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Richard B. Stewart *
Natural resource damages (NRD) are an awakening "sleeping
giant" of environmental liability that poses serious threats
for U.S. business and federal taxpayers. Until recently, the focus
of attention and controversy over environmental liabilities has
been the Superfund scheme for remediation of toxic waste sites,
and the unprecedentedly harsh and sweeping standards of liability
asserted by government to finance cleanup. NRD liability, created
by the federal Superfund statute (the Comprehensive Environmental
Response, Compensation, and Liability Act, or CERCLA), the Oil Pollution
Act (OPA), and other federal and state statutes represents an important
new wave of environmental liability, on top of cleanup liability.
NRD has received much less attention than cleanup liability, in
large part because the federal, state, and tribal officials designated
as natural resource trustees to bring NRD claims have until recently
been slow to seek recoveries for injury to resources under their
jurisdiction as a result of hazardous substance releases or oil
spills. Trustees are now mobilizing to assert ambitious NRD claims,
threatening U.S. businesses and insurers and federal agencies such
as the Departments of Energy and Defense with potentially enormous
liabilities and massive transaction costs that go far beyond those
recognized in any other country. Unless prompt steps are taken to
reform the NRD programs, they will spin out of control just like
the cleanup program has.
Like Superfund cleanup liability, natural resource damage liability
extends to past and present owners and operators of sites where
hazardous substances release have occurred and to generators, and
transporters of hazardous substances as well as those responsible
for oil spills. Liability is strict, and defenses are extremely
limited. Trustees claim that NRD liability is fully retroactive,
extending to wastes disposed of decades or even more than a century
ago as the result of industrial activities that were lawful and
proper when undertaken and in many cases were actively encouraged
by local communities and governments.
Federal natural resource agencies such as the Departments of Interior
and Agriculture and the National Oceanic and Atmospheric Administration
(NOAA), state environmental and natural resource agencies, and tribal
authorities are authorized to recover NRD for resources under their
jurisdiction. Trustees have not limited NRD claims to resources
owned by government. For example, courts have allowed trustees to
obtain damages for contamination of groundwater underlying private
land.
Basic Elements of NRD Liability
Responsible parties are liable for NRD in addition to cleanup costs.
Cleanup costs at some sites have been enormous, running to hundreds
of millions or even billions of dollars. NRD can be equally enormous.
Trustees claim as NRD the costs of restoring a resource once cleanup
is completed; plus any past or interim diminution in the value of
a resource or the costs of "compensating" for impaired
past uses, resource-to-resource services, and non-use values; plus
the costs of trustee restoration planning and assessment of damages.
Liability for Restoration Costs. The federal NRD statutes authorize
trustees to rely on natural recovery or to acquire replacement or
equivalent resources as means of restoration in addition to on-site
measures to rehabilitate the particular resources injured by a spill
or release. Despite this wide range of restoration options, trustees
often focus narrowly on aggressive and costly on-site rehabilitation
measures in an effort to replicate the precise physical, chemical
and biological condition that a resource would be in if an oil spill
or release of a hazardous substance had never occurred. They ignore
other options that can often achieve restoration at far less cost.
Also, many trustees reject the common-sense goal of focusing restoration
on reinstating public resource uses, such as fishing, hiking, or
bird-viewing, that have been impaired. Instead, they deem any "adverse"
change in the condition of a resource -- such as the presence in
sediments of low levels of residual oil or chemicals that do not
affect natural populations or human uses -- as "injury"
warranting costly restoration efforts. Further, trustees have rejected
any requirement that they select the most cost-effective means of
restoration, or that the costs of restoration are justified by the
benefits provided to the public. In some cases trustees have claimed
restoration costs running to hundreds of millions of dollars at
a single site.
Additional liability for lost uses and resource-to-resource services.
