforcement steps, and there

should be an acknowledgment that the Ministry may apply for

an amendment to the order if there are reasonable grounds,

(e.g., if the receiver is negligent or behaves in an illegal manner).

12. If the creditor does not hold a first charge on the property, the

court order may authorize the Ministry to issue remedial

orders for the purpose of better enabling the receiver to carry

out his responsibilities. This will allow the environmental

expenses of the receiver to take priority over prior secured

creditors.

13. The Ministry will not keep arrangements with lenders confidential indefinitely but may be prepared to negotiate confidentially while a creditor is making an application for the

appointment of a receiver or trustee.

14. Each case is treated on an individual basis and other requirements may be added.

This is an illustration of voluntary compliance by which a regulator

was able to induce the banks, who were not obliged to do so, to invest

funds in improving the environmental condition of contaminated sites.

It is also an aspect of voluntary compliance because the investments were

made to ameliorate significant problems of non-compliance left by the

previous owners.

6.2 Legal Authority

No statutory authority exists for such agreements. The only

requirement in theOntario Environmental Protection Actfor the making of

agreements is that they be made by the Minister and approved by the

Lieutenant Governor in Council (Cabinet); neither occurs with lender

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 79
liability agreements.100 Banks rely upon these agreements, notwithstanding their lack of expressed authorization, because any action by the

MOEE to impose liability upon them could be successfully defended as

an abuse of process.

Responsibility for negotiating lender liability agreements rests

with the abatement staff of each region of the MOEE, with the assistance

of the legal branch. Thus they are handled as a normal extension of pollution abatement.

6.3 Efficacy

Regulators believe that lender liability agreements have had some

beneficial effect in achieving environmental improvement of contaminated sites and in preventing them from being abandoned. Receivers

and bankers agree that lender liability agreements have had a positive

impact on the priority given to environmental problems when a lender

takes over contaminated property. Receivers and trustees have numerous duties, some of them fiduciary, when it comes to disposition of the

assets of an insolvent debtor. On one level, the duty of a trustee or

receiver is to maximize assets for the creditor who appointed him/her;

this approach does not encourage them to make environmental expenditures. When a lender liability agreement is made, and often court

approved, the trustee or receiver has a clear duty and complies with that

duty to the best of their ability.

However, there are no data on how many such agreements have

been negotiated, nor on how many properties were affected. Nor are

there any data on what environmental improvements were obtained

under such agreements. There is no formal process for evaluating and

reporting on such improvements, although lenders do agree to provide

the MOEE with any environmental information that they have.

6.4 Fairness

Because lender liability agreements have been negotiated for individual sites in six different regions, the agreements have varied from

region to region and from site to site. This lack of consistency has raised

questions of fairness that are troubling to the MOEE, to the banks, to the

debtors and to others concerned with the process. The MOEE has

achieved greater consistency at the expense of flexibility by becoming

more rigid when negotiating these agreements. In partial response to the

80 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

100. See Section 4 of the Act.
variation in agreements, a group of concerned parties was convened to

develop underlying principles. From this, a draft, standard Lender Liability Agreement was posted on the Environmental Registry for public

comment in April 1995. Regulators and lenders alike believe a standard

agreement will reduce delays, inconsistency, and the heavy resource

costs now involved in individually negotiating such agreements.

Negotiated lender liability agreements are unlikely to have any

direct effect on “forum shopping” in the establishment of new businesses, however. New businesses are seldom established with the

expectation of failure. However, banks are keenly interested in the fairness and terms of such agreements when they decide whether to make

new loans on environmentally risky activities. Canadian banks frequently point out that US banks do not incur Superfund liability when

they take ownership or possession of contaminated property solely to

protect their security. In this respect, Canadian banks and Canadian

businesses are at a disadvantage compared to those in the United States.

This concern cannot be separated from the overall approach of each

jurisdiction to vendor liability; the agreements are only one aspect of this

problem.

6.5 Relationship with other Enforcement Mechanisms

Negotiated lender liability agreements are, and are intended to be,

restrictions on the exercise on the MOEE’s other enforcement powers.

The promise of forbearance in the imposition of liability is the consideration offered by the MOEE that made the agreements possible.

Because negotiation of these agreements requires the use of regulatory discretion, there is a possibility of subsequent claims of abuse of

process or regulatory negligence, whether by banks, by others with

interests in the relevant property, or by third parties adversely affected

by the site. This risk is no greater than in other areas of regulatory discretion. Precautions taken to limit the risk have included the requirements

that all agreements be in writing, be reviewed by Department legal

counsel, and be signed by a senior manager.

6.6 Accountability

Public participation in these agreements remains rare. There is no

mechanism to allow it, and both of the principal parties are reluctant to

permit it. Likewise, third parties have no access to lender liability agreements during negotiations, and little afterwards.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 81
Public interest groups report some dissatisfaction with the

closed-door nature of these agreements. Their only opportunity to participate has been the publication of the “standard” agreement for public

comment. On the other hand, the increasing standardization of lender

liability agreements according to a pattern that is known to the public

decreases the importance of public involvement in individual agreements.

The decision-making process is not “transparent.” There are no

third-party rights of appeal, even for the debtor. The debtor may have a

right to challenge the bank on the grounds that the agreement was

“improvident” and therefore a breach of its duty to him/her, but such a

challenge seems unlikely to succeed.

Negotiation of lender liability agreements typically shifts the focus

for at least the immediate cleanup from the original polluter/debtor to

the lender. Ultimate accountability for the cleanup remains with the

original polluter, who is often without assets.

6.7 Conclusion

Individually negotiated agreements for lender liability have filled

an essential gap in Canadian environmental law – a gap that was leading

to serious adverse effects on the management of contaminated land.

They have brought a measure of certainty to lender liability for contaminated land, and induced banks to invest in environmental improvements for such land. However, the huge resource costs involved with

negotiating such agreements for individual properties, the lack of public

accountability, and the unfairness that can result from inconsistent

agreements, has driven regulators and the business community away

from individually negotiated contracts towards a standard, “regulation”-type pattern that has benefited from public consultation.

7. ENVIRONMENTAL AUDIT PRIVILEGE POLICIES IN

CANADA

7.1 Introduction

In recent years, environmental self audits have emerged as increasingly important business practices to help ensure compliance with environmental laws and satisfy potential lenders and shareholders about

environmental liability issues. Self audits can also be useful sources of

information to government enforcement officials, however. Accord82 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
ingly, governments have wrestled with what policies, if any, are

required to create incentives for companies to conduct and comply with

environmental self audits, while allowing governments access to available information to ensure effective enforcement.

This section of the report summarizes the self audit policies for

government enforcement staff from three Canadian jurisdictions: the

federal government’s Canadian Environmental Protection Act (CEPA)

“Compliance and Enforcement Policy,” the Ontario Ministry of Environment and Energy’s “Policy and Guideline on Access to Environmental Evaluations,” and the provisions in the more recent Nova Scotia

Environment Act concerning the voluntary disclosure of violations

detected in environmental audits and assessments. Many of the provisions and issues discussed in this section overlap with those discussed in

Sections 4 (compliance plans) and 6 (lender liability agreements). Since

self auditing is an important part of an environmental management system (EMS), this section also discusses a number of the issues that arise in

the development of EMS codes, such as ISO 14000, which is discussed in

more detail in the next section.

7.2 Privilege Law in Canada

Policies concerning the extent to which self audits will be used for

enforcement purposes impact the legal issue of whether or not such self

audits should be accorded an evidentiary “privilege,” i.e., whether they

should be considered private property beyond the reach of government

enforcement officials. Canadian common law accords very few evidentiary privileges. The primary privilege rule relates to solicitor/client

privilege, and has consistently been very narrowly defined by Canadian

courts. Environmental audits are routinely prepared for a wide variety

of purposes, including planning, due diligence, ascertaining the causes

of incidents and ordering remedial steps, and addressing changes in the

risk control system to prevent recurrences. As a result, “the contents of

an environmental audit report will not normally be protected [under

solicitor/client privilege] since the purpose of the audit, as it is generally

defined, is not for the use of counsel in litigation.”101

The farthest the courts have gone in Canada has been to acknowledge that a client is entitled to use an agent to put the facts before counsel

without losing solicitor/client privilege. So far, this reasoning has been

restricted to accountants.102 Some commentators argue, however, that it

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 83

101. Edwards 1990, 34.

102. These cases have followed Susan Hosiery v. Minister of National Revenue, [1969] 2 Ex.

C.R. 27.
ought also apply to professional auditors retained by lawyers or by a client for the express purpose of providing information enabling a lawyer

to prepare a legal opinion:

Corporate directors and senior management are forced, in the face of

increasing personal risk, to obtain legal advice regarding environmental

compliance. Solicitors practicing in this field are fully conscious that

[such] advice cannot be given in the large majority of cases without some

form of environmental audit. Clients are therefore left in the impossible

position of choosing between disclosing what may be incriminating information without an assurance of confidence or privilege in order to obtain

advice, or possible criminal liability for failing to obtain that very

advice.103

Notwithstanding the assertion by Cotton and Mansell that “it is

this dilemma that the rule of solicitor/client privilege was expressly

developed to avoid,” Canadian courts have been very cautious about

extending solicitor/client privilege to environmental audits.

7.3 Federal and Ontario Policies

7.3.1 Canadian Environmental Protection Act: Enforcement and

Compliance Policy

In 1988, Environment Canada published the Canadian Environmental Protection Act Enforcement and Compliance Policy (1988, reprinted

1992). One of the first formal enforcement policies in Canada, it also contained the first statement about the use of environmental audits for

enforcement purposes, defining audits as: “internal evaluations by companies and government agencies, to verify their compliance with legal

requirements as well as their own internal policies and standards.” The

Policy states that “Environment Canada recognizes the power and effectiveness of environmental audits as a management tool [...] and intends

to promote their use [...]” Accordingly, “inspections and investigations

under CEPA will be conducted in a manner which will not inhibit the

practice or quality of auditing.” Specifically, the Policy limits the

grounds when government officials can access audits. The Policy also

states that “any demand for access to environmental audit reports during investigations will be made under the authority of a search warrant.

The only exception to the use of a search warrant is exigent circumstances, that is when the delay necessary to obtain a warrant would

likely result in danger to the environment or human life, or the loss or

destruction of evidence.”

84 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

103. Cotton and Mansell 1991, 122.
7.3.2 The Ontario Policy and Guideline on Access to Environmental

Evaluations

The Ontario Ministry of Environment and Energy released its Policy and Guideline on Access to Environmental Evaluationsin late November

1995. The Policy arose partly in response to pressure from industry representatives for criteria guiding the very broad information-collecting

discretion granted to Ministry officials under the Ontario Environmental

Protection Act. The impetus for the Policy came from a project jointly

sponsored by the agricultural community, the government, and a local

university to develop a farm self-assessment process. In the early 1990s

the MOEE agreed to grant immunity to participants in a pilot version of

the self-assessment project. Following the pilot application, the agricultural community indicated to the MOEE that its members were reluctant

to implement self-assessment more comprehensively without assurances of immunity from prosecution, regardless of the information generated. In response to these concerns, the MOEE sponsored a

multi-stakeholder task force which reported in late 1994. After a further

year of negotiations, the MOEE released its final version.

This Policy is designed as a compromise between the previous situation, which granted open access for audits, and an absolute privilege

rule. It states on page one:

By providing greater certainty, this Policy will encourage environmentally responsible companies and individuals to develop and use environmental evaluations. It will also continue to allow the MOEE to carry out its

responsibility to take action to protect the environment in urgent or

serious environmental situations.

The Ontario Policy further states that “MOEE will respect the confidentiality of self-initiated evaluations and will not, as a matter of

course, demand or request access to environmental evaluations.” The

Policy then sets out the exceptional circumstances in which the MOEE

may require access, and describes the steps that staff must follow to

obtain access. The process is similar for both inspections and investigations. The government official must first request access from the company. If access is denied, the official must obtain authorization from the

regional head of investigation and from legal counsel to seek a judicial

inspection order under the Act or a search warrant. For inspections,

these two must be satisfied that the requesting inspector believes on reasonable grounds that the evaluation’s findings will be relevant in

addressing the environmental problem, the information cannot reasonably be obtained from other sources, and the information is necessary for

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 85
administering the Act. For investigations, the officials must also be satisfied that an offense has been committed, that the evaluation’s findings

are relevant to the violation and necessary to its investigation, and that

the information cannot reasonably be obtained from other sources. Like

the CEPA policy, the Ontario Policy waives the requirement for a judicial inspection order or search warrant where the attendant delay would

likely result in an immediate danger to health and safety, serious risk to

the quality of the environment, or the loss or destruction of relevant evidence.

The Ontario Policy also encourages companies to submit their

environmental evaluations to the MOEE along with a plan for a program

approval (a plan to address the problems brought to light by the evaluation). If a party complies with a program approval, it will be “immune

from prosecution for the matters dealt with under the program.” This

part of the Policy essentially reiterates the existing provisions for program approvals which are reviewed in Section 3 of this report, above.

Finally, the Ontario Policy states that environmental evaluations will not

be used against a company (even if no program approval is in place) provided the company can demonstrate “good faith in taking environmentally responsible action.”

7.3.3 Legal Authority

The Ontario and CEPA Policies concerning access for audits are

operational policies. As such, they are not judiciable. They were, however, developed in consultation with the public, and subsequently published with the intention of providing guidance to the regulated

community. Accordingly, it is conceivable that a request for an audit in

violation of the policy could be construed as an abuse of process (see the

discussion of abuse of process in Section 4.11.2, above).

7.3.4 Impact on Compliance

The main argument favoring the protection of audits rests on the

premise that they are extremely valuable tools to promote environmentally responsible behavior, and that public policy should therefore

encourage their use. Commentators agree that “from the perspective of

industry, audits are good business.”104 As a 1986 review observed, “by

identifying non-compliance, audits allow a regulated entity to “manage

pollution control affirmatively over time instead of reacting to crises.”105

Frequent and open scrutiny heightens awareness and can therefore pre86 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

104. Darnell 1993, 125.

105. US EPA, 1986.
vent violations. Audits can also be an effective means of improving a

company’s environmental management system, and, if followed up

properly, can be used to demonstrate due diligence as a defense to criminal or civil actions.

In addition to the direct compliance-related benefits, self audits are

playing an increasingly important role in the financial management of

many businesses. Regular audits can enhance an organization’s relationship with government agencies and its public image. They may help

retain or attract environmentally conscious consumers, and can address

the requirements of purchasers and suppliers who have made environmental performance a criteria of their purchasing or contracting practices. Similarly, companies conducting environmental audits can help

reassure potential investors, shareholders, and creditors. Experience

suggests, moreover, that the detailed knowledge of a facility’s conditions generated by self audits can help “expedite negotiations for the

sale of an asset, facilitate purchasing pollution insurance, speed negotiations with lending institutions for loans, and contribute critical information for planning future growth.”106 Finally, as official policies of both

the US EPA (1986) and Environment Canada (1988) acknowledge, to the

extent that self-policing by industry can promote compliance, the regular use of audits can reduce government enforcement-related expenses.

Proponents of audit privilege rules, therefore, argue that a policy

allowing government officials to force the disclosure of self audits might

deter companies from initiating them in the first place. Companies

might be deterred from carrying out audits if they are concerned about

the potential prejudice the audits may cause if their results are made

public. The disclosure of an audit could be prejudicial to a regulated

company if the audit reveals evidence of non-compliance to a regulator

or of negligent behavior to a neighbor. The disclosure of an audit might

also reveal information of benefit to a competitor.

Advocates of audit privilege policies also argue that fear of disclosure will inhibit the effective use of audits. Efforts to ensure that audits

are protected by solicitor/client privilege might lead companies to limit

access to audits to a handful of senior personnel (and the company lawyers), thereby inhibiting full and frank disclosure within the company,

thus diminishing the effectiveness of the audit.107 Similarly, some argue

that fear of disclosure might impede companies from thoroughly following up on findings of deficiencies by an audit.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 87

106. Ronald 1994, 5.

107. Moore 1995, 3.
Critics offer two main reasons to oppose privilege policies. First,

they argue that the public benefits associated with a general policy of

disclosure outweigh any private costs that such a policy might entail.

Second, and more fundamentally, they argue that the benefits to the

individual company of conducting an audit are large enough to outweigh the possible costs of disclosure, and therefore no policy is

required to ensure the use of audits. These arguments are summarized

briefly below.

Critics of audit privilege policies argue that any sort of evidentiary

privilege represents an exception to the general principle that all relevant evidence should be before the court in order to enable it to adjudicate most effectively. Privileges are not readily granted because of the

importance of this principle. Some commentators argue that this general

principle may be even stronger in the area of environmental policy,

which has been characterized in recent years by a trend towards

increased disclosure. Similarly, a policy to restrict access to environmental audits would run counter to recent trends toward more, not fewer,

discovery privileges in both criminal and civil law.

Opponents of environmental audit privileges argue that privilege

would impede legitimate enforcement action:

Cases that otherwise might constitute viable and appropriate enforcement

actions might founder for want of evidence. Criminals may escape detection, the deterrence value of the law may be diminished, and those not

complying may receive competitive advantage vis-à-vis their complying

peers.108

This problem may be compounded, some argue, by the lack of a

uniformly accepted definition of an environmental audit. A broadly

defined audit privilege policy might therefore protect information that,

heretofore, would have been utilized by enforcement agencies. Critics

also argue that enforcement may become more expensive, as defendants

seek to delay or deter enforcement action through litigation over privilege disputes.

The main argument against protecting audits is the assertion that a

privilege policy will not lead to the desired results. Responsible companies, it is claimed, will conduct audits regardless of threat of disclosure.

They will recognize that the benefits of conducting audits outweigh the

possible damage associated with disclosure. Third parties will continue

to require audits for insurance or banking requirements or in the case of

purchases, mergers, public financing or other transactions. Besides, as

88 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

108. Johnston 1995, 341.
with financial audits, companies can take a variety of measures to ensure

that environmental audits are treated in a confidential manner in the

absence of an actual prosecution. By contrast, critics argue, an audit

privilege policy will not be sufficient to induce irresponsible firms to

change their ways.109

There is a lack of empirical evidence about the existing incentives

and disincentives for conducting audits. Anecdotal evidence suggests

that many Canadian companies remain cautious about audits because of

a fear of disclosure and some lawyers continue to provide very cautious

advice on ensuring the confidentiality of audits.110 As a result, some

companies may not conduct audits as regularly as would be desirable,

while others may not distribute their audit results as widely as they

should to be most effective. Despite this, recent data suggest that environmental self audits are becoming an increasingly common business

practice. The recent KPMG Canadian Environmental Management Survey found that 78 percent of the 361 respondents use environmental

audits.111

Moreover, there is still no data to demonstrate that those companies not conducting audits are deterred primarily due to concerns about

disclosure. In fact, the KPMG survey found that the main reason companies have not developed comprehensive environmental management

systems (which would include regular audits) is a concern about cost.112

7.3.5 Relationship with other Enforcement and Compliance

Mechanisms

7.3.5.1 Impact on Enforcement Activities

Federal officials assert that CEPA audit policy has not inhibited

enforcement activities. They advise that, since federal investigators can

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 89

109. Edwards 1990, 11; CELA 1995, 2.

110. See, for example, Thompson 1993.

111. KPMG 1994.

112. In the US, observers on both sides of the issue generally agree, some of the concern

about auditing was stimulated by the dramatic increase in criminal prosecutions in

the late 1980s. These worries were exacerbated by the simultaneous relaxation in

the mens rea (criminal intentionality) standard for environmental crimes. In Canada, by contrast, most environmental violations are considered strict liability

offenses, which, since the 1978 Supreme Court of Canada decision in R. v. Sault Ste.

Marie, merely require the Crown to prove the actus reus (the act prohibited by the

law – regardless of intention to do so), shifting the onus to the defendant to demonstrate due diligence. Thus, the American concern about the potential for information disclosed in an audit to be used as evidence of mens rea (intention to commit the

crime) does not appear to be as relevant in Canada, and therefore should be less of a

disincentive.
obtain adequate evidence from sources other than audits, they have not

yet had to request an audit during an investigation under CEPA. Once a

company is charged, however, prosecutors routinely request access to

any audits that have been conducted. Officials observed that if a company has conducted an audit as part of an ongoing environmental management system, it will be keen to produce the audit, once charged, as

evidence of due diligence. On the other hand, if the company claims

solicitor/client privilege, then prosecutors can reasonably infer either

that the audit discloses previous knowledge of the violation or that it

was produced only to respond to the enforcement action. In either case it

would not have been produced as part of standard management practice, and will therefore not be relevant to a defense of due diligence.

By contrast, some observers, governmental and nongovernmental

alike, worry that the philosophy behind the Ontario policy could undermine ongoing enforcement activities. They argue that the scope of the

policy is too broad – that it extends far beyond the traditional notion of

an audit as a compliance review and covers information that investigators would previously have requested routinely without a warrant. The

policy applies to “evaluations,” defined as “internal, formal and structured evaluations or self-initiated assessments of existing or potential

environmental impacts [...which] may be conducted for a wide range of

purposes, including risk assessment, compliance verification, property

dealings, business and financial interests, and management systems.”

The only significant restriction in scope is that the policy does not cover

“reports specifically undertaken as a result of an incident that has

already taken place” or information required by law (e.g., pursuant to a

self-reporting requirement in a law or regulation.)

The breadth of the definition can be explained in two ways, one

specific to Ontario, the other common to the audit privilege debate elsewhere. The first explanation is that the policy had to protect more than

just compliance audits in order to cover the agricultural self-assessments

that helped initiate its development in the first place. The second, more

generic explanation relates to the absence of a standard definition for

environmental audit. Notwithstanding the work of the International

Organization for Standardization, the Canadian Standards Association

and other standards-setting bodies interested in environmental auditing, there is not yet an environmental equivalent to accounting practices

that have general acceptance.

Other criticisms of the policy are the fear that the requirement to

obtain search warrants could drain government enforcement resources

due to the time required to prepare applications for search warrants; the

90 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
prediction that the existence of a formal policy will induce resistance to

enforcement activities; and the possibility that the “good faith” test in

the policy may not really protect a company from prosecution because of

information revealed in an evaluation obtained under the policy. Critics

expressing this last point argue that it effectively reverses the traditional

test for strict liability offenses. The criteria stipulated in the policy by

which “good faith” can be established to gain immunity are:

· undertaking an environmental evaluation;

· initiating timely action to correct or prevent any environmental

deficiencies; and

· cooperating fully and promptly with the authorities in addressing issues of non-compliance identified in the evaluation.

According to one observer, these are factors relevant to a defense of

due diligence, and are therefore “traditionally matters which are adjudicated by a court of law in determining the culpability of a client and the

appropriate penalty upon conviction.”113

Recent case law casts some doubt on this argument. In Re Safety

Kleen Canada Inc.Mr. Justice Salhany of the Ontario Court of Justice, General Division ruled that, “it is not, in my view, part of the justice’s determination in an application for a search warrant to consider whether the

accused has acted with due diligence.”114 Similarly, in R. v. Domtar

Inc.,115 the Supreme Court of British Columbia ruled that s. 487(1) of the

Criminal Code, the provision governing the issuance of search warrants,

ought to be given strict interpretation because it authorizes state incursion into the individual’s rights of property and privacy, and stated that:

Establishing whether or not due diligence has been exercised may entail a

detailed enquiry into the affairs of a corporation over a period of several

years [...]. If intrusions of this nature into the rights of privacy and property are to be authorized in respect of the potential defense of due diligence, the legislation should clearly state this as a ground for obtaining a

search warrant. It is not so stated in s. 487(1).

7.3.5.2 Regulatory Negligence

During its development, some participants raised the possibility

that the Ontario policy might contribute to a claim of regulatory negliVOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 91

113. CELA 1995, 9.

114. [1991] O.J. No. 1055.

115. (11 October 1995), 28 W.C.B. (2d) 483. See also Canadian Oxy Chemicals v. Canada

(1996), 138 D.L.R. (4th) 104, affd. 145 D.L.R. (4th) 427 (B.C.C.A.).
gence since it limits the government’s capacity to enforce its own laws.

This is unlikely to be the case, however. Although there is little case law

in Canada on regulatory negligence, some decisions imply that it would

not arise in the case of a policy that restricts statutory authority where

there are reasonable grounds to assume that the policy will further the

underlying policy objective of the statute.

7.3.6 Impact on the Standard of Care

It is unlikely that either of these policies (Ontario or CEPA) will

have a significant impact on the standard of care. Jurisprudence in Canada has already well established the precedent that environmental due

diligence requires regular audits.116

7.3.7 Third-Party Impacts

The Ontario policy bars third parties from bringing private prosecutions on the basis of information obtained from self-initiated evaluations. Critics argue that this restriction is contrary to provisions in the

Environmental Protection Act (s. 174) and the Ontario Environmental Bill

of Rights (s. 105) which protect whistle blowers.

7.3.8 Accountability

Both policies ensure some accountability for the decision to request

access to an audit. Both require search warrants. In addition, the Ontario

policy stipulates that senior officials must be satisfied that certain criteria have been met. The converse does not apply, however. Neither policy

mandates the maintenance of records to ensure the accountability of

decisions not to request an audit.

7.3.9 Fairness

Not all jurisdictions in Canada have audit privilege policies similar

to those reviewed here. This lack of uniformity may raise the concern

expressed in the United States where some commentators have

bemoaned the current “patchwork” of privilege laws, observing that

companies with operations in more than one state might conduct an

audit in a state that has a privilege policy, only to find the audit results

used as incriminating evidence in another.117 Canada has not yet

addressed this issue but may have to do so soon.

92 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

116. See, for example, R. v. Crown Zellerbach Properties Ltd. (1988), 49 D.L.R. (4th) 161, 40

C.C.C. (3d) 289 (S.C.C.); R. v. Placer Developments Ltd.; and R. v. Bata (1992), 7

C.E.L.R. (N.S.) 245 at 287.

117. See, for instance, Porter 1995.
7.4 The Nova Scotia Environment Act: Section 70

7.4.1 Introduction

The Nova Scotia Environment Act, proclaimed in 1995, specifies the

conditions under which immunity from prosecutions will be provided

upon the voluntary submission of information obtained through an

environmental audit or environmental site-specific assessment of

non-compliance. Similar to the Ontario Program Approval policy

described above, Subsection 70(1) of the EPA provides immunity if the

person volunteering the information complies with the terms of an

agreement negotiated with the Minister of the Environment or with any

order issued under Part XIII (Ministerial control orders, stop orders, litter control orders, and emergency orders). Subsection 70(2) states that

immunity will not apply if the Department is “independently aware of

the non-compliance prior to receiving the information from the person.”

Rather than adopt the federal and Ontario models, which emphasize incentives for conducting audits, the Nova Scotia provision focuses

on incentives for information disclosure. According to officials from the

provincial Environment Department, Section 70 reflects the overall philosophy in the Nova Scotia Act to move away from command and control

regulation and promote self enforcement and voluntary compliance.

The provisions also stem from the Department’s desire to address the

concerns of receivers and trustees in bankruptcy cases concerning contaminated sites. Apparently, there were fears that any active measures to

enter and assess a site could lead to unrestricted liability and this was

inhibiting receivers and trustees from even conducting phase one site

assessments to determine the extent of contamination and the potential

clean-up costs. As a result, the government found itself faced with growing numbers of orphan sites.

7.4.2 Impact on Compliance

The objective of the provision is to create incentives for businesses

to identify their own violations and come forward to the government

with a plan to remedy the situation. The impact of the policy will likely

depend on three factors: a) the degree to which the policy can reduce

uncertainty among the regulated community; b) the likely cost of the

negotiated agreement (the severity of the requirements the government

will impose in return for immunity); and c) the likelihood and probable

cost of detection and prosecution:

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 93
a) Reducing uncertainty

Uncertainty is perceived as a cost by business because it undermines the ability to plan and commit resources. Thus, the more certainty

a policy or provision can provide, the more it will benefit business – and

thus the more likely it is that the provision will be used. It is therefore

unfortunate that the wording of the Nova Scotia provision raises a number of questions. For example, ss. 70(1) does not indicate what requirements the government will impose as quid pro quo for offering immunity

from prosecution. In addition, it is not clear when immunity will be lost

under ss. 70(2). Two representatives of the department stated in

response to interviews for this project that the department intends the

provision to apply to independent departmental inspections, and not to

whistle blowers. They recognize that this interpretation raises the possibility that a company (upon learning about a whistle-blower’s report)

might request an audit solely for the purpose of claiming immunity.

Given the very general wording of the provision, however, presumably

the government could refuse to grant immunity in such cases.

The Association for Professional Environmental Auditing in Nova

Scotia (APEA) has raised concerns about the uncertain relationship

between Section 75 and Section 122, which authorizes inspectors to seize

information obtained during an inspection. APEA has asked “would a

person be protected from prosecution if they show information to an

inspector during an inspection, who then seizes the information pursuant to s. 122? Will this constitute voluntary submission of an audit pursuant to s. 75?”118 Finally, could evidence gathered by the department

solely as a result of a voluntary submission be used against the person

who made the submission?

b) The likely cost of the negotiated agreement

Economic theory suggests that if the likely cost of an agreement

under ss. 70(1) is low, then businesses may be willing to fall out of compliance and then negotiate an agreement which ensures immunity from

prosecution. If the likely cost is high, however, businesses will be less

likely to come forward.

c) The likelihood and probable cost of prosecution

Again, economic theory suggests that the greater the likelihood of

prosecution and the higher the expected penalty, the greater the incen94 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

118. APEA 1994.
tive for businesses to come forward and seek immunity under the provision. This incentive will probably be magnified to the extent that

directors or senior officers face a possibility of personal liability.119

Together, the insights suggest that in order for the Nova Scotia provision to have a positive impact, the government may have to continue a

vigorous enforcement program. If the requirements are too costly and

the chance of prosecution is low, then companies will not use the provision. Thus, if enforcement decreases in severity or frequency, then the

government will have to decrease the stringency of the requirements it

can impose under ss. 70(1). Accordingly, the Government of Nova Scotia

could strengthen the impact of the provision by:

· providing guidance about the type of requirements that will be

imposed under ss. 70(1);

· ensuring that those requirements are stringent, but less so than

the expected costs of prosecution; and

· ensuring a high likelihood of prosecution.

7.4.3 Impact on Third Parties

The Nova Scotia law does not specify whether the information

supplied to the government is deemed to be confidential. APEA has

argued that the information should not be available, for example, to

enable a neighboring landowner to file a civil suit against a polluter.

Given that the final version of the Act does not clarify this issue, presumably third-party rights will be governed by the province’s Freedom of

Information and Privacy Act.

7.4.4 Fairness

The use of the term “audit” raises the same issues discussed above

– the absence of a standard definition of an environmental audit and the

lack of certified auditors. The Nova Scotia Act does not define environmental audit. Nor does it specify what might be accepted pursuant to an

“agreement” negotiated under ss. 70(1)(a). Broad discretion thus

appears to be granted to departmental officials in implementing the

exemption provision. This could arguably create the possibility of

unequal treatment through private deals. It might also lead to claims of

regulatory negligence, alleging that standards or obligations were effectively relaxed through individual compliance agreements.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 95

119. Saxe 1990.
7.4.5 Public Response

Public reaction to the law has been largely positive, although a

number of industry representatives have recommended deleting the

provision altogether. In its response to the 1994 discussion draft of the

EPA, for example, the Canadian Petroleum Products Institute argued

that audits are voluntary internal management tools, and therefore any

reference to “audits” in the Act would “be a disincentive to their increasing use and acceptance as a management tool because of the perceived

risks posed by disclosure of confidential competitive information and

the threat of self incrimination.”120

7.5 Conclusion

The debate over audit privilege in Canada remains polarized. The

business community increasingly recognizes that environmental self

audits are good business practice that can increase compliance and

decrease potential costs. Proponents of privileges for self audits argue

that, in order to ensure that companies continue to conduct audits and

respond to them as effectively as possible, governments should do

everything possible to reassure business that it will not rely on audits

when enforcing environmental regulations. On the other hand, many in

the environmental community argue that enforcement officials inevitably operate with inadequate information and should be entitled to utilize any information they can obtain. They also argue that sensible

businesses do not need incentives to conduct audits, and that any privilege policy will only protect those with something to hide. Some even

argue that audits ought to be compulsory.

The overall impact on enforcement and compliance of audit privilege rules like the Ontario and federal policies reviewed in this paper is

likely to be minimal. Federal officials assert that the CEPA policy has

had almost no impact on their ability to enforce CEPA effectively. Given

the relative specificity of CEPA regulations, this is not surprising. By

contrast, however, the Ontario policy may actually impede certain

enforcement efforts. Its breadth means that officials will now lose access

to information previously available to them. And the procedural

requirements to obtain access may drain enforcement resources. It is

well established that the threat of enforcement (though not the only factor) is a key to influencing compliance decisions. It is therefore reasonable to assume that the Ontario policy will decrease direct enforcement

activities and will lead to a decline in compliance among companies

96 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

120. CPPI 1994, 18.
whose primary motivation to comply is the threat of enforcement. There

is little evidence, however, to suggest that this effect will be significant.

It must also be observed that this decline may be offset by an

increased use of audits by more responsible businesses. Both the Ontario

and federal policies are premised on the assumption that privileging self

audits will increase the likelihood that businesses will conduct and follow up on audits, and that this, in turn, will increase compliance levels

and improve environmental behavior in general. This impact is also

likely to be minor, however. Responsible businesses face a number of

strong incentives to conduct audits: because they are a key element of

due diligence, because they want to avoid non-compliance, and because

audits are “good business.” It is possible that these policies will have

some impact at the margins. And maybe they will help ensure that businesses follow up on audits, rather than hide the results in their lawyers’

offices. Like the potential negative impacts, then, the positive impacts of

these policies on compliance are likely to be minimal.

Rather than focusing on the direct impact of these policies on compliance levels, they should be evaluated in terms of their symbolic ramifications concerning governments’ desire to promote self regulation: i.e.,

to achieve the same result through a different means. Governments are

seeking new ways to influence private sector activity. But as part of the

quid pro quo for demanding that the private sector take on more responsibility for ensuring environmental quality, governments may have to

ensure a stable and certain regulatory regime exemplified by the type of

clear criteria developed in the Ontario policy to guide future enforcement action.

In contrast to the Ontario and federal privilege policies, the Nova

Scotia initiative appears to be an innovative approach to environmental

audits charting a middle ground between the hands-off and the full

access positions. Although it violates the basic philosophy that government should treat all audits as voluntary, internal, and confidential

activities, few anticipate that it will have a chilling effect on self auditing

in Nova Scotia. Indeed, many – particularly in the trustee and receivership community – are pleased with the certainty offered by the provision.

On the other hand, the lack of clear guidance concerning its appropriate application has raised a number of concerns and could weaken

the overall effectiveness of the incentives it is designed to create. The

government could remedy these concerns by:

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 97
· providing guidance about the type of requirements that will be

imposed under ss. 70(1);

· ensuring that those requirements are tough, but less than the

expected costs of prosecution; and

· making good on the threat of prosecution in the event of

non-compliance.

8. ISO 14000

8.1 What is ISO 14000?

ISO 14000 is a set of international voluntary standards and guidelines for the process of managing the environmental aspects of an organization.121 It was developed by the International Organization for

Standardization122 in response to various initiatives at the international

level by industry and governmental and nongovernmental organizations to identify the elements of a sustainable environmental management system (EMS).123 Based on the success of the ISO 9000 quality

management standards, and the high profile given to corporate environmental behavior by the Rio Earth Summit, the International Organization for Standardization undertook the massive job of negotiating a

world-wide standard for EMS. Canada has played an important role in

this task.124

The ISO 14000 series is intended to cover a wide range of issues,

including not only EMS but also the auditing of such systems, performance evaluation, eco-labeling and life-cycle assessment. Presently, the

ISO 14000 series contains one core “specification” document and several

98 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

121. It is modeled to some extent on the ISO 9000 series standards for producing

high-quality goods and services.

122. The International Organization for Standardization is a worldwide federation

founded in 1946 to promote the development and use of international standards

and is composed of member bodies from more than 110 countries. The Standards

Council of Canada, a federal agency, is the Canadian representative and is responsible for negotiating and implementing Canada’s adherence to international standards agreements.

123. These initiatives include: i) The British Standards Institute system known as BS7750

adopted for use in England, Finland, the Netherlands and Sweden; ii) the

Eco-Management and Audit Scheme published in 1993 by the European Union and

iii) “The Business Charter for Sustainable Development” developed by the Business

Council on Sustainable Development and the International Chamber of Commerce.

124. The work of developing the ISO 14000 series has been performed by a technical

committee, TC 207. Canada holds the Chair and hosts the Secretariat of TC 207. The

Secretariat is administered by the Canadian Standards Association on behalf of the

Standards Council of Canada.

125. ISO 1996.
explanatory “guidance” documents. The core document is ISO 14001,125

which is the mandatory “specification” for an EMS. The specification

“contains only those requirements that may be objectively audited for

certification/registration purposes [...].”126 Anyone adhering to ISO

14000 must accept and comply with this specification. It requires each

company to have a coherent framework for setting and reviewing environmental objectives, for assigning responsibility to achieve these objectives, and for regularly measuring progress towards them. The

specification also requires companies to have appropriate management

structures, employee training, and a system for responding to and correcting problems as they occur or are discovered. Regular internal

review audits are an essential part of the process.

In addition to ISO 14001, the series will contain several “guidance

documents.” ISO 14004, for instance, sets out general principles, systems, and supporting techniques for designing and implementing an

EMS. ISO 14010 sets out general principles for all forms of environmental auditing. ISO 14011 provides specific guidance for auditing the type

of EMS that ISO 14000 companies must have to ensure that the management system itself is well-structured and operating properly. ISO 14012

sets out the minimum qualifications for the auditors who should perform these environmental audits.

ISO 14001 contemplates a verification hierarchy for companies

adhering to its standards. Each company will have the choice of

“self-declaration” (which costs less but also has less credibility) or “registration” (which depends upon a thorough audit by independent auditors). Those who elect full registration apply to a registrar accredited by

the Standards Council of Canada. The registrar, in turn, assigns an

accredited, independent auditor to assess the applicant’s management

systems for their compliance with the criteria set out in the ISO 14000

series documents. The company must be in full compliance with the

specification document and generally in compliance with the applicable

guidance documents.

To understand the contribution that this process may make to

ensuring environmental compliance, it is important to understand the

scope of ISO 14001. First, the ISO 14001 standards are system-based and

do not set environmental performance goals, such as specific emissions

standards.127 It is considered to be the responsibility of provincial and

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 99

126. Id., p. vi.

127. There was very strong debate about including performance standards in ISO 14000,

as some other standards (e.g., in Europe) do. However, this approach did not

receive the majority support of the international community in a 1995 meeting in

Oslo.
federal governments to address performance standards in their laws

and regulations. Second, ISO 14001 does not measure regulatory compliance. For these reasons, ISO standards can supplement regulations, but

cannot replace them. Instead, they set forth a series of management processes to help companies understand, assess, measure and manage the

environmental impacts of their various undertakings. The underlying

theory is that adverse environmental impacts will be reduced through

good management.

8.2 Management Systems and Due Diligence

A pattern of voluntary compliance depends upon the exercise of

due diligence. In practice, it has proved as difficult for the regulated

community as for regulators and courts to determine exactly how much

diligence is enough. Due to the huge variability of pollution control

problems and the need to encourage innovation and pollution prevention, it is not possible to set a benchmark for due diligence which consists

of an exhaustive set of concrete solutions to problems.

An alternative approach to due diligence with a global application

in a wide variety of situations is an attentive and responsive system of

management. This is borne out by the fact that many incidents involving

health and safety issues have been attributed to poor or inadequate management strategies or systems. For example, Braithwaite’s study of coal

mine safety revealed that a small number of organizational defects were

characteristic of most of the disasters in which five or more miners died:

poor or no planning to deal with hazards, a general pattern of sloppiness

in safety matters, poor internal communication, inadequate staff training and inadequate definition of responsibilities.128

Similar defects in management systems are also characteristic of

many environmental cases. For example, in R. v. Imperial Oil Ltd., 15,000

liters of gasoline spilled while unloading a tankcar.129 Approximately

half of this escaped into the sewers, causing explosions in seven houses

and many other adverse effects. The accident would not have occurred

had the person unloading the tankcar been properly trained and had

there been better internal communication. Moreover, the court found

that there was a general pattern of carelessness about environmental

matters, including a total lack of planning for the possibility of an accident: e.g., there was no impoundment around the unloading dock, the

exact locations of the sewer openings were unknown, and there was

nothing available to block them after the spill.

100 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

128. Braithwaite 1985.

129. R. v. Imperial Oil Ltd. (16 September 1990), Ont. C.A.
In the famous decision in R. v. Bata Industries,130 which first made

corporate boards across the country take notice of environmental

requirements, Judge Ormston proposed the following tests of due diligence for directors:

· Did the Board of Directors establish a pollution prevention “system” as indicated in R. v. Sault Ste. Marie,131 i.e., Was there

supervision or inspection? Was there improvement in business

methods? Did he exhort those he controlled or influenced?

· Did each Director ensure that the Corporate officers [had] been

instructed to set up a system sufficient within the terms and

practices of [the] industry of ensuring compliance with environmental laws, [...] that the officers report[ed] back periodically

to the Board on the operation of the system, and [...] that [they

were] instructed to report any substantial non-compliance to

the Board in a timely manner?

· The Directors are responsible for reviewing the environmental

compliance reports provided by the officers of the Corporation

but are justified in placing reasonable reliance on reports provided to them by corporate officers, consultants, counsel or

other informed parties.

· The Directors should substantiate that the officers are promptly

addressing environmental concerns brought to their attention

by government agencies or other concerned parties including

shareholders.

· The Directors should be aware of the standards of their industry

and other industries which deal with similar environmental

pollutants or risks.

· The Directors should immediately and personally react when

they have noticed the system has failed.

These requirements are essentially an elaboration of the earlier

test: have the directors been careful, methodical and attentive?This includes:

· establishing a general pattern of attentiveness in relation to

environmental matters, including good internal communications;

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 101

130. R. v. Bata (1992), 7 C.E.L.R. (N.S.) 245 at 287.

131. R. v. Sault Ste. Marie (1978), 40 C.C.C. (2d) 353 (S.C.C.).
· clearly defining environmental responsibilities, and making

them part of the main job of every line manager in the company;

and

· systematically identifying and planning how to deal with the

environmental hazards of the company’s activities, including

use of appropriate equipment.

A company using this approach will be in a position to deal systematically with each of the traditional elements of due diligence, such

as:

· the commitment of corporate executives, including written

environmental policies;

· regular supervision and control by senior management;132

· a regular program of systematic inspections or environmental

audits;133

· a systematic program to manage the hazards that have been

identified;

· adequate equipment design and maintenance;

· clear assignment of environmental responsibilities;

· appropriate staff training;

· a contingency plan to deal with potential accidents;

· internal reporting systems to ensure that information about

environmental hazards and unsafe practices is promptly conveyed to senior management, as well as to other line departments that require the information; and

· a system for follow-up, monitoring and response.134

102 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

132. R. v. Southdown Builders Ltd. (1981), 57 C.P.R. (2d) 56 (Ont.).

133. R. v. Crown Zellerbach Properties Ltd.; R. v. Placer Developments Ltd.

134. For example, in R. v. Toronto Electric Commissioners (13 February 1991), 6 C.E.L.R.

(N.S.) 301, (Ont. Ct. (Gen. Div.)), two different departments inspected the same

transformers. One group, the transformer testing and reclamation section, found

leaks in certain transformers in the course of their ordinary inspections, but gave no

thought to the possibility that they contained PCBs. The leaks would not be serious

for an uncontaminated transformer. A second group, which was responsible for

identifying PCB contamination, identified a number of transformers containing

PCBs, but did not know that they were leaking. As a result, neither group reacted

promptly, and a PCB contaminated transformer leaked into the sewers for months.

aaaaaaa
ISO 14001 expands upon the due diligence requirement set out in

the Bata case. It not only requires the design and implementation of an

EMS, periodic reporting to top management on system performance,

auditing of the system and review of the system by top management, but

in addition requires each company to:

· establish a detailed environmental policy and make it public;

· identify all environmental aspects of its activities that it can control;

· set detailed objectives and plan how to achieve them;

· implement that plan with adequate resources;

· give appropriate training to everyone whose work may have a

significant impact on the environment;

· improve internal and external communication;

· keep detailed records which can be easily located;

· be prepared for emergencies; and

· monitor and measure those activities with a significant impact

on the environment.

