In May 2012, the New Jersey Department of Environmental Protection’s (NJDEP) newly overhauled Site Remediation Program took final effect. NJDEP has proclaimed that this revamped program established a "new paradigm" in New Jersey’s site remediation regulatory landscape. New federal legislation is brewing, however, that could pre-empt certain aspects of these new regulations. It could also impose onerous financial burdens on industry and impact business growth and profitability by restricting a company’s use of its operating and investment capital.

The NJDEP Financial Responsibility Framework

One of the features of NJDEP’s new regulatory scheme is a detailed framework of financial responsibility provisions applicable to persons responsible for remediating contaminated property. N.J.A.C. 7:26C, Subchapter 5. The principal financial responsibility provision is a "remediation funding source."N.J.A.C. 7:26C-5.2(b). "Financial assurance" requirements, by comparison, apply only to remedial actions involving engineering controls. N.J.A.C. 7:26C-5.2(b). A remediation funding source must be maintained only until an "unrestricted use" or "limited restricted use" response action outcome has been issued for the site. N.J.A.C. 7:26C-5.2(e). Financial assurance for engineering controls, on the other hand, must be maintained for a potentially longer period of time, until the remedial action permit is terminated (i.e., when the remedial action "meets all applicable remediation standards" and is "protective of the public health and safety and of the environment" without the permit), is transferred (in the case of a statutory permittee), or expires after the default 99-year term. N.J.A.C. 7:26C-5.2(e), 7:26C-7.11, and 7:26C-7.13. And while a qualifying party has the option of providing a "self-guarantee" for a remediation funding source, that option is not available for the longer-term financial assurance requirements. Compare N.J.A.C. 7:26C-5.2(h) with 7:26C-5.2(j). To qualify for "self-guarantee," a responsible party must meet certain financial requirements concerning net worth and cash flow, as set forth in N.J.A.C. 7:26C-5.8(a).

A common thread among N.J.A.C. 7:26C’s financial responsibility provisions is that they are triggered only after site contamination has occurred, and therefore only after the need for remediation has actually arisen. However, proposed federal rulemaking may fundamentally alter, or even eliminate, New Jersey’s financial responsibility framework. This next potential paradigm shift stems from the recent invocation of a markedly different mode of contaminated site remediation funding that has lain dormant for nearly 30 years in Section 108(b) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), 42 U.S.C. § 9601 et seq.

CERCLA § 108(b) Rulemaking

CERCLA § 108(b) obligates the United States Environmental Protection Agency (EPA) to first identify entire classes of facilities that must "establish and maintain evidence of financial responsibility." 42 U.S.C. § 9608(b)(1). Once classes of facilities have been targeted, the EPA must then implement financial responsibility regulations that are "consistent with the degree and duration of risk associated with the [facilities'] production, transportation, treatment, storage, or disposal of hazardous substances." Id. Thus, unlike New Jersey’s financial responsibility requirements, which are triggered only after site contamination has occurred, the federal regulations would impose up-front financial responsibility on owners or operators of facilities based on potential risk of future site contamination. In essence, potential future PRPs will be held financially responsible (and will incur costs and/or be required to set aside substantial financial reserves) for future remedial action regardless of whether remediation is ever required. Compliance with these anticipated financial responsibility regulations will require the expenditure or restraint of funds that could have been used for operating and investment activities. The federal regulations might also impact a company’s environmental liability disclosures, reserves and accounting requirements, which could affect investor perceptions.

In February 2009, the Northern District of California ordered the EPA to identify and publish the notice of facility classes mandated by CERCLA § 108(b). Sierra Club v. Johnson, 2009 U.S. Dist. LEXIS 14819 (N.D. Cal. Feb. 25, 2009). The EPA has prioritized classes of facilities in the hardrock mining industry as those for which federal financial responsibility regulations will first be developed. 75 Fed. Reg. 816 (Jan. 6, 2010). It has also targeted the chemical manufacturing; petroleum and coal products manufacturing; and electric power generation, transmission and distribution industries as classes for which the agency plans to develop financial responsibility regulations. The EPA has further identified the waste management and remediation services; wood product manufacturing; fabricated metal product manufacturing; and electronics and electrical equipment manufacturing industries as additional classes of facilities requiring more study.

The rulemaking for all of these classes of facilities is still in the preproposal phase, meaning that no proposed rules have been issued. For the chemical manufacturing; petroleum and coal products manufacturing; and electric power generation, transmission and distribution industries, the EPA is currently considering information that it has received from public comments to consider whether it "should develop a proposed regulation under CERCLA Section 108(b) for any class or classes, or for the [targeted] industr[ies] as a whole."

