Originally published in The Houston Business Journal, February 2008.
Upstream and downstream energy businesses are squarely in the environmental enforcement cross hairs of regulators and the general public.
The 30-plus volumes and tens of thousands of pages of highly technical U.S. Environmental Protection Agency regulations, not to mention the numerous additional environmental regulations of the other federal and state environmental and natural resources agencies, affect every operation in the industry. They form an environmental challenge seen as "The Three Cs:"
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Compliance - regulatory and permit obligations to comply with the Clean Air Act, Clean Water Act, Resource Conservation and Recovery Act, and many more;
- Contamination - cleanup liability for spills and releases from on-site activities and from offsite disposal; and
- Claims - by third parties like surface interest owners, neighbors and regulatory agencies. particularly in the event of chemical releases or exposures.
Tough Penalties
The Three Cs affect any company's survival, in significant part because the environmental obligations they cover are backed by federal state and local inspection and enforcement powers that provide not only for penalties often up to $32,500 for each day of each violation, but clean up obligations that can reach into the millions of dollars and criminal penalties that include both fines and prison time. These can apply to many types of violations at the discretion of sometimes headline-minded prosecutors.
Smart companies can sharply reduce these risks and significantly mitigate their losses in those situations when mistakes do occur .
One key is an effective compliance program. Energy companies wishing to avoid the worst liability and penalties from environmental violations should consider a strong. organized program of environmental compliance management that includes two essential elements.
No. I: Periodic "checkup" audits. Regular review of environmental compliance status is absolutely essential There is no environmental compliance "finish line: Obligations are hourly, daily, weekly, monthly. quarterly and annually. 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, energy companies inevitably overlook certain duties and fallout of compliance. In the absence of periodic audits, even where companies make a strong effort to comply, so me of the many complicated compliance obligations companies face will always slip through the cracks.
No. 2: Systematic management approaches. 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," or EMS, that begins with a strong statement by the board of directors or the CEO sup porting the need for compliance, followed by documenting an d implementing a step-by-step compliance program. The key elements of most EMSs 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 time 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,
- Regular management EMS review, updating the EMS to reflect the feedback received.
Such a systematic approach to compliance Builds on the idea of continuous improvement and has a much better chance of succeeding - and of earning regulatory favor - than informal or ad hoc ones. And even companies that do not implement a full, formal EMS can benefit from evaluating their current environmental management efforts against the elements of an effective program.
No Good Deed Goes Unpunished?
Don't assume that creating an EMS automatically ends Compliance problems, however. Unfortunately, EMS 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 little known pitfalls that the environmental laws call create Periodic environmental compliance audits, if not properly and promptly acted upon, can give regulators more evidence to lake harsher actions against a company.
Thanks in part to Sarbanes-Oxley, 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 ad dressing them may face personal criminal liability.
Necessary Caution
The environmental laws are constantly changing and each company's exposure to liability shifts accordingly. Companies should launch an EMS effort 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 an d 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.
Periodic comprehensive auditing of environmental compliance status and strong systems for environmental management are potentially costly and hard to implement. But done right, with the assistance of qualified technical and legal experts in design and implementation, these measures are essential for maintaining and demonstrating ongoing compliance with the complex environmental laws and regulations that govern the energy industry.
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