An EMS is an organized system for carrying out due diligence. The

proponents of ISO 14001 hope that this standard will be universally

adopted. This would help clarify and simplify the job of measuring due

diligence. It is noteworthy that gradual implementation of an EMS was

accepted as due diligence in R. v. Courtaulds Fibres Canada, even though

the company continued to have numerous spills.135

It is too early to tell whether the ISO 14000 series will become the

leading world-wide benchmark of proper environmental management.

For many large international companies and those who rely on export,

adherence to ISO 14000 may have important trade and competitive

advantages. Thus their adherence will be “voluntary,” in the sense that it

will not be coerced by government action, but will be market-driven.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 103

This, the court held, demonstrated the defendants’ lack of diligence. If either

department had known what the other knew, or if senior management had known

all the facts, the PCBs would not have escaped into the lake.

135. (19 June 1992), (Ont. Ct. (Prov. Div.)) [unreported]; 9 C.E.L.R. (N.S.) 304.
8.3 Legal Authority

The legal authority for the development of the ISO 14000 series

comes from the International Organization for Standardization. As

such, it will not be a formal or directly judiciable part of Canadian law.

However, it is not necessary to enact a Canadian law for an international

standard to be used as a benchmark of due diligence, should Canadian

regulators so choose. The Canadian concept of due diligence allows

incorporation of other standards by reference.

Courts have traditionally looked to other standards to measure

due diligence or to determine the standard of care. For example, one traditional basic benchmark for due diligence is the custom of the trade.136

Where minimum standards for proper conduct in a trade have been

established, they are an essential part of due diligence.137 The reports

and standards of industry task forces and research institutes are a traditional source of such standards. For example, in the Imperial Oil case discussed in Section 8.2 above, the court used report 80-3 of the Petroleum

Association for Conservation of the Canadian Environment on oil spill

prevention as a benchmark of the company’s failure to use due diligence. The report described the need for and method of constructing

proper impoundments at railcar unloading facilities. Imperial Oil’s

unloading facility had no such impoundment.

8.4 Efficacy

Because ISO 14001 has only recently come into force, there is no

empirical data on its impact on compliance. However, a review of decisions in environmental prosecutions shows that many offenses could

have been avoided if the defendants had had an effective EMS.138 For

example, in Regina v. Texaco, a documented leak in a containment dike

went unrepaired for more than five months, until a major spill finally

occurred.139 Regina v. Toronto Electric Commissioners140 concerned a

PCB-containing transformer that was allowed to leak for months. One

department that knew the transformer was leaking did not know it contained PCBs, while another department that knew it contained PCBs did

104 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

136. R. v. Consumer’s Distributing Co. Ltd. (1980), 57 C.C.C. (2d) 317, 54 C.P.R. (2d) 50

(Ont. C.A.); Morris 1942; Linden 1988; Keeton 1992, 241; Monkman v. Singh (1989), 62

Man. R. (2d) 277 (Q.B.); Koerber v. Kitchener Waterloo Hospital (1987), 62 O.R. (2d) 613

(H.C.J.).

137. R. v. Dupont (23 January 1986), (Ont. Dist. Ct.) [unreported]; R. v. Hodgson (1985), 4

F.P.R. 251 (N.S. Prov. Ct.); Fleming 1987, 111; Dugdale and Stanton 1989, 241, 254.

138. Summarized in Saxe 1995.

139. R. v. Texaco (23 November 1987), (Ont. Prov. Off. Ct.) [unreported].

140. R. v. Toronto Electric Commissioners (supra).
not know it was leaking. In Regina v. Transcontinental Printing, a new

plant manager did not keep the records required by his plant’s certificate

of approval, because he had never been made aware of the certificate

requirements.141 It is these unintentional errors and accidents by companies with the resources to avoid them that are likely to be reduced

through implementation of an EMS such as ISO 14001.

The effectiveness of an EMS may also be gauged from the

improved environmental performance of the larger, more sophisticated

companies that have already adopted them. In the last twenty years,

companies such as Dofasco and Ontario Hydro have invested heavily in

pollution control, pollution prevention and environmental management. In many cases, they have reduced certain emissions by as much as

90 percent. Data also shows that companies with a sophisticated EMS

are increasingly rare among those convicted of environmental offenses.

The majority of those now convicted are small to medium-size enterprises who may lack the information or resources required to implement

such a system.

8.5 Relationship with other Mechanisms

ISO 14001 as a major benchmark of due diligence may be used to

complement, not compete with other compliance mechanisms used by

environmental regulators. First, ISO 14001 can exist independently of

other compliance mechanisms and may be a tool used by companies to

improve their regulatory compliance. Because of their negotiation at an

international level and because these standards are voluntary and not

government-imposed, ISO requirements may be perceived as fair and

objective and therefore, more acceptable to businesses.

Second, ISO 14001 is more detailed and more demanding than any

environmental management measure yet proposed by the Canadian

courts and gives businesses clearer guidance as to what is expected of

them. Proponents of ISO 14001 anticipate that it can play a valuable role

in promoting voluntary compliance. Even though ISO 14001 does not set

specific performance targets, it does require each firm to set its own targets, measure its progress toward them, document that progress, and

then report on that progress to top management.

This is similar to the process used in Ontario waste minimization

regulations. Regulation 102/94 compels all large firms in specified

industries to audit their wastes, set their own waste reduction targets,

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 105

141. R. v. Transcontinental Printing (31 March 1993), (Ont. Prov. Off. Ct.) [unreported].
formulate plans for reaching those targets, monitor their progress, and

then post progress reports for their employees to see. Government plays

no role in setting the goals or monitoring the progress towards them, and

no one has yet been prosecuted under this regulation. Nevertheless, it

has had substantial impact upon responsible companies with adequate

resources.

For these companies, such regulation works by building on the

strengths and sensitivities of good business management, rather than by

enforcing an external norm. It is very difficult to manage what has not

been measured. In fact, most companies were unaware how much pollutant waste they were generating and how much it was costing them.

Once compelled to measure it, pride and opportunities for cost reduction gave senior managers the incentive to set substantial waste reduction targets. When a target has been set, with responsibilities and

deadlines assigned, achieving it calls upon familiar and well-honed

business management skills. The requirement to publish progress

reports creates periodic pressure for actual progress, particularly if

employees are interested in the subject.

Third, ISO 14001 may offer cash-strapped regulators an opportunity to use their limited resources to better effect. Costs to develop and

implement an ISO 14001 EMS and the audits necessary to verify adherence to ISO 14001 are paid for by the firms themselves. Authorities in

some jurisdictions are considering offering incentives to industries participating in voluntary compliance schemes. These incentives may

include fewer inspections, diminished administrative/reporting burdens, fast-track permit procedures and reduced penalties in the sentencing process, all of which arguably lessen the strain on government

resources.

The value of ISO standards as a possible cost-saving mechanism

has been specifically recognized by some Canadian regulators in other

areas. For example, with respect to quality assurance, the Report of the

Parliamentary Sub-Committee on Regulation and Competitiveness specifically recommended that the level of inspection and monitoring by government officials should be reduced for ISO 9000-adherent

companies.142The federal government response was positive, indicating

that all federal departments would be asked to consider how this could

be done.143 However, although governments have participated in the

development of the ISO 14000 series, the government representatives

have tended not to be from the enforcement offices and as yet there has

106 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

142. Government of Canada 1992b, report recommendation 7.3.

143. Government of Canada 1993, 28.
been no official government statement on how ISO 14001 will affect the

delivery of enforcement obligations.

Although audits of an ISO 14001 EMS are cost-free to government,

this does not necessarily relieve the government of its responsibility to

verify legislative compliance. As indicated above, the presence of an ISO

14001 EMS does not guarantee regulatory compliance. The regular

audits required under the ISO 14001 EMS are performed internally, are

not required to be disclosed to the public or to government regulators

and are audits of “system compliance.” Compelling disclosure of a company’s ISO 14001 audits would subvert the “voluntary” nature of ISO

14001, and in any event would not necessarily provide the government

with the information it needs on regulatory compliance. There is accordingly little change in the government’s perceived enforcement operations. Accordingly, it is still an open question whether an ISO 14001

registration could entitle a company to a reduced inspection schedule.

For the reasons outlined above, adherence to ISO 14001 could lead

to a higher level of regulatory compliance and a lower level of environmental harm than a generalized exhortation from regulators or the

courts to “use due diligence.” It is still too early to tell whether the

required commitment to regulatory compliance in the environmental

policy which ISO 14001 registrants must adopt will ensure that the EMS

is structured to promote and enhance regulatory compliance.

Several questions which have been raised about the use of ISO

14001 as a benchmark for due diligence are examined in the subsections

below.

8.5.1 Will ISO 14000 replace Regulation?

The ISO 14000 series cannot replace regulation, and should not be

interpreted as doing so. It is a systems approach to managing environmental aspects of operations and activities. The ISO 14001 standard

expressly states that it does not set “specific environmental performance

criteria.” Regulatory environmental performance standards provide the

background against which an EMS must operate and which it must take

into account. Where regulatory standards exist, ISO 14000 may help

companies to measure, monitor and manage their compliance at the

level of those standards. As indicated above, an ISO 14001 registration

does not ensure actual regulatory compliance but rather a “commitment

to comply with relevant environmental legislation and regulations.”144

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 107

144. ISO 14001, s. 4.2(c).
Moreover, ISO 14000 is a voluntary standard. Not all firms will

choose to establish an ISO 14001 EMS. Regulations, and a credible threat

of enforcement, are needed not only to govern the conduct of firms that

may not choose to make the substantial investment that ISO 14000

entails, but also to establish a performance level against which the effectiveness of an EMS can be measured.

8.5.2 Will Companies Accredited to ISO 14001 be Immune from

Prosecution?

Accreditation to ISO 14001 is akin to holding a license or permit. It

is not enough to hold the permit, one must also comply with its terms.

Although proof of ISO 14001 registration may be accepted as prima facie

evidence of due diligence in the management of environmental risks

generally, it is not a guarantee of regulatory compliance. When an incidence of non-compliance occurs, additional information will be necessary to assess whether the company actually complied with its ISO 14001

EMS on that occasion, or even whether the EMS had been properly

designed in the first place. In other words, the company must still demonstrate that it had appropriate procedures in place to prevent the

offense. It will also have to show that it took appropriate corrective

action in response to any previous non-compliance. Persistent polluters,

including those with an ISO 14001 EMS, will probably be exposed to

prosecution, since they will not be able to demonstrate due diligence.

Many businesses have expressed the concern that ISO 14001 might

increase their exposure to prosecution, since its requirements are more

detailed and more easily measured than those of common-law due diligence.

8.5.3 Is ISO 14000 Relevant only to Large Firms?

Commercial pressures to adhere to ISO 14000 standards will be felt

primarily by firms that compete in international markets. Many of these

are large multinationals. Adherence to ISO 14000 does entail substantial

management effort, documentation and fees, especially for those who

are externally audited. Experience of business entities who have registered under the ISO 9000 quality management system indicates that this

registration process is extremely costly. Although it is questionable

whether this cost will be justifiable for small and medium-size businesses, promoters of ISO 14000 expect that the standard can also be used

by small to medium-size enterprises in good financial health. Most of

these smaller enterprises are expected to “self-declare” rather than incur

the substantial costs to register. Regulators will have to decide how

much weight to give such declarations.

108 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
ISO 14001 is stated to be applicable to any type of organization. No

concessions are made to size or resources. By way of contrast, the European Union’s Eco-Management and Audit System (EMAS) allows for

special assistance to small and medium-size businesses for information,

training and technical support, provides a simplified verification process and requires less frequent reporting.

8.5.4 Does Use of ISO 14000 as a Benchmark Prevent any Public

Control of Due Diligence?

“Isn’t deference to a business-developed standard like putting a

fox in charge of the chicken coop?” Some fear that ISO 14000 will be little

more than a smoke screen, whose fine words may delude governments

and the public into believing that mandatory action is not necessary.

This is a legitimate concern. Nevertheless, courts and regulators (and

through them the public) retain the ultimate responsibility for determining whether and in what circumstances ISO 14001 is an appropriate

benchmark.

Control by regulators:

Total quality management systems are already used by regulators

to reduce inspection costs and improve overall compliance. For example, the Department of Fisheries responded to demands for increased

enforcement of fish processing plants by requiring the plants to develop

ISO-type quality management systems as a prerequisite to selling fish

outside their home provinces.145 Similar programs have been proposed

for other ministries.146

At present, due diligence is generally determined by the courts on

a case-by-case basis. This is resource-intensive both for regulators and

for business, and creates considerable uncertainty.147 To avoid this

uncertainty, some regulations and guidelines incorporate private standards by reference.148 This occurs only after the regulator is satisfied that

the private standard is appropriate. This is similar to the concept of

equivalency agreements under the Canadian Environmental Protection

Act. Such agreements enable federal regulators to balance their responsibility to enforce appropriate national standards with the numerous

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 109

145. Government of Canada 1992a, Part II, vol. 126: 514.

146. Government of Canada 1994, 99, 107, 154.

147. Businesses are more willing and able to comply with a standard that is specified

ahead of time. Such a standard can also make a regulator’s life easier, although it

reduces flexibility.

148. See e.g., the Ontario Gasoline Handling Code, O. Reg. 521/93.
advantages of avoiding overlap with the provinces. To achieve both of

these objectives, the federal government may decline to enforce their

regulations in provinces with a provincial scheme that federal regulators consider to be “equivalent” to their own. Not all private standards

would pass the equivalency test, but regulators may feel that the internationally adopted ISO 14000 series does. There is also nothing unusual in

reliance on third-party certification to determine whether a person

meets proper standards. This is a common feature of the many statutes

that grant some measure of self-regulation to regulated communities.149

One potential avenue to subject ISO 14001 to public scrutiny would

be to submit to public consultation any amendment of enforcement policies to refer to ISO 14000 as a due diligence standard. Certain jurisdictions, including Ontario, have either consultation policies or legislation

requiring such consultation.

Control by the courts:

The January 1996 decision of the Alberta court in R. v. Prospec

Chemicals Ltd. is an example of courts using ISO 14001.150 Prospec, a

member of the Canadian Chemical Producers Association, participated

in the much-lauded voluntary program, “Responsible Care.” Nevertheless, the chemical plant had repeated problems with emissions of carbon

disulfide, an odorous, toxic chemical. On the first conviction, the company was ordered to implement specific remedial measures. Prospec

complied with this order but failed to solve the problem. On the second

conviction, the company and the prosecutor made a joint submission for

an order requiring Prospec to register itself in compliance with ISO

14001 by June 1998. The judge accepted the recommendation and issued

the order accordingly.

This illustrates one of the ways that ISO 14001 can provide a valuable supplement to the regulatory process. To comply with ISO 14001,

Prospec will need to update its EMS to a level of thoroughness and

sophistication that neither regulators nor judges could specify or evaluate because they lack the necessary technical knowledge. The company

itself is in the best position to identify the environmental impacts of its

activities and to design an EMS to bring such impacts into regulatory

compliance.

The court order has added a great deal of power to the ISO standard which it would otherwise lack. For Prospec, ISO 14001 compliance

110 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

149. See e.g., Mackenzie 1994.

150. R. v. Prospec Chemicals Ltd (1996), 19 C.E.L.R. (N.S.) 178 (Alb. Ct.).
is now mandatory, not voluntary. Prospec will forfeit $40,000 if it has not

registered by the court-imposed deadline. Because the court order is a

public document, the obligation to register is now of public record and

anyone will be able to verify whether the company has complied with

the court order to register.

This case also demonstrates that regulators can gain advantages

from ISO 14001 without giving up their discretion or their responsibility

for environmental management. In Prospec, judges and regulators used

that discretion to pursue a result that had been unattainable by other

means. Presumably, the prosecutor and the judge evaluated whether an

ISO 14001 EMS would elicit the compliance that they wanted from

Prospec. They then used the certification process incorporated into ISO

14001 as a reasonable method to determine whether Prospec would

comply with the order. Although expert ISO 14000 auditors will now

determine whether or not Prospec complies with the mandated EMS

standards, it was the judge who chose and imposed those standards.

The ability of the public to have access to information about regulatory compliance is an important component of control over monitoring

due diligence. One of the criticisms leveled at ISO 14001 is the lack of

mandatory disclosure of audit results to regulators or the public. This is

discussed further in Section 8.9 below.

8.6 Abuse, Negligence

Purportedly, use of the ISO 14000 series, as a benchmark for due

diligence, as a component of an overall compliance guideline, would

involve no direction or discretion by individual regulators. In such

cases, it offers very little scope for claims of officially induced error, regulatory negligence, or agency capture.

However, as is the case with all government policies, care would be

required to avoid misunderstandings about its scope. In particular, it

may be necessary to adopt a policy to make it clear to industry that ISO

14001 certification does not necessarily meet regulatory compliance

requirements. It would be advisable to ensure that all Canadian agencies

adopt a consistent approach to ISO 14000 in their policies and actions.

For example, problems could potentially arise and lead to confusion and

the possible defense of officially-induced error if one division were to

encourage use of ISO 14001 on the basis that ISO certification satisfies

environmental compliance obligations. In addition, because ISO 14000

audits measure EMS efficiency rather than regulatory compliance, regulators cannot rely solely on this type of audit in their enforcement practices.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 111
8.7 Impact on the Standard of Care

As discussed above, the ISO 14000 framework arguably requires a

standard of care for the regulated industry which is at least as high as the

general common-law standard of “reasonable care.” A business which

has a registered or self-declared ISO 14001 EMS will have gone a long

way towards preparing the groundwork to establish that it has exercised

the required standard of care. Because ISO 14001 is a management system, it is not the complete answer to determining what the standard of

care is for all industries or all circumstances. Reference will still be

required to industry custom and practice.

An obvious shortcoming is that a 14001 EMS does not ensure compliance with legislation. Furthermore, the internal audits required to satisfy the ISO 14001 system requirements, are only of the system itself and

not of any regulatory compliance. This may mean that the enterprise will

have to produce evidence of efforts or systems in addition to ISO 14001

which demonstrate to enforcement agencies or courts bona fide attempts

to comply with regulatory requirements.

8.8 Third-Party Impacts

Adherence to ISO 14000 would not bar third-party common-law

claims for nuisance and negligence. However, if thorough adherence to

ISO 14000 contains all the elements of due diligence, it could provide a

defense to claims of negligence in a civil suit. ISO 14001 has no direct

impact on the potential liability of third parties such as officers, directors

and employees. However, individuals associated with companies that

subscribe to ISO 14001 will be less likely to be involved in offenses, and

more likely to exercise their own due diligence. For example, the directors of such companies would in all likelihood have established the pollution prevention “system” demanded by Judge Ormston in the Bata

case discussed above.

8.9 Accountability, Transparency

The process by which the ISO 14000 series was developed is in theory designed to include input by all interested parties, and ensure that

businesses do not dominate the decision making. A voting formula is

used by TC 207 and its subcommittees, both nationally and internationally, to maintain a balance between business, government, the professional/service sector and NGOs (non-governmental organizations such

as environmental groups).

112 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
In Canada, the Canadian Environmental Council, an advisory

group formed by the Canadian Standards Association to act as a steering

committee in the development of ISO 14000, includes in its roster representatives of environmental groups, government, resource industries

and manufacturers, and the environmental service sector. Although this

is a multi-stakeholder process, participation has been heavily weighted

in favor of industry, particularly large industry which can afford the

heavy commitment in time and resources to prepare for and attend

meetings, many of which occur in far-flung international venues. Input

from government and public interest groups has occurred at a stage

when much of the policy direction was already set. The resulting standards are not everything some had hoped for with respect to public

reporting or performance standards, but they will require significant

efforts from many businesses.

Lack of sufficient public accountability is one of the main criticisms

leveled at ISO 14001. One component of an ISO 14001 EMS is a regular

internal process of setting environmental performance targets and measuring the progress towards them. However, ISO 14001 does not require

firms to make these reports public.151 Although many businesses are

expected to do so, whether for marketing purposes, to satisfy the

increasing disclosure requirements of securities regulators and financiers, or to demonstrate that they are good corporate citizens, the lack of

any mandatory reporting requirement is viewed by some as a way for

ISO 14001 registrants to shelter information about regulatory

non-compliance.

Another area of concern is how the ISO 14000 audits fit in with the

current audit practice. Certain jurisdictions have adopted disclosure

policies and rules for audits which reach a compromise between encouraging voluntary audits and using the information gathered in such

audits for prosecution purposes in accordance with strict guidelines. It is

unclear whether the use of ISO 14000 standards would jeopardize the

continued use of these audit disclosure policies or rules.

8.10 Fairness

It may be fair to use ISO 14000 as a benchmark of due diligence for

those who have voluntarily chosen to adhere to it. It is designed to be

equally applicable to businesses of all types and in all regions. It has been

promoted as a means to ensure a “level playing field” among trading

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 113

151. By way of contrast, the Eco Management and Audit Scheme adopted by the European Union does require public reporting.
partners. This level playing field will exist only if all have equal access to

the system.

One type of unfairness could occur if certain jurisdictions accept

ISO 14000 as a benchmark of due diligence and others do not. Because of

the high level of concern and uncertainty about environmental risks

among the business community and among lenders, it is possible that

this could have some impact on forum shopping. This problem could be

avoided in Canada if all Canadian jurisdictions, perhaps through the

Canadian Council of Ministers of the Environment, agreed to treat ISO

14000 adherence in a uniform fashion.

Another type of fairness issue may arise with respect to the cost of

adherence to ISO 14000. It is recognized that ISO 14001 registration is

resource intensive and requires a substantial degree of management

skill and sophistication. It also requires a high degree of motivation.

Many businesses, especially the small and medium-size enterprises,

may find this a very heavy burden. It would be unfair and counter-productive to require all regulated businesses to register with ISO

14000. This would distort the essential voluntary nature of the standards, and would be wastefully demanding of small businesses and

those enterprises which present few environmental risks. However, if

ISO 14001 registration is used by enforcement agencies as prerequisite to

any “parallel-track” incentive program which replaces controls under

the regulatory system (i.e., through reduced monitoring, easier permit

procedures, etc.), will this disadvantage smaller businesses who cannot

afford ISO registration but may nevertheless be able to demonstrate regulatory compliance? Furthermore, it is unclear whether the ISO 14001

registrants whose internal audits are protected from disclosure are benefiting from a privileged regime unavailable to non-registrants.

On the other hand, some consider it fair to reward those companies

who choose to adhere to ISO 14000, provided such companies could

show that ISO practices and procedures were being fully implemented

at all times.152 It is proposed that in exchange for doing more to control

environmental risks, ISO 14000-adherent firms would enjoy a certain

tolerance for inadvertent errors. This would not exempt them from

cleaning up spills (which everyone is required to do regardless of due

diligence), but it would protect them from prosecution for inadvertent

errors. This is arguably appropriate because, by adhering to ISO 14000,

114 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

152. Since ISO 14001 requires an active response to spills and other instances of

non-compliance, repeated instances of the same non-compliance would itself be

evidence of either failure to adhere to ISO 14001 standards or else an improperly

designed EMS.
companies would demonstrate real commitment to environmental compliance. Punishing those who have already demonstrated commitment

is more likely to decrease compliance than to improve it.153

8.11 Conclusions

ISO 14000 may present a valuable opportunity for regulators to

raise the regulated community’s standard of care, particularly in the

case of larger firms. If ISO 14000 is accepted as a benchmark of a high

level of due diligence, those who adhere to it will be rewarded with

clearer expectations of what is required of them, may have fewer incidences of non-compliance, and may be granted a measure of regulatory

tolerance should inadvertent non-compliance occur. This would be a

substantial benefit for the more sophisticated, environmentally committed members of the regulated industries, and would likely increase levels of overall compliance for such industries given the same or even

reduced resources for enforcement.

Acceptance of ISO 14000 as a benchmark of due diligence may

allow regulators to focus their enforcement resources on the uncooperative violators. Fewer routine inspections would be necessary for firms

already paying qualified independent auditors to inspect and evaluate

their operations. Fewer resources would be necessary to assess the due

diligence of such businesses once a detailed external benchmark exists,

particularly since ISO-adherent firms must methodically document

their EMS performance. What remains to be reviewed by policy makers

and enforcement agencies, however, is how best to use a “standard” that

measures system performance in situations where measurement of regulatory performance is required. At the very least, the adoption of an

ISO 14001 EMS by those businesses who choose to do so, is a step

towards ensuring that attention is paid to identifying and managing the

environmental effects of their operations.

9. ENVIRONMENTAL MEMORANDA OF UNDERSTANDING

9.1 Introduction

In the last few years, a number of Canadian jurisdictions have

begun to experiment with the use of memoranda of understanding

(MOUs) to promote environmental improvements such as pollution

prevention. The Ontario government is pursuing a wide range of

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 115

153. See Saxe 1990, 45-53.
MOU-type initiatives, including informal arrangements with specific

companies, provincial-municipal agreements, provincial-industrial sector MOUs, and a number of provincial-federal MOUs with high profile

sectors, including the Canadian Chemical Producers’ Association

(CCPA), the Motor Vehicle Manufacturers’ Association (MVMA), the

Automobile Parts Manufacturers’ Association (APMA), and the Ontario

Fabricare Association. While some have been developed quickly, the

establishment of most of the formal MOUs has required up to two years.

Most of the Ontario MOUs, including all those co-signed by the

federal government, follow the same pattern. They explicitly state that

participation does not change any existing regulatory requirements.

And while they do not formally create new obligations, presumably the

fact of negotiating and signing an agreement imposes some good faith

obligations to cooperate in trying to ensure the success of the endeavor.

All state that regulatory compliance is a prerequisite to participation,

and that they are focused on extra-compliance issues, in most cases

related to promoting pollution prevention. Most provide for a governmental-industrial steering committee to establish a plan for information

sharing within the affected sector.

In many cases, either the MOU or the steering committee also

develops a candidate list of substances to be addressed, provides a methodology for developing and implementing pollution prevention plans

within the sector, creates reporting procedures, and establishes the

infrastructure for supporting the initiative. In most cases, the members

of the sector can agree to participate individually. If they choose to participate, they undertake studies of their premises, processes and products, draft an inventory of substances used, and propose projects to

reduce the use or release of these substances. While all emphasize information sharing, the nature of the public reports and the involvement of

third parties in the process varies considerably. Unlike some comparable US initiatives, the MOUs do not commit industry to any changes, nor

do they commit government to any relaxation of enforcement of existing

regulations.

The Saskatchewan government has chosen to focus on bilateral

agreements with specific industries. It has one agreement in place, is

negotiating two more, and is considering a number of others. Like the

Ontario regime, the Saskatchewan MOUs focus on information sharing

and are not intended to be legally binding. Unlike Ontario, however, the

plans negotiated pursuant to Saskatchewan agreements address regulatory obligations, and therefore take a more comprehensive approach to a

participant’s environmental operations.

116 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
The British Columbia government is introducing MOUs on a pilot

basis as part of an overall reform of its environmental policies which

may also include an increased use of performance-based standards to

decrease reliance on site-specific permits. In July 1995, the government

signed a framework MOU with the Canadian Chemical Producers’

Association (CCPA) with four specified companies from other sectors.

This agreement committed the signatories to help develop more specific

agreements and projects under the oversight of broadly based public

advisory and steering committees. In addition to promoting pollution

prevention within the participating companies, this project is designed

to help the government learn how to promote pollution prevention

more effectively.

Although the rationale for entering into MOUs varies by jurisdiction and by agreement, there are some common considerations. Both

government representatives and industrial participants look to the

MOUs as a way to engender a less adversarial, more open mutual relationship. All see information sharing as one of the main benefits of

MOUs. Various government representatives believe that such agreements may represent the most effective way to induce companies to

adopt pollution prevention techniques. Indeed, some have maintained

that government can only promote the type of cultural change required

to support pollution prevention through a trust-based process, such as

that engendered by the MOUs. Some industrial participants, on the

other hand, are motivated at least in part by an ethical obligation. Many

also perceive the advantage of creating an active climate of change

which may avoid, or at least help shape future regulatory developments.

The remainder of this section explores some of the possible implications

of these new enforcement and compliance activities related to existing

regulatory obligations.

9.2 Legal Authority

Few of the agreements developed to date specify detailed, legally

binding obligations. Some jurisdictions, such as British Columbia, are

exploring opportunities to use MOUs to replace existing permit requirements. Similarly, the federal government is studying the potential for

negotiated agreements, or “eco-covenants,” to control substances designated as “toxic” under CEPA. These extensions of current MOUs will

have to be grounded in legislative authority, which, in some cases, will

require amendments to existing legislation. In this regard, it is noteworthy that the federal government’s 1995 response to the committee contemplates such an approach.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 117
9.3 Impact on Compliance

Environmental behavior depends on a wide range of factors, only

some of which will be influenced directly by a particular instrument.

Accordingly, the potential impact of an MOU on regulatory compliance

(and on environmental quality in general) will depend on the policy and

social context into which it is introduced.

MOUs can create pressure for increased compliance. They can, for

example, increase awareness of existing regulatory obligations. Since

most MOU regimes expressly require regulatory compliance as a prerequisite for participation, in many cases, the early phase of government

support for existing MOUs has included workshops and other information on regulatory obligations. In any event, proponents believe that

since considerations of ethics, market image, or reputation are among

the main reasons for entering into an MOU, most participants tend to be

particularly conscious of the need to ensure compliance.

Unfortunately, these positive incentives could be at least partially

offset in some cases by increased non-compliance by non-participants in

the MOU. A common theme among proponents of MOUs is that, if successful, they will make environmental efficiency and pollution prevention become a key element of competitiveness. Ideally, this will force

non-participants to either implement similar improvements or go out of

business. There is always the possibility, however, that companies

which do not enhance their environmental efficiency may face increased

pressure to cut costs by not complying. Continued enforcement of existing regulations is therefore critical to the success of these initiatives, and

is strongly supported by those involved in MOUs.

The question of “free riders” also arises: to what extent will

non-participants benefit from the good will generated by others’ participation in the MOU? To what extent will such “free riders” gain economic

advantage, either from an enhanced market image within their sector or

from a relaxation of enforcement efforts due to the perception that the

entire sector is preventing pollution? The severity of the problem varies

considerably between sectors. Some industrial sectors, like auto manufacturing, include so few companies that self-policing should suffice to

avoid free riding. Others, like the auto parts manufacturers, are characterized by suppliers whose work embraces the whole sector and thereby

ensures that there are few secrets within it. The CCPA has attempted to

address the free rider problem through a strong sectorial self governance code – “Responsible Care” – designed to create internal pressure

118 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
to behave in an environmentally appropriate manner. But for some, free

riders pose a particular problem that may require legislative intervention. A recent study of the National Packaging Protocol – a national voluntary program to achieve 50 percent diversion from landfill by the year

2000 – found that, while most large firms were active participants, many

small firms were not. As a result, leading participants are now requesting field-leveling legislation.154

Finally, there is also the possibility that parties to MOUs will

decide that some existing regulatory provisions impede adoption of the

integrated approach to environmental management promoted by most

MOUs.155 This could create a backlash against certain provisions and

lead to pressure for their reform – or non-enforcement.

9.4 Impact on the Standard of Care

If successful, MOUs could help increase the standard of care with

respect to existing regulatory obligations in two ways.156 First, since government support for MOUs typically entails education about existing

regulatory obligations, the instruments should diminish the possibility

of a defense alleging mistake of fact.157 Second, successful MOUs could

also help raise the standard for a due diligence defense. Canadian courts

have emphasized that due diligence requires a management system,

with such elements as regular audits, clear assignment of responsibilities, training, instruction and supervision of employees, information

systems and effective lines of communication.158 The implication of this

jurisprudence is that successful MOUs could alter the standard of due

diligence to be expected within the affected sector. The premise of the

MOUs is that they will help disseminate pollution prevention and enviVOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 119

154. Labatt 1995.

155. See the discussion of legislative barriers in Pollution Prevention Legislative Task

Force 1993, and in Government of Canada 1995a.

156. As noted above, most public welfare standards in Canada – including most environmental regulations – establish strict liability offenses. Once the Crown has

proved the actus reus, strict liability offenses reverse the onus onto the defendant to

avoid liability by demonstrating that it exercised reasonable care and was not negligent. In the precedent-setting case of R. v. Sault Ste. Marie (supra), the Supreme

Court of Canada held that reasonable care consists of two parts: that the accused

exercised “due diligence” – that it took all reasonable steps available to it to avoid

committing the offense – or that the accused committed the prohibited act or omission because of a reasonable mistake of fact.

157. See the description of the mistake of fact defense (officially-induced error) in Section 4.11.1, above.

158. See the discussion of the environmental due diligence jurisprudence in Section 3.3,

above.
ronmental efficiency awareness and practices, thereby promoting

behavioral change throughout a sector. At some point, then, it is reasonable to anticipate that certain characteristic elements of such practices –

e.g., pollution prevention – may become adopted by a significant

enough proportion of the sector that they attain the status of a “custom of

practice” and thereby become an element of due diligence.

Similar reasoning suggests that successful MOUs could influence

the standard of care owed by a participant to a third-party. Civil suits of

negligence and nuisance are based on tests of reasonable behavior. If

MOUs raise the standard of care reasonably expected of a business in the

participating sectors, they could indirectly influence the standard of care

owed by those businesses to their neighbors.

In addition to these indirect influences, it is also possible that

MOUs may directly influence the standard of care the federal government establishes for federal activities and facilities. Currently much

activity that occurs on federal lands, in federal facilities or that is performed by federal agents is not subject to provincial law. Accordingly,

there exists a “regulatory gap” in environmental areas of provincial

jurisdiction (such as solid waste disposal) where the federal government

has not promulgated parallel regulations. The federal government is

currently studying a number of options for addressing this gap. Among

the various standards to which it is considering making reference (in

addition to provincial legislation, federal-provincial guidelines, and

such third-party standards such as the CSA and the ISO) are the sectorial

standards established pursuant to MOUs.

9.5 Relationship with Enforcement and Compliance Activities

The implementation of the existing MOUs has required an

“up-front” commitment of resources by the government. To a certain

extent, this investment may decline over time as governments learn how

to implement MOUs. The issue of how this investment compares to

regulations has not been assessed in Canada. There is also a range of

important issues surrounding the coordination of MOUs with regulatory programs.

Some investigators and government counsel responsible for the

enforcement of regulations have expressed concern about whether official support for non-regulatory measures will increase the likelihood of

one arm of a department overlooking evidence of non-compliance,

thereby creating a possible defense of “abuse of process” or “officially

120 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
induced error.”159 Although some industry representatives argue that

the problem is moot, since regulatory compliance is a pre-requisite to

participation in the MOUs, government officials acknowledge that the

problem can and does arise – promoters of MOUs occasionally turn a

blind eye to infractions or, instead of reporting the infractions, focus on

negotiating other ways to achieve compliance instead of imposing a

sanction.

Many believe that this problem is simply an extension of the traditional “compliance promotion” – enforcement tension.160 Most enforcement agencies in Canada have attempted to reduce this tension by

functionally separating the two activities. Many officials assert that such

a functional separation will also address the MOU promotion/enforcement tension.

It is not clear whether this problem can be resolved so readily. To a

certain extent, separation might exacerbate the problem. While they are

distinct functions, enforcement and compliance promotion focus on the

same objective: regulatory compliance. By contrast, in most cases the

activities promoted by the MOUs do not explicitly include compliance

obligations. A senior federal official therefore argues that governments

need to plan compliance promotion and enforcement initiatives “as part

of an integrated response to a perceived problem.”161 Such an approach

may have important implications for traditional models of the enforcement process, whereby:

enforcement action and prosecution are undertaken selectively, in the

context of a strategy to procure voluntary compliance and a desire to develop cooperative partnerships with the public. This involves the application of strategic filters in case selection.162

There is no easy solution to this problem. Lack of coordination and

inconsistent behavior by officials from different offices could undermine enforcement by raising defenses of abuse of process or officially

induced error. On the other hand, an overly close relationship between

MOU administrators and enforcement officials could undermine the

trust between industrial participants and the government that is

required to make the MOUs effective. Given the embryonic nature of the

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 121

159. Canadian courts have the inherent jurisdiction in both criminal and civil cases to

stay proceedings if the judicial process is being used in an unfair, oppressive or vexatious manner: R. v. Jewitt (fn. 66, supra) and R. v. Mack, [1988] 2 S.C.R. 903 – criminal; Abitibi Paper Co. v. R. (fn. 69, supra) – civil.

160. The classic exposition of this tension is Hawkins 1984.

161. Egar 1996.

162. Ibid.
MOU approach in Canada, few governments have addressed this problem explicitly. Federal officials hope that the separation of the promotion and enforcement activities will suffice. Ontario officials

acknowledge that sustained vigilance is required, but have taken little

action to improve coordination. Officials in British Columbia have commissioned various legal opinions and are considering institutional and

policy solutions to prevent the problem from arising.

Some promoters of MOUs argue that the coordination problem

may not be resolvable under the current regulatory regime. They argue

that pollution prevention represents the most powerful concept available to policy makers to ensure environmentally sustainable development. But they also argue that prevention strategies will require a

fundamental cultural shift that must be predicated on trust. They then

suggest that the strict enforcement of regulations precludes the development of trust among government officials promoting pollution prevention and their industry “clients.” At a minimum, the effective promotion

of pollution prevention may therefore require them to overlook regulatory violations, and to focus their efforts on helping a client change its

behavior. More fundamentally, they question whether it will be possible

to promote the systemic change of culture that will be required to make

pollution prevention a reality with the existing regulatory regime in

place.

These are among the forces driving almost all Canadian environmental agencies to investigate the connections between regulatory

design and voluntary action. More experience with the type of systematic approach to environmental performance that is encouraged by the

MOUs (among other initiatives) will undoubtedly reveal problems with

existing regulations. To the extent this leads to the reform and improvement of the existing regime, this pressure will be beneficial. In the

interim, however, it will be important to ensure that existing regulatory

obligations are not overlooked without adequate legal authority to do

so.

9.6 Relationship with the Ongoing Policy Development Process

Much of the reluctance public interest groups express about MOUs

focuses on the role of the government in supporting voluntary action.

Their main concern is that for government to be involved sanctioning

voluntary actions like MOUs could have adverse impacts on future policy development, in terms of both process and substantive outcomes.

The process concerns largely derive from the way in which MOUs are

typically negotiated. Most existing MOUs were conceived as private

122 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
agreements between industry and government with no outside involvement. Critics worry that this can allow business to “capture” the negotiations, after all, business often does control the information required to

make decisions. Some critics also worry that government support of

such processes might pressure government officials to reach agreements

regardless of their merits.163

More fundamentally, some warn that particularized negotiations

could reduce the accessibility of public policy decisions to public scrutiny. This is the heart of the advocacy group’s process-related concerns

about government-endorsed voluntary initiatives in general. They have

invested considerable energy in “opening up” the regulatory process at

all levels of government, whereas a process exclusively focused on bilateral negotiation will be much less accessible, and therefore much less

accountable.

In response to these concerns, various MOU initiatives have

sought ways to enhance public access. Some have ensured public access

to membership in the steering committees (e.g., the Ontario Fabricare

MOU and the various CCPA MOUs). Others, like the CCPA, also

encourage the use of community advisory panels to address site specific

issues. Regular workshops have been sponsored so that concerned parties can discuss the ongoing status of the MOU (e.g., the MVMA MOU).

Over time, many have provided for increased and more detailed publication of results (e.g., the Ontario MVMA and the initial Saskatchewan

MOUs). And in British Columbia, the government is seeking to ensure

community representation on the steering committees being established

to oversee the design and administration of the bilateral agreements that

will be negotiated under the Framework MOU.

Many industry participants argue that the MOUs are informal,

bilateral agreements, largely focused on technical information sharing,

and are therefore not appropriate initiatives for third-party participation. Some also emphasize the difficulty in getting members to come to

the table to discuss pollution prevention, since the concept represents a

new way of doing business. Skeptical businesses need to be convinced

that pollution prevention is in their self-interest. This may require a recognition that past ways of doing business may have been inappropriate.

The information sharing premise of most of the MOU arrangements also

represents a change for many businesses. Faced with these challenges,

proponents argue, the presence of potentially critical advocacy groups

may deter industry participation, particularly if their objective is not to

make the MOU work, but to oppose the concept in principle.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 123

163. See, for instance, Latin 1985.
The issue of public involvement in the MOUs thus goes to the heart

of a number of important aspects of these initiatives. Are MOUs informal, private arrangements, or do they represent public policy in a new

form? Many critics argue the latter, asserting that government support

of bilateral voluntary arrangements could have important substantive

implications for future environmental policy. Some argue that the

MOUs might preempt a transparent public debate over specific policies.

In a critique of four of the Canada-Ontario-industry MOUs, the Canadian Institute for Environmental Law and Policy (CIELAP) observes, for

example, that most of the MOUs adopt a definition of “pollution prevention” that is contrary to the definition advocated by most ENGOs – i.e.,

they include promotion of reuse and recycling.164While recognizing that

the MOUs are structured as non-binding, private agreements, CIELAP

suggests that this might establish expectations among the parties to the

MOUs about the appropriate definition. In effect, CIELAP argues, the

MOUs may have preempted a very important debate that has not yet

been officially resolved.

Critics also observe that the MOUs may represent “cream skimming,” in the sense that they provide for an easy way for the government

and industry to demonstrate some progress on relatively easy issues, but

may preclude future advances on more difficult issues. ENGOs and

labor groups have criticized some of the Ontario MOUs for adopting

only a limited number of relatively high profile target substances, but

remaining silent about some substances identified as problematic by

organizations such as the International Joint Commission, or even some

that have been declared toxic by the federal government under CEPA.

Critics therefore worry that the MOUs may effectively preclude

future regulatory intervention by creating a parallel system in which

industry agrees to do more than the status quo, in return for which government tacitly agrees not to regulate. Some further argue that the MOU

regime may also preempt regulatory and policy development because

the MOUs create “hostage technologies.” Capital investment decisions

obviously have a direct bearing on the speed and capacity of a company

to implement new technologies or processes. The concern about MOUs

is that they may induce companies to invest in certain types of processes

and controls. Although these decisions are voluntary and do not receive

official sanction or approval from government, the fact that government

representatives participate in the steering committees of these MOUs

may effectively preclude governments from subsequently introducing a

policy that would require different investments.

124 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

164. Clark 1995.
In short, critics of the MOUs worry about the opportunity costs of

formal government involvement in voluntary industrial initiatives.

These are important concerns that need to be thought through carefully.

While some MOUs address a wide range of “tough” issues, others

appear to represent “cream skimming.” Some of the lists of substances of

concern to be addressed under various MOUs, for example, do not even

include all relevant substances that have been assessed as “toxic” under

CEPA.

It is not clear, however, whether this is a fatal criticism. Proponents

of the MOU approach argue that the type of fundamental cultural

change contemplated by pollution prevention is best developed by

building on success – by focusing on high result, low risk activities first,

and gradually building acceptance. Proponents also observe that the

“hostage technology” problem is receding as capital investment cycles

shrink in response to the ever more rapidly evolving technology

requirements of the global marketplace. Finally, proponents of the MOU

process argue that removing the need to regulate a particular issue by

resolving it through an MOU is positive, since it allows regulatory

resources to focus elsewhere on more intractable issues.

Any policy initiative inevitably has opportunity costs – it is

unlikely that policy will ever be “optimal,” given the many constraints

and issues that must be addressed. The key questions that must therefore be asked are: a) how do the opportunity costs associated with the

MOU model compare to any feasible alternatives? and b) how can these

costs be minimized? These issues have not yet been addressed systematically in Canada.

9.7 Accountability and Transparency

Regardless of how the issues identified in the previous section are

ultimately resolved, it would appear that, at a minimum, government

support for such initiatives must be accompanied by measures to assure

explicit accountability. The Canadian Parliamentary Sub-Committee on

Regulations and Competitiveness, recommended that support for discretion-based initiatives include greater involvement by the parties concerned to define goals and determine how to achieve them.165 The

federal government’s response to that report echoed that conclusion –

recommending that any increase in discretion be accompanied by an

increase in accountability.166 The following sections review the extent to

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 125

165. Government of Canada 1992b.

166. Government of Canada 1993.
which current MOUs incorporate four potentially important accountability mechanisms: access to judicial review, clear objectives, reporting,

and the development of agreed-upon indicators of success.

9.7.1 Judicial Review: The Trade-Off between Flexibility and

Certainty

In her review of a number of federal-provincial-industrial sector

MOUs containing non-binding agreements, Clark concluded:

On the one hand, the non-binding nature of the agreements appears to

offer a degree of flexibility and freedom within the bound of the agreements. On the other hand, however, the non-binding nature of the agreements creates a high degree of uncertainty regarding the actual, or

perceived commitments of the signatories.167

The way in which this trade-off is made in any given agreement

will have wide ramifications. In particular, it may influence third-party

rights concerning ventures undertaken or actions pursued under the

agreement. If a government-negotiated agreement results in a binding

obligation, for example, then presumably some rights to judicial review

arise. Most of the MOUs negotiated to date in Canada have not created

binding obligations, however. In this case, it is much less clear what formal recourse third parties would have to ensure attainment of the agreement’s objectives.