Over and above restoration costs, trustees seek recovery, running
in some cases to additional hundreds of millions of dollars, based
on diminished public uses of a resource stretching back over many
years. Regulations issued by NOAA under OPA also authorize recovery
for the costs of measures to compensate for past reductions in the
"services" provided by one resource to another resource
-- for example, a reduction in the availability of certain sources
of food supply for fish -- even though neither fish populations
nor human uses of resources have been adversely affected. Under
the label of "compensatory restoration," NOAA regulations
authorize trustees to use such recoveries to acquire new land or
to solve other environmental problems not caused by the responsible
party from whom NRD are sought
Additional "non-use" liabilities. Trustees also seek
substantial further recoveries, running in some cases to hundreds
of millions of dollars, based on diminished "non-use"
or "existence" values, based on the monetary value that
the public supposedly places on preserving a resource in its existing
state quite apart from any use that they make of the resource. Such
claims, based on the assertion that non-use recoveries are necessary
to make the public "whole," ignore that the publics
interest in long-term resource preservation is already being met
by restoration. Liability for non-use values is often based on contingent
valuation ("CVM") studies: public opinion surveys that
ask a sample of people how much they value a resource based on how
much they say they would pay to preserve it, even though they do
not actually have to pay anything. The average amount reported is
then multiplied by what trustees deem the relevant population, which
in some cases has been the entire population of the United States.
CVM surveys have claimed non-use values for resources ranging from
tens of millions to billions of dollars. Potentially responsible
parties (PRPs) have attacked CVM-based non-use damages as unreliable
and punitive in nature.
Coordination Problems. The NRD system is not coordinated with the
cleanup liability system. The government agencies that are plaintiffs
in the two systems are different, and have different interests.
Cleanup authorities such as the federal EPA have sometimes required
cleanup measures that injure natural resources, increasing PRPs
NRD liabilities. On the other hand, in a number of cases trustees
have required additional levels of costly clean-up beyond the cleanup
already required by EPA as necessary to protect health and the environment
in the guise of "restoration." In some of these "Cleanup
I, Cleanup II" cases, EPA has told PRPs to cap and contain
soils containing hazardous substances, then trustees have come along
and demanded that these same soils be excavated and transported
elsewhere. Further, in many cases more than one federal, state,
and tribal authority asserts trusteeship over the same resource.
The NRD statutes provide no guidance for deciding what authorities
have trusteeship over what resources, leading to overlapping, duplicative,
and conflicting trusteeship claims. The involvement of several different
government cleanup and restoration agencies at the same site causes
delay, increases costs, impedes timely restoration, and makes it
more difficult for PRPs to achieve a satisfactory overall settlement
of liabilities.
The Rising Tide of NRD Liability Problems
It is only fairly recently that trustees have begun aggressively
to assert NRD claims. NRD claims are often asserted after cleanup;
the delays in the Superfund cleanup program have therefore caused
delays in NRD claims. In addition, it is only recently that a fairly
complete set of damage assessment regulations under CERCLA and under
OPA have been established. Also, the Exxon Valdez case helped put
NRD on the map. Exxon paid nearly $1 billion for natural resource
damages, over and above more than $2 billion in oil removal and
cleanup costs. In other cases, the government has collected tens
of millions of dollars for NRD. These victories have spurred trustee
interest in asserting claims. For example, the federal Fish and
Wildlife Service has targeted hundreds of rivers and harbors and
many thousands of wetland sites for potential NRD claims.
An important incentive for aggressive trustee pursuit of NRD claims
are provisions in CERCLA and OPA that authorize federal trustees
to spend NRD recoveries without further congressional appropriation.
Freed from accountability through the normal congressional budget
processes and controls, trustees can effectively use "off-budget"
NRD money to support and expand their ongoing operations.(1) Accordingly,
trustees have a strong financial self-interest in maximizing NRD
recoveries, including in particular surplus lost use, resource-to-resource
service, and non-use recoveries which trustees have great discretion
in spending.
