Carrots Over Sticks

...Immunity, which would prevent regulators from imposing any penalties, could make it difficult for the government to guarantee a “level playing field” for companies who have maintained sound environmental practices...

...Many environmentalists oppose audit-privilege laws, branding them “secrecy laws...

...Instead, the EPA has suggested (over the objections of Congress) that it may increase enforcementincluding “overfiling,” or filing its own lawsuit if it dislikes what the state is doing-in states with highly protective audit laws like Michigan, Colorado, and Texas...

...IS0 14001 mandates self-auditing as a condition for certification...

...More than 45 percent of such companies explained that they’re unwilling to expand their auditing program because the information could be used against them in a litigation or civil enforcement action...

...In addition, the law requires that the company, having discovered evidence of a violation, promptly tell the regulating agency, in this case the state health department, and then fix the problem...

...Therefore, any environmental “race to the bottonl” would be unlikely...

...And most importantly, the laws foster an atmosphere of cooperation between the regulators and the regulated-an atmosphere which is sorely needed...

...It appears to be our turn in this pattern of public attacks,” he lamented to The New York Times...

...Federal regulators are equally concerned about the immunity aspect of such arrangements...

...In July 1993, the Colorado Department of Health-allegedly under pressure from the federal EPA-issued ALEXANDER VOLOKH is a policy analyst at the Reason Foundation, a public policy think tank in Los Angeles...

...The “immunity” component protects companies that voluntarily find, reveal, and fix violations from penalties...

...This was the largest fine ever imposed by the state for an air pollution violation...

...Nor is the federal EPA wild about the idea...

...On the right, the Washington Legal Foundation, a public-interest law firm, has characterized the EPA’s behavior as “bludgeoning” and “blackmail...

...To Coors, talk of a level playing must sound rich...

...The fine was also to include a to-be-determinedlater “economic benefit payment” to the state for money the company had saved by not complying with the laws...

...Currently, the EPA has its own audit-privilege policy, and notes that since its implementation in January 1996, 76 companies have disclosed violationswith most paying no penalties...

...If the threat of prosecution prevents a company from taking action that would improve the environment, then making the enforcers’ jobs tougher in those cases may be a good idea...

...But state agencies, such as the Texas Natural Resources Conservation Commission, would dispute the claim that audits hinder enforcement...

...Audit-privilege laws, in the end, are good policy...

...Coors a compliance order containing a $1.05 million civil penalty for violations of state air pollution laws...

...The agreement also included a schedule to bring all of Coors’s emissions sources into compliance with state regulations within two years...

...Whether you believe organizations conduct selfaudits in the name of good corporate citizenship or because they want to keep regulators off their backs doesn’t really matter...

...Many attorneys general agree...

...This is where, for state environmental officials, it gets personal...

...The 23-page order listed 189 violations: 100 air pollution emission notification violations, 56 permit violations, and 33 VOC violations...

...As one EPA official recently told State Environmental Monitor, enforcement actions often depend on “tips and confidential sources,” and if this type of information becomes privileged-so that employees’ testimony about an audit is unusable-enforcers’ jobs become tougher...

...Coors had already spent 18 months and $1.5 million conducting the study...

...Among the companies that don’t perform audits, 20 percent said that they fear the information could be used against them...

...They help move enforcement agencies away from a “bean-counting” mindset that leads them to obsess about the number of enforcement actions and monetary penalties issued because they have no other definition of “success...

...But the EPA’s policy is substantially weaker than that of many state programs and ultimately can be expected to yield smaller benefits than other bills under proposal...

...The “privilege” component guarantees that the audit is privileged information...

...Moreover, the EPA is threatening to “take back” a whole range of activities currently delegated to the states, like solid waste management, wastewater permitting, or asbestos programs...

...Economic benefit payments have become a staple of federal environmental enforcement, and the government believes such payments are necessary to prevent Companies from profiting from violations...

...A handful of others are considering them, and bills to do the same on the federal level have been introduced in Congress...

...And a separate survey of firms in Indiana, where audits are privileged, found that 66 percent of small businesses wouldn’t do audits if government prosecutors could access the reports...

...Around 75 percent of companies already do environmental audits, according to a 1995 Price Waterhouse survey...

...and it only covers corporate environmental violations, not violations by individual employees...

