24856 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Notices

accordance with, the provisions of the

experimental use permit and temporary

tolerances. These tolerances may be

revoked if the experimental use permit

is revoked or if any experience with or

scientific data on this pesticide indicate

that such revocation is necessary to

protect the public health.

The Office of Management and Budget

has exempted this notice from the

requirements of section 3 of Executive

Order 12866.

Pursuant to the requirements of the

Regulatory Flexibility Act (Pub. L. 96–

354, 94 Stat. 1164, 5 U.S.C. 601–612),

the Administrator has determined that

regulations establishing new tolerances

or raising tolerance levels or

establishing exemptions from tolerance

requirements do not have a significant

economic impact on a substantial

number of small entities. A certification

statement to this effect was published in

the Federal Register of May 4, 1981 (46

FR 24950).

List of Subjects

Environmental protection,

Administrative practice and procedure,

Agricultural commodities, Pesticides

and pests, Reporting and recordkeeping

requirements.

Authority: 21 U.S.C. 346a(j).

Dated: April 28, 1995.

Peter Caulkins,

Acting Director, Registration Division, Office

of Pesticide Programs.

[FR Doc. 95–11147 Filed 5–9–95; 8:45 am]

BILLING CODE 6560–50–F

[Docket No. 95F–FRL–5205–5]

Interim Revised EPA Supplemental

Environmental Projects Policy Issued

AGENCY: Office of Enforcement and

Compliance Assurance, EPA.

ACTION: Notice.

SUMMARY: The Office of Enforcement

and Compliance Assurance (EPA) is

issuing the Interim Revised EPA

Supplemental Environmental Projects

Policy. This Policy supersedes the

February 12, 1991 Policy on the Use of

Supplemental Environmental Projects in

EPA Settlements. This Policy responds

to numerous complaints that the 1991

Policy was too cumbersome, rigid and

difficult to understand and apply. This

Policy is being issued to provide greater

flexibility to EPA in exercising its

enforcement discretion to establish

appropriate settlement penalties and to

the regulated community in proposing

supplemental environmental projects

(SEPs) designed to secure significant

environmental or public health

protection and improvements. EPA

intends to implement this Policy on an

interim basis effective May 8, 1995.

DATES: Comments must be received on

or before August 6, 1995.

ADDRESSES: Comments may be mailed

to: SEP Policy, Multimedia Enforcement

Division, Office of Regulatory

Enforcement, Mail Code 2248–A, United

States Environmental Protection

Agency, 401 M Street, S.W., Washington

D.C. 20460.

FOR FURTHER INFORMATION CONTACT:

David A. Hindin, 202–564–6004, Gerard

C. Kraus, 202–564–6047 or Peter W.

Moore, 202–564–6014, Office of

Regulatory Enforcement, Mail Code

2248–A, United States Environmental

Protection Agency, 401 M Street, S.W.,

Washington D.C. 20460.

SUPPLEMENTARY INFORMATION: This

interim final version of the EPA

Supplemental Environmental Projects

Policy expands and clarifies the 1991

Policy on the Use of Supplemental

Environmental Projects in EPA

Settlements. The primary purpose of

this Policy is to obtain environmental

and public health protection and

improvements that may not otherwise

have occurred without the settlement

incentives provided by this Policy. The

revised Policy, issued today, establishes

a framework for determining whether a

proposed project can be considered in

establishing an appropriate settlement

penalty. In addition, this Policy sets out

clear legal guidelines, well-defined

categories of acceptable projects and

simple easy to apply rules for

calculating and applying the cost of a

SEP in determining an appropriate

settlement penalty.

Dated: May 1, 1995

Steven A. Herman,

Assistant Administrator, Office of

Enforcement and Compliance Assurance,

United States Environmental Protection

Agency.

A. Introduction

1. Background

In settlements of environmental

enforcement cases, the U.S.

Environmental Protection Agency (EPA)

will require the alleged violators to

achieve and maintain compliance with

Federal environmental laws and

regulations and to pay a civil penalty.

To further EPA’s goals to protect and

enhance public health and the

environment, in certain instances

environmentally beneficial projects, or

Supplemental Environmental Projects

(SEPs), may be included in the

settlement. This Policy sets forth the

types of projects that are permissible as

SEPs, the penalty mitigation appropriate

for a particular SEP, and the terms and

conditions under which they may

become part of a settlement. The

primary purpose of this Policy is to

encourage and obtain environmental

and public health protection and

improvements that may not otherwise

have occurred without the settlement

incentives provided by this Policy.

In settling enforcement actions, EPA

requires alleged violators to promptly

cease the violations and, to the extent

feasible, remediate any harm caused by

the violations. EPA also seeks

substantial monetary penalties in order

to deter noncompliance. Without

penalties, companies would have an

incentive to delay compliance until they

are caught and ordered to comply.

Penalties promote environmental

compliance and help protect public

health by deterring future violations by

the same violator and deterring

violations by other members of the

regulated community. Penalties help

ensure a national level playing field by

ensuring that violators do not obtain an

unfair economic advantage over their

competitors who made the necessary

expenditures to comply on time.

Penalties also encourage companies to

adopt pollution prevention and

recycling techniques, so that they

minimize their pollutant discharges and

reduce their potential liabilities.

