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December 2004Client Alert

2003 Wisconsin Act 276 - The Environmental Results Program and The Environmental Improvement Program (a.k.a. “Green Tier”)

On March 11, 2004, the Wisconsin Legislature enacted 2003 SB 61 (now 2003 Wisconsin Act 276), creating two environmental incentive programs in the Wisconsin Department of Natural Resources: the Environmental Results Program and the Environmental Improvement Program. Built on legislation introduced in prior sessions under the title "Green Tier", these two programs a) create incentives to public and private entities to "go beyond" environmental compliance as defined by the applicable environmental regulatory requirements, and b) create a mechanism for public and private entities to significantly limit their exposure to civil monetary penalties for environmental law violations identified as part of a voluntary environmental compliance audit.

Heralded as another positive step in reforming Wisconsin's regulatory climate, Act 276 was signed into law by Governor Jim Doyle on April 16, 2004.

Environmental Results Program: Overview

The Environmental Results Program provides incentives to regulated businesses, industries, and municipalities to achieve levels of environmental performance that exceed the minimum requirements established in the statutes or administrative rules. It creates two tiers.

In Tier I, if the regulated entity makes the required commitments to implement an environmental management system (EMS) and meets the compliance record eligibility requirements, then DNR will provide certain incentives or rewards of public recognition, reduced frequency of inspections, and a single point of DNR contact for permitting. A participating entity in Tier I must conduct an annual EMS audit and report the results to DNR. If the EMS audit identifies violations, and the Tier I participant corrects the violations within a specified time, the State of Wisconsin is prohibited from bringing an enforcement action against the Tier I participant to collect a civil forfeiture for the violation.

In Tier II, the applicant submits a letter of intent which, if accepted by DNR, leads to a participation contract between the Tier II participant and DNR which specifies the commitments to "superior environmental performance" and incentives negotiated between DNR and the participant. In addition to the Tier I commitments, a Tier II participant must also commit itself to conduct an environmental compliance audit and report the results to DNR. The compliance record eligibility requirements are more demanding for Tier II. The prohibitions on civil lawsuits by the State to collect forfeitures are the same as in Tier I.

Environmental Improvement Program: Overview

As incentive to regulated entities to conduct and act on the results of environmental compliance audits, the Environmental Improvement Program limits the exposure to civil forfeitures for regulated entities that conduct an environmental compliance audit, report the results to DNR, and remedy any identified violations within a specified period of time. Modeled on the US Environmental Protection Agency Audit Policy, the Environmental Improvement Program provides a limitation on civil forfeitures but not immunity from forfeitures. Rather than enforcement through referral to the Department of Justice for prosecution by the State, these violations are subject to assessment of a civil forfeiture through a citation issued by DNR. The amount of the civil forfeiture is limited to no more than $500 per violation, regardless of the number of days of violation. Participation in Tier I or Tier II is not required to be eligible for the Environmental Improvement Program. Importantly, the regulated entity must notify DNR 30 days before conducting the audit in order to be eligible for the civil forfeiture limitations.

* * *

A more detailed description of these two programs follows.

Environmental Results Program: Details

  1. Tier I:
    1. Application process: The process begins when the regulated entity submits an application to DNR. DNR will issue a public notice of the application and may hold a public informational meeting on the application. DNR is to approve or deny the application within 60 days after either the notice or the public meeting. DNR is authorized to limit the number of Tier I participants or limit the extent of participation by a particular applicant based on workload or other program considerations.

    2. Eligibility: At the time the regulated entity applies to DNR for Tier I status, its compliance record must satisfy the following conditions:

      1. no criminal conviction within the prior 5 years of the entity, any managing operator, or any person with a 25% or more ownership interest in the entity for an environmental law violation that resulted in substantial harm or presented an imminent threat to public health or the environment;

      2. no civil judgment within the prior 3 years against the entity, any managing operator, or any person with a 25% or more ownership interest in the entity for an environmental law violation that resulted in substantial harm to public health or the environment;

      3. no lawsuit filed by the State or citation issued by DNR within the prior 2 years against the entity for an environmental law violation.

