Section 108(b) of CERCLA requires EPA to promulgate regulations requiring that certain “classes of facilities establish and maintain evidence of financial responsibility.” Pursuant to Section 108(b), EPA must prioritize “classes of facilities” for regulation based on risk of injury from use of hazardous substances. EPA did not identify its first priorities by the statutory deadline of December 11, 1983. In response to a lawsuit by several environmental organizations, EPA agreed earlier this year to a rulemaking schedule. The resulting court order by the D.C. Circuit requires EPA to issue a proposed financial assurance rule for the hard rock mining industry by December 1, 2016 and a final rule by December 1, 2017. EPA must also announce by December 1, 2016 whether it intends to propose rules for additional industries.
Scope of New Requirements
EPA has indicated that the new rule will require financial assurance sufficient to cover response costs, natural resource damages, and covered health assessment costs under CERCLA Section 107. The agency is developing a formula to calculate a baseline amount of required financial assurance. The formula is based on site conditions. Facilities will then be able to reduce the baseline by demonstrating that engineering controls are in place. EPA will likely allow companies to use the same types of financial assurance instruments that are currently available under CERCLA settlements: letters of credit, insurance policies, trust funds, surety bonds, the credit rating-based financial test, or corporate guarantees.
Effects on CERCLA Claims
EPA has indicated that the new financial assurance obligations will not have any effect on its enforcement-first approach to cleanups. In the event of a release, EPA will pursue an agreement with or order the facility owner/operator to conduct the cleanup. Section 108(b) financial assurance mechanisms could then be liquidated into a special account within the Hazardous Substance Superfund, or other PRPs could make contribution claims against the owner/operator that would be directly payable from the instrument. EPA or other PRPs could also choose to make “direct action” claims against the instrument provider.
Issues To Watch
- EPA has said that a major goal of the proposal is to incentivize use of “sound mining practices.” Regulated entities should look closely at the types of controls that EPA selects as bases for reductions and evaluate them in terms of cost, practical feasibility, and environmental benefit.
- EPA has announced that it is consulting with representatives of the insurance, banking, and surety communities regarding novel aspects of the rule, such as the availability of direct action against instrument providers and the potential for multiple payouts. These issues could affect the availability and cost of financial assurance instruments.
- Even after a financial assurance instrument is in place, regulated entities will bear ongoing costs of recordkeeping and reporting. EPA has indicated that facilities will need to make regular updates to site-specific inputs—and accordingly, the amount of financial assurance required—which may lead to increased transaction costs.
- An EPA Inspector General investigation recently identified widespread inadequacies in EPA’s oversight of financial assurance instruments under CERCLA and the Resource Conservation and Recovery Act. Continuing gaps in oversight and uneven compliance by companies subject to new regulations under Section 108(b) could potentially lead to an uneven playing field where conscientious companies bear disproportionately the cost of the new requirements.
- EPA maintains that its new requirements relate solely to potential CERCLA cleanups and will not overlap with state and local financial assurance obligations for reclamation and post-closure activities, such as bonds required for decommissioning and reclamation of uranium recovery sites. Industry should watch for potential overlap—for example, the potential for addressing water treatment under either reclamation or remediation.
 The Inspector General’s “Management Alert” to EPA is available at https://www.epa.gov/sites/production/files/2016-03/documents/20160331-16-p-0126.pdf.