SUPPLEMENTAL. ENVIRONMENTAL PROJECTS-POLICY
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EPA SUPPLEMENTAL ENVIRONMENTAL
PROJECTS POLICY
Effective May 1,1998
A. INTRODUCTION
1. Background
In settlements of environmental enforcement cases, the U.S. Environmental
Protection Agency (EPA) requires the alleged -violators to achieve and maintain
compliance with Federal environmental laws.and regulations and to pay a civil
penalty. To further EPA's goals to protect and enhance public health and the
environment, in certain instances environmentally beneficial projects, or
Supplemental Environmental Projects (SEPs), may be part of the settlement. This
Policy sets forth the types of projects that are permissible as SEPs, the penalty
mitigation appropriate for a particular SEP, and the terms and conditions under
which they may become part of a settlement. The primary purpose of this Policy is
to encourage and obtain environmental and public health protection and
improvements that may not otherwise have occurred without the settlement
incentives provided by this Policy.
In settling enforcement actions, EPA requires alleged violators to promptly cease the
violations and, to the extent feasible, remediate any harm caused by the violations..
EPA also seeks substantial monetary penalties in order to deter noncompliance.
Without penalties, regulated entities would have an incentive to delay compliance
until they are caught and ordered to comply. Penalties promote environmental
compliance and help protect public health by deterring future violations by the same
violator and deterring violations by other members of the regulated community.
Penalties help ensure a national level playing field by ensuring that violators do not -
obtain an unfair economic advantage over then: competitors who made the necessary
expenditures to comply on time.,Penalties also encourage regulated entities to adopt
pollution prevention and recycling techniques in order to minimize their pollutant
discharges and reduce their potential liabilities. -. . .
Statutes administered by EPA generally contain penalty assessment criteria that a
. court or administrative law judge must consider in determining an appropriate
penalty at trial or a hearing. In the settlement context, EPA generally follows these
criteria in exercising its discretion to establish an appropriate settlement penalty. In
establishing an appropriate penalty, EPA considers such factors as the economic
benefit associated with the violations, the gravity or seriousness of the violations,
and prior history of violations. Evidence of a violator's commitment and ability to
perform a SEP is also a relevant factor for EPA to consider in establishing an
appropriate settlement penalty. All else being equal, the final settlement penalty will
be lower for a violator who agrees to perform an acceptable SEP compared to the
violator who does not agree to perform a SEP. • .
The Agency encourages the use of SEPs that are consistent with this Policy. SEPs
, may not be appropriate in settlement of all cases, but they are an important part of ,
EPA's enforcement program. While penalties play an important role in ......
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environmental protection by deterring violations and creating a level playing field,
SEPs" can play an additional role in securing significant environmental or public
health protection and improvements. SEPs may be particularly appropriate to further
the objectives in the statutes EPA administers and to achieve other policy goals,
including promoting pollution prevention and environmental justice.
2. Pollution Prevention and Environmental Justice
The Pollution Prevention Act of 1990 (42 U.S.C.§ 13101 etseq., November 5
1990) identifies an environmental management hierarchy in which pollution should
be prevented or reduced whenever feasible; pollution that cannot be prevented
should be recycled in an environmentally safe manner whenever feasible; pollution
that cannot be prevented or recycled should be treated in an environmentally safe
manner whenever feasible; and disposal or other release into the environment should
JU"«npfoyea o'nly as a last resort..." (42 U.S.C. §13103). Selection and evaluation
of proposed SEPs should be conducted generally in accordance with this hierarchy
of environmental management, i.e., SEPs involving pollution prevention techniques
are preferred over other types of reduction or control strategies, and this can be
reflected in the degree of consideration accorded to a defendant/respondent before
calculation of the final monetary penalty.
Further, there is an acknowledged concern, expressed in Executive Order 12898 on
environmental justice, that certain segments of the nation's population, Le.,
low-income and/or minority populations, are disproportionately burdened by
pollutant exposure.- Emphasizing SEPs in communities where environmental justice
concerns are present helps ensure that persons who spend significant portions of
their time in areas, or depend on food'and water sources located near, where the
violations occur would be protected. Because environmental justice is not a specific
technique or process but an overarching goal, it is not listed as a particular SEP
category; but EPA encourages SEPs in communities where environmental justice
may be an issue. •
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3. Using this Policy
In, evaluating a proposed project to.determine if it qualifies as a SEP and then
determining how much penalty mitigation is appropriate, Agency enforcement and
compliance personnel should use the following five-step process:
, (1) Ensure that the project meets the basic definition of a SEP. (Section B)
(2) Ensure that all legal guidelines, Including nexus, are satisfied. (Section C)
(3) Ensure tfiatttiei project fits within one (or more) of the designated categories of
SEPs. (Section D)
(4) Determine the appropriate amount of penalty mitigation. (Section E)
(5) Ensure that the project satisfies all of the implementation and other criteria.
(Sections F,b, H, I and J)
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4. Applicability
This Policy revises and hereby supersedes the February 12, 1991 Policy on the Use
of Supplemental Environmental Projects in EPA Settlements and the May 1995
Interim Revised Supplemental Environmental Projects Policy. This Policy applies to
settlements of all civil judicial and administrative actions filed after the effective
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date of this Policy (May 1,199.8), and to all pending cases in which the government
has not reached agreement in principle with the alleged violator on the specific terms
of a SEP.. ; "- , " ' - . -.
• . * . ! . • • .-..-.' • ' -
This Policy applies to all civil judicial and administrative enforcement actions taken
under the authority of the environmental statutes and regulations that EPA
administers.lt also may be used by EPA and the Department of Justice in reviewing
proposed SEPs in settlement of citizen suits. This Policy also applies to federal
agencies that are liable for the payment of civil penalties. Claims for stipulated
penalties for violations of consent decrees or other settlement agreements may not be
mitigated by the use of SEPs.i-^ . \ . : / ,.
Tm's is a settlemeM Policy and thus is not intended for use by EPA, defendants,
! respondents, courts or administrative law judges at a hearing or in a trial. Further,
whether the Agency decides to accept a proposed SEP as part of a settlement, and.
the amount of any penalty mitigation that may be given for a particular SEP, is
• •• • purely within EPA's discretion. Even though a project appears to satisfy all of the
provisions of this Policy, EPA may decide, for one or more reasons, mat a SEP is .
