Both communities and companies will no longer benefit from the use of Supplemental Environmental Projects (SEPs) in settlements of environmental enforcement actions, following the United States Department of Justice’s (DOJ) comprehensive policy review and prohibition of the practice in all settlements. Despite 30 years of productive use backing these mutually beneficial arrangements, which began during my time at the DOJ in the 1990s, the DOJ has officially called it quits for now – at least until the next administration has a chance to reconsider this decision. For those who have not been immersed in these environmental enforcement actions, SEPs allow settling parties to mitigate a portion of a civil penalty in exchange for performance of environmentally beneficial projects.

Companies seeking flexibility in resolving government environmental enforcement actions are likely wary of this development, as they will no longer have the option of offsetting a portion of a civil penalty by performing a SEP, which formerly typically benefited the local community that was negatively impacted by the underlying violation. This new policy limits flexibility in achieving penalty reductions that has been widely used in environmental enforcement case resolutions for nearly three decades. Settling defendants and government enforcement case teams no longer have the option to develop creative and environmentally beneficial community projects as part of case resolutions.

Assistant Attorney General for the Environment and Natural Resources Division Jeffrey Clark issued a memorandum last August prohibiting the use of SEPs in settlements with state and local governments in environmental enforcement cases, and announcing a broader review of the SEP policy in cases involving private entities. This latest SEP policy memorandum extends the SEP ban to all settlements, stating that SEPs divert funds that would otherwise go to federal Treasury as penalties to SEP projects instead, in violation of the Miscellaneous Receipts Act. A spokesperson for the U.S. Environmental Protection Agency stated that the agency would follow this policy as well, and discontinue the use of SEPs in administrative case settlements.

The fine print of the memo indicates that SEPs are allowed in very limited circumstances in which Congress has specifically authorized SEPs for projects involving reduction of diesel emissions. Clark left open the possibility that Congress could act to specifically allow for SEPs, as it already has in the case of diesel reduction SEP projects, but it remains to be seen if there is much chance of that happening in the near future. A more likely scenario is that a future administration reverses course, and once again allows SEPs, as past SEP policy has enjoyed the support of prior administrations of both political parties.

For additional analysis, check out these articles in Bloomberg Environment, The Hill, and E&E News. This Bloomberg article addresses questions companies are facing as well.