Managing Enforcement Issues Under Increased Compliance

By Billy VonSee & Todd Potas | February 01, 2006
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The ethanol industry continues to grow at a dizzying pace, producing more than 4 billion gallons annually and projecting 8 billion gallons by 2010. The industry has just under 100 operational plants with over 30 new plants under construction. This rapid growth over the past few years, coupled with the signing of the new energy bill in August 2005 calling for more renewable fuel use in the future, has placed the ethanol industry in the spotlight strategically, politically, economically and environmentally. Since 2002, the U.S. EPA has placed ethanol on its priority list for compliance inspections, and various EPA regions have ethanol plants on the priority list again in 2006.

As a result, the EPA has formally or informally examined a large percentage of the ethanol industry, addressing numerous compliance issues. EPA Region V initiated this increased scrutiny on the ethanol industry air emissions in Minnesota as part of this effort. All 12 of the state's operating dry-grind ethanol facilities entered into consent agreements with the EPA and the Minnesota Pollution Control Agency (MPCA) in 2003. Several of these facilities have completed required consent decree emission control additions and improvements, resulting in the U.S. District Court terminating its consent decree orders in recent months. The requirements of these compliance agreements with the EPA have resulted in lower emission levels for the entire ethanol industry, as well as larger facilities receiving minor source air permits.

Compliance and enforcement activities
In 2005, the EPA's compliance and enforcement activities resulted in the reduction, treatment and/or proper management of over 1 billion pounds of pollution. Table 1 depicts the rise in pollution reduction amounts resulting from EPA enforcement activity since 2002. In addition, violators have committed to spending $10 billion in injunctive relief (penalty fines and controls) and over $57 million for supplemental environmental projects (SEPs). Injunctive relief is defined by the EPA as the dollars spent to correct violations, restore the environment, and prevent future harm to human health and the environment. SEPs are environmentally beneficial actions that a violator agrees to perform as part of an enforcement settlement that goes beyond compliance and provides significant benefits to public health and the environment.

All this enforcement scrutiny and reduction in pollution to the environment resulted in significant avoidable cost for U.S. industry, including the relatively new ethanol industry. The evidence suggests an ounce of prevention truly is worth a pound of cure. The EPA, with the help of the respective state and district agencies, has been and will continue to do its job. Periodic internal audits, training, third-party consultant audits and reviews are needed to help confirm compliance, especially prior to the regulatory inspections that are certain to occur after new ethanol plants start operation. Other prudent activities include: rigorous pollution control equipment preventive maintenance, and engineering source testing to evaluate the relationship between emissions and operating parameters. Engineering testing can be especially valuable to optimize compliant operating parameters prior to required compliance source tests.

Management options
Even with strong compliance programs, violations can and will occur. Discovery of a violation at your facility is not fatal, nor is it abnormal due to the complexity of environmental regulations and the rapidly changing industry in which we find ourselves. Based on the specifics of each facility situation, the following options should generally be considered.

One option is the EPA's voluntary disclosure program. The EPA encourages entities to police themselves and has formally stated such in two separate documents, The Small Business Compliance Policy (SBCP) and the Audit Policy. The SBCP "is intended to promote environmental compliance among small businesses by providing incentives for voluntary discovery, prompt disclosure and prompt correction of violations. The policy accomplishes this in two ways: by setting forth guidelines for the agency to reduce or waive penalties for small businesses that come forward to disclose and initiate good faith efforts to correct violations, and by deferring to state, local and tribal governments that offer these incentives (EPA, FRL-6576-4). A record number of entities voluntarily disclosed violations to the EPA in fiscal year 2005, substantially reducing potential monetary penalties.

For the purposes of the SBCP, a small business is defined as having less than 100 full-time equivalent employees. To qualify for relief under the SBCP, the discovery must be voluntary, the disclosure period must be met (in writing within 21 days), and the violation must be corrected expeditiously. Many ethanol facilities comply with the SBCP-eligible 100-employee limit.

The Audit Policy does not have the business-size restrictions of the SBCP; however, the requirements to qualify for this policy are more stringent and include nine separate conditions to receive 100 percent relief of the gravity-based component for any applicable penalty. Special conditions exist for up to 75 percent relief if all but one of the nine conditions are met. For a detailed description of the methodology used to calculate each component of a penalty, visit the EPA Web site at www.epa.org and search for the "Civil Penalty Policy."

The Audit Policy conditions are as follows:
1. Systematic discovery
2. Voluntary disclosure
3. Prompt disclosure
4. Independent discovery and disclosure
5. Correction and remediation
6. Recurrence prevention
7. No repeat violations
8. Other violations excluded
9. Cooperation

One recent example of voluntary disclosure negotiations turning a negative into a positive occurred with the following scenario. An entity disclosed suspected violations at Facility B once a violation was discovered in one of their other facilities, Facility A, in another state and had voluntarily initiated enhanced emission controls. The entity's proactive approach with the EPA resulted in the elimination of any penalty at Facility B. In addition, it received the maximum allowable reduction in its penalty for cooperation with respect to Facility A. According to the acting regional administrator from EPA Region V, the entity "has come forward and shown itself to be a good corporate citizen." This type of response from the regulatory body regarding environmental law violations underscores the EPA's strong incentive for entities to come forward with their issues and work together with regulators to establish a resolution.

The second option is a non-traditional consent agreement or SEP. The concept behind the non-traditional agreements, similar to the Minnesota ethanol agreements, allows the monetary penalties to be minimal with the understanding that the facility would go beyond compliance and provide significant benefits to public health and the environment through SEPs. Project ideas for SEPs range from use of alternative fuels/hybrid vehicles to site revegetation. Other examples include rain harvesting (storm water collection for process and cooling water use) and renewable energy/energy efficiency type projects, such as substituting biomass for fossil-fuel firing, and condensation water and heat recovery of thermal oxidizer steam or other sources of exhaust. These self-regulating and voluntary actions emulate the primary goals of the Clean Air Act, which are to encourage the industry to comply and self-police its own environmental compliances. EP

Billy VonSee, PE, is a group manager at Natural Resource Group (NRG) in Minneapolis, Minn., while Todd Potas, PE, QEP, is a principal at NRG. Both can be reached at (612) 347-6789.