A new front has opened up in the widening conflict between EPA and a growing number of state environmental agencies throughout the country.
At issue is how to deal with companies which, on their own, discover they are violating environmental statutes and are in a quandary as to whether they should report this to the proper authorities. Until recently, businesses had the option of either hiding the violation in the hope that state or Federal inspectors wouldn’t uncover it, or reporting the matter to EPA and face the unpleasant prospect of a stiff fine.
Recognizing that such a Hobson’s choice gave companies little incentive to voluntarily report their violations, states over the past few years have begun adopting what are known as audit privilege laws. Typically, audit privilege laws grant businesses, municipalities, and other entities “safe passage” to conduct self-audits and to disclose and correct any violations found. This is done by establishing limited privilege status for internal information contained in environmental self-audit reports, and granting immunity from penalties for violations that are immediately corrected.
Twenty states have adopted audit privilege laws, and 10 more are considering following suit this year. States that have audit privilege laws — among them: Texas, Colorado, Oregon, Idaho, and Michigan — have found them a much more efficient way of reducing pollution than trying to hire a vast army of inspectors to look into every nook and cranny of every business in the state.
“Focused Inquiries” From EPA
The idea of state regulatory agencies cooperating with companies through privileged audits to correct environmental abuses has been viewed with undisguised hostility by EPA. For years, EPA has tried — in vain — to dissuade state legislatures from approving audit privilege laws. Unable to stem the tide, the agency adopted a limited self-audit program of its own. Under the EPA program, businesses can report violations to the agency but still face the prospect of, albeit reduced, fines. However, the EPA program also subjects reports submitted to the agency to public scrutiny, opening companies up to lawsuits by environmental groups. Under these circumstances, it is not surprising that only around 100 companies nationwide have participated in the EPA program, compared with several hundred that have signed up with the various state self-audit plans.
But the participation of businesses in state audit privilege programs may be coming to an abrupt halt. For several months, EPA has been targeting companies that have been voluntarily disclosing their violations to state agencies. In what companies and state officials refer to as “focused inquiries,” EPA has requested documents from and even been carrying out surprise inspections of such companies.
EPA’s move has had a chilling effect on businesses, many of which are now reluctant to enter into state audit privilege programs for fear of being prosecuted by Washington. After news got out that EPA was targeting businesses in Texas participating in that state’s audit privilege program, the number of companies voluntarily disclosing information to the Texas Natural Resource Conservation Commission dropped from 30 to six. Regulators in Michigan, Colorado, and Oregon now report a similar reluctance on the part of companies to avail themselves of audit privilege programs in their states.
EPA defends its action by arguing that the use of state audit privilege laws undercuts enforcement of Federal environmental statutes. States counter by saying EPA interferes with their ability to protect the environment. The dispute has reached Capitol Hill where Senators Kay Bailey Huthison and Phil Gramm, both Republican of Texas, joined by 18 members of the Texas Congressional delegation, have sent a letter to EPA Administrator Carol Browner charging the agency with “using the state voluntary disclosure procedures to target companies for investigation.”
Two Different Approaches
Between the charges and counter charges being hurled around Washington lie two opposing views of environmental protection. EPA has traditionally seen its role as the chief enforcer of the nation’s environmental laws as inextricably linked to and symbolized by its willingness to prosecute, in a very public way, those parties found violating those statutes. State agencies, on the other hand, have generally been less interested in imposing fines than in using their limited resources in sometimes unconventional ways to carry out their mission. Both are turf-conscious, and neither shows any willingness to back down. And companies are caught in the middle, not knowing which side will emerge with the upper hand.