Guidance: Recovering Indirect Costs in Superfund Cost Recovery Actions

Cleanup costs related to any work performed by contractors must indicate that the work was authorized and completed. Further, cost documentation must show that the costs were actually incurred and paid for by the government. Before any funds would be deposited into the Climate Superfund Cost Recovery Program Fund, the State is likely to face substantial legal fees. Fossil fuel producers and refiners would be expected to sue the State over its right to demand cost recovery payments from them. Any legal action could drag on for years, especially if Vermont is the first state to require such cost recovery payments.

Agreement for «Work»

Vermont’s recently passed S 259, dubbed the Climate Superfund Act, along with the pending New York Climate Change Superfund Act, represent a paradigm shift in environmental liability. These laws have far-reaching implications for businesses, impacting operational costs, liability exposure, and compliance requirements. Additionally, California, Massachusetts, and Maryland are following suit with proposed legislation, indicating a controversial trend among states to legislate corporate responsibility for climate change. California, Maryland, and Massachusetts have all proposed legislation that would enact programs similar to the Climate Change Superfund Act in that they would require companies to pay compensation for purported GHG emissions. These proposals are similar in scope to the Vermont and New York legislation and target entities responsible for more than 1 billion metric tons of GHG emissions from 2000 to 2018 (Massachusetts) or 2000 to 2020 (California and Maryland).

• States are increasingly holding the fossil fuel sector liable for costs related to climate change.
• These case studies illustrate the diverse ways cost recovery is implemented in environmental and water treatment contexts.
• For example, EPA may enter a site-specific settlement agreement with a party who is not liable for contamination at the property but who is willing to perform cleanup work on the property.

EPA pursues both the costs it has accrued before settlement («past costs») and costs it anticipates accruing after the settlement («future costs»). EPA may deposit costs recovered through settlements into «special accounts» within the Superfund Trust Fund to pay for cleanup activities at the site for which it received the money. As a matter of policy, EPA sends a written demand letter to PRPs prior to filing a cost recovery lawsuit.

• PRPs will generally attempt to negotiate the extent of their liability for the cleanup costs owed to EPA.
• If EPA does the cleanup work using Superfund money, it will try to recover those costs from responsible parties.
• In a significant legislative step, states such as Vermont and New York are setting a precedent with laws targeting companies they deem responsible for climate change.
• While progress on the proposals in California, Massachusetts, and Maryland has been slower than in Vermont, a week after the Vermont Climate Superfund Act passed, the New York Legislature passed the state Senate in a vote on June 8, 2024.
• D) Direct cost recovery is primarily used for private companies, while indirect cost recovery is used for government agencies.

States are increasingly holding the fossil fuel sector liable for costs related to climate change. Our Environment, Land Use & Natural Resources Group unpacks what companies need to know about these new state “superfund” laws. A former industrial site has been contaminated with heavy metals due to the actions of several companies over the past 50 years.

Legislature passes Climate Superfund Act

The SOW sets forth the procedures and requirements for implementing the cleanup work at the site. In 2021, EPA introduced enhanced community involvement provisions in the model Remedial Design/Remedial Action SOW. EPA developed these community involvement provisions to better address community concerns, especially those communities potentially disproportionately impacted by environmental pollution. Similar provisions are being incorporated into other cleanup enforcement model statements of work. The legislative developments in Vermont, New York, California, Massachusetts, and Maryland reflect a broader trend of state-led initiatives to target companies involved in the extraction, production, and use of fossil fuels, and to controversially shift the costs for domestic and international climate change policies onto these companies. This comes at a time when the oil and gas industry is supporting millions of jobs, providing reliable energy, and ensuring the nation’s energy security.

Chapter 3: Software for Cost Recovery in Environmental & Water Treatment

The assessment would be completed on or before January 15, 2026 and delivered to various legislative committees. The Agency maintains a database of model administrative and judicial settlement documents that are available for download in Word format. The database provides information on supporting policy and guidance documents for each model and provides the revision history for any updates to a model after it is issued.

Overview of Enforcement Agreements for Cleanup Work and Payment

The process begins with the Environmental Protection Agency (EPA) identifying the PRPs and investigating their role in the contamination. The EPA then sends a «Notice of Potential Liability» to the identified PRPs, outlining the allegations and potential cost recovery obligations. Second, $300,000 is appropriated from the General Fund to the Office of the State Treasurer in Fiscal Year 2025 to support hiring consultants or third-party services to assist in completing the assessment of the cost to the State and its residents of the emission of covered greenhouse gases.

Quiz: Cost Recovery in Environmental & Water Treatment

Dr. Burton focuses his practice on economic and financial analysis of both liability and damage issues arising in businesslitigation. Mr. Schneider practices in the area of environmental litigation with an emphasis on hazardous waste, costrecovery, contribution, and environmental insurance coverage issues. Software plays a vital role in modern cost recovery practices, providing essential tools for data management, cost estimation, allocation, and regulatory compliance. Investing in appropriate software can significantly improve the efficiency, accuracy, and effectiveness of cost recovery processes. This chapter examines the role of software in streamlining cost recovery processes, highlighting Superfund Cost Recovery key tools and functionalities.

D) Direct cost recovery is primarily used for private companies, while indirect cost recovery is used for government agencies. EPA’s “enforcement first” policy promotes the “polluter pays” principle and allows the Agency to conserve Superfund resources for the cleanup of contaminated sites where there are no potentially responsible parties (PRPs). EPA prefers to reach an agreement with a PRP to clean up a Superfund site instead of issuing an order or doing the work and then recovering its cleanup costs later.

Choosing the most appropriate approach depends on factors like the nature of the contamination, the financial capacity of the PRPs, and the specific legal framework governing the situation. The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), better known as Superfund, grants the government the authority to undertake cleanup actions at contaminated sites and subsequently seek reimbursement from potentially responsible parties (PRPs). These PRPs could be individuals, corporations, or entities whose actions contributed to the contamination. When a Superfund site, a severely contaminated area posing significant risk to public health and the environment, needs cleanup, the responsibility for the cost doesn’t always fall solely on the shoulders of the federal government. This is where cost recovery comes into play – a legal process designed to recoup funds spent on cleanup from those responsible for the contamination. «The Role of Cost in the Superfund Remedy Selection Process» clarifies the current role of cost in the Superfund remedy selection process as that role is established in the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), the National Contingency Plan (NCP), and current EPA guidance documents.

The New York “Climate Change Superfund Act” would be overseen by the Department of Conservation (Department) and purports to cover GHG emissions between January 1, 2000, and December 31, 2018. Responsible parties under the bill would include “any entity (or a successor in interest to such entity described herein), which, during any part of the covered period, was engaged in the trade or business of extracting fossil fuel including coal or refining crude oil” and is responsible for more than 1 billion tons of covered GHG emissions, as determined by the Department. Under the Climate Change Superfund Act, the total assessment rate per year is $3 billion over the next 25 years, with 35% to 40% of the funds going toward climate-change-adaptive infrastructure projects that directly benefit disadvantaged communities. As with the Vermont Climate Superfund Act and CERCLA Superfund liability, a responsible party would be strictly liable for a share of the cost of climate change adaptive infrastructure projects. Similar to Vermont’s law, the California proposal would defer to a state environmental regulator, the California Environmental Protection Agency, to determine the total costs incurred as a result of climate change and assess the cost demand for each responsible party. Meanwhile, the proposals in Massachusetts and Maryland include a predetermined total cost for climate change adaptation and mitigation.