- not appropriate (e.g., the cost of reviewing a SEP proposal is excessive, the
oversight costs of the SEP may be too high, the defendant/respondent may not have
the ability or reliability to complete the proposed SEP, or the deterrent yalue of the
Wgher penalty amount outweighs the benefits of the proposed SEP).
This Policy establishes a framework for EPA to use in exercising its enforcement
•, discretion in determining appropriate settlements. In some cases, application of;this
Policy may not be appropriate, in whole 6r part. In such cases, the litigation team
may, with the advance approval of Headquarters, use an alternative or modified
approach. .
B. DEFINITION AND KEY CHARACTERISTICS OF A SEP
Supplemental environmental projects are defined as environmentally beneficial ;
projects which a defendant/respondent agrees to undertake in settlement of an
enforcement action, but which the defendant/respondent is not otherwise legally
required to perform. The three bolded key parts of this definition are elaborated •
below.
' , "Environmentally beneficial" means a SEP must improve, protect, or reduce risks to . '
publichealth, or the environment at large. While in some cases a SEP may provide
the alleged violator with certain benefits, there must be no doubt that the project
primarily benefits the public health or the: environment.
"In settlement of an enforcement action" means: 1) EPA has the opportunity to help
shape the scope of the project before it is implemented; and 2) the projectis not
commenced until after the Agency has identified a violation (e.g., issued a notice of
'-'" Violation, administrative order, or complaint).t21 '
"Not otherwise legally required to perform means" the project or activity is not
• , required by any federal, state or local law or regulation. Further, SEPs cannot
mclude actions which the defendant/respondent is likely to be required to perform:
.,-•••' (a) as injunctive relief^ in the instant case;
(b) as injunctive relief in another legal action EPA, or another regulatory agency
could bring; , . "
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(c) as par! of an existing settlement or order in another legal action; or,
(d) by a state or local requirement.
SEPs may include activities which the defendant/respondent will become legally
obligated to undertake two or more years in the future, if the project will result in the
facility coming into compliance earlier than the deadline. Such "accelerated
compliance" projects are no.t allowable, however, if the regulation or statute provides
a benefit (e.g., a higher emission-limit) to the defendant/respondent for early
compliance.
Also, the performance of a SEPreduces neither the stringency nor timeliness
requirements of Federal environmental statutes and regulations. Of course,
performance of a SEP does not alter the defendant/respondent's obligation to remedy
a violation expeditiously and return to compliance.
c. LEGAL 'GUIDELINES ' " • ' '•' _ •' .''
EPA has broad discretion to settle cases, including the discretion to include SEPs as
an appropriate part of the settlement. The legal evaluation of whether a proposed
SEP is within EPA's authority and consistent with all statutory and Constitutional
requirements may be a complex task. Accordingly, this Policy uses five legal
guidelines to ensure that our SEPs are within the Agency's and a federal court's
authority, and do not run afoul of any Constitutional or statutory requirements.^
1. A project cannot be inconsistent with any provision of the underlying statutes.
2. All projects must advance at least one of the objectives of the environmental .
statutes that are the basis of the enforcement action and must have adequate nexus.
Nexus is the relationship between the violation and the proposed project. This
; relationship exists only if:
a. the project is designed to reduce the likelihood that similar violations will occur in
the future; or
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b. the project reduces the adverse impact to public health or the environment to
which the violation at issue contributes; or
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C. the project reduces the overall risk! to"public health or the environment potentially
affected by the violation at issue..
Nexus is easier to establish if the primary impact of the project is at the site where
, the alleged violation occurred or at a different site in the same ecosystem or within
the immediate geographic^ area. Such SEPs may have sufficient nexus even if the
SEP addresses a different pollutant in a different medium. In limited cases, nexus
jljgy ex}st even though a project will involve activities outside of the United
States.^1 The cost of a project is not relevant to whether there is adequate nexus.
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3 EPA may not play any role in managing or controlling funds that may be set aside
or escrowed for performance of a SEP. Nor may EPA retain authority to manage or
aSt".i1Hmiiiister the SEP. EPA may, of course, perform oversight to ensure that a project
, is implemented pursuant to the provisions of the settlement and have legal recourse
my.;;.;" :r... ;''• ..gpiji, ^iftheSEP is not •adequately performed.
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This means the "what, where and when" of a project are defined by the settlement
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agreement. Settlements in.which the defendant/respondent agrees to spend a certain
sum of money on a project(s) to be defined later (after EPA or the Department of
1 Justice signs the settlement agreement) are not allowed.
5. a. A project cannot be used to satisfy EPA's statutory obligation or another federal
agency's obligation to perform a particular activity. Conversely, if a federalstatute •••
. prohibits the expenditure of federal resources on a particular activity, EPA cannot
consider projects that would appear to circumvent that prohibition
b. A project may not provide EPA or any federal agency, with additional resources to
perform a particular activity for which Congress has specifically appropriated funds.
A project may not provide EPA with additional resources to perform a particular
activity for which Congress has earmarked funds in an appropriations committee
... report.il} Further, a project cannot be used to satisfy EPA's statutory^or. earmark
' ' •' obligation, or another federal agency's statutory obligation, to spend funds on a ,
particular activity. A project, however, may be related to a particular activity for
which Congress has specifically appropriated or earmarked funds. '
c. A project may not provide additional resources to support specific activities
performed by EPA employees or EPA contractors. For example; if EPA has. .
developed a brochure to help a segment of the regulated community comply with
... environmental requirements, a project may not directly, or indirectly, provide
. additional resources to revise^ copy or distribute the brochure. , .
d; A project may not provide a federal grantee with additional funds to perform a
specific task identified within ah assistance agreement.
D. CATEGORIES OF SUPPLEMENTAL ENVIRONMENTAL PROJECTS
EPA has identified seven specific categories of projects which may qualify as SEPs.
