Encouraging Self-Auditing Within the Pork Industry: The Nationwide Clean Water Act Enforcement Agreement for Agriculture's First Industry-Wide Environmental Auditing Program

Richard E. Schwartz, Steven P. Quarles, and Ellen B. Steen

Editors' Summary: Late last year, EPA and the National Pork Producers Council (NPPC) announced that they had developed a compliance assurance program (CAP) under which U.S. pork producers can reduce their penalties for FWPCA violations that they report and correct as part of a comprehensive environmental auditing program. This Dialogue examines the CAP and the terms of the agreement that pork producers may sign to register for the CAP. The Dialogue begins by describing the context in which the CAP was developed. It then discusses the terms of the CAP agreement and analyzes some of the key issues addressed during the negotiations between EPA and the NPPC. The Dialogue concludes with an examination of how the CAP approach could benefit other industries.

Richard Schwartz and Steven Quarles are partners, and Ellen Steen is an associate, at Crowell & Moring LLP in Washington, D.C. The authors negotiated on behalf of the National Pork Producers Council the Compliance Assurance Program discussed in this Dialogue.

[29 ELR 10395]

The U.S. Environmental Protection Agency (EPA) and the National Pork Producers Council (NPPC), an association that represents the hog farming sector of U.S. agriculture, recently announced a Clean Water Act Compliance Assurance Program (CAP) enforcement agreement open to all pork producers in the United States.¹ Pork producers who sign the CAP agreement must participate in the pork industry's independent, comprehensive environmental auditing program. In exchange, each participating producer will receive predetermined, limited civil penalties for certain violations of the Clean Water Act (CWA)² that are voluntarily reported and corrected following the audit of the producer's operation. The purpose of the CAP agreement is to provide incentives for pork producers to participate in the NPPC's auditing program, a first-of-its-kind nationwide on-farm environmental auditing program that is the centerpiece of the pork industry's aggressive efforts to improve its environmental practices. The NPPC developed the audit protocol, provides training for the independent auditors, and manages the entire program—assigning auditor teams and conducting follow-up among participating producers. EPA reviewed the audit protocol and found it a valuable tool for identifying CWA violations, as well as for generally improving environmental and odor control practices.

This Dialogue describes the regulatory setting and the environmental initiatives that led the NPPC to seek out an industry-specific auditing and enforcement agreement with EPA. It then explains the major terms of the CAP and some of the key legal issues involved in negotiations—issues that would undoubtedly figure prominently in the development of similar agreements in the future. Finally, the Dialogue discusses the benefits of the CAP framework.

Background: The Need for an Industry-Specific Auditing and Enforcement Program

The Regulatory Setting: Increasing Clean Water Act Regulatory Focus on Livestock Producers

Under the CWA, livestock producers may not discharge pollutants to "waters of the United States" from a "point source" without a national pollutant discharge elimination system (NPDES) permit.³ Indeed, the Act specifically defines "point source" to include concentrated animal feeding operations (CAFOs).⁴ EPA regulations define CAFOs as animal feeding operations⁵ that meet certain criteria concerning the size of, and the nature and frequency of any discharge [29 ELR 10396] from, the operation.⁶ In addition, EPA may designate operations not meeting these criteria as CAFOs on a case-by-case basis.⁷ Even operations that are not defined as CAFOs may violate the Act by discharging pollutants without an NPDES permit from discrete conveyances that are "point sources." In part because relatively few livestock operations currently have NPDES permits, and in part due to perceived shortcomings in the industry's environmental practices, the Clinton Administration has expressed a strong commitment to increasing the regulatory attention devoted to livestock producers under the CWA. Evidence of this commitment was provided by the Clean Water Action Plan announced jointly by EPA and the U.S. Department of Agriculture (USDA) in March 1998. Among the initiatives proposed in that plan was the development of a "unified national strategy to minimize the environmental and public health impacts of Animal Feeding Operations."⁸ The resulting Unified National Strategy for Animal Feeding Operations, announced in draft in September 1998⁹ and made final March 9, 1999,¹⁰ calls for increased efforts to subject livestock operations to NPDES permitting and to encourage improved environmental practices (such as operation-specific comprehensive nutrient management plans governing the handling and land application of animal waste) at all such operations, even those not covered by NPDES permits.

