Audit, Compliance and Risk Blog

In December 2015, representatives of 195 countries agreed to continue to expand global efforts to combat climate change. The new Paris Agreement broke a longstanding impasse with a clever mixture of binding but unenforceable commitments, contemporary agreements, and ongoing agreements-to-agree (I wrote about the Agreement here). Since then, analysts have estimated that full implementation of these national targets would reduce greenhouse gas (GHG) emissions by about half the amounts necessary to accomplish the Agreement’s stated goal by holding average global temperature increases below 2 ^o C. Incomplete national successes – President Trump’s decision to back off U.S. commitments is the first and most obvious example – would leave even more to be done.

The Paris Agreement anticipated that sub-national governments and private organizations would contribute to global progress, by meeting and often exceeding national requirements (I wrote about formal United Nations programmatic expectations here).

One of the non-governmental efforts is the Science Based Targets Initiative, through which individual companies can set GHG-reduction goals. At latest report, over 300 companies participate.

What is the Science Based Targets Initiative?

The Initiative is a multi-sector collaboration among the following international organizations: CDP (formerly called the Carbon Disclosure Project), World Resources Institute (WRI), the World Wide Fund for Nature (WWF; formerly World Wildlife Fund), and the United Nations Global Compact (UNGC). Participation in the Initiative is also identified as one of the commitments under the We Mean Business Coalition, which is another international business initiative. The Initiative defines “science-based targets” by reference to the Initiative’s effort to support the 2^o C target (which the Initiative refers to as the “2°C pathway”):

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EPA Administrator Scott Pruitt has, by word and individual action, been moving the Environmental Protection Agency (EPA) away from President Obama’s aggressive agenda and toward President Trump’s preference for reduced activity. These have included a less-regulatory “Back-to-Basics Agenda,” which I described here. Now the agency is proposing to formalize these priorities in its strategic plan for the next four fiscal years, 2018-2022.

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One of new Environmental Protection Agency (EPA) administrator Scott Pruitt’s many initiatives has been to change his agency’s approaches to cleanups under the national Superfund law. He announced several basic policy changes in May, and convened a Superfund Task Force to develop detailed recommendations. The task force issued its report late in July, offering 42 recommendations. These are summarized below.

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The presence of “hazardous” materials in your workplace can trigger a wide variety of environmental health and safety requirements. The Occupational Safety and Health Administration (OSHA) and state worker protection agencies issue standards to protect workers during occupational handling and storage. The US Environmental Protection Agency (EPA) and state environmental agencies issue requirements governing the management of hazardous wastes, and emissions to a variety of environmental media (air, water and land).

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Nearly all regulatory laws provide for civil – and sometimes even criminal – penalties for noncompliance. Penalty amounts (“XXX dollars per day of violation” for example) are typically adopted as part of the original legislation. But over time, the relative sting of these penalties declines with inflation. To counteract the possibility that less painful penalties will be less effective incentives for compliance, U.S. federal law has directed most agencies to make periodic “cost of living” adjustments to maximum available civil penalty levels (there are no provisions for standing periodic adjustments to criminal penalties).

How Did These Requirements Work During 1990-2016?

The first version of this approach was enacted by the Federal Civil Penalties Inflation Adjustment Act of 1990, which directed the President to report annually on any adjustments made under existing statutory authority, and to calculate what such adjustments would have been if more agencies had the authority to make them.

Congress amended the Act in 1996 to require most agencies to make inflation adjustments every four years, but precluding adjustments to penalties under the following:

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For many years, federal and state environmental enforcement agencies have been willing to negotiate settlements in which defendants agree to conduct “supplemental environmental projects (SEPs)” as a way to reduce formal penalties for the noncompliance that led the agency investigation and enforcement. Proponents see SEPs as a way to promote environmental and health values by encouraging defendants to undertake projects that wouldn’t occur otherwise in order to reduce or eliminate civil and/or criminal liability. Opponents see them as rogue efforts in which prosecutors substitute their own judgment for the statutory and regulatory directives that are supposed to guide their actions.

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On June 27, 2017 the Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (Corps) jointly proposed to revise their regulatory definitions of “waters of the United States”, applying authority under the Clean Water Act (CWA). Their proposals would rescind expansive versions adopted in June 2015, during the Obama Administration, and reinstate the text of the definitions in place until 2015. These actions represent the latest chapter in a saga dating back to United States Supreme Court decisions in 2001 and 2006 overturning decades-long understandings of which waters CWA empowers the agencies to regulate. (I wrote about this history in a blog about the 2015 rules here).

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On May 23, the Trump Administration issued its budget proposal for federal Fiscal Year (FY) 2018 (October 1, 2017 through September 30, 2018), subtitled “A New Foundation for America’s Greatness”. The proposal includes a 31% cut in the Environmental Protection Agency (EPA) budget, from $8.2 billion in FY 2016 (stable in FY 2017 under a Continuing Budget Resolution rather than a fully-new federal budget), to $5.7 billion for FY 2018, with corresponding personnel cuts from 15,376 full-time-equivalent employees (FTE) to 11,611. Although presidents’ annual budget proposals are rarely enacted in full, they do mark the formal start of annual considerations of federal policies and staffing. It’s therefore useful to review how President Trump and EPA Administrator Pruitt hope to proceed.

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On June 1, President Trump announced that the United States will withdraw from the Paris Accord on climate change, and then seek to “begin negotiations to reenter either the Paris Accord or a really entirely new transaction on terms that are fair to the United States, its businesses, its workers, its people, its taxpayers.” Most of the strong reactions I’ve seen – pro and con – express only superficial approaches to the implications of the decision. In this note I’ll dig a little deeper, and propose two different less-superficial ways to watch these implications play out.

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EPA Administrator Scott Pruitt has been on a tour to publicize his efforts to get EPA “back-to-basics.” He launched the tour with a visit to a Pennsylvania coal mine in April. The agency issued a press release about that visit, which also summarized its “Back-to-Basics Agenda.” The press release summarizes the Agenda as “Protecting the environment; engaging with state, local and tribal partners; and creating sensible regulations that enhance economic growth.” The Agenda provides a convenient rhetorical framework for the new Administrator’s efforts to re-boot EPA’s activities.

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