In the United States, the statutory penalty set by law provides the upper limit of the penalty amount. Under a typical federal pollution-control statute, each day of exceedance (i.e., that emissions exceed the allowed amount under a permit) for each controlled pollutant is a separate violation, and each day of violation may be penalized up to US$32,500 per day. Violations continuing for a period of time or for multiple pollutants can reach a maximum penalty of tens or hundreds of millions of dollars. By referring to such a large possible penalty, the U.S. Environmental Protection Agency (USEPA) quickly gets the attention of a violator.
But USEPA’s goal is not to collect the highest possible penalties, as the highest penalties could cause unemployment by bankrupting and closing enterprises. Assuming that a violating enterprise wants to remain open, USEPA first requires the facility to install all the required pollution control equipment. Then USEPA applies written penalty policies designed to motivate action. Comprising both “sticks” and “carrots,” USEPA penalties encourage the right behavior and benefit the environment and communities that have been impacted by violator’s actions. Specifically, USEPA takes the following three steps:
- 1. Assessing “Compensatory” Penalty Component to Recover the Economic Benefit of Noncompliance: In this initial step of the penalty calculation, USEPA applies an effective “economic instrument” by which “the polluting violator pays”. In this regard, USEPA’s economic goal is to level the economic playing field in the business sector of which the violator is a member. USEPA sets the monetary penalty at a level that recovers from the violator the full “economic benefit of non-compliance,” in order to recapture the violator’s wrongful cost savings from not controlling pollution, and from undercutting non-polluting competitors. The wrongful savings pocketed by the violator becomes the “compensatory” element of the penalty. “BEN” is the name of USEPA’s model (see http://www.epa.gov/oeca/datasys/dsm2.html that is used to calculate the present value of the violator’s failure to buy, install, and operate pollution-control technology. Because a violator should not keep any wrongful gain, the compensatory penalty amount is almost always recovered and usually is not reduced in settlement negotiations.
- 2. Adding the “Punitive” Component of the Penalty: If the only payment required were to be compensatory to restore the level playing field, most enterprises would just wait to comply after they are first caught. To create a reason for business to comply immediately and “voluntarily” and to deter others from violating the law, in this second step of the penalty calculation, USEPA adds a punitive – called “gravity based” – element to increase the penalty. This is imposed on the first significant violation (there is no “free” or unpunished first violation of significance). The penalty amount is adjusted upward by considering factors such as the extent of departure from required behavior and whether there was the potential or actuality of environmental harm. Penalties may be adjusted downward in consideration of mitigating factors such as the defendant’s cooperation and lack of prior offenses.
- 3. Reducing Penalties by the Value of Voluntary Work to Go Beyond Compliance: The optional, third step to calculate a violator’s penalty – agreement to a “Supplemental Environmental Project” – is described in the case study on “Economic Instruments that Provide Incentives to Exceed Compliance in the United States” following Guideline 41(g)
.
For more information, see http://www.epa.gov/
ebtpages/compsettlementpenalty.html