The U.S. Environmental Protection Agency is expected to withdraw its proposed direct final rule approval of the updated ASTM International E1527 standard for Phase I Environmental Site Assessments ("ESAs"), the EPA-approved method for meeting the "All Appropriate Inquiry" ("AAI") component of several affirmative defenses to liability under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”).  EPA will instead proceed with a traditional rule process.  This change was necessitated by EPA receiving comments on the proposed direct final rule, including criticism of the agency's decision to allow parties to use either the current or updated version of the E1527 standard to meet AAI requirements.

The ASTM International “E1527-05 Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process” has been a tool for complying with EPA’s AAI requirements since November 2006. The codification of the ASTM standard at 40 CFR Part 312 confirmed that the ASTM standard could be used for performing environmental due diligence by purchasers seeking to establish the innocent purchaser or bona fide prospective purchaser defenses under CERCLA. ASTM International's bylaws require standards to be updated and re-issued every eight years; after a three-year process, the organization recently revised the 2005 standard for Phase I ESAs and presented E1527-13 to EPA for approval as a tool to meet the AAI obligations.

While the revisions to ASTM E1527-05 may not significantly impact the general performance of Phase I ESAs, there are several potentially significant changes that could, for instance, increase the cost of the Phase I ESA process and the likelihood of identifying recognized environmental conditions ("RECs"). The changes include:

• Clarified definitions of RECs and Historical RECs;

• Addition of the concept of "Controlled RECs," situations in which previous releases at a property that underwent risk-based closures were addressed, but contaminants were allowed to remain in place under certain restrictions or conditions, such as Activity and Use Limitations;

• Addition of vapor migration as a potential migration pathway that must be evaluated; and

• A presumption that consultants should review agency files (as opposed to treating this as an additional task subject to an additional fee) or explain why such review is not necessary.

EPA determined that the new E1527-13 standard is compliant with the AAI requirements and proposed adding it to the AAI regulations at 40 CFR Part 312. However, EPA did not address the status of the current E1527-05 standard, which would leave it as a continued option for satisfying AAI. Thus, parties could choose which Phase I ESA standard to use to satisfy their AAI requirements.

On August 15, 2013, EPA published a direct final rule to endorse the new ASTM standard; a direct final rule would have allowed EPA's decision to go into effect without further notice in three months if no adverse comments were submitted to the agency. However, because EPA received several adverse comments, it will instead proceed with the proposed rule to approve the E1527-13 standard that the agency simultaneously published on August 15, 2013. EPA has stated that it does not plan to accept additional comments on the proposed rule.

Negative comments on EPA's direct rule criticized both (i) the terms of the new ASTM Phase I ESA standard and (ii) EPA's proposal to allow users to rely on either the 2005 or the 2013 versions of the E1527 standard when performing Phase I assessments. Commenters worried that the concurrent ability of the 2005 and 2013 versions of the E1527 standard to satisfy CERCLA's AAI requirements will create uncertainty and fail to establish a system in which one standard practice applies to all transactions. These critics worry that (i) because the 2013 standard will likely be more expensive to implement, lenders, who account for a large portion of Phase I ESA assessments, will continue to use the 2005 standard, thus rendering the revised standard largely moot and (ii) use of two standards will create confusion and inconsistencies in the market place and may increase the difficulty of qualifying for CERCLA liability protections.

The option to continue using the existing 1527-05 standard to satisfy AAI requirements is also a feature of EPA's proposed rule, and EPA is expected to address the comments in its final rulemaking. One option for EPA would be to limit the time period in which parties could use either the 2005 or 2013 version of the E1527 standard to a defined transition period. EPA's direct rule was intended to become effective November 13, 2013, however, it is not clear if the agency will be able to issue a final rule by that date.