The threat of natural resource damage liability extends beyond
the chemical, mining, and oil industries, and includes a wide variety
of manufacturing, resource-based, and transportation businesses
as well as local, state and federal government entities. EPA has
recently completed an inventory of thousands of sites involving
aquatic sediments containing water pollutants discharged from publicly
owned sewage treatment works and industrial and commercial point
sources; many of these sites are ripe for NRD claims. Lenders, insurers,
and those acquiring businesses or industrial properties also have
good reason to be concerned about NRD liability because such liability
can impair the value of collateral, lead to coverage claims on top
of claims for cleanup costs, and pose a threat of ongoing liability
to acquirers. Moreover, most Superfund settlements that have been
reached to date do not include a release for natural resource damages.
Accordingly, businesses and, potentially, their insurers remain
liable for such damages even though they have paid large sums to
settle clean up liabilities. NRD liability has also not been addressed
in many purchase and sale, investment, loan, and other transaction
agreements, creating the prospect of unanticipated liabilities for
the parties.
Certain federal agencies, including the Departments of Energy,
Defense, and Interior, face massive NRD liabilities because of waste
created by past operations on lands that they manage. The Energy
Department faces the most acute liability problem because of the
extensive wastes at its nuclear weapons facilities. The Defense
Department has hundreds of facilities with wastes giving rise to
NRD liabilities. The Clinton Administration, which has consistently
advocated expansive NRD liability against private PRPs, has sought
to minimize the problem of federal NRD liability and its implications
for the federal budget. Although the law requires that the same
liability rules apply to governmental and private PRPs, the administration
has followed much more narrow rules of NRD liability in the case
of federal PRPs. If federal PRP agencies were subject to the same
expansive NRD liability rules as private sector PRPs, federal NRD
liabilities could run to a hundred billion dollars or more.
In cases where trustees have focused on cost-effective measures
to reinstate impaired public uses of resources, for example by acquiring
alternative fishing sites for public use while an injured fishery
is recovering, cooperative trustee-PRP measures to achieve restoration
in a timely manner have been adopted. But in cases where trustees
have sought enormous restoration costs based on wholesale removal
of low levels of chemicals remaining after cleanup, and also sought
huge additional surplus recoveries based on lost use, resource service,
and non-use claims, PRPs have predictably resisted such claims strongly.
Conflict, mistrust, delay, and litigation have been the inevitable
results.
Thus far, the number of court decisions construing the federal
NRD statutes is limited, in part because the NRD program is still
gearing up and in part because some of the cases involving the largest
NRD claims are pending or are in the early trial stages. Disputes
over natural resource damages involve extraordinarily complex scientific,
technical, and economic issues relating to injury, causation, restoration,
and the measurement of damages, including damages for "non-use"
values. Transaction costs are therefore extremely high.
As a result of these developments, the NRD programs are recreating
many of the problems that have plagued the Superfund cleanup program:
long delays in accomplishing program objectives, enormous transaction
costs, wasteful use of scarce resources on environmental problems
of marginal importance, divisive litigation and controversy, and
creation of potentially massive, uninsurable liabilities that chill
productive economic activity. As trustees gear up to file large
numbers of additional claims, the problems with the NRD program
will only get worse unless corrective steps are taken now.
Reform of NRD
In the last several years Congress has debated reauthorization
and reform of CERCLA. Until very recently, the legislative debate
has focused almost exclusively on cleanup liability, ignoring the
NRD program. As a practical matter, however, cleanup liability and
NRD liability are inextricably intertwined. The problems with the
cleanup program cannot be fixed without also dealing with the problems
in the NRD program. The "Cleanup I, Cleanup II" problem
noted earlier is a prime example. More rational cleanup standards
like those being proposed in CERCLA reauthorization would direct
EPA to endorse remedies well short of complete removal of contamination
from groundwater or soils or sediments where such lesser remedies
will adequately protect public health and the environment because
there is a low risk of any harm from residual contamination. This
change is an important step towards a more rational environmental
policy that targets limited societal resources on the more serious
risks. But changing the cleanup standards that EPA uses will not
prevent NRD trustee agencies from asserting enormous additional
liability, based on the costs of additional cleanup, in the name
of natural resource restoration. Thus, the NRD program must be reformed
at the same time as the cleanup program.
