Five Takeaways from the UN Climate Change Conference (COP26)

A revised standard highlights the need for parties to consider non-scope considerations when conducting environmental assessments for transactions.

The American Society for Testing and Materials (ASTM) Committee on Environmental Assessment, Risk Management and Corrective Action recently released an updated standard for conducting Phase I Environmental Site Assessments (ESAs). The newly revised standard, known as the ASTM E1527-21 standard, includes specific directions for how emerging contaminants, including per- and polyfluoroalkyl substances (PFAS), may be addressed in ESAs. Parties conducting due diligence or involved in transactions for which an ESA will likely be used to assess more than just the “all appropriate inquiry” component of a CERCLA defense should be aware of what the new standard requires for PFAS, especially as regulatory standards evolve or are adopted on a state and federal level. Parties should be aware that the new standard does not create any requirements that Phase I ESAs address any PFAS until EPA acts to list the specific PFAS at issue as a CERCLA hazardous substance, so there is a risk that a Phase I ESA will not cover a significant potential area of environmental concern.

In Appendix X6.10, ASTM E1527-21 clarifies that “hazardous substances” are limited to those compounds identified as hazardous substances under CERCLA. Emerging contaminants, therefore, are addressed as “non-scope items,” similar to asbestos, radon, lead paint, and mold. The ASTM E1527-21 standard expressly identifies PFAS as a category of emerging contaminants and explains that, “[i]n those instances, where a [Phase I ESA] is performed to satisfy both federal and state requirements, or as directed by the user of the report, it is permissible to include analysis and/or discussion of these substances in the same manner as any other Non-Scope Consideration.” [ASTM E1527-21 at App’x X6.10 (emphasis added).] The standard then provides that “[i]f and when such emerging contaminants are defined to be a hazardous substance under CERCLA, as interpreted by EPA regulations and the courts, such substances shall be evaluated within the scope of this practice.” [Id.]

ASTM E1527-21’s treatment of PFAS, and emerging contaminants generally, highlights some important considerations for transactional diligence. Specifically, parties should consider the standard both when defining the appropriate scope of work prior to hiring a Phase I consultant and when reading a completed Phase I ESA in assessing relevant business risks and liabilities. The standard, if applied strictly, allows for PFAS and other emerging contaminants to be treated in two distinct ways — either the emerging contaminants are regulated as hazardous substances under CERCLA and should be addressed in the Phase I ESA or they are not regulated and inclusion in the Phase I ESA is optional. This dichotomy creates risk that a Phase I ESA will have missed a significant potential area of environmental concern for a transaction; a risk that is compounded by the existence of thousands of PFAS that could be subject to different regulatory standards.

First, no PFAS are currently regulated as hazardous substances under CERCLA. Thus, unless evaluation of PFAS is specified as a non-scope item, a Phase I ESA may not be addressing PFAS or other emerging contaminants at all. A Phase I consultant could still certify that a Phase I ESA is ASTM compliant without mitigating liabilities under applicable state law or addressing potential liabilities or business risks present in the transaction.

Second, only specific PFAS are under consideration for listing as CERCLA hazardous substances. Most federal attention has focused on perfluorooctanoic acid (PFOA) and perfluorooctane sulfonic acid (PFOS). For example, the US Environmental Protection Agency (EPA), in its recently released PFAS Strategic Roadmap, has indicated its intention to designate PFOA and PFOS as CERCLA hazardous substances by 2023, with additional PFAS to potentially be listed as CERCLA hazardous substances thereafter. If PFOA, PFOS, and any other PFAS become CERCLA-listed hazardous substances, those PFAS will need to be addressed in order to complete an ASTM-compliant Phase I ESA. However, that same Phase I ESA may not be addressing other types of PFAS that will remain non-scope items even if still under EPA evaluation.

Third, though Appendix X6.10 specifically references the potential designation of PFAS as hazardous substances under state law and the possibility that a Phase I ESA may be “performed to satisfy both federal and state requirements,” designation of a PFAS as a hazardous substance under state law does not affect whether the PFAS will be addressed in the Phase I ESA. Currently, unless a PFAS is regulated as a hazardous substance under CERCLA, it would need to be identified as a non-scope item for inclusion in a Phase I ESA.

Fourth, even if a Phase I ESA purports to address certain types of PFAS that a particular state considers to be a hazardous substances under applicable state law, there may be additional PFAS that are not listed as hazardous substances in that state. Given that PFAS is an umbrella term covering thousands of specific chemicals, only certain PFAS are or will be subject to state regulatory standards — and those standards vary significantly by state. For instance, Michigan has promulgated maximum contaminant levels (MCL) of 420 parts per trillion (ppt) for perfluorobutane sulfonic acid, 51 ppt for perfluorohexane sulfonate, 400,000 ppt for perfluorohexanoic acid, 6 ppt for perfluorononanoic acid, 16 ppt for PFOS, and 8 ppt for PFOA. New York state by contrast has set a much stricter MCL of 10 ppt for the sum of all PFOA and PFOS concentrations.

Takeaways

ASTM E1527-21 clarifies how Phase I ESAs can address PFAS and other emerging contaminants, but does not create any requirements that such contaminants must be addressed under Phase I ESAs, unless and until EPA acts to list the specific PFAS at issue as a CERCLA hazardous substance. Until EPA acts, even an ASTM-compliant Phase I ESA may not identify PFAS-related risks or liabilities, and it may be necessary to include them as a specific non-scope component for the consultant’s scope of work. Further, the reader or user of a Phase I ESA needs to understand the consultant’s scope of work and cannot simply equate the absence of any Recognized Environmental Conditions with the absence of concerns related to PFAS or other emerging contaminants.

Given that there are thousands of different types of PFAS, buyers, sellers, and lenders will need to be cognizant of the differences in PFAS regulations on a federal and state-by-state basis. Parties to transactions may face significant risks associated with specific types of PFAS which may not be — but perhaps for risk assessment or mitigation purposes should be — considered for a particular transaction. Parties should understand what information is available for specific types of PFAS and should not assume that a general discussion of PFAS in a Phase I ESA is actually covering all of the relevant PFAS risk.

This article is made available by Latham & Watkins for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. Your receipt of this communication alone creates no attorney client relationship between you and Latham & Watkins. Any content of this article should not be used as a substitute for competent legal advice from a licensed professional attorney in your jurisdiction.

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