2.5 Environmental Regulations — State
Both the EPA and state environmental agencies regulate the impact of business operations on the environment. The EPA develops and enforces regulations that implement environmental laws enacted by Congress. Similarly, state agencies develop and enforce regulations that implement laws enacted by a state’s legislature. Further, under certain federal environmental laws, state regulatory agencies may earn authorization to promulgate regulations to implement and enforce a federal program if the state regulations are at least as stringent as the federal standards.
For example, the EPA’s final rule on regulating the disposal of coal
combustion residuals (CCR) as solid waste (the “CCR rule”), which became effective
on October 14, 2015, establishes minimum national criteria that must be met by all
CCR disposal units. We have observed, however, that certain states have imposed
standards that are more stringent than those minimum criteria. See Section 5.5.1.1 for
details.
2.5.1 Federal-State Partnerships
The principle of cooperative federalism underlies the major environmental regulatory statutes enacted by Congress in the 1970s, including the CWA and RCRA. In such statutes, federal and state governments share some degree of regulatory authority. A federal law may allow states to assume responsibility for carrying out a regulatory program if the states demonstrate that they have adequate resources to implement and enforce the law. Federal authorization of a state program is usually a prerequisite for receiving federal funding to help support the program.
States are asked to implement and enforce federal laws while retaining the power to create laws that are more stringent than federal laws. Thus, the vast majority of federal environmental laws are implemented by states. The same is largely true for Indian tribes, which remain sovereign over their lands. In incorporating cooperative federalism principles into environmental laws, Congress has recognized the roles that states have historically played as protectors of their resources, as well as the local nature of many environmental issues.
Federal environmental laws that states help
enforce include the following:
In a federal-state partnership, state environmental regulations implement the federal environmental
regulatory requirements. Further, in circumstances in which federal environmental statutes are silent
about a state’s responsibility to implement the requirements, states have developed and implemented
environmental laws to protect local environmental resources. Most importantly, for companies
managing environmental liabilities, each state has implemented environmental cleanup statutes and
regulations to enforce the remediation of releases of hazardous substances into the environment.
When the complexity and hazards of contamination do not rise to the level of the Superfund, which is
regulated by the EPA, the states regulate the environmental cleanup activities at the local level.
2.5.2 State Environmental Cleanup Regulations
Many states have enacted pollution remediation laws that are similar to CERCLA and the remediation
provisions of RCRA. State environmental laws and regulations, like federal environmental laws, may
impose liability on (1) current owners and operators of a facility where hazardous substances were
previously released or are in danger of being released and (2) entities that owned or operated the facility
at the time the hazardous substances were disposed of at the facility (i.e., the historical owners and
operators). The state environmental rules set standardized procedures for the assessment, monitoring,
cleanup, reporting, and postresponse action care of properties under state jurisdiction.
Such procedures require an owner or operator to notify the state regulatory agency if contamination
has been identified at concentrations that exceed specified “action levels” defined in the applicable
rules. For example, under the Texas Risk Reduction Program (TRRP) regulated by the Texas Commission
on Environmental Quality (TCEQ), when there is an actual or probable human exposure to a COC
at a concentration that exceeds the Tier 1 human health protective concentration limit (the Texas
“cleanup standard”), the regulated entity must notify the TCEQ of the contamination and then conduct
response actions specified under TRRP. That is, even if the state regulatory agency has not initiated
an enforcement action, the regulated entity has an obligation under the state environmental statute
to notify the regulator and then conduct cleanup activities in compliance with the state environmental
regulatory regime. Most state environmental regulations impose a similar notification provision to
ensure that the regulator and any potentially affected parties (e.g., neighboring property owners) are
properly notified.
Most of these regulations allow regulated entities to pursue environmental remediation activities under
one of the following schemes:
- Corrective action programs — The state regulator uses a “command-and-control” method to lead remediation activities. Legal documents such as administrative orders may be used to direct the action, and the regulated entity must receive approval from the regulator at each step of the process. This process is similar to that for remediation activities regulated by the EPA under CERCLA and RCRA.