The Clinton administration, however, has failed to undertake any
meaningful reform of the NRD program, and has in fact taken a number
of initiatives to make matters even worse. The administration has
stoutly defended trustee authority and discretion to claim huge
restoration costs based on replicating the exact physical, chemical,
and biological condition that a resource would have absent a spill
or release, and to claim enormous additional damages based on lost
uses, resource-to-resource services, and non-use.(2) In addition,
the administration has sought to undermine or eliminate many of
the important limitations and procedural safeguards of the NRD programs.
For example CERCLAs NRD provisions, unlike its cleanup provisions:
impose limitations on retroactive liability based on activities
prior to CERCLAs enactment; impose a $50 million cap on NRD;
and provide a statute of limitations for NRD claims. The Clinton
administration, like predecessor administrations, has interpreted
these provisions in a highly restrictive and artificial manner that
effectively makes NRD liability fully restorative, eliminates any
cap, and eliminates any statute of limitations. The administration
has also asked Congress to enact legislation that would explicitly
revive stale NRD claims which, on any normal reading of the limitations
provisions in the existing statute, have already lapsed.
In addition, and of particular importance, CERCLA requires that
trustees prove their NRD claims through a de novo trial in federal
district court.(3) This provision appropriately recognizes that
trustees, who have a strong financial self interest in maximizing
recoveries which they can keep and spend free of normal budget controls
and accountability, are tort plaintiffs and should, like any tort
plaintiff, be required to prove their claims through competent evidence
presented in open court to an impartial and independent trier. The
Clinton administration has sought to eliminate an NRD PRPs
right to a de novo judicial trial by arguing that NRD claims for
damages should be decided by trustees on the basis of an administrative
record, subject to only limited, highly deferential judicial review
under the "arbitrary and capricious" standard. The Clinton
Administration has also asked Congress to explicitly amend CERCLA
to so provide. This unprecedented change in the rules governing
tort liability for property damage and related losses would effectively
make financially self-interested trustees judges of their own claims,
subject to only quite limited judicial review based on a record
generated by the trustees. Such an arrangement would be patently
unfair, and present serious constitutional due process and separation-of-powers
issues.
The administration has also sought to circumvent trial and other
safeguards in CERCLAs NRD provisions by issuing an Executive
Order granting federal trustees like the Interior Department and
NOAA authority under
Section 106 to issue unilateral administrative orders to PRPs requiring
them to undertake remedial action.(4) Previously, only the federal
cleanup authorities -- EPA and the Coast Guard -- enjoyed such authority.
Section 106 orders are not subject to judicial review unless a PRP
chooses to disobey the order and the government brings an enforcement
action; in such a situation, the PRP is potentially subject to a
penalty of $25,000 for each day of noncompliance. Such arrangements
place enormous pressure on a PRP to comply with an order even if
its legality is questionable. While the administration maintains
that trustees will not use Section 106 order authority to compel
PRPs to undertake restoration activities, as opposed to cleanup,
the line between cleanup and restoration is a blurred one. Accordingly,
there is acute danger that self-interested trustees will exploit
their new Section 106 authority to circumvent the protections enjoyed
by PRPs under CERCLAs NRD provisions.
Thus far the courts have done little to restrain the excesses of
the NRD programs. In its 1989 decision in Ohio v. U.S. Dept
of Interior,(5) the D.C. Circuit overturned, at the instance of states
and environmental groups, provisions in the original Interior Department
NRD assessment regulations limiting recoveries to the lesser of
the cost of restoration or the diminution in the value of a resource,
and making market measures of resource value (if available) controlling.