The Japanese experience with “administrative guidance” may be

of some interest in this regard.168 There the experience has been that the

use of administrative guidance creates “quasi rights.” In the absence of a

statutory or common law property-like right to a specific level of environmental quality, when the local authorities induce polluters to negotiate and bargain, they create in the affected residents something

resembling a right or entitlement: “while not a binding legal right, it

does, within the constraints of reasonableness, confer on the residents a

private right to bargain [for example] for the proper degree of sunlight

and ventilation.”169 Because the process does not create a specific

126 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

167. Clark 1995, 8.

168. According to Young 1984, 369, “...administrative guidance works essentially as follows. A local bureaucracy puts an industrial concern (for example, a potential polluter) on notice that it wants a certain result (perhaps an agreement between the

polluter and local area residents as to emissions, conduct and so on). The notice has

no formal, coercive legal effect. However, the bureaucracy can and will resort to collateral enforcement (such as withholding a building permit) in the event the polluter does not cooperate.”

169. Leane 1991, 371.
obligation, however, it creates only very limited rights of judicial

review:

Lacking legal compulsion, the courts look to administrative accountability, and judge bureaucratic actions according to societal consensus rather

than formal procedure, thus trying to protect the flexibility which is central to the bureaucracy’s use of administrative guidance. The courts may

also invoke the ‘abuse of rights’ doctrine, which requires that rights must

be exercised only within a scope judged to be reasonable in light of the prevailing social consensus.170

Given the limited application of formal judicial review, the effectiveness of the Japanese administrative guidance model depends largely

on the social pressure to respect whatever decision is reached. Of course,

such pressure is considerable in Japan. Given that the same level of cultural respect for consensus does not exist in Canada, is there a need for

additional, formal accountability mechanisms with respect to MOUs?

9.7.2 The Need for Clear Objectives

The way in which objectives are articulated will influence the

degree to which the public (and government) can measure progress and

hold parties to MOUs accountable. At present, few Canadian MOUs

have measurable environmental objectives. Rather than specific performance standards related to use reduction or reduced releases, for example, most are quite general, focusing on objectives such as increased

awareness, the development of appropriate supportive infrastructure,

the development of acceptable reporting, verification and consulting

processes, for example. As a result, according to a recent evaluation of

the four main federal-Ontario-industrial MOUs, assessment of whether

their objectives has been met is necessarily “very subjective.”171 By contrast, the federal ARET program, the US Project 33/50, and many European agreements contain very precise, quantitative objectives.

Most of the emerging literature on regulatory reform and on “redefining government” emphasizes that enhanced flexibility must be

accompanied by the clear articulation of performance objectives.172 Similarly, the European Union (EU) Environment Commissioner recently

stated that a condition of EU support for voluntary agreements would

be that the objectives of the agreement, a timetable for implementation,

and the responsibilities of the parties must be clearly defined and, if posVOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 127

170. Id., 372.

171. Energy Pathways Inc. and William A. Nef, Inc. 1995, 20.

172. See Osborne and Gaebler 1992.
sible, quantified.173 These conditions should be considered for all future

government supported voluntary initiatives.

9.7.3 Reporting Provisions under MOUs

There is wide agreement that public reporting is a key stimulus

ensuring that voluntary initiatives are effective, and minimizing “free

riders.”174 Notwithstanding the recognition of the role that public

reporting can play in ensuring accountability, however, some of the initial MOUs had limited public reporting. A recent review suggests that

this was perhaps due to concerns over confidentiality and exposure to

liability.175 This appears to be changing, however. In interviews for this

study, Ontario officials observed that with each successive renewal of

many Ontario MOUs, for example, went an increase in the extent and

content of reporting requirements. In addition, a number of sectors, such

as the CCPA and MVMA, have committed themselves to considerable

public reporting.

9.7.4 The Need for Indicators to Measure the Impact of the MOUs

The absence of agreed-upon indicators of success for pollution prevention is a critical factor affecting the MOUs. If pollution prevention

does entail a fundamental cultural shift within an organization, it is conceivable that 10 to 15 years may be required before the policy is implemented in a systematic manner throughout the economy. Indeed, it may

take considerable time to become implemented even within a given

organization. The difficulty in measuring cultural change will challenge

any public attempt to oversee these initiatives and measure progress. It

will similarly impede government officials from demonstrating

“results,” making it less likely that they will be rewarded for their efforts

in comparison with more traditional regulatory programs. And the

128 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

173. Environment Watch 1995, 15.

174. Recent studies of the US 33/50 program, for example, concluded that public reporting is critical because it influences a participant’s public image, an important determinant of voluntary environmental action (Arora and Cassin 1994a and b). These

researchers concluded that the potential for voluntary programs to augment regulation is increased when their progress can be tracked through publicly available

information that introduces accountability for pollution control and rewards pollution reduction efforts beyond those required by law (Arora and Cassin 1994a and b).

In her previously mentioned statement concerning the criteria the EU intends to

place on the development of voluntary agreements, the EU Commissioner for the

Environment acknowledged that transparency and close monitoring of results will

be essential (Environment Watch 1995, 15). Public reporting is also a key component of the successful ARET initiative, a multi-sector emissions reduction challenge

program.

175. Energy Pathways, Inc. and William A. Nef, Inc. 1995.
absence of clear indicators may also limit the extent to which companies

will be able to recognize the benefits of pollution prevention, and measure their own progress.176 Presumably, this is an issue in which all participants have an interest, and on which much effort should be devoted

in the future.

9.8 Conclusion

Canadian governments are increasingly looking for alternative

ways – such as MOUs – to promote improved environmental performance. Their premise is that considerable progress can be made voluntarily by establishing a forum in which government can share

information with business and businesses can share information and

experiences with each other.

These initiatives could improve environmental performance

beyond regulatory requirements, and increase the level of compliance

with existing regulatory obligations. By creating a new norm for behavior premised on pollution prevention practices, they may also augment

the standard of care expected of companies asserting due diligence or

presenting reasonable behavior defenses to regulatory charges or civil

suits.

Government support for MOUs raises important coordination

questions, however. In some cases, there are concerns that government

support for MOUs might lead officials to overlook evidence of minor

regulatory violations in order to maintain the trust industry might

require for its continued receptivity to the challenges posed by the agreement. In some circumstances this could give rise to a defense of officially

induced error or abuse of process by a party subsequently prosecuted

for that violation. Some of those interviewed for this study argued that

the solution to this problem is rigorous communication and cooperation

between government officials. Others, however, worry that the existing

regulatory regime is fundamentally incompatible with initiatives like

voluntary MOUs that are directed at influencing attitudinal change.

These initiatives also raise a number of fundamental issues about

government’s role in supporting voluntary measures. These issues are

still in the process of being addressed in Canada. Despite widespread

agreement that government should encourage voluntary action, for

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 129

176. The extent of emissions reductions is one clear indicator that can readily be tied into

reporting and is at the heart of a number of successful initiatives, including ARET

and the CCPA’s National Emissions Reduction Masterplan (NERM) annual emissions reports.
example, some critics argue that government should not be officially

involved with them. The concern is that, although MOUs officially are

non-binding agreements, formal government sanctioning of them could

preempt future policy development, creating mutual expectations that

regulations will not be developed so long as participants demonstrate a

good faith pursuit of the MOU initiative, locking in second-best technologies and processes in some cases.

If the premise that the promotion of pollution prevention requires

careful, trust-based relationships is correct, then the resolution of these

concerns will not be easy. It appears that many of the current MOU initiatives could allay some concerns by emphasizing stronger accountability measures. At a minimum, future MOUs should include measurable

objectives, a timetable for implementation, and clearly defined responsibilities. The role of third parties in negotiating and overseeing the implementation of these agreements is more difficult, but also needs to be

addressed. None of these changes will address the root suspicions about

the possibly preemptive nature of these initiatives, however. Nor will

they adequately address the potential problems of incompatibility

between regulatory and voluntary measures. These issues cannot be

resolved here. The point is that they must be addressed explicitly. If they

are not, these concerns – and the distrust that failure to address them

may engender – risk undermining the potential benefits of all such existing and future initiatives.

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CASES CITED

A.G. of Canada v. Lavell, [1974] S.C.R. 1349, 1366.

Abitibi Paper Co. v. R. (1979), 24 O.R. (2d) 742 (Ont. C.A.).

Anns v. Merton London Borough Council, [1978] A.C. 728.

Canadian Oxy Chemicals v. Canada (1996) 138 D.L.R. (4th) 104, affd. 145

D.L.R. (4th) 427 (B.C.C.A.).

Carrier-Sekani Tribal Council v. Canada (Minister of the Environment)

(1992), 93 D.L.R. (4th) 198.

Gauvin v. Ontario (MOEE) (29 August 1995), (Ont. Ct. (Gen. Div.)) [unreported].

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 137
Gilbert Steel Ltd. v. University Construction Ltd. (1973), 36 D.L.R. (3d) 496

affirmed, 67 D.L.R. (3d) 606 (C.A.).

Imperial Oil Ltd. v. The Queen (19 February 1987), (Ont. H.C.J.) [unreported], (1990) 5 C.E.L.R. (N.S.) 81, (1990) 75 O.R. (2d) 28.

Just v. The Queen in right of British Columbia (1990), 64 D.L.R. (4th) 689

(S.C.C.).

Keyowski v. the Queen (1988), 40 C.C.C. (3d) 481.

Koerber v. Kitchener Waterloo Hospital (1987), 62 O.R. (2d) 613 (H.C.J.).

Minister of the Environment v. Vautier (1982), 12 C.E.L.R. 96 (Que. S.C.).

Monkman v. Singh (1989), 62 Man. R. (2d) 277 (Q.B.).

R. v. Bata Industries Ltd. (1992), 7 C.E.L.R. (N.S.) 245.

R. v.Cancoil Thermal Corp.(1986), 27 C.C.C. (3d) 295, 11 C.C.E.L. 219 (Ont.

C.A.); retrial: R. v. Cancoil Thermal Corp. (1988), 4 W.C.B. (2d) 384,

(Ont. Ct. (Prov. Div.)).

R. v. Consumer’s Distributing Co. Ltd. (1980), 57 C.C.C. (2d) 317, 54 C.P.R.

(2d) 50 (Ont. C.A.).

R. v.Courtaulds Fibres Canada (19 June 1992), (Ont. Ct. (Prov. Div.)) [unreported]; 9 C.E.L.R. (N.S.) 304.

R. v. Crown Zellerbach Properties Ltd.(1988), 49 D.L.R. (4th) 161, 40 C.C.C.

(3d) 289 (S.C.C.).

R. v. Domtar, Inc. (11 October 1995), 28 W.C.B. (2d) 483.

R. v. Dupont (23 January 1986), (Ont. Dist. Ct.) [unreported].

R. v. Ellis-Don Limited (3 December 1990), (Ont. C.A.) [unreported].

R. v. Flemming (1980), 43 N.S.R. (2d) 249 (Co. Ct.).

R. v. Gant (28 July 1988), (B.C. Co. Ct.) [unreported], [1988] B.C.J. No.

1777.

R. v. General Chemical Canada Ltd. (18 July 1985), (Ont. Ct. (Prov. Div.))

[unreported].

R. c. Gonder (1981), 62 C.C.C. (2d) 326.

R. v. Gordon (1984), 58 N.B.R. (2d) 319 (Q.B.).

R. v. Hodgson (1985), 4 F.P.R. 251 (N.S. Prov. Ct.).

R. v. Imperial Oil Ltd. 16 September 1990, Ont. C.A.

R. v. Jarman (1972), 10 C.C.C. (2d) 426 (Ont. C.A.).

138 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
R. v. Jewitt, [1985] 2 S.C.R. 128, 21 C.C.C (3d) 7.

R. v. Johns-Manville Canada Inc. (1979), 9 C.E.L.R. 137 (Ont. Ct. (Prov.

Div.)).

R. v. Johnson (1987), 78 N.B.R. (2d) 19 (Q.B.).

R. v. Mack, [1988] 2 S.C.R. 903.

R. v. Marbar Holdings Limited (1983), 4 F.P.R. 109 (B.C. Co. Ct.).

R. v. Miles of Music Ltd., [1989] O.J. No. 391, (C.A.).

R. v. Morningstar, [1988] 2 C.N.L.R. 140 (Ont. Dist. Ct.).

R. v. Navro Inc. (1988), 5 W.C.B. (2d) 440 (Ont. H.C.J.).

R. v. Northwood Pulp Timber Ltd. (22 June 1992), (B.C. Prov. Ct.); appeal

(10 November 1995) (B.C.S.C.).

R. v. Placer Developments Ltd. (1983), 13 C.E.L.R. 42 (Yuk. Terr. Ct.).

R. v. Prospec Chemicals Ltd. (1996), 19 C.E.L.R. (N.S.) 178 (Alb. Ct.).

R. v. Richardson (1982), 68 C.C.C. (2d) 447, 39 O.R. (2d) 438n (C.A.), leave

to appeal to S.C.C., refused 48 N.R. 228.

R. v. Robertson (1984), 43 C.R. (3d) (Ont. Ct. (Prov. Div.)).

R. v. Sault Ste. Marie (1978), 40 C.C.C. (2d) 353 (S.C.C.).

R. v. Southdown Builders Ltd. (1981), 57 C.P.R. (2d) 56 (Ont.).

R. v. Squires (1986), 6 L.W. 638 (Ont. Ct. (Prov. Div.)).

R. v. Texaco (23 November 1987), (Ont. Prov. Off. Ct.) [unreported].

R. v. Toronto Electric Commissioners (13 February 1991), 6 C.E.L.R. (N.S.)

301, (Ont. Ct. (Gen. Div.)).

R. v. Toronto Refiners and Smelters Ltd.(6 October 1987), (Ont. C.A.) [unreported].

R. v. Transcontinental Printing (31 March 1993), (Ont. Prov. Off. Ct.)

[unreported].

R. v. Union Carbide Canada Ltd. (1974), 20 C.C.C. (2d) 374, 6 O.R. (2d) 50

(Co. Ct.).

R. v. Walker (1989), 91 N.S.R. (2d) 173 (Co. Ct.).

R. v. Wells Foundry Ltd. (1980), 9 C.E.L.R. 141 (Ont. Ct. (Prov. Div.)).

R. v. Young (1984), 13 C.C.C. (3d) 1.

R. v. Zalev Brothers Ltd., [1989] O.J. 1658 (Dist. Ct.).

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 139
Re Ball and The Queen (1978), 44 C.C.C. (2d) 532 (Ont. C.A.).

Re Canada Metal Co. Ltd. and The Queen (1974), 20 C.C.C. (2d) 552, 5 O.R.

(2d) 787 (H.C.J.), affd. 24 C.C.C. (2d) 374, 8 O.R. (2d) 773 (C.A.).

Re Safety Kleen Canada Inc., [1991] O.J. No. 1055.

Save the Bulkley Society v. Canada (Minister of the Environment, [1992] 93

D.L.R. (4th) 198.

Susan Hosiery v. Minister of National Revenue, [1969] 2 Ex. C.R. 27.

The Atlantic Baron, [1979] Q.B. 705.

Ward v. Byham, [1956] 1 W.L.R. 496.

Williams v. Williams, [1957] 1 W.L.R. 148.

APPENDIX: LIST OF INTERVIEWS

Justice Canada

Paul Gravel, Legal Counsel, Environment Canada

Environment Canada

David Couture, Enforcement

Brad Cumming, Ontario Region

Denis Durrant, National Office of Pollution Prevention

Dave Egar, National Programs

Beverley Hobby, Legal Services, Pacific and Yukon

Dale Kimmett, Office of Enforcement

Ned Lynch, Stewardship Office

James Riordan, National Office of Pollution Prevention

Tony Stone, ARET

Industry Canada

John Dauvergne, Regulatory Affairs

Treasury Board of Canada

Ian Farris, Minister’s Office

Francis Savage, Regulatory Affairs

140 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
Alberta Environment

Jillian Flett, Office of Compliance

British Columbia, Ministry of the Environment, Lands and Parks

Brad Wylenko, Pollution Prevention and Pesticide Management

Ontario Ministry of Environment and Energy

Tom Coape Arnold, Policy Branch

George Arras, Policy Branch

Stan Berger, Legal Services

Fred Granek, Pollution Prevention Branch

Lee Hoffman, Policy Branch

Jack Johnson, Legal Services

Dave Kerr, Investigations

Brian LeClair, Pollution Prevention Branch

Helle Tosine, Policy Branch

Antoinette Wells, Policy Branch

Nova Scotia Ministry of Environment

Marshall Burgess, Legal Services

Tim Smith, Policy Branch

Saskatchewan Ministry of Environment and Resource Management

Rob Baird, Policy and Public Involvement Branch

Ron Barsi, Policy and Public Involvement Branch

Association for Professional Environmental Auditing in Nova Scotia

Dr. John Underwood (Nova Scotia Power)

Canadian Environmental Auditing Association

Ed Arnold (Arthur D. Little)

Canadian Environmental Industry Association

Elizabeth Atkinson

Gary Gallon

Canadian Banking Association

Doug Bissett, Environmental Risks

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 141
Ontario Fabricare Association

Vic Vandermolen

Canadian Chemical Producers’ Association

Gordon Lloyd

Motor Vehicle Manufacturers’ Association

Mark Nantais

Yasmin Tarmohamed, Policy

Automobile Parts Manufacturers’ Association

Mark Cotter, Environment

Canadian Manufacturers’ Association

Jason Myers

Canadian Environmental Law Association

Paul Muldoon, Counsel

Ramani Nadarajah, Counsel

Michelle Swenarchuk, Counsel

Pembina Institute for Appropriate Technology

Stephanie Cairns

Rob MacIntosh

Canadian Institute for Environmental Law and Policy

Mark Winfield

Canadian Labour Congress

David Bennett, Department of Workplace Health, Safety and Environment

BC Hydro

Peter Ficzycz, Safety and Environment

142 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
MEXICO

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147

2. Legal Framework . . . . . . . . . . . . . . . . . . . . . . . . . . 148

2.1 Constitutional Framework . . . . . . . . . . . . . . . . . . 148

2.1.1 Concurrent Powers . . . . . . . . . . . . . . . . . . 148

2.2 Secondary Legislation . . . . . . . . . . . . . . . . . . . . 150

2.2.1 General Act on Ecological Equilibrium and

Environmental Protection (Ley General del

Equilibrio Ecológico y la Protección al

Ambiente–LGEEPA) . . . . . . . . . . . . . . . . . 150

2.2.2 The Planning Act (Ley de Planeación) . . . . . . . 152

2.2.3 1995-2000 National Development Plan . . . . . . . 154

3. Voluntary Compliance Measures in Mexican Environmental

Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156

3.1 Policies and Instruments . . . . . . . . . . . . . . . . . . . 156

3.2 Environmental Audits . . . . . . . . . . . . . . . . . . . . 156

3.2.1 Objective and Description . . . . . . . . . . . . . . 156

3.2.2 Parties Involved . . . . . . . . . . . . . . . . . . . . 157

3.2.3 Legal Authority and Framework . . . . . . . . . . 160

3.2.4 The Audit Process–Philosophy . . . . . . . . . . . 164

3.2.5 The Audit Process–Terms of Reference. . . . . . . 168

143
3.2.6 The Audit Process–Conduct . . . . . . . . . . . . . 168

3.2.7 Audit Follow-up . . . . . . . . . . . . . . . . . . . 171

3.2.8 Financing of Environmental Audits . . . . . . . . 172

3.2.9 Efficacy of Environmental Audits. . . . . . . . . . 174

3.2.10 Impact of Environmental Audits on the

Standard of Care . . . . . . . . . . . . . . . . . . . 175

3.2.11 Impact on Third Parties and Fairness of

Environmental Audits . . . . . . . . . . . . . . . . 175

3.2.12 Liability for the Implementation of

Environmental Audits . . . . . . . . . . . . . . . . 180

3.2.13 Relationship of Environmental Audits to other

Compliance Mechanisms. . . . . . . . . . . . . . . 181

3.3 ISO 14000 as a Voluntary Compliance Measure . . . . . . 182

3.3.1 Description of ISO 14000 . . . . . . . . . . . . . . . 182

3.3.2 Legal Basis . . . . . . . . . . . . . . . . . . . . . . . 182

3.3.3 Efficacy of ISO 14000 . . . . . . . . . . . . . . . . . 184

3.3.4 Relationships with and Effects on other

Compliance Mechanisms. . . . . . . . . . . . . . . 185

3.3.5 Impact of ISO 14000 on Standard of Care . . . . . 186

3.3.6 Impact on Third Parties and Fairness of

ISO 14000. . . . . . . . . . . . . . . . . . . . . . . . 186

3.3.7 Responsibility for the Implementation of

ISO 14000. . . . . . . . . . . . . . . . . . . . . . . . 187

3.4 The FIDE Seal for Electric Energy Savings, as a

Voluntary Compliance Measure . . . . . . . . . . . . . . 188

3.4.1 Description of the FIDE Seal . . . . . . . . . . . . . 188

144 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
3.4.2 Legal Basis of the FIDE Seal . . . . . . . . . . . . . 189

3.4.3 Efficacy of the FIDE Seal . . . . . . . . . . . . . . . 190

3.4.4 Impact of the FIDE Seal on the Standard of

Care, Third Parties and Fairness . . . . . . . . . . 190

3.4.5 Relationships with and Effects on other

Compliance Mechanisms. . . . . . . . . . . . . . . 191

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192

Court Decisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193

Appendix: List of Interviews . . . . . . . . . . . . . . . . . . . . . . 194

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 145

1. INTRODUCTION

A series of measures have been gaining force in Mexico that differ

from the traditional concept of inspection, oversight, and sanctions as a

vehicle to achieve environmental and ecosystemic protection. These

new approaches are known generically as “voluntary compliance measures” since they have in common that they are not generated through

an oversight authority’s coercive action but rather with its encouragement and support, and with the conviction and initiative of individuals.1

Voluntary compliance measures have been more and more widely

used in the three member countries of the North American Free Trade

Agreement, to the degree that they were discussed in the North American Environmental Cooperation Agreement, which establishes that:

With the aim of achieving high levels of environmental protection and

compliance with its environmental laws and regulations, each Party shall

effectively enforce its environmental laws and regulations through appropriate governmental action, subject to Article 37, such as: [...]

c) seeking assurances of voluntary compliance and compliance agreements;

In the United States and Canada, voluntary measures are more

numerous and have been in existence for quite a few years. In contrast,

the experience with voluntary compliance measures in Mexico is much

more limited. Except in the case of the Environmental Audit, in which

very significant advances have been made, technically, practically, and

legally, voluntary compliance measures are still in a pilot phase.

The objective of the present study is to recount briefly the activities

and experiences that Mexican environmental authorities have had with

voluntary compliance measures or voluntary compliance programs.

Section 2 will analyze the basic legal framework governing implementation and use of voluntary measures in Mexican environmental law. Section 3 then reviews the development, implementation, effectiveness and

147

1. The term “voluntary” is used to emphasize their alternative character (as opposed to

traditional inspection, oversight and sanctioning measures), as well as the spontaneity with which individuals implement these measures.
success of the measures employed up to now, or those which may be

used in the future, including legal and de facto limitations of the mechanisms.

2. LEGAL FRAMEWORK

2.1 Constitutional Framework

The Political Constitution of the United States of Mexico

(Constitución Política de los Estados Unidos Mexicanos) includes two sections relating to environmental matters, Sections 27 and 73, Subsection

XXIX-G,2 which authorize the environmental legal framework in force

in the country. As well, Sections 4, 25, 26, 115, 122 and 124, while not

explicitly relating to environmental matters, should also be noted as

they relate to public and private rights. However, there are no constitutional provisions which specifically contemplate or regulate the mechanisms of voluntary compliance with legal obligations of private parties.

Rather, self-regulatory instruments are non-enforcement mechanisms

that belong to the category of working agreements (concertación)

between government and private parties. In the Mexican legal system,

such working agreements are considered to be those mechanisms

reached voluntarily between the public sector and the social or private

sectors for the implementation of actions aimed at complying with

national policies. Working agreements are contemplated in the Constitution under Section 26, paragraph 3 which provides that:

The Law [...] shall determine [...] the grounds upon which the Federal Executive will coordinate through compacts with the governments of the

Federate Entities and encourage and arrange with private parties those actions

to be undertaken in order to establish and fulfill them [emphasis added].

2.1.1 Concurrent Powers

Mexico is a federation consisting of three different government

levels: municipal, state and federal. The federal government possesses

all those powers that are delegated to it by the Constitution, either

expressly or by implication. These powers are enumerated principally as

powers of Congress in Section 73. Section 124 indicates that state governments possess those powers not given to the national government or

prohibited to the states, and Section 115 defines the exclusive jurisdiction of municipal governments. Apart from the exclusive powers of each

148 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

2. These constitutional precepts were amended and added by Decree published in the

Diario Oficial de la Federación on 10 August 1987.
level of government, there are certain subjects that can be dealt with by

either federal or state authorities, each acting independently of the other.

In Mexico, this is the case where the powers related to environmental

matters are shared by the three levels of government.

Under the original terms of the 1917 Federal Constitution, most of

the powers in these environmental matters and in questions related to

natural resources and activities that could cause environmental effects

were granted to the Federation. In 1987 this situation changed upon adding Subsection XXIX-G to Section 73, granting the Congress of the Union

the legislative power to:

[...] issue laws establishing the concurrence of the Federal government, of

the State governments and of the Municipalities, in their respective areas

of jurisdiction, in matters concerning environmental protection and preservation and restoration of the ecological balance [...].

As a result of this amendment, powers concerning environmental

and ecological matters are granted to the States, thus establishing a concurrence of legislative powers in these areas between the states and the

Federation.3

The concurrence of powers in environmental matters also exists

with the municipalities. Section 115, Subsection II, of the Constitution

specifies in its second paragraph that:

The municipal councils are authorized to issue [...] police and good

government proclamations and regulations, notices and general administrative requirements in their respective jurisdictions.4

In turn, Subsection V of Section 115 provides that:

The municipalities shall have the power to participate in the creation and

administration of their land reserves; control and supervise the use of the

soil [...] participate in the creation and administration of ecological reserve

zones. For this purpose and pursuant to the goals listed in the third paraVOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 149

3. This principle, nevertheless, has important exceptions in the case of subjects that are

the Federation’s exclusive jurisdiction. This is the case, for example, for anything

related to hazardous wastes, the mining industry, federal public works, and other

headings indicated in Section 5 of LGEEPA.

4. Also, Subsection III of this Section establishes that the municipality is in charge of the

following public services, among others: potable water and wastewater, cleaning,

street, park and garden water or any other services that the local legislatures establish, depending on the municipalities’ land and socio-economic conditions, as well

as their administrative and financing ability.
graph of Section 27 of this Constitution, they shall issue the necessary

administrative regulations and rules.

In the aforementioned sections, a triple concurrence of powers in

environmental and ecological matters can be observed among the three

levels of public administration: the federal, the state, and the municipal.

This simultaneity of powers among the authorities of various levels of

the public administration does not imply an overlap of jurisdictions

among the agencies of these entities, but rather, within the universe of

environmental and ecological issues, we find a series of branches that are

expressly assigned to each of the federal, state, and municipal environmental authorities.

The reality in legal practice is that the federal authorities have

taken the reins in directing environmental policy and regulations, while

the state and municipal authorities are in a developmental and organizational stage. It is to be hoped that in the near future these authorities may

begin to establish some new environmental mechanism, such as voluntary compliance measures.

Nevertheless, it is clear that the trend must be toward encouraging

state and municipal authorities to take the leadership for the design and

establishment of voluntary compliance measures. The use of voluntary

compliance measures at the state and municipal level will lead not only

to a greater level of acceptance, but also to a substantial increase in their

use (but see also footnote 23, below).

2.2 Secondary Legislation

2.2.1 General Act on Ecological Equilibrium and Environmental

Protection (Ley General del Equilibrio Ecológico y la

Protección al Ambiente–LGEEPA)

The LGEEPA is the statutory body of law under which the constitutional principles regarding environmental matters are regulated. The

Act has been in force since 1 March 1988. Its original wording did not

contemplate the existence of voluntary compliance measures which

were introduced in amendments passed by the Congress of the Union in

November 1996, as follows:

[...] the voluntary and concerted initiatives undertaken by businesses and

manufacturing organizations aimed at improving their environmental

performance beyond that required by statute, prove to be a most efficient

vehicle for environmental management. By promoting self-regulation and

voluntary certification, the authority may considerably widen the scope of

150 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
environmental protection through voluntary programs and standards for

the furthering of technological change [emphasis added].5

In accordance with the new wording of the Act, self-regulatory

instruments are defined as follows:

Section 38.- Manufacturers, businesses or business organizations may

develop voluntary processes for environmental self-regulation aimed at

improving their environmental performance, provided that existing environmental laws and regulations are complied with, and through which

they commit themselves to surpassing or complying with higher levels,

goals or benefits in environmental protection issues.

The Secretariat (la Secretaría) shall encourage or agree on:

I.- The development of adequate and environmentally friendly manufacturing processes, as well as that of environmental protection and

recovery systems, agreed upon with boards of industry, trade and

other productive activities, manufacturers organizations, entities

representing a given geographical area or region, institutions devoted to scientific and technological research and other interested organizations;

II.- Compliance with voluntary standards or technical specifications related to environmental matters more stringent than the Official

Mexican Standards (Normas Oficiales Mexicanas) or dealing with issues not covered by such standards, which shall be jointly agreed

upon with private parties or associations and organizations representing such private parties. To this end, the Secretariat may promote the implementation of Mexican standards in accordance with

the Federal Act on Metrology and Standardization (Ley Federal sobre

Metrología y Normalización);

III.- The establishment of certification systems for processes or products

meant to encourage such compatible consumption patterns that

may lead to the preservation, improvement or recovery of the environment, in accordance with the applicable provisions of the Federal Act on Metrology and Standardization, and

IV.- Such other actions that may lead businesses to accomplish environmental policy goals which go beyond those set under prevailing environmental laws and regulations.

As stated in the above-mentioned section, self-regulatory instruments in Mexico emphasize measures aimed at improving the environment

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 151

5. Proposal of Decree amending, adding and repealing several provisions contained in

the LGEEPA, 15 October 1996.
(development of adequate and environmentally friendly productive

processes, as well as of protection and recovery systems) and voluntary

compliance mechanisms (compliance with voluntary standards or technical specifications related to environmental issues and certification systems for processes and products).

However, three aspects should be emphasized. First, while Section

38 is explicit, it does not set forth limitations. This means that the list of

environmental self-regulatory instruments is not limited to those

referred to in the Act; Subsection IV provides for the undertaking of

“such other actions that may lead businesses to accomplish environmental policy goals which go beyond those set under prevailing environmental laws and regulations,” such as tradeoffs or delegations. It is still

too soon and there is not enough joint experience between authorities

and private parties to accept the need for and convenience of implementing new voluntary compliance measures, but the ongoing trend definitely points towards their consolidation within an integrated scheme of

self-regulatory instruments.

Second, Section 38 contemplates self-regulatory instruments in

general, without actually entering into any particulars, which should be

interpreted in the sense that they shall be regulated through administrative decisions, such as regulations adopted by the Federal Executive, or

included in the Official Mexican Standards. Since the wording of the

LGEEPA amendments simply set forth general principles governing

their implementation, there are still several regulatory issues regarding

the scope, procedures, requirements, application and enforcement of

self-regulatory instruments that will have to be governed by specific regulations adopted under the LGEEPA, or any other statute. Care has to be

exercised, however, in order not to overly restrict their use or reduce the

flexibility of environmental audits, since this might jeopardize their efficacy.

Third, the statute makes specific reference to the character of the

voluntary initiative. The law defines or recognizes only those self regulatory initiatives which go beyond legal standards.

2.2.2 The Planning Act (Ley de Planeación)6

The Planning Act regulates Section 26 of the Constitution and aims

at establishing the basic norms and principles that will guide the

National Development Plan (Planeación Nacional del Desarrollo) and,

152 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

6. Published in the Diario Oficial de la Federación, 5 January 1983.
accordingly, direct federal public administration activities. In addition,

it provides the foundation for the actions taken by private parties to contribute in the fulfillment of the goals and priorities set forth in the Development Plan and its programs. The Act includes a chapter devoted to

“Working Agreements and Encouragement” which regulates the instruments and mechanisms to be agreed upon with private citizens in order

to ensure compliance with government policies.7 In this sense, Section 37

states that: “the Federal Executive, directly or through its departments,

and the federal agencies, may establish working agreements with representatives of social groups or other interested parties for the undertaking of those actions contemplated in the Development Plan and the

programs thereto.” The following provisions of the Planning Actrelate to

the nature and character of the working agreements:

Section 38. The concerted actions, referred to in the previous section, shall

be the subject of contracts or working agreements8 of binding force for the

parties involved; such contracts or agreements shall include the consequences and sanctions that may arise from noncompliance, in order to

safeguard the public interest and ensure they are properly fulfilled within

the specified time-frame.

Section 39. The contracts or agreements entered into in accordance with

this chapter belong to Public Law. The disputes that may arise from the

interpretation and fulfillment of these contracts or agreements shall be settled by federal courts.

The binding nature of the agreement is relevant. Even though

engaging in an environmental audit process is a prerogative of the private party, once the contract is agreed upon with the authorities, a connection is established whereby the party being audited is legally bound

to undertake the agreed-upon audit, as well as those actions contemplated in the prevention and remediation programs. The agreement is

made with the joint consent of the parties involved and generates subjective juridical situations.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 153

7. Chapter VI, Sections 37 to 41.

8. Agreements and contracts are defined under Sections 1792 and 1793 of the Civil

Code; for the Federal District in matters of common law (fuero común) and for the

entire Republic in matters under federal jurisdiction (fuero federal): “A joint agreement (convenio) is the acceptance by two or more persons to create, transfer, modify

or terminate an obligation.” “Those agreements that create or transfer obligations

and rights are known as contracts.” It is then clear that agreements are of a generic

nature while contracts specifically generate or transfer obligations and rights. Based

on the legal definition, the appropriate legal instrument to be used in arranging environmental audits is the “contract,” since legally binding obligations for audited businesses are thereby created.
As Section 39 makes clear, the agreement to undertake an audit

will be considered to be in the nature of a public law. It is through this

very provision that the law preserves the public interest, which cannot

be left at the mercy of private parties, and allows the authority to take

actions from a privileged position, without relinquishing its prerogatives or the powers vested in it as a public entity. Reviewing various

working and environmental compliance agreements has led to the clear

conclusion that even though environmental authorities promote the

establishment of these agreements with private parties, the obligation of

the latter to seek compliance with environmental statutory provisions is

neither weakened nor limited. In fact, according to the law, such agreements establish that failure to comply with the measures agreed upon

and within the specified time-frame will result in sanctions being

imposed by the authority, in accordance with the provisions of the

LGEEPA.

In cases of noncompliance with the provisions set forth in the

working or environmental compliance agreements, private parties shall

be subject to the sanctions provided by the LGEEPA, and the Federal

Agency for Environmental Protection (Procuraduría Federal de Protección

al Ambiente–Profepa) is empowered to impose them to secure enforcement of the agreed upon compliance agreements. These agreements do

not mandate sanctions other than those established in the LGEEPA, nor

supersede the legal obligations set forth in the environmental legislation.

2.2.3 1995-2000 National Development Plan9

The National System of Democratic Planning, defined under Section 26 of the Constitution and under the Planning Act, provides that the

government’s objectives, goals, policies, strategies and priorities regarding environmental matters must be included in the National Development Plan and in the programs for the different sectors. The National

Development Plan is the instrument that commands government policies and actions. It is the document which dictates national goals and the

strategies and priorities for economic development; it is also the instrument that governs the contents of the different programs for each one of

the sectors.

The 1995-2000 National Development Plan provides that:

[...] the policy regarding the environment and resource exploitation shall

encompass more than a strictly regulatory role so as to serve also as an ins154 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

9. Published in the Diario Oficial de la Federación of 31 May 1995.
trument for [1] the promotion and encouragement of investments in environmental infrastructure, [2] the creation of new markets and [3] the

financing of sustainable development [...] all of which shall be accomplished through [...] an incentive system that will encourage producers and

consumers to support those issues dealing with environmental protection

and sustainable development.10

This assertion is tied to the philosophy of self-regulation, which

advocates incentive/reward mechanisms as opposed to command/

control principles. These two philosophies are not mutually exclusive; in

fact, they are complementary. The guidelines stated in the Plan are

included in the program established by the Secretariat of the Environment, Natural Resources and Fisheries (Secretaría de Medio Ambiente,

Recursos Naturales y Pesca–Semarnap) for the implementation of environmental policy under the present Administration, namely the Program for the Environment 1995-2000, hereafter referred to as the

“Environmental Program.”11

In its work to modernize environmental laws and policies,

Semarnap plans to work in several directions, including self-regulation,

as stated in the Environmental Program:

Not in every case is it efficient or even possible for environmental authorities to forcefully impose technical or process restraints on productive activities. In many occasions it is more convenient, both from a public and

private perspective, to develop, by common consent, self-regulatory systems that fulfill a series of objectives such as:

· going beyond legal requirements or filling existing regulatory gaps,

· promoting total environmental quality principles in productive processes,

· promoting private sector joint responsibility and initiative in compliance with the environmental objectives of the nation,

· cost effectively fulfilling other goals related to environmental protection,

· decentralizing environmental management duties, and

· enhancing the corporate image of businesses or industrial sectors that

undertake environmental initiatives.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 155

10. Chapter 5.8, “Environmental Policy for a Sustainable Growth,” pp. 165-166.

11. This Plan was published in the Diario Oficial de la Federación of 3 April 1996 and by

Semarnap itself on 13 March 1996 as Programa de Medio Ambiente 1995-2000. All

page references to the Environmental Program in this document refer to the latter

publication.
Self-regulatory mechanisms will require the design of instruments

through which agreements between the private and public sectors may be

formally realized, as well as auditing and communication systems.

Self-regulation has three main components: environmental audits, voluntary

standards and certification processes [emphasis added].12

After defining political priorities and strategic actions, the Environmental Program specifically mentions 13 projects and actions whose

development is considered a priority, among which are:

· the promotion of voluntary standards,

· the development of an environmental auditing system emphasizing

export industries, and

· the development of environmental certification systems.13

3. VOLUNTARY COMPLIANCE MEASURES IN MEXICAN

ENVIRONMENTAL PRACTICE

3.1 Policies and Instruments

The LGEEPA, when originally enacted, did not provide among its

environmental policy instruments any mechanism relevant to the

implementation and use of voluntary compliance measures. The 1996

amendments to the LGEEPA introduced mechanisms for self-regulation

and environmental audits to the Act. In accordance with their voluntary

compliance character, these instruments are mainly intended to prevent

ecological damage and to promote and secure compliance with environmental legislation. Environmental audits constitute the most important

instrument embodying the intrinsic characteristics of voluntary mechanisms implemented by Mexican authorities.

In the following sections three key mechanisms are reviewed: environmental audits, ISO 14000, and the FIDE seal for electrical energy savings.

3.2 Environmental Audits

3.2.1 Objective and Description

Environmental audits were introduced in Mexico to reduce the

occurrence of industrial accidents, to promote controls on atmospheric

156 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

12. Semarnap–Environmental Program, 1996, 118.

13. Id., p. 121.
emissions, and to help curb water and soil contamination resulting from

commercial and industrial activities, by using an instrument that

departs from traditional procedures entailing oversight, enforcement

and sanctions.

In Mexico, environmental audits are aimed primarily at identifying, evaluating and controlling those industrial processes which might

be operating under risky conditions or causing environmental pollution. Through audits a systematic and exhaustive analysis is carried out

on the processes and practices of businesses involving the production of

goods and services for the purpose of ascertaining the degree of their

compliance with environmental regulations and practices and, as a

result, assess potentially risky situations in order to institute appropriate

preventive and remedial measures. Audits also assess whether an

industry’s administrative procedures, production activities and trade

practices are adequate and consistent with legal obligations, institutional guidelines, standards, safety codes and good engineering practices.

Environmental audits are voluntary procedures which, while

actually being undertaken by private parties and public corporations,

are supervised by Profepa in order to assess whether or not private and

public parties comply with those requirements dealing with the prevention of environmental degradation. The development of an environmental audit involves a comprehensive review and evaluation of an

industry’s processes, installations and activities.

3.2.2 Parties Involved

Semarnap is the administrative authority in charge of the performance of environmental audits. This Secretariat of the federal executive

branch was created by amending the Organic Act of Federal Public

Administration (Ley Orgánica de la Administración Pública Federal–LOAPF) by decree published in the Diario Oficial de la Federación on

28 December 1994.

Section 32 bis of the LOAPF specifies the responsibilities of

Semarnap, which are to: “design and conduct the national policy on

national resources – unless such duties are expressly placed under the

administration of another department – ecological matters, environmental recovery, water, environmental regulation of urban planning

and development of fishing activities...”14

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 157

14. Subsection II.
According to the Bylaws of Semarnap,15 its organizational structure includes, among other bodies, two decentralized agencies16 under

its direct control dealing with environmental matters: the National Ecology Institute (Instituto Nacional de Ecología–INE), in charge of the design,

administration and evaluation of national policies regarding ecological

and environmental protection issues, and Profepa, which is responsible

for the enforcement of applicable legal provisions relating to the prevention and control of environmental pollution, as well as the establishment

of those mechanisms, recourses and administrative procedures that

might prove necessary for its mandate to be fulfilled.17

Specifically, Section 62 of the Bylaws of Semarnap states that

Profepa shall have the authority to:

VIII.- Perform environmental audits and assessments regarding the exploitation, warehousing, transportation, production, transformation and commercialization systems; the use and disposal of wastes

and compounds; and those activities whose very nature pose a

threat to the environment.

Since the Bylaws of Semarnap also assign specific duties to its

administrative divisions, the powers vested in Profepa authorities for

the encouragement, promotion, coordination and arrangement of environmental audits are also important to consider. In accordance with Section 66 of the Bylaws, the Planning and Coordination Division (Dirección

General de Planeación y Coordinación) is empowered to:

III.- Promote, encourage and arrange with private parties, groups and

industrial chambers, the performance of environmental audits;

[...]

V.- Design mechanisms to assess the technical skills of professional individuals and firms for undertaking environmental audits and assessments;

VI.- Develop, in conjunction with the relevant divisions of the Secretariat, technical training programs in the areas of environmental audits and assessments;

158 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

15. Published in the Diario Oficia de la Federación of 8 July 1996.

16. According to Section 17 of the LOAPF, “in order to provide greater attention to and

efficient handling of those administrative issues under their jurisdiction, the Secretariats of State (Secretarías de Estado)...may rely on decentralized administrative

agencies which shall be placed under their direct control and invested with specific

decision powers on such issues and within the territorial jurisdiction assigned to

them, in accordance with the applicable legal provisions.”

17. The administrative structure and the mandate of the INE are set forth in Sections 54

to 61 of the Bylaws, while those pertaining to Profepa are in Sections 62 to 82.
VII.- Promote cooperation and communications, at the national and international levels, to foster technical development in regard to environmental audits and assessments.

The Operations Division (Dirección General de Operaciones), created by Section 67 of the Bylaws, is empowered to:

I.- Coordinate or undertake, on its own or through third parties, in accordance with the legal provisions governing secrecy issues on such

matters, environmental audits and assessments of either public or

private entities in regard to: their exploitation, warehousing, transportation, production, transformation and commercialization systems; the use and disposal of wastes and compounds; those

activities whose very nature constitute a threat to public health, property or the environment; and the measures adopted by businesses,

and their ability to prevent environmental contingencies and emergencies or take action thereto.

[...]

IV.- Establish, in accordance with the guidelines issued by the Legal

Division (Dirección General Jurídica), the working agreements to

arrange for the undertaking of those actions resulting from environmental audits or assessments, and their compliance deadlines;

V.- Coordinate or undertake, on its own or through third parties, the environmental audits and assessments that are required in order to

prevent emergencies and contingencies arising from those activities

that pose an environmental hazard, and

VI.- Follow up on the actions contemplated in the agreements brought

about by environmental audits and assessments, in order to ensure

that the required prevention and remediation measures are complied with.