...All regulations on the books will remain on the books, which means that federal enforcers will continue to keep an eye on what smokestacks in Ohio are doing to the rivers or trees in Indiana...

...it doesn’t apply to intentional or reckless violations or to violations that caused on-site injury or substantial harm to people, property, or the environment...

...Environmentalists, regulators, and industry alike love the idea of audits...

...When the costs of knowing the law are too high, companies will just risk violating it...

...As Howard Wetters, a Democratic state representative from Michigan, put it, “We want to make sure the environment is cleaned up...

...Today, about 19 states have such laws...

...Air pollution agencies used to think beer brewers were clean people...

...As for the EPA’s point about fines being necessary to maintain “a level playing field,” consider again the case of Coors, which did the $1.5 million audit, told the agency-helled out another $237,000 in fines...

...It also applies only to government prosecution, providing no protection against suits by outside organizations...

...They promote fairness by not punishing people who voluntarily reveal information they didn’t have to find out about in the first place...

...Regulated entities and the employees who provide the information for the audit feel that they can’t be entirely candid for fear of what regulators or third parties-through citizen suits-will do to them...

...But after sharing the results of its review with public authorities, Coors discovered a significant downside to self-auditing...

...For one thing, a good audit document is a frank discussion of the environmental effects of all company processes-some of which may be proprietary-revealing in detail the thoughts and judgments of company scientists...

...After all, the ultimate goal of environmental regulation and enforcement shouldn’t be to rack up fines and lawsuits, but to encourage companies to minimize their negative impact on the environment...

...So why, if they have immunity, would a company need privilege...

...Gary Condit (D-Cal...

...We’re more interested in that than in simply punishing people...

...The EPA has specifically targeted Idaho’s air pollution operating permit program, which the state runs by delegation from the federal government under the 1990 Clean Air Act amendments...

...The law does not, however, cover information that the firm is already required to reveal by other regulations or information about violations discovered independently, for instance, by a neighbor...

...The TNRCC considers the Texas Audit Privilege Act of 1995 an additional enforcement resource...

...But that’s what touched off one of today’s most heated environmental debates: What sort of protection should companies be granted in exchange for conducting voluntary environmental audits...

...This is particularly troublesome for small businesses that can’t afford to spend a lot of money on legal advice...

...Moreover, the EPA’s policy is not binding on the EPA and has no effect on the Department of Justice, which can prosecute criminal cases regardless of what the EPA recommends...

...In other words, information discovered in an audit, the audit documents themselves, and any related testimony are inadmissible as evidence against a company in an administrative, civil, or criminal proceeding...

...who supports audit privilege laws, the National District Attorneys Association wrote that corporate records are often needed to make a determination that “knowledge and intent” were involved in a violation and that criminal charges are warranted...

...But all that changed in 1992 when the Coloradobased Coors Brewing Company became the first major brewery in the United States to complete a comprehensive, voluntary investigation of its VOC emissions...

...The investigation found that when beer is spilled during the making, packaging, and disposal process, large quantities of VOCs are released into the air...

...Even though other brewers benefited from the information Coors uncovered, they neither had to shell out the money for an audit nor face the resultant penalties...

...James Seif, Pennsylvania’s Environmental Protection Secretary, accused the EPA of being on a vendetta against states that don’t toe the line...

...And while the public has an interest in knowing environmental violations uncovered by an audit, it is not entitled to know about the specifics of a company’s proprietary processes or scientific analyses...

...Carrots over Sticks The case for environmental self-audits BY ALEXANDER VOLOKH WHEN PEOPLE THINK OF ENVIronmental battles, spotted owls, old growth forests, and Pacific salmon typically come to mind...

...These complaints are echoed by observers from both ends of the political spectrum...

...All but the VOC violations were essentially claims that Coors had not submitted the proper paperwork to the state health department-for emissions sources that Coors (and the health department) had no knowledge of until the audit...

...Likewise, a 1983 report by the California Air Resources Board concluded that the state’s breweries produced 20.7 million barrels of beer each year and in the process released only 42.3 tons of VOCs...

...They argued that to successfully overcome privilege and prosecute a company criminally, the state would have to “undergo great hardship,” and that the conviction may well be overturned “if any taint can be shown or even intimated...

...In a June 1996 letter to Rep...

