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Leveling the Playing Field:
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he federal courts and the United States Environmen-
tal Protection Agency Administrator are explicitly re-
quired to consider the economic benefit violators gain
from noncompliance when imposing civil penalties
under the Clean Water Act, Safe Drinking Water Act,
Clean Air Act and the Emergency Planning and Community Right
to Know Act. Although economic benefit is not a specific factor in
other statutes—the Resource Conservation and Recovery Act,
Toxic Substances Control Act, Comprehensive Environmental
Response, Compensation and Liability Act and the Federal In-
secticide, Fungicide and Rodenticide Act—the courts are keenly
aware of its critical role in deterring future violations. Penalties
serve to "level the playing field" and ensure that noncompliers do
not enjoy or gain a competitive advantage over competitors who
have invested time and money to achieve compliance.
The civil penalty that federal judges and EPA's administrative law
judges impose on a violator has two components: the economic
benefit being recovered, which ensures that the violator does
not profit from his illegal action, and a dollar penalty that ac-
counts for the degree of seriousness of the violation.
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Leveling The Playing Field
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CIVIL PENALTIES ARE NECESSARYTO THE
ENFORCEMENT OF ENVIRONMENTAL LAWS
vil penalties play a vital role in environmental protection—
their assessment is a central feature of EPA's enforce-
ment actions. Penalties promote compliance and protect
public health and the environment by deterring future vio-
lations by the same or some other members of the regulated
community. Although most regulated entities want to comply with
environmental laws — even when compliance requires signifi-
cant amounts of staff time and money — a small percentage of
regulated entities choose not to comply. Penalties remove a major
incentive for these regulated entities to delay compliance. Pen-
alties also function to keep the economic playing field level for
the vast majority of honest'firms that have already complied.
PA commonly defines "economic benefit" in two ways:
Avoided and delayed pollution control expenditures.
' A violator can obtain economic savings from its failure to
install and operate pollution control equipment on-time (i.e., in
compliance with the law).
Illegal competitive advantage. A violator can obtain an illegal
competitive advantage in several ways, such as obtaining illegal
profits by selling a product before he or she obtains necessary
approvals, or by selling a product after the product has been
banned. A violator also could gain a greater share of the market
by selling his or her goods at a reduced price due to the cost
savings from avoided environmental protection expenditures.
Further, if a violator initiates construction or operation of a facility
before he or she obtains the necessary approvals, an increase
in market share may be gained.
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ESiminat
DETERMINING ECONOMIC BENEFIT
BY USING THE 'BEN' COMPUTER MODEL
[ he majority of cases have involved only the economic
benefit that a violator derived from delaying and avoiding
necessary pollution control expenditures. In settling an
enforcement action, EPA uses a computer model called
"BEN" to determine the amount that a violator saved by investing
its money in profit-making activities instead of complying with the
law, and it is now playing a crucial enforcement role.
Recovery of economic benefit, plus a penalty that reflects the
"gravity" or seriousness of the violation, is the foundation of the
EPA penalty policy across all environmental statutes. Statute-
specific programs have developed individual policies implement-
ing this generic penalty policy (e.g., "Civil Penalty Policy For Sec-
tion 311(b)(3) And Section 3110) of The Clean Water Act," found
at http://www.epa.gov/oeca/ore/water/311 pen.html.)
FEDERAL COURTS RECOGNIZE THE
IMPORTANCE OF RECAPTURING THE
ECONOMIC BENEFIT OF NONCOMPLIANCE
ecleral courts have almost unanimously recognized the
importance of economic-benefit in establishing appropri-
ate penalties that deter future violations. For example, in
United States v. Municipal Authority of Union Township: and
Dean Dairy Products Company, Inc.. 929 F.Supp. 800 (M.D. Pa.,
1996), ajfd 150 F.3d 259 (3rd Cir. 1998), the Court specifically
recognized that the goal of deterrence requires that a penalty
have both an economic benefit component to ensure that the
violator does not profit from its violation of the law, as well as a
punitive component to account for the degree of seriousness
and/or willfulness of the violations.
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Leveling The Playing Field
WHAT THE FEDERAL COURTS HAVE SAID:
The court in United States v. Smithfield Foods, Inc., 972 F.Supp.
338 (E.D. Va. 1997) followed the same logic in imposing a pen-
alty of $12.6 million, the largest environmental civil penalty in his-
tory. The economic benefit portion alone was $4.2 million. The
Fourth Circuit Court of Appeals upheld the District Court's ap-
proach in calculating the economic benefit component. That Court
stated, "The rationale for including this measure as part of the
violators' fine is to remove or neutralize the economic incentive
to violate environmental regulations." No. 97-2709, slip op. at 20
(4th Cir. Sept. 14,1999). citing United States v. Municipal Author-
ity of Union Township; and Dean Dairy Products Company, 150
F.3d 259, 264 (3d Cir. 1998).
