EPA Proposes to Incorporate New Environment Due Diligence Standard

On March 14, 2022, EPA published a Direct Final Rule and a Proposed Rule that would incorporate ASTM International’s (“ASTM”) updated standard for conducting Phase I Environmental Site Assessments (“Phase I ESAs”) into EPA’s “All Appropriate Inquires” regulations.

As background, ASTM 1527 is designed to provide a consistent standard for satisfying EPA’s All Appropriate Inquiries (“AAI”) Rule when assessing current environmental conditions as part of the purchase or financing of commercial property.  Compliance with the AAI Rule is an essential element in obtaining protection from liability under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) as an innocent landowner, a contiguous property owner, a secured creditor, or a bona fide prospective purchaser (“BFPP”).  While EPA’s AAI Rule is separate from the ASTM 1527 standard, the AAI Rule provides that compliance with ASTM 1527-13 also satisfies the Rule, and therefore satisfies CERCLA’s requirements for environmental due diligence.

As we previously reported, ASTM revised its Standard ASTM 1527 on November 1, 2021 to address inconsistencies that have developed in current environmental due diligence practice, and to improve the overall quality of Phase I ESAs.  We discussed key changes in the new standard — ASTM 1527-21 — in our previous article which can be accessed here.

As part of this rulemaking process, EPA is incorporating ASTM 1527-21 alongside ASTM-1527-13 in its AAI rule.  EPA views ASTM 1527-21 as sufficiently similar to ASTM 1527-13 that use of either standard would satisfy EPA’s AAI rule.  This is consistent with our previous article where we noted that, “practitioners should feel comfortable using either … standard[.]”

Since the standards are so similar, EPA views the Direct Final Rule as noncontroversial and anticipates no adverse comments.  If no adverse comments are received prior to April 13, 2022, then the Direct Final Rule will become effective May 13, 2022.  Nonetheless, EPA also published a Proposed Rule that would accomplish the same goal as the Direct Final Rule should it receive any adverse public comment. If it does receive adverse comments on the Direct Final Rule, EPA will withdraw the Direct Final Rule and use the Proposed Rule to address public comments in a subsequent final rule.

Despite the similarity between the two standards, and if history is a guide, practitioners should anticipate that EPA will receive adverse comments on its Direct Final Rule (EPA received adverse comments during its previous update from ASTM 1527-05 to 1527-13).  Nonetheless, whether adverse comments are received or not, we expect ASTM 1527-21 to be incorporated into EPA’s AAI regulations through either rulemaking process.  Thus, project proponents will need to decide which standard to use.

Either will satisfy EPA’s AAI regulations, so the choice may depend on the specific transaction.  For example, if there is greater concern with emerging contaminants, adjacent properties, or if there is a desire for a more structured approach to categorizing types of historical contamination, parties may elect to use the ASTM 1527-21.  Parties on tighter timelines with slightly more risk tolerance may decide the ASTM 1527-13 is preferrable.  Moreover, parties should consider whether the Phase I ESA will satisfy a requirement other than EPA’s AAI rule, such as state or lender requirements that are better addressed by one of the two standards, or which may mandate a particular standard.