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The Benefits of Supplemental Environmental Projects

Are SEPs good for the regulated community and everyone else, too?

Is there a way to avoid paying a penalty when a company receives a fine from an environmental agency? Not really, but a Supplemental Environmental Project (SEP) may offer some relief. An SEP allows a “violator” with a monetary penalty to spend some or all of the financial penalty money to complete an agency-approved project that will have a beneficial effect on the environment. The U.S. Environmental Protection Agency has developed guidance for SEPs that includes a range of different types of projects, including:

  • investment in wind energy,
  • installation of fuel cells,
  • water efficiency programs, and
  • sustainability projects (e.g. development of environmental management systems).

However, the SEP needs to be connected to the violation (the term used by the agencies is “nexus”) and it cannot be a project that was already planned or under way.

Regulatory agencies view SEPs as a positive method to advance the goal of protecting the environment. Rather than having a monetary penalty paid to general funds, the agency ensures that the money will be used for environmentally beneficial projects. Further, the agencies view SEP implementation as a benefit to local communities that might have been negatively impacted by the original violation.

The following case studies describe the SEP process with regulatory agencies, benefits realized by the companies involved, and how the agencies and local communities benefited from these projects.

Health Care Facility and Water Conservation SEP
The state Department of Environmental Protection (DEP) found that a health care facility with a new industrial boiler did not comply with requirements for monitoring emissions based on the maximum rated (Btu) capacity of the boiler. Enforcement actions associated with this matter resulted in a consent order. The consent order included a condition that an SEP could be developed and implemented.

DEP, which has authority over the federal air emissions program, provided suggestions on acceptable types of SEPs and required explanations of their potential benefits.

Of the two SEPs submitted for consideration, the agency agreed to a water conservation project that included the replacement of free-flowing faucets with automatic infrared (no-touch) faucets. The nexus of the SEP and the violation was the relationship between the need for boiler make-up water for steam and the reduction of water use as part of the facility’s overall water consumption program.

The health care facility noted the SEP would lower water consumption and reduce water discharges requiring treatment through the publicly operated treatment works (POTW). Using conservative estimates, the facility would reduce water usage by about 350,000 gallons per year.

From a business perspective, the facility would see lower costs for water purchased from the local utility. Ultimately, the cost savings would pay for the automatic faucets over an extended period. While difficult to quantify, the facility also would afford greater protection to employees and patients from bacteria and viruses that often live on fixtures.

Indirectly, the project benefited the community by potentially making more water available for other local or regional use and lowering demand on POTW capacity. Lastly, it is most likely that the patients that are served by this health care facility are local to the site. As noted above, those individuals in the local community will benefit from the reduced exposure to bacteria or viruses while being treated.

DEP accepted the proposed SEP and incorporated it into the final consent order. At this time, the automatic faucets have been purchased and are in the process of being installed.

Industrial Manufacturer and Stormwater-related SEP
DEP found that an industrial manufacturer did not complete its stormwater monitoring and reporting as often as required by the agency and the general permit.

Initially, the agency proposed a consent order that required payment of a penalty directly to the agency as well as a payment to the state’s general SEP funds. During negotiations, the agency agreed to allow the manufacturer to use state fund money to complete an SEP.

DEP recommended the manufacturer eliminate industrial activities or sources that could impact stormwater at its site. If successful, the manufacturer would then be able to complete a “no exposure certification” available with the general permit. The site would still be subject to the general permit; however, the manufacturer would be exempt from monitoring, inspections, and training requirements because its activities or sources would no longer impact stormwater.

The final consent order also included incentives to complete the project. Specifically, the manufacturer needed to spend all of the money identified in the consent order, or the balance would need to be paid to DEP. If unsuccessful in eliminating the sources as identified above, the manufacturer would be required to pay the balance of the money identified in the consent order to complete the project plus an additional penalty.

The manufacturer identified several activities and areas of the site that required improvements to eliminate stormwater exposure. These items included:

  • removal/disposal of potentially contaminated soils,
  • construction of enclosed structures for dumpsters, and
  • drainage improvements to redirect stormwater from a loading dock area.

Upon implementation of these changes, the manufacturer would have an improved site with reduced risk associated with stormwater compliance.

DEP will benefit by having lowered industrial activity impacts to a local stream adjacent to the property. A secondary indirect benefit to the agency is that there is one less site that is directly regulated by the subject general permit. This reduces the administrative burden on DEP (fewer sites mean less paperwork to be processed and tracked by the agency).

The stormwater SEP was incorporated into the final consent order. At this time, the costs are being assessed to complete the site improvements.

SEPs give companies a way to indirectly pay fines. While these projects typically benefit the company subject to the fines, regulatory agencies also have the opportunity to forward their agenda and provide a benefit to the public.

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