Statutes administered by EPA

generally contain penalty assessment

criteria that a court or administrative

law judge must consider in determining

an appropriate penalty at trial or a

hearing. In the settlement context, EPA

generally follows these criteria in

exercising its discretion to establish an

appropriate settlement penalty. In

establishing an appropriate penalty,

EPA considers such factors as the

economic benefit associated with the

violations, the gravity or seriousness of

the violations, and prior history of

violations. Evidence of a violator’s

commitment and ability to perform a

SEP is also a relevant factor for EPA to

consider in establishing an appropriate

settlement penalty. All else being equal,

the final settlement penalty will be

lower for a violator who agrees to

perform an acceptable SEP compared to

the violator who does not agree to

perform a SEP.

The Agency encourages the use of

SEPs. While penalties play an important

role in environmental protection by

deterring violations and creating a level

playing field, SEPs can play an

additional role in securing significant

environmental or public health
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Notices 24857

1 Depending on circumstances and cost, SEPs also

may have a deterrent impact.

2 The Agency is evaluating whether SEPs should

be used, and if so, how, in evaluating claims for

stipulated penalties.

3Since the primary purpose of this Policy is to

obtain environmental or public health benefits that

may not have occurred ‘‘but for’’ the settlement,

projects which have been started before the Agency

has identified a violation are not eligible as SEPs.

Projects which have been committed to or started

before the identification of a violation may mitigate

the penalty in other ways. Depending on the

specifics, if a company had initiated

environmentally beneficial projects before the

enforcement process commenced, the initial

penalty calculation could be lower due to the

absence of recalcitrance, no history of other

violations, good faith efforts, less severity of the

violations, or a shorter duration of the violations.

protection and improvements.1 SEPs

may not be appropriate in settlement of

all cases, but they are an important part

of EPA’s enforcement program. SEPs

may be particularly appropriate to

further the objectives in the statutes

EPA administers and to achieve other

policy goals, including promoting

pollution prevention and environmental

justice.

2. Pollution Prevention and

Environmental Justice

The Pollution Prevention Act of 1990

(42 U.S.C. 13101 et seq., November 5,

1990) identifies an environmental

management hierarchy in which

pollution ‘‘should be prevented or

reduced whenever feasible; pollution

that cannot be prevented should be

recycled in an environmentally safe

manner whenever feasible; pollution

that cannot be prevented or recycled

should be treated in an environmentally

safe manner whenever feasible; and

disposal or other release into the

environment should be employed only

as a last resort * * *’’ (42 U.S.C. 13103).

In short, preventing pollution before it

is created is preferable to trying to

manage, treat or dispose of it after it is

created.

Selection and evaluation of proposed

SEPs should be conducted in

accordance with this hierarchy of

environmental management, i.e., SEPs

involving pollution prevention

techniques are preferred over other

types of reduction or control strategies,

and this can be reflected in the degree

of consideration accorded to a

defendant/respondent before calculation

of the final monetary penalty.

Further, there is an acknowledged

concern, expressed in Executive Order

12898 on environmental justice, that

certain segments of the nation’s

population are disproportionately

burdened by pollutant exposure.

Emphasizing SEPs in communities

where environmental justice issues are

present helps ensure that persons who

spend significant portions of their time

in areas, or depend on food and water

sources located near, where the

violations occur would be protected.

Because environmental justice is not a

specific technique or process but an

overarching goal, it is not listed as a

category of SEP; but EPA encourages

SEPs in communities where

environmental justice may be an issue.

3. Using This Policy

In evaluating a proposed project to

determine if it qualifies as a SEP and

then determining how much penalty

mitigation is appropriate, Agency

enforcement and compliance personnel

should use the following five-step

process:

(1) Ensure that the project meets the

basic definition of a SEP. (Section B)

(2) Ensure that all legal guidelines,

including nexus, are satisfied. (Section

C)

(3) Ensure that the project fits within

one (or more) of the designated

categories of SEPs. (Section D)

(4) Calculate the net-present after-tax

cost of the project and then determine

the appropriate amount of penalty

mitigation. (Section E)

(5) Ensure that the project satisfies all

of the implementation and other

criteria. (Sections F, G, H and I)

4. Applicability

This Policy revises and hereby

supersedes the February 12, 1991 Policy

on the Use of Supplemental

Environmental Projects in EPA

Settlements. This Policy applies to

settlements of all civil judicial and

administrative actions filed after the

effective date of this Policy, and to all

pending cases in which the government

has not reached agreement in principle

with the alleged violator on the specific

terms of a SEP.

This Policy applies to all civil judicial

and administrative enforcement actions

taken under the authority of the

environmental statutes and regulations

that EPA administers. It also may be

used by EPA and the Department of

Justice in reviewing proposed SEPs in

settlement of citizen suits. This Policy

also applies to federal agencies that are

liable for the payment of civil penalties.

This Policy does not apply to

settlements of claims for stipulated

penalties for violations of consent

decrees or other settlement agreement

requirements.2

This is a settlement Policy and thus is

not intended for use by EPA,

defendants, respondents, courts or

administrative law judges at a hearing or

in a trial. Further, whether the Agency

decides to accept a proposed SEP as part

of a settlement is purely within EPA’s

discretion. Even though a project

appears to satisfy all of the provisions

of this Policy, EPA may decide, for one

or more reasons, that a SEP is not

appropriate (e.g., the cost of reviewing

a SEP proposal is excessive, the

oversight costs of the SEP may be too

high, or the defendant/respondent may

not have the ability or reliability to

complete the proposed SEP).