According to Section 76 of the Bylaws, the mandate of the Legal

Division is, among other things, to:

X.- Provide support to the appropriate administrative divisions of Profepa for the undertaking of environmental audits and assessments;

XI.- Make proposals to the head of Profepa (Procurador) concerning the

internal legal guidelines to be observed in the performance of environmental audits and assessments, as well as in the issuance of decisions and the imposition of applicable sanctions.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 159
The state bureaus (Delegaciones Estatales) of Profepa, for their part,

have been authorized under the Bylaws of Semarnap to perform environmental audits and assessments.18

3.2.3 Legal Authority and Framework

As mentioned previously, recent amendments to the LGEEPA provide a legal foundation for certain voluntary or self-regulatory mechanisms, including environmental audits. The Planning Act also

establishes ground rules for the development and application of audits.

The LGEEPA

The enactment of the LGEEPA in 1988 was an important step in the

development of environmental legislation in Mexico, as it made possible

important achievements in environmental management. After the

cumulative experience of almost eight years, the decision was made to

amend the LGEEPA, introducing a number of legal innovations, including a legal framework for environmental audits.

Sections 38 bis, 38 bis 1, and 38 bis 2 regulate the main aspects of

audits, such as their purpose and scope, the rules to be followed when

performing them, the approval or certification of environmental experts

able to ensure professional quality for the audits, and the setting up of

regional assistance centers for small and medium-size industries. The

relevant provisions state as follows:

SECTION 38 bis.- Those responsible for the management of a business

may, through environmental auditing, voluntarily undertake a methodological testing of [the business’s] operations with regard to the pollution

and risk thereby caused, as well as the level of compliance with environmental regulations, international standards and sound engineering practices, for the purpose of designing such preventive and remedial measures

deemed necessary for the protection of the environment.

The Secretariat shall develop a program aimed at promoting the undertaking of environmental audits, and shall be able to supervise their execution. To this aim, it shall:

I.- Set the guidelines establishing the methodology to be followed in

the performance of environmental audits;

II.- Design a system for the approval and certification of environmental

experts and auditors, stating the procedures and requirements to be

160 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

18. Cf. no. 15, supra, Section 82, Subsection VII.
met by those interested in joining the system, provided that the provisions of the Federal Act on Metrology and Standardization are

complied with. To this end, it shall set up a technical committee

made up of representatives from research institutions, professional

colleges and associations and industry organizations;

III.- Develop training programs for environmental inspections and audits;

IV.- Establish a system of rewards and incentives that will help to identify those industries which duly comply with the commitments arising from environmental audits;

V.- Promote the creation of regional support centers for the small and

medium-size industries with the aim at facilitating the performance

of audits within these sectors, and

VI.- Expressly agree to or arrange, with individuals and public or private juridical persons, for the undertaking of environmental audits.

SECTION 38 bis 1.- The Secretariat shall make available, to whomever is or

might be directly aggrieved, those prevention and remediation programs

that result from environmental audits, as well as the diagnosis on whose

grounds they are based. In each and every case, legal provisions regarding

the confidentiality of industrial and commercial information shall be

adhered to.

SECTION 38 bis 2.- The States and the Federal District may establish environmental self-regulation and auditing schemes in their respective jurisdictions.

The following observations may be inferred from the wording of

the law. First, industry participation in an environmental audit is voluntary. Section 38 bis does not obligate any individual or business to submit to an audit, and thus the authority cannot force their participation in

one. An industry must abide by the results of an environmental audit

only once it signs an environmental compliance agreement.

Second, Mexican environmental authorities are given distinct

powers enabling them to enter into working agreements with individuals and businesses for the purpose of performing audits. Up until the

1996 amendments to the LGEEPA, environmental audits were undertaken without reliance on legal provisions enacted by the Congress of

the Union; they were solely based on administrative bylaws.19 The

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 161

19. See Section 38, Subsection IX of the Bylaws of the Secretariat of Social Development

(Secretaría de Desarrollo Social), published in the Diario Oficial de la Federación of 4

July 1992; see also Section 62, Subsection VII of the Bylaws of Semarnap, published

in the Diario Oficial de la Federación of 8 July 1996.
amendments provide stronger legal support to the government to

encourage and arrange the performance of environmental audits, and

grant private parties juridical security about the scope of the procedures

involved. These new provisions set the framework for the audit process,

but they must be developed in a specific regulation to carry out the intent

of the act, as well as to define the regular process that must be observed

by Profepa in strict conformity with the law.

Third, interested third parties are allowed access to information

produced by audits, such as prevention or remediation programs, as

well as the underlying diagnosis which gives rise to such programs.

“Third party” means any person who is or might be aggrieved by the

activities carried on by audited persons or businesses, and that is not a

party to any working agreement triggering such audits. Only those persons who have a genuine and justified interest and suffer or may suffer

damages caused by the noncompliance with an environmental obligation by those persons or businesses being audited will be granted the

standing of aggrieved third party.20

Fourth, the confidentiality of industrial and commercial information is safeguarded, as provided under the Industrial Property Act (Ley de

la Propiedad Industrial).21 In accordance with Section 86 bis 1 of the latter

Act, “when, during the course of judicial or administrative proceedings

a party thereto is required to reveal an industrial secret, the authority

hearing the case shall adopt such measures as may be needed in order to

prevent it from being disclosed to third parties not involved in the dispute. No interested party shall, under any circumstances, either reveal

or use industrial secrets referred to in the above paragraph.”

Fifth, in Mexico all three levels of government – federal, state and

municipal – have concurrent jurisdiction over environmental audit

issues.22 This shared jurisdiction exists in order to allow for a sounder

162 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

20. See the following decisions by the Supreme Court of Justice of the Nation:

“Aggrieved third party,” and “Legal standing of aggrieved third party,” cited in

the list of court decisions.

21. Published in the Diario Oficial de la Federación of 27 June 1991 and amended by

decree published on 26 December 1997. Section 82 of this Act states that: “any information for industrial and commercial use, which is held in secret by individuals or

juridical persons and results in their gaining of or maintaining a competitive or economic advantage over third parties in the performance of productive activities, is

deemed to be an industrial secret if the necessary measures and systems have been

adopted so as to preserve its confidentiality and restricted access thereto.”

22. It must be pointed out that the LGEEPA is a “general” law, not a “federal” law. This

means that the distribution of jurisdiction over these issues is contemplated under

the LGEEPA; to that end, it establishes joint jurisdiction (concurrencia) of the Federal Government, and the governments of the states and municipalities, within

aaaaa
implementation of audit programs, and the development of closer links

between regulators and regulatees. The trend is toward having state and

municipal authorities take the leadership in the design and implementation of voluntary compliance measures, within the framework of the

national environmental policy. The use of voluntary compliance measures at the state and municipal levels will result not only in greater

acceptance of these instruments, but also in their more widespread

use.23

The policy followed by Profepa’s Environmental Audit Division

(Subprocuraduría de Auditoría) in regard to such audits has encouraged

private and public parties to come before Profepa to arrange for the

undertaking of an environmental audit. The agreement between the

authority and the party to be audited is made formal through two legal

instruments: (i) the Working Agreement, under whose terms the audit is

launched and the involved party commits itself to abide by the audit

results; and (ii) the Environmental Compliance Agreement, subscribed

to at the end of the audit and prescribing the appropriate preventive and

remedial programs to be implemented by the audited party, together

with the compliance deadlines. The time granted for such programs to

remedy environmental shortcomings is determined by factors such as

law irregularities, risky situations and by the investment that must be

made. In those instances where the audited party is not able to fulfill the

commitments set forth in the Environmental Compliance Agreement,

Profepa may grant an extension, provided that the affected party satisfactorily proves that (i) it has not been able to begin complying with its

obligations for reasons beyond its control, or (ii) there have been delays

in the implementation of the programs for the same reasons.24

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 163

their respective jurisdictions, “over environmental protection issues and those

dealing with the preservation and recovery of the ecological equilibrium....” Section 73, Subsection XXIX of the Political Constitution of the United Mexican States.

23. It is worth emphasizing that, apparently, both private parties and

nongovernmental organizations have raised concerns about states and municipalities being the ones in charge of administering the laws and regulations governing

environmental matters. While the former, on the one hand, are afraid that the states

and municipalities will be far too inflexible in enforcing such laws and regulations,

the latter, on the other, are of the opinion that state and municipal authorities might

be less strict than the Federation in dealing with environmental issues.

24. Mexican legislation contemplates the possibility of nonfulfillment of obligations

committed to under an agreement or contract. In this sense, it provides for exceptions where an act of God (caso fortuito) or ‘force majeure’ (caso de fuerza mayor) are

involved. An “Act of God” is defined as a “natural and inevitable event, foreseeable or not, that absolutely prevents an obligation from being fulfilled.... ‘ [F]orce

majeure’ [...] relates to actions by humans, foreseeable or not, but inevitable, that

absolutely prevents an obligation from being fulfilled” (e.g., a strike that is not

caused by the employer). See Rojina Villegas 1985, book V, volume 2, 357-389.
It should be noted that environmental audits are not actually performed by public servants but by private consultants. Profepa also

appoints supervisors, who make sure that the consultants abide by the

Terms of Reference. Since the appointment of both consultants and

supervisors is considered of paramount importance for the success of

audits, transparency in the appointment process is essential. Before the

1996 amendments to the LGEEPA, Profepa had a list of trained experts

with the ability to perform audits; however, this list had no legal standing whatsoever, for the Procuraduría itself had the power to invite consultants who were not on the list to undertake audits, when it was of the

opinion that such persons had the requisite experience and the ability to

comply with the Terms of Reference. This has now changed. The Act

now states that Profepa shall establish:

[...] a system for the approval and certification of environmental experts

and auditors, and determine the procedures and requirements to be fulfilled by parties interested in becoming part of the system. To this end, Profepa must set up a technical committee made up of representatives from

research institutions, professional college associations and industrial

organizations.25

3.2.4 The Audit Process–Philosophy

In Mexico, an environmental audit implies a systematic assessment to determine whether or not administrative procedures, production activities and commercial practices of a business are adequate and

consistent with the legal obligations, institutional guidelines, standards

and other applicable provisions governing environmental protection.

Therefore, throughout the performance of an environmental audit a

complete review of each and every process, facility, and activity pertaining to the audited business is performed.

Environmental audits encompass the following issues:

· industrial safety,

· water,

164 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

25. Section 38 bis, Subsection II. Profepa has established working agreements with several professional institutions such as the College of Mechanical Electrical Engineers, A.C., the National College of Chemical Engineers, A.C., the College of

Environmental Engineers, A.C., among others, with the aim of setting up joint

assessment committees that will formulate guidelines and help Profepa with the

process of selecting potential environmental auditors who might be included in the

identification and certification system.
· air,

· noise,

· solid wastes,

· hazardous wastes, and

· land pollution.26

The audit process includes matters related to:

· design,

· construction,

· operation and maintenance,

· materials,

· facilities,

· practices,

· procedures, and

· personnel.

The auditing program is based on the assumption that private parties, when making use of this instrument, may have the possibility of

remedying all the environmental shortcomings in their facilities or processes, while avoiding those sanctions that might be imposed as a result

of an official inspection. Furthermore, environmental audits provide for

an integrated analysis of environmental deficiencies that may exist in a

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 165

26. Environmental audits include health and safety issues. Legally, these issues are the

jurisdiction of the Secretariat of Labor and Social Welfare (Secretaría del Trabajo y

Previsión Social). It is important to acknowledge that environmental authorities are

not empowered to enforce labor laws and regulations. This is relevant, for such

provisions may not be enforced by Profepa even where noncompliance by audited

businesses is uncovered. A relevant Supreme Court ruling asserted that “in strict

conformity with Section 16 of the Constitution, the authority shall fully justify its

jurisdiction when adopting any action that may cause any annoyance; and, except

where it is provided by law that such jurisdiction is extended, voluntary adherence

by a private party may not validate lack of jurisdiction, since public servants may

decline their responsibility to make sure that their actions are legally permitted.”

(See: “Jurisdiction. Voluntary adherence by a private party to authority’s acts cannot, in principle, validate the lack of.” Second Collegiate Court [of the Suprema

Corte de Justicia de la Nación], cited in the list of court decisions.
business, as opposed to inspections that, because of their limited scope,

do not allow authorities to handle comprehensively all of the existing

environmental problems, including issues not yet legally regulated. For

this reason authorities have conceded that environmental audits are a

valuable instrument which allow businesses to comply voluntarily with

regulations and standards at the federal, state and municipal levels.

Environmental audits are directed at:

· assessing the environmental management of audited businesses;

· assessing the degree of compliance by audited businesses with

environmental laws and regulations;

· assessing the degree of compliance by audited businesses with

their own environmental policies and with the policies and

guidelines set for their sector;

· assessing the practices and procedures relating to the management and maintenance of facilities; and

· developing an action plan to remedy those deficiencies uncovered during audits.

These aims are merely methodological guidelines for undertaking

environmental audits and always require that adjustments or a change

of focus be made according to the business being audited. It is the joint

responsibility of Profepa, the business, and the consultant to establish

the exact parameters to be followed at the time when the grounds for an

audit are laid.

One of the main objectives of Profepa is the undertaking of environmental audits of those businesses that pose a greater threat to the

population or the environment. The comprehensive review of each process, facility and activity, includes all aspects of the business, expressly

regulated or not. In other words, when the authority and a private party

agree to the performance of an audit, the latter commits itself to remedy,

repair, build or undertake such actions that may be deemed necessary as

a result of the audit, whether or not there exists a specific legal obligation

to do so. This is done to safeguard lives and the environment, and to turn

the facility into a clean industrial operation.

Though any business may be approached for an audit at any time,

facilities considered to be high risk, located in a sensitive environmental

166 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
region, or judged to pose a significant threat to the environment are

especially likely candidates for an audit by Profepa. Currently, the

authority tries to devote its time and resources as efficiently as possible

to industries that present a greater risk to the environment. To this end,

the Environmental Program establishes the following:

The strategy underlying the audit process is the voluntary participation of

businesses in the prevention and control of environmental pollution.

Aimed, in the beginning, at those larger industrial businesses in the country with a higher level of risk, and at public sector industries, this strategy

will be extended to all businesses in general, particularly those participating in commercial activities within the free trade zones as well as those

whose production is partially or totally destined for export markets.

It is intended that the environmental audit, as a voluntary instrument for

the prevention and control of industrial pollution, be strengthened

through the establishment of working agreements with businesses, thereby ensuring that the effects carry through the whole production structure.27

Although it may be triggered by an “invitation” from Profepa

requesting the private party to submit to an environmental audit, the

audit itself is considered to be a voluntary undertaking since Profepa

does not have the power to force a business to undergo such an assessment. Even though the audit is meant to be voluntary, not accepting the

“invitation” results in a much higher probability that the stubborn business will be subjected to an inspection and supervision visit by any of

Profepa’s divisions.

Once a business agrees to the performance of an environmental

audit (as a result of the “invitation” or in a spontaneous decision) the following obligations must be contained in the Working Agreement. The

firm agrees to:

· adhere to the Terms of Reference established by Profepa for the

performance of environmental audits, and submit to Profepa’s

oversight;

· undertake all the necessary actions, studies, projects, tasks and

programs for the establishment, adjustment and/or development of the environmental action plan (see Section 3.2.7 below)

resulting from the assessment;

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 167

27. Semarnap–Environmental Program 1996, 119.
· control its activities through the environmental action plan, so

as to minimize the hazards and the pollution generated by its

production process; and

· carry out the provisions of its environmental action plan.

3.2.5 The Audit Process–Terms of Reference

Profepa, through its Environmental Audit Division (Subprocuraduría de Auditoría), has released a document containing the terms of

reference for the performance of environmental audits (hereafter

referred to as “Terms of Reference”). The Terms of Reference specify

Profepa’s expectations for environmental audits, the tasks to be accomplished in them, and establishes the methodology to be followed in audit

performance, including:

· legal grounds,

· requirements for the conduct of environmental audits,

· requirements for the supervision of environmental audits,

· requirements for reporting on environmental audits, and

· requirements for the environmental compliance agreements.28

The Terms of Reference establish the procedures and approaches

to be used by the expert who performs the audit. They were also

intended to standardize the criteria used for assessing industries, obviously allowing adequate flexibility to cover a wide range of economic

activities, geographical areas and social conditions. This is why the contemplated procedures and approaches are general in scope. The specific

aspects to be assessed must be tailored to the type of industry, the location and other distinct characteristics pertaining to the party involved.

3.2.6 The Audit Process–Conduct

An environmental audit comprises the following three stages,

namely: (1) Planning (or Pre-Audit); (2) “In situ” Assessment (or Audit);

and (3) Post-Audit.29

168 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

28. Section 32 bis, Subsection I of the LGEEPA.

29. Carmona Lara 1995, 88–96.
Planning (or Pre-Audit)30

At this stage a detailed activity program is prepared, which must

describe the type of tests and analyses to be performed. All the planning

and decision making about how the environmental audit is to be carried

out is performed during this phase, as well as the gathering of all the relevant information regarding the business to be audited, especially its

processes, products and raw materials.

“In situ” Assessment or Audit31

This is the most important stage in the entire audit process. During

this phase all those studies that lead to the establishment of the environmental diagnosis and the ensuing remedial measures must be carried

out. The environmental consultant performs all tasks – sampling, monitoring, and analysis – according to a program agreed upon by the private

party, with ongoing participation and supervision on the part of

Profepa. Actually, the environmental consultant is constantly in contact

with Profepa and is committed to sending periodic advance reports, laboratory tests, sample analyses and “in situ” assessments in order to

guarantee the fairness of the audit. Officials from Profepa take part in the

visits made by consultants to audited facilities.

Within this phase, there is a series of secondary stages, namely:

· the gathering of basic data;

· the analysis of the production process;

· the analysis of raw materials;

· the cost analysis of wastes and emissions management.

The process of assessing an industrial facility requires undertaking

studies inside and outside the facility. Those undertaken inside encompass the review of technical records and registers. Throughout this stage

a fruitful exchange of information among those involved is encouraged

in order for all three parties to gain a better understanding of the origin

of the problems or deficiencies uncovered. The work outside the facility

consists mainly of collecting and analyzing information relating to the

natural environment, the socioeconomic conditions and the applicable

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 169

30. Ibid.

31. Id., p. 89.
provisions of environmental laws. The analysis of the natural and socioeconomic conditions attempts to assess the facility’s environmental

impact. The analysis of the environmental legislation identifies those

legal provisions, regulations and standards with which the audited

business must comply. The legal analysis focuses on environmental

legal instruments, but it may also cover other areas, such as issues of

health and safety in the working place.

It should be pointed out that, during the course of an audit, Profepa

relies on internal communication in order to avoid inspection visits

while the audit is being performed, although from a technical standpoint, there is no impediment in the current legislation preventing

Profepa or any other authority from carrying out such visits. In fact, both

in the Working and the Environmental Compliance Agreements,

Profepa expressly retains its powers of inspection and supervision.

Regarding notification of other authorities about the progress of an

audit, Profepa’s policy is now that the Subprocuraduría for Environmental Audits notifies the division charged with inspecting private

facilities when environmental audits are undertaken. It is up to the private parties to inform other authorities directly. There is an ongoing plan

to strengthen the coordination during audit performance among the

various levels of government, federal and state, not only to make other

authorities aware of the audit itself, but also to enable other agencies to

understand the role and contribution of it. In practice, other state and

municipal government agencies have refrained from inspecting those

private parties who have informed them of an ongoing environmental

audit.

Post-Audit32

It is at this stage that a final report is prepared, based on the information gathered, which includes the conclusions arising from each one

of the processes assessed. The final report contains an account of the

audit results that includes:

· an executive summary;

· the audit report; and

· the technical and photographic appendices.

170 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

32. Id., p. 92.
The report must meet minimum requirements in order for the

results of the audit to be included in the Environmental Compliance

Agreement that will be endorsed by Profepa and the private party. The

signing of the Environmental Compliance Agreement marks the end of

the normal environmental auditing process and sets the actual grounds

for those actions to be undertaken by the private party within a given

amount of time, in order to remedy the anomalies and/or deficiencies

uncovered during the audit.

3.2.7 Audit Follow-up

Given that the audit process results in the preparation of an appropriate plan of action for post-audit implementation, Profepa expressly

reserves its right to undertake visits and monitoring in order to verify

that these obligations contemplated under the Environmental Compliance Agreement are strictly fulfilled.33 Should a private party fail to perform the actions and meet the deadlines agreed upon, or should any

anomalies be detected during an inspection visit, the authority may

impose those sanctions contemplated under the LGEEPA, the coercive

instrument upon which it may rely in order to force compliance by the

private party. Normally, according to the information provided by

Profepa officials, these inspections are made every three months,

whether or not the private party has submitted a report on the activities

undertaken in order to fulfill his obligations under the Agreement.

Where such visits or monitoring show that the private party has

not abided by the terms of the Environmental Compliance Agreement,

Profepa may also impose administrative sanctions. Notwithstanding,

through these Agreements, parties may be granted extensions in

non-risky situations to comply with environmental laws and regulations and this practice, in the final analysis, does not contradict the compliance provisions set forth by law.

Therefore, the most important part of the environmental audit program is the way in which Profepa agrees with the private party on the

steps to be taken in order to remedy the deficiencies uncovered during

the assessment process. These steps are expressly reflected in the schedule of actions and times appended to the respective Environmental

Compliance Agreement. Normally, these “action plans” set forth the

timetable for the initiation and conclusion of each remedial action (represented in bar graphs), the specification of responsibilities, and the

associated costs, and are tracked by Profepa.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 171

33. Id., p. 95.
It is worth mentioning that one of the main attractions of environmental audits is that they provide an integrated, overall analysis of the

audited business, which could not be achieved solely through periodic

inspections conducted by Profepa, since these would always be limited

in scope by the expressly issued inspection order.

3.2.8 Financing of Environmental Audits

Profepa

In December 1992 Profepa launched its nationwide Environmental

Auditing Program in 58 industrial facilities located in 10 states (Baja California, Chihuahua, Coahuila, Distrito Federal, Estado de México,

Guanajuato, Jalisco, Michoacán, Nuevo León and Tamaulipas). In order

to implement the program, Profepa decided to promote environmental

audits by funding the first ones to be performed in Mexico, with the purpose of making business people aware, through a representative sample

of environmental audits, of the advantages and benefits rendered by

them. Approximately 5 million pesos were contributed by the government to the first environmental audits performed in 1992 in the

Coatzacoalcos-Minatitlán industrial region. These were performed in 19

high-risk industrial facilities, so classified by the handling and the quantities of hazardous substances used in their production processes. In

December 1992, with the launching of the nationwide environmental

auditing program, an initial investment of 17 million pesos was allocated, and by the end of 1993 a total of 200 million pesos had been

spent.34 For 1996 the Procuraduría budgeted approximately 20 million

pesos.35

Nacional Financiera (Nafin)

During 1995, this federal financial institution established a special

fund to extend loans, through certain lines of credit offering preferential

interest rates, for environmental programs involving the implementation of remedial measures and actions. Nevertheless, according to information obtained from Nafin officials, the funds allocated for financing

projects of this type have not been completely spent in any of the fiscal

years since the program was launched. It has been suggested that the

172 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

34. Procuraduría Federal de Protección al Ambiente, Report submitted by the Chief

Procurador to the Consulting Council of Profepa, July 1992–November 1994, 23.

35. Statement by Mr. Antonio Azuela de la Cueva, Federal Procurador for Environmental Protection, during the closing session of the Mexico-Canada-United States

Seminar on ISO 14000, Environmental Auditing, organized by Profepa in Mexico

City, 23 August 1996.
main reason for this is due to inadequate dissemination of information

about the program’s existence.

Along with ordinary loans, Nafin offers direct funding for environmental projects through its association with the North American

Environment Fund (NAEF) and the European Community Investment

Partners (ECIP). The ECIP was designed to finance environmental projects for small and medium-size Mexican businesses that undertake projects in conjunction with European firms. According to information

from Nafin, the ECIP will fund up to 50 percent of the operating costs

involved in conversions, up to 20 percent of total capital expenditures

and up to 50 percent of human capital training and development

expenses. The maximum amount allocated per project is US $1.36 million.

Banobras

The National Bank for Public Works and Services (Banco Nacional

de Obras y Servicios Públicos–Banobras) has established an Infrastructure

Investment Fund (Fondo de Inversión en Infraestructura–Finfra) with an

initial contribution of 250 million pesos from the federal government.

However, it is anticipated that the Fund will adopt a mixed capital structure with monies coming from the federal government, the private sector, and/or international financial institutions.

The Fund will endeavor to provide funding for new projects in the

following areas: highways, seaports and airports, water distribution,

sewage and sanitary works, urban transportation equipment and infrastructure, and waste disposal and recycling. In order to determine the

feasibility of the project on the basis of its profitability and risk, Banobras

has issued operating rules for Finfra, which establish the parameters for

accessing the monies deposited in the Fund. Priority shall be granted to

those projects aiming at:

· promoting the undertaking of projects with significant social

returns;

· developing, transferring, innovating or improving the existing

technology in a specific industrial sector;

· contributing to regional development;

· cooperating in the diversification, enhancement or modernization of national productive capacity; and

· integrating production processes.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 173
Investments made by the federal government in the areas mentioned will not only contribute to the protection of the environment, but

also help reduce financial costs or increase existing limited funding for

implementing actions arising from environmental audits.

3.2.9 Efficacy of Environmental Audits

According to reports from Profepa, from the beginning of 1992 to

June 1997, 759 audits were undertaken, of which 669 were completed

and 90 were still in progress; 676 action plans were signed, 328 of which

were still in progress, 110 had been fulfilled, and 238 were at the agreement stage.36 The environmental auditing program has focused mainly

on industrial activities deemed of high priority – both in terms of the

risks they pose and the significance of their participation in national

exports. The large public sector corporations, such as Mexican Oil

(Pemex), the Federal Electrical Commission (Comisión Federal de

Electricidad) and Mexican National Railways (Ferrocarriles Nacionales de

México), have been included in the program, as have such private sector

corporations as Mexican Cement (Cemex), Peñoles, Mexican Steel

Works (Altos Hornos de México), Nestle, Ford Motor Company, General

Motors of Mexico, Nissan Mexicana and other companies belonging to

the chemical, textile, foodstuffs and leather industries, among others.

Fewer audits were performed on these public sector corporations in

1995, due mainly to the economic crisis. Overall, however, the number of

audits on public sector and private corporations has risen year by year,

according to Profepa’s figures: 1992 (19), 1993 (66), 1994 (161), 1995 (179),

and 1996 (274).

Although the number of performed audits has increased, this does

not necessarily correlate directly to the number of inspection visits.37

Such visits now focus on sectors not included in the auditing program.

Unquestionably, environmental auditing has fundamentally favorable

aspects because the private party decides to absorb the costs of implementing the audit and allows Profepa to allocate enforcement resources

to inspection priorities.

Profepa has stressed that one of the major achievements realized

by implementing the environmental auditing program is that for each

peso it has allocated for audit performance, the industrial sector has

invested an average of 13 pesos in order to remedy problems discovered

in the course of them.

174 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

36. See Profepa’s WWW page at <http://www.profepa.gob.mx>

37. Profepa statistics show that from August 1992 to July 1996, 54,085 inspection visits

were conducted; 2,000 partial and 424 total closures ordered; and 37,958 irregularities detected.
3.2.10 Impact of Environmental Audits on the Standard of Care

Because environmental audits are both flexible and jointly planned

by the industry and the environmental authority, their beneficial impact

upon the level of environmental care is enhanced. In fact, an environmental audit makes the business or industry combat the causes of the

environmental damage, while the employment of sanctions by Profepa

does not necessarily result in an improvement to the environmental

standard of care.

Likewise, since audits are not restricted to those areas specifically

regulated or subject to standards, their existence and conduct will result

in a gradual overall improvement in industrial environmental performance and the promotion of environmentally-friendly policies. Given

the experience and results attained through environmental auditing,

Mexico may not be far from recognizing the need and suitability for new

standards and regulations to be adopted and applied.

3.2.11 Impact on Third Parties and Fairness of Environmental Audits

The working and environmental compliance agreements brought

about by environmental audits have no effect on third parties, in particular when juridical persons are involved. The agreements entered into by

juridical persons are binding only on such persons, except in violations

of criminal law (see below).

Under civil law, juridical persons are indeed liable for the damages

caused by their legal representatives in the fulfillment of their duties;

should these circumstances arise, such persons would have to redress

the damages so caused.38 Where the activities engaged in by a juridical

person result in a third party being personally injured or his property

damaged, the third party would be entitled to bring a civil suit against

the juridical person in order to request punitive damages.39

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 175

38. Section 1918 of the Civil Code for the Federal District regarding common law (fuero

común) matters and for the entire Republic in respect to federal jurisdiction (fuero

federal).

39. See the decision by the Supreme Court of Justice of the Nation, “Redressing of

Damages by Moral Persons,” cited in the list of court decisions. The conviction to

punitive damages does not entail criminal liability, for in order to reach a decision

regarding civil liability it is only necessary to prove that harm has been caused to

the plaintiff’s property by third-party actions, and that the moral persons are not

exempted from civil liability according to the provisions and requirements of the

law.
Under criminal law, the Criminal Code for the Federal District

regarding common law (fuero común) matters and for the entire Republic

in respect to federal jurisdiction (fuero federal) establishes, as a general

principle, that only individuals can be accused of committing crimes.

Section 11 of the Criminal Code states that:

Where a member or a representative of a juridical person, corporation,

partnership or business of any kind, except Government Institutions,

commits a crime with the means provided by the entity itself for this purpose, so that the crime is committed in the name, or on behalf, or for the

benefit of that juridical person, the judge may, only in those instances specified by law, order the suspension or the dissolution of the organization,

where he deems it necessary for the protection of the public.

The wording of the law clearly asserts that it is the member or representative of the juridical person who commits the crime, not the juridical person itself; however, in certain situations the provisions governing

participation in crimes may apply and, therefore, the suspension or the

dissolution of the organization involved may be ordered. As the Court

stated,

[...] it is not acceptable that those who act on behalf of juridical persons not

incur liability, for, if such an argument is allowed, the crimes eventually

committed by individuals who hold positions at different levels within the

organization would remain unpunished, the reason being that sanctions

ought to be imposed on the juridical person itself, which is absurd from a

logical and legal standpoint since such a person lacks self will and only

engages in actions through individuals. This is why the directors, managers, officers and other representatives of juridical persons are personally

liable for any felonies they commit on their own behalf or on behalf of the

juridical person they represent.40

This ruling makes clear that failing to comply with working or

environmental compliance agreements will result in the representatives

and officers of the juridical person being held personally liable should

any criminal offense be committed. The juridical person itself shall bear

civil liability for failing to comply with its own obligations and, in such

event, it shall redress any damages caused to individuals themselves or

their property as a result of its negligence.

176 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

40. “Criminal Liability for the Representatives of Moral Persons.” See the list of court

decisions.
Antimonopoly Legislation

One of the voluntary mechanisms introduced in the LGEEPA is the

establishment of certification systems for processes and products aimed

at promoting consumption patterns that are friendly to, safeguard,

improve or remedy the environment. In this instance, the authority has

to exercise great care in designing such systems, so as to avoid the onset

of monopoly practices.

In Mexico, the Federal Act on Economic Competition (Ley Federal

de Competencia Económica) is intended to safeguard the processes of competition and free enterprise through the prevention and the eradication

of monopolies, monopoly practices, and other restrictions on the efficient operation of markets for goods and services.41 Under this law, “any

action that improperly hinders or prevents competition and free enterprise in the production, processing, distribution and commercialization

of goods and services” is construed, along with other similar conducts,

as monopoly practice.42

Certification systems may have a detrimental effect if they are used

by economic groups in order to prevent other suppliers of goods and services from entering the marketplace because they lack the financial,

technological and human resources to meet market standards. This is

why a great deal of accuracy is needed when defining the legal nature of

certification systems and how they will operate, so as to prevent the

onset of exclusive and unfair advantages in favor of one or a number of

suppliers of goods and services.

Government intervention in the regulation of certification systems

is relevant in this respect, since it is an essential element in preventing

the onset of monopoly practices. The Supreme Court has provided guidance in this respect, asserting that “presumptions of monopoly shall not

include those activities performed through official oversight or intervention or any kind of involvement by the State, who, at any time, may

restrain private activities or attach conditions thereto.” Furthermore, for

this regulatory activity “to be constitutional, it must be general, previously in force, and apply to all activities of a similar nature, not only to

isolated cases, since this translates into exclusive preferences and detrimental advantages.”43

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 177

41. This Act was published in the Diario Oficial de la Federación, 24 December 1992. The

authority in charge of its administration is the Secretariat of Commerce and Industrial Development (Secretaría de Comercio y Fomento Industrial), through the Federal

Commission on Competition (Comisión Federal de Competencia).

42. Section 10, Subsection VII.

43. “Monopolies.” See the list of court decisions.
Applicable Criteria

On the matter of criteria to ensure equity among the businesses

subject to the audit program, Semarnap Environmental Program policy

states that:

Regulation implies significant social costs both for the private sector and

the public administration. Thus, efforts have to be made in order to obtain

the greatest social benefits possible from regulatory activities. To this end,

it is imperative [...] that all regulatory instruments embrace cost and effectiveness criteria, in accordance with current or foreseeable technological

advances and high levels of environmental quality in productive processes, within the framework of a real micro-economic adjustment trend.44

Undoubtedly, the high cost of undertaking and implementing

environmental audits raises serious concerns. Even though efforts have

been made to obtain funding for small and medium-size businesses to

gain access to this mechanism, in the vast majority of cases it continues to

be inaccessible for these entrepreneurs. However, the development of

Regional Centers will help to minimize the cost of the audit for small and

medium-size businesses so that they will not be excluded from the benefits of the program.

In any event, environmental auditing has evolved into an instrument that actually complements the traditional methods of inspection

and oversight. The economic inequity that might arise (even though the

costs for large businesses are proportionately greater) does not prevent,

in fact, any businessman from approaching Profepa. This is particularly

true for those companies that, as a result of their activities or their geographical location, are subject to closer scrutiny by the authorities or

adjacent community.

The possibility of devising a “self-auditing” system that breaks

away from the rigidity, the high costs, and the operational and logistical

limitations imposed on private parties by environmental audits is now

under consideration. This “self-auditing system” would entitle businesses taking part in the program referred to in the next paragraph to

undertake the assessment of their facilities and, with the help of a consultant, file the required report with Profepa. The idea is not to tie the

performance of environmental audits to the logistical and operational

limitations of Profepa, but instead to allow all types of businesses to perform the audits and report the results to the authority, with the help of

certified consultants. This program is still in the analysis stage, but there

are indications that it will be adopted in the near future.

178 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

44. Semarnap Environmental Program 1996, 113.
On this particular issue, Environmental Program policy provides

that:

In addition, a self-auditing program entailing a reporting audit procedure, which implies filing, with the [relevant] authority and through a certified consultant, a declaration on the environmental state of the facilities

and processes of a business, shall be put into place.

Under this program, all of the participating businesses shall be monitored

in accordance to the provisions of the law, by assessing them at random, in

order to confirm the veracity of the reports filed.

To counterbalance sanctions, an incentive/reward program shall be designed with the aim at fostering compliance with environmental laws, regulations, standards and programs in a fair manner.45

Since environmental audits, because of their cost, may be prohibitively expensive for the vast majority of Mexican businesses, specially

those of small and micro-size, Profepa is currently studying, in conjunction with the National Chamber for Processing Industries (Cámara

Nacional de la Industria de la Transformación–Canacintra), several options

to make environmental audits more financially accessible, without sacrificing those goals which benefit the environment.

Confidentiality Obligation

As a result of the 1996 amendments to the LGEEPA, access to information pertaining to environmental audits is guaranteed. Section 38 bis

1 states that Profepa “shall make available, to whomever is or might be

directly aggrieved, those prevention and remediation programs that

result from environmental audits, as well as the diagnosis on whose

grounds they are based.” The confidentiality of industrial and commercial information is safeguarded in accordance with the provisions of the

Industrial Property Act (Ley de Propiedad Industrial).

These provisions acknowledge that environmental damages affect

society and thus it is desirable that the outcome of the environmental

audits performed be made available to the public. Before the Reform, the

information pertaining to audits could only be made public with the

express consent of the businesses involved since they were the ones that

voluntarily provided the authorities with all the information connected

with an audit. This step is considered of paramount significance, as the

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 179

45. Id., p. 119.
dissemination of information will encourage greater societal scrutiny of

the compliance with actions required stemming from the auditing process.

3.2.12 Liability for the Implementation of Environmental Audits

In the implementation and performance of environmental audits,

many individuals who perform important duties bear responsibilities

imposed by the legal obligations entailed in the agreements signed with

Profepa. The audited business, therefore, must allow access to its facilities and make all necessary information readily available to those

charged with carrying out the audit so they are able to understand the

production processes and the degree of compliance achieved with environmental laws, regulations, rules and standards. For his part, the auditor or consultant must compile, review and analyze the information

relating to the production processes and their interrelation with the soil,

the atmosphere and the water. In addition, the anti-pollution equipment, the measures designed to minimize risks and the emergency plans

must also undergo an examination. Furthermore, the relevant sampling

and analysis must be performed in order to assess the veracity of the

information. Finally, the supervisor appointed by Profepa plays a significant role for he/she is the person in charge of ensuring that the auditor

adheres to the terms of reference governing the environmental auditing

process.

Professionals who perform environmental audits may be held

criminally liable for activities carried out in exercising their profession,

as contemplated under the Criminal Code: the responsibility incurred

by professionals or persons who are devoted to providing services of a

technical nature, being legally entitled to do so, and who as a result of

exercising their profession, by reason of negligence, lack of expertise,

carelessness or any other motive implying criminal responsibility, may

result in them being liable for having committed a crime deliberately or

by negligence.46

As explained earlier, on many occasions an environmental audit is

triggered by an “invitation” extended by Profepa to have a business

enter the auditing program. Depending on the outcome of the audit, an

Environmental Compliance Agreement is signed, under the provisions

of which the audited business commits itself to implement certain remedial measures within a given period of time. Failure to do so may result

180 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

46. “Technical criminal responsibility incurred by professionals.” See the list of court

decisions.
in the corresponding sanctions against the audited business being

imposed by Profepa.

It is the responsibility of the business, as a juridical person, to comply with the agreements. In other words, the responsibility belongs to

the corporation itself, not to its directors, officers or representatives. As

was noted earlier, the obligations and rights acquired by a juridical person through contracts or agreements belong exclusively to this juridical

person itself – not to its members or representatives. On the other hand,

such individuals will be liable only if a criminal offense is committed,

since under Mexican law criminal responsibility concerns individuals

only.

Neither does the authority stop being responsible for the enforcement of environmental laws and regulations, nor are private parties

exempted from complying with their statutory obligations. In fact, the

environmental audit does not alter the prevailing legal order by which

private parties must fulfill their environmental duties and authorities

must ensure that they do so through the powers vested in them to sanction offenders and force the undertaking of remedial actions.

3.2.13 Relationship of Environmental Audits to other Compliance

Mechanisms

Environmental auditing does not prevent a business from adopting other types of voluntary measures. Quite the contrary. The environmental audits implemented by a business probably facilitate the

undertaking of other voluntary measures. A measure such as ISO 14001,

for example, may raise the level of concern and care for the environment,

which is precisely the central aspect examined during an environmental

audit, however it does not guarantee compliance. Some of these other

voluntary measures and incentives are discussed in the following sections.

According to Profepa, the mandatory environmental criteria in

Mexico exceed the guidelines established by instruments such as ISO

14001. It is also important to point out that, where there is no suitable

environmental instrument to handle a specific case, Profepa frequently

relies on technical criteria developed by the industrial sector (as has

lately been the case for Pemex), or on internationally accepted principles

for environmental regulation (such as those developed by Environment

Canada, the US Environmental Protection Agency, and the European

Union).

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 181
3.3 ISO 14000 as a Voluntary Compliance Measure

3.3.1 Description of ISO 14000

ISO 14000 is a series of international standards currently being

developed by the International Organization for Standardization. These

standards will define the uniform parameters, the reaction ability and

the management controls that will serve as an international benchmark

when assessing the level of compliance and ecological efficiency of a particular industrial business. Achieving these standards will entitle a firm

to obtain ISO 14001 certification, testifying to its technological advancement and its adherence to the goals set for environmental protection.

ISO 14001 certification may well bring about a double benefit by:

(a) providing the certified company with added advantage in marketing

its products and services because of the prestige of ISO certification; and

(b) aiding company operations and performance because of the technology and improvement measures required by ISO 14001 certifying bodies. In turn, it is hoped that such production improvements will provide

additional incentives to make other businesses want to pursue such certification.

Judging from the level of acceptance enjoyed by ISO 9000 standards (Quality Assurance Systems), many specialists are already predicting that ISO 14001 may soon become worldwide in scope and

uncertified businesses will be handicapped in carrying on commercial

activities, particularly in foreign trade.47

3.3.2 Legal Basis

There are two types of standards in Mexico, the Official Mexican

Standards (Normas Oficiales Mexicanas–NOMs) and the Mexican Standards (Normas Mexicanas–NMXs). Although both systems may include

environmental provisions or measures, they differ in that, while the

NOMs are mandatory, the NMXs serve merely as a guideline or reference.48

The ISO 14001 standard was translated into Spanish by multidisciplinary task groups coordinated by the Mexican Institute for Stan182 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

47. According to data from the Mexican Institute for Quality (Instituto Mexicano de la

Calidad), only 1,000 firms in Mexico have achieved ISO 9000 certification.

48. As defined in the Federal Act on Metrology and Standardization, published in the

Diario Oficial de la Federación of 1 July 1992. Amended by decrees published on 24

December 1996 and 20 May 1997.
dardization and Certification (Instituto Mexicano para la Normalización y

Certificación, A.C.). The intent is to include this standard among the

NMXs, thereby introducing it into the Mexican legal system as only a

voluntary standard and reference parameter.

Recently, many seminars and meetings have taken place, principally organized by business associations, with the aim of assessing the

scope, objectives, and implementation of ISO 14001 in Mexico. Profepa

has also been actively participating in a review of ISO 14000, together

with other governmental agencies. While there is some interest from the

private sector to incorporate ISO 14001 as NMXs, it is important to point

out that the environmental authorities consider the incorporation of the

ISO 14001 standard in Mexico to be premature and have clearly stated

that adherence to ISO 14001 does not ensure compliance with Mexican

legal standards.49 The Mexican government does nonetheless recognize

the potential benefits of improved environmental management systems

such as those proposed under ISO 14001. It is the view of Profepa that the

Mexican audit process already incorporates the concepts of ISO 14001,

and goes even further.

Other efforts undertaken by environmental authorities have as

their goal the near term facilitation of the ISO 14001 certification process.

Thus the Environmental Program states that:

[Reduction in the generation of wastes] will facilitate the future certification of this industry under ISO 14000, which will soon be considered

essential for export goods manufactured by potentially polluting industries.50

When considering the role played by voluntary standards, the

Environmental Program provides that:

It is of paramount importance to promote them and encourage a growing

number of firms to implement them, for they are more cost effective than

regulations unilaterally enforced by the authority. Their adoption by the

private sector results from two main reasons. On the one hand, in the

medium term, preventing pollution is much more profitable than controlling it, or even than evading regulations, for it makes processes more efficient and less costly. On the other hand, there is increasing international

pressure for them to be adopted, and they tend to become a requirement

for participating in many markets for both intermediate and final

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 183

49. The official position of Profepa is expressed in Resolution 97/05 of the CEC Council, “Future Cooperation regarding Environmental Management Systems and

Compliance.”

50. Semarnap Environmental Program 1996, 122.
consumption. The environmental authority shall support any initiative dealing

with voluntary standards that may benefit the environment [emphasis

added].51

According to the most recent data, some Mexican companies have

started providing services related to ISO 14001 certification. On this

issue the Environmental Program provides that:

Product certification and the issuance of ISO 14000 voluntary standards

will most certainly prompt vertical cohesion among industries. The certification both of the products and environmental management, which is

implicit in such mechanisms, will lead to the establishment of networks of

suppliers who are in a position to guarantee that environmental standards

are complied with. No doubt, this will foster a greater integration of productive activities and contribute to the development of new markets. This,

however, points to the need for finding simplified certification systems for

small and medium-size firms, in order to avoid the onset of artificial commercial barriers.52

In Mexico, the certification process is being carried out by private

auditing firms utilizing the unofficial draft of the ISO 14001 standard.53

The “authorization” currently being granted to audited businesses by

the consultants will purportedly be replaced by the appropriate “certification” if and when the ISO 14001 standard is officially issued.

3.3.3 Efficacy of ISO 14000

Even though the ISO 14000 standards are only partially developed,

the experience from ISO 9000 suggests that implementation of the new

standards will generate a positive impact on the economy. The promoters of ISO 14000 rely on the success enjoyed by ISO 9000 (Quality Assurance Systems) to assert that a similar concept applied to environmental

management could prove beneficial and, most probably, attain the same

degree of success in protecting the environment that ISO 9000 did in revolutionizing management. However, it is important to recognize that

although similarities exist between the two systems of standards, ISO

9000 filled a vacuum in the area of management quality while ISO 14001

is only a support to legal environmental protection standards.

