What is a Supplement Environmental Project (SEP) and How Does it Work?
A Supplemental Environmental Project (SEP) is a federal mechanism used to facilitate settlement of an environmental enforcement action. It allows a polluter to voluntarily take action in place of paying a fine. The business or individual undertakes a project that provides “tangible environmental or public health benefits to the affected community or environment, that is closely related to the violation being resolved, but goes beyond what is required under federal, state or local laws.”
Interestingly, for every dollar the business spends, their fine is only reduced by 80 percent. This means that an SEP costs a company more. If a fine is $1 million, for example, a company could pay $1 million on a habitat restoration project and still owe $200,000 in fines. In spite of the higher cost of implementing an SEP, companies prefer them for the benefits they could achieve: a beneficial restoration for the community, and goodwill for the company.
A Guidance Change Halts Most SEPs
However, in early 2020 the Department of Justice issued guidance saying that they could (for the most part) no longer support this approach. Their stance is that while enforcement of laws is a function of the executive branch, that branch can’t choose how to appropriate federal funds. Instead, the fine must be deposited in the Treasury so that Congress can decide how to appropriate those dollars under its constitutional authority.
The guidance doesn’t apply retroactively, and so previously negotiated SEPs shouldn’t be affected.
Given that the 2020 guidance is relatively recent, there is still uncertainty about how it will play out, and a change in administration may affect the future of SEPs.
More information on SEPs
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Questions? Contact Mark Dagel, LHG