This Policy establishes a framework

for EPA to use in exercising its

enforcement discretion in determining

appropriate settlements. In some cases,

application of this Policy may not be

appropriate, in whole or part. In such

cases, the litigation team may, with the

advance approval of Headquarters, use

an alternative or modified approach.

B. Definition and Key Characteristics of

a SEP

Supplemental environmental projects

are defined as environmentally

beneficial projects which a defendant/

respondent agrees to undertake in

settlement of an enforcement action, but

which the defendant/respondent is not

otherwise legally required to perform.

The three bolded key parts of this

definition are elaborated below.

‘‘Environmentally beneficial’’ means a

SEP must improve, protect, or reduce

risks to public health, or the

environment at large. While in some

cases a SEP may provide the alleged

violator with certain benefits, there

must be no doubt that the project

primarily benefits the public health or

the environment.

‘‘In settlement of an enforcement

action’’ means: (1) EPA has the

opportunity to help shape the scope of

the project before it is implemented; and

(2) the project is not commenced until

after the Agency has identified a

violation (e.g., issued a notice of

violation, administrative order, or

complaint).3

‘‘Not otherwise legally required to

perform means’’ the SEP is not required

by any federal, state or local law or

regulation. Further, SEPs cannot include

actions which the defendant/respondent

may be required to perform: as

injunctive relief in the instant case; as

part of a settlement or order in another

legal action; or by state or local

requirements. SEPs may include

activities which the defendant/

respondent will become legally

obligated to undertake two or more

years in the future. Such ‘‘accelerated

compliance’’ projects are not allowable,

however, if the regulation or statute

provides a benefit (e.g., a higher
24858 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Notices

4These legal guidelines are based on federal law

as it applies to EPA; States may have more or less

flexibility in the use of SEPs depending on their

laws.

5The immediate geographic area will generally be

the area within a 50 mile radius of the site on which

the violations occurred.

6All projects which would include activities

outside the U.S. must be approved in advance by

Headquarters and/or the Department of Justice. See

section I.

emission limit) to the defendant/

respondent for early compliance.

Also, the performance of a SEP

reduces neither the stringency nor

timeliness requirements of Federal

environmental statutes and regulations.

Of course, performance of a SEP does

not alter the defendant/respondent’s

obligation to remedy a violation

expeditiously and return to compliance.

C. Legal Guidelines

EPA has broad discretion to settle

cases, including the discretion to

include SEPs as an appropriate part of

the settlement. The legal evaluation of

whether a proposed SEP is within EPA’s

authority and consistent with all

statutory and Constitutional

requirements may be a complex task.

Accordingly, this Policy uses five legal

guidelines to ensure that our SEPs are

within the Agency’s and a federal

court’s authority, and do not run afoul

of any Constitutional or statutory

requirements.4

1. All projects must have adequate

nexus. Nexus is the relationship

between the violation and the proposed

project. This relationship exists only if

the project remediates or reduces the

probable overall environmental or

public health impacts or risks to which

the violation at issue contributes, or if

the project is designed to reduce the

likelihood that similar violations will

occur in the future. SEPs are likely to

have an adequate nexus if the primary

impact of the project is at the site where

the alleged violation occurred or at a

different site in the same ecosystem or

within the immediate geographic 5 area.

Such SEPs may have sufficient nexus

even if the SEP addresses a different

pollutant in a different medium. In

limited cases, nexus may exist even

though a project will involve activities

outside of the United States.6

2. A project must advance at least one

of the declared objectives of the

environmental statutes that are the basis

of the enforcement action. Further, a

project cannot be inconsistent with any

provision of the underlying statutes.

3. EPA or any other federal agency

may not play any role in managing or

controlling funds that may be set aside

or escrowed for performance of a SEP.

Nor may EPA retain authority to manage

or administer the SEP. EPA may, of

course, provide oversight to ensure that

a project is implemented pursuant to the

provisions of the settlement and have

legal recourse if the SEP is not

adequately performed.

4. The type and scope of each project

are determined in the signed settlement

agreement. This means the ‘‘what,

where and when’’ of a project are

determined by the settlement

agreement. Settlements in which the

defendant/respondent agrees to spend a

certain sum of money on a project(s) to

be determined later (after EPA or the

Department of Justice signs the

settlement agreement) are generally not

allowed.

5. A project may not be something

that EPA itself is required by its statutes

to do. And a project may not provide

EPA with additional resources to

perform an activity for which Congress

has specifically appropriated funds. In

addition, a SEP should not appear to be

an expansion of an existing EPA

program. For example, if EPA has

developed a brochure to help a segment

of the regulated community comply

with environmental requirements, a SEP

may not directly, or indirectly, provide

additional resources to revise, copy or

distribute the brochure.

D. Categories of Supplemental

Environmental Projects

EPA has identified seven categories of

projects which may qualify as SEPs. In

order for a proposed project to be

accepted as a SEP, it must satisfy the

requirements of at least one category

plus all the other requirements

established in this Policy.