State courts have also embraced the concept of economic ben-
efit. "First, [a penalty] should include the 'economic benefit of
non-compliance'; otherwise, the violator and potential violators
would perceive that it pays to violate the law, creating an obvious
disincentive for compliance." Keeneyv. Durable Wire, Inc., 1995
Conn. Super. LEXIS 2541 (1995).
CASES INVOLVING THE RECAPTURE OF
ECONOMIC BENEFIT
1999—Ashland Oil Company: On October 1, 1998, EPA and
the Justice Department announced that the company agreed to
a $32.5 million settlement to resolve charges that the company
violated the Clean Air Act (CAA), the Clean Water Act (CWA), the
Resource Conservation and Recovery Act (RCRA), the Emer-
gency Planning and Community Right to Know Act (EPCRA),
and the Toxic Substances Control Act (TSCA) at its refineries in
Catlettsburg, Kentucky, St. Paul Park, Minnesota, and Canton,
Ohio. The claims against Ashland included the release of ex-
cess sulfur dioxide and other pollutants at its Catlettsburg and
Canton facilities in violation of the CAA; unreported accidental
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RECENT CASES...
releases of toxic chemicals at the Catlettsburg facility in violation
of EPCRA; unauthorized wastewater discharges at each of the
three refineries in violation of the CWA; and improper manage-
ment of hazardous waste in violation of RCRA.
The company's total penalty was $5.9 million, including $4 mil-
lion in illegal savings.
1998—Hudson Foods: On May 8, 1998, Hudson Foods, a sub-
sidiary of the Arkansas-based food processing company Tyson
Foods Inc., agreed to a $6 million settlement to resolve allega-
tions it polluted Maryland waters that flow into Chincoteague Bay.
According to the United States, Hudson's Berlin plant discharged
wastewater with illegal amounts of fecal coliform, phosphorus,
nitrogen, ammonia and other pollutants into Kitts Branch. Kitts
Branch flows into Trappe Creek, Newport Bay and Chincoteague
Bay. The United State's lawsuit also alleged that Hudson violated
pollution monitoring, sampling and notification requirements of
its Clean Water Act permit.
Under the settlement, the company paid a $4 million civil pen-
alty— virtually all of that amount was for illegal economic sav-
ings. The company also committed to spending $2 million to stem
the flow of water-polluting agricultural run-off from Hudson's and
Tyson's processing plants and farms in Maryland, Virginia, Dela-
ware and Pennsylvania.
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Leveling The Playing Field
AVAILABLE RESOURCES
The BEN computer model and the User Manual for estimating
the avoided and delayed cost of noncompliance are available in
electronic and diskette forms.
Printed copies: Printed copies are available for purchase from
the National Technical Information Service (NTIS). Call (800) 553-
6847 and request publication PB 99-501587. Federal, state and
local government enforcement staff can obtain hard copies from
EPA's new Helpline for Financial Issues that Impact Litigation at
(888) ECONSPT (326-6778) or from the Helpline's E-mail ad-
dress: benabel@iridecon.com.
Guidance on BEN economic issues is available for federal, state
and local government enforcement staff through the above
Helpline. For guidance on the legal and policy issues regarding
benefit recapture, federal, state and local government enforce-
ment staff should continue to contact Jonathan Libber in United
States EPA's Office of Enforcement and Compliance Assurance
at (202) 564-6102 or E-mail: libber.jonathan@epa.gov.
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Eliminating the Economic Benem of Violating Environmen^lLsw
EPA Offers Training on using 'BEN' Model
PA periodically conducts training workshops to EPA
Regional, state and local enforcement staff on the use of
the BEN model. Individuals interested in the training course
should contact the Helpline at (888) ECONSPT (326-
6778).
EPA can arrange BEN computer
training workshops for your staff.
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Eliminating the Economic Benefit of Violating Environmental Laws
he following computer models are available for use by lo-
cal, state and government employees for analyzing finan-
cial issues that impact enforcement actions. These mod-
els can be found at http://www.epa.gov/oeca/datasys/
dsm2.html.
ABEL Model: Evaluates a corporation's claim that it cannot af-
ford compliance costs, clean-up costs or civil penalties.
CASHOUT Model: Calculates the present value of cleanup costs
for a given Superfund site.
PROJECT Model: Calculates the real cost to a defendant of a
proposed supplemental environmental project.
I: Evaluates an individual taxpayer's claim that
he or she cannot afford compliance and clean-up costs or civil
penalties.
MUNIPAY Model: [Evaluates a municipality's claim that it cannot
afford compliance and clean-up costs or civil penalties.
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