Industry Initiatives: The National Dialogue and the Pork Producers' On-Farm Environmental Assessment Program

Well before the development of this heightened level of regulatory attention to the environmental impact of livestock production, the pork industry actively sought and participated in a nationwide, multistakeholder "dialogue" to establish a consensus on appropriate environmental management techniques for the pork industry. Participants in the National Environmental Dialogue on Pork Production, convened by America's Clean Water Foundation, included officials from EPA and the USDA, heads of seven state regulatory agencies, and individual pork producers. Following a series of 24 meetings over an eight-month period, the dialogue produced the Comprehensive Environmental Framework for Pork Production Operations,¹¹ a set of recommendations for environmentally sound hog farm operations.¹² The Framework recommended standards and procedures to comprehensively address the environmental and odor effects of pork production, providing workable solutions even in areas unregulated by EPA (such as odor and groundwater). Recommendations included permitting for all commercial operations; facility design and management standards; location requirements (including setback requirements for new facilities); land application restrictions (including soil and manure testing and the preparation and implementation of nutrient management plans); and operator certification, employee training, and recordkeeping requirements. The NPPC wanted the Framework report to do more than collect dust. It knew that achieving implementation would require further efforts. Accordingly, the NPPC developed (at a cost of approximately $ 1.5 million) a comprehensive environmental/odor control assessment protocol for hog farms, which would foster widespread implementation of the dialogue's recommendations. The NPPC's audit program (referred to in the CAP agreement as the On-Farm Assessment Program) uses a detailed protocol and specially trained assessors to evaluate on-site the environmental practices of pork producers and to identify potential problems and areas for improvement. Having developed the audit program, the NPPC's next challenge was to convince hog farmers to use it. The NPPC understandably was unsure whether pork producers would readily volunteer to be "audited," no matter how benevolent the program's purposes. Even producers eager to improve their practices would likely fear potential increased exposure to enforcement liability (by EPA, the state, or citizens) in the event that the on-farm assessment identified an unauthorized discharge or other CWA violation. To solve this problem, the NPPC set out to create a mechanism that would encourage and reward participation in the program and minimize the potentially large liabilities associated with discovery of violations.

A Mutually Beneficial Relationship: What Producers, EPA, and the Environment Stood to Gain From the CAP Agreement

During the winter of 1998, the NPPC initiated discussions with officials at EPA's Office of Regulatory Enforcement. From those discussions, the answer to the NPPC's dilemma emerged in the form of a proposed industry-wide auditing and enforcement agreement, based on EPA's audit policy, but tailored specifically to pork producers. Under such an agreement, farmers participating in the On-Farm Assessment Program could report any identified violations and receive specific, predetermined penalties pursuant to a prenegotiated consent agreement with EPA, provided that they corrected the violations within certain time limits. Producers would have the security of knowing in advance the penalties and the terms of enforcement against any reported violations. In addition, since enforcement for reported violations would be automatic, subsequent citizen suits for the same violations would be preempted pursuant to CWA § 309(g).¹³ Finally, individual producers and the industry as a whole would benefit from improved environmental performance and corrected violations. EPA was receptive to the idea of an industry-specific auditing and enforcement agreement in part because the Agency recognized the potential environmental benefits of large-scale participation in the On-Farm Assessment Program. EPA officials also realized that independent audits of some 12,000 pork production [29 ELR 10397] operations—the NPPC's goal—would constitute a compliance assurance effort on a scale that EPA, with limited inspection and enforcement personnel and funding, could not approach. In addition, in the context of an industry still largely unregulated at the federal level (only about 2,000 of the approximately 450,000 livestock operations have NPDES permits),¹⁴ the auditing and enforcement agreement offered to EPA the opportunity to increase its knowledge and understanding of the industry. Finally, the Agency saw this as an opportunity to give heightened visibility and support to the first nationwide on-farm auditing program, thereby perhaps encouraging similar voluntary efforts in other agricultural sectors.