Relying on international support to make businesses implement

an efficient system of management in order to fulfill their environmental

184 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

51. Id., pp. 118-119.

52. Id., p. 129.

53. Interview with Ing. Carlos Soto Rivera, U. L. de México, S.A. de C.V. (a subsidiary

of Underwriters Laboratories).
protection obligations may sound like a remote possibility, but the success enjoyed up to now by ISO 9000 shows that such a goal may actually

be attainable.

3.3.4 Relationships with and Effects on other Compliance

Mechanisms

The ISO 14000 standards can be directed at businesses as a complement to government-initiated programs pertaining to environmental

protection. While they appear to present no obstacle to the use of other

compliance strategies and their implementation will likely have a favorable impact on the environmental practices of industry, there are varied

opinions about the effect of the ISO 14000 program. According to the

Mexican Institute for Standardization and Certification, the operational

and administrative procedures enshrined in the ISO 14000 standards for

promoting environmental protection complement those established in

Mexico’s existing environmental legislation. Profepa, however, has

some concerns regarding ISO 14001. The agency’s view is that ISO 14001

is a trade-related mechanism that may have environmental side benefits, but it does not guarantee environmental protection, nor indeed substitute for national regulation.

The ISO 14000 standards are directed at preventing pollution.

Instead of attempting to substitute for environmental regulations, they

provide an incentive promoting increased, more efficient compliance.

The working concept is that all industrial and commercial activities will

directly or indirectly affect the environment unless timely attention is

given to avoid or reduce any deleterious impacts. There is considerable

disagreement as to whether ISO 14000 will replace existing regulations.

However, it is important to remember that the ISO system relies on a

baseline standard established by government regulation.

There is also confusion about the precise scope for the application

of these voluntary “standards.” ISO 14000 standards will not substitute

for the compliance levels required by the NOMs (it will not be legally

feasible) and the remaining statutory provisions imposed by LGEEPA.

They would simply have no legal validity unless they were to be

included in the legal system as Mexican standards developed and were

issued in accordance with the provisions of the Federal Law on Metrology and Standardization. As NMXs, though, and an international reference, they may become highly useful instruments to enhance

environmental awareness and promote industrial practices that will

result in more visible protection of the environment.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 185
In this connection, the Environmental Program provides that:

Voluntary measures entail agreements between companies and environmental authorities which contemplate the fulfillment of environmental

requirements at levels which go beyond those imposed by official standards, or the filling of statutory gaps.

It is imperative to work jointly with the private sector to develop agreements on voluntary measures in certain, particularly troublesome industries. At the same time a new generation of voluntary measures defined by

the International Organization for Standardization (ISO) that include

environmental management in the Total Quality Standards of companies,

must be stimulated with the joint participation of the private sector. These

measures, which are gaining increasing international relevance, lead to

behavioral patterns of a technological and administrative nature, aimed at

preventing pollution, minimizing wastes and substituting production

inputs.54

3.3.5 Impact of ISO 14000 on Standard of Care

A beneficial impact of having ISO 14000 standards on environmental protection and management levels function in a parallel and complementary manner to environmental regulations may be an increase in the

global level of environmental protection. ISO 14000 standards do not try

to access nor include requirements for aspects of occupational health

and the administration of safety; nevertheless, this is not meant to discourage an organization from developing and integrating these

elements into the administrative system. However, the certification/registration process is only applied to the system’s environmental

administration aspects.

Environmental regulation is not modified by the introduction of

ISO 14000 as NMXs; what will happen is that firms seeking ISO 14001

certification will necessarily pass tests demonstrating that they have an

efficient organizational, monitoring, and response system to prevent

and attend to all kinds of environmental contingencies.

3.3.6 Impact on Third Parties and Fairness of ISO 14000

The way that ISO 14000 standards have been designed allows third

parties an important role in their management. In fact, the very success

of these standards is based on the significance granted to them by third

parties. While the standards are voluntary measures, they have been

186 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

54. Semarnap Environmental Program 1996, 118.
designed in such a way that they should result in a competitive advantage for firms implementing them. It seems likely, based on experience

with ISO 9000, that as such standards become more popular, businesses

will request the companies with whom they deal to satisfy the criteria

established by ISO 14000 and gain certification. Thus, by choosing to do

business with ISO 14000-certified companies, third parties will contribute to the protection of the environment.

These standards provide the guidelines for the development of an

environmental management system and the implementation of its principles, as well as for its correlation with other management systems. In

theory, the guidelines may apply to any organization, whatever its size,

type, background or degree of development, since they relate to the

implementation and/or betterment of environmental management systems. And since the costs of implementing ISO 14001 are directly related

to the size of the business seeking certification, at first thought it would

seem that principles of fairness should prevail.

Nevertheless, it has been the experience in Mexico with ISO 9000

that certification costs are usually considered to be very high, and that

only a few large businesses may actually attempt the certification process. In order for the ISO system to become more “democratic,” available

to small or medium-size companies, it is essential that funding be made

accessible to gain certification. Moreover, the ubiquitous lack of information about developments in the global economy, except within the

inner circle of more sophisticated businesses, may exclude the vast

majority of small businesses.

3.3.7 Responsibility for the Implementation of ISO 14000

As previously mentioned, the establishment and implementation

of ISO 14000 standards results from a voluntary and unilateral decision

made by a specific business. Decisions about certification of businesses

is by private certifying bodies according to ISO standards. If the firm

complies, a certificate will be issued, stating that the guidelines of the

ISO 14001 standard have been fulfilled; the certifying bodies will then

conduct periodic verifications that the certified business is continuing to

be in compliance. Responsibility for implementing and complying with

ISO 14001 lies with the certified business; the certifying body merely

tracks continued compliance or adherence.

In order for the set of ISO 14001/NMXs standards to be successful,

it is necessary for businesses to assign appropriately skilled, authorized

persons to assume responsibility for implementing the environmental

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 187
management system and to dedicate appropriate resources for its implementation. Operations managers must take personal responsibility for

and be committed to the development of the environmental management system.

In the view of Profepa, ISO 14001 does not reduce the parallel duty

of industry to comply with the legal standards. Neither does it restrict

the powers of the government to enforce the law against ISO

14000-certified companies. As asserted by the Federal Procurador for

Environmental Protection, Antonio Azuela de la Cueva:

Without intending to diminish the significance of a system such as ISO

14000 and the importance it may have for businesses, we must strongly

emphasize that, as far as the Mexican Government is concerned, being successfully tested and certified under ISO 14000 will not imply that the Mexican environmental legislation is complied with.55

3.4 The FIDE Seal for Electric Energy Savings, as a Voluntary

Compliance Measure

3.4.1 Description of the FIDE Seal

The National Commission on Energy Savings (Comisión Nacional

para el Ahorro de Energía–CONAE), in support of the goals and objectives

established by the Federal Commission on Electric Power(Comisión Federal de Electricidad), and with the participation of suppliers from the electricity sector, business boards and the Union of Electrical Sector Workers

of the Mexican Republic (Sindicato de Trabajadores Electricistas de la

República de México), established the Trust for the Support of the Energy

Savings Program for the Electric Power Sector (Fideicomiso de Apoyo al

Programa de Ahorro de Energía del Sector Eléctrico), a private body that joins

efforts and guarantees the participation of the several sectors involved.

The various duties performed by the Trust include the granting of the

“FIDE Seal.” This seal is available to all suppliers of goods and services

who wish to assure consumers that the electrical equipment and appliances they acquire are energy efficient.

The first three certificates granting the right to use the FIDE Seal

have been issued to the following companies:

· Phillips Mexicana,

188 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

55. Shorthand notes of the closing session of the Mexico-Canada-United States meeting on ISO 14000, “Environmental Auditing,” held by Profepa in Mexico City, 23

August 1996.
· Osram de México, and

· General Electric.

According to the 1995-2000 Program for the Development and

Restructuring of the Energy Sector (Programa de Desarrollo y

Reestructuración del Sector de la Energía), a key instrument in Mexico to

achieve savings and an efficient use of energy is “[...] to promote the

adherence of the social and private sectors to those programs aimed at

achieving energy savings in transportation, processes, buildings, the

production of goods and the supplying of services.”56

3.4.2 Legal Basis of the FIDE Seal

Application for FIDE certification is a voluntary action taken by

private parties. There is no legal obligation to seek such certification. The

FIDE Seal is a concerted action between government and manufacturers

of goods or suppliers of services.

The 1995-2000 Program for the Development and Restructuring of

the Energy Sector acknowledges that the “existing legal framework governing energy efficiency is not comprehensive, besides being widely

scattered in many laws and regulations. The design of a draft bill on

energy efficiency is a key priority in this regard.”57 Should such a bill be

drafted, it would have to include definitions and regulations which

would allow the implementation of an incentives program promoting

energy savings and efficiency, in the same way that provisions regarding self-regulatory measures were introduced into the recent LGEEPA

amendments.

As a further example of a voluntary compliance mechanism, the

FIDE Seal is better explained by economic rather than merely legal reasons, since manufacturers find in this seal an incentive to produce

energy efficient appliances, even if no requirement to do so exists. A

decline in the consumption of energy helps reduce atmospheric pollution and generates a competitive advantage in a market where consumers prefer to buy “green” labeled products instead of ones that are not

“environmentally friendly.” Though the FIDE Seal is directed at the

reduction of detrimental environmental impacts beyond what is

required under the NOMs, it has evolved into an innovative way of promoting industrial merit recognition.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 189

56. The 1995-2000 Program for the Development and Restructuring of the Energy Sector,

Mexico City: Energy Secretariat (Secretaría de Energía), 1996, 64.

57. Ibid.
3.4.3 Efficacy of the FIDE Seal

The granting of the FIDE Seal results from an assessment and certification process that guarantees the optimal energy consumption of the

products carrying it. The seal is an opportunity to promote the purchase

and use of energy saving goods by consumers and originates from the

need to identify such products. In this regard it shares the underlying

philosophy of ISO 14000.

3.4.4 Impact of the FIDE Seal on the Standard of Care, Third Parties

and Fairness

The FIDE Seal accomplishes two main purposes. On the one hand,

it helps increase productivity and competitiveness both for electrical

power producers and consumers and, on the other, it contributes to

efforts being undertaken around the world to reduce hydrocarbons consumption in the generation of electric power, while also minimizing the

environmental impact caused by the burning of fossil fuels and reducing

their role in the generation of energy. The promotion of energy savings is

a key factor in any strategy centered on sustainable development where

energy, the environment and the economy play the leading roles.

The FIDE Seal is an example of a certification procedure for

“green” manufacturing processes and products, which acknowledges

the compliance of those processes or products with certain requirements

that allow them to qualify as “environmentally friendly.” In regard to

such innovations, Section 6 of the Environmental Program provides:

Product certification is another initiative of a self-regulatory nature that

results from market needs at the international level and, increasingly at

the domestic level as well. Through such a mechanism, a differentiation of

products is sought, so that those being produced with technologies of better environmental quality or which have a lesser impact on the environment are rewarded.

Once more, it should be emphasized that in order for any voluntary compliance mechanism to become widely available, the existence of

attractive and readily available funding is imperative. Otherwise, the

mechanism turns into an inaccessible luxury for the vast majority of

businesses, which lack the financial resources to take the steps necessary

for compliance.

190 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
3.4.5 Relationships with and Effects on other Compliance

Mechanisms

As may be concluded from the comments made previously, the

FIDE Seal does not, given its voluntary character and flexibility, represent any obstacle to the implementation of other compliance tools.

Instead, it may be undertaken in conjunction with other means to

achieve higher levels of environmental protection, which is after all the

ultimate goal of all compliance measures. Furthermore, in contrast to

creating an obstacle for compliance with environmental regulations, the

FIDE Seal actually promotes such compliance, thereby generating a

symbiotic relationship encouraged by economic efficiency. Such a valuable combination fully satisfies cost/benefit analysis, the key concern of

businessmen in considering any voluntary measure for adoption.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 191
BIBLIOGRAPHY

Brañes, Raúl. 1994. Manual de derecho ambiental Mexicano. México:

Fondo de Cultura Económica.

Carmona Lara, María del Carmen. 1995. Aspectos jurídicos de la

auditoría ambiental en México, Pemex: Ambiente y energía: Los

Retos del Futuro. México: UNAM-Instituto de Investigaciones

Jurídicas y Petróleos Mexicanos.

Rojina Villegas, Rafael. 1985. Derecho civil Mexicano. Book V. México:

Edit. Porrúa.

Secretaría de Medio Ambiente, Recursos Naturales y Pesca. 1996.

Programa de medio ambiente 1995-2000. México: Semarnap.

COURT DECISIONS

“Aggrieved third party.” Semanario Judicial de la Federación, Fifth

series, vol. IV, p. 691, Special Recourse (Queja en amparo

administrativo), Cía. Financiera de Petróleo de Tuxpam, 27 March

1919, unanimous decision.

“Criminal liability of moral persons’ representatives.” Semanario Judicial de la Federación, Seventh series, vols. CLXXV–CLXXX/2, p.

114.

“Jurisdiction. Voluntary adherence by a private party to authority’s acts

cannot, in principle, validate the lack of.” Semanario Judicial de la

Federación, Eighth series, vol. I, p. 174. Second Collegiate Court [of

the Suprema Corte de Justicia de la Nación] on Administrative

Matters of the First Circuit. Special Recourse (Amparo directo)

612/88. Fabricaciones, Ingeniería y Montajes, S.A. de C.V. 21 June

1988, unanimous decision. Opining judge: María Antonieta

Azuela de Ramírez. Secretary: Francisco de Jesús Arreola Chávez.

“Legal standing of aggrieved third party.” Semanario Judicial de la

Federación, Sixth series, vol. XCV/3, p. 34. Second Collegiate

Court, special recourse (Amparo) revised 4485/64, S.A. Puente

Reynosa, 3 May 1965.

“Monopolies.” Semanario Judicial de la Federación, Fifth series, vol.

XLIX, p. 1233, Second Collegiate Court, administrative recourse

under revision 4467/35, L.H. Eichelberger, presiding, 22 August

1936, majority decision.

192 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
“Redressing of Damages by Moral Persons.” Semanario Judicial de la

Federación, Fifth Series, vol. XXVII, p. 3941, Romero Flores

Andrés, presiding, 12 August 1943, unanimous verdict.

“Technical criminal responsibility incurred by professionals.”

Semanario Judicial de la Federación. Fifth series, vol. XLVII,

p. 3432. Criminal Recourse (Amparo penal) revised 6449/35,

Miguel de la Torre, presiding, 28 February 1936, unanimous decision.

APPENDIX: LIST OF INTERVIEWS

Procuraduría Federal de Protección al Ambiente (Profepa)

Secretaría de Medio Ambiente, Recursos Naturales y Pesca (Semarnap),

Unidad de análisis económico

Jesús Covarrubias

Instituto Mexicano para la Normalización y Certificación, A.C.

Mercedes Irueste Alejandre

Instituto Mexicano para la Normalización y Certificación, A.C.

Raúl Tornel Cruz

Cia. Hulera Tornel, S.A. de C.V.

Gerardo Santoyo

IBM de México, S.A. de C.V.

Armando Sánchez Pérez

Ford de México, S.A. de C.V.

José Antonio Ortega Rivero

Corporación Radián, S.A. de C.V.

Carlos Soto Rivera

Underwriters Laboratory de México, S.A. de C.V.

Santiago Lobeira Treviño

Unidad de análisis económico, Semarnap

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 193

THE UNITED STATES

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197

1.1 Environmental Regulation In The United States –

A Background Sketch. . . . . . . . . . . . . . . . . . . . . 197

1.2 A Basic Taxonomy . . . . . . . . . . . . . . . . . . . . . . 203

1.3 Report Design . . . . . . . . . . . . . . . . . . . . . . . . . 205

2. Federal Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206

2.1 The Environmental Leadership Program . . . . . . . . . 206

2.2 Examination of Selected ELP Projects . . . . . . . . . . . 210

2.2.1 Ciba-Geigy. . . . . . . . . . . . . . . . . . . . . . . 211

2.2.2 Duke Power . . . . . . . . . . . . . . . . . . . . . . 215

2.2.3 McClellan Air Force Base ELP . . . . . . . . . . . . 223

2.3 ISO 14000. . . . . . . . . . . . . . . . . . . . . . . . . . . . 224

3. State efforts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228

3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 228

3.2 Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229

3.2.1 Project Clean Break . . . . . . . . . . . . . . . . . . 229

3.3 Arizona. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237

3.3.1 Technical Assistance/Education Outreach

Unit . . . . . . . . . . . . . . . . . . . . . . . . . . . 238

195
3.3.2 Circuit riders . . . . . . . . . . . . . . . . . . . . . 242

3.4 Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . 245

3.4.1 Environmental Improvement Pilot Program/

Audit Privilege Policy . . . . . . . . . . . . . . . . 246

3.4.2 Educational Outreach and “Eco-sense” . . . . . . 254

3.4.3 Project XL . . . . . . . . . . . . . . . . . . . . . . . 256

4. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260

Appendix: List of Interviews . . . . . . . . . . . . . . . . . . . . . . 262

196 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
1. INTRODUCTION

1.1 Environmental Regulation In The United States –

A Background Sketch

Not very long ago, the observation that environmental regulatory

systems in the United States appeared to be moving from traditional

command and control instruments to a more inclusive “compliance”

philosophy might be regarded as perceptive. The same observation

today would merely be trite, so quickly has this movement taken hold.

Neither the reasons for this now apparent paradigm shift nor the potential consequences of it, however, have been studied with great care. To

begin to fill the void, this report examines several of the new

non-enforcement mechanisms designed to increase levels of compliance

with environmental requirements currently under consideration or in

use in the United States at the state and federal levels. Various early

experiences with the design and implementation of innovative measures are discussed in order to provide a point of departure for constructive analysis of potential issues and considerations that these initiatives

may raise.1

Administration of the laws and regulations intended to protect the

environment and public health in the United States is accomplished

through a complex and often confusing relationship between the federal

government and the fifty state governments. Although an extended discussion of the legal architecture and respective responsibilities of the

parties is beyond the scope of this paper, the next several paragraphs

provide an introduction to these subjects.2

197

1. Debates over semantics often dominate discussions about these new measures. For

some, these initiatives represent simply an expanded definition of enforcement, not

programmatic efforts to increase compliance through the use of tools outside the

realm of traditional enforcement mechanisms. This approach leads, in turn, to the

necessary use of such phrases as “hard enforcement” and “soft enforcement.”

This report does not adopt the expanded-definition convention. Rather, enforcement

here continues to refer only to traditional coercive efforts to alter behavior; actions

designed to encourage compliance without force or direct coercion through other,

perhaps newer measures, are not considered to be enforcement for purposes of this

report. A more detailed description of the utilized typology appears in Section 1.2.

2. This section of the paper is based on information presented in The Law of Environmental Protection, edited by Sheldon Novick and published by the Environmental Law

Institute.
Acting primarily pursuant to its authority under the US Constitution to regulate interstate commerce and those activities that may have

impacts on interstate commerce, the national Congress has enacted a

number of major statutory programs in the last several decades that may

affect one or more environmental media. Among the best-known and

most widely significant of these are the Clean Air Act (regulating emissions into the atmosphere), the Clean Water Act (regulating discharges

into waters), the Resource Conservation and Recovery Act (regulating the

disposal of solid and hazardous wastes, primarily on or below the surface of the ground), the Comprehensive Environmental Response, Cleanup

and Liability Act(regulating the remediation of hazardous waste disposal

locations), the Safe Drinking Water Act (regulating the provision of potable water) and the Surface Mining Control and Reclamation Act (regulating

the extraction of minerals from the earth).

Each of the statutes creating these programs either establishes, or

authorizes the US Environmental Protection Agency (EPA) to establish

by administrative action, those national performance standards deemed

necessary to safeguard the environment from activities in the regulated

sphere of conduct. These standards are described with varying degrees

of detail, and in different ways, in each statute. Each statute also provides the EPA with an enforcement scheme, of varying degrees of complexity and comprehensiveness, to utilize in order to coerce recalcitrant

persons to conform their conduct to the germane performance standards. Thus, each statute gives the EPA an identifiable set of standards

to enforce across the US, and the enforcement tools needed to secure

compliance with them.

It would be entirely logical to conclude that by this structure the

Congress intended to make EPA the prime environmental regulator for

the country. It would also be entirely wrong. Congress in fact intended

to set up what has been variously described as a partnership, a system of

cooperative federalism, or an oversight relationship in which the

authority for setting standards and enforcing them is exercised both by

the states and the federal government. This potentially confusing allocation of responsibility is made even more complex by the potential for a

state to have differing roles in different environmental programs.

For their parts, most states have their own comprehensive environmental programs. While these programs may be modeled on correlate

federal programs (and may in fact be sufficiently broad for the state to

secure federal “authorization” to carry out the federal program under

this local authority), they are not creatures of federal law. The state pro198 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
grams exist and operate entirely independent of federal power.3 They

are based instead on the inherent police power of the individual states.

This police power invests in the state the ability to act, legislatively and

through executive action, to protect the health, safety and public welfare

of its citizens.

It is essential, therefore, to understand that the states carry out a

sweeping array of environmental regulatory activities under their own

direct statutory (or common law) authority. These activities include

both standard setting and enforcement.4 In total, the commitment of personnel and other resources by the fifty states far outstrips that of the federal EPA. State agencies also make more individual decisions, which

affect more persons and entities, than does the federal government. In

authorized states, these agencies may also be carrying out the program

administration functions of the federal statutes. But they do this under

the color of state law, because the EPA has determined that the applicable local authority is at least congruent with the federal authority. Even if

a state elected not to seek authorization for a particular program, or if it

were removed for some reason by the EPA, the state would continue to

administer programs under its own law. In such an instance, EPA would

run a parallel program in the state under federal authority.

As this regulatory universe expanded, at both federal and state levels, encompassing an ever larger population of firms and targets for regulation, the role of enforcement has changed from being limited to

aggressive actions to impose sanctions for environmental violations to

an orientation that views enforcement as only one item on an

ever-enlarging menu of options of governmental actions to achieve comVOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 199

3. The EPA generally retains the authority to oversee state implementation of the federal program. Explicit in this oversight role is the ability to take direct enforcement

actions in instances where the federal agency determines there has been a failure to

effectively enforce the laws and regulations.

4. The federal environmental statutes generally do not preempt state legislative activity. As previously noted, they authorize states to establish programs at least as stringent as the parallel federal program. Thus, states are generally free to establish

programs which go further than the correlate federal programs, or to establish programs in areas not addressed by the federal government. Many states, for example,

had comprehensive regulations regarding municipal waste disposal long before

EPA promulgated federal standards; other state efforts address ground water protection and objectionable odors. Moreover, some federal programs which contemplate state implementing activity require the states to establish specific performance

standards to reify aspirational or conceptual national standards. The Clean Water Act,

for example, contemplates that delegated states will promulgate specific in-stream

criteria for individual stream reaches to satisfy the “swimmable and fishable” standard of the federal statute.
pliance.5 Two conceptual explanations commonly offered for this

change might be termed structural and normative.

The structural explanation derives its power from the explosive

expansion in the scope of environmental oversight in the last decade or

so. To take only two examples, the federal Superfund law (the Comprehensive Environment Remediation, Cleanup and Liability Act) and the Clean

Air Act Amendments of 1990, as well as the state statutes which implemented them, have swept increasingly more, and increasingly smaller,

entities into the net of liability.6 The latter, for instance has imposed obligations upon hundreds of thousands of car owners, on similar numbers

of commuters and their employers, and on thousands of small businesses whose emissions now exceeded lowered thresholds. Thousands

of communities and literally millions of people were made subject to

recycling requirements intended to reduce the flow of garbage to landfills. Thousands of facilities (and tens of thousands of individual tanks)

were brought into a system of registration and operating requirements

for underground storage tanks to prevent and detect leaks. Many of

these tanks were located at small, proverbial “mom and pop” service

stations and other small businesses. Agricultural operations were made

subject to regulations to improve nutrient management. Construction

sites, facilities without piped wastewater effluent discharges, and myriad other locations became responsible for dealing with requirements

for nonpoint-source discharges. The list of examples of environmental

regulatory requirements reaching deeply into the fabric of everyday

society seems to grow longer by the month.

In short, the original view that environmental degradation could

be solved by changing the behavior of a few, easily identified and

large-volume polluters has given way to a new perception that the universe of culprits is substantially more diffuse and atomistic.7 More

200 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

5. Many regulators argue that they have always employed a wide range of mechanisms

to secure compliance, and that enforcement has seemed predominant only because it

is publicized the most. A number of states have had technical assistance programs of

one sort or another, often completely segregated from enforcement efforts, for many

years. This paper assumes arguendo that enforcement has been the primary response

of regulators to non-compliance in the past.

6. CERCLA was of course enacted in the waning days of the administration of Jimmy

Carter in late 1980. While the statutory scheme was in many ways controversial from

the outset, passionate concerns about its efficacy have risen in direct relation to the

dramatic growth in the number of parties who have come to be included as direct

defendants or third-party defendants in liability and contribution actions brought

under the law’s strict liability provisions. Much of this growth occurred in the late

1980s and early 1990s.

7. As the comic strip character Pogo once presciently said, “We have met the enemy and

he is us.”
importantly, this universe is not inhabited solely (or even primarily) by

organizations with the ability to understand easily abstruse regulatory

requirements or absorb unlimited costs in complying with them. Small

businesses, without benefit of engineering or other expert skills, struggle to understand dozens of pages of technical requirements. Permit

applications often must be prepared by teams of costly experts, beyond

the easy grasp of many entities which now need formal government

approval to continue to engage in the same activities they have carried

out for years. Further, traditional punitive threats, such as the specter of

continuing fines of up to US $25,000 per day for each day of violation,

were intended originally to coerce compliance from structured organizations causing significant pollution. These responses may be wildly out

of proportion to both the extent of harm and the degree of “recalcitrance” of a small business or sole proprietorship. Popular – and judicial

– support for any fines may be scarce, for example, in instances of small

businesses that need every dollar for compliance efforts, or against individual commuters who cannot yet find mass transit to allow them to

reduce their vehicle miles traveled, or against many other easily imagined examples.

In sum, environmental regulators have become increasingly aware

that numerous structural reasons may account for one or more members

of a regulated community failing to be in compliance with applicable

requirements. There is a growing recognition that enforcement

responses may be more effective in addressing contumacious attitudes

in adversarial contexts but less effective as a first response to molding

behavior to conform to new and complex requirements. Enforcement

may be absolutely appropriate – and necessary – to respond to sophisticated entities that are knowingly violating the law, but it may be counterproductive in encouraging compliance by persons being brought for

the first time into a regulated universe. The movement away from

largely exclusive reliance on such command and control solutions

reflects a conscious effort by regulators to enlarge their toolbox by adding other mechanisms to respond to the varied causes of

non-compliance. Having discovered that the world is made up of more

than just nails, regulatory agencies are attempting to wield tools other

than just hammers to assure compliance.

The second commonly offered explanation for relying upon other

measures in addition to traditional enforcement responses stems from a

belief that societal norms and values have undergone a fundamental,

and germane, transformation. Both scientific and popular American culture of the last twenty-five years have presented a virtually constant

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 201
message of support for environmental protection.8 A steady drumbeat

has carried information about ecosystems or species threatened by pollution, environmental cancer clusters, environmental curricula in primary and secondary schools, international conferences calling for

renewed efforts to protect the environment, periodic – and catastrophic

– oil spills, data on toxic releases, and innumerable other treatments

which bathe protection of the environment in a flattering light.

To the normative theorists, the interaction between this positive

depiction of concern for the environment and the natural human desire

for cognitive consonance is not difficult to predict. Despite the suspicion

of some members of the environment community, business leaders as a

whole do not represent a distinct criminal class. Rather, such leaders

tend to see themselves comfortably in the mainstream, cherishing and

reflecting society’s values and norms. More specifically, today’s business leaders grew up during decades when their culture affirmatively

espoused protection of the environment as an inherently positive goal,

and held up for censure conduct which jeopardized our natural world

simply to increase profits. Accordingly, the argument goes, today’s business leaders bring a fundamentally different attitude about environmental regulations, and their obligation to meet them, than their

predecessors who made decisions and ran facilities at the dawn of the

environmental age.

The normative rationale commonly offered for a broader compliance approach to environmental regulation, thus, is ultimately based on

the belief that regulators and regulatees now share – perhaps for the first

time – the same goals and value systems. Non-compliance today, it is

argued, should more appropriately be regarded as a breakdown in communication or understanding and not an implicit challenge to the underlying regulatory philosophy. While perhaps quibbling about particular

methods or specifications, business leaders today are said to very much

want to do the right things for the right reasons, and should be given

every opportunity (and aid) to demonstrate this. The logical consequence of this view: enforcement responses are no longer necessary in

most instances; they should be reserved for intentional wrongdoing, or

repeated wrongdoing by those who are in fact capable of compliance.

202 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

8. The last several years have featured the emergence of a backlash to the present system of environmental decision-making and protection. It is difficult to judge yet

whether this reaction is to the substance of environmental protection efforts or to the

methods by which they have been carried out. Outright rejection of the need to maintain a diverse and healthful environment remains rare to the point of invisibility.
1.2 A Basic Taxonomy

The efforts, programs and instruments described in this report to

assist in or assure compliance with environmental obligations are frequently lumped together under the rubric of “voluntary compliance

measures.” This term offends some as being both inaccurate and

oxymoronic. To the extent that it contemplates conduct that meets external standards, it is seen as oxymoronic because obligations imposed by

law require, not request, compliance. It is perhaps the essence of the rule

of law that subjects are not free to pick and choose which lawfully

imposed requirements they will obey and which they will ignore with

impunity. Compliance with such externally established requirements

cannot ever truly be said to be voluntary in the dictionary sense of the

word: “acting or performing without external persuasion or compulsion.”9 Regulatees are always subject to external compulsion if they fail

to comply. While it is certainly true that most facilities engage in compliant behavior without such external compulsion having to be threatened,

let alone brought, knowledge of the existence of such power can hardly

be doubted. It drains the word of all useful meaning to call such conduct

“voluntary.” One may volunteer to participate in a magic trick at a parlor show, but one does not volunteer to obey the laws the sovereign

establishes.

If the use of “voluntary” makes the term an oxymoron, then the use

of “compliance” makes it misleading. Many of the instruments under

consideration as “voluntary compliance measures” utilize internally

generated practices or standards to improve environmental performance. Organizations may intend that their employees meet these internal standards, and may further hope that these standards will encourage

environmental performance that meets applicable requirements. Nonetheless, it is not helpful to speak of voluntary “compliance” with these

internal standards; compliance is traditionally associated with those

externally established obligations of the environmental regulators.

Adherence to voluntary internal measures may prove to be associated

with compliance with legal standards, but it is not synonymous with it.

Thus, the term “voluntary compliance measures” is misleading to the

extent that it induces confusion between the voluntary commitment to

internal practices and the obligatory satisfaction of external requirements.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 203

9. The American Heritage Dictionary, second college edition (1982). The definition provided in the text appears under the Law field label for the word “voluntary” and is

perhaps the most precise for these purposes. The first and second definitions, which

are connotatively consistent, are “arising from one’s own free will” and “acting on

one’s own initiative.”
This ambiguity is complicated by the existence of many different

new programs – with more innovations appearing virtually every day –

having varying designs and goals. Some efforts focus on assuring conduct that meets existing obligations. Some propose to over-control emissions in order to achieve levels of environmental protection not

presently required by law.10 Others hope to exchange present requirements for newly conceived obligations that will realize at least equivalent environmental protection, and do so at lower cost. Virtually all of

these efforts have been called, at one time or another, “voluntary control

measures.”

In the hope of bringing some greater discipline to the examination,

this report utilizes the following scheme of classification in describing

the situation as it currently prevails in the United States:

a) compliance assurance measures – any actions, programs,

efforts, mechanisms, and the like, not required by law, that a

person voluntarily undertakes to make it more likely that he

will comply with external legal obligations. These actions may

be entirely unilateral (e.g., creation of an environmental management system), bilateral (negotiation of a binding agreement, not required by law, to bring greater clarity to an

ambiguous standard of care or requirement), or multilateral

(third-party auditing and disclosure under a program of penalty forbearance for prompt correction).

b) environmental improvement measures – any actions, programs, efforts, mechanisms and the like, not required by law,

that a person voluntarily undertakes to reduce the total mass

or toxicity of pollutants released to the environment.

c) environmental exchanges – any actions, programs, efforts,

mechanisms and the like, not otherwise required by law, to

control or reduce the release of pollutants to the environment

that a person commits in a binding legal document to undertake, usually in exchange for relief from other applicable

requirements.

In a simplistic sense, the first of these categories can be viewed as

fostering compliance with existing standards, while the second and

204 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

10. Some measures may fall into several categories. Pollution prevention efforts, for

example, may make it more likely that a discharge will comply with applicable limits or may reduce total environmental loading below that required by law, or both.
third categories have as their common element compliance with standards other than the normally applicable ones. Environmental improvement measures, of course, supplement compliance with existing

standards by the addition of voluntary control activities, not required by

law, to reduce pollution directly. Finally, environmental exchanges

attempt the most radical transformation of the present system by focusing on releases often largely outside the current regulatory ambit. Facilities agree to devote their energies to partial or total control of these

previously neglected sources; in return they are granted leave to ignore

some otherwise applicable obligations.11

Environmental improvement measures and environmental

exchanges can be seen as examples of a far more ambitious effort to

remake the entire process by which the basic environmental protection

standards are established. This broader topic is beyond the scope of this

report. Consequently, the focus of this examination will be on compliance assurance measures, or efforts to enhance compliance with existing

standards. Environmental improvement measures and environmental

exchanges will be considered only where they are directly related to the

central theme.

1.3 Report Design

The shifting view of enforcement described above in Section 1.1 is

taking place against a complex backdrop. Many agencies now recognize

that end-of-the-pipe solutions have not addressed all environmental

problems at all facilities, and are not likely to any time soon. At the same

time, government has been widely criticized for lacking a sufficient service orientation. This has led to increased efforts by regulated industries

and others across the nation to moderate the negative impacts of government action on commerce. Even the matter of employee training and

retraining for more effective public outreach impacts the discussion. As

a result, new developments in compliance assurance now reflect markedly different regulatory approaches and new roles for employees of

regulatory agencies.

In response to these cultural changes and continuing criticisms,

state agencies and the EPA have begun to consider new regulatory

approaches and new roles for their employees. These efforts to improve

regulatory relationships and increase levels of compliance through

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 205

11. In theory, an agency will only enter into an agreement relieving applicable requirements where the specific substitute actions proposed will confer at least an equivalent, and preferably greater, benefit on the environment.
non-adversarial mechanisms are at varying stages of development,

although most are still in pilot or experimental phases.12 Consequently,

this paper attempts to provide a brief description of several selected

compliance assurance measures that illustrate the breadth of these innovations. These capsule descriptions provide a foundation from which to

pose questions about different views of such issues as openness, agency

capture, risk of induced error, fairness, resource consequences and others. It is hoped that this will in turn lead to a better understanding of

these compliance assurance measures and how they might alter the way

in which agencies act and might be perceived, thus aiding in the evolution and acceptance of the policies themselves.

2. FEDERAL EFFORTS

2.1 The Environmental Leadership Program

The Environmental Leadership Program (ELP) of the United States

Environmental Protection Agency is the leading edge of the federal

effort to explore alternatives to traditional enforcement responses. The

program was inaugurated in June of 1994 with a formal public request

for proposals from facilities who wished to participate in the pilot phase

of the effort. According to EPA’s announcement, the program has four

major purposes:

· to examine the basic components of what should be stateof-the-art compliance management systems (e.g., mentoring,

pollution prevention);

· to identify the verification procedures (e.g., third-party auditing, self-certification) that ensure that the ELP is working;

· to establish measures of accountability so these management

systems will be credible to the public; and

· to promote community involvement in understanding and supporting innovative approaches to compliance.

Facilities were encouraged to volunteer to demonstrate innovative

approaches to environmental management and compliance. EPA

206 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

12. Of course, many of the compliance assurance measures are being introduced at the

state and federal levels as pilot programs. Proponents have expressed a desire to

proceed cautiously and with ongoing evaluation in order to assess the efficacy and

acceptability of these new directions.
looked for particular program elements in selecting participants. These

included advancing the design of sophisticated environmental management systems (such as ISO 14000), providing assurance of performance

through third-party certification, self-certifying compliance, and establishing public measures of accountability.

Facilities receive several benefits from participating in the ELP.

According to EPA, selected facilities gain “public recognition for their

ELP participation.” More tangibly, perhaps, they also were granted a

period of amnesty from punishment for violations detected and disclosed during the program. EPA issued Enforcement Response Guidelines specifying the modified enforcement posture it would adopt

regarding participating facilities. According to the Guidelines, neither

EPA nor the appropriate state agency would conduct routine inspections at ELP facilities. All inspections, including those mandated by law,

would be conducted in the course of the specific facility ELP project.13 In

exchange for disclosing knowledge of existing or newly detected violations, ELP participants were to receive a 90-day period to correct violations without being subject to enforcement action (including notices of

violations or penalties). The correction period can be extended an additional 90 days in certain instances.

Finally, ELP facilities were given the opportunity to work collaboratively with EPA and state regulators to identify methods for reducing

inspections and streamlining reporting requirements. This last benefit

may in fact be more substantial than its wording first suggests: examination of some of the projects reveals an unusual relationship in which the

roles of regulators and regulatees are almost entirely reversed, with the

facilities providing the standards of conduct for the agency officials to

consider.

EPA ultimately selected twelve facilities from more than 40 volunteers to conduct pilot projects. Of the twelve, four are electric utility

power plants, two are military installations, and the remaining six are

traditional commercial installations. One of the six projects involves two

related waste management facilities; four others are manufacturing

locations and one is a small printer.

Each participating facility signed a formal Memorandum of

Agreement (MOA) with the EPA and the appropriate state environmenVOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 207

13. The Guidelines reserved the right of EPA or the states to conduct inspections and

respond appropriately in instances of imminent and substantial endangerment to

public health or the environment, or in response to information concerning potential civil or criminal violations at the facility.
tal regulatory agency. The MOA became the blueprint for the facility’s

project and for the role of regulatory officials in participating or overseeing the administration of the project. Each MOA identified the members

of the project team, which comprised representatives from the facility

and from the state and federal regulatory agencies. The Enforcement

Response Guidelines were referred to and attached to each MOA, insuring a consistent and predictable response by state and federal officials in

the event of any violations at any participating facility.

As the name itself suggests, the ELP effort is a pilot program to

identify the characteristics of facilities and organizations which can be

regarded as environmental leaders. EPA has chosen to work closely

with these twelve carefully selected facilities in order to scrutinize various programs, instruments, attitudes and other considerations which

may contribute to this intangible quality of environmental leadership.

Environmental leadership, moreover, means more to EPA than simply

environmental compliance. While each facility was chosen in part

because it has a solid compliance record with state and federal regulators, EPA feels strongly that compliance alone is not sufficient to warrant

the leadership mantle. EPA has accordingly looked for facilities which,

among other things, also mount effective community outreach programs that provide opportunities for dialogue and participation by local

affected populations.

EPA has designed the ELP in part to allow regulators to work far

more closely and collaboratively with regulated facilities than has previously been the case. These new relationships are expected to allow environmental regulators to gain a much more comprehensive and

sophisticated understanding of activities, processes and functions at

large facilities. EPA hopes to evaluate the merit of moving from the position in which inspectors took, in essence, a simple snapshot of the state of

a facility’s compliance at a given moment to making a video which views

an entire management system in order to discern why present conditions exist and what mechanisms are in place (or are needed) to insure

continued compliance (or prevent recurrences of noncompliance).

Further, EPA regards the program as having very well defined

boundaries which provide opportunities for agency enrichment while

safeguarding against serious negative consequences. In addition to having positive compliance records, participating companies were required

to provide, where available, two prior years of audit data. This is

intended to help EPA gauge compliance baselines. Limiting the program to a pilot period will allow the agency to evaluate its utility

promptly and make judgments about future directions.

208 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
At the conclusion of the pilot, EPA will examine the value and significance of the various programs it has considered at ELP facilities. It

may then, for example, develop a composite model environmental management system which represents the best of the systems reviewed. The

agency may also identify the components of an effective community

outreach program. Overall, the analysis may result in the identification

by EPA of those compliance, management, outreach and other attributes

that make up an environmental leader.

EPA plans for these “requirements” for environmental leadership

to raise the floor substantially for what will be considered acceptable

environmental performance. Even though they will not represent

legally binding norms, companies vying to be regarded as environmental leaders will be expected to conduct themselves according to these criteria. In addition to recognition by the general public, which will inure to

enrollment in this elite group, such leaders may be able to benefit from a

range of positive governmental consequences EPA is considering making available. Although none has been finally approved, EPA may ultimately decide to provide some or all of the following incentives under

review to environmental leaders:

· formal government recognition of leadership status,

· better relations with government,

· a modified inspection program,14

· differential enforcement discretion,

· modified reporting and notice requirement, and

· economic incentives.

All of these components are consistent with EPA’s vision of itself in

the near future as an agency looking for higher rates of compliance with

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 209

14. EPA reports that some facilities have indicated that they may not want reduced

inspection levels even if they have a comprehensive management system in place

or are considered an environmental leader. They appear to feel that continuing

governmental vigilance provides additional legitimacy to their position in the

community as environmentally conscientious citizens. This may provoke an interesting dialogue with regulators who hope to use innovative measures such as leadership designations as ways to conserve inspection resources. In a fascinating role

reversal, an agency may find itself trying to persuade a facility to accept fewer

inspections while the facility argues for more frequent formal inspections!
less intensive use of resources and a less intrusive/adversarial relationship with regulatees.15

Finally, the ELP effort should be distinguished from Project XL,

another EPA initiative. Although the variety of innovative measures

encompassed within the twelve facility projects is broad enough to

cause some blurring, ELP is fundamentally an examination of compliance assurance measures. According to EPA, the ELP projects are specifically intended to test new approaches to assuring compliance instead of

relying upon command and control measures. The ELP projects work

within existing regulatory requirements, seeking to meet current standards with reduced costs and burdens.

In contrast, Project XL is an environmental exchanges effort. It will

examine entirely new regulatory management systems as alternatives to

the existing approaches for setting standards. Projects will be granted

flexibility from current regulations in exchange for environmental performance which will be superior to that achieved by compliance with

those current regulations.

2.2 Examination of Selected ELP Projects

It is too early in the pilot study to provide a definitive examination

or analysis of the ELP projects at this time: the projects do not reflect final

recommendations by either industry or government, and they are not

yet concluded and can only be considered works in progress. Nonetheless, an examination of several selected projects as proposed in the MOAs

can provide some perspective into the scope and direction of the effort.

Each MOA describes a unique program designed by the specific facility

in collaboration with the regulators. Nonetheless, there are several frequently recurring elements: management systems, audits, community

outreach, mentoring. The following three project examinations offer an

overview of the ELP effort. The analysis offered in the context of each

facility-specific program is intended to illuminate issues that may be

raised about similar innovative measures and is consistent with EPA’s

210 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

15. It seems clear that the process of developing and implementing the ELP was itself a

resource-intensive undertaking. It necessarily included design of the pilot effort,

selection of the participating facilities, negotiation of the individual MOAs, and

then conduct of the programs, many of which involved extensive agency interaction with the facilities. It is perhaps not surprising that a pilot consumes more

resources than it conserves. EPA’s long-term goal, of course, is to implement a

maintenance program which saves resources, or at least deploys existing assets in a

more effective manner. Without a clear view of the final program dimensions, it is

simply too early to know whether a fundamentally new relationship will achieve

such efficiencies.
intent to consider these various measures for broader application

beyond the pilot phase.

2.2.1 Ciba-Geigy

The Ciba-Geigy St. Gabriel (Louisiana) plant is a highly automated

herbicide, specialty chemical and textile dye manufacturing facility. It

employs approximately 1000 people on a 550 hectare site, 60 hectares of

which are the plant proper, bordered on two sides by the Mississippi

River. The plant has been in use since 1970.

