Introduction

In order for the US Environmental Protection Agency (EPA) to go about its business of regulating pollution, it needs a hammer to bring down on violators of environmental laws and regulations. The most important hammer it has is civil penalties, and the EPA has discretion over penalty amounts. Still, the environmental statutes that delegate enforcement authority to the EPA enumerate a number of factors that the EPA must consider in assessing civil penalties. These factors allude to the purposes of civil penalty authority: removing the economic benefits of pollution, approximating the environmental damage caused by pollution, and accounting for the polluter’s unique circumstances.

The subject of this Comment is a more mysterious penalty factor: ability to pay. Almost all the major environmental statutes mandate that the EPA consider the violator’s ability to pay when calculating penalties. The EPA implements this policy using financial models to predict polluters’ profitability, which it then compares to penalty amounts, often leading to substantial penalty discounts. Other governmental actors—primarily judges—use their gut (rather than their computer) to assess penalties. Professor Colin Diver, one of the first scholars to describe ability to pay, was skeptical of the provision. He stated, “[T]he concept of ‘ability to pay’ is pregnant with a degree of ambiguity that invites arbitrary and capricious application. A set of administrative penalty standards that fails to resolve that ambiguity thus leaves a dangerous gap.”

With its Policy on Civil Penalties, the EPA attempted to avoid leaving such a dangerous gap, but in the process it created a new problem. As currently interpreted, ability to pay erroneously mitigates otherwise-appropriate penalty amounts for certain types of businesses. These polluters enjoy discounts based on their limited ability to pay. Their richer competitors do not receive these discounts, resulting in an economic advantage that favors pollution. This advantage is significant: ability to pay has become the second-most-invoked defense to penalties in EPA enforcement actions. Despite its shortcomings, however, ability to pay pervades the US environmental regulatory regime.

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