The Clean Water Act CAP Agreement for Pork Producers: Overview and Key Legal Issues

How the CAP Agreement Works

The mechanics of the CAP agreement are relatively simple. First, and of critical importance to the NPPC, EPA offers any pork producer in the United States the opportunity to enter the agreement. (This was ultimately accomplished through a December 17, 1998, Federal Register notice.)¹⁵ Producers may register simply by signing a copy of the CAP agreement and sending it to EPA.¹⁶ By registering, a producer agrees to submit his or her operation to the NPPC's on-farm assessment process. EPA, in turn, agrees to enforce through the CAP agreement any qualifying violations reported by registered producers. The NPPC assigns each registered operation to an independent, trained assessment team, which gathers information from the producer and then conducts a detailed on-farm inspection of physical operations and waste management practices (according to the NPPC's On-Farm Assessment Program protocol). The assessment team reports its findings to the producer, who then must submit a "final report" to EPA. If no violations are identified in the final report, the agreement terminates. If a producer reports violations to EPA pursuant to the CAP agreement, then EPA and the producer enter into the prenegotiated consent agreement/order,¹⁷ which sets forth applicable penalties and requires the producer to remedy the reported violations. The consent agreement/order is structured to provide smaller penalties (ranging from $ 250 to $ 1,000) for violations corrected within an accelerated correction period and much larger penalties (from $ 2,500 to $ 10,000) if correction takes longer.¹⁸ Importantly, whether or not the producer receives the reduced penalty by correcting the violation quickly, the producer must nevertheless remedy the violation before a final correction deadline provided in the agreement. This deadline may be one or two years, depending on the type of violation. Failure to remedy a violation by this deadline will subject the producer to full liability for that violation, including the potential for the maximum penalty available under the CWA (currently $ 27,500 per day).

Confidentiality of Audit Materials and Information

An issue of critical importance to both the NPPC and EPA during negotiations was the precise nature of any confidentiality protection afforded the results of individual on-farm assessments. Producers might agree to open their operations to scrutiny by trained, independent assessors, but they would still want to maintain the confidentiality of the findings of those assessors. EPA has opposed the establishment of any outright privilege for audit results,¹⁹ but its longstanding policy has been to refrain from requesting such materials.²⁰ Recognizing the importance of the issue in encouraging producers to participate in the program, EPA agreed to provisions in the CAP agreement designed to protect the confidentiality of information about individual assessment results. Accordingly, the CAP agreement is structured so that the only producer-specific assessment information provided to EPA is that contained in the final report: a statement that an assessment has been completed and an identification of any CWA violations that are being reported. The agreement provides that EPA may seek other assessment information or documents only to the extent needed to verify the circumstances of a reported violation, or if it has an independent reason to believe that an unreported violation has occurred, and then it may seek information only about the putative violation. The CAP agreement also states EPA's position that these confidentiality protections promote the goals of the CWA, which should assist farmers in resisting efforts by other governmental entities or individuals to force disclosure of assessment materials. It is noteworthy, however, that both EPA and the public will benefit from nonoperator-specific information generated through the On-Farm Assessment Program even though individual assessment results are not made public. The NPPC is creating and making available to EPA and the public a computer database that compiles the findings of the program in terms of waste handling practices that are in place, potential problems identified, and the efficacy of corrective measures. This information should prove invaluable in EPA's efforts to draft a new effluent limitations guideline for the pork producers, which under EPA's consent decree with the Natural Resources Defense Council must be completed by December 2001,²¹ and which the NPPC has urged EPA to complete even sooner.

