EPA Writes Another Chapter in the SPCC Rule Novel

Today, EPA announced a final regulation that amends certain requirements for facilities subject to the Oil Spill Prevention, Control and Countermeasure (SPCC) rule.  The amendments clarify regulatory requirements, tailor requirements to particular industry sectors, and streamline certain requirements for a facility owner or operator subject to the rule.

This rulemaking marks the completion of the SPCC action, which was proposed on October 15, 2007, finalized on December 5, 2008, and for which the agency requested public comments again on February 3, 2009.

In general, this final rule retains most of the December 5, 2008 provisions, with 3 major differences.  EPA has eliminated the exemptions for:

• certain produced water containers;
• the alternative criteria for oil production facilities to be eligible for self-certification of their SPCC plan; and
• the exclusion of oil production and farm facilities from the “loading rack” requirements.

The amendments do not remove any regulatory requirement for owners or operators of facilities in operation before August 16, 2002, to develop, implement and maintain an SPCC plan in accordance with the SPCC regulations then in effect.  Such facilities continue to be required to maintain their plans during the interim until the applicable date for revising and implementing their plans under the new amendments.

The effective date of this final rule is January 14, 2010.

See the official pre-publication version of this final rule here.

Largest Fine in the History of OSHA Announced Today

The U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA) today announced it is issuing $87,430,000 in proposed penalties to BP Products North America Inc. for the company’s failure to correct potential hazards faced by employees. The fine is the largest in OSHA’s history. The prior largest total penalty, $21 million, was issued in 2005, also against BP.

BP entered into a settlement agreement with OSHA in September 2005, under which the company agreed to corrective actions to eliminate potential hazards similar to those that caused the 2005 tragedy. Today’s announcement comes at the conclusion of a six-month inspection by OSHA, designed to evaluate the extent to which BP has complied with its obligations under the 2005 agreement and OSHA standards.

For noncompliance with the terms of the settlement agreement, the BP Texas City Refinery has been issued 270 “notifications of failure to abate” with fines totaling $56.7 million. Each notification represents a penalty of $7,000 times 30 days, the period that the conditions have remained unabated. OSHA also identified 439 new willful violations for failures to follow industry-accepted controls on the pressure relief safety systems and other process safety management violations with penalties totaling $30.7 million.

Elm Initiates Program to Support Procurement Streamlining

Today The Elm Consulting Group International, LLC announces a program that allows clients to process contracts, invoices and payments far more efficiently than in the past.

“In recent years, many companies have undergone internal business process reviews that included streamlining their procurement and payment systems,” said Robert Bray, Managing Director of Elm.  “As a result, several clients asked us if we could align our contracting and invoicing systems with their streamlined processes.  And we have.”

Effective immediately, Elm is able to accept corporate P-card payments for invoices.  For many companies, P-card use significantly reduces the administrative effort required to approve and process bills.

More EPA Compliance Enforcement is on the Way

The U.S. Environmental Protection Agency Administrator Lisa P. Jackson announced that the agency is stepping up its efforts on Clean Water Act enforcement.

The plan announced outlines how the agency will strengthen the way it addresses the water pollution challenges of this century.  These challenges include pollution caused by numerous, dispersed sources, such as concentrated animal feeding operations, sewer overflows, contaminated water that flows from industrial facilities, construction sites, and runoff from urban streets.

The goals of the plan are to target enforcement to the most significant pollution problems, improve transparency and accountability by providing the public with access to better data on the water quality in their communities, and strengthen enforcement performance at the state and federal levels.

Elements of the plan include the following:

• Develop more comprehensive approaches to ensure enforcement is targeted to the most serious violations and the most significant sources of pollution.
• Work with states to ensure greater consistency throughout the country with respect to compliance and water quality.  Ensure that states are issuing protective permits and taking enforcement to achieve compliance and remove economic incentives to violate the law.
• Use 21^st century information technology to collect, analyze and use information in new, more efficient ways and to make that information readily accessible to the public.

