On December 15, 2022, the U.S. Environmental Protection Agency (EPA) made the much-anticipated announcement to formally adopt updated standards for Phase I environmental site assessments (ESAs), despite some initial negative feedback from the regulated community during the rulemaking process. The new standards will have an important impact on how buyers, sellers, lenders/investors and others manage environmental due diligence, particularly in connection with evaluating risks associated with former industrial and manufacturing sites.
Effective February 13, 2023, EPA amended its All Appropriate Inquiries (AAI) Rule to confirm that the ASTM E1527-21 Standard Practice for Environmental Site Assessments replaces (subject to the sunset period noted below) the prior standard (ASTM E1527-13) and satisfies the requirements for conducting due diligence sufficient to satisfy the AAI standard under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and thereby permit entities to qualify for its statutory environmental liability protections. See the Federal Register link here.
Among other updates and revisions in the new standard, importantly, ASTM E1527-21 provides guidance with respect to addressing emerging contaminants, including per- and poly-fluoroalkyl substances (PFAS), which are not yet listed as "hazardous substances" under CERCLAE1527-21 recommends evaluating PFAS and other emerging contaminants as Non-Scope Considerations either when requested by the "User" of the Phase I or to satisfy requirements in states that already have established regulatory standards for PFAS, which could result in PFAS or other Non-Scope Considerations being identified as a Business Environmental Risk.
The new standard also provides a number of other changes from the prior ASTM standard, including: slightly revised definitions for Recognized Environmental Conditions (RECs), Controlled RECs and Historical RECs; clarifying what constitutes a "significant" data gap; and extending how long a Phase I report is valid (provided certain sections are updated). For ease of review, EPA developed a comparison of the two ASTM standards as part of the rulemaking process. See Regulations.gov link here.
In terms of timing, EPA's final rule provides for a one-year sunset of the prior standard, which can still be used to satisfy the AAI requirements for Phase Is completed before February 13, 2024. In practice, since the release of ASTM E1527-21, we have seen many environmental consultants issue Phase I ESAs that satisfy both ASTM standards.
Lastly, while ASTM E1527-21 (and ASTM E1527-13 until February 2024) will satisfy AAI requirements under CERCLA, it is important to emphasize that complying solely with the ASTM standards when conducting Phase I ESAs may not be sufficient to ensure compliance with state-specific requirements (or lender/investor environmental underwriting requirements). For example, for sites in Connecticut subject to the Connecticut Transfer Act (see our prior alert regarding the Connecticut Transfer Act and related developments here), the Connecticut Department of Energy & Environmental Protection's 2010 Site Characterization Guidance Document includes additional requirements for performing Phase Is that go above and beyond ASTM standards.
In light of the above, those conducting environmental due diligence – or relying on diligence conducted for or performed by others – should consult with knowledgeable environmental professionals (consultants and counsel) early in the process to develop a coordinated environmental due diligence strategy and appropriate scope for the particular site(s), future use and business drivers, particularly if PFAS or other emerging contaminants are a potential concern.
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