Effect on State Enforcement Activities

Throughout negotiations over the CAP agreement, EPA was (rightly) sensitive to the role that state regulators might wish to play in the program and to potential concerns of NPDES-authorized states over EPA's enforcement of violations that might otherwise be enforced by the states. EPA [29 ELR 10398] enforcement of violations would preclude state enforcement of the same violations, because dischargers generally cannot be subject to two separate enforcement actions for the same violation.²² Thus, states would be unable to pursue additional civil penalties for violations reported to EPA and corrected pursuant to the CAP agreement. Accordingly, to enable state participation in the CAP, the CAP agreement expressly provides that NPDES-authorized states may implement the agreement by agreeing in writing to be bound by its terms. States choosing to implement the CAP agreement would comply with the provisions of the agreement that apply to EPA, receive all reports of violations from producers, and enter into consent agreements with producers reporting violations. In addition, the CAP agreement provides that—except for the settlement of penalties for the particular violations being reported to EPA—nothing in the agreement relieves the producer of his or her obligation to comply with all applicable CWA permits or regulations, or other federal, state, or local environmental laws or regulations. Thus, no state programs or enforcement efforts are restricted, except for the ability to recover additional penalties for the particular violations that are being enforced under the agreement. Moreover, state enforcement actions that had already begun prior to commencement of an audit will not be preempted. States will continue to enforce their environmental requirements and to carry out their regular inspection programs.

Limitations of the CAP

Both EPA and the NPPC wanted the program to encourage producers to assess and improve their environmental practices, but not to provide refuge for previously discovered or dangerous violations, or for willful polluters. Accordingly, although the CAP agreement was designed to provide incentives to participate in the On-Farm Assessment Program, it provides a haven with carefully drawn limitations. First, producers may not obtain CAP agreement enforcement for violations that were already known to EPA or the state prior to the beginning of the assessment or that were already the subject of a citizen suit. Second, even for eligible violations subject to the CAP agreement's specified penalties, EPA retains its authority to sue for injunctive relief if a violation is causing harm to public health or the environment. Finally, EPA may recommend criminal prosecution if it finds management-level concealment of, condoning of, or willful blindness to the violation. These latter two limitations, respectively, ensure that EPA retains its authority to act to end a violation where necessary and prevent the use of the agreement as a shield for willful violations.

Benefits of the CAP Approach

EPA officials have indicated that the CAP agreement for pork producers may become a model for similar programs with other industries. This openness to additional applications is appropriate, given the powerful compliance assurance mechanism provided by a properly structured CAP. The NPPC CAP agreement shows that industry-specific CAPs can reap much greater benefits in terms of the reporting and correction of violations than the generally available EPA audit policy.²³ Indeed, while a CAP is essentially a specific application of EPA's audit policy, it has significant advantages over the general policy. Perhaps most importantly, many small businesses without specialized environmental counsel may find EPA's audit policy difficult to understand or to apply to their particular operations, and so may be reluctant to use it. Businesses may need specialized counsel, for example, even to determine whether their self-evaluation processes meet the definitions of "environmental audit" or "due diligence" so as to qualify for treatment under the audit policy. In addition, both large and small businesses may fear the uncertainties associated with self-auditing and voluntary disclosure to EPA in the absence of up-front assurances as to the particular enforcement action that will be taken by the Agency. Although the audit policy provides for the waiver of gravity-based penalties, "economic benefit" penalties still apply, and companies cannot know in advance the measure of economic benefit EPA will attribute to a given violation. As demonstrated by the pork producers, the CAP framework can provide businesses with a tailoring of the general policy that can make it more suitable for them, and more user-friendly. Thus, in this instance, the pork industry received prequalification of all producers through advance approval of the industry's auditing process and clarification of the specific enforcement response and penalty amounts that will apply to covered violations. The additional measure of security provided by resolving these issues in advance can only result in a higher level of both auditing and disclosure, to the benefit of EPA, regulated businesses, and the environment.