1. Public Health

A public health project provides

diagnostic, preventative and/or remedial

components of human health care

which is related to the actual or

potential damage to human health

caused by the violation. This may

include epidemiological data collection

and analysis, medical examinations of

potentially affected persons, collection

and analysis of blood/fluid/ tissue

samples, medical treatment and

rehabilitation therapy.

Public health SEPs are acceptable

only where the primary benefit of the

project is the population that was

harmed or put at risk by the violations.

2. Pollution Prevention

A pollution prevention project is one

which reduces the generation of

pollution through ‘‘source reduction,’’

i.e., any practice which reduces the

amount of any hazardous substance,

pollutant or contaminant entering any

waste stream or otherwise being

released into the environment, prior to

recycling, treatment or disposal. (After

the pollutant or waste stream has been

generated, pollution prevention is no

longer possible and the waste must be

handled by appropriate recycling,

treatment, containment, or disposal

methods.)

Source reduction may include

equipment or technology modifications,

process or procedure modifications,

reformulation or redesign of products,

substitution of raw materials, and

improvements in housekeeping,

maintenance, training, inventory

control, or other operation and

maintenance procedures. Pollution

prevention also includes any project

which protects natural resources

through conservation or increased

efficiency in the use of energy, water or

other materials. ‘‘In-process recycling,’’

wherein waste materials produced

during a manufacturing process are

returned directly to production as raw

materials on site, is considered a

pollution prevention project.

In all cases, for a project to meet the

definition of pollution prevention, there

must be an overall decrease in the

amount and/or toxicity of pollution

released to the environment, not merely

a transfer of pollution among media.

This decrease may be achieved directly

or through increased efficiency

(conservation) in the use of energy,

water or other materials. This is

consistent with the Pollution Prevention

Act of 1990 and the Administrator’s

‘‘Pollution Prevention Policy Statement:

New Directions for Environmental

Protection,’’ dated June 15, 1993.

3. Pollution Reduction

If the pollutant or waste stream

already has been generated or released,

a pollution reduction approach—which

employs recycling, treatment,

containment or disposal techniques—

may be appropriate. A pollution

reduction project is one which results in

a decrease in the amount and/or toxicity

of any hazardous substance, pollutant or

contaminant entering any waste stream

or otherwise being released into the

environment by an operating business

or facility by a means which does not

qualify as ‘‘pollution prevention.’’ This

may include the installation of more

effective end-of-process control or

treatment technology. This also includes

‘‘out-of-process recycling,’’ wherein

industrial waste collected after the

manufacturing process and/or consumer

waste materials are used as raw

materials for production off-site,

reducing the need for treatment,
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Notices 24859

7 If EPA lacks authority to require repair, then

repair itself may constitute a SEP.

8For purposes of this Policy, a small business is

owned by a person or another entity that employs

100 or fewer individuals. Small businesses could be

individuals, privately held corporations, farmers,

landowners, partnerships and others.

9Since most large companies routinely conduct

compliance audits, to mitigate penalties for such

audits would reward violators for performing an

activity that most companies already do. In

contrast, these audits are not commonly done by

small businesses, perhaps because such audits may

be too expensive.

disposal, or consumption of energy or

natural resources.

4. Environmental Restoration and

Protection

An environmental restoration and

protection project is one which goes

beyond repairing the damage caused by

the violation to enhance the condition

of the ecosystem or immediate

geographic area adversely affected.7

These projects may be used to restore or

protect natural environments (such as

ecosystems) and man-made

environments, such as facilities and

buildings. Also included is any project

which protects the ecosystem from

actual or potential damage resulting

from the violation or improves the

overall condition of the ecosystem.

Examples of such projects include:

Reductions in discharges of pollutants

which are not the subject of the

violation to an affected air basin or

watershed; restoration of a wetland

along the same avian flyway in which

the facility is located; or purchase and

management of a watershed area by the

defendant/respondent to protect a

drinking water supply where the

violation, e.g., a reporting violation, did

not directly damage the watershed but

potentially could lead to damage due to

unreported discharges. This category

also includes projects which provide for

the protection of endangered species

(e.g., developing conservation programs

or protecting habitat critical to the wellbeing of a species endangered by the

violation).

With regards to man-made

environments, such projects may

involve the remediation of facilities and

buildings, provided such activities are

not otherwise legally required. This

includes the removal/mitigation of

contaminated materials, such as soils,

asbestos and leaded paint, which are a

continuing source of releases and/or

threat to individuals.

5. Assessments and Audits

Assessments and audits, if they are

not otherwise available as injunctive

relief, are potential SEPs under this

category. There are four types of projects

in this category:

a. Pollution prevention assessments;

b. site assessments; c. environmental

management system audits; and d.

compliance audits.

a. Pollution prevention assessments

are systematic, internal reviews of

specific processes and operations

designed to identify and provide

information about opportunities to

reduce the use, production, and

generation of toxic and hazardous

materials and other wastes. To be

eligible for SEPs, such assessments must

be conducted using a recognized

pollution prevention assessment or

waste minimization procedure to reduce

the likelihood of future violations.

b. Site assessments are investigations

of the condition of the environment at

a site or of the environment impacted by

a site, and/or investigations of threats to

human health or the environment

relating to a site. These include but are

not limited to: Investigations of levels

and/or sources of contamination in any

environmental media at a site;

investigations of discharges or

emissions of pollutants at a site,

whether from active operations or

through passive transport mechanisms;

ecological surveys relating to a site;

natural resource damage assessments;

and risk assessments. To be eligible for

SEPs, such assessments must be

conducted in accordance with

recognized protocols, if available,

applicable to the type of assessment to

be undertaken.