...These laws improve environmental quality by giving firms incentive to discover and correct problems...

...Last November, Michigan’s commissioner Harding and 14 other state environmental commissioners sent an angry letter to EPA administrator Carol Browner, aslung that the agency not “unduly interfere” with state enforcement matters without solid evidence that audit laws “undermine state enforcement authority...

...according to a WLF report, states with audit-privilege laws haven’t reported a decrease in environmental enforcement activity or in the environmental quality due to such laws, though they are now getting more environmental results for less money...

...Sticks The Coors episode was the catalyst for Colorado’s adopting an “audit privilege” law, based on the premise that it’s wrong to punish someone for voluntarily discovered, voluntarily revealed information that they otherwise wouldn’t have known about or disclosed at all...

...But using the attorneyclient privilege limits an audit’s usefulness, since privilege is lost if you share the information with someone like the plant manager, company scientists, or environmental consultants...

...Most audit privilege laws have two components: privilege and immunity...

...Also, audit laws shield a company from governmentimposed penalties, but do nothing to prevent citizen plaintiffs from filing suit...

...Corporate surveys suggest that privilege laws would significantly increase both the willingness of organizations to conduct self-audits and the effectiveness of the audits themselves...

...If information uncovered during an audit could be used against the company in a lawsuit by any group other than the government, companies would have little incentive to ever open themselves up to voluntary review...

...Coors argued that it was being unfairly punished for voluntarily revealing problems that both regulators and major brewers had missed, and warned that such fines would go a long way to discourage other companies from conducting self-audits...

...Beer probably doesn’t...

...Battle of the Regulators Just suppose the EPA is right about audit laws making enforcement more difficult...

...According to Russell Harding, commissioner of the Michigan Department of Environmental Protection, privilege is becoming increasingly necessary thanks to the popularity of IS0 14001, the International Standards Organization’s evaluation program that certifies companies as having sound environmental practices...

...Brewery scientists had long suspected that EPA figures underestimated company emissions...

...On the left, the Progressive Policy Foundation has suggested that auditing makes “eminent sense” and that state laws should be treated as a “demonstration project” to find out which enforcement strategies work and which don’t...

...This still begs the question of what should take precedence in environmental law: prosecuting a company or improving the environment...

...I think that philosophy, as I’ve seen it in agriculture, has been a far more successful way of enforcing and regulating than through the adversarial process we have used to enforce environmental laws...

...In February 1994, the fine was reduced...

...Finally, it only protects the audit documents themselves, not testimony about them, so a prosecutor who wants to use audit information against the company can still make a member of the audit team testify about what was in the audit...

...The result is the same: Companies pay greater attention to their environmental practices...

...they are not intended to pre-empt existing federal laws...

...An Environmental Protection Agency document published in September 1985 found that volatile organic compound (VOC) emissions from beer fermentation were negligible...

...They save taxpayers money by allowing enforcement agencies to concentrate on prosecuting “bad actors” -knowing violators who act recklessly and cause harm...

...The environmental agency can still require the company to take certain steps related to damage control, but punitive sanctions are forbidden...

...The commission reasons that it will never have enough resources to monitor everybody, and since environmental regulation already relies heavily on self-policing and self-reporting, we might as well encourage the regulated to do the job right...

...The EPA puts more requirements on companies that want to benefit from audit privilege, and often only reduces fines instead of eliminating them...

...State audit-privilege laws don’t constitute a rollback of environmental protection...

...Of those, 81 percent attempt to protect the information acquired using existing legal mechanisms like the attorney-client privilege...

...Carrots vs...

...As the producer of about 20 million barrels of beer per year, Coors alone was releasing 650 to 750 tons of VOCs-about 17 times more than originally thought...

...But many companies who want to pursue certification, don’t want to risk their own audits being used against them...

...Coors agreed to pay a $100,000 fine and a $137000 economic benefit payment, relinquish 70 tons of pollution allowances it held for the release of VOCs, and reduce its annual VOC, sulfur dioxide, and nitrogen oxide emissions...

...It is an issue of fear,” says Harding...

...The survey also showed that nearly two-thirds of companies that conduct environmental audits would expand their programs if penalties were eliminated for problems that the organizations themselves identified, reported, and corrected...

...Again, the immunity is limited...