EPA selected Ciba-Geigy to carry out several separate ELP projects. Like those of several other facilities, the Ciba-Geigy proposal does

not envision developing fundamentally new mechanisms to encourage

compliance. The Memoranda of Agreement (MOA) between the facility

and the regulatory agencies describes three existing Ciba-Geigy programs which will come under close examination by federal and state

regulators. The current programs, which may serve as the basis for models for broader use, are environmental management systems,

multi-media compliance assurance, and community outreach. As with

every ELP project, a team of specifically designated individuals from the

facility, EPA headquarters and the Region, and the state environmental

agency has been constituted to carry out these reviews.16

Since the selected programs are essentially extant, the focus of the

activity described in the MOA entails examining systems already in

place. Since Ciba-Geigy staff are presumed to be familiar with their own

programs, the MOA refers frequently to the need for regulatory officials

to become knowledgeable about existing efforts. For example, the discussion of the environmental management system project notes that “it

is important that the agency ELP Team members have a complete understanding [of] Ciba-Geigy’s environmental management systems. To that

end, St. Gabriel will provide comprehensive training.” Similarly, the

multi-media compliance assurance project description explains that the

“ELP Team will study and evaluate the compliance programs that are in

place at the St. Gabriel facility.” Finally, the community outreach effort is

based on the ELP Team “studying and evaluating the community outreach/employee involvement program elements that are in place at the

St. Gabriel facility which have helped build a trusting relationship

between the facility and the East Iberville community.”

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 211

16. There is currently no formal community representation on the team. However,

EPA has asked all the project teams to work with local community groups and

bring them into the pilot process. EPA will also engage in a dialogue with national

environmental groups in Washington about the ELP effort. Finally, EPA plans to

conduct a series of symposia on ELP around the country.
It would not be fair to leave the impression that the three

Ciba-Geigy projects involve only the passive review of present practices.

For each project area, the tasks and objective include the development of

proposed models or templates, employing the best elements of

Ciba-Geigy’s programs, which could be exported to other facilities. Language from the community involvement project description is representative: “From the results of this study, a model program template will be

proposed which combines key program elements and alternative elements that can be used by a wide array of regulated facilities.” This statement reflects EPA’s ultimate goal of blending the best elements from all

the ELP facilities (and other sources) into a model definition of environmental leadership.

Analysis

It bears repeating that neither the examination of current programs

nor the sculpting of components into a model for other programs has

been completed. It is therefore too early to evaluate the likely effect of the

final results on compliance levels. Some observations can be made now,

however, about the process.

It is certainly clear that the role played by regulators in this exercise

bears virtually no resemblance to their traditional enforcement posture.

The implications of this new role may not matter if Ciba-Geigy – or

another facility participating in ELP or a successor leadership program –

does not experience significant instances of non-compliance in the

future which place the facility and regulators in an adversarial context.

If, however, either EPA or the state comes to contemplate enforcement

action against such a facility, some challenging issues may arise.

A long-standing concern of regulators, for example, is that of “capture.” Regulators have generally felt it essential that they avoid the perception, or the reality, that they are so closely affiliated with a facility or

company that they have lost the ability to respond impartially and in a

manner consistent with the treatment of other facilities. This unhealthy

closeness can occur on the personal level of an inspector who is too identified with a facility or on the institutional level, as when an agency

appears to endorse the actions of a facility.

The Ciba-Geigy MOA, and the ELP project it describes, can certainly be viewed as raising the possibility of capture. Since the MOA is

written by all team members and signed by high-level federal and state

regulatory officials, it can be argued that these officials, and their agen212 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
cies, support or agree with numerous statements within it which praise

Ciba-Geigy and its environmental efforts. Will a future enforcement

action be compromised by the fact that these officials appear to have

supported the statement that Ciba-Geigy St. Gabriel has “a high rate of

compliance with regulations”? Or by the statement that Ciba-Geigy has

created a “trusting relationship between the facility and the East

Iberville community”?17

Further, the close working relationship of the ELP Team makes the

prospect of capture, or the perception of capture, all the more possible.

The very goal of the projects is to produce, jointly between facility staff

and regulators, models or recommendations for use at other facilities. It

would not be at all unusual for persons thrown together to work on a

common project to come to view their interests, at least to some degree,

as aligned and affiliated. Such feelings about a regulated facility, or public perceptions of the existence of such feelings, are antithetical to the

concept of disinterested decision-making.18

A related but independent legal concern is raised by the ELP projects and their formal products. The concept of capture implicates a kind

of psychological or behavioral inability by a regulator to respond effectively to violations. The captive regulatory official is not formally

stopped from taking appropriate action; he simply cannot bring himself

to think badly of or punish someone with whom he has a close affiliation.

In contrast, the separate doctrine of officially induced error (or detrimental reliance) represents a distinct legal barrier to governmental

enforcement action where the regulated entity can demonstrate that its

violation of a standard can be attributed to some official government

action that led it to commit the violation.

Here too, it seems eminently likely that the united government-regulatee effort to propose model practices for a number of comVOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 213

17. EPA thought such risk of future compromised enforcement to be unlikely based on

Ciba-Geigy’s historic good compliance record. Facilities were only included in the

program where such risk was perceived as low. Each ELP facility was selected after

thorough civil and criminal compliance screening at both the federal and state levels. EPA, thus, feels that the risk of future enforcement is low enough to warrant

conducting the pilot. It perceives the potential benefits from exploring these new

relationships to justify any risk.

18. This distinction between the act and the perception is significant. It may in fact not

be likely that inspectors will tailor their responses based on a close working relationship with a facility or its staff. Nonetheless, the public may be skeptical of an

agency which is too close to a facility that it is expected to objectively regulate. EPA

hopes to overcome this perception issue. It also believes that both the reality – and

the perception – of capture are made much less likely by the planned collaborative

nature of the interaction and by the diverse team concept.
pliance areas will make the use of this defense more plausible. The ELP

pilot intends to propose one or more model environmental management

systems to help other facilities better manage their operations and better

assess their environmental compliance. There are a number of issues

raised by development of such an official model. Will ELP facilities (or

future facilities in a permanent program) who implement these model

programs gain a defense to penalty actions in the future because they

relied upon a government-endorsed management program? Might

facilities adopt the recommended system in preference to systems that

might actually function better because they hope to derive the benefit of

being able to argue the defense of officially induced error? The ELP

MOAs neither identify nor propose to address these concerns at this

time.

EPA is committed to reaching these issues as it considers expanding the pilot into a formal program. The ELP allows it to test these new

relationships and governmental roles as part of the pilot evaluation.

EPA is looking ultimately to validate or refute its hypothesis that the

potential benefits of this new approach outweigh the risks. This hypothesis is being similarly tested by state governments through their own initiatives. These benefits may include an increased knowledge of facility

operations by government regulators; an increase in joint inspections

and audits, including multi-media assessments; more “process”

reviews, which promote future compliance; and an overall higher level

of compliance.

Transparency and participation are additional relevant measures

for the Ciba-Geigy ELP project. Environmental requirements are generally established today by formal process which is largely open to review

and includes clearly delineated opportunities for public input. Even

enforcement actions, initially arrived at by unilateral government decision, are subject to public review through participation in the judicial

process. While one of the three elements is community outreach, the

Ciba-Geigy ELP project plans to conduct its activities within a very small

circle of participants, not currently including the general public. The

scope of an internal environmental management system or multimedia

assurance system may not appear to rise to the level of significance of

regulatory standard, or require public participation, but the unique circumstances here argue otherwise. The fact that these systems are

intended for wider use gives them greater resonance, suggesting the

need for community involvement. Moreover, the implicit (or perhaps

explicit) imprimatur of government regulators on these systems, with its

214 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
previously suggested implications, makes the need for wider input all

the greater.19

2.2.2 Duke Power

Duke Power operates the Riverbend Steam Station, a 454-megawatt coal-fired electric generating plant on the Catawba River in North

Carolina. Riverbend has over 100 employees, one of whom is the Environmental Coordinator, who reports directly to the plant manager. The

Riverbend station was chosen as an ELP site involving a number of disparate projects which are now simultaneously being carried out.

A. The Riverbend Steam Station Audit Program

One project involves an auditor exchange, which is a variant of the

notion of third-party auditing. Riverbend proposes to supply an auditor

to participate in assessment activities at a power plant of the Arizona

Public Service (APS). In turn, APS will provide an auditor to review

implementation of the facility assessment program at Riverbend. The

expressed intent of this auditor exchange program is “to network, to

benchmark, to acquire external input into [the Riverbend] audit process....”

From the written description, this particular ELP project does not

involve government participation, either in the design (save some minor

refinements suggested by government team members) or implementation of the third party audit program. It does not, therefore, implicate the

same concerns for agency capture or officially induced error. Pursuant

to the EPA Enforcement Guidelines which are a component of the ELP

projects, any violations detected by the audit need to be disclosed to the

appropriate agencies. If so disclosed, no penalties will be imposed for

violations qualifying under the Enforcement Response Guidelines if

they are corrected within 90 days.

Regular auditing of environmental performance is generally

accepted as a useful compliance assurance measure and, increasingly, is

viewed as the minimum standard of care for environmentally conscientious facilities. The refinement which Riverbend offers in its ELP project

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 215

19. EPA’s view is that it has been difficult to engage local community or interest groups

in the environmental management system development process. Many other more

immediate issues command a greater priority for these groups. However, EPA

endorses the view, also advanced by the Responsible Care program, that communities should be involved in the development of environmental management systems. This will be one of the topics explored at its national symposia series, and in

meetings with national environmental interest groups.
is to exchange auditors with an unrelated but similar facility. In this

practice, each facility sends a team of its own internal auditors to perform a comprehensive assessment of an unaffiliated facility and report

its findings to management. This approach may in fact offer some additional advantages. The opportunity to “benchmark,” i.e., to observe

what another is doing better and then to adopt the superior practice,

could very well encourage continuous improvement. This is especially

likely if Riverbend periodically exchanges auditors with different facilities. Moreover, the same question of “capture,” this time of workers’

actions, may be avoided by assigning the audit responsibility to someone who is independent.

Audit Incentive Programs

The larger question that may be asked about any program offering

governmental incentives for audits is whether the enforcement forbearance which an agency provides for audit disclosures is justified. The

argument supporting protection from penalty for violations discovered

by audits is that it is of crucial importance to encourage the detection,

and prompt correction of, environmental violations. This objective is

important for at least two identifiable reasons. First, it serves the primary

goal of the environmental regulatory structure to encourage compliance

with requirements. A violation cannot be corrected until its existence is

known by responsible officials; an audit, in theory, detects such conditions whether intentional or otherwise. Second, self-auditing can supplement, or even replace, government oversight of facility operations.

Limited government resources can be maximized if some portion of regular inspections can be obviated by comparable internal efforts at

self-policing.

Any negative consequences attached to audit discovery and

response may, it is argued, serve only to discourage rigorous selfexamination in the future. Industry has long maintained that it is illogical for it to provide evidence of instances of non-compliance if the very

act of identifying and revealing this information becomes the basis for a

punitive governmental response, regardless of the vigor of the facility’s

corrective response.

There is a certain irony in this argument in support of enforcement

protection for audit disclosed violations. Proponents of this position

appear to be confirming, wittingly or not, the theoretical construct that

enforcement responses will serve to alter the behavior of both the direct

and indirect subjects. Advocates for protection from enforcement penalties for conditions disclosed by audits and corrected, however, appear to

216 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
believe that enforcement actions will not deter future wrongful conduct

but will discourage use of the assessment process which reveals the conduct and allows its correction.

Given the choice between a) promptly detecting (and correcting)

non-compliance but running the risk of a fine or b) not detecting the

non-compliance promptly (or at all) and thereby postponing both corrective action and the fine, audit advocates appear to prefer the latter.

Even if they do not actually prefer it, they fear that it will be the choice of

many firms and facilities. This choice, the audit advocates unfortunately

know, is not supportable environmentally, publicly or politically. The

preferred solution for many, of course, is to eliminate the need to make

any choice by removing even the threat of punitive sanctions for discovered and disclosed violations. The EPA Enforcement Guidelines accomplish exactly this.

Audit programs may already be too well entrenched to be considered experimental. There are a number of issues about them, nonetheless, that should be considered.

At the basic theoretical level, one can question whether the audit

amnesty philosophy is designed to deter violations or merely to detect

and correct them. This is not a distinction without significance. In basic

enforcement theory, the initiation of enforcement – whether it consists of

simply the compulsion to correct or includes a penalty as well – is

intended to be sufficiently unpleasant to make repetition of the violation

less likely. The express goal of enforcement is not limited to merely

restoring the status quo to one of lawful conduct. It includes as an equal

objective the deterrence of future deviations from the lawful norm.

Most audit amnesty programs implicitly regard this deterrent

component of enforcement as unimportant at best, counterproductive at

worst. These programs emphasize, virtually to the exclusion of other

considerations, the need to correct the present violation. While this goal

is certainly of great importance, it is unclear whether it is wise to sacrifice

at its altar those mechanisms which would at the same time prevent

recurrence of the violation. For example, how does an audit amnesty

program affirmatively discourage employees from allowing, through

inattention or negligence, non-complying conditions to come into existence?20 If employees can be presumed to be knowledgeable both about

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 217

20. The scope of this inquiry does not extend to intentional violations. Most audit

amnesty programs, as do the Enforcement Guidelines, exclude intentional or criminal violations from any forbearance policy. The efficacy of the criminal exclusion is

discussed below.
their firm’s audit procedures and the government’s amnesty response,

then it can be speculated that their vigilance may in fact be reduced.

They will carry out their tasks with the assurance that if they make a mistake which compromises environmental performance, it will inevitably

be detected and corrected by the next audit. Further, as long as the audit

mechanism works and amnesty is extended, their employer will not face

enforcement; it will simply take those steps and expend those funds

which were required all along for compliance.

There is nothing the least bit censorious or disapproving – let alone

punishing – about this process. There is nothing about it which denotes

the violation as an exceptional event with implications for the future.

Indeed, a woebegone observer trapped in the lockstep enforcement

mentality of the 1980s who was afforded a glimpse of this dynamic

might understandably wonder if environmental violations had simply

become a quotidian element of business, to be accepted and corrected

without interest or reaction from government regulators. It is only an

additional act of mild fantasy to imagine a series of violations, perhaps

different each time and perhaps not,21 discovered and corrected by successive audits without any governmental enforcement response serving

to deter this sequence.

Some may counter that violations conferring a significant economic benefit on a facility are usually exempt from amnesty protection.

This intuitively necessary exemption from such programs (to level the

playing field), however, only serves to underscore the same problem.

First, to the extent that the prime audit supposition is correct – i.e., if

audit results are not protected, then audits will not be conducted or disclosed – this exemption means that audit efforts will not encompass

those significant violations most likely to be of harm to the environment

and of concern to environmental regulators.22 Second, this exemption

confirms that the deterrent and leveling effects of enforcement

responses will remain necessary to address serious problems. And if

regulators must remain thus engaged even where audits are nominally

conducted, the value of such programs in reducing demands on regulatory resources is greatly diminished.

218 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

21. Many audit policies, like the Guidelines, only disqualify from protection subsequent violations when the prior ones were the subject of an enforcement action.

Some policies contain a vague reservation of rights to respond to repeat violations

or patterns of violations. As discussed below, the imprecision inherent in such

approaches only introduces additional difficulties. Of course the Guidelines, like

virtually every other audit program, exempts from enforcement protection serious

or criminal violations, or acts which cause damage to the environment.

22. Of course, if the supposition is not correct, then there is no need for the amnesty

provisions in the first place.
Audit Programs and Ambiguity

The related question of quantifying or establishing “significant”

economic benefit introduces a second set of issues about audit amnesty

programs. For lack of a more elegant description, these programs appear

to be constructed on a binary foundation. That is, firms are either completely immune from enforcement for a violation or completely at risk

for it depending on certain stated criteria regarding the amnesty program. The criteria commonly include such elements as the detection of

the violation through an audit, prompt correction of the violation, the

violation not constituting criminal conduct, the violation not conferring

significant economic benefit on the violator, and the like. Unfortunately,

these criteria are not the stuff of which objective, undisputed and clear

decisions are made.

For example, the central concept of auditing is not self-defining.

There are, to be sure, many definitions of audits and audit programs

which can be consulted. But are firms free to decide which definition,

which program description, they may follow?23 And does government

have to involve itself in what was advertised as a private practice to certify acceptable audit procedures? Even settling the question of definitional scope does not eliminate potential problems. Does the discovery

of a violation have to be made in the precise context of a process that

meets the endorsed definition to invoke the protection of an amnesty

program?24 Can a firm be sure that the government will agree that it has

implemented a satisfactory, continuing, systematic self-review process

if it discovers a violation in its very first audit, without a track record to

show a continuing commitment to the process? Such questions acquire

great significance because complete protection from enforcement under

these programs turns on their resolution. It is not difficult to envision the

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 219

23. See the discussion below regarding ISO 14000 and the various extant federal programs which already address the necessary sweep of management and audit systems.

24. This is not an academic inquiry. An enforcement case which became a standard

bearer for those seeking an audit and disclosure privilege involved a waste management company which disclosed information to the regulatory agency that one

of its facilities had intentionally and deceptively accepted substantial volumes of

waste in excess of its permit limits. Defenders of the company protested that it

should never have been made to pay a fine for these violations, notwithstanding

that the fine was mandatory, not discretionary, under law, because of the voluntary

disclosure. The discovery of these violations, however, occurred almost

serendipitously by a high company official in the course of his normal duties. It was

not unearthed during an audit or any other systematic procedure, regular or episodic, to evaluate compliance. If an audit amnesty program had been in place, the

question of whether this was a “qualifying” audit discovery would have been central to any contested enforcement action.
conduct of complex and lengthy preliminary proceedings to determine

whether a regulatory agency has retained authority to initiate enforcement at all.

The same ambiguities plague the other criteria. The meaning of

prompt corrective action surely lies in the eye of the person beholding

the violation, and therefore having to find the funding and secure the

necessary goods and services to correct it.25 From this standpoint, the

inclusion of significant economic benefit is particularly perplexing.

Except in rare circumstances (usually involving an accidental loss of

product to the environment, which does not require an audit to detect

any way), every violation results in some economic benefit to the person

who failed to adequately control. An audit amnesty policy incorporating

this criteria requires the government to decide where to place the economic benefit of every disclosed violation on the continuum from negligible to significant in order to decide, again, whether the authority to

bring enforcement has been retained or waived by policy. The government’s conclusion about the placement on this continuum may not mirror the judgment of the disclosing firm.

Notwithstanding these uncertainties, the existence of the criminal

conduct criteria may in fact be the most mystifying. The decision

whether an action is criminal or not is a uniquely legal determination,

and one which can be made only at the end of an enforcement proceeding guided by its own complex rules. It goes virtually without saying

that the dozens of environmental criminal cases which have gone to trial,

and beyond, bear testimony to the difficulty of ascertaining whether

specific conduct was criminal. Yet, the Enforcement Guidelines and

other comparable policies make this determination, which requires its

own enforcement action, a prerequisite to the initiation of an enforcement action. There may be a path out of this wilderness of mirrors, but it

is not evident from the Guidelines themselves.

220 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

25. The EPA Enforcement Guidelines ostensibly limit prompt corrective action, for

purposes of enforcement amnesty, to 90 days (with a discretionary 90-day extension). It is difficult to imagine that this, or other arbitrarily defined time periods,

will not be subject to intense jawboning and negotiation by those who believe they

can show that they cannot make the necessary corrections within the maximum

time despite good faith and best efforts (e.g., equipment cannot physically be

ordered, delivered and installed in the allowed period). After all, they will argue,

they have done all that they can to detect, disclose and correct. Why should they be

subject to enforcement when the ability to correct “promptly” is beyond their control? Nonetheless, it is EPA’s expectation that most companies will want to do the

right thing and will correct within the contemplated time frame, or will agree that

the problem should be handled pursuant to traditional expectations. The first year

of the ELP has borne this expectation out.
These problems are in great measure solved if the existence of an

audit program which detected violations and the prompt correction of

the violations were each factors to be expressly considered by the ultimate adjudicator of enforcement sanctions, and not threshold criteria for

enforcement itself. The scope of the audit program, for instance, or the

promptness of corrective action in light of all the relevant circumstances,

would all be important factors in determining the appropriate enforcement deterrent sanction, if any. Such information could also be identified as relevant in the guilt and punishment phases of criminal trials.

This would preclude the incongruous experience of holding a criminal

trial at which a verdict of not guilty means that the government did not

have authority to bring the trial in the first place.

Proponents of audit amnesty programs frequently claim that they

need the certainty of protection from regulators to stimulate the use of

audits. The certainty they have secured in the current run of programs,

however, is more illusory than real. The disappointment of those who

are eventually confronted, to their surprise, with enforcement for what

they thought was protected will be all the more crushing because of

these expectations.

B. The Riverbend Steam Station Community Involvement Program

A second ELP project at Riverbend is devoted to community and

employee involvement. Through this effort, the ELP team hopes to

develop a teaching curriculum and lesson plans regarding electric generation facilities and their interaction with pollution prevention efforts

and with ecosystems. According to the Memorandum of Agreement, the

plans and teaching materials “will be tailored to Riverbend [...] to

include any planned environmental enhancement for the site as

described by our site-based environmental programs, pollution prevention activities, and the EPA Environmental Leadership Program for

Riverbend.” The avowed benefits of this effort include reinforcing “with

students and educators that Riverbend produces electricity in an environmentally compatible manner.” This undertaking will be augmented

by open houses at Riverbend, where EPA will be expected to participate

and demonstrate the successes of the ELP at the facility.

Analysis

The previously noted observations about the specter of agency

capture presented in the Ciba-Geigy ELP apply with at least equal vigor

here. The Riverbend project also has as an express goal the transformation of the relationship between regulator and regulated. According to

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 221
the MOA, federal and state officials are committing to a “’hands-on’

learning experience by actively participating in the Riverbend pilot projects.” Even further, Riverbend expresses the hope that it will develop

with the regulators what it (in the MOA) calls “business relationships”

that are conducive to trust and progressive process development.

There are some differences between this program and the one at

Ciba-Geigy, although their significance may be more apparent than real.

The new relationship with regulators is forged here not in the context of

working on a true compliance assurance program (like the environmental management system at Ciba-Geigy). Riverbend and the government

officials will collaborate on educational outreach efforts into the community to present the heartwarming saga of environmentally friendly

electric power generation. In one sense, then, the capture phenomenon is

not as worrisome because the cozy agency affiliation does not occur in a

traditional regulatory setting. Indeed, while educational efforts are

important in developing community understanding, there is no clear

link between this activity and increased compliance. There may be some

anecdotal evidence supporting the view that effective community outreach and education programs lead to greater citizen vigilance and, ultimately, improved company conduct.

That void, unfortunately, may also be the reason to be even more

apprehensive about the potential for capture in this instance. Community outreach programs may eventually become one of the requirements

for inclusion in an ongoing environmental leadership program. If

non-compliance situations arise, outreach efforts praising a facility in

broad, public contexts, may be even more problematic for government

regulators to deal with than the narrower association with Ciba-Geigy

over a relatively technical environmental management system. These

outreach efforts can be expected to burnish a company’s environmental

image generally with the community and the public. Regulators thereafter considering enforcement against Riverbend may be influenced not

only by their own ELP-formed perception that Riverbend is an environmentally concerned citizen; they may also be affected by a sense that the

public at large will not accept this new, incompatible image of

Riverbend as polluter. These considerations would substantially undermine an agency’s ability to respond, even in traditional enforcement situations.

Notwithstanding this concern, EPA and Duke Power believe that

their non-traditional relationship holds the potential for great return.

Joint compliance audits with state, federal and company inspectors provided valuable insights to all parties. The careful entry screening process

222 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
and the limited nature of the pilot are seen as justifying any theoretical

risks.

2.2.3 McClellan Air Force Base ELP

McClellan Air Force Base is located ten km from Sacramento, California. The installation covers about 1200 hectares and employs almost

16,000 workers, making it the largest industrial employer in northern

California. McClellan is the predominant space and logistics facility for

the Department of Defense. As such, it carries out a wide range of activities related to the operation and support of aircraft and the monitoring of

satellites.

The McClellan project is instructive because the relevant MOA

points out, perhaps more evidently than most other projects, the exceedingly tentative and preliminary nature of the entire ELP effort. Although

the introduction to the MOA purports to “spell out in specific terms the

plans of McClellan AFB...,” the scope and goals of the project are anything but clear.

Analysis

The McClellan ELP appears to be an effort to develop compliance

assurance programs and self-monitoring measures which, when implemented, can reduce the need for routine regulatory oversight. Unfortunately, the language of the MOA is more conclusory than clarifying. The

ELP Team, for example, is simply committed to work “to develop, demonstrate, and document innovative and proactive environmental processes, selection criteria, and measures of success that can be used to

reduce resource burdens on regulatory agencies and McClellan without

increasing risk to the public’s health or the environment.” Although this

seems quite open-ended, a later reference to developing a baseline from

the McClellan experience makes it unclear whether the Team is charged

to examine only existing practices or to imagine some not yet in use.

There are also confusing references to the possibility of considering partnering with other facilities to fill voids or secure supplemental information. Neither the circumstances of such voids nor the identity of other

facilities to be consulted is defined any further.

This criticism may be unduly harsh, as the wording of the MOA

makes it hard to reach any firm conclusions about the project. One of the

early Team tasks is to document “key ingredients used by McClellan to

create, establish, and now maintain its progressive environmental

enthusiasm, culture and ethic” in order to create what is referred to as a

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 223
“baseline.” This baseline, which may be intended to represent a collection of successful compliance measures, will then be used to qualify

what are called “other progressive facilities.” From there, the Team will

develop “acceptance criteria” that, presumably, regulators can use to

evaluate requests from facilities which hope to be freed from traditional

compliance requirements.

Although the project is styled as an ELP effort to identify compliance assurance measures, this characterization is called into question in

one of the last of the described project steps. The MOA calls for the Team

to examine the prospect of merging compliance measures and pollution

prevention efforts in order to “achieve, surpass, or permanently eliminate possibility of future regulations effecting McClellan.” This phrasing, rather than suggesting a compliance assurance measure, speaks in

the language of a Project XL environmental exchange in which

McClellan will substitute its own standards for otherwise applicable

requirements.

Needless to say, the paucity of details in the McClellan ELP makes

it extremely hazardous to try to evaluate the outcome or possible benefits. This vagueness itself, however, may be cause for some anxiety. This

project, like each of the others, entails a substantial commitment of time

and resources from federal and state regulators (as well as from facility

personnel). EPA presumably accepted the facility for an ELP proposal to

explore compliance assurance measures; McClellan may be hoping to

orchestrate an environmental exchange which allows it to pretermit

existing obligations. At the least, there is a possibility that an effort built

on different expectations will lead to inefficient use of resources, rather

than spawning mechanisms which make more efficient use of them.

Moreover, if there was a failure to define clearly the objectives and

expectations at the outset, all participating parties may view the eventual results negatively. This may frustrate, rather than stimulate, the

development of good working relationships between regulator and regulated.

2.3 ISO 14000

Description of the Program

The International Organization for Standardization, or ISO, is a

private federation of national standards bodies from more than 100

countries. Its mission is to facilitate international trade in goods and services and to develop intellectual, scientific, technological and economic

cooperation through the development of standardization and other

224 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
related activities. For the last several years, ISO (and more particularly,

its specifically-created Technical Committee 207) has been developing a

set of standards for managing the environmental aspects of a business.

The first parts of this series, known as ISO 14000, began to be formally

adopted by the organization in later 1996.

It is crucial to emphasize at the outset that the ISO 14000 series will

not establish specific performance standards for environmental compliance. ISO cannot and does not purport to supplant the governmental

role of prescribing emissions limits for air pollution sources, or limits for

wastewater discharges, or design and material standards for waste disposal facilities, or myriad other compliance standards. The 14000 series

is designed rather to help firms identify the types of internal management controls, self-review efforts, progressive improvement measures

and other processes necessary to conduct business in today’s highly regulated environment. The prime ISO goal in setting forth these management standards is the encouragement of international trade through the

harmonization of business standards and practices.

Four key sections of the 14000 series deal with core management

system issues.26 The first of these is the basic environmental management system standards, which call on firms to do the following:

· have a formal environmental policy which is disseminated and

understood;

· have a process to develop and track environmental measures,

objectives and goals;

· monitor legal requirements and compliance with them;

· develop and administer necessary training to employees;

· generate and maintain adequate documentation of the firm’s

activities; and

· develop emergency preparedness and response plans.

These components represent the core of the ISO environmental

management system.

Two other key sections deal with auditing issues. One prescribes

standards for the conduct of audits and the general principles underlying the audit process. ISO 14000 requires firms to have audits at all releVOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 225

26. ISO will also include standards in the comparatively more peripheral areas of environmental labeling, life cycle assessment and products standards.
vant business levels: corporate, operating unit or division, and plant or

factory. The standards describe the need for periodic and systematic

assessments. The other auditing section provides qualifications criteria

for the auditors themselves.

Finally, ISO 14000 establishes standards for firms to utilize in evaluating their own environmental performance. These standards require a

firm to evaluate both its environmental management system and the

operational controls intended to assure environmental compliance.

These also require companies to develop goals for their ultimate environmental performance, and measures to assess achievement of those

goals. The standards strongly urge continuous improvement of environmental performance and ongoing measurement to document the progress.

Analysis

At least at its present stage of development, the ISO 14000 series is

the paradigm of a voluntary assurance measure. Development of the

standards has been purely voluntary, by a consortium of private organizations. Acceptance and implementation of the final ISO standards are

also to occur by voluntary choice of individual firms and businesses.

While some have expressed concern that if they gain wide acceptance,

the ISO standards will become de facto requirements for firms to compete

internationally, that specter is not sufficiently distinct at the present time

to warrant thinking of the standards as mandatory or required by law.

The US EPA has understandably expressed a strong interest in the

development of the ISO 14000 series. In general, the agency supports the

identification and implementation of voluntary instruments which may

help firms increase their level of compliance with environmental performance standards. ISO is seen as a potentially valuable auxiliary at participating sites for the traditional enforcement program relying upon

inspections and progressive sanctions. EPA has participated in the drafting of the 14000 series, particularly providing input to TC 207 regarding

the need for clear commitments to compliance and pollution prevention.

Nonetheless, EPA has continuing concerns about the scope and

efficacy of the 14000 series as presently constituted. To better understand these reservations, one must be aware that both the agency and the

US Department of Justice (DOJ) (as well as at least one other political

institution) have long recognized the existence of an internal compliance

management system as a significant consideration in evaluating the propriety and magnitude of an enforcement response to a detected viola226 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
tion. In 1991, for example, DOJ issued a statement to prosecutors in the

US Attorney’s offices providing guidance on the exercise of discretion.

Prosecutors were authorized to decline to bring criminal charges where

a number of factors were present; prominent among them was the existence of a regularized, intensive and comprehensive environmental

compliance program.

Similarly, the Sentencing Guidelines of the US Sentencing Commission authorize a judge to make a significant reduction in the culpability score of a defendant organization – a variable directly related to

severity of sentence – if the offense occurred despite the existence of an

“effective program to prevent and detect violations of law.” The guidelines provide an extensive definition of such a program. Its elements

include internally established compliance standards and procedures,

assignment of high-level personnel to oversee organizational compliance with such standards and procedures, the use of internal systems

(such as monitoring and auditing) to detect instances of

non-compliance, and appropriate discipline of individuals responsible

for violations or of failing to detect violations.

Finally, in December 1995 EPA issued a revised policy on enforcement and the voluntary discovery and disclosure of violations of environmental requirements. To qualify for attenuation of the traditional

enforcement response which the policy authorizes, a firm must demonstrate that a violation was discovered either through an environmental

audit or through a “due diligence” procedure to prevent, detect and correct violations. Again, the policy itself provides a comprehensive definition of the due diligence which it contemplates. This definition

emphasizes components of a management system based from the outset

on encouraging compliance. The due diligence must include compliance

policies for employees identifying the need, and manner, of meeting all

applicable requirements, assignment of responsibility for overseeing

compliance, mechanisms for assuring that compliance policies are being

carried out, incentives for employees and managers to comply, and procedures for prompt and appropriate correction of violations.

To EPA, the common theme linking each of these policy pronouncements is the strong, central emphasis on compliance with environmental obligations. It is not a great exaggeration to say that

compliance is the raison d’être for each of these systems. In contrast, the

management system envisioned by ISO 14000 has harmonization and

standardization, to foster international trade, as its seminal purpose.

The existence of a system to monitor environmental performance is the

key motivator; increased compliance is perhaps only an intended conseVOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 227
quence of these management activities.27 Indeed, a close reading of the

14000 standards reveals not a comparable emphasis on compliance with

external obligations but a focus on the firm’s internal process and procedures, and the mechanisms in place to review these systems periodically.

EPA believes that the original purpose for the effort is a significant

factor in evaluating its goals and objectives, and its effectiveness. As a

consequence, EPA has not yet concluded that a management system satisfying the ISO 14000 series will necessarily be a compliance management system sufficient to trigger any of the enforcement policies

discussed here. The agency is not prepared to assume yet that ISO certification is a warranty of due diligence. This is the primary reason that EPA

has urged TC 207 to increase the compliance emphasis in the 14000

series.28 In the same fashion, EPA has identified the need for a strong,

reliable accreditation procedure and concomitant periodic review of

both registrars and registered ISO companies to insure the integrity of

the system. EPA is arguing for a broadly inclusive body to perform

accreditation of registrars. EPA supports a body which would include

not only management experts but public stakeholders and persons with

experience in environmental and regulatory systems.

3. STATE EFFORTS

3.1 Introduction

The American governmental architecture, it is often said, is

designed to allow the various states to be seedbeds for the development

of new varieties of social and regulatory mechanisms. In the field of

environmental compliance and assurance mechanisms, at least, innovative state programs are indeed enjoying a luxuriant spring. After a long

period characterized, generally, by a reluctance to stray far from the

directions set by the US EPA, state regulatory officials have begun to

raise a myriad of creative efforts to encourage or assure compliance with

environmental requirements. Many of these have as their common element less frequent resort to traditional enforcement responses.29

228 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

27. Perhaps out of context, Joe Cascio, of IBM and chair of the US Technical Advisory

Group for ISO 14000, is reported to have said in a speech at MIT that he does not

care how much waste an ISO certified firms dumps into a river. It is important only

that the company’s environmental management system registers that it occurred.

(Cited in ISO 14000: An Uncommon Perspective, by Benchmark Environmental Consulting, November 1995).

28. EPA is also seeking additional commitment to pollution prevention.

29. Philosophical consistency rarely being an important element of political ideology,

this movement by states to pioneer creative regulatory programs which reflect local

aaaaaa
As was true of the ELP projects, many of the state programs are

pilot efforts or of relatively recent vintage, or both. This means, among

other things, that few of the state programs have long implementation

histories or considerable documented results. It also means that the programs in some instances are still subject to refinement or wholesale revision as officials incorporate new perceptions and information. Finally, it

often means that there is a relatively limited pool of regulated entities

who have taken advantage of or participated in the programs which the

states are testing, limiting the opportunities for analysis at this time. In

short, many programs remain works-in-progress. The following discussion examines innovations in three states, selected because they have

implemented programs that are common in other states and because

their programs appear to be somewhat more defined and established

than others. The experience of these states, and the topics which these

state programs suggest for additional discussion, may be of value to

managers and policy makers in other states.

3.2 Illinois

3.2.1 Project Clean Break

The centerpiece of the Illinois effort to encourage compliance is the

Illinois Environmental Amnesty Program or, as it is frequently called,

Project Clean Break. The genesis, philosophy and scope of Clean Break

are in many ways representative of similar programs in many other

states.30

The impetus for Clean Break came out of a growing demand from

small businesses in Illinois for government to provide some special

assistance in meeting the widening array of environmental regulations

applicable to them. In conjunction with the state Department of Commerce and Community Affairs, the Illinois Environmental Protection

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 229

needs and variables is often matched, puzzlingly enough, with a contemporaneous

effort to revise regulatory standards to be only those required by federal law, even

where the federal statutes authorize local laws to be more stringent if necessary to

address local conditions.

30. Interestingly, Illinois is also a leader in structuring a new working relationship

with the US EPA. It is one of only three states to have signed Environmental Performance Agreements to establish the parameters of the formal working relationship

with the federal agency. These agreements employ actual environmental results,

such as number of sites cleaned up, number of facilities in compliance, as the measures of accomplishment for purposes of program evaluation. The agreements are

intended to ultimately replace for all the states the present, largely unsatisfactory,

media-specific agreements, which measure state agency efforts instead of their

effects. This mirrors the general regulatory shift to prizing increases in actual compliance levels more highly than increases in the number of actions instituted.
Agency (IEPA) formed a small business environmental task force to

explore the problem and propose solutions. The task force report determined that small businesses “have a sincere desire to comply [with environmental requirements] both out of concern for the environment and

out of a respect for the law.” The report found, however, that this sincere

desire was often frustrated by a lack of knowledge and expertise about

environmental regulations and a fear that those seen as most able to cure

these deficiencies – the government regulators themselves – would be

more likely to punish than educate.

The Clean Break program implemented in 1995 as a result of the

recommendations of this report was designed to address this precise

problem. Since the affected universe was defined as small businesses

which lacked the resources to master the regulatory complexities, Clean

Break was limited to businesses with fewer than 200 full-time employees. Given its pilot nature, the program was only offered in a limited geographical area where a receptive local chamber of commerce was willing

to assist in outreach efforts on behalf of the program.

The essence of Clean Break is simple: firms that seek assistance

from IEPA in performing assessments to identify violations and agree to

correct in a reasonable time period will not be penalized for the violations. As with most programs of this sort, certain classes of violations are

excluded from the enforcement protection:

· violations which pose a substantial and imminent danger to the

public health or the environment;

· violations which were previously identified by IEPA;

· violations which are considered a felony;

· violations which were deliberately commenced on or after the

beginning date of Clean Break; and

· violations which were discovered by IEPA during routine

inspections or citizen complaints during Clean Break.31

The public identification of the program as an amnesty effort

reveals one of the key tensions that characterizes many projects of this

kind. The agency viewed this as a program to provide technical assis230 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

31. IEPA screened volunteers to Clean Break to insure that they were not already

enforcement targets.
tance and instruction to businesses willing to accept it and who could

not cope unaided with regulatory demands.32 But continuing concerns

about enforcement by members of the business community threatened

to obscure the assistance aspects of the program. Accordingly, the title of

the program itself and much of the initial outreach activity prominently

featured the amnesty aspects of the initiative. Nonetheless, preliminary

assessments were performed and recommendations sent to facilities

before amnesty was offered. This sequence helped to discriminate

between those actually in compliance and those who had violations. It

also allowed facilities to make informed decisions about whether to participate.

IEPA proposed to make its traditional regulatory/enforcement

inspectors available to participating firms to provide unthreatening

assistance.33 Unfortunately, initial efforts to publicize Clean Break produced few tangible results. State officials concluded that businesses had

remained skeptical and suspicious of government claims that program

participants would not face enforcement actions.

The Rockford Area Chamber of Commerce was already a cosponsor of the program. After more vigorously enlisting additional trade

associations and the National Federation of Independent Business to

vouch for the program, IEPA succeeded in persuading a number of businesses to test Clean Break. Participants were able to meet with agency

representatives by phone or in person at their facilities, and the businesses which participated by telephone could remain anonymous

through this initial phase of the process if they chose.34 IEPA viewed the

offer of anonymity as a particularly important incentive for businesses

to participate. The agency was willing to conduct an ongoing telephone

dialogue with facilities who wished to remain anonymous, providing as

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 231

32. Unlike most state agencies, IEPA asserted that it did not have more enforcement

cases than it could effectively handle. It was also able to offer these expanded assistance programs without altering any of its traditional investigative responses. By

pursuing a direction which involved lower-intensity interactions with the regulatory community, it hoped to be able to reach and influence more small facilities

effectively.

33. Regular agency inspectors provided the information and assessments, but they

would not be the same inspectors who had routine responsibility for the facilities

which they assisted pursuant to Clean Break. In their relationship with the Clean

Break participants, these inspectors were known as Client Account Managers.

Facilities were encouraged to feel free to continue to contact their Managers for

assistance, even after the passage of time.

34. IEPA reported that very few participants elected to preserve their anonymity

throughout the process. Facilities which signed agreements, of course, could not

retain anonymity. IEPA also reported that some who appeared to desire anonymity

arrived at initial meetings at agency offices in clothing bearing their company’s

name.
much diagnosis and guidance about compliance with applicable regulations as feasible based on the information provided during the calls.

Clean Break inspectors did review all applicable requirements at

these and subsequent meetings. The agency staff also attempted to simplify and distill the existing regulatory requirements into their most

basic components so that they would be easier to understand. After a

preliminary review of the information provided by a business, the

agency staff made basic suggestions about steps which could be taken to

achieve compliance or pollution prevention. The business was offered

an opportunity to continue and expand the relationship. For facilities

which had participated to this point only by telephone, this involved a

site visit that provided a basis for a more thorough review of applicable

requirements and present levels of compliance.35

At the end of this stage, participants with continuing violations

were asked to sign amnesty/compliance agreements in which they formally committed to correct any instances of non-compliance in a reasonable time frame.36 The agreements were reviewed and approved by

IEPA’s counsel. In this pilot phase of Clean Break, 62 firms developed

amnesty/compliance agreements and 42 ultimately signed some agreement. As of the time of this report, 27 facilities had completed all of the

activities called for in their amnesty/compliance agreements.37

Businesses were free to “drop out” of the program up until the

signing of an amnesty/compliance agreement without threat of a penalty being imposed for violations discovered as a result of the program.

There was no protection for such facilities, however, from independent

232 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

35. IEPA felt confident that the limitations and disclaimers it routinely placed in

amnesty/compliance agreements describing their scope and application precluded legal defenses to future enforcement actions based on assertions of officially induced error. The agency also felt confident that it did not risk liability for

reliance upon advice offered in the context of the Clean Break program. The

disclamatory language, coupled with the official immunity that most states, and

most state officials, enjoy for regulatory actions, provides a reasonable shield

against this exposure.

36. Printed announcements of Clean Break do not exclude any classes of violations

based solely upon the length of time expected to be needed for corrective action.

For more than half of the participating facilities, violations were minor in nature

and could be corrected within 90 days. A few facilities signed agreements allowing

for up to 180 days to comply; in most instances these longer schedules required

retention of a certified specialist to carry out some part of the remedial work.

37. In the pilot program, IEPA awarded certificates to facilities which did not have

compliance problems identified by the preliminary assessment, to facilities which

signed agreements, and to facilities which successfully completed their corrective

actions. To date, more than 65 certificates have been awarded across all three categories. These certificates were viewed by the agency as separate incentives for participation and compliant behavior.
inspections by a different, routinely assigned inspector, who might

detect the same violations. To further allay anxiety of participating

firms, one of the express underpinnings of Clean Break was that the routine inspectors would not attempt to discover or make use of the information gathered by the amnesty program. While this did not appear in

any written articulations of the program, there seemed to be a common

understanding in IEPA that Clean Break information was tightly embargoed. With regard to public access to information, IEPA treated information obtained through Clean Break interaction prior to the signing of a

compliance/amnesty agreement as confidential. Signed agreements are

available to the general public pursuant to the Illinois Freedom of Information Act.

Analysis

There are a number of interesting enforcement aspects to Clean

Break. IEPA preserved its right to respond with enforcement to violations independently detected either at small business facilities that had

dropped out of Clean Break or had never elected to participate. Yet the

IEPA enforcement policy for those facilities already provided for penalty forbearance in most instances where the business promptly corrected the violation, whether or not a formal agreement was signed.

Thus, businesses already had little to fear regarding enforcement if they

agreed to correct violations, the exact incentive that Clean Break purported to establish in the first instance. In this light, Clean Break can

better be seen as an effort to promote, and perhaps gain additional legitimacy for, an existing prudent approach to enforcement discretion by

giving it a new name and providing it with the formality of the

amnesty/compliance agreement. Clean Break did additionally offer, it

should be noted, multi-media review, pollution prevention, and partial

protection of the identity of participants.

In fact, however, even the formality of the amnesty/compliance

agreements was casual. There seemed to be no question that the agreements were binding legal commitments. The IEPA staff unhesitatingly

regarded them this way. Yet the staff also understood that taking an official enforcement action pursuant to one of the agreements – even an

action simply to compel overdue corrective activity – would offend the

spirit, if not the letter, of the program in the eyes of the business community. The original signed agreements contained provisions to request

extensions of the period for compliance.38 Fifteen of the original 42 parVOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 233

38. To their credit, IEPA officials also worried that if they were perceived as never prepared to take an enforcement action, program participants would be encouraged to

ignore their agreement deadlines.
ticipating facilities have requested and been granted extensions of time

to complete the prescribed activities, often for circumstances beyond

their control.

After the completion of the Clean Break pilot, IEPA instituted a

successor Clean Break program that expands the initiative statewide to

small auto body/auto repair shops and print shops anywhere in Illinois.