    3. Commitments: To participate in Tier I of the Environmental Results Program, a regulated entity must:

      1. inform DNR of a) its past and current environmental compliance record; and b) the actions it intends to take to enhance the environment;

      2. have implemented or commit itself to implement an environmental management system (EMS) that meets specified requirements;

      3. commit itself to conduct annual audits of its EMS, with every third audit performed by an outside auditor, and submit reports on those audits to DNR

    4. Incentives: For entities participating in Tier I, called "participants", DNR will:

      1. provide public recognition of Tier I participants on the DNR website and through annual publication in the participant's local newspaper;

      2. establish an Environmental Results Program logo that Tier I participants may use;

      3. assign a DNR employee to be the single point of contact for the Tier I participant for all DNR permits and licenses;

      4. once the Tier I participant implements a qualifying EMS, DNR will conduct inspections of the Tier I participant's facilities at the lowest frequency allowed under the applicable DNR regulatory program.

    5. Qualifying Environmental Management System (EMS): To qualify, the EMS implemented by the Tier I participant must:

      1. Meet the standards for an EMS issued by the International Organization for Standards (ISO) or functionally equivalent standards;

      2. be appropriate to the nature, scale and environmental impacts of the Tier I participant's operations.

    6. EMS Audit and report to DNR: If the Tier I participant's annual EMS audit identifies a violation of an environmental law:

      1. The Tier I participant must submit a report to DNR which:

        1. identifies the violation, the actions it has taken or will take to remedy the violation, and the actions it has taken or will take to prevent future recurrence;

        2. proposes a compliance schedule for completion of the remedy, if it will take more than 90 days; and

        3. proposes stipulated civil penalties it would be willing to accept if it does not remedy the violation within the time period established in the compliance schedule.

      2. In response, DNR has the following obligations:

        1. DNR must issue a public notice and provide a public comment period on any compliance schedule and stipulated penalties proposed by the Tier I participant;

        2. DNR must either approve the Tier I participant's proposed compliance schedule or propose a different one and review the Tier I participant's proposed stipulated penalties;

        3. if DNR and the Tier I participant cannot reach agreement on the compliance schedule, then DNR may impose one or may (but is not required to) terminate the Tier I participant's eligibility for Tier I;

        4. if DNR and the Tier I participant cannot reach agreement on the proposed stipulated penalties, then there will be none.

    7. Deferred/prohibited civil enforcement: As further incentive to Tier I participants, civil enforcement to collect forfeitures is either deferred or prohibited as follows:

      1. If a Tier I participant corrects violations identified in the EMS audit within 90 days after the report is submitted to DNR, the State may not bring a civil lawsuit to collect forfeitures for those violations.

      2. If a Tier I participant proposes and DNR approves a compliance schedule to remedy the violations, and the Tier I participant remedies the violations according to the compliance schedule, the State may not bring a civil lawsuit to collect forfeitures for those violations.

      3. If a Tier I participant proposes and DNR approves a compliance schedule, but the Tier I participant fails to remedy the violations according to the compliance schedule, DNR may collect the stipulated penalties (if such penalties were agreed to) or may (but is not required to) terminate the Tier I participant's participation in the program. If there are no stipulated penalties, DNR may (but is not required to) terminate the Tier I participant's participation in the program. If DNR terminates a participant, the State may then bring a civil lawsuit to collect forfeitures for the violations.

      4. Regardless of the situations identified in items f. 1-3 immediately above, the State is still authorized to bring a civil lawsuit to collect forfeitures if:

        1. the violation presents an imminent threat to public health or the environment or may cause serious harm to public health or the environment; or

        2. DNR discovers the violation before the Tier I participant submits the report on the annual EMS audit.

    8. Suspension or termination of participation: DNR may:

      1. suspend or termination participation if requested by the participant;

      2. terminate participation if a criminal or civil judgment is entered against the entity, any managing operator, or any person with a 25% or ore ownership interest in the entity that resulted in substantial harm or presented an imminent threat to public health or the environment;

      3. suspend participation if DNR determines that the entity, any managing operator, or any person with a 25% ownership interest in the entity committed a criminal or civil violation that resulted in substantial harm or presented an imminent threat to public health or the environment and DNR refers the matter to DOJ for prosecution;

      4. suspend or terminate a Tier I participant for failure to implement or maintain the EMS, failure to conduct the annual EMS audit, or failure to submit the annual report.

  2. Tier II:

    1. Process:

      1. Tier II begins with a letter of intent from the Tier II applicant which:

        1. identifies the facilities or activities to be included in Tier II;

        2. describes how the Tier II participant proposes to maintain and improve "superior environmental performance".