More information on the plan: http://www.epa.gov/compliance/civil/cwa/cwaenfplan.html

Identifying and correcting potential compliance issues ahead of EPA’s actions would likely prove a wise use of resources given the current enforcement/penalty trends.

Debate Over Bolivia Carbon Project Spotlights Risks

The New York Times published an article highlighting questions surrounding a major forest preservation project in Bolivia sponsored by American Electric Power, BP and PacifiCorp, known the Noel Kempff Climate Action Project.

Greenpeace claims it found that from 1997 to 2009, the estimated reductions from the program had plummeted by 90 percent, to 5.8 million metric tons of carbon dioxide, down from 55 million tons. It also questioned the “additionality” of the program, which says that a specific forest area would not have been preserved without the program.

What is striking about this matter is not the debate of the project’s effectiveness (given the on-going controversy surrounding the use of forestry in climate risk management).  The surprise was a comment made by Glenn Hurowitz, a director of Avoided Deforestation Partners, a small nonprofit organization that claims to “advance the adoption of U.S. and international climate policies that include effective, transparent, and equitable market and non-market incentives to reduce tropical deforestation”:

In the proposed climate legislation, you can’t get credit for conservation or any other type of offsets until you’ve delivered the offsets. So inaccurate projections would not affect the issuance of credits.

This statement clearly demonstrates a critical business risk in using forestry for carbon management.

While “inaccurate projections” may not impact the issuance of credits, the sequestration calculations/projects have a significant impact on the upfront project support and financing.

It is reasonable to foresee that a failure of forestry to deliver on its projections will have a severely negative impact on the perception of forestry projects as a financially successful and viable carbon risk management tool.

As with any business investment, financial analyses are based on projections about what an investment will deliver in terms relevant to the investment.  In the case of forestry projects, calculations are completed to determine the amount of carbon that is projected to be absorbed and therefore generate the amount of credits/offsets.  These offsets create a financial return in terms of both cost avoidance and potentially revenue.  Financial analyses may be completed for different carbon management options and an investment is made in accordance with the option judged to be the “best” as defined by the criteria applied by the investor.

So what happens if the projections are inaccurate?  Sure, some offsets will likely be delivered by the project.  But will the investment deliver the anticipated return?  Will a shortfall trigger the need for pollution control investments and/or non-compliance penalties?

There continues to be a critical need to reduce risk in forestry-based carbon management investment.  As we have discussed before, it is advisable to take a deep dive into to uptake calculation methodologies, delivery milestones and scenario planning in advance of such investments.

Elm Sponsors the Second Atlanta International Environmental Trade Mission

The Elm Consulting Group International, LLC was a sponsor for the 2nd Atlanta International Environmental Trade Mission.

The Trade Mission was presented in partnership with the Quebec Government Office, Consulate General of Canada, and other members of Atlanta’s Consular Corps and concludes this week.

The Mission brought together state and local governments, metro area companies and organizations and 14 international companies, including representatives from Canada, Germany and Uganda, who specialize in green products and services worldwide.  The Mission’s goal is to facilitate international commerce and investment by working with the various Atlanta-based consulates, bi-national organizations and chambers of commerce to identify overseas companies and match them with the appropriate Atlanta-based entities.
  The Trade Mission spans five days, October 5th through October 9th and included presentations and meetings on sustainability and clean technology products, services and initiatives.

Mayor Shirley Franklin delivered the keynote address, who was also presented with the first “World Chamber of Commerce Visionary Award for International Environmental Stewardship”.   Other distinguished speakers at the Mission included:

−   Consul General, Stephen Brereton, Consulate General of Canada

−   Québec Government Delegate, Ginette Chenard

−   Consul General Reda Mansour, State of Israel and Dean of the Consular Corp of Georgia

−   Lutz H. Görgens, Ph.D., Consul General of the Federal Republic of Germany

−   Kristian Wolf, President and CEO, German American Chamber of Commerce of the Southern United States, Inc.