While it is early yet to accurately predict what final form the regulations will take, the comments provided to date give insight into what are likely to be some of the most highly contested provisions. For example, industry comments across the board urged that any eventual Section 108(b) requirements should include the self-guarantee or "financial test" option for demonstrating financial responsibility (avoiding a need for qualifying entities to spend money on insurance, guarantees, surety bonds or letters of credit). This option is currently authorized in certain pre-existing federal regulations for other environmental programs (and in the language of 42 U.S.C. § 9608(b)(2) itself), and is currently available to satisfy the remediation funding source requirement in New Jersey (although, significantly, not for New Jersey’s longer-term financial assurance requirement). Whether this "financial test" option will ultimately be included in Section 108(b) regulations, however, is still uncertain.

Another unresolved question is how to estimate costs to remediate a potential future release of hazardous substances from a facility. This estimate bears heavily on how much it will cost a company to maintain financial responsibility. Commenters urged the EPA not to base its estimates on the worst-case sites that historically made it onto the national priority list; yet it is unclear how EPA can accurately quantify potential future remediation costs without using its past experiences as a primary benchmark. One option would be a case-by-case analysis of individual facilities, based on their current and predicted future operating circumstances. The EPA might oppose such an approach, however, as too expensive and time consuming.

Another unanswered question is how state regulations that arguably overlap the federal regulations — however remotely — will fare against likely challenges of federal pre-emption. Indeed, the EPA has already predicted state-by-state pre-emption challenges against existing state regulations once federal financial responsibility requirements are on the books. See Jim Berlow, Director, EPA, Presentation at the 2010 Association of State & Territorial Solid Waste Management Officials Conference and Training: CERCLA 108(b) Rulemaking Overview (June 30, 2010), at 14-16.

Litigators moderately familiar with CERCLA pre-emption case law might initially question the likelihood that these challenges would succeed. CERCLA pre-emption challenges often fail based on the preserving language contained in CERCLA § 114(a), which makes clear that CERCLA does not pre-empt states from "imposing any additional liability or requirements with respect to the release of a hazardous substance" in the state. 42 U.S.C. § 9614(a); see also, e.g., Manor Care v. Yaskin, 950 F.2d 122 (1991). But financial responsibility regulations seem to be an exception that presents a very strong case for federal pre-emption. Indeed, CERCLA § 114(d) prohibits states from requiring "any other evidence of financial responsibility in connection with the release of a hazardous substance from" a facility once an owner or operator of the facility has complied with CERCLA’s financial responsibility requirements." 42 U.S.C. § 9614(d).

That said, even the EPA is uncertain whether Section 114(d)’s language categorically forecloses the parallel existence of federal and state financial responsibility requirements. On the one hand, the EPA told certain state regulators that "[g]enerally, we suspect that State financial responsibility requirements connected with release of a hazardous substance may not be enforceable at facilities that are in compliance with Section 108(b) requirements." Berlow, CERCLA 108(b) Rulemaking Overview, at 15. On the other hand, the EPA told those same state regulators that "[c]ourts may rule differently on interpretations of certain statutory language to broaden or narrow the effect of" Section 114(d). Id. at 16. The EPA is clearly treading lightly, following President Obama’s admonishment that executive departments and agencies must consider whether a federal regulation should be accompanied by an official proclamation that state law will be pre-empted. See generally Office of the Press Secretary, Memorandum for the Heads of Executive Departments & Agencies, Subject: Pre-emption (May 20, 2009). Still, future pre-emption claims will clearly be shaped by (1) how federal regulations eventually take shape, (2) how those federal regulations match up with a specific state’s pre-existing framework, and (3) how individual courts decide the claims on the facts before them.

The Future of N.J.A.C. 7:26C’s Financial Responsibility Requirements

It is still too early to predict what these federal regulatory changes will mean for the continued existence of N.J.A.C. 7:26C’s financial responsibility requirements, or, similarly, how the District of New Jersey and, ultimately, the Third Circuit will interpret the language in CERCLA § 114(d). For now, New Jersey industry stakeholders with potentially affected interests both within and outside of the state should strongly consider participating in the CERCLA § 108(b) rulemaking process. The EPA estimates that a proposed rule will be issued for the hardrock mining facility classes in May 2014, and that it will begin work on a proposed rule for the additional facility classes shortly thereafter.

Current U.S. census data indicate that, in New Jersey alone, the EPA’s regulations could potentially impose financial responsibility requirements in connection with roughly 80 hardrock mining facilities, and more than 3,000 of the additionally targeted facilities. Close attention should be given to the regulations that take shape for hardrock mining, as they will likely predict how a financial responsibility regulatory framework will be developed for other named industries. Stakeholders who participate in the rulemaking process will at least have a chance to ensure that regulations are crafted fairly, and to lay the groundwork for success in future pre-emption claims that challenge duplicative state regulations. •