In order for.a proposed project to be accepted as a SEP, it must satisfy the -._...
requirements of at least one category plus all the other requirements established jn
this. Policy. ;
."• - • 1. Public Health - . . >
A public health project provides diagnostic, preventative and/or remedial
components of human health care which is related to^e actual or potential damage
to human health caused by the .violation. This.may include epidemiological^ata
collection and analysis, medical examinations of potentially affected persons,
collection and analysis of blood/fluid/ tissue samples, medical treatment and .
... rehabilitation therapy. , \
Public health SEPs are acceptable only where me primary benefit of the project is
. .: the population that was harmed or put at risk by the violations, , ,
• 2. Pollution Prevention , >' '
' . A pollution prevention project is one which reduces the generation of pollution
through "source reduction," i.e;, any practice which reduces the amount of any
hazardous substance, pollutant or contaminant entering any waste stream or
- ;" • otherwise; being released into the environment, prior to recycling, treatment or -,
, . disposal.'(After tiie pollutant or waste stream has been generated, pollution
: prevention is no longer possible and the waste must be handled by appropriate .
recycling, treatment, containment, or disposal methods.)
- Source reduction may include equipment or technology.modifications, process or
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procedure modifications, reformulation or redesign of products, substitution of raw
materials, and improvements in housekeeping, maintenance, training, inventory
control, or other operation and maintenance procedures. Pollution prevention also
includes any project which protects natural resources through conservation or
increased efficiency in the use of energy, water or other materials. "In-process
recycling," wherein waste materials produced during a manufacturing process are
returned directly to production as raw materials on site, is considered a.pollution
prevention project. .
In all cases, for a project to meet the definition of pollution prevention, there must be
an overall decrease in the amount and/or toxicity of pollution released to the
environment, not merely a transfer of pollution among media. This decrease may be
achieved directly or through increased efficiency (conservation) in the use of energy,
wggroFotner irmfgp'*1g Thi'g ;g Consistent with the Pollution Prevention Act of 1990
and the Administrator's "Pollution Prevention Policy Statement: New Directions for
Environmental Protection," dated June 15,1993
3. Pollution Reduction
If the pollutant or waste stream already has been generated or released, a pollution
reduction approach -- which employs recycling, treatment, containment or disposal
techniques - may be appropriate. A pollution reduction project is one which results
in a decrease in the amount and/or toxicity of any hazardous substance, pollutant or
contaminant entering any waste stream or otherwise being released into the
environment by an operating business or facility by a means which does not qualify
as "pollution prevention." This may include the installation of more effective
end-of-process control or treatment technology, or improved containment, or safer
disposal of an existing pollutant source. Pollution reduction also includes
"out-of-process recycling," wherein industrial waste collected after the .
manufacturing process and/or consumer waste materials are used as raw materials
for production off-site.
4. Environmental Restoration and Protection
An environmental restoration and protection project is one which enhances the
condition of the ecosystem or immediate geographic area adversely affected.^
These projects may be used to restore or protect natural environments (such as
ecosystems) and man-made environments, such as facilities and buildings. This .
category also includes any project which protects the ecosystem from actual or
potential damage resulting from the violation or improves the overall condition of
the ecosystem.iil Examples of such projects include: restoration of a wetland in the •
same ecosystem along the same avian flyway in which the facility is located; or
purchase and management of a watershed area by the defendant/respondent to
protect a drinking water supply where the violation (e.g., a reporting violation) did
not directly damage the watershed but potentially could lead to damage due to
unreported discharges. This category also includes projects which provide for the
protection of endangered species (e.g., developing conservation programs or
protecting habitat critical to the well-being of a species endangered by the violation).
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In some projects where a defendant/respondent has agreed to restore and then protect
certain lands, the question arises as to whether the project may include the creation
or maintenance of certain recreational improvements, such as hiking and bicycle
trails. The costs associated with such recreational improvements may be included in
the total SEP cost provided they do not impair the environmentally beneficial
purposes of the project and they constitute only an incidental portion of the total
resources Spent on the project.
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In some projects where the parties intend that the,property be protected so that the
ecologicaland pollution reduction purposes of the land are maintained in perpetuity,
the defendant/respondent may sell or transfer the land to another party with the
established resources and expertise to perform this function, such as a state park
authority. In some cases, the U.S. Fish and Wildlife Service or the National Park
Service may be able to perform this function.!!^ ..
With regard to man-made environments, such projects may involve the remediation
of facilities and buildings, provided such activities are not otherwise legally
required. This includes the removal/mitigation of contaminated materials, such as
soils, asbestos and lead paint, which are a continuing source of releases and/or threat
to individuals. , ; .
5. Assessments and Audits ,
Assessments and audits, if they are not otherwise available as injunctive relief, are
potential SEPs under this category. There are three types of projects in this category:
a. pollution prevention assessments; b. environmental quality assessments; and c.
compliance audits. These assessments and audits are only acceptable as SEPs when
•the defendant/respondent agrees to provide EPA with a copy of the report. The
results may be made-available to the public, .except to the extent they constitute
confidential business information pursuant to 40 CFR Part 2, Subpart B.
a. Pollution prevention assessments are systematic, internal reviews of specific
processes and operations designed to identify and provide information about
opportunities to reduce the use, production, and generation of toxic and hazardous
materials and other wastes. To be eligible for SEPs, such assessments must be
conducted using a recognized pollution prevention assessment or waste
minimization procedure to reduce the likelihood of future violations. Pollution
prevention assessments are acceptable as SEPs without an implementation
commitment by the defendant/respondent. Implementation is not required because
drafting implementation requirements before the results of an assessment are known
is difficult. Further, many of the implementation recommendations may constitute
activities that are in the defendant/respondent's own economic interest.
b. Environmental quality assessments are investigations of: the condition of the
environment at a site.not owned or operated by the defendant/respondent; the
environment impacted by a site or a facility regardless of whether the site or facility
is owned or operated by the defendant/respondent; or threats to human.health or the
environment-relating to a site .or a facility regardless of whether the site or. facility is
owned or operated by the defendant/respondent. These include, but are not limited
to: investigations of levels or sources of contamination in any environmental media
at a site; or monitoring of the air, soil, or water quality surrounding a site or facility.
