Managing environmental risk in tube, pipe production

Editor's Note: This article is adapted from a presentation made at the TPJ Symposium, March 16-18, 2003, Scottsdale, Ariz.

The U.S. Congress and the states have created a complex scheme of environmental rules and regulations with which tube and pipe producers must comply. Failure to do so exposes them to the possibility of extensive penalties and criminal sanctions.

To understand their potential risks, companies must first understand the structure of the regulatory agencies that have jurisdiction to enforce environmental laws. The U.S. Environmental Protection Agency (EPA) has broad authority to implement and enforce the federal environmental statutes, including the Clean Water Act (CWA); the Clean Air Act (CAA); the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund); the Resource Conservation and Recovery Act (RCRA); and the Emergency Planning and Community Right-To-Know Act (EPCRA or SARA Title III).

The EPA is divided into 10 regions, and each regional office oversees implementation and enforcement of environmental laws in that region. In addition to this federal power, the EPA more often that not can delegate its implementation and enforcement powers to individual states. The state must then implement and enforce the statute at least as stringently as the federal program. However, regulated companies should be aware that even if a state takes a lenient enforcement position, the EPA is still in the background with the power to intercede.

In addition to federal and state environmental programs, many municipalities have passed environmental and health ordinances. The most common is the basic sewer use ordinance, which regulates the operation of the wastewater treatment plant, including the types and quantities of pollutants that are permitted to enter the system. These ordinances are particularly important for tube and pipe producers, as most discharge their wastewater to publicly owned treatment plants that operate under such an ordinance.

Enforcement Trends

In 2000 and 2001, the EPA set records for the number of cases brought and total penalties assessed. The enforcement trends at the federal level are therefore clear: the EPA is aggressively enforcing the federal environmental statutes. The message to regulated entities also should be clear: bring your facility into compliance or face significant penalties and possible exposure to criminal sanctions.

The state trends are not as easy to evaluate. Most states seem to be focusing their enforcement efforts on water and air violations, both of which could impact tube and pipe producers. In particular, as states begin to focus on watershed planning approaches to regulating wastewater discharges, they are restricting the amount and concentration of pollutants that will be allowed in industrial discharges.

Since 1995, the EPA has focused significant enforcement resources on companies regulated under EPCRA. Of particular concern is the EPA's recent trend toward enforcing the hazardous substance reporting requirements under EPCRA against tube and pipe producers. Most producers have no training in this regard and do not realize they might have an annual obligation to file forms. Unfortunately, many learn of this and similar requirements only when the EPA brings an enforcement action.

For example, in 2001, the EPA brought numerous cases against firms for failure to report their releases of certain chemicals on the required Toxic Release Inventory Form (or Form R). The EPA sought penalties of more than $100,000 in some cases. Many of these facilities did not know they had such an obligation until the EPA cracked down.

Because the EPA and the states are not educating tube and pipe producers on the applicable regulatory requirements, individual companies must familiarize themselves with the applicable regulations and implement strategies to reduce the environmental risks associated with operating their manufacturing facilities.

The difference between mere oversight and criminal liability for negligent activities is gray, and all companies should closely evaluate their own noncompliance in this light.

Potential Liabilities

Section 309 Penalties. Section 309 of the CWA provides for the following three penalty categories and maximum penalty amounts:

• Administrative — $10,000 per violation, with a cap of $125,000
  
  
• Civil — $27,500 per violation per day
  
  
• Criminal — $50,000 per violation and/or imprisonment for up to three years

These penalties can be assessed for violations such as exceeding permit limits, improperly releasing contaminants to waterbodies, and exceeding pretreatment standards.

Section 505 Citizen Suits. Under Section 505 of the CWA, citizen groups have the authority to monitor daily discharge reports and bring claims against noncompliant parties in the absence of federal or state action against that party. They can recover not only the maximum civil penalty ($27,500 per day per violation), but also their legal and expert witness costs associated with bringing the case.

Citizen groups generally cannot bring an action if the state or federal government has already instituted an enforcement action against that party. If a citizen group notifies a company that it intends to file suit, the company may want to consider entering into an order with the state to cover the violations alleged by the citizen group. In many cases, such an order will involve lower penalties than those sought by the citizen group. Note, however, that this is not always the best strategy and should be evaluated on a case-by-case basis.

Contractual Liability. In addition to these statutory penalties, tube and pipe producers should be aware that local municipalities typically are authorized to assess fines for violations of the local sewer use ordinance. These fines, typically ranging from $500 to $5,000 per violation, are assessed when a company's wastewater discharge to the municipal wastewater treatment plant contains more pollutants than allowed through the sewer use ordinance.

