ESA Rules: Explored and Explained

Examining the new standards related to Phase 1 environmental site assessments

• By Nick Albergo, PE
• Nov 01, 2006

The following is the second of a two-part series that analyzes new Phase 1 ESA requirements and their impact on consultants and their clients. The first part, ESA Rules: Plain English Version (Part 1) was published in the October 2006 issue of Environmental Protection.

As discussed in Part 1 of this article, on Nov. 1, 2005, the U.S. Environmental Protection Agency (EPA) published its Final Rule pertaining to the Standards and Practices for All Appropriate Inquiries (AAI). Shortly thereafter, ASTM International (ASTM, formerly known as the American Society for Testing and Materials) published its updated E 1527-05 Standard Practice for Environmental Site Assessments: Phase 1 Environmental Site Assessment Process. Much has been written about the new requirements and latest landowner liability protections (LLP's) that evolved as a result of Congress's actions and the new EPA Rule (i.e., the addition of the contiguous property owner (CPO) and bona fide prospective purchaser (BFPP) defenses related to liability under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund)).

There is, however, one aspect of the AAI Rule and revised Standard that remains a source of substantial confusion. It lies within the very last sentence of the AAI Rule, wherein it states: "The inquiry of the environmental professional should include an opinion regarding additional appropriate investigation, if any." (Federal Register Doc. 05-21455, §312.31(b), Pg. 66,113). This directive is carried through to the new ASTM Standard, wherein it states, in part, "The environmental professional should provide an opinion regarding additional appropriate investigation, if any, to detect the presence of hazardous substances or petroleum products," (ASTM Section 12.6.1).

In Part 1, I discussed the source of confusion that this language has caused when one considers what tasks are required to complete a Phase I environmental site assessment consistent with the new EPA Rule and ASTM Standard. Further, I addressed the “clearer” of the scenarios wherein a recognized environmental condition (“REC”) has already been identified. To this end, it was concluded that if the resultant contamination is clearly documented (i.e., present), no additional investigation is necessary to determine its “obviousness” and, notwithstanding a User who seeks the BFPP defense to CERCLA liability, the remaining CERCLA defenses are no longer available anyway. At that point, the REC is identified with certainty. The mandates of the Standard and the specific needs of the “User” may still diverge (i.e., CERCLA LLPs versus business risk concerns), but this is a User issue, not an ASTM matter.

Having presented the scenario wherein the release is clearly “present,” we are left to contemplate the necessity for such an “opinion” when the REC is the result of a “likely presence” rather than a confirmed presence of a release of hazardous substances and/or petroleum products. EPA appears to confirm that under this scenario, it may be important to know whether contamination is truly present when the facts suggesting the “likely presence” of a release, could be confirmed through an obvious (but not necessarily required by ASTM) additional source.

The finding of an underground steel storage tank that still contains petroleum products and is estimated to be 35 years old, installed in a shallow water table, and has not been used since the 1970s prior to any tank upgrade requirements, might meet the conditions that are customarily accepted to result in the “likely presence” of a release, triggering the “conclusion” of an ASTM REC. If it was also determined that a record of a recent tank tightness test was in the hands of a prior prospective purchaser who decided not to pursue the transaction himself, but that such records were available, the “record source” may not be explicitly identified within the ASTM Standard, but the “ability to detect the contamination by appropriate investigation,” could be satisfied through such a review.

This interpretation is consistent with language found within the Preamble, wherein EPA makes it clear that a “likely presence” may also impose a duty to confirm the “obviousness” and comply with any resulting obligations (Federal Register page 66101). Another example concluding the presence of a REC could incorporate the concept of a “material threat” of a release to the property under investigation (Remember, RECs can only be associated with impacts that are, or are likely to be, present on the property). ASTM Section 3.2.52 defines a material threat as “a physically observable or obvious threat which is reasonably likely to lead to a release that, in the opinion of the environmental professional, is threatening and might result in impact to public health or the environment.” ASTM cites the example wherein an aboveground storage tank system contains a hazardous substance and which shows evidence of damage. The damage would represent the material threat if it is deemed serious enough that it may cause or contribute to tank integrity failure with a release of contents to the environment. Thus, the “smoking gun” concept applies. In other words, the mere finding of a tank containing “methyl ethyl death” on the site wherein one is performing a Phase I ESA, will always represent an important finding but, in of itself, is not a REC without the “damage” or similar circumstance wherein the threat of a release is obvious. Here, it is possible that additional appropriate investigation through, for example, a formal tank integrity inspection, could assist in determining the “obviousness” of a potential release.

Finally, the definition of a REC also includes “hazardous substances or petroleum products even under conditions in compliance with laws.” The dry-cleaning facility that has equipped its machines with secondary containment, sealed the floors, properly manifested its wastes, etc. may be able to demonstrate extraordinary compliance by today’s regulations, but cannot account for the 20 years of operation prior to the new upgrade requirements, and thus the likely presence of a release of hazardous substances remains, despite past or current compliance. While additional investigation might assist the User in understanding the business environmental risks associated with this REC, the definition of a REC is satisfied without the need for “greater certainty,” as the experience of the Environmental Professional (EP) concerning certain industries’ past waste management practices, could constitute an “obvious source” of additional information and thus completes the investigatory elements of both AAI and the ASTM Phase I ESA.