−   The Honorable Lisa Borders, City Council President, City of Atlanta

−   Jorge Fernandez, VP Global Commerce, Metro Atlanta Chamber

−   Peggy McCormick, President, Atlanta Development Authority and Metro Atlanta Chamber

Lawrence Heim, Director at Elm, also delivered a welcoming address.   Heim encouraged those businesses expanding into the US market for the first time to conduct a thorough analysis of the environmental business risks associated with American regulatory requirements and financial liabilities.

Companies who are not familiar with the environmental risks and legal constraints of the US must gain a detailed understanding of these issues in advance of setting business goals and expectations.  Some examples of my discussions with other Mission participants include

−   regulatory requirements for fluorescent bulb disposal (in the context of new lighting technology)

−   potential state or federal permitting implications for manufacturing process changes that result in process efficiency increases from adopting new sustainable technologies

−   long-tail off-site waste disposal liabilities

−   environmental risk assessment and loss control options available in the US.

A recent AON study on EU Risk Managers’ perception of environmental risk illustrated a general view in the EU on the part of risk management professionals that environmental risk is not significant.

Elm’s goal in participating in the Mission is to help EU-based participants realize that environmental business risk assessment/management in the US is more complex and critical than they may initially realize.

Analysis Demonstrates Gap Between Risk Management and Environmental Exposures

According to Insurance Journal, Aon’s Global Risk Management Survey 2009 found that “environmental risk ranked lower as a concern in Europe than any other region – despite the introduction of the EU Environmental Liability Directive (ELD).”

Dr. Simon Johnson, Aon’s environmental director for UK and EMEA, pointed out:

The fact that environmental risk ranked 32nd as a concern in the survey is worrying because risk managers are seemingly lulled into a false sense of security, believing they have no exposure or their pollution strategies are under control.

He added:

Risk managers need to review the ELD and their operations in relation to their insurance programs as there will be gaps. US companies with European subsidiaries are becoming increasingly aware of their potential exposures and in turn we’ve seen a higher take up for environmental liability insurance.

Johnson stated that environmental insurance should be viewed as”preparing for the low frequency, high severity event [to] cover all the risks, damages and losses that could occur.”

On-going operational risk that are not “low frequency, high severity” may not be covered by insurance yet can still represent a significant financial exposure.   The company retains such financial risks.  Risk Managers may not be familiar with either the limitations of insurance coverage or the technical aspects of operations/environmental matters.

Environmental risk assessment processes, such as those used by Elm, are valuable in communicating to Risk Management leaders/departments in their terms, rather than technical EHS jargon.  This can lead to effective integration of risk management and EHS functions and risk reduction.  More information on environmental risk assessments can be found here, here and here.

EPA Enforcement Case Highlights Need for EHS Involvement in Asset Procurement/Disposition Activities

EPA is using non-traditional methods for locating violations.

On October 2, EPA announced a PCB enforcement case stemming from an eBay auction.  EPA investigators found Railside LLC, a factory surplus liquidator, offering to sell an unmarked General Electric Pyranol capacitor on eBay. EPA then inspected the seller’s warehouse, and alleged that Railside violated PCB regulations by failing to mark its capacitor with a label identifying it as containing PCBs as prescribed by federal law. Railside responded quickly and cooperated with EPA; the Agency settled for a penalty of $250 and an enforceable agreement to properly dispose of the PCB-containing equipment. This disposal cost the seller $1,200. It should be noted that eBay was not a party to this enforcement action and did not violate any environmental regulations in this case.

While the actual enforcement costs are low in this case, it does highlight EPA’s success at using new ways of finding violations.  Companies using web-based asset management methods should ensure that those activities do not escape EHS review.

2009: So Far, A Big Year for USEPA Enforcement Penalties

As EHS audit programs have matured over the past 25 years, most companies that have established such programs have generally achieved the desired goal of reduced violations and financial penalties.  But in the current economic climate, companies have been looking at all costs and their justifications.  EHS audit activities are also under the microscope.  The reduction in noncompliance costs over time – a good thing – can sometimes trigger questions from senior management about what value EHS auditing is creating NOW – a bad thing.