- Voluntary cleanup/remediation programs — The regulated entity (sometimes called the
“volunteer”) leads remediation activities and receives administrative, technical, and legal
incentives from the state regulator to encourage cleanup of contaminated sites. State voluntary cleanup programs (VCPs) usually allow the entity to use risk-based cleanup principles, discussed below, in determining site-specific cleanup standards and remedial approaches.Note that the term “voluntary” does not mean that the remediation activities are optional or discretionary. If a regulated entity does not proceed under the VCP, the state has the authority to direct the cleanup under a corrective action or similar program. Therefore, since a company’s obligations under a state VCP are not undertaken voluntarily and at the sole discretion of management, they are considered to be environmental obligations and should be accounted for under the guidance in ASC 410-30.
2.5.2.1 Contaminants of Emerging Concern
Contaminants of emerging concern are important because the risk they pose to
human health and the environment is not yet fully understood. In November
2017, the EPA issued a technical fact sheet about two contaminants of emerging
concern, perfluorooctane sulfonate (PFOS) and perfluorooctanoic acid (PFOA).
The technical fact sheet states, in part:
PFOS and PFOA
are part of a larger group of chemicals called per- and polyfluoroalkyl
substances (PFASs). PFASs, which are highly fluorinated aliphatic
molecules, have been released to the environment through industrial
manufacturing and through use and disposal of PFAS-containing products
(Liu and Mejia Avendano 2013). PFOS and PFOA are the most widely studied
of the PFAS chemicals. PFOS and PFOA are persistent in the environment
and resistant to typical environmental degradation processes. As a
result, they are widely distributed across all trophic levels and are
found in soil, air and groundwater at sites across the United States.
The toxicity, mobility and bioaccumulation potential of PFOS and PFOA
result in potential adverse effects on the environment and human
health.
In 2019, we observed that states were taking more of an active role in
addressing PFAS chemicals. For example, in March 2019, New Jersey issued a
directive to some of the biggest chemical manufacturers in the nation to
spend millions of dollars to assess the extent of PFAS contamination and
eventually clean up the pollution. In addition, in May 2019, New Hampshire
filed a lawsuit against the original makers of PFAS chemicals for allegedly
contaminating the state’s drinking water.
Although states have been taking more of a lead role than
the federal government in attempting to enforce remediation associated with
PFAS contamination, the EPA in 2019 and 2020 took actions in accordance with
its February 2019 PFAS Action Plan to help state and local communities
address PFAS and protect public health. Those actions include the
following:
- On December 19, 2019, the EPA issued interim recommendations for addressing groundwater contaminated with PFOA and PFOS, which provide guidance on federal cleanup programs that the EPA believes will be helpful to states and tribes.
- On February 20, 2020, the EPA issued preliminary determinations to regulate PFOA and PFOS, which were published in the Federal Register on March 10, 2020. Further, in a February 2020 program update to its February 2019 PFAS Action Plan, the EPA indicated that it “has multiple criminal investigations underway concerning PFAS-related pollution.”
- The EPA initiated the regulatory development process for listing PFOA and PFOS as hazardous substances under CERCLA.
In accordance with the EPA’s February 2019 PFAS Action Plan, regulatory
developments occurring at either the federal or state level will call for
the cleanup and monitoring of PFASs.
On December 20, 2021, the EPA finalized its Fifth Unregulated Contaminant Monitoring
Rule (UCMR 5), which was published in the Federal
Register on December 27, 2021. UCMR 5 requires sample collection for
29 PFASs between 2023 and 2025. Specifically, in a manner consistent with
the EPA’s PFAS Strategic Roadmap, UCMR 5 provides for the collection of new
data that are critically needed to improve the EPA’s understanding of how
frequently, and the levels at which, 29 PFASs (and lithium) are found in the
nation’s drinking water systems.
