VideoLast month, in the re-flection of a growing trend across the country, Alaska became the 21st state to enact a so-called environmental audit privilege law. Designed to encourage companies to come clean on environmental infractions, these laws offer partial immunity to businesses that voluntarily report current or potential environmental violations.
According to Alaskan Republican state senator Loren Leman, who sponsored the bill, the benefit of such legislation is that it stresses voluntary compliance rather than "command and control" enforcement. Instead of focusing on fines and punishment, he says, the laws encourage increased cooperation between government and industry to solve environmental problems early. As a result, corporate funding can be directed at remediation rather than litigation.
Nevertheless, environmental attorneys and regulatory affairs officers warn that these laws can be a double-edged sword. That's because, on the federal level, the Environmental Protection Agency (EPA) continues to favor command and control, and objects vehemently to the "qualified privileges" offered by many states (see "The Privileged Few," page 84). These privileges ensure that potentially damaging reports issued during an environmental self-audit will not be used against a company in civil, administrative, or, in some cases, criminal proceedings.
The EPA's opposition to such privileges means that companies that come clean to the states are then vulnerable to federal prosecution. "There's a growing body of both state and federal case law that indicates that companies must put compliance systems in place," says Paul Wallach, an environmental lawyer and senior partner at law firm Hale and Dorr LLP. But when it comes to leniency, there's a mixed message. "You hope that the EPA works [cooperatively] with the state in joint enforcement, but there's always a risk that the federal rules will be harsher," says Doug Donegan, vice president of regulatory affairs at Anchorage and Seattle-based Trident Seafood, adding that such uncertainty "puts businesses in an uncomfortable position."
INCOMPLETE PROTECTION
Despite the risks, it was inevitable that companies would push for environmental amnesty, says Michael Silverstein, author of The Environmental Economic Revolution, given the availability of technology to identify environmental problems early, as well as shareholders' vocal demands for compliance. And states were open to the proposition because it helped companies of all sizes correct problems, and promised to cut down on lengthy lawsuits.
The real impetus for these laws, however, can be traced to Colorado's 1993 environmental investigation of Coors Brewing Co. The crackdown came after Coors's own engineers voluntarily reported to state air-quality officials that Coors was emitting higher-than- permitted volatile organic compounds (VOCs) into the air. The state originally called for a $1 million fine, despite Coors's initiative. Ultimately, Coors and the state settled on $237,000 in penalties and the brewery agreed to cut VOC emissions by 200,000 tons annually. However, having been stung by the self- disclosure process, Coors lobbied for an environmental amnesty law. In 1994, Colorado became the second state, after Oregon, to put a self-audit law on the books.
"The Coors company, which had already put a lot of money into environmental programs, was faced with penalties that clearly would have lowered profits," says Silverstein. Many companies, including hard-hit oil firms, began to look for ways to reduce their own exposure, he adds. And the efforts were spearheaded by groups such as the Chemical Manufacturers Association and the Corporate Environmental Enforcement Council.
In the meantime, the EPA began to consider the value of environmental amnesty as a compliance tool. In March 1995, the agency announced a separate interim policy focused on fine reduction for companies willing to come forward.
To date, however, the watchdog agency is far less forgiving than the states. For one thing, EPA policy requires public disclosure, but it allows prosecutors to use potentially incriminating documents in non-EPA enforcement actions such as citizens' suits and third- party tort actions, says Jerry Richartz, division manager for energy and environment at Portland, Oregon-based Oregon Steel Mills. "What we now have is two sets of rules, and a quagmire of incomplete protection," adds attorney Wallach.
One company caught in that quagmire is Enron Methanol Corp. The Houston-based subsidiary of Enron Corp. is one of approximately 500 entities that have voluntarily conducted audits under Texas's two-year-old self-audit law. Of those, more than 90, including Enron, disclosed violations. But instead of amnesty, Enron and four others--two Diamond Shamrock facilities, a Montell Polyolefins plant, and the Harrisburg Woolley division of Phoenix Energy Products--have been singled out by the EPA for the very violations they disclosed to the Texas Natural Resource Conservation Commission (TNRCC).
"The EPA has requested information about two potential Clean Air Act violations that we uncovered in 1996 during a voluntary environmental audit before the TNRCC," says Enron spokesperson Carol Hensley. The EPA investigation began in December 1996, when the EPA sent Enron a 12-page questionnaire requesting information about plant facilities and pollution-control equipment. To date, no fines have been set, but the investigation is continuing.
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