c. An environmental management

system audit is an independent

evaluation of a party’s environmental

policies, practices and controls. Such

evaluation may encompass the need for:

(1) A formal corporate environmental

compliance policy, and procedures for

implementation of that policy; (2)

educational and training programs for

employees; (3) equipment purchase,

operation and maintenance programs;

(4) environmental compliance officer

programs; (5) budgeting and planning

systems for environmental compliance;

(6) monitoring, record keeping and

reporting systems; (7) in-plant and

community emergency plans; (8)

internal communications and control

systems; and (9) hazard identification,

risk assessment.

d. An environmental compliance

audit is an independent evaluation of a

defendant/respondent’s compliance

status with environmental requirements.

Credit is only given for the costs

associated with conducting the audit.

While the SEP should require all

violations discovered by the audit to be

promptly corrected, no credit is given

for remedying the violation since

persons are required to achieve and

maintain compliance with

environmental requirements. In general,

compliance audits are acceptable as

SEPs only when the defendant/

respondent is a small business.8,9

These two types of assessments and

environmental management system

audits are allowable as SEPs without an

implementation commitment by the

defendant/respondent. Implementation

is not required because drafting

implementation requirements before the

results of the study are known is

difficult. Further, for pollution

prevention assessments and

environmental management systems

audits, many of the implementation

recommendations from these studies

may constitute activities that are in the

defendant/respondent’s own economic

interest.

These assessments and audits are

acceptable where the primary impact of

the project is at the same facility, at

another facility owned by the violator,

or at a different facility in the same

ecosystem or within the immediate

geographic area (e.g., a publicly owned

wastewater treatment works and its

users). These assessments and audits are

only acceptable as SEPs when the

defendant/respondent agrees to provide

EPA with a copy.

6. Environmental Compliance

Promotion

An environmental compliance

promotion project provides training or

technical support to other members of

the regulated community to: (1) Identify,

achieve and maintain compliance with

applicable statutory and regulatory

requirements; (2) avoid committing a

violation with respect to such statutory

and regulatory requirements; or (3) go

beyond compliance by reducing the

generation, release or disposal of

pollutants beyond legal requirements.

For these types of projects, the

defendant/respondent may lack the

experience, knowledge or ability to

implement the project itself, and, if so,

the defendant/respondent should be

required to contract with an appropriate

expert to develop and implement the

compliance promotion project.

Acceptable projects may include, for

example, producing or sponsoring a

seminar directly related to correcting

widespread or prevalent violations
24860 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Notices

10PROJECT does not evaluate the potential for

market benefits which may accrue with the

performance of a SEP (e.g., increased sales of a

product, improved corporate public image, or

improved employee morale). Nor does it consider

costs imposed on the government, such as the cost

to the Agency for oversight of the SEP, or the

burden of a lengthy negotiation with a defendant/

respondent who does not propose a SEP until late

in the settlement process.

11See PROJECT User’s Manual, January 1995. If

the PROJECT model appears inappropriate to a

within the defendant/ respondent’s

economic sector.

Environmental compliance promotion

SEPs are acceptable only where the

primary impact of the project is focused

on the same regulatory program

requirements which were violated and

where EPA has reason to believe that

compliance in the sector would be

significantly advanced by the proposed

project. For example, if the alleged

violations involved Clean Water Act

pretreatment violations, the compliance

promotion SEP must be directed at

ensuring compliance with pretreatment

requirements.

7. Emergency Planning and

Preparedness

An emergency planning and

preparedness project provides

assistance—such as computers and

software, communication systems,

chemical emission detection and

inactivation equipment, HAZMAT

equipment, or training—to a responsible

state or local emergency response or

planning entity. This is to enable these

organizations to fulfill their obligations

under the Emergency Planning and

Community Right-to-Know Act (EPCRA)

to collect information to assess the

dangers of hazardous chemicals present

at facilities within their jurisdiction, to

develop emergency response plans, to

train emergency response personnel and

to better respond to chemical spills.

EPCRA requires regulated sources to

provide information on chemical

production, storage and use to State

Emergency Response Commissions

(SERCs), Local Emergency Planning

Committees (LEPCs) and Local Fire

Departments (LFDs). This enables states

and local communities to plan for and

respond effectively to chemical

accidents and inform potentially

affected citizens of the risks posed by

chemicals present in their communities,

thereby enabling them to protect the

environment or ecosystems which could

be damaged by an accident. Failure to

comply with EPCRA impairs the ability

of states and local communities to meet

their obligations and places emergency

response personnel, the public and the

environment at risk from a chemical

release.

Emergency planning and

preparedness SEPs are acceptable where

the primary impact of the project is

within the same emergency planning

district or state affected by the

violations. Further, this type of SEP is

allowable only when the SEP involves

non-cash assistance and there are

violations of EPCRA or reporting

violations under CERCLA Section 103

alleged in the complaint.