The court struck down the "lesser of" rule, finding that
CERCLA evinces a congressional presumption in favor of restoration,
and that trustees may therefore recover the costs of restoration
even if they exceed the diminution in a resources value. The
court cautioned, however, that restoration measures should be cost-effective
and that their costs should not be "grossly disproportionate"
to value. The court also invalidated Interiors priority for
market measures of value as arbitrary. Thereafter Interior revised
its regulations, authorizing trustees to obtain, in addition to
restoration costs, lost use and non-use recoveries. When these regulations
were challenged by an industry coalition, the DC Circuit upheld
them in most respects, under the deferential "arbitrary and
capricious" standard of review. Among other matters, it held
that Interior need not require trustees to choose restoration measures
that are cost-effective or have costs that are reasonable in relation
to benefits, and that Interior could give trustees wide discretion
in determining which damage assessment methods to use, notwithstanding
that assessments complying with the regulations are entitled to
a rebuttable presumption.(6) An industry challenge to the NRD assessment
regulations under NOAA, which gives even wider discretion to trustees
in restoration and damage assessment decisions, is pending before
the D.C. Circuit.
At the present time the main prospect for basic reform of NRD is
through legislation. As noted above, Congress has been actively
considering changes in CERCLA. Until recently, the near-exclusive
focus of congressional attention has been the cleanup program, but
in the last year the problems in the NRD program have received increasing
attention. Reforms of the CERCLA NRD program could be extended to
the OPA NRD program. The most important changes that are needed
are as follows:
Elimination of surplus recoveries. The statutory objective of the
NRD programs is to restore injured resources. Some trustees have
diverted the programs from their original goal by aggressively seeking
surplus recoveries, over and above the costs of restoration, based
on novel, speculative and controversial claims for lost use, impaired
resource-to-resource services, and non use. Trustee pursuit of these
surplus recoveries is a primary engine of litigation and delay at
the expense of timely restoration. Congress should specifically
rule out these surplus recoveries in order to refocus the NRD program
to achieve the fundamental objective of timely restoration.
Rational specification of restoration objectives. Given that clean-ups
already ensure that health and the environment will be protected
against threats of significant harm, scarce resources should not
be spent on attempting to return affected natural resources to the
exact physical, chemical, and biological conditions that would exist
absent a spill or release. Congress should accordingly provide that
replication of pre-industrial conditions is not the objective of
restoration. Rather, the focus should be on measures that reinstate,
on an interim and permanent basis, ecosystem functions that will
again provide and support the public uses that the injured natural
resources supported in the past. Trustees should not base NRD claims
on human health concerns that have already been addressed by EPA
and other cleanup authorities and are beyond the competence of natural
resource trustees. The basic principle of cost-effectiveness requires
that trustees be directed to select those restoration alternatives
that will accomplish reinstatement of ecosystem functions and public
uses at least cost. Economic rationality also dictates that restoration
measures be cost-reasonable: the incremental costs of such measures
should not exceed their incremental benefits.
Prohibition of double recovery. Basic fairness dictates that a
liable party not be required to pay more than once for the same
injury. Under current practice, however, PRPs face multiple liabilities
because they are subject to multiple claims by different government
authorities under different laws. For example, EPA may require a
given level of cleanup to protect health and the environment, and
then one or more trustees may demand additional cleanup of the same
resource as restoration. Different federal, tribal trustees may
bring different claims for NRD or similar damages under one or more
federal statutes or state statutes or laws. While CERCLA currently
contains a provision limiting double recovery, its wording is ambiguous
and trustee interpretations have rendered it largely meaningless.
Further, trustees have refused to agree to binding procedures that
would ensure unified presentation of different claims in a single
proceeding. Congress should therefore enact an effective prohibition
on double recovery.
