It Could Cost You: The Inflation Adjustment Rule Applied to Environmental Penalties

Every four years, the Environmental Protection Agency is required to review its civil monetary penalties and adjust the penalties for inflation under the requirements in the Debt Collection Improvement Act of 1996. In a final rule, without public comment, EPA announced its adjustments to the penalties that will apply to violations occurring after Dec. 6, 2013. 78 Fed. Reg. 66643 (Nov. 6, 2013). Of the 88 statutory civil penalty provisions implemented by EPA only 20 are being adjusted. In most cases, these adjustments will increase potential penalties by $10,000 to $50,000 for each day of violation. The list of affected statutory sections and the inflation adjusted penalty amounts can be found in Table 1 of the Federal Register notice and will be codified at 40 CFR §19.4.

Although these adjustments are based on a pre-determined process applied equally to all of EPA's enforcement authorities, most of the increased penalties apply to areas of public concern and EPA's enforcement priorities.

The Criteria for Change

The DCIA formula for determining the inflation adjustment is based on a four-step process: 1) determine the cost of living adjustment, which in this case was generally 20.97 percent; 2) calculate the raw inflation increase (multiply the COLA by the current civil penalty); 3) apply a rounding rule; and 4) add the rounded inflation increase.

General Areas of Impact

Potential penalties for just a few of the many affected by the adjustment include:

• Discharging pollutants without a Clean Water Act National Pollutant Discharge Elimination System permit or in violation of an NPDES permit ($187,500 per day of violation);
• Discharge of a harmful quantity of oil or a hazardous substances from a ship or other source into waters of the United States and other offshore waters ($187,500 per day of violation);
• Violation of requirements of the underground injection program affecting the underground injection of certain materials, including brine, associated with production of oil and natural gas. ($187,500 per day of violation);
• Failure to report releases of extremely hazardous substances ($117,500 per day of violation);
• Repeated violations of the Comprehensive Environmental Response, Compensation & Liability Act provisions related to destruction of documents or repeated violations of settlement agreements, administrative orders or consent decrees ($117,500/ day of violation);
• Tampering with a public water system ($1,150,000) or threatening or attempting to tamper with a public water system ($120,000); and
• The total amount of penalties that EPA can assess administratively for violations under the Clean Water or Clean Air Act has increased to $320,000.

One adjustment has significantly increased potential penalties. Under Section 311 of the Clean Water Act, civil penalties can be assessed on the discharge of each barrel of oil or each unit of a "reportable quantity" of hazardous substances. Starting Dec. 6, 2013, the potential civil penalty almost doubles from $1,100 to $2,100 per barrel or unit. In the case of "gross negligence" or "willful misconduct" the potential penalty rises by $1,000 to $5,300 per barrel or unit. These changes alone could result in the potential for billions of dollars of additional penalties in the event of a Deepwater Horizon type event.

Bottom Line: As a result of EPA's new inflation adjustment rule, the potential magnitude of civil penalties for a range of environmental violations makes it even more important to assure you are in compliance with environmental laws.

If you have any questions regarding this alert, please contact Partner Frances E. Phillips ([email protected] or 214.999.4803) or another member of Gardere's Environmental Specialty Practice Group.