8. Projects Which Are Not Acceptable as

SEPs

Except for projects which meet the

specific requirements of one of the

categories enumerated in § D. above, the

following are examples of the types of

projects that are not allowable as SEPs:

a. General educational or public

environmental awareness projects, e.g.,

sponsoring public seminars, conducting

tours of environmental controls at a

facility, promoting recycling in a

community;

b. Contribution to environmental

research at a college or university;

c. Conducting a project, which,

though beneficial to a community, is

unrelated to environmental protection,

e.g., making a contribution to charity, or

donating playground equipment;

d. Studies or assessments without a

commitment to implement the results

(except as provided for in Section D.5

above);

e. Projects which are being funded by

low-interest federal loans, federal

contracts, or federal grants.

E. Calculation of the Final Penalty

As a general rule, the costs to be

incurred by a violator in performing a

SEP may be considered in determining

an appropriate settlement amount.

Calculating the final penalty in a

settlement which includes a SEP is a

three-step process. First, the Agency’s

penalty policies are used as applicable

to calculate all of the other parts of the

settlement penalty (including economic

benefit and gravity components).

Second, calculate the net-present aftertax cost of the SEP. Third, evaluate the

benefits of the SEP, based on specific

factors, to determine what percentage of

the net-present after-tax cost will be

considered in determining an

appropriate final settlement penalty.

1. Penalty

Penalties are an important part of any

settlement. A substantial penalty is

generally necessary for legal and policy

reasons. Without penalties there would

be no deterrence as regulated entities

would have little incentive to comply.

Penalties are necessary as a matter of

fairness to those companies that make

the necessary expenditures to comply

on time: violators should not be allowed

to obtain an economic advantage over

their competitors who complied. Except

in extraordinary circumstances, if a

settlement includes a SEP, the penalty

should recover, at a minimum, the

economic benefit of noncompliance

plus 10 percent of the gravity

component, or 25 percent of the gravity

component only, whichever is greater.

In cases involving government

agencies or entities, such as

municipalities, or non-profit

organizations, where the circumstances

warrant, EPA may determine, based on

the nature of the SEPs being proposed,

that an appropriate settlement could

contain a cash penalty less than the

economic benefit of non-compliance.

The precise amount of the cash penalty

will be determined by the applicable

penalty policy.

2. Calculation of the Cost of the SEP

To ensure that a proposed SEP is

consistent with this Policy, the net

present after-tax cost of the SEP,

hereinafter called the ‘‘SEP Cost,’’ is

calculated. In order to facilitate

evaluation of the SEP Cost of a proposed

SEP, the Agency has developed a

computer model called PROJECT. To

use PROJECT, the Agency needs reliable

estimates of the costs and savings

associated with a defendant/

respondent’s performance of a SEP.

Often the costs will not be estimates but

known amounts based on a defendant/

respondent’s agreement to expend a

fixed or otherwise known dollar amount

on a project.

There are three types of costs that may

be associated with performance of a SEP

(which are entered into the PROJECT

model): capital costs (e.g., equipment,

buildings); one-time nondepreciable

costs (e.g., removing contaminated

materials, purchasing land, developing a

compliance promotion seminar); and

annual operation costs or savings (e.g.,

labor, chemicals, water, power, raw

materials).10

In order to run the PROJECT model

properly (i.e., to produce a reasonable

estimate of the net present after-tax cost

of the project), the number of years that

annual operation costs or savings will

be expended in performing the SEP

must be specified. At a minimum, the

defendant/respondent must be required

to implement the project for the same

number of years used in the PROJECT

model calculation. If certain costs or

savings appear speculative, they should

not be entered into the PROJECT model.

The PROJECT model is the primary

method to determine the SEP cost for

purposes of negotiating settlements.11
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Notices 24861

particular fact situation, EPA Headquarters should

be consulted to identify an alternative approach.

For example, the December 1993 version of

PROJECT does not readily calculate the cost of an

accelerated compliance SEP. The cost of such a SEP

is the additional cost associated with doing the

project early (ahead of the regulatory requirement)

and it needs to be calculated in a slightly different

manner.

12The penalty mitigation guidelines in subsection

E.3 provide that the amount of mitigation should

not exceed the net cost of the project. To provide

penalty mitigation for profitable projects would be

providing a credit in excess of net costs.

13 Of course, non-profit organizations, such as

universities and public interest groups, may

function as contractors or consultants.

EPA does not offer tax advice on

whether a company may deduct SEP

expenditures from its income taxes. If a

defendant/respondent states that it will

not deduct the cost of a SEP from its

taxes and it is willing to commit to this

in the settlement document, and

provide the Agency with certification

upon completion of the SEP that it has

not deducted the SEP expenditures, the

PROJECT model calculation should be

adjusted to calculate the SEP Cost

without reductions for taxes. This is a

simple adjustment to the PROJECT

model: just enter a zero for variable 7,

the marginal tax rate. If a business is not

willing to make this commitment, the

marginal tax rate in variable 7 should

not be set to zero; rather the default

settings (or a more precise estimate of

the business’ marginal tax rates) should

be used in variable 7.

