Financial Communications

Biden’s Environmental Justice Plan: A Return to Regulating Behind Closed Doors

Within hours of being sworn in on January 20, 2021, President Biden inked a sweeping executive order to begin dismantling key Trump administration policies related to industry and the environment. This swift move, framed by the White House as a first step, previews actions to come to implement Biden’s Environmental Justice Plan.

As Biden’s team presses forward in using all of the tools at its disposal, we anticipate a return of:

  1. Sue and Settle tactics; and
  2. Supplemental Environmental Projects (SEP) in connection with settlement agreements.

A Return of Sue and Settle Tactics

The Biden administration is expected to usher in a return of the Obama-era tactic of Sue and Settle, in which special interest groups sue to force federal agencies – especially the EPA – to issue regulations that fast track their own interests and priorities. Dismantled by the Trump Administration, Sue and Settle occurs when organizations sue federal agencies which, rather than engage in litigation, quickly enter settlement agreements promising to take certain regulatory actions on agreed upon timelines. These structured agreements bind agency action in order to avoid congressional scrutiny and investigation. In addition to agreeing to take action, agencies also pay the legal fees of the special interest groups. Between 2009 and 2013, the EPA settled lawsuits with special interest groups 71 times, requiring the EPA to issue more than 100 new regulations.

While Sue and Settle is currently not permitted, President Biden has encouraged the ‘private right of action to sue’ and plaintiff-driven environmental litigation, each of which support the anticipated strengthening of environmental regulation. If permitted under the new administration, Sue and Settle may once again prove to be a highly effective tool for special interest groups to assist in the timing of litigation outcomes.

A Return of Supplemental Environmental Projects

Regulatory actions against businesses for failure to comply with environmental laws are often resolved through settlement agreements. Historically, these settlement agreements involved Supplemental Environmental Projects, or SEPs, which, in addition to monetary penalties, are projects that defendants agree to undertake that provide a “tangible environmental or public health benefit” related the alleged violations being resolved. Although SEPs are not mandatory, they are considered as part of the calculus in negotiating settlement agreements and typically result in agencies seeking a smaller monetary penalty than they would otherwise seek – in the case of EPA, up to 80% smaller.

During the Trump administration, the Department of Justice (DOJ) took various steps to limit the use of SEPs and for the time being, with SEPs seemingly no longer on the table, companies subject to environmental enforcement actions may be faced with fewer bargaining chips, higher monetary penalties, and a diminished ability to generate good-will through SEPs. However, the Biden Administration may revive SEPs as a core enforcement tool seeking tangible environmental projects that may provide meaningful benefits for fenceline communities and others.

An Example: A Stronger PFAS Agenda at the EPA Level

One target of the Biden administration’s Environmental Justice Plan is PFAS manufactures and emitters. The selection of Michael Regan (“Regan”) to lead the EPA appears to reinforce that commitment. He will re-join EPA – this time at the helm – where he previously served in the agency’s Office of Air Quality and Planning Standards under the administrations of Bill Clinton and George W. Bush. In Regan’s other prior professional positions, he has demonstrated a strong stance on environmental issues in general and against PFAS manufactures in particular through his work at the Environmental Defense Fund. Most recently, as the Secretary of the North Carolina Department of Environmental Quality (“DEQ”), he targeted PFAS emitters in the state. Once confirmed as EPA administrator, Regan will have the tools and likely the support to advance the administration’s PFAS agenda.

If PFAS are designated as hazardous substances, many companies will be subject to regulatory scrutiny and restrictions at best and significant litigation risk at worst. It is worth noting that these issues are being raised well beyond the Beltway, including on Wall Street, where  the shares of one PFAS manufacturer were downgraded recently on expectations for accelerated regulation and increased litigation. These risks are not only relevant to PFAS manufacturers. It will have repercussions for current and former industrial users of PFAS, as well as the industries that rely on the properties of these chemistries to enable their products, from semiconductors to aviation to automotive to medical devices among many more.

Where Do Companies Go from Here?

As the new administration continues to take shape with a clear directive on environmental issues, EPA and other federal agencies will almost certainly take a stronger regulatory stance.

With lower acceptable thresholds and more chemistries declared as hazardous, the specter of environmental malfeasance will be elevated, increasing the chance that companies may also find themselves in the crosshairs of special interest groups and State Attorneys General looking to hold industry to account. This developing battle will undoubtedly play out in the court of public opinion, where carefully curated perceptions drive realities and result in reputational harm to businesses. To combat these perceptions, companies must employ a variety of tools to engage with critical stakeholders. Leveraging direct engagement and third-party support, companies can balance perceptions with their own narratives, including highlighting the environmental stewardship efforts already underway and demonstrating a command of the risks and opportunities in the evolving situation.

With all eyes on the administration’s next move, companies must be prepared to address potential exposure (commercial and, in some cases, litigation risks) to legislative and regulatory actions. They should do this through proactive and direct engagement with policymakers and influencers to ensure the potential ramifications of proposed actions, particularly the unintended commercial and economic impacts, are well-understood and reflected in their thinking. Value chain partners are vital to the success of these types of efforts, and the administration has opened the door to corporate input, at least in their positioning. Given we are also seeing increasing media and shareholder attention on these types of issues, companies should also be front footed in their engagement with these stakeholders. Otherwise the void will be filled by viewpoints that will likely not take into account the actions that companies have and are taking to address issues already, as well as the benefits of the applications and products that chemistries enable. Companies and industries need to step forward to preserve freedom to operate.

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