Key Environmental Regulations

Tube and pipe producers need to be concerned about the numerous federal and state environmental compliance and reporting regulations that may apply if materials are emitted to the air, sent to a landfill, or just used routinely during production.

Storm Water Permitting. Companies that discharge to a storm sewer; store raw materials or finished products outdoors; or have processes venting outdoors that could deposit particulate matter on outdoor surfaces, in the ground, or in a body of water may be required to apply for a storm water discharge permit. In the case of certain discharges directly to water companies may be required to apply for a National Pollutant Discharge Elimination System (NPDES) permit. In addition, facilities subject to storm water regulations may be required to prepare a storm water pollution prevention plan, conduct periodic inspections and chemical monitoring, and submit reports to regulatory agencies.

Wastewater. Operations that include anodizing, electroplating, phosphatizing, or passivating may need special wastewater monitoring and must comply with the discharge limitations imposed by the federal categorical pretreatment standards and local sewer use ordinances.

Hazardous Waste. Companies that generate hazardous wastes such as parts washer solvent and waste paints and thinners may need to maintain hazardous waste manifests, submit an annual or biannual hazardous waste activity report, and comply with other requirements of state and federal hazardous waste rules. These requirements can include employee training and contingency planning, and some jurisdictions may impose special fees for hazardous waste generators. Hazardous waste generation also involves "cradle-to-grave" responsibility, even after the waste leaves your facility.

Air Permitting. Firms that paint, sandblast, or otherwise emit substances to the atmosphere may need to comply with state and federal air pollution control and permitting requirements. Most states require air pollution control permit applications to be submitted before construction and before operation of any source that emits or has the potential to emit air pollutants.

SARA/Title III. Companies that store on-site any materials for which OSHA requires a Material Safety Data Sheet (MSDS) or that appear on the EPA's Extremely Hazardous List, and companies that "manufacture, process or otherwise use" any of the hundreds of substances on EPA's Section 313 list, must file certain reports with local, state, and federal agencies.

These reports are required under the provisions of the Superfund Amendments and Reauthorization Act of 1986 (SARA/Title III or EPCRA). Substances for which reporting is required include most of the constituents of the various steels and metal alloys (chromium, nickel, etc.) and other materials commonly used in the metal fabricating industry. The required reports include Emergency Notification, Tier I and Tier II Inventory Reports, and the Toxic Release Inventory Report, also known as EPA Form R.

Spill Prevention Control and Countermeasure Plans. Companies that have above-ground oil storage capacity of 1,320 gallons (including many coolants and cutting oils, even if they are claimed to be water-based) and could possibly have a discharge into surface waters may be required to implement a Spill Prevention Control and Countermeasure Plan (SPCC Plan).

The requirements are complicated, and plans require specific measures to be taken to prevent and respond to releases from a facility. The plans must also be certified by a registered professional engineer and updated every five years.

CERCLA. CERCLA is the EPA's statutory mechanism for cleaning up abandoned sites at which hazardous substances have been deposited. Under the statute, owners and operators of the site can be held responsible for the cleanup. In addition, the companies that transported waste to the site and parties that arranged for their waste to be sent to the site also can be held responsible for the cleanup.

Any companies that must send waste off-site for treatment or disposal must be sure to evaluate the compliance status of the treatment or disposal facility to minimize the chances that the site will someday be subject to an EPA cleanup.

Strategies for Managing Environmental Risk

Implement an Environmental Audit. With an auditing program, a company can verify its compliance with environmental laws and assess the steps needed to correct any deficiencies it discovers before regulators discover them or before environmental contamination occurs. This protects a company from environmental liability and also helps the company track and report environmental compliance costs.

However, an environmental audit requires a financial investment by the company, and once the audit is performed and reveals noncompliance issues, the company must take all appropriate steps to address those issues, which also requires up-front cash expenditures. In addition, while the EPA refrains from regularly requesting copies of internal audit reports, the audit results can be used as evidence against a company in the event of an enforcement action.

To implement an auditing program successfully two key components are needed:

1. Corporate management must fully support the program and must be ready to commit the financial resources necessary to make it a success. This involves educating upper management about program goals and the environmental risks that the program will minimize.
   
   
2. The company must be committed to correcting the compliance problems revealed as a result of the audit.

The EPA has recognized the importance of environmental auditing programs in achieving systematic compliance with environmental laws. As a result, if certain criteria are met in a company's environmental auditing program, violations discovered as part of that program and disclosed to EPA will result in significantly lower penalties (if any) than if no auditing program were in place.

