Beating the Environmental Enforcement Squeeze

By Timothy A. Wilkins | June 02, 2008
Ethanol and other biofuels such as biodiesel, in addition to being renewable energy sources that reduce dependence on imported oil, have long been considered nontoxic, biodegradable and environmentally friendly. Tell that to The New York Times. Its widely publicized 2008 article, alarmingly titled "Pollution is Called a Byproduct of ‘Clean' Fuel," described an Alabama biodiesel plant that allegedly released a "ribbon of oil and grease" that "resembled Italian salad dressing" into local waterways. The article asserted that such discharges "can be hazardous to birds and fish," and contains quotes making charges such as "a vegetable oil spill is just as deadly as a crude oil spill."

Before dismissing this as reporting from a source that neither understands nor cares about the ethanol industry, consider a 2007 newspaper story from ethanol country. "Biofuel Plants Generate New Air, Water, Soil Problems for Iowa," declared the Des Moines Register & Tribune, in a piece that began: "Iowa's ramped-up ethanol and biodiesel fuel production led to 394 instances over the past six years in which the plants fouled the air, water or land or violated regulations meant to protect the health of Iowans and their environment." That 70 percent of these "instances" related to excess iron in groundwater discharges was buried deep in the text.

Of course, contrary to what's often said by news media and environmental groups, regulated environmental indicators are getting better and compliance levels are improving. However, there is huge political and media pressure to keep enforcement penalties high (they're now up to $32,500 per violation per day) and growing. Anything less than perfection is used as proof that polluters are being "coddled." The result is an enforcement squeeze in which smaller and smaller compliance items become a bigger and bigger risk—in terms of enforcement, civil and criminal penalties, and negative public relations—for any business covered by environmental regulations.

The ethanol industry is moving squarely to the center of this enforcement squeeze under the pressure to meet renewable fuels standard targets. According to the Renewable Fuels Association, more than 145 ethanol biorefineries operate in 26 states and 55 more are under construction. Under this kind of expansion pressure, it's tempting to neglect environmental permitting and compliance requirements as burdensome paperwork. But the enforcement squeeze doesn't just require the right piece of paper—it's about fines, penalties and jail time for lack of compliance.

Regulatory Burden
While the biofuel industry's focus on environmental regulation understandably has been drawn toward fuel standard concerns, it is essential that ethanol manufacturing, terminal and transportation companies not lose sight of the complex and burdensome environmental regulatory compliance requirements that apply to their facilities, much as they do to other fuel refiners and handlers. Federal, state and, in some circumstances, local laws and regulations provide for, among other things:
› Complex and costly permitting and controls on the emission of pollutants to the air and releases of pollutants through wastewater and stormwater discharges

› Control over the generation, classification, handling and disposal of wastes

› Management practices, planning and reporting relating to many types of hazardous materials

› A laundry list of permitting, registration, control, testing, monitoring, inspection, planning, prevention, training, reporting and recordkeeping requirements relating to all of the above.

A summary of what producers face was provided by the U.S. EPA Region 7 in its November 2007 publication, "Environmental Laws Applicable to Construction and Operation of Ethanol Plants." Even a few examples from the EPA's 100-plus page manual show the compliance risks that ethanol and biodiesel producers carry if they are ignorant of these laws.

National Environmental Policy Act If federal money is involved to construct an ethanol plant, it's subject to NEPA and the project developer must prepare a detailed statement assessing the environmental impact of activities that significantly affect the environment. The NEPA assessment must include all potential environmental and human health impacts involving wetlands, water quality, hazardous waste and air quality.

Clean Air Act Ethanol plants need to obtain a Title V operating permit if the plant has the potential to emit quantities greater than 250 tons per year (recently raised by the EPA from the previous 100-ton level) of any particulate or chemical deemed a hazard to air quality. The primary sources of air emissions from ethanol plants include the grain handling units, boilers, distillers grains dryers, fermentation and distillation units, emergency equipment such as backup generators, and even emissions from equipment leaks.

Clean Water Act If there is a potential for placing dredge or fill materials into surface water during ethanol plant construction or expansion, the act requires a Section 404 permit. To minimize the impact of site runoff on water quality, a storm water permit must be obtained for discharges to waters from any construction activity that disturbs one or more acres of land. In addition, EPA's Spill Prevention, Control and Countermeasures rules require significant plan preparation, construction of containment, training, inspections and other activities relating to the storage of oils.

Safe Drinking Water Act An ethanol plant is subject to the requirements of the act if it uses an injection well to dispose of storm water, wastewater or industrial fluids, or has an on-site septic disposal system. If a municipal water supply is used for cooling or processing water, check with the system operator to identify additional compliance requirements.

Emergency Planning and Community Right to Know Act This act requires facilities with regulated chemicals above threshold quantities (including ammonia and chlorine) to notify the state emergency response commission and the local emergency planning committee within 60 days after first on-site use. Ethanol plants are subject to the act's spill reporting provisions if they release more than 100 pounds of waste ethanol within any given 24-hour period.

Resource Conservation and Recovery Act All ethanol plants are capable of generating some quantities of hazardous waste. However, the hazardous waste being generated might not be directly related to the production of ethanol. Plant operation sources could include gasoline, spent solvents, lab packs, various paint wastes, used oil, waste ethanol, waste lamps and batteries. Hazardous waste must be properly disposed at a permitted treatment, storage or disposal facility, with detailed waste handling records required by the act.