Answering such questions adequately depends on the individual company, but the threat of future violations (which are more likely to occur without corporate compliance oversight/auditing/reporting activities) is a common thread.  Elm took a look back at USEPA’s enforcement announcements thus far in 2009 to see if any notable trends could be identified.

Our review was not exhaustive and was limited to publicly available information on federal EPA activities.  But there is no question that EPA’s 2009 data clearly show aggressive enforcement involving many multi-million dollar settlements.  This summary information may be useful to those EHS audit programs that use enforcement data as an economic risk/value factor in rationalizing the continuation of audit activities.

-       Oct. 5 – Mosaic Fertilizer will spend approximately $30 million on air pollution controls and will also pay a civil penalty of $2.4 million to resolve alleged Clean Air Act violations

-       Oct. 3 – A federal judge fined Southern Union Gas $18 million for illegally storing mercury at a company-owned site in Pawtucket, R.I.  The penalty involves a $6 million criminal fine and $12 million in fines.  This case is also notable due to the third-party vandalism that resulted in spreading the mercury beyond Southern Union’s property.

-       Aug. 14 – A pipeline company and two of its former operating firms will jointly pay a civil penalty of $3.65 million to resolve violations of the Clean Water Act resulting from anhydrous ammonia spills. Magellan Ammonia Pipeline, of Tulsa, Okla.; Enterprise Products Operating, of Houston, Texas; and Mid-America Pipeline Company, also known as MAPCO, also of Houston, agreed to the settlement.

-       Aug. 4 – Aleris International Inc. and 13 of its subsidiaries have committed to implementing environmental improvements and controls projected to cost $4.2 million at 15 plants located in 11 states. The company also agreed to a $4.6 million civil penalty to resolve violations of the Clean Air Act, which will be allowed as an unsecured claim in Aleris’s bankruptcy proceeding pending in Delaware.

-       July 31 – The former and current owners and operators of a chemical facility in Addyston, Ohio, LANXESS Corp. and INEOS ABS USA Corp., agreed to pay a $3.1 million civil penalty and INEOS will spend up to $2 million to install environmental controls and modify operating procedures to resolve violations of multiple environmental laws.

-       May 7 – Anadarko Petroleum Co., and two related oil production companies agreed to pay a civil penalty of more than $1 million and implement injunctive relief, develop facility response plans, and revise spill prevention as well as containment plans at a cost of more than $8 million during the term of the settlement in order to resolve violations of the Clean Water Act.  Anadarko, Howell Corp., and Howell Petroleum Corp., agreed to pay $1.05 million and will upgrade and implement appropriate spill prevention plans and develop and implement facility response plans. The consent decree also requires the companies to implement a multi-phased integrity and mitigation plan that incorporates inspection, monitoring, testing, data collection and failure analysis activities.

-       Apr. 20 – DuPont and Lucite International Inc. agreed to pay a $2 million civil penalty to settle Clean Air Act violations at a sulfuric acid plant in Belle, W. Va. Further, the companies chose on their own to shut down the sulfuric-acid manufacturing unit of a larger chemical facility at the site by April 1, 2010.

-       April 13 – Invista will pay a $1.7 million civil penalty and spend up to an estimated $500 million to correct self-reported environmental violations discovered at facilities in seven states.  The company disclosed more than 680 violations of water, air, hazardous waste, emergency planning and preparedness, and pesticide regulations to EPA after auditing 12 facilities it acquired from DuPont in 2004.

-       Feb. 19 – BP Products North America Inc. agreed to spend more than $161 million on pollution controls, enhanced maintenance and monitoring, and improved internal management practices to resolve Clean Air Act violations at its Texas City, Texas refinery.  The company will also pay a $12 million civil penalty and spend $6 million on a supplemental project to reduce air pollution in Texas City.