Companies should be aware, however, that it is very difficult to achieve eligibility under the EPA's environmental auditing policy. For example, violations must be reported within 10 days after they are discovered. Practically speaking, it is virtually impossible to meet this strict deadline. Thus, in many cases, companies elect not to disclose violations that are discovered as part of an environmental audit but rather correct the violations and hope that EPA or the state will not later discover these violations.

Like the EPA, most states have adopted environmental auditing policies or statutes that waive liability for environmental violations that are discovered and disclosed to the regulatory agency. Many state policies are more lenient regarding penalty mitigation than is the EPA policy, so the EPA has asked many states to withdraw or revise their environmental auditing policies.

Implement Pollution Prevention Measures. One of the best ways for a company to minimize its environmental liabilities is to reduce the waste it generates. Companies should analyze their own production systems internally to determine ways to modify procedures to generate less waste or to reuse waste generated in other processes.

In many cases, pollution prevention technologies also reduce bottom line costs by reducing the amount of raw materials needed in the production process.

Investigate Disposal and Recycling Facilities. The Superfund statute makes companies that generate hazardous waste responsible for the cleanup of any site to which they sent waste if environmental contamination is found at that site. In fact, one party can be responsible for cleaning up an entire site simply by shipping one load of waste to that facility.

However, despite the massive costs that could face a company under CERCLA, many companies fail to investigate the waste haulers that they use and the disposal sites and recycling facilities to which they send waste. The best way to obtain information regarding a potential hauler or disposal site is by inquiring with the state agency.

A company also can learn more about a potential disposal location by reviewing that facility's state files. In addition, companies can get references from the state for disposal facilities that have strong compliance records and good relations with the regulatory body.

A visit to a recycling facility or disposal site also will reveal if the site is properly managed, and the manager can answer questions about environmental compliance.

Learn the Key Elements of the EPA's Penalty Policies. For each of the environmental statutes under which it operates, the EPA has issued a penalty policy. These policies, also known as enforcement response policies, provide the factors that the EPA will consider in calculating a penalty for particular violations under that environmental statute.

For example, under the EPCRA, the EPA has issued a penalty policy that lays out four key components of any penalty calculation:

1. Did the violating company voluntarily disclose the violations?
   
   
2. Did the company cooperate with the EPA?
   
   
3. Did the company bring its facility into full compliance with applicable law?
   
   
4. Did the company implement measures to prevent a recurrence of the violation?

In most cases, a company that exhibits consistent compliance will not be subject to as stringent penalties as one that has a history of noncompliance.

Understand and Survive Governmental Inspections. Every company should follow three basic rules in regards to governmental inspections:

1. Develop an inspection checklist and perform regular mock inspections using the checklist. This activity acts as a compliance analysis and enables the company to correct violations that it discovers as part of its own internal inspection. In addition, mock inspections help companies ensure their employees understand proper protocol in the event of a surprise or planned governmental inspection.
   
   
Maintain the facility in a consistent state of compliance. A company should keep its facility clean and in good appearance. The inspector will notice stray solid waste and other housekeeping items, which may spark a greater interest in the inspector than would otherwise be the case. In addition, files should be organized, complete, and current.


2. Have a plan for dealing with inspectors. This plan should provide for the protocols that all relevant employees will follow in the event of a surprise or planned inspection.
   
   

On a planned inspection day, companies should follow these procedures:

• Have a pre-inspection meeting discussing the purpose and scope of the inspection, reviewing the health and safety rules of the facility, and confirming the credentials of inspectors.
  
  
• During the inspection, accompany the inspector and limit the inspection to areas under the inspector's jurisdiction. Ask for duplicates of samples, limit contact with employees, and take notes. In addition, discourage photographs (based on proprietary interest) or have an employee take photos.
  
  
• Have a post-inspection meeting to review copies of the inspection report and discuss possible violations.

After the inspection, correct any detected violations as quickly as possible.

Consider ISO 14000 Certification. IS0 14000 is a series of voluntary international environmental standards intended to provide organizations with the elements of an effective environmental management system. A number of international organizations offer certification of conformance to IS0 14000 standards. The EPA, as well as a number of state agencies, has announced that IS0 14000-certified firms will be subject to far fewer compliance inspections.

Kim Conant is CEO and a senior environmental consultant with Environmental Compliance Consultants Inc., 2637 Tulip Lane, Green Bay, WI 54307, 920-434-6380, fax 920-434-6381, kmconant@eccinow.com.