As an ASTM instructor, I am often asked how the presence of contamination (i.e., a confirmed release) does not automatically compel the EP to offer an opinion or recommendation regarding the need for sampling and analysis. The passage of AAI and its language pertaining to the necessity to offer an “opinion” regarding the need for additional appropriate investigation seems to reinforce this natural tendency of the EP to want to assist the prospective purchaser in this manner. My answer has not changed in the 13 years that I have been instructing the course. It is not the risk tolerance or business environmental risk of the EP that governs what tasks are undertaken that are beyond the scope of an ASTM Phase I.
The application of the ASTM Standard has always been intended primarily as an approach to conducting all appropriate inquiries for purposes of satisfying the threshold requirements of one (and now several) LLP’s. Accordingly, and as stated in ASTM Section 4.4, “additional services may be contracted by the User and the Environmental Professional. Such additional services may include business environmental risk issues not included within the scope of this practice.”

One of the key “epiphanies” that results from attending an ASTM Phase I course, is the understanding that, in its simplest terms, the Phase I does not include recommendations because it is not the EP’s risk tolerance that matters. If a User is satisfied that one or more of the LLPs is satisfied, he/she may decide that no further effort is required. Users do not need, nor desire, the recommendation of an EP to conduct sampling and analysis that “forces their hand” because such advice may be interpreted by a lending institution or insurance company as a mandate to complete such actions prior to the execution of a real estate transaction. Alternatively, a User does not want to be left with exposure in the future when such recommendations are preset in a report that remains in the file, and there is a later discovery of a release that might have been identified through an additional level of effort that was not required to satisfy the requirements of a Phase I ESA (and thus the CERCLA defense), had the recommendations been acted upon at the time. Either way, it’s the Users call to make based on their risk tolerance including business environmental risk.

As previously stated, while the application of the ASTM Standard has always been intended primarily as an approach to conducting all appropriate inquiries for the narrow purposes of presenting a defense to Superfund liability, it is critical to recognize that these federal LLPs, as a practical matter, are almost never recognized as the goal or driving force behind the request for a Phase I. A User or its lender may have little need (or concern) for a CERCLA defense at loan origination, rather, the overriding concerns include third party liability (third party liability under CERCLA drives many lenders concerns) associated with previously unknown contamination and the potential for migration, diminution in property value and/or stigma, unaccounted expenses associated with potential assessment and/or remediation required by the State, and/or activity or use limitations that arise from the presence of surface or subsurface impacts that affect future land use and/or business operations.
In these instances, the Users may indeed determine that they desire more input from their EP, but that is their call based on their business environmental risk and risk tolerance, and not the EP’s. ASTM Section 12.9 reminds the User/EP that “a broader scope of assessment, more detailed conclusions, liability/risk evaluations, recommendation for Phase II testing, remediation techniques, etc., are beyond the scope” of a Phase I, and should only be provided as specified within the terms of engagement between the User and the EP. Still, there may be some specific instances wherein an opinion regarding appropriate investigation is applicable as part of the standard Phase I. It may be necessary, for example, to conduct additional appropriate investigation to explain a “data gap.” Although technically the requirement to offer an opinion does not apply to data gaps (i.e., they do not automatically constitute a REC) when applying ASTM principles, there may be a situation wherein a significant data gap impacting a crucial element of the Phase I, is deemed a REC.

One example of a data gap would be the situation in which a building reconnaissance could not be performed in a portion of a facility with a history of commercial/industrial use that includes the use and disposal of hazardous substances. As a result of the “likely presence” of releases of hazardous substances or petroleum products into structures on the property, this significant data gap has been determined to constitute a REC. In this unusual circumstance, the opinion regarding additional investigation may, indeed, be appropriate. Still, that additional appropriate investigation may be nothing more than an additional site visit wherein access is granted to the previously inaccessible area. Other circumstances may warrant additional interviews, historical research, or similar non-invasive sources of inquiry that do not result in “new” data.

In summary, a well-supported opinion on the impact of a finding is crucial to minimizing (or making “unusual”) the need for an opinion regarding additional investigation. The reader is cautioned to understand the basis of what is being suggested within the AAI Rule and updated ASTM Standard as it applies to the requirement that an opinion be rendered regarding the necessity for additional appropriate investigation. Since ASTM attempted to define the “obvious” tasks that should be conducted as part of all appropriate inquiries, it is only in the most unusual of circumstances that one might be compelled to render an opinion regarding the necessity to examine an additional (and “obvious”) source that was not identified within the ASTM Standard, but that would bring “greater certainty” to the identified REC.

As is explained herein, it is not a trivial matter and the failure to correctly implement the Standard and the Rule may result in unwanted liability exposure for both the User as well as the Environmental Professional. Such liability might not otherwise have indefensibly manifested itself with proper use of the Standard. Yes, the “un”-recognized environmental condition (i.e., a condition of contaminant release or likely release) would still exist, discovered or not. However, liability protections that may have been available could be destroyed by a Phase I with an unwarranted or unsubstantiated opinion.

This article originally appeared in the 11/01/2006 issue of Environmental Protection.