If the PROJECT model reveals that a

project has a negative cost, this means

that it represents a positive cash flow to

the defendant/respondent and as a

profitable project thus, generally, is not

acceptable as a SEP. If a project

generates a profit, a defendant/

respondent should, and probably will,

based on its own economic interests

implement the project. While EPA

encourages companies to undertake

environmentally beneficial projects that

are economically profitable, EPA does

not believe violators should receive a

bonus in the form of penalty mitigation

to undertake such projects as part of an

enforcement action. EPA does not offer

subsidies to complying companies to

undertake profitable environmentally

beneficial projects and it would thus be

inequitable and perverse to provide

such subsidies only to violators. In

addition, the primary goal of SEPs is to

secure a favorable environmental or

public health outcome which would not

have occurred but for the enforcement

case settlement. To allow SEP penalty

mitigation for profitable projects would

thwart this goal.12

3. Penalty Mitigation

After the SEP Cost has been

calculated, EPA should determine what

percentage of that cost may be applied

as mitigation against the preliminary

total calculated gravity component

before calculation of the final penalty.

The SEP should be examined as to

whether and how effectively it achieves

each of the following five factors listed

below.

• Benefits to the Public or

Environment at Large. While all SEPs

benefit public health or the

environment, SEPs which perform well

on this factor will result in significant

and quantifiable reduction in discharges

of pollutants to the environment and the

reduction in risk to the general public.

SEPs also will perform well on this

factor to the extent they result in

significant and, to the extent possible,

measurable progress in protecting and

restoring ecosystems (including

wetlands and endangered species

habitats).

• Innovativeness. SEPs which

perform well on this factor will further

the development and implementation of

innovative processes, technologies, or

methods which more effectively: reduce

the generation, release or disposal of

pollutants; conserve natural resources;

restore and protect ecosystems; protect

endangered species; or promote

compliance. This includes ‘‘technology

forcing’’ techniques which may

establish new regulatory ‘‘benchmarks.’’

• Environmental Justice. SEPs which

perform well on this factor will mitigate

damage or reduce risk to minority or

low income populations which may

have been disproportionately exposed to

pollution or are at environmental risk.

• Multimedia Impacts. SEPs which

perform well on this factor will reduce

emissions to more than one medium.

• Pollution Prevention. SEPs which

perform well on this factor will develop

and implement pollution prevention

techniques and practices.

The better the performance of the SEP

under each of these factors, the higher

the mitigation percentage may be set. As

a general guideline, the final mitigation

percentage should not exceed 80

percent of the SEP Cost. For small

businesses, government agencies or

entities, and non-profit organizations,

this percentage may be set as high as

100 percent. For any defendant/

respondent, if one of the five factors is

pollution prevention, the percentage

may be set as high as 100 percent. A

lower mitigation percentage may be

appropriate if the government must

allocate significant resources to

monitoring and reviewing the

implementation of a project.

In administrative enforcement actions

in which there is a statutory limit on

administrative penalties, the cash

penalty obtained plus the amount of

penalty mitigation credit due to the

SEPs shall not exceed the statutory

administrative penalty limit.

F. Performance by a Third Party

SEPs are generally performed either

by the defendant/respondent itself

(using its own employees) and/or by

contractors or consultants.13 In the past

in a few cases, a SEP has been

performed by someone else, commonly

called a third party. Because of legal

concerns and the difficulty of ensuring

that a third party implements the project

as required (since by definition a third

party has no legal or contractual

obligation to implement the project as

specified in the settlement document),

performance of a SEP by a third party

is not allowed.

G. Oversight and Drafting Enforceable

SEPS

The settlement agreement should

accurately and completely describe the

SEP. (See related legal guideline 4 in

Section C above.) It should describe the

specific actions to be performed by the

defendant/respondent and provide for a

reliable and objective means to verify

that the defendant/respondent has

timely completed the project. This may

require the defendant/respondent to

submit periodic reports to EPA. If an

outside auditor is necessary to conduct

this oversight, the defendant/respondent

should be made responsible for the cost

of any such activities. The defendant/

respondent remains responsible for the

quality and timeliness of any actions

performed or any reports prepared or

submitted by the auditor. A final report

certified by an appropriate corporate

official, acceptable to EPA and

evidencing completion of the SEP,

should be required.

To the extent feasible, defendant/

respondents should be required to

quantify the benefits associated with the

project and provide EPA with a report

setting forth how the benefits were

measured or estimated. The defendant/

respondent should agree that whenever

it publicizes a SEP or the results of the

SEP, it will state in a prominent manner

that the project is being undertaken as

part of the settlement of an enforcement

action.

The drafting of a SEP will vary

depending on whether the SEP is being

performed as part of an administrative

or judicial enforcement action. SEPs

with long implementation schedules

(e.g., 18 months or longer), SEPs which

require EPA review and comment on
24862 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Notices

14 In judicial cases, the Department of Justice

must approve the SEP.

interim milestone activities, and other

complex SEPs may not be appropriate in

those administrative enforcement

actions where EPA lacks injunctive

relief authority or is subject to a penalty

ceiling. Specific guidance on the proper

drafting of SEPs will be provided in a

separate guidance document.

H. Failure of a SEP and Stipulated

Penalties

If a SEP is not completed

satisfactorily, the defendant/respondent

should be required, pursuant to the

terms of the settlement document, to

pay stipulated penalties for its failure.

Stipulated penalty liability should be

established for each of the scenarios set

forth below as appropriate to the

individual case.

1. Except as provided in paragraph 2

immediately below, if the SEP is not

completed satisfactorily, a substantial

stipulated penalty should be required.

Generally, a substantial stipulated

penalty is between 50 and 100 percent

of the amount by which the settlement

penalty was mitigated on account of the

SEP.