To be eligible as SEPs, such, assessments must be conducted in accordance with
recognized protocols, if available, applicable to the type of assessment to be
•> undertaken. Expanded sampling or monitoring by a defendant/respondent of its v
. own emissions or operations does not qualify as a SEP to the extent it is ordinarily
available as injunctive relief.
Environmental quality assessment SEPs may not be performed on the following
types of sites: sites that are on the National Priority List under CERGLA § 105, 40 ',
CFR Part'300, Appendix B; sites that would qualify for an EPA removal action "
pursuant to CERCLA § 104(a) and the National Oil and Hazardous Substances
Pollution Contingency Plan, 40 CFR § 300.415; and sites for which the
defendant/respondent or another party would likely be ordered to perform a
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remediation activity pursuant to CERCLA § 106, RCRA §7003, RCRA 3008(h),
vm CWA§ 311, or another federal law.
c. Environmental compliance audits are independent evaluations of a
defendant/respondent's compliance status with environmental requirements. Credit is
only given for the costs associated with conducting the audit. While the SEP should
require all violations discovered by the audit to be promptly corrected, no credit is
given for remedying the violation since persons are required to achieve and maintain
compliance with environmental requirements. In general, compliance audits are
acceptable as SEPs only when the defendant/respondent is a small business or small
6. Environmental Compliance Promotion
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^environmental compliance promotion project provides training or technical
support 16 other members of the regulated community to: 1) identify, achieve and
Maintain compliance with applicable statutory and regulatory requirements of 2) go
|>eyond compliance by reducing the generation, release or disposal of pollutants
beyond legal requirements. For these types of projects, the defendant/respondent
may lack the experience, knowledge or ability to implement the project itself, and, if
so, the defendant/respondent should be required to contract with an appropriate
,ri:";|Kper! to develop and implement the compliance promotion project. Acceptable.
projects may include, for example, producing a seminar directly related to correcting
' widespread or prevalent violations within the defendant/ respondent's economic
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Environmental compliance promotion SEPs are acceptable only where the primary
impact of the project is focused on the same regulatory program requirements which
were violated and where EPA has reason to believe that compliance in the sector
would be significantly advanced by the proposed project. For example, if the alleged
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requirements. Environmental compliance promotion SEPs are subject to special
• '*,, j ||r ];•; i|; |;j, '•.:/.: II;! i; j ^approval requirements per Section J below. : -. ,
7. Emergency Planning and Preparedness
,:' An'emergency pl^JjUg ^J preparedness project provides assistance ~ such as
icbffiputef s "and software, communication systems, chemical emission detection and
jnactivation equipment, HAZMAT equipment, or training ~ to a responsible state or
local emergency response or planning entity. This is to enable these organizations to
^ ^
Rlgnt-to'-Know Act (EPCRA) to collect information to assess the dangers of
hazardous chemicals present at facilities within their jurisdiction, to develop
: emergency' response plans, to train emergency response personnel and to better
respond to chemical spills.
EPCRA requires regulated sources to provide information on chemical production,
.' 'storage and use to State Emergency Response Commissions (SERCs), Local ,
Emergency Planning Committees (LEPCs) and Local Fire Departments (LFDs).
This enables states and local communities to plan for and respond effectively to
chemical accidents and inform potentially affected citizens of the risks posed by
chemicals present in ^ meir communities, thereby enabling them to protect the
environment or ecosystems which could be damaged by an accident. Failure to .
comply with EPCRA impairs the ability of states and local communities to meet
their obligations and places emergency response personnel, the public and the
environment at risk from a chemical release.
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Emergency planning and preparedness SEPs are acceptable where the primary
impact of the.project is within the same emergency_ planning district of state affected
by the violations and EPA has not previously provided the entity with financial
assistance for the same purposes as the proposed SEP. Further,,this type of SEP is
allowable only when the SEP involves non-cash assistance and there are violations
of EPCRA, or reporting violations under CERCLA § 1.03, or CAA § 112(r), or
violations of other emergency planning, spill or release requirements alleged in the .
complaint. • . •
8. Other Types of Projects r
Projects determined by the case team to have environmental merit which do not fit
within at least one of the seven categories above but that are otherwise fully
consistent ^with'ajl other pro visions, of this Policy, may be accepted with the advance
approval of the Office of Enforcement and Compliance Assurance.
' " -, - • • ,- v
9. Projects Which Are Not Acceptable as SEPs
The following are examples of the types of projects that are not allowable as SEPs:
a. General public educational or public environmental awareness projects, e.g.,
sponsoring public seminars, conducting tours of environmental controls at a facility,
promoting recycling in a community; ,
b. Contributions to environmental research at a college Or university;
c. Conducting a project, which, though beneficial to a community, is unrelated to
environmental protection, e.g., making a contribution to a non-profit, public interest,
environmental, or other charitable; organization, or donating playground equipment;
d. Studies or assessments without a requirement to address the problems identified in
the study (except as provided for in § D.5 above);
e. Projects which the defendant/respondent will undertake, in whole or part, with
low^interest federal loans, federal contracts, federal grants, or other forms of federal
financial assistance or non-financial assistance (e.g., loan guarantees).
• ' - - f ' " ' " . -.".••
E. CALCULATION OF THE FINAL PENALTY
Substantial penalties are an important part of any settlement for legal and policy
reasons. Without penalties there would be ho deterrence, as regulated entities would
have little incentive to comply. Additionally, penalties are necessary as a matter of
fairness to those regulated entities that make the necessary expenditures to comply
on time: violators should not be allowed to obtain an economic advantage over their
competitors who complied. ,
As a general rule, the net costs to be incurred by a violator in performing a SEP may
be considered as one factor in determining an appropriate settlement amount. In
settlements in which defendant/respondents commit to conduct a SEP, the final
settlement penalty must equal or exceed either: a) the economic benefit of
rioncompliance plus 10 percent of the gravity component; or b) 25 percent of
the gravity component only; whichever is greater.