Further, in May 2022, the EPA added five PFASs to a list of risk-based values
for site cleanups. These values, known as Regional Screening Levels and
Regional Remedial Management Levels, will help the EPA determine whether a
response or remediation activities are necessary.
The data obtained in accordance with the EPA’s recent regulatory actions are
expected to provide critical tools needed for Superfund and other EPA
programs to investigate contamination and protect people from PFASs by using
the latest peer-reviewed science.
2.5.2.1.1 Proposed Rules Related to PFASs
In February 2024, the EPA issued a proposed rule to amend the definition of
hazardous waste as it pertains to cleanups at permitted
hazardous waste facilities. The aim of the proposed amendment is
to ensure that the EPA’s regulations explicitly encompass the
authority of the EPA and authorized states to mandate the
cleanup of a broader range of substances, including contaminants
of emerging concern such as PFASs. Currently, the EPA’s
regulations do not fully and accurately reflect the authority
that Congress granted the agency.
Also in February 2024, the EPA issued a
proposed rule that would
amend its regulations related to RCRA to include multiple PFAS
compounds as hazardous constituents. These PFASs would be listed
among the substances for consideration in facility assessments
and, when necessary, further investigation and cleanup through
the corrective action process at hazardous waste treatment,
storage, and disposal facilities.
The proposed rules described above are geared toward
strengthening protections for communities and drinking water
supplies located near the 1,740 permitted hazardous waste
facilities in the United States. RCRA requires facilities that
treat, store, or dispose of hazardous waste to safeguard health
and the environment by investigating and cleaning up hazardous
releases into soil, groundwater, surface water, and air.
Hazardous waste cleanups are a critical part of the EPA’s focus
on environmental justice, which the agency aims to achieve, in
part, by addressing disparities in access to a clean and safe
environment.
2.5.2.2 Remedial Action Process
The remedial action process under state environmental regulations is similar to the federal CERCLA and RCRA processes. The table below identifies (1) the steps under CERCLA and RCRA, respectively, and (2) the state equivalents.
Process Step | CERCLA | RCRA | State Equivalents |
|---|---|---|---|
1 | Remedial investigation | RFI | Remedial investigation, site investigation report, affected property assessment report |
2 | Feasibility study | CMS | Feasibility study, remedial alternatives analysis |
3 | Remedial action plan | CMS | Remedial action plan, remedial action work plan |
4 | ROD | Statement of basis | Remedial action plan, remedial action work plan |
5 | Remedial design | CMI | Remedial action plan, remedial action work plan |
6 | Remedial action | CMI | Remedial action |
7 | OM&M | CMI | Response action effectiveness report, monitoring reports |
2.5.2.3 Permits
Some state environmental laws require companies to obtain a permit before they can (1) emit or discharge a pollutant into air or water, (2) dispose of hazardous waste, or (3) engage in certain regulated activities. Federal, state, and local government agencies also use permits to implement environmental laws intended to protect specific types of resources such as wetlands or endangered species. Most environmental permits are issued by state governments and may impose obligations related to long-term monitoring activities or facility closure activities.
RCRA permits are frequently issued by state agencies (and sometimes by EPA
regional offices) to help ensure the safe treatment, storage, and disposal
of hazardous waste. Like operational provisions, landfill permits issued
under RCRA impose an ARO at the end of the life of the landfill. RCRA
permits also impose obligations on owners and operators of RCRA hazardous
waste management facilities to investigate and clean up on-site and off-site
contamination caused by current and historic activities. Because many states
are authorized by the EPA to operate state-led corrective action programs,
these state-issued RCRA permits are regulatory drivers that companies must
consider when determining their environmental obligations and AROs.
2.5.3 Transaction-Triggered Environmental Laws
During the early 1980s, commercial transactions became the target of state environmental laws that
linked real estate deals to government-sanctioned and government-monitored environmental cleanups.
These “transaction-triggered” (or transfer) statutes are intended to target and ensure the cleanup
of hazardous substances at particular locations when specific events trigger application of the laws.
