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Dialing Down Your Superfund Risk

Apr 07, 2017

By Kent Kiser

Unfortunately, most recycling companies are leaving themselves vulnerable every day to such a threat, one that could very easily bankrupt both the company and its executives. The threat is Superfund liability, which remains a real and ever-present danger. You might think your Superfund worries disappeared when Congress passed SREA Shieldthe Superfund Recycling Equity Act in 1999. SREA was a monumental victory for the industry that provides companies with a valid defense to a Superfund liability claim, but this defense is not automatic. You can only claim the exemption if you can prove you took certain affirmative actions before shipping recyclable material to a consuming facility. Those actions include conducting due diligence on the environmental compliance status of your consumers’ operations.

The threats are not just hypothetical. In November 2011, the U.S. Environmental Protection Agency named 115 entities potentially responsible parties for Chemetco, a secondary copper smelter in Hartford, Ill., that it designated a Superfund site. In the March/April 2014 issue of Scrap, Scott Horne, then ISRI’s general counsel and vice president of government relations, noted this was the first time the EPA had named recycling companies PRPs for scrap shipments made since SREA took effect. The EPA later named another 1,400 entities Chemetco PRPs and “sent special notice letters to about 470 entities … requesting that they either agree as a group to pay for the remedial investigation and feasibility study for the site or arrange to do the work themselves with EPA oversight,” Horne wrote. At least one recycler had been named a PRP for another Superfund site, Remacor, which processed magnesium and rare earth metals. It and 18 other entities that had been named PRPs at that site signed a consent decree with the federal government in late 2012, agreeing to collectively pay $1.1 million in cleanup costs.

SREA provides potential liability relief for those who arrange for the recycling of specific recyclable materials, which the law defines as including scrap paper, plastics, glass, textiles, rubber (other than whole tires), metal, and spent lead-acid, nickel-cadmium, and other batteries. The law does not cover anyone who owns or operates a contaminated facility or contamination caused in whole or in part by wastes from a scrap recycling facility.

To qualify for the SREA defense, you must be able to demonstrate that your recycling company met all of the following criteria at the time of a transaction involving recyclable material as defined above.

  • The recyclable material met a commercial specification. You can demonstrate that by referencing specifications that industry trade associations publish, such as ISRI’s Scrap Specifications Circular, or other historically or widely used specifications.
  • A market existed for the recyclable material involved in the transaction. Evidence of a market can include a third-party published price (including even a negative price), more than one buyer or seller for material for which there is a documentable price, and a history of trade in the recyclable material.
  • A substantial portion of the recyclable material was made available for use as a feedstock for the manufacture of a new salable product. On this point, you need only demonstrate it is common practice for your recyclable materials to be available for use in the manufacture of a new salable product.
  • The recyclable material could have been a replacement or substitute for a virgin material, or the product to be made from the recyclable material could have been a replacement or substitute for a product made, in whole or in part, from a virgin raw material. In this case, you must be able to demonstrate the general use for the feedstock material, not that a specific unit was incorporated into a new unit. Given that some consuming facilities use recyclable material exclusively as their raw material, there are instances in which you do not need to show the recyclable material directly displaced a virgin material as the raw material feedstock.
  • For metals, the recycler did not melt the scrap metal prior to the transaction. Welding, torchcutting, sweating, and similar activities are not considered “melting” for the purposes of SREA.
  • For batteries, the recycler did not recover the valuable components of a battery and met all applicable federal regulations in effect at the time of the transaction. The liability relief applies only to those who collect, store, or transport spent batteries.
  • The recycler must demonstrate it took “reasonable care” to determine the environmental compliance status—as it applies to the recyclable material—of the facility that received the recyclable material. To qualify for the SREA defense, you must show you did not send your recyclable material to a facility you had an objectively reasonable basis to believe was not in substantive compliance with environmental laws and regulations.

Defining Reasonable Care

SREA determines if you took reasonable care based on several factors, with the first being the price paid in the recycling transaction. The intent is to establish whether the transaction price was reasonable based on general market conditions at the time, contractual arrangements between the buyer and seller, and the circumstances of the transaction, among other considerations.

A second reasonable care factor is your ability to know the consuming facility’s operations regarding its handling, processing, reclamation, or other management activities related to the recyclable material. This provision acknowledges that a small company may be able to discern less information about the consuming facility’s operations than a large company.

Reasonable care also is based on whether you made inquiries to the appropriate federal, state, or local environmental agencies regarding the consuming facility’s past and current compliance with the substantive provisions of any federal, state, or local environmental law or regulation, compliance order, or decree applicable to the direct handling, processing, reclamation, storage, or other management activities associated with the recyclable material. This provision only requires that you make reasonable inquiries to those agencies with primary responsibilities over environmental matters related to the recyclable materials involved in the transaction.

Conducting such SREA reasonable care compliance evaluations, or due diligence, can be time-consuming and confusing, especially for recycling companies lacking in-house environmental or legal specialists. To help you with that task, ISRI developed its SREA Reasonable Care Compliance Program. The program provides comprehensive reports upon request on consuming facilities, giving you the information you need to satisfy that portion of a valid defense to a Superfund liability claim with relative ease and minimal cost.

ISRI’s SREA Reasonable Care Compliance Program is an easy, cost-effective way for ISRI members to fulfill SREA’s requirements and, in the process, help protect your company from harm. The alternative is to continue to expose your company to potentially ruinous Superfund liability.

Kent Kiser is publisher of Scrap and assistant vice president of industry communications for ISRI.

1 Comment

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