Calculating the final penalty in a settlement which includes a SEP is a five step
process. Each of the five steps is explained below.-The five steps are also
summarized in the penalty calculation worksheet attached to this Policy. '
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Step 1: Settlement Amount Without a SEP
a. The applicable EPA penalty policy is used to calculate the economic benefit of
noncompliance.
b The applicable EPA penalty policy is used to calculate the gravity component of
the penalty. The gravity component is all of the penalty other than the identifiable
economic benefit amount, after gravity has been adjusted by all other factors m the
penalty policy (e.g., audits, good faith, litigation considerations), except for the
SEP
I ''ill )'i"f •<.';.*•..<:• m.•>;•'••'.'';•.>'• . ' i 'i ':ii:^w- ^ ;.;•••,us '.",-v ..•• •;.. •::'; "• •
c. The amounts mlte^
would be necessary to settle the case without a SEP.
Step 2: Minimum Penalty Amount With a SEP
The minimum penalty, amount must equal or exceed the economic benefit, of
hohcompliance plus 10 percent of the gravity component, or 25 percent of the
;; :;grayity component only, wMcheyer is greater. The mmmium penally amount is
calculated as follows:
II 111 II I SIS ..... 1 1 ""'I1' '1 ..... 1 ...... 11, ............. .(.,',' HID ml!'1'! ...... ",!',.!' "riv . ...... '"•''," "i1-::' ,( i'l. r, :/ •l/i.'i'r!".
.
a. Calculate 1 0 percent of gravity (multiply amount in step 1 .b by Q. 1 ).
. . tiiy j]'"" • ',; .Jin :" ",•,'{ i iiiii'i '.." 'i • ' t ;i"' i !1 i;,,:'1 i i;i'. '.",.' •I'.i"' !• ffi'iV^JU'fli: ...... v?.. ., ; 'iitii! • ,"A . Y , I'iiit;11 , • ' i" •''.
b: Add economic benefit (amount in step 1 .a) to amount in step la.
. • ,i,!!j,;i"'i ," ..... i' ."," ....... 'I1:",, '"'!", ...... iiiiiiiiii ' .«, '\, .. it ," ......... 'ijj, i; in,,;, ',;,,',, ii,;1: '. ....... v;^:!(>'|, J ..... MS ..... :*;• i1 v, ••• ' :!- i; ..... . ''»:; ' „ '• • ' ,
c. Calculate 25 i percent of gravity (multiply amount in step 1 .b by 0.25).
d. Identify the minimum penalty amount: the greater of step 2.c or step 2.b
;••":, ;" •''"•"' Step 3 . Calculate the SEP "Cost .......... " ....................... .."" ....... '"'
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The :net present after-tax cost of the SEP, hereinafter called the "SEP COST," is the
amount that EPA may take into consideration hi determining an
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I'fci iinilli!!' V ,1 "'r'llllil Si' Pill' 'Hull, >! li'll'ilrl*
appropriate penalty mitigation for performance of a SEP. In order to facilitate
evaluation of the SEP COST of a proposed project, the Agency has developed a
computermodel called PROJECT.^ There are three types of costs that may be
j^aated with performance of a SEP (which are entered into the PROJECT model):
capital costs (e.g., equipment, buildings); one-time nondepreciable costs (e.g.,
removing contaminated materials, purchasing land, developing a compliance
promotion seminar); and annual operation costs and savings (e.g., labor,-chemicals,
nil1 1'lillH «
......... i ....... I
........................ . ............ ......... ......... .................... ...... ................... ......... i ....... ............ ....................... - '> . ...................... >< ........ "'"''• > .............. ., .............. H1 ' ....... ................ .......... , ' ' " ..... ' " . '' ' '
To use PRO JECT, the Agency needs reliable estimates of the costs associated with a
defendant/respondent's performance of a SEP, as well as any savings due to such
factors as energy efficiency gains, reduced materials costs, reduced waste disposal .
costs or increases in productivity. For example, if the annual expenditures in labor
and materials of operating a new waste recycling process is $ 1 00,000 pei -year, ^but
me new process reduces existing hazardous'waste disposal expenditures by $30,000
per year, the net cost of $70,000 is entered into the PROJECT model (variable 4). ^
1 ......... ' ......................... "'i1 ..... " ............. Ji .......... '' ''• ' ' * * *
In prder to run the PROJECT model properly (i.e., to produce a reasonable estimate
pf the net present after-tax cost of the project), the number of years that annual
operation costs or savings will be expended in performing the SEP must be
specified. At a minimum, the defendant/respondent must be required to imp ement
the project for the same number of years used in the PROJECT model calculation.
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t , ' • • - "
(For example, if the settlement agreement requires the defendant/respondent to .
operate the SEP equipment for two years, two years should be entered as the input
. for number of years of annual expense in the PROJECT model:) If certain costs or
savings appear speculative, they should not be entered into the PROJECT model.
The PROJECT model is me primary method to determine the SEP COST for
purposes of negotiating settlements.^ • . . .. .
EPA does not offer tax advice on whether a regulated entity may deduct SER
expendiliires from its income taxes. If a defendant/respondent states that it will not
deduct the cost of a SEP from its taxes and it is willing to commit to this in the .
settlement document, and provide the Agency with certification upon completion of
the SEP that it has not deducted the SEP expenditures, the PROJECT model
calculation should be adjusted to calculate the SEP Cost without reductions for
taxes. This is a simple adjustment to the PROJECTmodel: just enter a zero for
. . - variable?, the marginal tax rate. If a business is not willing to make this . ,.
comniitment, me marginal tax rate in variable 7 should not be set to zero; rather the , ,
• ; default settings (or a more precise estimate of the business'marginal tax rates) •
should be used in variable 7. .
If the PROJECT model reveals that' a project has a negative cost during the period of
performance of the SEP, this means that it represents a positive cash flow to the
defendant/respondent and is a profitable project. Such a project is generally not .
acceptable as a SEP. If a project generates a profit, a defendant/respondent should/
and probably will, based on its own economic interests, irriplement the project.
While:EPA encourages regulated entities to undertake environmentally beneficial
' projects that are economically profitable, EPA does not believe violators should
- receive a bonus in me form of penalty mitigation to undertake such projects as part
; of arieru°ofcement action. EPA does not offer subsidies to complying companies to
undertake profitable environmentally beneficial projects and it would thus be
inequitable and perverse to provide such subsidies only to violators. In addition, the
primary goal of SEPs is to secure a favorable environmental or public health
. outcome which would not have occurred but for the enforcement case settlement. To•,'.