For example, the New Jersey Industrial Site Recovery Act (ISRA) requires the owner or operator of an
industrial establishment to investigate and remediate the property in anticipation of a property transfer,
such as when the business ceases operations or is sold. As a precondition to the property transfer,
the New Jersey Department of Environmental Protection (NJDEP) must issue a “no further action” (NFA)
letter, approve a remedial action work plan, or execute a remediation agreement with the owner. ISRA
is intended to ensure that a financially responsible party remains obligated to perform any necessary
remediation after closing. It is also important to note that ISRA is triggered, and additional investigation
and remediation may be required, even if the site is already subject to federal cleanup procedures
under CERCLA or RCRA. Therefore, dual pathways for investigation and remediation may be ongoing to
comply with this transfer statute.
States with transfer laws that similarly impose an obligation to perform assessment and remediation
activities in connection with a transaction include, but may not be limited to, the following:
- Connecticut — The Connecticut Transfer Act applies to the transfer of (1) establishments at which hazardous waste is or was generated, (2) establishments to which hazardous waste was brought from a different location, and (3) certain defined business operations. The Transfer Act requires the transferor to notify both the transferee and the Connecticut Department of Energy and Environmental Protection at the time of transfer about whether a release of hazardous waste or substances has occurred at the establishment. If such a release has occurred, one of the parties to the transaction must commit to cleaning it up.
- Delaware — The Delaware Transfer or Closure of Establishments Law requires that, during the transfer of properties or operations, or the termination of operations at which at least one million pounds of hazardous substances are used or generated, environmental investigations be performed and financial assurances established to ensure that the site will be stabilized or secured.
Other states, such as California, Iowa, Michigan, and Oregon, do not specifically mandate environmental
cleanup as a prerequisite to transactions but require disclosure of environmental conditions before the
transfer of an interest in real property or a business. A seller with knowledge of an actual or suspected
hazardous substance release must disclose to the buyer the general nature and extent of the release.
Failure to comply with the disclosure requirements may impose civil and criminal liability, as well as
harsh penalties such as strict liability for the cost to remediate the release.
2.5.4 Licensed Environmental Professionals
Several states have enacted laws establishing programs that license private environmental professionals
to oversee the assessment and remediation of contaminated sites. Usually, a licensed environmental
professional (LEP) is a member of the third-party environmental consulting firm conducting the
assessment and remediation activities on behalf of the owner or operator. Under these programs, the
role and responsibilities of the consultant have expanded from the responsibilities under the state-led
programs. Some states, such as Connecticut, Massachusetts, and New Jersey, have these types of
licensing programs.
In 1993, the Massachusetts Department of Environmental Protection implemented new
rules for reporting, assessing, and cleaning up releases of oil and hazardous material. Collectively known as the Massachusetts Contingency Plan (MCP), the rules lay out a detailed process for when and how contaminated sites must be assessed and cleaned up. The rules privatized the cleanup of contaminated sites in Massachusetts to allow the state to focus its limited resources on the tasks requiring government attention. Under the MCP, responsible parties are required to hire a licensed site professional (LSP) to manage and oversee the required assessment and cleanup activities. An LSP is an environmental scientist or engineer experienced in the cleanup of oil and hazardous material contamination. The LSP works with responsible parties to develop and execute a scope of work that will satisfy the state requirements set forth in the MCP for addressing contaminated property.
In 2009, New Jersey reformed its site remediation process to shift much of the responsibility for remediation oversight and approvals from the NJDEP to private contractors. These contractors must meet the state licensing requirements for certification as licensed site remediation professionals (LSRPs) and are required to comply with all remediation statutes and rules. They are bound by a strict code of ethics, violation of which could result in the assessment of penalties and suspension or revocation of an LSRP’s license. In most situations, the NJDEP is not required or authorized to (1) review and approve investigation and cleanup plans in advance or (2) issue NFA letters at the conclusion of cleanup activities. Rather, the LSRPs determine the propriety of the work at the conclusion of the investigations and cleanups and issue the final sign-off document, known as the “response action outcome” (RAO). An LSRP issues an RAO only after a site has been properly investigated and remediated in accordance with the remediation standards and technical requirements for site remediation. The NJDEP monitors the LSRP’s remediation progress and actions by requiring that forms and reports be submitted as remediation milestones are reached.
