Recommendations of the Texas Comptroller

Expand the Use of Supplemental Environmental Projects

Summary

The Texas Natural Resource Conservation Commission (TNRCC) can allow companies that violate certain state environmental laws and regulations to fund Supplemental Environmental Projects (SEPs) using a portion of the fines and penalties they incur. These are projects that benefit the environment, preferably in the community in which the violation occurred, such as cleanups of abandoned or illegal dumpsites. Although TNRCC has been flexible and innovative in its use of SEPs, the agency should further encourage their use in the areas of pollution prevention, environmental management systems, and brownfield cleanups.

Background

The TNRCC has been using SEPs since 1991, two years before they were formalized in the Texas Water Code.[1] A SEP is defined as “a project that prevents pollution, reduces the amount of pollution reaching the environment, enhances the quality of the environment, or contributes to public awareness of environmental matters.”[2] TNRCC’s SEP program allows the commission to direct the use of penalties from environmental violations for projects that benefit the environment, such as cleaning up abandoned illegal dumpsites.

Violating companies have the option of spending up to 50 percent of their penalty on a SEP cleanup, with the other 50 percent going to the state’s General Revenue Fund. Governmental entities such as a state agency or public utility can opt to spend the full fine on a SEP project.[3]

In fiscal 1999, TNRCC approved 44 SEPs valued at more than $1.1 million (Exhibit 1). In the first half of fiscal 2000, the agency approved 53 SEPs worth an estimated $1.9 million.[4]

Exhibit 1

Supplemental Environmental Project Expenditures and Penalty Revenue 1996-1999

* The total amount private companies pay into the SEP program.

** Amount paid in cash penalties above the amounts spent on the SEP program.

*** Cash penalties paid by private companies not participating in the SEP program.

Source: Texas Natural Resource Conservation Commission.

TNRCC prefers SEP projects that directly benefit the environment in the community where the violation occurred. SEPs that result in a direct benefit to the violator are not encouraged, but they may be acceptable as long as the cost of the project is at least three times higher than the amount of the penalty to be offset.[5]

Although TNRCC has been flexible and innovative with the use of SEPs, three areas are not currently allowable as SEPs: pollution prevention, environmental management systems, and brownfield cleanups.

Pollution Prevention

TNRCC offers a voluntary pollution prevention program that provides technical assistance to regulated companies in the form of on-site visits, workshops, seminars, and publications. Pollution prevention projects often create relatively quick improvements in environmental protection. During site visits, TNRCC environmental experts can show companies:

• how to avoid or reduce waste and harmful emissions by more efficiently using raw materials, water, energy, and other resources.
• when less harmful substances can be substituted for hazardous ones.
• ways in which toxic substances can be totally eliminated.[6]

For example, a fertilizer manufacturer in the Panhandle that generated two to three drums of hazardous waste each week reduced its hazardous waste to two drums per year after participating in a pollution prevention program. After the staff of a small Houston chemical plant attended pollution prevention training and received TNRCC technical assistance, the plant was able to reduce its hazardous waste by 45,000 pounds and save $38,200 annually.[7]

Pollution prevention programs have been included in several TNRCC initiatives, but not in SEPs. TNRCC has been hesitant to do so due to public criticism of programs that benefit a violating company.[8] However, these projects meet TNRCC SEP policy requirements relating to pollution prevention as well as all legal criteria.

Environmental Management Systems

Environmental management system (EMS) projects are intended to change an organization’s business processes. EMS projects provide companies with a comprehensive approach—an EMS—for meeting their environmental regulatory obligations.[9]

Texas has experimented with the use of EMSs in two programs. One involves TNRCC’s Clean Texas program, through which companies that voluntarily take on an EMS project are given some minor incentives, such as expedited permitting, consistent with federal requirements.[10] The other was a pilot project from 1995 through 1998 in the Corpus Christi area, in which companies implementing EMS projects were involved in streamlined audits that saved time and money for both TNRCC’s auditors and the regulated company. Though considered successful by TNRCC, the project has not been expanded statewide.

Brownfield Cleanups

Brownfields are old industrial sites that are unused or underused due to real or perceived contamination. About 450,000 brownfields have been identified throughout the US.[11] Companies being penalized for environmental violations could use their fines to cleanup brownfields identified by the state. These projects are not connected to the violator and so would not be subject to the criticism occasionally received by pollution prevention programs and EMSs. In this case, the SEP would be a one-time cleanup; the violating company responsible for cleanup would not be required to continue monitoring the site after the job is finished to the state’s satisfaction.

Brownfield cleanups not only improve the environment, but also provide local communities with economic development benefits. In a recent report by the US Conference of Mayors, Houston officials reported that if the 16 brownfield sites covering 600 acres in their city were cleaned up, they could generate 2,372 new jobs and an estimated $1 million a year in additional tax revenue.[12]

Experiences in Other States

Florida and Colorado have successfully included both pollution prevention and EMS programs in their own SEP programs. For example, the Florida Department of Environmental Protection allows violators to offset a portion of their civil penalties with a pollution prevention project.[13] In Colorado, SEP programs in these two categories have one caveat: projects cannot be in the economic self-interest of the violator’s company—such as updating a plant to make it more economically competitive while reducing its emissions—unless the project would yield long-term environmental and health benefits to the public.[14]

Recommendations

1. State law relating to Supplemental Environmental Projects (SEPs) should be amended to require the Texas Natural Resource Conservation Commission (TNRCC) to give equal weight in approving SEPs to on-site pollution prevention projects and environmental management systems (EMSs).