. . allow SEP penalty mitigation for profitable projects would thwart this goal.LLZl
Step.4: Determine the SEP Mitigation Percentage and then the Mitigation Amount
" Step 4.a: Mitigation Percentage. After the SEP. COST has been calculated, EPA
should determine what percentage of that costmay be applied as. mitigation against
the amount EPA would settle for.but for the SEP. The qualityof the SEP should be
examined as to whether and how effectively it achieves each of the following six
factors listed below. (The factors are not listed in priority order.)
- '. •. ; Benefits to the Public or Environment at Large. While all SEPs benefit public health . >
or the,environment, SEPs which perform well on this .factor will result in significant
and quantifiable reduction in discharges of pollutants to the environment and the
reduction in risk to the general public. SEPs also will perform well on this factor to
me extent mey result in significant and, to the extent possible, measurable progress
in protecting and restoring ecosystems(includingwetlands and endangered species
habitats). . • ., . , „ .
• Innovativeness. SEPs which perform well on this factor will further the
development, implementation, or dissemination of innovative processes,
technologies, or methods which more effectively: reduce the generation, release or
disposal of pollutants; conserve natural resources; restore and protect ecosystems; \
protect endangered species; or promote compliance. This includes "technology •
forcing" techniques which may establish new regulatory, "benchmarks."
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iiuii';,1 i 'I,,,I!;" "jv;;1'* '"'' lifr1 ' f "'!„"' , i: :• • ,' L !! .»" ,va\ ,"i>' '..,.' ,„ ''•' •"' ', ""•"' i,,'" Jt\ f •',•„, •'• „"',",!,;:'!'! ;, •,• .""', y.;. ji/1' :. \ '*, ';'"'••"' '!'• !,• , „ „ *,','' f,', ' ,'• . •,' - ' .,".",' v
Environmental Justice. SEPs which perform well on this factor will mitigate damage .
or reduce risk to minority or low income populations which may have been
disproportionately exposed to pollution or are at environmental risk:
,! ill I I id I, 1
• '"![] ' 'I!*1 ]'I;!!!!!!!]; f, '•'
Community Inout. SEPs which perform well on tnis. factor will have been developed
taking into consideration input received from the affected community. No credit
should be given for this factor if the defendant/respondent did riot actively
participate in soliciting and incorporating public input into tne SEP.
Multimedia Impacts. SEPs which perform well on this factor will reduce emissions
to more than one medium. .
, Pollution Prevention. SEPs which perform well on this factor will develop and
implement pollution prevention techniques and practices.
The better theperformanceof me" SEPunder each of these factors, the higher the (
appropriate mitigation percentage. The percent of penalty mitigation is within EPA s
discretion; there is no presumption as to the correct percentage of mitigation. The
mitigation percentage should not exceed 80 percent of the SEP COST, with two
:"iisi" ''" ", " * •'' exceptions: _ ,
(1) For small businesses, government agencies or entities, and non-profit
JfffVflfg&nizationsi'this' mitigation percentage of the SEP COST may be set as high as
100 percent if the defendant/respondent can demonstrate the project is of
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if1:!11:: iii i< r ;,/ •• outstanding quality.
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»ill
w-' anydefendanl)resp1)ri3en^ if the SEP implements pollution prevention,-the
mitigation percentage of the SEP COST may be set as high as 100 percent if the
defendant/respondent can demonstrate that the project is of outstanding quality.
If the government must allocate significant resources to monitoring and reviewing
the implementation of a project, a lower mitigation percentage of the SEP COST
may be appropriate.
In administrative enforcement actions in which there is a statutory limit (commonly
called "caps") on the total maximum penalty that may be sought in a single action,
the cash penalty obtained plus the amount of penalty mitigation credit due to the
. SEPs shall not exceed the limit.
Step 4.b: SEP Mitigation Amount. The SEP COST (calculated pursuant to step 3) is
- multiplied by the mitigation percentage (step 4.a) to obtain the SEP mitigation
amount, which is the amount of the SEP cost that may be used in potentially
mitigating the preliminary settlement penalty. ,
Illlllll II I I 0 ° | 'III • •!" ;;.,!„ , ' , •!. - , •' . . _ ...... • I '...'. .
Step 5: Final Settlement Penalty
S.a, The SEP mitigation amount (step 4.b) is.then subtracted from the settlement
amount without a SEP (step l.c).
5.b The greater of step 2.d or step S.a is the minimum final settlement penalty
allowable based on the performance of the SEP.
F. LIABILITY FOR PERFORMANCE
Defendants/respondents (or their successors in interest) are responsible and legally
liable for ensuring .that a SEP is completed satisfactorily. A defendant/respondent
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EPA. SUPPLEMENTAL ENVIRONMENTAL PROJECTS POLICY ' . wysiwyg://2/http://es.epa.gov;oeca;sep/sepfinal.html
may not transfer this responsibility and liability to someone else, commonly cialled a
third party. Of course, a defendant/respondent may use contractors or: consultants to
assist it in implementing a SEP Xill ;
G. OVERSIGHT AND DRAFTING ENFORCEABLE SEPS
The settlement agreement shquld accurately, and completely describe the SEP, (See
"' related legal guideline 4 in § C above.) It should describe the specific actions to be
performed by the defendant/respondent andprovide for a reliable and objective , •
means to verify that the defendant/respondent has timely completed the project. This •
may require the defendant/respondent to submit periodic reports to EPA. The ,
defendant/respondent may utilize an outside auditor to verify performance, and the
defendant/respondent should be made responsible for the cost of any such activities.
The defendant/respondent remains responsible for the quality and timeliness of any
actions performed or any reports prepared or submitted by me auditor. A final report
certified by anappropriate corporate official, acceptable to EPA, and evidencing . ,
• completion of the SEP and documenting SEP expenditures, should be required.
To the extent feasible, defendant/respondents should be required to quantify the.
benefits associated with the project and provide EPA with a report setting forth how
the benefits were measured or estimated. The defendant/respondent should agree
that whenever it publicizes a SEP or the results of a SEP, it wUl state in a
prominent manner that the project is being undertaken as part of the
settlement of an enforcement action.
