SEPs Set for Comeback in Federal Settlements

January 11, 2021
Todd D. Kantorczyk, Esq.
MGKF Special Alert - Federal Forecast 2021

In March 2020, the Assistant Attorney General at the United States Department of Justice Environment and Natural Resources Division (ENRD) issued a guidance memo that effectively ended the practice allowing defendants to provide environmental goods or services, otherwise known as Supplemental Environmental Projects (SEPs) as part of civil settlements.  The guidance argued that the practice of allowing SEPs violated federal law and may be unconstitutional because they amounted to a reallocation of monies owed to the federal government without Congressional approval.  Shortly thereafter, EPA indicated that based on the ENRD guidance the agency would no longer include SEPs in administrative settlement agreements, except for diesel emission reduction projects in settlement of Clean Air Act violations (which had been previously authorized by Congress).

Critics of the ENRD guidance argued that SEPs have been an effective tool to remedy environmental harm and protect affected local communities, in particular environmental justice communities, in ways that could not be achieved through penalties alone.  Moreover, 2015 EPA guidance effectively addressed any legal concerns by requiring a sufficient nexus between the underlying violation and the SEP.  In October 2020, the Conservation Law Foundation filed a lawsuit in Massachusetts District Court arguing that the shift by ENRD violated the Administrative Procedures Act.

As described in more detail in other areas of this forecast, environmental justice is expected to play a key role in the Biden Administration’s approach to federal environmental regulation and enforcement.  Accordingly, it is likely that one of the first acts of Biden’s ENRD appointees will be to rescind or revise the March 2020 memo to allow for SEPs to once again be used as part of civil settlements with ENRD.  In addition, EPA will likely revert to its 2015 guidance to allow the use of SEPs for administrative settlements and may even revise the guidance to allow for more flexibility for their use.  Accordingly, companies facing federal enforcement actions can expect SEPs to play a role in settlement discussions.