2. If the SEP is not completed

satisfactorily, but the defendant/

respondent: (a) made good faith and

timely efforts to complete the project;

and (b) certifies, with supporting

documentation, that at least 90 percent

of the amount of money which was

required to be spent was expended on

the SEP, no stipulated penalty is

necessary.

3. If the SEP is satisfactorily

completed, but the defendant/

respondent spent less than 90 percent of

the amount of money required to be

spent for the project, a small stipulated

penalty should be required. Generally, a

small stipulated penalty is between 10

and 25 percent of the amount by which

the settlement penalty was mitigated on

account of the SEP.

4. If the SEP is satisfactorily

completed, and the defendant/

respondent spent at least 90 percent of

the amount of money required to be

spent for the project, no stipulated

penalty is necessary.

The determinations of whether the

SEP has been satisfactorily completed

(i.e., pursuant to the terms of the

agreement) and whether the defendant/

respondent has made a good faith,

timely effort to implement the SEP is in

the sole discretion of EPA.

I. EPA Procedures

1. Approvals

The authority of a government official

to approve a SEP is included in the

official’s authority to settle an

enforcement case and thus, subject to

the exceptions set forth here, no special

approvals are required. The special

approvals apply to both administrative

and judicial enforcement actions as

follows: 14

a. Regions in which a SEP is proposed

for implementation shall be given the

opportunity to review and comment on

the proposed SEP.

b. In all cases in which a SEP may not

fully comply with the provisions of this

Policy, the SEP must be approved by the

EPA Assistant Administrator for

Enforcement and Compliance

Assurance.

c. In all cases in which a SEP would

involve activities outside the United

States, the SEP must be approved in

advance by the Assistant Administrator

and, for judicial cases only, the

Assistant Attorney General for the

Environment and Natural Resources

Division of the Department of Justice.

d. In all cases in which a SEP

includes an environmental compliance

promotion project, the SEP must be

approved by the Office of Regulatory

Enforcement in OECA. With time, this

approval requirement may be delegated

to Regional officials.

2. Documentation and Confidentiality

In each case in which a SEP is

included as part of a settlement, an

explanation of the SEP with supporting

materials (including the PROJECT

model printout, where applicable) must

be included as part of the case file. The

explanation of the SEP should

demonstrate that the five criteria set

forth in Section A.3 above are met by

the project and include a description of

the expected benefits associated with

the SEP. The explanation must include

a description by the enforcement

attorney of how nexus and the other

legal guidelines are satisfied.

Documentation and explanations of a

particular SEP may constitute

confidential settlement information that

is exempt from disclosure under the

Freedom of Information Act, is outside

the scope of discovery, and is protected

by various privileges, including the

attorney-client privilege and the

attorney work-product privilege. While

individual Agency evaluations of

proposed SEPs are confidential

documents, this Policy is a public

document and may be released to

anyone upon request.

This Policy is primarily for the use of U.S.

EPA enforcement personnel in settling cases.

EPA reserves the right to change this Policy

at any time, without prior notice, or to act at

variance to this Policy. This Policy does not

create any rights, duties, or obligations,

implied or otherwise, in any third parties.

[FR Doc. 95–11501 Filed 5–9–95; 8:45 am]

BILLING CODE 6560–50–P

[OPPT–59344; FRL–4951–5]

Certain Chemicals; Approval of a Test

Marketing Exemption

AGENCY: Environmental Protection

Agency (EPA).

ACTION: Notice.

SUMMARY: This notice announces EPA’s

approval of an application for test

marketing exemption (TME) under

section 5(h)(1) of the Toxic Substances

Control Act (TSCA) and 40 CFR 720.38.

EPA has designated this application as

TME–95–3. The test marketing

conditions are described below.

DATES: This notice becomes effective

April 24, 1995. Written comments will

be received until May 25, 1995.

ADDRESSES: Written comments,

identified by the docket number [OPPT–

59344] and the specific TME number

should be sent to: TSCA noncofidential

center (NCIC), Office of Pollution

Prevention and Toxics, Environmental

Protection Agency, Rm. NEB–607

(7407), 401 M St., SW., Washington, DC

20460, (202) 554–1404, TDD (202) 554–

0551.

Comments and data may also be

submitted electronically by sending

electronic mail (e-mail) to:

ncic@epamail.epa.gov. Electronic

comments must be submitted as an

ASCII file avoiding the use of special

characters and any form of encryption.

Comments and data will also be

accepted on disks in WordPerfect in 5.1

file format or ASCII file format. All

comments and data in electronic form

must be identified by [OPPT–59344]. No

CBI should be submitted through e-mail.

Electronic comments on this notice may

be filed online at many Federal

Depository Libraries. Additional

information on electronic submissions

can be found under SUPPLEMENTARY

INFORMATION.

FOR FURTHER INFORMATION CONTACT: Vera

Stubbs, New Chemicals Branch,

Chemical Control Division (7405),

Office of Pollution Prevention and

Toxics, Environmental Protection

Agency, Rm. E–447, 401 M St., SW.,

Washington, DC 20460, (202) 260–5671.

SUPPLEMENTARY INFORMATION: Section

5(h)(1) of TSCA authorizes EPA to

exempt persons from premanufacture

notification (PMN) requirements and

permit them to manufacture or import

new chemical substances for test