The drafting of a SEP will vary depending on whether the SEP is being performed as
part of an administrative or judicial enforcement action. SEPs with long .
implementation schedules (e.g., 18 months or longer), SEPs which require EPA
review and comment on interim milestone activities, and other complex SEPs may
not be appropriate in administrative enforcement actions. Specific guidance on the
proper drafting of settlement documents requiring SEPs is provided in a separate
document.
H. FAILURE OF A SEP AND STIPULATED PENALTIES
' If a SEP is not completed satisfactorily, the defendant/respondent should be ''•••'•, ' ••
required, pursuant to the terms of the settlement document, to pay stipulated
penalties for its failure. Stipulated penalty liability should be established for each of
the scenarios set forth below as appropriate to the: individual case,
1. Except as provided in paragraph 2 immediately below, if the SEP is not
completed satisfactorily, a substantial stipulated penalty should be required.
• Generally,.a substantial stipulated penally is between 75 and 150 percent of the
amount by which the settlement penalty was mitigated, on account of the SEP.. ,,
2. If the SEP is not completed satisfactorily, but the defendant/respondent:
a) made good faith and timely efforts to complete the project; and b) certifies,
with supporting documentation, that at least 90 percent of the amount of
" ' ' money which was required to be spent was expended on the SEP, no stipulated
. penalty is necessary. . • " -' s
3. If the SEP is satisfactorily completed, but the defendant/respondent spent less
than 90 percent of the amount of money required to be spent for the project, a small ;
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stipulated penalty should be required. Generally^ a small stipulated penalty is
between 1 0 and 25 percent of the amount by which the settlement penalty was
mitigated on account of the SEP.
4 "If the SEP is satisfactorily completed, and the defendant/respondent spent at least
90 percent of the amount of money required to be spent for the project, no stipulated
penalty is necessary.
The determinations of whether the SEP has been satisfactorily completed (i.e.,
pursuant to the terms of the agreement) and whether the defendant/respondent has
made a good faith, timely effort to implement the SEP should be reserved to the sole
discretion of EPA, especially hi administrative actions in which there is often no
formal dispute resolution process. ,
In appropriate Teases! EPA should make special efforts to seek input on project
proposals from the local community that may have been adversely impacted by the
' violations!!!} Soliciting community input into the SEP development process can:
result in SlPs that Better address the needs of the impacted community; promote
environmental justice; produce better community understanding of EPA
enforcement; and improve relations between the community and the violating
facility. Community involvement in SEPs may be most appropriate in cases where
the range of possible SEPs is great and/or multiple SEPs may be negotiated.
When soliciting community input, the EPA negotiating team should follow the four
guidelines set forth below.
1 . Community input should be sought after EPA knows that the
defendant/respondent is interested hi doing a SEP and is willing to seek community
. input, approximately how much money may be available for doing a SEP, and that
settlement of the enforcement action is likely. If these conditions are not satisfied, •
EPA will have- very little information to provide communities regarding the scope of
possible SEPs.
2 The EPA negotiating team should use both informal and formal methods to
contact the local community. Informal methods may involve telephone calls to local •
community organizations, local churches, local elected leaders, local chambers of
commerce, or other groups. Since EPA may not be able-to, identify all interested
community groups, a public notice in a local newspaper may be appropriate
II "( i i , ,,, " ,/n'V' ,,, in, i' ..I 'li'lll'iii "i ,''','"" , 111 i "• ,;!jji|j' • jhii1; •' !'• ..... |" „;!«,, "'"ji i. ' 'hiii,, ||i ...'I..., "'i 'I'l'ti'l nil'1'1.'11 ..... ill1.1'!"'! ',,!i!ii|!i'i'lll"|i! iiHii ' !'•' ,;.i:''!:>,,">'! .I'li!'1'";!! '''I. i1 1 ' 1 1''1!! Ill:' .l'"'.i ' 'I ';i .' .''" ' •• ' '' '' »
3 To ensure that communities have a meaningful opportunity to participate, the
EPA negotiating team should provide information to communities about what SEPs
are, the opportunities and limits of such projects, the confidential nature of
settlement negotiations, and the reasonable possibilities and limitations in the
current enforcement action. This can be done by holding a public meeting, usually in
the everan&'at alocaT school or facility: The EPA negotiating team may wish to use
community outreach experts at EPA or the Department of Justice in conducting this
meeting. Sometimes the defendant/respondent may play an active role at this
meeting and have its own experts assist hi the process.
4. After the initial public meeting, the extent of community input and participation
in the SEP development process will have to be determined. The amount of input
and participation is likely to vary with each case. Except in extraordinary
circumstances and with agreement of the parties, representatives of community
"groups will riot participate directly hi the settlement negotiations. This restriction is
necessary because of the confidential nature of settlement negotiations and because
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: there is- often no equitable process to determine.which community group should ,
directly participate in the negotiations. ;. , :
J. EPA PROCEDURES .
• 1. Approvals . , . .
The authority of,a government official to approve a,SEP is included in the official's
authority to settle an enforcement case and thus, subject to the exceptions set forth
here, no special approvals are required. The special approvals apply to botii
administrative and judicial enforcement actions as follows:"
a. Regions in which a SEP is proposed for implementation shall be given the
opportunity to review and comment on the proposed SEP.
b. In all casesin whicha project may not fully, comply with the provisions of this
Policy (e.g., see footnote 1), the SEP must be approved by the EPA Assistant
Administrator for Enforcement and Compliance Assurance. If a project does not
fully comply with all of the legal guidelines in this Policy, the request for approval
must set forth a legal analysis, supporting the conclusion that the project is within
EPA's legal authority and is not otherwise inconsistent with law. ,.- .
c. In all cases in which a SEP would involve activities outside the United States, the ,
" SEP must be approved hi advance by the Assistant Administrator and, for judicial
cases only, the Assistant Attorney General for the: Environment and Natural
Resources Division of the Department of Justice.
d. In all cases in which an environmental compliance promotion project (section
D.6) or a project in the "other" category (section D.8) is contemplated, the project
must be approved in advance by the appropriate office in OECA, unless otherwise
delegated. . •
2. Documentation and Confidentiality •
, In each case in which a SEP is included as part of a settlement, an explanation of the
SEP with supporting materials (including the PROJECT model printout, where
applicable) must be included as part of the case file. The explanation of the SEP
should explain how the five steps set forth in Section A.3 above have been used to
evaluate the project and uiclude a description of the expected benefits associated ;
wim the SEP: The explanation must mclude a description by the enforcement
attorney of how nexus arid the other legal guidelines are satisfied. .