An information sheet for the new program notes that other industrial

sectors will be made eligible in the future.

In addition, IEPA implemented a separate Resources Conservation

and Recovery Act program which it calls “compliance assistance surveys.” This effort combined elements of specific targeting protocols with

elements of administrative convenience. The compliance assistance surveys were utilized in four targeted industrial sectors: metal fabricators,

dry cleaners, printers, and auto repair shops. These sectors were chosen

for a variety of reasons, including the onset of new regulatory oversight

pursuant to the Clean Air Act and the likelihood of numerous questions

about hazardous waste management requirements which were often

perplexing to small businesses. The agency decided to focus on facilities

in these sectors which were located near its regional offices in order to

minimize travel demands and related costs.

The surveys differed from Clean Break in a number of ways.

Rather than waiting for firms to volunteer their participation, survey

“targets” were contacted by IEPA and offered the opportunity to participate in the program. Although participation remained voluntary, the

agency adopted a more persistent attitude towards those who initially

declined the invitation. For those who volunteered, IEPA provided a

visit, purposefully called a survey instead of an inspection, to review

compliance and identify violations. Following the survey visit, IEPA

sent a letter which suggested possible corrective steps without actually

alleging the existence of violations. Facilities were not asked to sign compliance agreements of any kind.

Clean Break and the compliance assistance surveys are in many

ways structurally similar to the audit/amnesty programs under evaluation in the ELP projects and in existence in several states. In each

instance, a facility elects to authorize an examination, not otherwise

required by law, of its compliance performance and to take corrective

action in exchange for relief from enforcement for violations disclosed

by this assessment. Where audit programs rely on an examination by the

facility itself (directly or by an agent), Clean Break represents a class of

programs that rely upon technical assistance from the government to

conduct the compliance assessment.

234 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
All amnesty programs can be subject to the inquiry made earlier in

this report regarding the ELP projects. That inquiry asks, in essence,

whether the sacrifice of enforcement and deterrence results in fewer violations being committed or simply in more violations being corrected

quickly. The IEPA effort, however, contains several elements that support independent consideration.

An argument can be made that narrowly drawn programs such as

this, whether the assessment and identification activity originates from

within or without the facility itself, are a more prudent application of the

amnesty reward concept. Clean Break, in particular, was limited to small

facilities. These are facilities that can claim, with some justification, that

they cannot hope to comply with regulations about which they are completely unaware or do not even dimly understand. Unlike large facilities

that can afford the expertise needed to ascertain compliant behavior,

small facilities may violate the rules due to sheer lack of knowledge, not

lack of attention. Programs that encourage them to take advantage of

otherwise unavailable expert resources to begin to comprehend the

requirements may indeed bring about permanent changes in behavior.

This is a different expectation than one might have for audits at large

facilities, where the result might be simply another reminder to comply

with rules whose existence is already quite well-known.

This potential benefit for compliance levels at small facilities may

be offset, in theory, by other, less sanguine aspects of Clean Break and

other technical assistance efforts. Unlike privately administered audits,

these government-sponsored assessments have resource implications

for regulatory agencies. It consumes staff time and program funds to

carry out “survey” visits to provide assistance to those who opt to participate.39 These represent, of course, assets that cannot be utilized for other

regulatory purposes, including traditional inspection and enforcement.

Because Clean Break was limited to small businesses, it may also represent assets which were expended on relatively insignificant environmental threats. Moreover, more than one-third of the original Clean

Break participants are still not in compliance with applicable requirements. While their original compliance schedules have been extended, it

is possible that IEPA will ultimately need to initiate enforcement actions

against some, even many, of these remaining facilities. These would

then represent additional resources consumed by Clean Break beyond

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 235

39. Illinois and other states experimenting with innovative measures recognize, much

as do the sponsors of the EPA ELP, that these pilot efforts may not themselves produce resource savings. Careful examination of the results of the pilot efforts is

expected to lead ultimately to efficient permanent implementation which will maximize agency resources in the long run.
the energies expended to establish and implement the program. Even

with carefully controlled studies, which do not presently exist, it may be

impossible to gauge whether small-business programs like Clean Break

realize a greater compliance return on resource investments.

Clean Break also presents its own distinct capture problems.

Unlike some of the ELP projects, however, this capture potential does

not result from a sense of affiliation based on an unusual closeness with a

specific facility. Clean Break, instead, threatens a perhaps unhealthy

affiliation with the idea of the program itself. It is important to recall that

Clean Break had as a key goal the improvement of trust and relations

between regulator and regulatee. Indeed, Clean Break was not so much a

new substantive program as an old one in fresh packaging, designed to

convince industry that the IEPA was not the enforcement ogre it was

thought to be.40 IEPA officials candidly explained that improving

agency credibility was an important element of the program.

Unfortunately, Clean Break suffers from the same vulnerability to

capture as every other amnesty program: it reserves enforcement

authority for certain circumstances about whose existence reasonable

people could (and may be forced to) disagree. Violations can easily be

imagined that fall into one or more of these gray areas. Does a condition

really pose a substantial and imminent endangerment? Is a violation

intentional, and therefore a felony? Even whether a condition was previously “known” to the IEPA is not always clear, given the mass of data

which may be in the possession of the agency but not yet digested or analyzed.

Making enforcement decisions in the face of such uncertainty is not

an unfamiliar task for regulatory agencies. Clean Break makes these

choices materially different, however, because the decision in an individual case involving a participating facility will resonate not only in

that case but also across the entire amnesty program. Newly found

industry “trust,” whether based validly or not upon a belief that a facility

faces no enforcement threat once it elects to participate in the program,

will be put very much at risk by every close enforcement call. For any

agency with a great investment in the continuing success of an amnesty

program, this additional ramification could easily influence the decision

whether to pursue enforcement, even in an appropriate case.

236 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

40. The aggressive outreach component serves to differentiate Clean Break from the

traditional enforcement program to some degree. Once inspectors reached a facility, however, their enforcement response would tend to be the same regardless of

the provenance of their visit. Of course, participants in Clean Break were offered

the chance to sign an agreement which formalized the same obligations and benefits non-participants would ordinarily face.
IEPA officials agreed that this was a theoretical possibility, but

believed that they had sufficiently clear internal guidelines to decide

individual cases correctly. They also did not believe that any such issues

had arisen during the finite duration of Clean Break. This is an issue

which regulators may wish to examine when they consider compliance

assistance programs which include these elements.

3.3 Arizona

Arizona has initiated a number of different programs to encourage

compliance with environmental obligations. Several of these efforts

have as a common characteristic the provision of various kinds of technical assistance and knowledge from sources clearly separated from the

regular enforcement program. Arizona also seems to have given some

thought to developing a coherent synthesis of traditional and topical

methods.

Although it agrees that it has not yet decided what the precise

blend should be, the Arizona Department of Environmental Quality

(DEQ) feels strongly that a vigorous enforcement posture needs to

remain a significant – not residuary – component of the state’s overall

regulatory mix. The agency fully accepts and implements the principle

that it should encourage, especially through technical assistance programs, compliance which occurs without the need for enforcement

actions. DEQ officials perceived that they were “taking the high road” in

believing that such activities will increase compliance levels. At the

same time, the agency also continues to believe that the best inducement

for such industry response is the knowledge that investigation, detection and enforcement await those who fail to comply.

In DEQ’s view, a facility’s genuine desire to comply with applicable requirements is fanned by the genuine and reasonable apprehension

that enforcement remains a real possibility. This anxiety creates a kind of

leverage which lifts facilities into a state of being which is more accepting of technical assistance and other compliance assurance efforts. To

create this receptive climate, DEQ remains prepared to take enforcement

action in appropriate instances. At the same time, DEQ officials also feel

quite strongly that they need to utilize their new compliance approaches

to develop greater trust between government and industry. This illustrates the continuing tension which regulators and regulatees may feel

between the two philosophies. Unfortunately, this tension may mean

that strategies intended in theory by the government to be compatible

may be perceived as conflicting by facilities and their operators. This

potential for tension is evident in other programs of this nature.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 237
DEQ also hopes to elicit information from both its traditional

enforcement activities and from its compliance assurance measures to

use to develop and refine targeting strategies. In some instances, it

believes that it will find that enhanced assurance measures will be indicated for a particular sector. In other instances, DEQ believes that the

data it generates will support upgraded enforcement activity in a sector.

For example, DEQ officials have concluded from their experience that a

visible enforcement presence was particularly appropriate when a new

sector was brought under regulatory oversight or an administrative initiative was launched to implement requirements for the first time in a

new geographical area.

DEQ is quite prepared to accept that the proportion of its effort

devoted to “consulting” rather than to “enforcing” will grow. It is confident that there is a natural ceiling on that expansion, however, formed

by those sizes and kinds of businesses which will never move toward

compliance except in response to enforcement.

3.3.1 Technical Assistance/Education Outreach Unit

The central DEQ program for purposes of this study is administered through the Technical Assistance/Education Outreach Unit

(TAEOU). The TAEOU effort began initially as a response to statutory

requirements that the state provide technical assistance to private pollution prevention efforts. This obligation was later augmented in 1990 by

Clean Air Act requirements to offer a small business assistance program.

DEQ saw this latter development as a basis to form a combined outreach

unit which would be available to all businesses.

TAEOU, nonetheless, still sees hazardous waste pollution prevention as its primary mission. To this end, it does facility targeting based on

a number of factors, including analysis of Toxics Release Inventory

information and evaluation of potential impacts of new regulations on

business sectors. Selected “targets” are notified of the availability of

technical assistance from the Unit. Businesses that respond to the outreach, as well as those who initiate contact with the Unit on their own,

are sent a form letter regarding the program. Telephone callers may preserve their anonymity and receive advice during the conversation. DEQ

reports that most callers reveal their identity.

The form letter, which is actually a letter-agreement, describes the

state’s willingness to provide on-site technical assistance, at no cost, if

the recipient desires. After the visit is completed, the state will provide a

report identifying pollution prevention opportunities. The letter

238 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
expressly provides that the state does not warrant the efficacy or cost of

its recommendations, and that it is not liable for damages resulting from

implementation of its suggestions. For its part, the facility agrees by

signing the letter to indemnify DEQ and its agents for liability arising

out of the site visit and provision of the report.

Most unsolicited calls to the TAEOU have been to request compliance assistance, not pollution prevention information. DEQ has elected

to respond to these inquiries and provide information. It will also conduct site visits and make recommendations if requested. TAEOU staff

will consult with DEQ inspectors to obtain specialized knowledge or

information where needed, without disclosing the identity of the facility

in question. After the visit, the TAEOU staff will provide oral and written recommendations about compliance problems. In many instances,

they will also conduct follow-up visits to the site. By formal policy, the

report of the on-site visit is available to the public, except for any portion

which the facility can demonstrate contains proprietary or confidential

business information.

DEQ enforcement staff seem to have grown more comfortable with

this relationship, but there is some indication that they were initially

concerned about state representatives outside their direct control providing recommendations about regulatory requirements to facilities.

DEQ officials said that they did not now have a serious concern that participating facilities would be able to defend against enforcement actions

with a claim of officially induced error because the letter-agreement contained disclaimers which purported to preserve the agency’s wide

enforcement authority. In addition, increased cooperative efforts within

the agency have added to their comfort about the functions and practices

of the separate unit.

DEQ and the TAEOU have decided to approach the tension

between technical assistance and enforcement response by doing more

than simply assigning new inspectors to make assistance visits. The state

employees who conduct the on-site assessments are not members of the

traditional inspection and enforcement staffs. TAEOU staff are

employed instead by a special Office of Customer Service which is completely segregated from the enforcement organization. This separation

is designed to improve business confidence that the activities of the program are assistance, not enforcement, based.

Even though the form letter used to describe the program is in fact

styled as an agreement, neither the letter nor any other document obligates the participating facility to make any correction of violations. In

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 239
fact, the letter formally states that the facility is “under no obligation

under this agreement” to implement any of the recommendations provided by the TAEOU. While TAEOU staff, as previously noted, sometimes make follow-up visits to sites, they still do not seek any

commitment from the facilities to comply.41

DEQ has taken great pains to signal the distinction between technical assistance and enforcement. To confirm this message for both its own

staff and the regulated community, DEQ has gone so far as to issue a formal policy “On The Relationship Between On-Site Technical Assistance

And Compliance and Enforcement Activities.” This policy presents the

basic proposition that the energies of technical assistance staff making

site visits are focused on prevention (and, by implication, compliance)

opportunities. Recognizing the possibility that violations may be

detected, the policy declares that the technical assistance staff are not

authorized to take any enforcement action while providing assistance.

Although the TAEOU staff will identify these violations to the facility

operator, their existence will not be communicated to other regulatory

staff. The policy reserves the right to terminate site visits and take appropriate action upon discovery of imminent and substantial endangerment situations. As in most other assistance efforts, TAEOU will not

accept a site into the program if it is already the subject of an existing

enforcement investigation or action.

These relatively business-friendly elements are balanced by the

absence of any formal enforcement amnesty component as a corollary of

the TAEOU program. DEQ believes that its commitment to protecting

the confidentiality of its technical assistance outreach efforts demands

that there be virtually no crosswalk to regular inspection and enforcement activity. The only exception, provided expressly in the written

enforcement policy, is that technical assistance personnel will immediately bring situations threatening human health or the environment to

the attention of the DEQ enforcement staff. The refusal to create a programmatic connection any broader than this means that there is no

exemption from enforcement activities for participating facilities. Facilities remain at risk for enforcement by the regular program for conditions which they fail to correct.

240 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

41. Technical assistance programs of this type raise an interesting question of potential

government liability. The prevailing American rule is that neither the state nor

state officials face civil or criminal liability for simple failure to take an enforcement

action to abate a violation. As previously noted, many states have offered

non-enforcement technical assistance programs for years without fear of civil liability if violations went uncorrected. This tradition may very well continue to insulate parties even in the face of more public, aggressive technical assistance efforts.
The form letter explains that the provision of on-site assistance

does not relieve the facility of the responsibility to comply with all

requirements. Moreover, neither the action of the TAEOU nor of the

facility “affect[s] the authority of other programs within the Department

to conduct independent inspections or investigate and undertake compliance and enforcement actions.” While DEQ believes that affirmative

participation in the TAEOU program should be a material factor in

determining the propriety or magnitude of an enforcement action, it

does not allow participation to bar enforcement from the outset.

DEQ has only performed about fifteen or so site visits to provide

technical assistance in the approximately two years of the program’s

existence. The lack of enforcement amnesty may be a factor holding back

widespread acceptance of the compliance assurance opportunities. State

officials in Arizona and elsewhere attribute this reticence to continuing

suspicion by facilities of the government’s motivation, and a fear that

participation will increase the likelihood of enforcement. As the TAEOU

program loses more of its pollution prevention origins and moves to a

formal compliance assistance orientation, DEQ anticipates adopting the

audit amnesty approach utilized by the US EPA. Officials hope that this

promise of no penalties for audit-detected violations (except to rectify

significant economic benefit) will overcome a problem that is part perception, and will thereby encourage more wide-spread participation.

Analysis

The most significant question which might be raised about the wisdom of the TAEOU program is not whether it risks potential negative

legal consequences for future enforcement actions. As it turns out, the

better question is whether its disciplined approach of completely separating assistance from enforcement unwittingly brings a serious risk of

public backlash.

As a program providing direct recommendations about compliance requirements, TAEOU does increase the chance of officially

induced error. This occurs as a matter of fact whenever the government

moves out of the role of setting standards and into the role of consulting

on how to meet those standards. The relevant concern is not whether this

increased risk occurs, but whether it increases so substantially as to outweigh the possible benefits of the program. The strong disclamatory language of the letter-agreements which participants are asked to sign

appears, however, to be a reasonable bulwark against a successful assertion of the legal defense. In this light, the Arizona DEQ program does not

seem to run an unacceptable risk of compromising future enforcement.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 241
The TAEOU program is unusual, however, in that it does not incorporate any provisions for facilities to “voluntarily” commit to corrective

action after violations are detected. While facilities are encouraged to

correct violations and continue to face enforcement action if they do not,

they must elect to transfer themselves to the compliance and enforcement program to pursue a formal corrective agreement. (Violations

which pose a threat to human health or the environment will be brought

to the attention of the Arizona DEQ enforcement staff pursuant to the

written enforcement policy.) No doubt incorrectly, this can easily be

interpreted as sending a signal that the agency is less interested not

merely in enforcement responses but compliant behavior as well. Given

the access of the public to TAEOU assessment results, it is easy to imagine the outcry which would follow a major pollution incident or regulatory violation which occurred at a facility where problems were

discovered during a visit in the recent past by TAEOU staff. The interaction would bear record of neither enforcement action nor compliance

agreement. In such an event, the public could be most unforgiving.

TAEOU’s well-intentioned desire to completely insulate its technical

assistance effort from its compliance and enforcement activities might

seem a poor justification for so weak a response to a discovered violation. This view would be confirmed for many by the fact that the facility

failed to learn the appropriate lesson.

This fear may turn out to be unrealistic. It would be unfortunate,

however, if negative public reaction obscured the positive aspects of the

TAEOU program. At the same time, a similar question can be raised

about many other technical assistance programs which states have operated for years largely independent of their ongoing enforcement activities.

3.3.2 Circuit riders

The Arizona drinking water program has developed its own variation on the technical assistance theme. DEQ found that its enforcement

policy encouraged inspectors and field engineers to issue “Notices of

Violation” immediately, even to small water supply systems which were

genuinely struggling to cope with rapidly changing requirements.

These were the facilities least able to afford consultants to support their

efforts. As a result, small systems had come to perceive the agency solely

as a source of intimidation, not inspiration. They were afraid to ask for

help in resolving compliance problems.

The drinking water program believed that this problem was so

entrenched that no member of the DEQ staff would command enough

242 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
trust from the small system operators. Not even organizational segregation of assistance and enforcement elements, as in the TAEOU effort,

was thought to be sufficient. The drinking water program instead opted

to reach entirely outside the agency to find representatives to offer technical assistance. In an effort to engage the facility operators, it created the

circuit rider program to provide “a perceived non-threatening third

party.”

The circuit rider is intended to be a roving figure with extensive

experience in small water system management who is retained under

contract by DEQ to provide technical assistance. In operation, DEQ

identifies systems which it believes will particularly benefit from this

service based upon type, population, or prior difficulties. It will also dispatch the circuit rider in response to direct requests. The rider carries a

letter of introduction which explains that he will not conduct sanitary

surveys or compliance inspections. Instead, the rider will make technical

assistance site visits during which he will be available to review all

aspects of water system management. At the conclusion of the visit, the

circuit rider makes suggestions regarding methods to improve operation or compliance, and documents his advice in a written document

given to the facility operator.

The circuit rider mimics the TAEOU enforcement approach. Circuit riders do not share the results of their efforts with the regular agency

staff. Indeed, agency compliance staff will not seek information from a

circuit rider even to support an independent, subsequent enforcement

investigation. Notwithstanding this internal agency embargo on use of

circuit rider data, the information is still considered open to the public.

Circuit riders do not have any authority to enter into any form of compliance agreement.

DEQ and the drinking water program view the circuit rider initiative as a successful effort. Indeed, it attracted 26 requests for technical

assistance in the first three months that it was offered, more than the

total number of requests for compliance assistance from the TAEOU in

almost two years. Beyond these simple numbers, DEQ officials report

that they have received only favorable responses to the program and its

value. These officials attribute the successful reception of the circuit

rider program to the independent nature of the assistance that it provides.

Analysis

The circuit rider program is a hybrid, with elements of both government technical assistance and third-party auditing measures. Like

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 243
other government outreach efforts, the scope of assessment activity is

quite limited and, by definition, episodic. The circuit rider review is not a

comprehensive or representative evaluation of performance through a

systematic assessment procedure but a snapshot taken at the point that

the system operator decides to request a site visit. And the limited funding available under the circuit rider’s contract insures that each visit will

be less intense than a private audit.

The circumscribed nature of the rider review therefore carries with

it a risk of incompleteness. As with any government-sponsored outreach

program, this potential for incompleteness engenders a risk of unrealized expectations. Facilities which correct a list of problems disclosed by

the circuit rider will be understandably disturbed if the enforcement

program inspector soon after identifies additional violations which need

to be addressed. Hard-won confidence can easily be lost in such situations.

Beyond expectations, any government advice program also carries

the risk of reliance on incorrect or incomplete information and the resulting defense of officially induced error. It is quite possible that the circuit

rider program enlarges this risk. Since they are contractors, not employees, the riders are outside the exercise of direct control by DEQ. This lack

of direct oversight increases the chance that incorrect information will be

provided. In such an event, it is not very likely that small system operators will feel estopped from asserting officially induced error because

the rider’s formal status as contractor makes him somehow less than

“official.” Operators could emphasize his apparently official position

and his endorsement from the DEQ in the formal letter of introduction.

Although DEQ has attempted to minimize the risk of this potential by

language in the circuit rider contract carefully circumscribing the scope

and authority of the position, a reliance argument by a small operator

taking advantage of this special program to aid in compliance may be

very persuasive.

Of course, it is this distancing of the circuit rider from government

affiliation, however effective it may turn out to be in a controversy,

which gives the program its similarity to external audits. An outside

party, without connection or bias, provides an impartial assessment of

the facility and offers recommendations for improvement. There is no

risk of capture because the reviewer is not associated with the arm of

government responsible for enforcement decisions. The facility is at

least nominally free to act on these recommendations or ignore them.

Because government staff are not directly involved in providing the recommendations, enforcement for failure to respond promptly is not an

244 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
immediate threat. This should encourage the use of the circuit rider

mechanism which, in turn should increase compliance levels. Finally,

the absence of an amnesty component means that the government has

sacrificed, at least officially, none of its enforcement discretion.42

3.4 Minnesota

Compliance assurance mechanisms and instruments have gained

not only acceptance but a large measure of formal legitimacy in Minnesota. It was one of the first states to enact legislation establishing protection from enforcement penalties for violations voluntarily disclosed

after an audit and timely corrected.43 It has extensive educational outreach activities underway. Among other things, it is the only state that

has been designated by the US EPA to carry out environmental

exchanges like Project XL.

In meetings, Minnesota officials advanced a theoretical rationale

for their consideration of this broad array of compliance assurance measures. In part, they strongly accept the normative view of the environmental climate. They believe that society’s basic cultural standards have

evolved dramatically over the last twenty years, and that business leadership has evolved in a parallel way. This now allows government to

place less reliance on having to force changes in behavior from outside

an organization. Minnesota feels that it can encourage change from

inside organizations, by helping leaders understand that conscientious

environmental performance can translate into risk reduction, enhanced

efficiency and, ultimately, savings and increased profits. More importantly, they can encourage such performance by helping business leaders live up to their own self-image as concerned citizens who value the

environment. Audits, environmental compliance assurance measures,

and the like help reveal conditions to business leaders that they themselves will find intolerable, and that they will act to correct and prevent.

Further, Minnesota does not view the collection of these various

measures as a purely private initiative to which it should react with neutrality or passivity. The state affirmatively endorses and promotes

instruments which promote compliance without enforcement because it

believes that their widespread use will produce important benefits to the

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 245

42. Concern about not meeting expectations can, as previously discussed, act to chill

the exercise of enforcement authority that has on paper been preserved. And, of

course, the circuit rider program suffers from the same risk of public rejection after

a serious incident due to its lack of any compliance agreement component.

43. Minnesota prefers to characterize its program as penalty suspension (upon disclosure) and waiver (upon correction) rather than audit amnesty.
state. Minnesota, like many other states, can only inspect a small portion

of all the entities subject to regulation. The state believes that companies

which perform audits will better understand what it takes to be in compliance. They will consequently require less enforcement resources, and

those scarce agency assets can be focused on more deserving targets.

3.4.1 Environmental Improvement Pilot Program/Audit Privilege

Policy

Minnesota’s experience in developing an audit policy is illustrative of the struggle by many states, and the federal government, to

address this issue. Where some states have only initiated pilot programs

or only developed policies, however, Minnesota has gone on to provide

full statutory protection for audit activities. The law establishes a four

year pilot period.

The Minnesota Pollution Control Agency (PCA) began examining

the voluntary audit question in 1990. This consideration was prompted

by an overture from the Printing Industry of Minnesota (PIM), which

asked PCA to provide some protection from enforcement for its members. PIM represented that printers were very interested in utilizing

audits, to be conducted by PIM itself, to identify environmental problems that needed correction, but that they were discouraged from doing

so by the fear that such actions would only expose them to a greater risk

of governmental response.

Lengthy negotiations continually foundered on the issue of formal

amnesty for violations which were disclosed, even if corrected. PCA

ultimately agreed only that it would give good faith consideration to

self-disclosure and self-correction efforts by printers in its enforcement

decisions. Such action might persuade PCA to forego enforcement, or

might reduce the scope of a penalty, but such decisions would remain

for PCA to decide based on the particulars of each case. Soon after the

PIM discussions concluded with an agreement on that basis, the state

Chamber of Commerce proposed that PCA expand the policy to all businesses in the state. Again, the business group pressed for definitive

amnesty from enforcement by the agency, not simply express identification of auditing activities as good faith factors in evaluating enforcement

responses.

After this effort failed, PCA adopted a formal, statewide policy on

auditing in January of 1995 which largely tracked the earlier agreement

with PIM. By then, however, the audit question had reached a level of

national attention. Some states, business groups and others pressed for246 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
ward broadly with efforts to create statutory privileges for information

discovered by audits. These efforts intensified in Minnesota.

Thus, later in the same year, the Minnesota legislature enacted the

Environmental Improvement Pilot Program (EIPP). Notwithstanding

its somewhat generic name, the law created a modified evidentiary

audit privilege and a sanctuary from enforcement penalties for certain

detected violations which are corrected satisfactorily.44 The goal of the

statute in creating this protection is to encourage prompt reporting and

rapid correction of violations, especially those that might otherwise not

come to the attention of officials, and to promote pollution prevention

efforts. The act establishes a four-year period in which to pilot its concepts, and requires a report back to the legislature in 1999.45

Program Description

As a statutory creation, the Minnesota program contains a more

detailed explication of its elements than is usually presented in policy

statements. Major facilities are eligible for protection under EIPP if they

conduct an environmental audit and submit a report, prepare a pollution prevention plan, and submit progress reports on their pollution prevention activities. Minor facilities qualify by auditing and reporting, and

meet reduced pollution prevention requirements. Facilities that report

violations must correct them in 90 days or according to a timetable

acceptable to the PCA.

EIPP addresses the information privilege issue in two different

ways. To trigger the benefits of the statutory amnesty program, an audit

“report,” which is a summary of the results but not the full audit itself,

must be submitted promptly to the PCA (and, in some instances, local

governments). The report must include a description of environmental

violations detected by the audit. Requiring submission of this report, but

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 247

44. The act exempts from protection criminal prosecutions, certain kinds of repeat violations, and violations causing serious harm or representing imminent threats. See:

M.S.A. §§114C.20 et seq.

45. Although it is rarely discussed with much clarity, the audit debate actually comprises two related but separate core issues. The first deals with the question of

access to information generated by an audit. Usually subsumed by an extension of

the legal doctrine of privilege, this issue goes to the question of whether the information obtained in an audit can be held close to the facility, and protected from

release to the government or the public. In contrast to this informational/evidentiary issue, the second concern is a substantive one: can a person be secure from

enforcement for a violation which he detects through an audit and promptly corrects, even where the government knows of the violation? The Minnesota statute

addresses both of these questions.
not the entire audit results, finesses the difficult question of how to

accord some confidentiality to the audit process but insure that government at least learns of violations in order to confirm their correction.

The statute goes on to create what might be thought of as a kind of

privilege for the full audit results themselves, but a privilege with certain significant qualifications. As to the state, the audit results are not in

fact defined as privileged. The state is prohibited, however, from

requesting, inspecting or seizing the results unless PCA believes that

there is probable cause to believe that a serious crime has been committed. As to third parties (“all persons other than the state”), the audit

results are formally recognized as privileged so long as the regulated

entity is in compliance with its program obligations, i.e., has submitted

its summary report, met applicable pollution prevention requirements,

and corrected the violations.46

Such actions by the facility are, plainly enough, the express purposes of the bill. The law makes a clear policy judgment that prompt correction is the most significant objective of the existing regulatory

scheme. The bill implicitly recognizes that reporting and correction by a

facility usually act to mitigate the imposition of penalties in any event.

The second significant element of an audit amnesty program is,

obviously enough, the benefit provided to the facility for its act of introspection. The Minnesota statute provides that the state may not impose

administrative, civil or criminal penalties against a facility for violations

which are disclosed in the required report and corrected within the

90-day period or other acceptable schedule.47 Excepted from this protection are criminal actions for knowing violations, the same violation less

than one year after final resolution of an enforcement action for a prior

occurrence, and violations and situations causing serious harm to public

health or the environment. Recognizing that even incomplete internal

assessment efforts may contribute to compliance levels, the statute further requires the state to take a variety of audit-related factors into consideration in evaluating its enforcement response in those instances

where the amnesty protection is not available. Finally, a facility may dis248 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

46. The law does not alter private party substantive remedies, such as tort actions or

citizen suits. Few, if any, compliance assurance measures purport to directly limit

existing private remedies.

47. The statute in fact prohibits the specified penalties, not all enforcement actions

themselves. It is unclear whether it intends to bar, for example, administrative or

civil actions which have as their sole request equitable relief to enjoin wrongful

conduct or bring about proper conduct. These are surely forms of enforcement but

they contain no penalties.
play for a two year period a “green star” emblem if it has corrected all

violations identified in its audit and at least one year has elapsed since

final resolution of any prior enforcement actions.

Minnesota officials hope that EIPP will start a process which will

encourage facilities who genuinely wish to comply to take steps to

assure such performance. Incentives for self-auditing are consistent

with the philosophical desire to help people first to understand the rules

with which they must comply. Nonetheless, early response to the new

program was lukewarm. Fewer than ten audit reports were filed in the

first six months of the program. With familiarity, the pace of participation has begun to increase; more than twenty additional reports were

submitted in the last several months.

Analysis

The EIPP does not appear to create any significant risk of officially

induced error. The environmental agency does not participate in the

auditing function or provide compliance recommendations. The clear

presumption is that in most instances facilities will promptly carry out

corrective action without government involvement or approval, and

simply provide notification thereafter. Rather than enlarging government’s role to where the agency might inadvertently mislead a facility

about obligations and corrections, this approach may shrink government’s role to mere acceptance of notice that corrections have been

made.

Minnesota retains, of course, the ability to confirm that corrective

action has been completed. The state expects to exercise the authority in

appropriate cases. Moreover, Minnesota continues to recognize that this

pilot effort must unfold in the context of a comprehensive compliance

program that includes traditional enforcement and deterrence.

The previous general observations about the efficacy of auditamnesty programs, especially in light of their exclusion of the deterrence

dynamic, are not repeated in full in the interest of brevity. They are of at

least equal application here. The EIPP also serves as a good examplar for

a variety of other issues which can arise in statutes creating information

privileges or enforcement protection. These issues are worth examining

in the context of a pilot program designed to explore such concerns. The

existence of such issues does not compel any particular conclusion about

where to strike the balance between encouraging voluntarism through

such programs and preserving maximum enforcement discretion.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 249
For example, the Minnesota approach to the repeated violation

issue is very narrow. Amnesty is unavailable only where the same violation was the subject of prior formal enforcement action. This means that

repeat violations where no prior instance has triggered an enforcement

response as well as each new kind of violation, regardless of the number

of prior different violations actually subjected to enforcement, qualify

for amnesty treatment.

PCA officials also recognize that their belief in the wisdom of and

commitment to the success of the audit program creates some risk of

capture. For a time they equated enforcement decisions which might

influence broader audit program participation with most other difficult

enforcement decisions. They now appear to agree that an enforcement

action against a participating facility might in fact discourage others

from participating in the voluntary audit program. This is a unique

issue, not raised by traditional enforcement decisions.

A more troubling aspect of these programs concerns several issues

related to “openness:” accountability, transparency, and public participation and access. Other than where narrow exceptions may be applicable, the EIPP seems to establish a regime in which facilities are

empowered to shield most critical information about violations. This

restraint on the movement of information places a premium on the trustworthiness of facilities and their fidelity to the principles of environmental auditing.

For example, the prescribed process makes audit-based amnesty

available upon submission not of the full audit results but only a brief

summary. Further, PCA is denied the ability to secure the full audit to

confirm its existence and scope. This places the agency in the undesirable position of having to trust – without any means to verify – that the

information in the report is the result of systematic procedures to periodically assess environmental performance.

It is certainly possible that disclosed violations were discovered

entirely by accident, and are being purified by inclusion in an audit

report. Moreover, it is also possible that a full audit reveals the existence

of other violations not disclosed in the submitted report, or that the disclosed violations have endured for a long period of time. This information is denied to PCA. Careful evaluation of information from the pilot

period will provide a better sense of whether these are significant risks.

It is difficult to gauge how the inability to secure such information

may affect a given state which may have regularly utilized those sources

250 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
of data previously. Certainly information of this sort could have a direct

bearing on how an agency carries out its mission. Evaluation of corrective plans is handicapped by inaccessibility to data which might suggest

different remedial responses to be far more appropriate. Even basic decisions about the direction of new policies or regulations would ordinarily

be influenced by access to the kind of information protected from disclosure by EIPP. Lastly, removal of such information from the process tends

to make an agency less accountable for its own actions. Decisions are

made in a context where, by design, the agency lacks access to all the

information it needs to act wisely. This may encourage decision-makers

to take their responsibilities less seriously, knowing that it is as much

chance as judgment that their decisions are prudent because they lack a

firm grasp of the details. In the same way, enforcement or regulatory

decisions which turn out to be unwise can be explained or excused due

to the insufficiency of information at the time of decision.

The contrary argument in support of the audit and correction

approach is founded on a simple premise: the information to which

access is now lost is very rarely sought or obtained by government anyway, and in exchange for surrendering the sleeves from its vest the public secures voluntary commitment by facilities to correct problems. This

argument assigns a higher value to the pragmatic benefit of obtaining

correction than to the theoretical – but rarely exercised – ability to seek

information. For example, neither the federal government nor many

states routinely seek audit information even though such reports may be

available. Few agencies have the time or resources to conduct a thorough investigation of every incident on non-compliance which is

promptly identified and corrected by a facility. Audit protection programs, like the EIPP, can be seen as simply formalizing this reality.

A similar set of potential problems afflicts third-party interests

under EIPP. While the statutory summary report is available, interested

citizens and others are denied access to comprehensive critical information about activities in their neighborhoods. Making the full audit

results privileged from third parties means that citizens suffering from

illnesses will be unable to discover whether there may be a causal connection to conditions at a local facility. Their ability to learn of a facility’s

past conduct in order to more meaningfully participate in permit modification or renewal actions will also be thwarted by their ignorance. In

short, while EIPP appears to regard government as having only a limited

need to secure these kinds of information, it regards third parties as

almost unnecessary to administration of the regulatory system.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 251
Finally, the Minnesota statute prompts again the question of

whether the audit amnesty subject raises so many difficult issues which

require resolution that any formal attempt to set rules only creates more

problems than it solves. EIPP can easily be classified as yet another statute which seems likely to guarantee full employment for lawyers as they

plumb its ambiguities. This ultimately means far less certainty than the

statute suggests it brings.

The basic issue of information confidentiality illustrates this problem. The state may not seek or seize audit results unless it has probable

cause regarding a serious crime. Since this protection is clearly not a

privilege attaching to the information itself but a limitation on how the

state might obtain it, many questions suggest themselves. The statute

does not exclude all mechanisms by which the government may obtain

the audit results. For example, can the government accept and make use

of audit results provided, without government encouragement, by a disgruntled employee? Or can the government make use of such results if a

facility employee provides them unwittingly? Numerous acquisition

scenarios can be imagined, and each may require judicial resolution.

Even the exception to the government’s ability to obtain directly

the full audit record is less narrow than might be thought. The test for

access is probable cause of a serious crime. Putting aside the question of

how to define “seriousness,” and accepting that the statute implicitly

includes a requirement of a nexus between the alleged crime and the

audit results, the restriction on the government’s access may still be virtually meaningless. Probable cause of a crime is a relatively low standard of proof in the law. In fact, it is the standard the government must

automatically meet whenever it applies for a search warrant to seize evidence. On its face, then, the EIPP appears to say that the government

may not seize audit results (seizure implying the use of a search warrant)

except when it has enough information to obtain a warrant to seize those

results.48 This seems both tautological and of little comfort to the person

expecting broader protection.

Related questions spin off this confidentiality subject. For example,

the standards for the government or third parties to acquire audit information are quite different. Given the possible ease of satisfying its probable cause standard, the government may frequently acquire audit

252 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

48. Parenthetically, the statute does not appear to require that a criminal prosecution

be brought, only that a criminal investigative tool be used. Such tools can properly

be employed in investigations which eventually result in criminal declination and

relegation of the matter back to the civil agency. This suggests that audit results can

be used in simple administrative actions, notwithstanding the more secure protection the statute appears to offer.
results. But the standard for third parties to overcome the statutory privilege is entirely different. Thus, it is again easy to imagine the government being in the possession of audit information which third parties

cannot acquire independently. Is the government able to make this

information available to third parties in the way it makes other information available? If the government cannot, then the statute could create a

damaging breach between government and its citizens which would

only further poison the public view of government regulatory efforts.

Interestingly, the “serious crime” standard in the information

access section of the statute is different than the criteria for denying

enforcement amnesty for certain criminal conduct. The exception to the

provision of amnesty applies to any “knowing violation” of Minnesota’s

criminal laws. Since this does not appear to be the same as any “serious

crime,” it suggests the anomalous prospect of having audit results but

not being able to prosecute, or being able to prosecute but not able to

secure the underlying audit results.

These risks, issues and ambiguities may in fact represent

worst-case scenarios which will rarely arise. No doubt each can ultimately be resolved through administrative or judicial interpretation.

Their number and complexity, however, suggest that the EIPP may

struggle to bring the immediate certainty to the audit-amnesty question

which its defenders claim is necessary. These and many other issues will

probably be examined at the end of the pilot period. Indeed, this

evaluative opportunity is one of the prime justifications for conducting a

pilot program. Still, a strong argument can be made that these difficulties are inherent, and perhaps insoluble, in any effort which attempts to

elevate factors for evaluating enforcement responses into threshold

discriminators for such responses.

It is important to recognize that every audit program must balance

competing public policy process goals of openness and preservation of

enforcement discretion with the substantive public policy goal of

encouraging prompt correction of violations. Proponents of these programs will strongly argue that there is little need to worry about “theoretical” enforcement powers that are nominally sacrificed if the

consequence is greater facility compliance. They might also argue that

forbearance in the instance of self-disclosure and correction has always

been in the mainstream of actual enforcement practice, albeit in a less

clearly prescribed manner. In a sense, then, these efforts compellingly

illuminate the enforcement-as-means versus compliance-as-ends

dynamic which has propelled the search for innovative regulatory

approaches.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 253
3.4.2 Educational Outreach and “Eco-sense”

The PCA and the Minnesota Attorney General’s Office have collaborated on a number of educational initiatives to bring compliance-related information to a broad audience. These initiatives

frequently rely on implementation assistance and other efforts by sympathetic non-governmental organizations (NGOs).

The Attorney General’s Office has been working with a local NGO,

the Minnesota Environmental Initiative, which attempts to find areas of

consensus between industry, environmental groups and government

agencies on particularly contentious or significant issues. The group has

recently created an educational curriculum, The Environmental Management Systems Training Program, to present the environmental management systems approach to businesses. The course is designed for

managers and supervisors of large businesses, and is administered in

ten monthly three-hour sessions. The curriculum introduces basic environmental management system concepts such as employee training,

issuance of environmental policy, assignment of clear responsibility for

environmental regulation, periodic performance audits, establishment

of environmental objectives, and other related issues. The course is

intended to raise company sensitivity to environmental compliance

issues, with the ancillary goal of reducing the need for traditional inspection and enforcement resources.

Minnesota has also recognized that many small businesses are

often unable to understand or implement an entire integrated environmental management system. To date, educational offerings have forced

such businesses either to struggle in frustration with courses and materials which are beyond their means or needs, or to remain entirely apart

from the movement towards environmental management systems. Minnesota is attacking this problem in collaboration with another NGO, the

Minnesota Technical Institute (MTI).

MTI offers numerous courses for small organizations on a variety

of traditional business subjects. With the help of the environmental

agencies, MTI will begin to incorporate small modules on environmental management systems subjects in its business management presentations. The hope is that a simplified presentation of this material will

make it appear far less daunting to small businesses. MTI will also work

with other NGOs to expand their educational efforts to include environmental management systems materials.

254 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
The Attorney General’s Office has also led the effort to develop

environmental educational curricula for use in the school systems. The

office has worked closely with a non-profit educational organization to

create separate teaching guides for primary, middle and high school students. Dubbed the “Eco-sense” series, these educational materials are

designed to help students integrate environmental and economic issues

into their day-to-day decision-making. Funds to support operation of

the program are raised by foundation grants and corporate donations.

Analysis

Of these various undertakings, only the “Eco-sense” program has

the potential to raise questions about the role of government or risk

potential negative effects on future regulatory activities. The efforts to

make educational materials on compliance methodology more generally available to facilities do not appear to involve significant governmental involvement, nor does there appear to be the potential for

governmental recommendations or endorsement of some particular

course of action for an identified facility. Moreover, administration of

the business educational courses is handled by third parties. Thus, it is

not likely that government regulators or enforcers will so closely identify with any participants that they will lose the ability to make impartial

decisions about their duties. The same nonspecific nature of the material

and separation of the government from its presentation makes it equally

unlikely that PCA can be legally blocked from taking an enforcement

action. It is difficult to imagine a facility arguing successfully that it had

merely followed specific advice provided to it by environmental regulators and that any failure in environmental compliance was induced by

that advice.

Development of the public school educational curriculum does

raise some interesting questions similar to those posed about the

Riverbend ELP community outreach activity. The Minnesota Attorney

General’s Office worked to develop the curriculum with an education

non-profit organization which consisted, in part, of business and industry representatives. The educational efforts are funded, in part, by business and industry interests.

This effort clearly epitomizes the new paradigm of government

and commerce working together cooperatively rather than addressing

environmental problems confrontationally. This may represent a valuable evolution in that relationship. Nonetheless, it is likely that the effort

to develop a consensus curriculum may require government compromise not simply on technical issues (or environmental management sysVOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 255
tems issues) but on the basic societal values which will be taught to

students in the schools. While it is not susceptible to easy quantification,

there is surely some risk that environmental protection values the agencies are charged to defend will be sacrificed, or diluted, in the name of

consensus and attracting continuing contributions to the program. And

of course, once this consensus is reached with their participation, the

agencies will not easily be able to renounce it. They will also have contributed to an educational process which has inculcated in students the

belief that the consensus view is an appropriate way to view society.

This fear may be far too labored. Government and industry already

work together to reach environmental consensus on a wide range of

issues. The very act of governing can be seen as the process of finding

consensus. The question remains, however, whether the action of government in working with the regulated community to develop acceptable curricula for professional educators represents a surrender of moral

authority on basic social values. And if it does, does it also portend an

eventual shift in the public attitudes that have provided support for

enforcement activities which have sustained environmental programs

for more than two decades?

3.4.3 Project XL

Program Description

Minnesota is the only state which EPA has allowed to administer

XL projects directly at facilities. This generic delegation follows an

experiment at a 3M plant in Minnesota in the early 1990s. Following

complex negotiations with the company and EPA, the parties reached an

agreement allowing the company to make facility modifications without

securing the specific prior air quality authorizations which would ordinarily be required. In exchange, the company agreed to restrict air emissions to levels below those it would otherwise be allowed. PCA believes

this experiment has been a success, reducing pollution, saving PCA and

3M application processing time, and allowing 3M to bring products to

markets more quickly.

XL projects are environmental exchanges, not true compliance

assurance measures. They do not encourage compliance with existing

requirements as much as they identify opportunities to simplify or eliminate existing requirements in the interest of achieving greater environmental or administrative benefit. As such, they are technically beyond

the scope of this report. Nonetheless, Minnesota’s prominence in this

area supports a brief discussion.

256 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
The 3M experiment can aptly be classified as a process-modification, not substance-modification, project. The company

was not provided any relief from existing substantive requirements

which limited the level or kinds of emissions it was allowed. Facility

operations subject to substantive regulatory obligations remained subject to them. The agreement allowed 3M instead to avoid or simplify

administrative procedures by which it would ordinarily provide prior

notice of its proposed actions and secure agency permission.