-       Feb. 10 - Two petroleum refiners agreed in separate settlements to spend a total of more than $141 million in new air pollution controls at three refineries in Kansas and Wyoming. Frontier Refining and Frontier El Dorado Refining (Frontier) agreed to pay a civil penalty of $1.23 million and spend approximately $127 million in pollution control upgrades for alleged violations at its refineries in Cheyenne, Wyo. and El Dorado, Kan. Wyoming Refining Co. (WRC) agreed to pay a civil penalty of $150,000 and spend approximately $14 million in similar upgrades for alleged violations at its Newcastle, Wyo. refinery.

-       Feb. 5 – Patriot Coal Corporation agreed to pay a $6.5 million civil penalty to settle violations of the Clean Water Act.  The settlement includes the third largest penalty ever paid in a federal Clean Water Act case for discharge permit violations.

-       Feb. 3 – Kentucky Utilities (KU), a coal-fired electric utility, agreed to pay a $1.4 million civil penalty and spend approximately $135 million on pollution controls to resolve violations of the Clean Air Act.

-       Jan. 15 -  CEMEX California Cement LLC paid a $2 million civil penalty for emissions violations at the company’s Victorville, Calif., Portland cement plant.  The plant also is spending millions of dollars on new air pollution control equipment.

-       Jan. 12 – Three manufacturers of sulfuric acid agreed to spend at least $12 million on air pollution controls at six production plants in Louisiana, Ohio, Oklahoma, Texas, and the Wind River Reservation in Wyoming. Chemtrade Logistics, Chemtrade Refinery Services, and Marsulex also will pay a civil penalty of $700,000 under the Clean Air Act settlement.

-       Jan. 8 – The Explorer Pipeline Company agreed to pay a $3.3 million civil penalty in order to resolve an alleged violation of the Clean Water Act stemming from a spill of jet fuel from its interstate pipeline at a location near Huntsville, Texas.

Word Resources Institute Report: Financial Institutions Should Improve Environmental Risk Identification and Mitigation Efforts

Word Resources Institute (WRI) recently published a new issue brief titled Accounting for Risk.

This publication focused on the myriad issues confronting financial institutions (FIs) when determining and evaluating greenhouse gas (GHG) emission inventories and related risks.  The study concludes that there are a number of benefits to FIs for implementing well-thought out processes for assessing GHGs beyond their direct emissions.

Key risks discussed include:

• GHG risk impact on new investment opportunities.  This risk may be most prevalent in the power generation sector.  WRI noted

Investments in carbon-intensive projects are no longer a safe bet. Companies, under pressure from shareholders, have been pulling support and cancelling plans to construct new coal plants.

• Appropriate scope for emissions measurement. WRI contrasts two different scoping approaches – the Operational Control approach and the Equity Share approach.  To illustrate the potential differing results between the two, WRI provided an example.

In 2007, Citi reported its total environmental footprint (scope 1 and 2) at about 1.4 million metric tons of CO2, but estimated its share of CO2 emissions from financing just two thermal power plants to be almost 200 million metric tons of CO2 (~3.3 million metric tons on an annual basis based on a 60 year life). That’s a big difference, and, like Citigroup, most other financial institutions’ traditionally reported scope 1 and 2 emissions will be tiny when compared to their share of emissions from investments.

• Comparability and reliability of emissions calculation methodologies.  Elm has commented several times on the issues of emissions calculation risks here, here and here.  In its report, WRI echoed our earlier comments and quoted Eliza Eubank, Assistant Vice President of Environmental and Social Risk at Citi:

“If everyone is finding their own way and designing their own methodology, then you really don’t know how to compare different numbers that different people are putting out there.” Without guidelines, deciding what and how to report, “can be a very dicey issue.”

In its summation, WRI stated:

To satisfy internal users (i.e., financial institutions) and external users (e.g., investors, clients, NGOs, regulators), more definitive and standardized [GHG inventory] guidance is needed.