The state should amend Section 7.067 of the Texas Water Code to require TNRCC to give equal weight to on-site pollution prevention projects and EMS projects in approving SEPs. TNRCC would retain its ability to approve projects on a case-by-case basis and to monitor the SEP performance plans. TNRCC would continue its oversight of the projects and track their progress to ensure that violators do not abuse the use of SEPs.

1. TNRCC should improve its documentation and tracking of all SEP requests, including those that are approved, rejected, or modified.

TNRCC maintains a database to track approved SEP projects, but keeps no record of those that are rejected or modified. This information would be useful in establishing guidelines for what types of projects are selected or rejected, and why.

1. TNRCC should promote the use of brownfield cleanups as a part of its SEP program.

This promotion could be as simple as entering into agreements with cities that have brownfield sites to preapprove them as SEP project sites. Preapproved SEP projects could then be posted on TNRCC’s Web site as options for violating companies to consider.

1. To streamline the SEP process, state law should be amended to direct TNRCC to develop lists of regional preapproved projects in areas that are failing to meet federal air quality standards.

TNRCC believes that violators would use SEP projects more frequently if they didn’t have to spend months negotiating with TNRCC to get projects approved.

1. State law should be amended to allow 100 percent of penalties to be used for a SEP project, instead of only 50 percent.

Government entities already have this option; offering it to private violators should cause more money to be spent on projects that benefit the environment in the communities in which violations occur.

Fiscal Impact

Requiring TNRCC to give equal weight to on-site pollution prevention and EMS projects in approving SEPs would require no additional state expenditures. An increased TNRCC workload might occur from any increase in participation on the part of violating companies in SEPs, but this increase cannot be estimated.

The tracking of SEP projects could be improved with existing resources since TNRCC already reviews and monitors these projects. The recommendation would require only minimal additional data entry. Savings could be realized from a database that includes rejected projects, because TNRCC could develop criteria over time that eliminate the need for repetitive evaluations of obviously unsuitable projects.

Brownfield cleanups could be promoted as a part of SEPs with existing resources. The impact of this recommendation on local government would be an increase in taxable property values after the cleanup. This value would vary depending on which sites were targeted and developed.

TNRCC could use its existing resources to develop lists of preapproved projects in areas that fail to meet federal air quality standards. The streamlined process for preapproved projects would offset the increase in the number of SEP requests.

An amended SEP law allowing TNRCC to dedicate 100 percent of a private violator’s penalty to a SEP project would likely result in a revenue loss to the General Revenue Fund. The fiscal impact, however, would vary dramatically every year according to the number of violators choosing this option and the magnitude of the fines involved and, therefore, cannot be determined.

[1] Texas Natural Resource Conservation Commission, “Supplemental Environmental Projects (SEP)” (http://www.tnrcc.state.tx.us/legal/sep/sepindex.htm). (Internet document.)

[2] Texas Water Code, V.T.C.A. §7.067.

[3] Texas Natural Resource Conservation Commission, “Environmental Enforcement Policy Statement” (Austin, Texas, October 26, 1995) (http://www.tnrcc.state.tx.us/legal/sep/seppolicy.htm). (Internet document.)

[4] Texas Natural Resource Conservation Commission, Strategic Plan, Fiscal Years 2001-2005, Volume 1 (Austin, Texas, June 2000), p. 16.

[5] Texas Natural Resource Conservation Commission, “Environmental Enforcement Policy Statement.”

[6] National Pollution Prevention Roundtable, “What is Pollution Prevention?” (http://www.p2.org/nppr_p2.html). (Internet document.)

[7] Texas Natural Resource Conservation Commission, Biennial Report to the 77th Legislature, Volume 1: Protecting a Thriving Texas (Austin, Texas, March 2000), p. 41.

[8] Telephone interview with Toni Toliver, SEP/Audit Coordinator, Texas Natural Resource Conservation Commission, Austin, Texas, July 25, 2000.

[9] Multi-State Working Group on Environmental Management Systems, “EMSs, Environmental Performance, and Compliance, Final Draft,” December 13, 1999 (http://www.dep.state.pa.us/dep/deputate/pollprev/mswg/compliance.htm). (Internet document.)

[10] Texas Natural Resource Conservation Commission, Clean Industries Plus, Program Description, GI-244 (Austin, Texas, April 1999), p. 12.

[11] National Governor’s Association, Center for Best Practices, “Brownfield Redevelopment,” (http://www.nga.org/CBP/Activities/brownfieldRedev.asp). (Internet document.)

[12] US Conference of Mayors, Recycling America’s Land: A National Report on Brownfields Redevelopment – Volume 3 (Washington, DC, February 2000). (http://www.usmayors.org/uscm/news/publications/).(Internet document.)

[13] Environmental Council of the States, Ensuring Compliance: State Best Practices (Washington, DC, May 30, 2000), p. 6; and Florida Department of Environmental Protection, “Pollution Prevention,” Tallahassee, Florida (http://www.dep.state.fl.us/dwm/programs/p2/audit.htm). (Internet document.)

[14] Colorado Department of Public Health and Environment, Compliance Assurance and Mutual Settlement Agreement Program Procedures and Guidelines Book (Denver, Colorado, 1998-1999),

pp. 33–36.

e-Texas is an initiative of Carole Keeton Rylander, Texas Comptroller of Public Accounts
Post Office Box 13528, Capitol Station
Austin, Texas

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