There are plenty of other environmental regulatory traps for an unwary industry. For example, the thousands of additional acres of corn needed to meet proposed renewable fuel targets need to comply with the Endangered Species Act. The act prohibits intentional modification or degradation of the endangered species habitat and requires a complex permit process for lawful activities that unintentionally degrade habitat. There are already confrontations between habitat preservation groups and corn farmers. In 2007 Ducks Unlimited and the Audubon Society, among others, pressured the USDA to reverse previous approvals of devoting conservation lands to corn-based ethanol, due to alleged wildlife habitat encroachment.

Compliance Strategy
Given the complexity and consequences of these regulatory requirements, sound management of ethanol facilities requires careful attention to compliance assurance efforts.

Facility owners and operators who wish to avoid the severe liability from environmental violations should pursue a strong environmental management program, starting with the employment of highly qualified internal and external environmental, technical and legal experts to help design, administer and troubleshoot their compliance efforts. However, maintaining compliance over time requires two essential elements.

First, periodic checkup audits are essential. Regular review of environmental compliance status is absolutely essential. There is no environmental compliance "finish line." Even under the best of circumstances, laws change, key people leave and regulated equipment breaks down. Without frequent, comprehensive, independent compliance assessments with the assistance of fresh, expert eyes, companies inevitably overlook certain duties and fall out of compliance. In the absence of periodic audits, even where companies make a strong effort to comply, some of the many complicated compliance obligations producers face will always slip through the cracks.

Auditing efforts should not be undertaken lightly, though. Uncovering legal violations—obviously a prerequisite to fixing them—can lead to significant and costly compliance obligations, evidence that might be used against you, and potentially damaging enforcement consequences. Companies should consult with experienced legal counsel about the best ways of using audits to get better while protecting themselves against the potential negative consequences of their proactive efforts.

Second, systematic management approaches provide direction. No company would audit its books on the premise of, "We'll get to it when we can." The principle of regular, consistent assessment that applies to financial compliance should also apply to environmental compliance. One of the most effective tools for assuring compliance is a formal environmental management system that begins with a strong statement by the board of directors or the CEO supporting the need for compliance, followed by documenting and implementing a step-by-step compliance program. The key elements of most environmental management systems include:
› Periodic evaluation of all the ways each facility or operation interacts with the environment

› Written, measurable objectives and performance criteria (including legal compliance) for each facility or operation documented

› Written plans and procedures for achieving objectives and evaluating performance, as measured against calendars to ensure timely completion

› Written assignment of all environmental responsibilities to specific positions and personnel

› Documented training of all employees on their responsibilities and procedures

› Periodic internal and independent auditing to confirm the effectiveness of the process

› Systems to track performance, and document and demonstrate correction and prevention, and

› Regular management review with updating of the environmental management system to reflect the feedback received.

Even companies that do not implement a full, formal environmental management system can benefit from evaluating their current environmental management efforts against the elements of an effective program.

Compliance Help, Cautions
Software tools help efficiently manage environmental management system implementation and maintenance tasks. These can include project scheduling and management, documentation of training efforts, audit report compilation, and scheduling of corrective or preventive actions. Environmental management system software shared on an enterprise-based system gives easy online access to routine environmental and environmental management system documents and records. The system database can provide an online calendar for—and shared e-mail notification of—environmental management system milestone audit events, including deadlines for permits and other compliance requirements. By centralizing all environmental compliance management documents, data and activities into a single shared network, environmental management system software can be invaluable for smaller companies that may otherwise lack the time and resources to address crucial environmental concerns. A systematic approach to compliance—the right people, policies and support tools— institutionalizes continuous improvement and has a much better chance of succeeding and earning regulatory favor than informal or ad hoc approaches.

Don't assume that creating an environmental management system automatically ends compliance problems, however. Unfortunately, environmental management system approaches can raise many potential legal and liability concerns, from the legal issues associated with auditing to the establishment of written policies, procedures and statements about environmental duties that might become evidence to help establish company liability or even criminal responsibility. Consider these less-than-obvious compliance pitfalls:
› Periodic environmental compliance audits, if not properly and promptly acted upon, can give regulators more evidence to take harsher actions against a company.

› Thanks in part to the Sarbanes-Oxley Act, companies risk regulatory sanctions for failing to disclose the financial impact of environmental problems.

› Senior managers who have responsibility for the provision of resources for environmental compliance or who become aware of environmental problems without immediately addressing them can face personal criminal liability as "responsible corporate officers."

The environmental laws are constantly changing and each company's exposure to liability shifts accordingly. Companies should launch an environmental management system and auditing efforts only after consulting legal professionals who are experienced in environmental auditing and compliance. The right legal guidance can reduce the potential liability risks of uncovering and creating evidence of legal violations, for example by appropriately using legal privileges and policy protections while addressing possible concerns.

Experienced counsel can also help identify the best strategies for correcting problems, documenting the solutions, working with the relevant agencies, and obtaining protections from federal and state programs that offer opportunities for leniency or immunity from liability.

Companies participating in the biofuels industry should take pride in their efforts to make and distribute renewable fuels and to pursue the betterment of our environment. But participating in a "green" industry by itself does not exempt companies from complying with the complex, costly and cumbersome regulatory requirements that apply to all industrial facilities. Environmental compliance assurance requires vigorous management effort and the assistance of qualified technical and legal experts who can help design and implement an effective environmental program. Periodic, comprehensive auditing of environmental compliance status and strong systems for environmental management are potentially costly and can be both difficult and risky to implement but, done right, these measures offer the best hope for maintaining and demonstrating ongoing compliance with the complex environmental laws and regulations that govern your biofuels company.

Timothy A. Wilkins heads the environmental practice of the international law firm of Bracewell & Giuliani LLP. Reach him at This information is provided for general educational purposes; it is not meant to offer, and is not a substitute for obtaining, specific legal advice. This article represents the personal comments of the author and does not constitute a legal position or opinion of Bracewell & Giuliani LLP.