          The law defines "superior environmental performance" as "environmental performance that results in measurable or discernable improvement in the quality of the air, water, land, or natural resources, or in the protection of the environment, beyond that which is achieved under environmental requirements . . ." and identifies the following as the sorts of things that may qualify:

          1. limit discharges or emissions to an extent greater than required by the law;

          2. minimize negative effects of raw materials or products or services to extent greater than required by the law;

          3. voluntarily restore or preserve natural resources;

          4. help other entities comply or accomplish results which limit discharges or emissions or minimize negative effects;

          5. organize uncoordinated entities that produce environmental harm into a program that reduces harm;

          6. reduce waste or use or production of hazardous substances in design, production, delivery, use, or reuse of goods or services;

          7. conserve energy or nonrenewable natural resources;

          8. reduce use of renewable natural resources through increased efficiency;

          9. adopt methods to reduce the depletion or, or long-term damage to, renewable natural resources.

        3. identifies the incentives the Tier II applicant wishes to receive from DNR;

        4. explains how the measures the Tier II applicant proposes to take are proportional to the incentives that it proposes to include in the participation contract.

      2. In response, if DNR accepts the letter of intent, DNR will issue a public notice and may hold a public informational meeting. The Tier II applicant and DNR will negotiate the participation contract. A unique feature of this portion of the program is that third parties may request the opportunity to participate in that negotiation ? these may be individuals, groups, or other entities with an interest in the program or the particular Tier II applicant. DNR decides whether the third parties will be allowed to participate. If negotiations result in a proposed participation contract, DNR then issues a public notice and may hold a public informational meeting. Within 30 days of the notice or meeting, DNR is to decide whether to enter into the participation contract, unless DNR and the Tier II applicant agree to an extension. DNR may limit the number of letters of intent and participation contracts it accepts and negotiates based on workload.

    2. Eligibility: At the time the Tier II applicant submits the letter of intent, its compliance record must satisfy the following conditions:

      1. no criminal conviction within the prior 10 years of the entity, any managing operator, or any person with a 25% or more ownership interest in the entity for an environmental law violation that resulted in substantial harm or presented an imminent threat to public health or the environment;

      2. no civil judgment within the prior 5 years against the entity, any managing operator, or any person with a 25% or more ownership interest in the entity for an environmental law violation that resulted in substantial harm to public health or the environment;

      3. no lawsuit filed by the State or citation issued by DNR within the prior 2 years against the entity for an environmental law violation.

    3. Commitments: To participate in Tier II, a regulated entity must:

      1. inform DNR of a) its past and current environmental compliance record; and b) the actions it intends to take to enhance the environment (same as Tier I);

      2. demonstrate that it has implemented an EMS for each activity or facility intended to be covered (same as Tier I);

      3. commit itself to having an outside environmental auditor approved by DNR conduct an annual EMS audit and submit a report to DNR (in Tier I, every third annual audit requires an outside auditor);

      4. commit itself to annually conducting, or having another person conduct, an audit of compliance with environmental requirements applicable to the activity or facility and submit a report to DNR (not required for Tier I).

    4. Incentives: Rather than specify the incentives available in Tier II, the law authorizes DNR to adopt rules to identify acceptable incentives; in the absence of rules, DNR, the Tier II applicant and the public involvement process will develop the incentives. The law establishes the following limitations on available incentives:

      1. the participation contract may not relieve the Tier II participant of the obligation to maintain the EMS, have an outside auditor conduct an annual EMS audit and report to DNR, or conduct an audit of compliance with applicable environmental requirements;

      2. DNR may only reduce the frequency of inspections or monitoring if the annual environmental compliance audit is conducted by an outside auditor;

      3. DNR shall ensure the incentives are "proportional" to the environmental benefits provided in the participation contract.

    5. Compliance reports and deferred/prohibited civil enforcement: These provisions are the same for Tier II as for Tier I (see Section 1. f. and g. above), except that the report to DNR must include violations identified in both the EMS audit and the environmental compliance audit.

    6. Suspension or termination: In addition to the provisions noted under Tier I (see Section 1. h. above), for Tier II participants, either on its own motion or in response to a request from a third party, after opportunity for hearing, DNR may terminate a participation contract for "substantial noncompliance" with the terms of the contract.

  3. Charters: The law also creates a unique opportunity called "Environmental Results Charters" which may be issued to an association of entities to participate in either Tier I or Tier II to achieve superior environmental performance. Procedures for public notice and public informational meetings apply and annual reports must be submitted by the charter association.