The Minnesota legislature enacted only a few months ago a law to

formally institute an ongoing XL program and create the necessary legal

apparatus to implement the delegation of authority from EPA. This law

attempts to preserve a balance between expediting compliance with

existing administrative and notice requirements and respecting the

rights of members of the community to participate in decisions which

may affect them or their neighborhood. A thorough analysis of the new

Minnesota statute, the Environmental Regulatory Innovations Act, is outside the scope of this report on practical experiences gained from programs already in existence. Nonetheless, a brief review of the law’s

significant features is appropriate.

The law makes it public policy in Minnesota to, among other

things:

· encourage facility owners to measure the pollution they emit;

· encourage facility owners to implement pollution prevention

and source reduction;

· reward facility owners who reduce pollution to levels below

those required by applicable law;

· reduce the time and money spent by agencies and facility owners on tasks that do not benefit the environment; and

· increase public participation, encourage consensus, provide

technical assistance to make participation meaningful and

increase levels of communication and trust between government, regulated parties and the public.

To accomplish these goals, the law authorizes the Minnesota Pollution Control Agency to issue, and study the effect of, permits which

require permittees to reduce overall levels of pollution below what is

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 257
required by applicable law. The permits would also allow greater operational flexibility than current law would otherwise permit. The formal

authorizations issued under the law are to be called Minnesota XL permits.

The law establishes a number of minimum criteria for the issuance

of a Minnesota XL permit. Recognizing the continuing uncertainty over

whether programs which require extensive custom tailoring will actually conserve agency effort, the law requires a finding that the permittee,

the pollution control agency and other state and local agencies are likely

to expend less time over the long term to administer the proposed XL permit. The meaning of this temporal precondition is not otherwise clarified.

Perhaps more importantly, the law contains several provisions

relating to key issues of openness and participation. Another minimum

criteria is that the relevant stakeholder group has been involved through

a decision-making process that seeks consensus in the design of the permit and will have continued involvement in the implementation and

evaluation of the permit.49 A related provision obligates the pollution

control agency to insure that reasonable technical assistance is provided

to facilitate the stakeholders’ participation. The law also requires

permittees to make information available to stakeholders in a format

that is easily understood.

Analysis

The greatest risk from this zeal for “efficiency,” of course, is to public participation. Notice and procedural requirements were created to

allow not just the regulatory agency but interested and affected citizens

as well to remain knowledgeable about and participate in decisions

regarding nearby facilities. The values of such public participation are

too well-known to require elaboration here. Most of these values, however, can be eroded by the elimination of notice procedures. The public

may lose some of whatever measure of confidence it had developed in its

understanding of the operation and externalities of a plant. Perhaps

worse, the regulatory agency will lose the benefits of local participation

258 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY

49. “Stakeholders” are defined to be citizens in the communities near a project site,

facility workers, government representatives, business groups, educational

groups, environmental groups, or other Minnesota citizens or public interest

groups. The inclusion of the reference to “Minnesota citizens or public interest

groups” could serve to limit participation by national groups. A separate provision

requires the commissioner to insure that stakeholder groups represent diversity

which emphasizes local participation but does not exclude other stakeholders. Reconciliation of these two provisions will occur in future implementation.
in decisions about facility modifications. The mere ability to participate

tends to increase neighborhood acceptance of the legitimacy of the process and its ultimate result. In addition, local input often provides valuable information bearing on the regulatory decision or appropriate

conditions to be added to an approval. It is not uncommon for local participation to lead a facility to willingly alter an element of its approach to

address a legitimate local concern about which it had been unaware.50

There was never much delusion that these procedural requirements added to the efficiency of the process, either for business or the

regulatory agency. Procedural requirements reflect a conscious decision

that the loss in efficiency is more than compensated by the gains in public acceptance and quality of decision. XL efforts which eliminate or dramatically reduce these requirements reflect a marked shift in how to

strike the balance between efficiency and inclusive decision-making.51

The ultimate worth of these new provisions will not be revealed

until the statutory scheme is tested through implementation. For example, the encouraging gestures to stakeholder involvement are potentially undermined by the specific public notice provisions. While the

stakeholders are ostensibly to be involved in the “design” of the permit,

the PCA need only provide pursuant to a separate provision of the law a

minimum of 30 days notice for public comment on the proposed issuance of a Minnesota XL permit. It is clear that 30 days notice of a draft

permit occurs far too late in the process to afford a meaningful opportunity for dialogue about the basic regulatory design of a permit. The PCA

can, of course, resolve this dilemma by the simple expedient of commencing the public process at the point of application for a Minnesota

XL permit, much earlier than the minimum requirement for notice of a

draft permit.

Another potential conflict arises between the admonition to

involve stakeholders in the implementation of a permit and the desire to

reduce administrative burdens and gratuitous paperwork by granting

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 259

50. This discussion presumes that the proposed modification will in fact satisfy the

applicable substantive standard. This presumption is not always valid; whether

due to innocent error or worse, some modifications result in conditions which produce violations. Prior review by an agency makes this result less likely. Indeed, if

facilities could always be presumed to act in a way which leads to compliance with

established rules, there would be very little need at all for the prior review provided by permits.

51. The statute under consideration does require stakeholder participation in the decision-making process leading to the initial XL permit decision. It also requires continuing involvement in implementation, although the content of that requirement

is unclear where the very object of an XL permit may be to eliminate future review

steps.
operational flexibility. Permits which relieve facilities of current obligations for review prior to operational changes will surely relieve administrative burdens. Keeping affected community members involved in the

implementation of such a permit which, by design, seeks to reduce

points of interaction with regulators (and, by association, stakeholders

who might influence regulators) poses an interesting challenge. It is conceivable, for example, that monitoring and reporting after the fact of a

facility change which occurs without prior notice and review can preserve a meaningful role for the stakeholders. It is even possible that

stakeholders could play a role in conducting inspections after such

changes.

The Environmental Regulatory Innovations Actis a dramatic example

of the trend towards modifying actual requirements which are perceived to be standing in the way of enhanced environmental protection.

It is also an attempt to balance respect for existing values – such as citizen

participation and conservation of resources – with new goals. The potential for clear tensions between objectives is obvious. Resolution of those

tensions can only occur through careful implementation over the course

of the pilot period.

4. CONCLUSION

The movement to increase compliance by regulated facilities

through encouragement rather than enforcement is both entrenched

and broad-based. Nonetheless, it is still very much characterized more

by trials and experimentation than by certainty. State agencies and the

EPA are breaking fresh ground in an attempt to test new ways of achieving compliance and protecting the environment. Virtually every effort is

based on a genuine desire to maximize the resources of both business

and government.

These initiatives will in many instances displace some portion of

the spectrum of enforcement responses which have served regulatory

efforts well for many years. At the same time, regulators of every stripe

are adamant that traditional enforcement responses must continue to

play a significant role in a system of comprehensive compliance activities in the future.

Critical examination of these new compliance assurance measures

is intended not to challenge their basic motivations but to question

whether their efficacy and implications are well understood, and

whether they are wise replacements for traditional tools. Careful selection of those innovations which are most likely to encourage compliance

260 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
without undermining substantial mechanisms, such as enforcement,

public participation, openness, and others, will allow new compliance

initiatives to make the most significant contribution to environmental

regulatory efforts. To this end, continuing participation by state and federal officials who contributed to the preparation of this paper will allow

future dialogue to benefit from the insights of those who may be most

familiar with the mechanics and implications of these mechanisms.

These new initiatives and programs will continue to necessitate

equally new roles for regulatory staff and accompanying new relationships within agencies and with regulated industries. Few, if any, regulatory programs in the United States are not already attempting to

respond to the challenge presented by this shift. This report attempts to

raise questions that will continue to be the subject of lively discussion in

and among state agencies and the EPA.

This discussion, whether internal or multi-party, must continue as

various pilot programs are evaluated, fresh data about compliance levels is collected and analyzed, and policy-makers gain knowledge and

confidence about the use of new strategies. This paper did not attempt to

inventory the entire wide array of compliance and technical assistance

programs in the states. It is likely that much additional valuable information could be gleaned from the experience of these other efforts,

many of which have a long existence entirely separate from enforcement

and compliance activities. Finally, the several regional environmental

coordination associations may make a valuable contribution in aiding

agencies to prepare themselves and their employees for the new and

demanding roles they must play as compliance comes to rely on an ever

expanding variety of tools.

VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE 261
APPENDIX: LIST OF INTERVIEWS

Arizona

Jack Bale, Arizona Department of Environmental Quality

Martin Todd Dorris, Arizona Department of Environmental Quality

Sandra Eberhardt, Arizona Department of Environmental Quality

Karen J. Heidel, Arizona Department of Environmental Quality

Dale H. Ohnmeiss, Arizona Department of Environmental Quality

Russell F. Rhoades, Arizona Department of Environmental Quality

Mark R. Santana, Arizona Department of Environmental Quality

Marian Slavin, Arizona Department of Environmental Quality

Illinois

Peter L. Wise, Illinois Environmental Protection Agency

Todd J. Marvel, Illinois Environmental Protection Agency

Minnesota

Rober Bjork, Minnesota Pollution Control Agency

Edward R. Meyer, Minnesota Pollution Control Agency

Lee Paddock, Office of the Attorney General

Gordon Wegwart, Minnesota Pollution Control Agency

United States Environmental Protection Agency

Tai-Ming Chang, Environmental Leadership Program

Brian Riedel, Office of Planning and Policy Analysis

262 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
ENVIRONMENTAL

MANAGEMENT SYSTEMS

AND COMPLIANCE

REPORT TO THE COUNCIL OF THE

COMMISSION FOR ENVIRONMENTAL

COOPERATION ON RESULTS AND

RECOMMENDATIONS PURSUANT

TO COUNCIL RESOLUTION 97-05

ENVIRONMENTAL MANAGEMENT

SYSTEMS AND COMPLIANCE

Report to

the Council of the

Commission for Environmental Cooperation

on Results and Recommendations

Pursuant to Council Resolution 97-05

by

The North American Working Group

on Environmental Enforcement and Compliance Cooperation

June 1998

TABLE OF CONTENTS

Preface. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269

Environmental Management Systems and Compliance:

A Report to the Council of the Commission for Environmental

Cooperation on Results and Recommendations Pursuant to

Council Resolution 97-05 . . . . . . . . . . . . . . . . . . . . . . . . 271

1.0 Backgound . . . . . . . . . . . . . . . . . . . . . . . . . . . 271

2.0 Scope of Working Group Report . . . . . . . . . . . . . . 272

3.0 Summary of Preliminary Findings and

Recommendations . . . . . . . . . . . . . . . . . . . . . . 273

3.1 Summary of Preliminary Findings . . . . . . . . . 273

3.2 Working Group Recommendations. . . . . . . . . 274

4.0 Working Group Methodology and Progress. . . . . . . . 275

4.1 Explore the relationship between ISO 14001

and other private, voluntary Environmental

Management Systems (such as Responsible

Care, and others to be identified), with respect

to environmental compliance and performance . . 275

4.2 Explore the relationship of ISO 14001 and

other private EMSs to governmental voluntary

environmental protection programs vis-à-vis

environmental compliance and performance . . . 276

4.3 Explore possible actions for the revision of

ISO 14001. . . . . . . . . . . . . . . . . . . . . . . . 278

267
4.4 Exchange information between the CEC Work

Group and the European Union, and other

countries in the Americas; consider information

on EMAS in analysis pursuant to Paragraphs 4.1

and 4.2 above . . . . . . . . . . . . . . . . . . . . . 279

4.5 Exchange information on approaches to evaluating

the success of EMSs in improving environmental

compliance and performance . . . . . . . . . . . . 279

4.6 Exchange information on individual government

positions or statements regarding ISO 14001

and other private, voluntary EMSs, and their

relationship to improved compliance and

performance . . . . . . . . . . . . . . . . . . . . . . 280

4.7 Evaluate legal issues and explore possibilities for

enhanced information exchange on implementation

of government voluntary compliance programs

involving EMSs; begin to explore issues related

to possible recognition of government voluntary

programs. . . . . . . . . . . . . . . . . . . . . . . . 281

4.8 Explore needs and opportunities for influencing

improved compliance and environmental

performance by small and medium-size

enterprises . . . . . . . . . . . . . . . . . . . . . . . 282

Council Resolution 97-05 . . . . . . . . . . . . . . . . . . . . . . . . 285

List of CEC EMS Task Group Members . . . . . . . . . . . . . . . . 288

268 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
PREFACE

The North American Agreement on Environmental Cooperation

(NAAEC) signed in 1993 by Mexico, Canada and the United States, created the Commission for Environmental Cooperation (CEC). A Council

of cabinet level Party representatives is responsible for overseeing the

implementation of the NAAEC with the support of a Secretariat. The

agreement obligates the Parties to effectively enforce their respective

environmental laws and regulations, with the aim of achieving high levels of environmental protection and compliance. The mandate of the

Council includes encouraging the Parties’ compliance with this obligation, compliance with laws and regulations, and technical inter-Party

cooperation to this end.

In 1995 the Council established the CEC Enforcement Cooperation

Program. The program is delivered under the guidance of the North

American Working Group on Environmental Enforcement and Compliance Cooperation (Enforcement Working Group), a regional forum of

senior enforcement officials, formally constituted by the Council in 1996.

For the past three years, the CEC has supported a Working Group initiative (list of the task group members attached) to examine the relationship between environmental management systems (EMS), other

voluntary compliance initiatives and environmental compliance. The

first stage of the review involved an interagency exchange regarding

private and public EMS and voluntary compliance programs and joint

identification of potential issues related to common enforcement obligations. CEC Council Resolution 97-05 (attached as Appendix II) reflects

the resulting 1997 regional policy position.

In June 1997 the Council directed the Enforcement Working Group

to explore (1) the relationship between the ISO 14000 series and other

voluntary EMSs and government programs to enforce, verify and promote compliance with environmental laws and regulations and (2)

opportunities to exchange information and develop cooperative positions regarding the role and effect of EMSs on compliance and other

269
environmental performance. The enclosed report provides the preliminary findings and recommendations for future cooperative action presented by the Enforcement Working Group to the Council in June 1998.

The Secretariat also wishes to acknowledge the assistance of CEC

consultants Julie Pelletier and Carla Sbert who assisted the Enforcement

Working Group in compiling this report.

Linda F. Duncan

Head, Law & Enforcement Cooperation Program

Commission for Environmental Cooperation

270 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
ENVIRONMENTAL MANAGEMENT

SYSTEMS AND COMPLIANCE

Report to the Council of the Commission

for Environmental Cooperation on Results

and Recommendations Pursuant

to Council Resolution 97-05

1.0 BACKGROUND

The North American Working Group on Environmental Enforcement and Compliance Cooperation (“Working Group”), created by

Council Resolution 96-06 (August 2, 1996), consists of senior environmental enforcement officials in Mexico, Canada and the United States.

The Working Group’s mandate includes, inter alia, taking action to

strengthen cooperation among the Parties in environmental enforcement and compliance, exchanging information and experiences with

alternative approaches to enforcement and compliance, and recommending to the Commission for Environmental Cooperation (“CEC”)

program priorities relating to environmental enforcement and compliance.

A number of private organizations have been promoting the

implementation of Environmental Management Systems (“EMSs”) as a

systems-based approach to improving an organization’s environmental

management. For example, the International Organization for Standardization (“ISO”) Standard 14001 specifies requirements for certification, registration, or self-declaration of an organization’s environmental

management system. Other EMS models have been developed by a variety of industry groups, such as the chemical industry’s Responsible Care

program. At the same time, the potential role of EMSs as a tool for public

policy, including in relation to government enforcement and compliance programs, has led to substantial controversy.

Accordingly, the Working Group undertook to develop a common

statement on the relationship between private, voluntary EMSs and

271
government enforcement and compliance programs. As a result of this

effort, at its June 12, 1997 meeting, the Council adopted Resolution 97-05,

on Future Cooperation regarding Environmental Management Systems

and Compliance. The Resolution declared that:

Governments must retain the primary role in establishing environmental

standards and verifying and enforcing compliance with laws and regulations. Strong and effective governmental programs to enforce environmental laws and regulations are essential to ensure the protection of

public health and the environment. Voluntary compliance programs and

initiatives developed by governments can supplement strong and effective enforcement of environmental laws and regulations, can encourage

mutual trust between regulated entities and government, and can facilitate achievement of common environmental protection goals;

Private voluntary efforts, such as adoption of Environmental Management Systems (EMSs) such as those based on the International Organization on Standardization’s Specification Standard 14001 (ISO 14001), may

also foster improved environmental compliance and sound environmental management and performance. ISO 14001 is not, however, a performance standard. Adoption of an EMS pursuant to ISO 14001 does not

constitute or guarantee compliance with legal requirements and will not

in any way prevent the governments from taking enforcement action

where appropriate.

The Council directed the Working Group to explore:

1) the relationship between the ISO 14000 series and other voluntary EMSs

to government programs to enforce, verify and promote compliance with

environmental laws and regulations, and 2) opportunities to exchange

information and develop cooperative positions regarding the role and

effect of EMSs on compliance and other environmental performance.

The Working Group was also tasked with reporting the results by

the 1998 Council Session, and providing recommendations for future

cooperative action in this area, recognizing and respecting each Party’s

domestic requirements and sovereignty.

2.0 SCOPE OF WORKING GROUP REPORT

This report responds to the direction of the Council by providing a

summary of preliminary findings as a result of the cooperative work

undertaken by the Working Group, recommending steps for future

cooperation, and reporting on the methodology and progress of cooperative activities in detail.

272 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
3.0 SUMMARY OF PRELIMINARY FINDINGS AND

RECOMMENDATIONS

The conclusions of the Working Group are of a preliminary nature

only, due to the novelty of the ISO 14001 standard and other private, voluntary EMS models, the efforts to measure EMS effectiveness, and the

governmental programs and policies that utilize EMSs. Nonetheless, the

cooperative exchange of information and analysis by the Working

Group suggests several recommendations for future or continued

action.

3.1 Summary of Preliminary Findings

1. Some of the private voluntary EMS standards, such as ISO 14001,

promote the adoption of environmental policies that commit organizations to compliance, pollution prevention, and improved overall performance. Many EMS standards, including ISO 14001, however, leave

determination of relevant aspects to the organization, and do not specifically define the degree and manner to which the day-to-day operational

elements of the EMS must address regulatory compliance and environmental performance beyond compliance. Moreover, while many of the

standards require some public reporting, most do not require reporting

on actual performance or effectiveness of the EMS.

2. The implementation of EMSs does not per se guarantee compliance or improved environmental performance. Some Parties have

encountered a number of examples of situations where companies

implementing ISO 14001 or other EMSs are not in full compliance with

applicable environmental laws and regulations.

3. Current data and experience are insufficient for analyzing the

effectiveness of various EMS models for improving compliance and

overall environmental performance. Some of the Parties have initiated

efforts to evaluate EMS effectiveness, and the Working Group is exploring possible cooperative action in this area.

4. Meanwhile, the Parties are hopeful that EMSs can be a useful tool

to assist an organization in achieving improved compliance and overall

performance, if they are designed and implemented in a manner that

focuses their day-to-day operation directly on environmental compliance, performance, and pollution prevention. Accordingly, the Parties

will continue to pursue policies and programs to study the adoption of

properly designed and implemented EMSs. At the same time, the Parties

reiterate that governments must retain the primary role in establishing

ENVIRONMENTAL MANAGEMENT SYSTEMS AND COMPLIANCE 273
environmental standards and verifying and enforcing compliance with

laws and regulations. Strong and effective governmental programs to

enforce environmental laws and regulations are essential to ensure the

protection of public health and the environment, and the Parties will

continue to vigorously enforce their domestic environmental regulations.

5. The Parties are not reducing compliance monitoring or enforcement solely on the basis of adoption by an organization of a particular

private, voluntary EMS.

3.2 Working Group Recommendations

The Working Group recommends:

3.2.1 Subject to the availability of adequate resources, that the

Parties through the Working Group:

a) continue to cooperate in evaluating the effectiveness of EMSs (including

ISO 14001) in enhancing pollution prevention and overall environmental

performance and compliance, including through exploration of cooperative pilot projects;

b) continue to explore needs and opportunities for building awareness of

EMSs by small and medium-size enterprises, and ensuring their environmental compliance and improved performance;

c) continue to exchange information with the European Union and countries in the Western Hemisphere regarding policies and programs that

involve EMSs and compliance;

d) continue to exchange, and update periodically, information on the

governmental compliance and enforcement programs and policies of the

Parties that involve EMSs or EMS-like approaches, including information

on participating organizations and performance results; and

e) evaluate and, if and as appropriate, make recommendations on the core

elements of EMSs (including ISO 14001) to be considered in the ongoing

domestic processes established to review such systems.

In making these recommendations, the Parties reiterate and reconfirm the language of Resolution 97-05, which states that: “Governments

must retain the primary role in establishing environmental standards

and enforcing compliance with laws and regulations. Strong and effective governmental programs to enforce environmental laws and regulations are essential to ensure the protection of public health and the

274 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
environment.” These recommendations do not imply a commitment on

behalf of any regulatory authority to reduce regulatory requirements,

compliance monitoring, or enforcement, in exchange for their implementation, nor do they in any way imply that adoption of an EMS might

be a substitute for environmental enforcement.

4.0 WORKING GROUP METHODOLOGY AND PROGRESS

The following outlines each of the areas that the Working Group

agreed to explore, as reflected in the 1998 Enforcement and Compliance

Work Program, and reports on the status of these efforts:

4.1 Explore the relationship between ISO 14001 and other private,

voluntary Environmental Management Systems (such as

Responsible Care, and others to be identified), with respect

to environmental compliance and performance

The Working Group exchanged and reviewed existing literature

on ISO 14001, Responsible Care, and other private voluntary EMSs or

EMS-like models. The following comparison of several EMS or EMS-like

models with respect to compliance and performance is based largely on

a review of existing literature and is thus only a preliminary summary:

While ISO 14001 requires an organization to have an environmental policy committing to compliance, prevention of pollution, and continual improvement, the standard does not require the company to

establish objectives and targets that explicitly include compliance or

prevention of pollution at the operational level. Organizations have the

discretion, within the parameters of the ISO 14001 standard, to set their

own objectives and targets. These parameters include the organization’s

policy-level commitments, operational controls where their absence or

ineffective use could lead to deviations from the environmental policy,

procedures for identifying and accessing legal requirements, and a procedure for periodically evaluating legal compliance.

Of other private voluntary EMS models reviewed, only the International Chamber of Commerce’s (ICC) Business Charter for Sustainable Development, developed through the work of the Global

Environmental Management Initiative (GEMI), specifically requires

compliance auditing. The Canadian Responsible Care Program requires

firms to meet the “letter and spirit of all applicable laws,” however, this

requirement does not appear in the U.S. Responsible Care program.

According to a 1996 report published by the Chemical Manufacturers’

Association, the U.S. Responsible Care’s EMS model is less prescriptive

ENVIRONMENTAL MANAGEMENT SYSTEMS AND COMPLIANCE 275
than the ISO 14001 standard regarding legal compliance. The Coalition

for Environmentally Responsible Economies (CERES) principles do not

directly address compliance. Responsible Care, CERES, and the ICC

Charter, however, all include operational-level attention to pollution

prevention, including specific mention of source reduction or waste

minimization strategies.

ISO 14001 requires that an organization’s environmental policy be

made available to the public, and that it consider processes for external

communication on significant environmental aspects. Similarly, the ICC

Charter and Responsible Care require or encourage limited public

reporting. Only the CERES Principles, however, require companies to

report information on corporate environmental performance, including

public disclosure of self-audits and annual reporting of environmental

releases, violations, and penalties.

4.2 Explore the relationship of ISO 14001 and other private EMSs

to governmental voluntary environmental protection programs

vis-à-vis environmental compliance and performance

The Working Group members exchanged information on examples of companies that had certified to ISO 14001 or implemented other

EMS models, but that had not achieved compliance with applicable

environmental laws and regulations. Mexico reports that currently eight

of the nine companies that have obtained ISO 14001 certification in Mexico have not complied with Mexican environmental legislation. While

these companies are participating in Profepa’s Voluntary Environmental Audit Program to bring them into compliance with environmental

regulations, they have not yet completed implementation of their Plans

of Action pursuant to Profepa’s program to achieve compliance. Alberta

officials reported on a case against a company that had been a participant in Canada’s Responsible Care program, but that violated air emissions requirements. Trade literature also noted examples of companies

in Germany and Brazil that had obtained ISO certification, but were later

found to be in violation of applicable laws. The Working Group also

exchanged information on efforts to encourage EMSs or EMS-like programs in its domestic programs:

United States

EPA shared information on its approaches to encourage the adoption of compliance-focused EMSs, which supplement EMS models such

as ISO 14001 with specific elements that focus more directly on compli276 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
ance as an operational objective, compliance auditing, correction of

non-compliance, and public accountability. The exchange included

information on: EPA’s Environmental Leadership Program (ELP) Pilot

Project and Full-Scale Project Proposal; the EPA National Enforcement

Investigations Center’s Compliance-Focused Environmental Management System – Enforcement Agreement Guidance (NEIC Guidance);

actual enforcement cases that were resolved with consent decrees

which, in addition to mandating compliance and providing other remedies, required facilities to implement compliance-focused EMSs; and the

federal government’s Code of Environmental Management Principles

(CEMP) for federal facilities. These programs, policies, and cases supplement the ISO 14001 model with compliance-focused aspects based

largely on the concept of “due diligence”. As defined in EPA’s Final Policy Statement on Incentives for Self-Policing: Discovery, Disclosure,

Correction and Prevention of Violations, 60 Fed. Reg. 66706 (December

22, 1995) (“EPA Audit Policy”), “due diligence” encompasses the regulated entity’s systematic efforts, appropriate to the size and nature of its

business, to prevent, detect and correct violations. In describing lessons

learned from the ELP Pilot Project, preliminary findings suggest that the

most effective EMSs include proactive elements focused on operational

and compliance assurance processes.

Mexico

Profepa, in a preliminary review of its voluntary Environmental

Auditing Program in comparison to the EMS concept as defined pursuant to ISO 14001, determined that even though they have some elements

in common, they are not comparable at all because they have different

objectives. Under Mexico’s Environmental Auditing Program, participating facilities conduct a comprehensive environmental audit, reviewing the facility’s processes, regulatory compliance aspects, and

environmental risks. The audit is conducted by a team of accredited

auditors. The resulting audit report identifies compliance problems that

need to be addressed, and recommendations for reducing environmental risk and improving environmental performance beyond compliance.

Based on this, the facility and Profepa then negotiate a Plan of Action,

which provides a schedule for compliance with all regulatory obligations and recommendations for improvements that exceed compliance.

As part of the Plan of Action, the company implements an Environmental Protection Program. Upon completion of implementation of the Plan

of Action, the company is eligible to receive a “Clean Industry” certification. To maintain this certification, the company must annually re-audit

its facility.

ENVIRONMENTAL MANAGEMENT SYSTEMS AND COMPLIANCE 277
Thus, the Profepa audit program is different from the ISO 14001

standard. The Profepa audit program requires rigorous auditing of

every aspect of a facility’s environmental performance and the development of a Plan of Action that addresses compliance and performance

beyond compliance, at the operational level.

Canada

In Canada, ISO 14001 and five other ISO 14000 series standards are

available as national standards. Accordingly, Canadian authorities support voluntary use of ISO 14001. Environment Canada stresses, however, the “Planning” element of the ISO 14001 standard. It is important

that registrars and organizations adequately address the issues of regulatory compliance, and of setting environmental targets and objectives,

during the EMS audit for certification. In addition, registrars will need

to address the issue of “continual improvement” through the corrective

and preventative action aspects of auditing the “Checking and Corrective Action” element, and the link-back to identifying environmental

aspects, and re-setting environmental targets and objectives.

Progress in Canada toward adopting ISO 14001 has been steady,

but slower than expected (as of April 1998, 23 companies with 46 sites

had certified to ISO 14001). A comparison with other countries indicates

Canada as “average” in its adoption of the ISO/EMS. This could indicate

an uncertainty in the marketplace for use of the ISO 14000 series standards. There is little Canadian experience to date with the results

achieved for environmental performance and compliance from adoption of ISO-based EMSs. At this time, Canadian authorities observe that

most companies adopting such systems and/or registering to ISO 14001

are among environmental leaders. In one case in Alberta, however, a

court ordered a chemical manufacturing company to obtain ISO 14001

certification as part of its sentence for sulfur emissions exceedances in

contravention of its operating license.

4.3 Explore possible actions for the revision of ISO 14001

The Parties conducted an initial exchange of information relating

to Recommendation 3.2.1(e) above. The Parties recommend that the

Working Group evaluate and, if and as appropriate, make recommendations on the core elements of EMSs (including ISO 14001) to be considered in the ongoing domestic processes established to review such

systems.

278 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
4.4 Exchange information between the CEC Work Group and the

European Union, and other countries in the Americas; consider

information on EMAS in analysis pursuant to Paragraphs 4.1

and 4.2 above

The Working Group made initial contact and exchanged information with its European Union (EU) counterparts on their respective

perspectives regarding EMSs and compliance. The European Union

promotes participation in the Eco-Management and Auditing Scheme

(EMAS), a voluntary program based on EMSs developed by the EU

Environment Commission.

The Working Group also exchanged information with the Central

American Commission on Environment and Development and with

Central American governments on approaches in North America

regarding EMSs and compliance. This interchange revealed that substantial confusion exists in developing countries in the hemisphere

regarding the nature of ISO 14000 and its relationship to regulatory compliance, with the potential to negatively impact the outcome of efforts to

promulgate and implement national legislation that establishes environmental performance standards and enforcement provisions. The

Parties initiated a dialogue with the countries of Central America on

CEC Council Resolution 97-05.

4.5 Exchange information on approaches to evaluating the success

of EMSs in improving environmental compliance and

performance

In the United States, a considerable amount of work has recently

been initiated to evaluate the effectiveness of EMSs in improving environmental compliance and performance. EPA exchanged information

on these efforts with its Mexican and Canadian counterparts in the

Working Group, including:

a) Advance consultation on development of a Federal Register Notice seeking public comment on categories of information to be used in the collection of data to evaluate EMS effectiveness. The Federal Register Notice,

subsequently published on March 12, 1998 (63 Fed. Reg. 12094), indicated

the following general categories for data collection: Environmental Performance; Compliance; Pollution Prevention; Environmental Conditions;

Costs/Benefits to Implementing Facilities; and Stakeholder Confidence.

b) Information on the development of a partnership between EPA and a

number of state agencies to evaluate the performance of EMSs based on

ISO 14001 through a series of pilot projects, to be implemented primarily

ENVIRONMENTAL MANAGEMENT SYSTEMS AND COMPLIANCE 279
at the state level at a wide variety of regulated facilities, using a common

set of metrics and data collection protocols. EPA and states have also

agreed to create a common database to facilitate evaluation of these measurement efforts. Most pilot projects are to be implemented at the state

level.

c) One pilot project involves cooperation between EPA and municipalities

in measuring EMS performance at a variety of public-sector organizations.

d) Information on the EPA/Chemical Manufacturers’ Association Root

Cause Pilot Project, a cooperative effort to analyze chemical industry compliance data to determine causes of noncompliance and the impact of

EMSs and other activities on compliance.

Environment Canada emphasized the need to monitor and review

the use and effectiveness of EMS standards such as ISO 14001 by companies, especially small and medium-size enterprises, and reported on a

pilot project that has been initiated with Industry Canada, the Alliance

of Manufacturers and Exporters Canada and a number of small and

medium-size enterprises.

Mexico conducted a survey of companies participating in its voluntary Environmental Auditing program to assess performance results.

Nearly all participating companies reported improved compliance and

overall environmental performance. Many of these companies suggested that participation in the audit program could serve as a basis for

the ISO 14001 certification process, and that the results of the Profepa

audit process should be considered by the certifying organization as evidence of compliance with the applicable environmental legislation.

Based on this study, Profepa proposes a more extensive evaluation of

environmental performance by a range of companies, including facilities implementing ISO 14001, Responsible Care, GEMI, or their own

EMSs, and including a sample of facilities of high, medium and low risk,

and of facilities that have and have not obtained Profepa’s Clean Industry Certification.

4.6 Exchange information on individual government positions or

statements regarding ISO 14001 and other private, voluntary

EMSs, and their relationship to improved compliance and

performance

EPA’s Federal Register Notice published March 12 includes a position statement on EMSs including those based on ISO 14001. This statement recognizes the potential benefits of EMSs on compliance and

performance. It also encourages the use of EMSs that focus on improved

280 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
environmental performance and compliance as well as source reduction

(pollution prevention) and system performance. It supports efforts to

develop quality data on EMS performance, encourages public accountability in the development of EMSs and disclosure to the public and government of performance results. The policy statement quotes in

substantial part CEC Council Resolution #97-05, and indicates that EPA

is not basing any regulatory incentives solely on the use of EMSs or certification to ISO 14001. An advance draft was provided to the Working

Group members.

Environment Canada exchanged information regarding pending

revisions to the Canadian Environmental Protection Act, now before the

Canadian Parliament. The Act envisages the use of EMSs as one tool of

environmental protection. Canadian authorities emphasized that adoption by the private sector of new voluntary national standards for EMSs,

together with a credible system for the registration of organizations to

ISO 14001, for certification of environmental auditors, and for accreditation of auditor course providers are critical for Canada. Looking ahead,

Canadian authorities feel there may be a need to clarify the relationship

in Canada between the ISO 14000 standards and voluntary compliance

programs, and the government’s role in establishing, verifying compliance with, and enforcing environmental laws and standards. In the view

of Canadian regulatory bodies, the use of, and certification to ISO 14001,

does not ensure regulatory compliance.

4.7 Evaluate legal issues and explore possibilities for enhanced

information exchange on implementation of government

voluntary compliance programs involving EMSs; begin to

explore issues related to possible recognition of government

voluntary programs

The Work Group exchanged information on participation in their

respective voluntary programs involving EMSs or EMS-like programs:

In Canada, ARET (Accelerated Reduction/Elimination of Toxics)

is a non-regulatory initiative that targets 117 toxic substances. Participants are asked to develop action plans to achieve significant results by

the year 2000, with priority given to those substances that are persistent,

bioaccumulative and toxic. ARET participants update their action plans

annually, monitor and evaluate their emission reduction efforts, and

report progress toward achieving their commitments. To date, 292 facilities from 152 companies have submitted and are actively implementing

action plans. As of the end of 1996, a 61% overall reduction from

base-year levels had been achieved. Although ARET does not specifiENVIRONMENTAL MANAGEMENT SYSTEMS AND COMPLIANCE 281
cally require adoption of an EMS, many aspects of the plan of action are

consistent with elements of an EMS, and some companies use EMSs as a

tool to assist in implementing their ARET commitments.

In Mexico, as of the end of February 1998, 904 companies have participated in Profepa’s voluntary environmental auditing program. Of

these, 141 have received Clean Industry Certification. An additional 717

have completed their audits and are negotiating or implementing their

Plans of Action, and 65 are in the process of conducting the audit. As a

result, it is estimated that participants have committed a total investment of nearly $1 billion (U.S.) to environmental compliance and performance improvements.

Twelve companies participated in EPA’s Environmental Leadership Program (ELP) Pilot Project, which explored granting recognition

and reduced inspections to companies that, among other things, implement a mature, compliance-focused EMS. In 1997, EPA evaluated the

results of the ELP Pilot Project, and developed a Full-Scale ELP Project

proposal.

Under EPA’s Policy on Incentives for Self-Policing, Discovery, Disclosure, Correction and Prevention of Violations (“EPA Audit Policy”),

as of March 1, 1998, 247 companies had voluntarily disclosed environmental violations at more than 760 facilities nationwide, and EPA has

reduced or waived penalties under the policy for 89 companies at 433

facilities. Under this policy, facilities that discover violations through

self-auditing or environmental management systems, and self-disclose

and correct the violations promptly, take measures to prevent recurrence, and comply with other requirements of the policy, may be eligible

for discretionary mitigation of civil penalties that would have been

imposed for the violations.

At its April 21, 1998 meeting, the EMS and Compliance Subgroup

of the Working Group began initial, preliminary discussions of issues

and concerns related to possible mutual recognition of government voluntary programs.

4.8 Explore needs and opportunities for influencing improved

compliance and environmental performance by small and

medium-size enterprises

Initial review of existing literature reveals both a lack of awareness

and/or some apprehension on the part of smaller and medium-sized

enterprises to incur the costs of implementing private voluntary EMSs,

282 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
such as ISO 14001 or Responsible Care, or of participating in voluntary

government programs. Interestingly, the U.S. Chemical Manufacturers

Association’s comparison of Responsible Care and ISO 14001 suggests

that the U.S. Responsible Care program was designed to be more flexible

for smaller industry than ISO 14001. On the other hand, the Alberta company required by court order to obtain ISO 14001 certification reportedly

dropped out of the Canadian Responsible Care Program on the premise

that, unlike ISO 14001, the program was not sufficiently flexible for a

medium-size industry.

All three Parties are sensitive to the needs of small and mediumsize enterprises, and are considering options for voluntary government

programs to address such needs.

This item was added to the Work Plan for 1998, and remains pending for further exploration.

ENVIRONMENTAL MANAGEMENT SYSTEMS AND COMPLIANCE 283

Pittsburgh, June 12, 1997

COUNCIL RESOLUTION #97-05

Future Cooperation regarding Environmental Management Systems

and Compliance

THE COUNCIL:

ACKNOWLEDGING the accomplishments of the North American

Working Group on Environmental Enforcement and Compliance Cooperation (“Working Group”), created pursuant to Council Resolution No.

96-06 (August 2, 1996), in implementing a program of cooperation to

enhance effective environmental enforcement and compliance;

REAFFIRMING the objective of Article 1(f) of the North American

Agreement on Environmental Cooperation (NAAEC) to strengthen

cooperation on the development and improvement of environmental

laws, regulations, procedures, policies and practices;

RECOGNIZING the right of each Party under Article 3 of the NAAEC to

establish its own levels of domestic environmental protection and environmental development policies and priorities, and to adopt or modify

accordingly its environmental laws and regulations, as well as the obligations of each Party under that Article to ensure that its laws and regulations provide for high levels of environmental protection and to strive

to continue to improve those laws and regulations;

TAKING INTO ACCOUNT the obligation of each Party under Article 5

of the NAAEC to effectively enforce its environmental laws and regulations through appropriate governmental action, with the aim of achieving high levels of environmental protection and compliance with its

environmental laws and regulations;

285
CONSIDERING the function of the Council under Article 10(2)(p) of the

NAAEC to consider, and develop recommendations regarding,

approaches to environmental compliance and enforcement;

CARRYING OUT the obligation of the Council under Article 10(4) of the

NAAEC to encourage effective enforcement by each Party of its environmental laws and regulations, compliance with those laws and regulations, and technical cooperation among the Parties;

DECLARES THAT:

Governments must retain the primary role in establishing environmental standards and verifying and enforcing compliance with laws and

regulations. Strong and effective governmental programs to enforce

environmental laws and regulations are essential to ensure the protection of public health and the environment. Voluntary compliance programs and initiatives developed by governments can supplement

strong and effective enforcement of environmental laws and regulations, can encourage mutual trust between regulated entities and government, and can facilitate the achievement of common environmental

protection goals;

Private voluntary efforts, such as adoption of Environmental Management Systems (EMSs) such as those based on the International Organization on Standardization’s Specification Standard 14001 (ISO 14001), may

also foster improved environmental compliance and sound environmental management and performance. ISO 14001 is not, however, a performance standard. Adoption of an EMS pursuant to ISO 14001 does not

constitute or guarantee compliance with legal requirements and will not

in any way prevent the governments from taking enforcement action

where appropriate;

HEREBY DIRECTS:

The Working Group to explore 1) the relationship between the ISO 14000

series and other voluntary EMSs to government programs to enforce,

verify and promote compliance with environmental laws and regulations, and 2) opportunities to exchange information and develop cooperative positions regarding the role and effect of EMSs on compliance

and other environmental performance. The Working Group shall, no

later than the 1998 Council Session, report its results to the Council and

provide recommendations for future cooperative action in this area. The

review and recommendations shall recognize and respect each Party’s

domestic requirements and sovereignty.

286 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
APPROVED BY THE COUNCIL:

(S) Fred Hansen

Fred Hansen

Government of the United States of America

(S) Antonio Azuela de la Cueva

Antonio Azuela de la Cueva

Government of the United Mexican States

(S) John A. Fraser

John A. Fraser

Government of Canada

ENVIRONMENTAL MANAGEMENT SYSTEMS AND COMPLIANCE 287
EMS Task Group

CANADA

Ned Lynch

Manager,

Compliance Assurance Division

Environment Canada

351 St. Joseph Blvd., 17th Floor

Hull, Québec K1A 0H3

Tel.: (819) 997-3851

Fax: (819) 953-4130

Email: ned.lynch@ec.gc.ca

Dennis A. Durrant

Special Advisor,

Environmental Protection

Environment Canada

351 St. Joseph Blvd.

Place Vincent Massey, 13th Floor

Hull, Quebec K1A 0H3

Tel.: (819) 953-4216

Fax: (819) 953-7970

Email: dennis.durrant@ec.gc.ca

Denyse Gouin

Directeur des politiques du

secteur industriel

Ministère de l’Environnement

et de la Faune

2360 Chemin Sainte-Foy

Sainte Foy, Québec G1V 4H2

Tel.: (418) 521-3150

Fax: (418) 644-8562

Email: denyse.gouin@mef.gouv.qc.ca

Fred Schulte

Director of Pollution Control

Alberta Environmental Protection

9820-106 Street,

11th Floor Oxbridge Place

Edmonton, Alberta T5K 2J6

Tel.: (403) 422-2560

Fax: (403) 427-3178

Email: fschulte@env.gov.ab.ca

David Ediger

Regional Director

Environmental Operations

Division Environment

Suite 160

123 Main Street

Winnipeg, Manitoba R3C 1A5

Tel.: (204) 945-7081

Fax: (204) 945-1211

Email: dediger@gov.mb.ca

288 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY
UNITED STATES

Lawrence I. Sperling (Chair)

Senior Attorney-Advisor

International Enforcement

and Compliance Division

United States Environmental

Protection Agency

Mail Code 2254-A

401 M Street S.W.

Washington, D.C. 20460

Tel.: (202) 564-7141

Fax: (202) 564-0073

Email: sperling.lawrencel

@epamail.epa.gov

Brian Riedel

Senior Attorney

Environmental Protection Agency

401 M Street S.W. (2201-A)

Washington, DC 20460

Tel.: (202) 564-5006

Fax: (202) 501-0701

Email: riedel.brian@epamail.epa.gov

Michael Penders

Criminal Enforcement Counsel

U.S. EPA – Office of Enforcement

401 M Street, S.W.

Washington, D.C. 20460

Tel.: (202)-564-2526

Fax: (202) 501-0599

Email: penders.michael

@epamail.epa.gov

David Ronald

Chief, Environmental Crimes Unit

Arizona Attorney General’s Unit

1275 W. Washington

Phoenix, Arizona 85007

Tel.: (602) 542-8505

Fax: (602) 542-5997

Email: dronald@ag.state.az.us

James Eichner

Attorney

Environment and Natural Resources Division

Department of Justice

10th and Constitution Avenues, N.W.

Room 2133

Washington, D.C. 20009

Tel.: (202) 514-0624

Fax: (202) 514-4231

Email: james.eichner@usdoj.gov

ENVIRONMENTAL MANAGEMENT SYSTEMS AND COMPLIANCE 289
MEXICO

Ing. Carlos González Guzmán

Director de Clasificación de Zonas

de Riesgo Ambiental

Procuraduría Federal de

Protección al Ambiente

Periferico Sur Num. 5000 Piso 4

Mexico, D.F. 04530

Mexico

Tel.: (525) 666-9450/9452

Fax: (525) 666-9460

Email: cgonzale

@correo.profepa.gob.mx

Ing. José Luis Calderón Bartheneuf

Subprocurador de Auditoría

Ambiental

Procuraduría Federal de Protección

al (PROFEPA)

Periférico Sur 5000 – 5 piso

Colonia Insurgentes, Cuicuilco

C.P. 04530, Delegación Coyoacán

México, D.F.

Tel.: (525) 528-5475/5478

Fax: (525) 528-5469

Email: jcaldero

@correo.profepa.gob.mx

Ing. Eduardo Jiménez López

Director General de Planeación y Coordinación

SEMARNAP

Procuraduría Federal de Protección al Ambiente

Periférico Sur 5000 – 4 piso

Colonia Insurgentes, Cuicuilco

C.P. 04530, Delegación Coyoacán

México, D.F.

Tel.: (525) 528-5482/5483

Fax: (525) 528-5483

Email: ejimenez

@correo.profepa.gob.mx

290 NORTH AMERICAN ENVIRONMENTAL LAW AND POLICY