In Connecticut, LEPs are authorized to work on sites that qualify as “establishments” if a transfer of ownership is involved. Under the Connecticut Transfer Act, an establishment is any facility where dry cleaning, furniture stripping, or auto body repairs have been conducted; any facility where hazardous waste has been treated, stored, recycled, handled, or disposed of; or any other facility where more than 100 kilograms of hazardous waste has been generated in any one month. LEPs may also investigate and remediate contaminated sites under the voluntary remediation program and verify that a parcel has complied with remediation standard regulations.
As a result of licensing programs, the time required to complete remediation activities has decreased in the states noted above. Before the licensing programs were established, cleanups at some sites took more than 20 years to complete because of delays associated with state agency review and approval turnaround times. Now that the LEP is the decision maker, cleanups in most cases are driven by the real estate market and are performed in less time than the period allowed by statute. All three states report that the rate of site closure exceeds the rate of discovery and that case backlogs have therefore decreased.
2.5.5 Risk-Based Cleanup
Like many responsible parties, state environmental agencies are seeking methods that will allow the use of available monetary resources to accomplish the greatest reduction in risk. Most state environmental agencies have adopted a risk-based decision-making process to provide a framework for determining cleanup requirements at contaminated sites. Risk-based programs aim to protect human health and the environment while providing more options for fulfilling regulatory requirements associated with remediation of contaminated properties. Under these risk-based programs, owners and operators can most often achieve regulatory closure more cost-effectively, and return the affected property to productive use more quickly.
The basic premise of risk-based remediation is that the decision to remediate a site should be based on
the need to reduce the actual or potential risk that specific contaminants pose to human or ecological
receptors. Risk-based decision-making involves (1) the evaluation of current and reasonably likely
future risks to human health and the environment associated with contamination at a site and (2) use
of that information to develop the best combination of cleanup and site management to reduce risks
to acceptable levels. The process includes identification of hazards, assessment of exposure and
toxicity, characterization of risk, and informed decision-making. Fully informed decisions about potential
remedial actions cannot be made without adequate site characterization to identify the nature and
extent of contamination. This information is gathered during site assessment processes and presented
in a conceptual site model or similar assessment report.
As noted in Section
2.3.4.2.5, for a risk to exist, there must be (1) a source of
chemical release, (2) a human or ecological receptor that is potentially exposed
to the released chemicals, and (3) an environmental exposure pathway connecting
the source and the receptor(s). The chart below lists examples of these
elements.
If any of these elements is absent, the exposure pathways are incomplete and no risk is present. If
a risk is present, it may be reduced or eliminated through (1) removal of the source or receptor or
(2) interruption of the pathway. The goal of risk-based remediation is to reduce present and future risk
in a cost-effective manner through the use of one or more of the following risk reduction techniques:
- Chemical source reduction — Achieved by physical removal or control of the COCs.
- Receptor restriction — Land use controls (e.g., restrictive covenants) and physical barriers (e.g., concrete caps and site fencing) can prevent COC exposure until source concentrations are reduced below risk levels.
- Chemical pathway elimination — Examples include placing restrictions on excavation or groundwater use to prevent on-site or off-site receptors from making contact with chemicals of concern.
Risk-based cleanup standards provide greater flexibility because they are based on actual land use (e.g., commercial or industrial) rather than unrealistic maximum exposure assumptions (e.g., pristine conditions). If future land use can be controlled and groundwater use can be restricted, less stringent cleanup standards can be applied because risk is mitigated. Risk-based cleanup standards allow flexibility to choose between a more rapid and costly remediation approach, which may provide more immediate, unrestricted land use, or a less expensive natural attention option, which would most likely require long-term monitoring and restrictions on both land and groundwater use.