Environmental Implement Program: Details

  1. Eligibility: To be eligible for participation in the Environmental Improvement Program, the regulated entity must:

    1. conduct an environmental compliance audit of its facility (within 365 days of the 30-day notice to DNR described under sub. b immediately below);

    2. notify DNR at least 30 days before beginning the environmental compliance audit, including:

      1. the date of the audit;

      2. the site or facility or operations or practices to be audited;

      3. the general scope of the audit.;

      4. a signed statement acknowledging that any violations discovered before the audit begins are not eligible for the civil forfeiture limitations;

    3. submit a report within 45 days after the date of the final written audit report; to be eligible the final written report must be labeled "environmental compliance audit report", be dated and if the audit identifies violations, include a plan for corrective action.

    4. at the time the report is submitted, the entity must have the following compliance status:

      1. no civil suit filed by the State to enforce an environmental requirement within the prior 2 years;

      2. no citation issued by DNR or a local governmental unit to enforce an environmental requirement within the prior 2 years.

  2. Audit report: The report must:

    1. describe the environmental compliance audit, who conducted it, when it was completed, activities and operations examined, what was revealed by the audit, and any other information DNR needs to fulfill its annual reporting requirement to the Legislature on the operation of the Environmental Improvement Program;

    2. describe all violations revealed in the audit and the length of time the violations may have continued;

    3. describe actions the entity has taken or will take to remedy the violations;

    4. commit the entity to remedy the violations within 90 days or according to a compliance scheduled approved by DNR;

    5. if the entity proposes to take more than 90 days to remedy the violations, it must:

      1. propose the shortest reasonable period for remedy, explain its reasons and describe the measures it will take to minimize the effects of the violations during the period of the compliance schedule;

      2. include proposed stipulated penalties for failure to comply with the compliance schedule;

    6. describe actions it has taken or will take to prevent recurrence and a timetable for any actions not yet taken.

  3. Public notice and comment period:

    1. When DNR receives an environmental compliance audit report which identifies violations and proposes a compliance schedule longer than 90 days, it will issue a public notice and provide at least a 30-day comment period; the notice will identify the regulated entity, describe the audit, the violations, the proposed compliance schedule and the proposed stipulated penalties.

    2. DNR may not approve a compliance schedule that extends longer than 12 months after the date of approval of the schedule. Stipulated penalties must be specified for a period of no more than 6 months after the final compliance schedule date.

  4. Deferred civil enforcement and civil forfeiture limitations: The benefit to the regulated entity for proceeding according to these requirements is a significant limitation on the potential civil forfeiture exposure for violations first identified in the environmental compliance audit.

    1. The State may not bring a civil lawsuit to collect forfeitures for violations identified in the audit report for at least 90 days after the report is submitted or for the time period of the compliance schedule if the regulated entity is in compliance with the compliance schedule.

    2. If the regulated entity corrects the identified violations within 90 days after the report is submitted, it may not be required to forfeit more than $500 per violation, regardless of the number of days that violation continued.

    3. If the regulated entity corrects the identified violations within the time period of a compliance schedule approved by DNR, it may not be required to forfeit more than $500 per violation, regardless of the number of days that violation continued.

    4. Rather than refer these matters to DOJ for enforcement, DNR is authorized to issue citations to collect the civil forfeiture.

    5. However, regardless of the foregoing, the regulated entity does not quality for the forfeiture limitations and the State is authorized to bring a civil lawsuit to collect a forfeiture if:

      1. the violation presents an imminent threat or may cause serious harm to public health or the environment;

      2. DNR discovers the violation before the regulated entity submits its report;

      3. the violation results in a substantial economic benefit that gives the regulated entity a clear competitive business advantage;

      4. the violation is identified through monitoring or sampling required by permit, statute, rule, judicial or administrative order or consent agreement;

      5. the violation is a repeat violation of the same requirement at the same facility committed in the same manner, unless it was caused by a change in business processes or activities;

      6. the violation is discovered by the regulated entity before beginning the environmental compliance audit.

    6. If DNR receives a report under this program which discloses a potential criminal violation, DNR and DOJ shall consider the following when determining what action to take against the regulated entity:

      1. whether the regulated entity was diligent and took timely corrective action;

      2. whether the regulated entity exercised reasonable care in trying to prevent the violation and ensure compliance with environmental requirements;

      3. whether there is a documented history of good faith by the regulated entity;

      4. whether the regulated entity has made appropriate efforts to comply with environmental requirements since beginning to conduct environmental audits;

      5. whether the regulated entity exercised reasonable care in identifying violations in a timely way;

      6. whether the regulated entity willingly cooperated in any investigation by the state or a local governmental unit to determine the extent and cause of the violation.

For more information, please contact Linda H. Bochert at 608.283.2271, or lhbochert@michaelbest.com or David A. Crass at 608.283.2267, or dacrass@michaelbest.com.

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