Documentation and explanations of a particular SEP may constitute confidential
• settlement information that is exempt from disclosure'under the Freedom of
Information Act, is outside the scope pf discovery, and is protected by various^
privileges, including the attorney-client privilege and the attorney work-product
privilege. While individual Agency evaluations of proposed SEPs are confidential, • .
privileged documents, this Policy is a public document and may be released to .
anyone upon request. , / \
This Policy is primarily for the use of U.S. EPA enforcement personnel in settling cases. EPA
the righfto change this Policy at any time, without prior notice, or to act at variance to this P
This Policy does notcreate any rights, duties; or obligations, implied or otherwise, in any thir
ATTACHMENT ,
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SUPPLEMENTAL ENVIRONMENTAL PROJECTS POLICY
wysiwyg://2/http://es.epa.gov/o6ca/sep/sepfinal.htrnl
SEP PENALTY CALCULATION WORKSHEET
This worksheet should be used pursuant to section E of the Policy.
Specific Applications of this Worksheet in a Case Are Privileged, Confidential
Documents.
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I -- ' " • ' . - ••.-,.. '•;.-.
. history of other violations, good faith efforts, less severity of the violations, or a
shorter duration of the violations. ; ,/;;;,, , '.'•.-'''•
3 .The statutes EPA administers generally providea court with broad authority to
order a defendant to cease its violations, take necessary steps to prevent future
violations, and to remediate any harm caused by the violations. If a court is likely to
prder a defendant to perform a specific activity in a particular Case, such an activity
; does not qualify as a SEP. " .
,4. These legal guidelines are based on federal law as it applies to EPA; States may
have more or less flexibility in the use of SEPs depending on their laws. , .
5. The immediate geographic area will generally be the area within a 50 mile radius - -
of the site on which the violations occurred. Ecosystem or geographic proximity is
not by itself a sufficient basis for nexus; a project must always satisfy subparagraph
a,b, ore in the definition of nexus. In some cases, a project may be performed at a
facility or site not owned by the defendant/respondent. . . .
6. All projects-which would include activities outside the U.S. must be approved in
advance by Headquarters and/or the Department of Justice. See section J.
7. Earmarks are instructions for changes to EPA's discretionary budget authority
• made by appropriations committee in committee reports that the Agency generally ' . ,
honors as a matter of policy.
' l 8. If EPA lacks authority to require repair of the damage caused by the violation,
then repair itself may constitute a SEP.
9. Simply preventing new discharges into the ecosystem, as opposed to taking
affirmative action directly related to preserving existing conditions at a property,
would not constitute a restoration and protection project, but may fit into another
category such as pollution prevention or pollution reduction.
10. These federal agencies have explicit statutory authority to accept gifts of land
and money in certain circumstances. All projects with these federal agencies must be
. reviewed and approved in advance by legal counsel in the agency, usually the
Solicitor's Office in the Department of the Interior.
• 11. For purposes of this Policy, a small business is owned by a person or another ...
entity that employs 100 or fewer individuals. Small businesses could be mdiyiduals,
.'••'• privately held corporations, farmers, landowners, partnerships and others.A small
community is one comprised of fewer than 2,500 persons.
12. Since most large companies routinely conduct compliance audits, to mitigate
penalties for such audits would reward violators for performing an activity that most
: companies already do. In contrast, these audits are not commonly done by small
businesses, perhaps because such audits may be too expensive. , ;
13. Pursuant to the February 1995 Revised Interim Clean Water Act Settlement
Penalty Policy, section V, a smaller minimum penalty arnqunt may be allowed for a
. municipality. ; •''••'/.. .
14. A copy of the PROJECT computer program software and PROJECT User's
Manual may be purchased by calling that National Technology Information Service
, at (800) 553-6847, and asking for Document #PB 98-500408GEI, or they may be
dnwnlnarteH frnrn the World Wide Web at "http://w\vw.cpa.uov/oeca/rnodcis/".
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15. The PROJECT calculated SEP Cost is a reasonable estimate, and not an exact
after-tax calculation. PROJECT does not evaluate the potential for market benefits
which may accrue with the performance of a SEP (e.g., increased sales of a product,
improved corporate public image, or improved employee morale). Nor does it
consider costs imposed on the government, such as the cost to the Agency for
oversight of the SEP, or the burden of a lengthy negotiation with a defendant/
respondent who does not propose a SEP until late in the settlement process; such .
factors may be considered in determining a mitigation percentage rather than in
calculating after-tax cost.
16. See PROJECT User's Manual, January 1995. If the PROJECT model appears
inappropriate to a particular fact situation, EPA Headquarters should be consulted to
identify an alternative approach. For example, PROJECT does not readily calculate
the cost of an accelerated compliance SEP. The cost of such a SEP is only the
additional cost associated with doing the project early (ahead of the regulatory
requirement) and it needs to be calculated in a slightly different manner. Please
consult with the Office Of Regulatory Enforcement for directions on how to
calculate the costs of such projects.
17, The penalty mitigation guidelines provide that the amount of mitigation should
not exceed the net cost of the project To provide penalty mitigation for profitable
projects would be providing;" a credit in excess of net costs.
" 18, Non-profit organizations, such as universities and public interest groups, may
function as contractors or consultants.
19. In civil judicial cases, the Department of Justice already seeks public comment
on lodged consent decrees through a Federal Register notice. See 28 CFR §50.7. In
certain administrative enforcement actions2 there are also public notice requirements
that are followed^ beforeasettlement "Isgnaijzeci. See 40 CFR Part 22.
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Return to SHP Guidance Documents
Return to SEP Home Page
Last Updated: April 22, 1998
URL: http://es.epa.gov/oeca/sep/sepfinal.html
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