Foreclose administrative efforts to circumvent or abolish the right
to judicial trial of NRD claims. As previously explained, basic
principles of fairness as well as separation of powers considerations
require that financially self-interested trustee agencies be required
to prove their NRD claims before an impartial Article III tribunal.
Congress should therefore specifically reject the administrations
proposals to amend CERCLA to authorize trustee NRD recoveries on
the basis of their own administrative record, subject to only limited
judicial review. For the same reason, it should reverse the administrations
extension of Section 106 unilateral order authority to federal trustees
in an effort to circumvent the statutory safeguards in the NRD program.
Reaffirm CERCLAs cap on NRD and limitations on retroactive
liability. OPA liability is not retroactive and is subject to explicit
caps. Trustees, however, have exploited ambiguities in CERCLA in
order to eviscerate its $50 million cap on NRD and its limitations
on retroactive application of NRD liability to disposal or other
activities undertaken before CERCLAs enactment. Congress should
adopt clarifying language to ensure that the cap and limitations
on retroactive liability that it originally adopted are effective.
Restore trustee budget accountability. Finally, Congress should
eliminate the existing provisions in OPA and CERCLA that exempt
federal trustee agencies from normal budget processes and authorize
them to expend NRD recoveries without further appropriation. These
provisions were adopted on the "public trust" rationale
that recoveries for injury to public resources should be used to
reinstate the injured resources. In practice, however, many NRD
recoveries have been spent in a wasteful and parochial manner. The
normal mechanisms to ensure democratic accountability for bureaucratic
agencies should be reinstated.
*Richard B. Stewart is a professor at New York University Law School.
- Although CERCLA and OPA require federal and
state trustees to spend recoveries on "restoration,"
in practice trustees enjoy broad discretion in spending recoveries.
A GAO report found that hundreds of millions of dollars in initial
NRD recoveries in the Exxon Valdez case were spent by trustee
authorities to pay for their own operations rather than on measures
to improve the environment.
- The NRD assessment regulations issued in 1995
by NOAA pursuant to OPA made a largely semantic change from the
regulations issued by Interior under CERCLA. The Interior regulations
authorize trustees to recover monies (which are to be spent on
additional "restoration" measures beyond restoration
of the injured resource) based on the diminution in use and non-use
value of a resource. The NOAA regulations use the concept of "compensatory
restoration" under which trustees seek to recover from PRPs
the costs of additional measures, beyond what is needed to restore
the public services provided by the originally injured resources,
in order to enhance other existing public resources, acquire new
public resources, or fix environmental problems caused at other
sites by other parties. These measures are supposed to "compensate"
for past impairments of use, resource-to-resource, and nonuse
services. While certain aspects of the NOAA regulations were described
by the agency as more desirable in providing trustees and PRPs
greater flexibility in seeking cooperative solutions, the changes
are largely semantic, as trustees can still seek to impose enormous
additional liabilities on PRPs, over and above the cost of restoring
the injured resource.
- Trustee NRD assessments conducted in accordance
with assessment regulations ensured under OPA or CERCLA enjoy
a rebuttable presumption in litigation; such assessments establish
a prima facie case on the part or the trustee, but once the defendant
comes forward with rebuttal evidence, the presumption disappears
and the court decides the case de novo.
- Executive Order 12016 of August 28, 1996, 61
Fed. Reg. 45871 (August 30, 1997).
- 880 F.2d 432 (D.C. Cir. 1989).
- Kennecott Utah Copper Corp. v. U.S. Dept
of Interior, 88 F.3d 1191 (D.C. Cir. 1996). The court, however,
invalidated a provision in the Interiors regulations indefinitely
postponing the running of a CERCLA statute of limitations provision,
and also remanded a portion of the rule governing the objectives
of restoration. It also rejected a state claim that CERCLA establishes
a preference for on-site rehabilitation over off-site restoration
measures such as acquisition of replacement or equivalent resources.
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