The Uncertain Merits of Environmental Enforcement Reform: The Case of Supplemental Environmental Projects

Abstract:     
Monetary penalties have long been the standard form of penalty in the public enforcement of environmental regulation. In recent years, however, federal and state regulators have departed from this tradition and relied heavily upon Supplemental Environmental Projects (SEPs) in settling enforcement actions. In SEP ettlements, the government permits an entity that has violated pollution control statutes to undertake some environmental "good work" in lieu of a monetary penalty. This Article attempts to move the SEP debate beyond the question of statutory authority to the question of how SEP settlements may affect the behavioral incentives of regulators and regulated entities. The central argument of the Article is that the addition of SEP programs to an enforcement regime may change not merely the form of penalties in the regime but also the severity of penalties. For reasons explored in the Article, SEP programs may operate to lower the cost to regulated entities of violating environmental regulations. Consequently, SEP programs may result in underdeterrence of regulatory violations where there previously was none and worsen underdeterrence where there previously was some.

The Article also responds to some possible objections to this deterrence analysis. These include the objection that SEP programs may not reduce compliance levels because they invigorate enforcement bureaucracies and foster cooperative relation ships between regulators and regulated entities. The Article also considers the objection that, even if SEP settlements compromise deterrence objectives, they are justified because they result in environmental improvements that otherwise would not have occurred. The Article concludes that SEP programs are an unattractive vehicle to promote environmental good works, at least as compared to a government grant program in which interested companies would compete for government funds.

Accepted Paper Series