Making a Good Idea Even Better: Rethinking the Limits on Supplemental Environmental Projects
55 Pages Posted: 9 Apr 2009
Date Written: January 1, 2007
Supplemental Environmental Projects (SEPs) allow a defendant in an enforcement action under federal environmental laws to reduce its civil penalty by agreeing to undertake an environmentally beneficial project it would not otherwise be required to do. Properly structured, SEPs benefit the enforcement plaintiff, the defendant, and the environment, and federal policy encourages the use of SEPs. A first of its kind examination of SEP utilization rates in federal enforcement actions finds that-despite active encouragement within and by EPA-SEPs are only used in about 13% of federal enforcement cases. After examining the development of federal policy concerning SEPs, likely explanations for the low utilization rate are EPA's insistence on (1) a "nexus" between the SEP and the violations that are the subject of the enforcement action, and (2) the use of a maximum 80% mitigation percentage that allows a defendant at most $0.80 in penalty reduction for every $1.00 of SEP money spent. The article argues that the nexus requirement is not required either by statute or the constitution, and that EPA's own policy statements on nexus reduce it scope and creates problems on a programmatic basis. The article also argues that the mitigation percentage limit creates an economic disincentive for SEP utilization. The article concludes that the elimination or substantial relaxation of the nexus requirement and the use of a dollar for dollar penalty reduction would substantially increase SEP utilization and, consequently, benefits to the environment.
Keywords: Supplemental Environmental Projects, SEPs, environmental law, environmental enforcement, environmental penalties, EPA policy
JEL Classification: K32
Suggested Citation: Suggested Citation