Conclusion

The pork producers' CAP agreement represents the best of what can be achieved cooperatively between EPA regulators and an industry striving to improve its environmental performance. EPA's cooperative and flexible approach to industry self-policing is commendable and consistent with true regulatory reform. The CAP model provides a framework adaptable to other industries and to other regulatory programs.

1. See 63 Fed. Reg. 69627 (Dec. 17, 1998).

2. 33 U.S.C. §§ 1251-1387. ELR STAT. FWPCA §§ 101-607.

3. See id. §§ 1311, 1342, ELR STAT. FWPCA §§ 301, 402. NPDES permits may be issued by EPA or by states authorized to administer the NPDES permitting system.

4. See id. § 1362(14), ELR STAT. FWPCA § 502(14).

5. An animal feeding operation is a lot or facility where animals (other than aquatic animals) are maintained for a total of 45 days or more in any 12-month period and where crops or forage are not sustained. 40 C.F.R. § 122.23(b)(1) (1998).

6. See id. § 122.23 & app. B to pt. 122. Generally, large operations containing more than 1,000 "animal units" (equal to 2,500 swine weighing over 55 pounds each) are considered CAFOs, unless they discharge only in the event of an extreme rainfall event (i.e., a 25-year, 24-hour storm). Smaller operations are generally not CAFOs unless they have certain kinds of discharges.

7. Id. § 122.23(c).

8. 63 Fed. Reg. 14109, 14111 (Mar. 24, 1998).

9. See id. at 50192 (Sept. 21, 1998).

10. The final strategy is available at USDA & U.S. EPA, UNIFIED NATIONAL STRATEGY FOR ANIMAL FEEDING OPERATIONS, March 9, 1999 (last modified Mar. 17, 1999) http://www.epa.gov/OWM/finafost.htm.

11. Comprehensive Environmental Framework for Pork Production Operations (America's Clean Water Found. 1997); see also infra note 12.

12. Information about the dialogue and the recommendations of the Framework is available from the NPPC's web site at http://www.nppc.org/EnvDiatogue/menu.html.

13. 33 U.S.C. § 1319(g), ELR STAT. FWPCA § 309(g).

14. USDA & U.S. EPA, UNIFIED STRATEGY FOR ANIMAL FEEDING OPERATIONS §§ 2.1 & 4.2 (1999).

15. 63 Fed. Reg. 69627 (Dec. 17, 1998).

16. A copy of the CAP agreement can be found at U.S. EPA, CLEAN WATER ACT COMPLIANCE AUDIT PROGRAM FOR PORK PRODUCERS (last modified Feb. 23, 1999) http://www.epa.gov/oeca/ore/porkcap/.

17. A copy of the consent agreement/order can be found at U.S. EPA, CONSENT AGREEMENT (last modified Mar. 2, 1999) http://www.epa.gov/oeca/ore/porkcap/capc.html.

18. The agreement also limits to $ 40,000 the total amount of penalties that can be established for all violations reported by a producer.

19. See U.S. EPA, PROCEDURES FOR ADDRESSING STATE AUDIT LAWS AND BILLS (1997).

20. See Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations, 60 Fed. Reg. 66706 (Dec. 22, 1995) [hereinafter Audit Policy].

21. See 63 Fed. Reg. 29203, 29207 (May 28, 1998).

22. See Harmon Indus., Inc. v. Browner, 19 F. Supp. 2d 988, 29 ELR 20035 (W.D. Mo. 1998) (finding res judicata precluded EPA enforcement action where authorized state had already taken and completed Resource Conservation and Recovery Act enforcement action). The same principles of res judicata operate to bar state enforcement for CWA violations already enforced by EPA.

23. See Audit Policy, supra note 20.