Biodiesel and other biofuels such as ethanol, in addition to being renewable energy sources that reduce dependence on imported oil, have long been considered nontoxic, biodegradable and environmentally friendly. Tell that to The New York Times. Its widely publicized 2008 article, alarmingly titled "Pollution is called a byproduct of 'clean' fuel," described an Alabama biodiesel plant that allegedly released a "ribbon of oil and grease" that "resembled Italian salad dressing" into local waterways. The article asserted that such discharges "can be hazardous to birds and fish" and contains quotes making charges such as "a vegetable oil spill is just as deadly as a crude oil spill."

Before dismissing this as reporting from a source that neither understands nor cares about the biofuels industry, consider a 2007 newspaper story from ethanol country. "Biofuel plants generate new air, water, soil problems for Iowa," declared the Des Moines Register & Tribune, in a piece that began: "Iowa's ramped-up ethanol and biodiesel fuel production led to 394 instances over the past six years in which the plants fouled the air, water or land or violated regulations meant to protect the health of Iowans and their environment." That 70 percent of these "instances" related to excess iron in groundwater discharges was buried deep in the text.

Of course, contrary to what's often said by news media and environmental groups, regulated environmental indicators are getting better and compliance levels are improving.

However, there is huge political and media pressure to keep enforcement penalties high (they're now up to $32,500 per violation per day) and growing. Anything less than perfection is used as proof that polluters are being "coddled." The result is an enforcement squeeze in which smaller and smaller compliance items become a bigger and bigger risk-in terms of enforcement, civil and criminal penalties, and negative public relations-for any business covered by environmental regulations.

With its rapid growth and rising profile, the biofuels industry will squarely confront this enforcement squeeze. According to the Renewable Fuels Association, more than 130 ethanol biorefineries are in operation in 26 states, and the plants under construction will almost double industry output by 2010. The biodiesel industry has likewise expanded. Approximately 150 plants produced an estimated 500 million gallons of biodiesel in 2007.

Under this kind of expansion pressure, it's tempting to neglect environmental permitting and compliance requirements as burdensome paperwork. But the enforcement squeeze doesn't just require the right piece of paper-it's about fines, penalties and jail time for lack of compliance.

Regulatory Burden
While much of the industry's focus on environmental regulation understandably has been drawn toward fuel standards concerns, it is essential that biodiesel manufacturing, terminal and transportation companies not lose sight of the complex and burdensome environmental regulatory compliance requirements that apply to their facilities, much as they do to other fuel refiners and handlers. Federal, state and, in some circumstances, local laws and regulations provide for, among other things:

› Complex and costly permitting and controls on the emission of pollutants to the air and releases of pollutants through wastewater and stormwater discharges

› Control over the generation, classification, handling and disposal of wastes

› Management practices, planning and reporting relating to many types of hazardous materials

› A laundry list of permitting, registration, control, testing, monitoring, inspection, planning, prevention, training, reporting and recordkeeping requirements relating to all of the above.

A summary of what producers face was provided by the U.S. EPA Region 7 in its November 2007 publication, "Environmental Laws Applicable to Construction and Operation of Ethanol Plants." Even a few examples from the EPA's 100-plus page manual show the compliance risks biodiesel and ethanol producers face if they are ignorant of these laws.

National Environmental Policy Act If federal money is involved to construct a biofuels plant, it may be subject to NEPA and its detailed process for assessing the environmental impact of activities that significantly affect the environment. The NEPA assessment must include all potential environmental and human health impacts involving wetlands, water quality, hazardous waste and air quality.

Clean Water Act If there is a potential for placing dredge or fill materials into surface water during plant construction or expansion, the act requires a Section 404 permit. To minimize the impact of site runoff on water quality, a stormwater permit must be obtained for discharges to waters from any construction activity that disturbs one or more acres of land. In addition, EPA's Spill Prevention, Control and Countermeasures rules require significant plan preparation, construction of containment, training, inspections and other activities relating to the storage of oils.

Safe Drinking Water Act A biodiesel plant is subject to the requirements of the act if it uses an injection well to dispose of storm water, waste water or industrial fluids, or has an on-site septic disposal system. If a municipal water supply is planned for process water, check with the system operator to identify additional compliance requirements.
Emergency Planning and Community Right To Know Act This act requires facilities with regulated chemicals above threshold quantities (including ammonia and chlorine) to notify the state emergency response commission and local emergency planning committee within 60 days after first on-site use.

Resource Conservation and Recovery Act All biofuels plants will probably generate some quantities of hazardous waste. However, the hazardous waste being generated might not be directly related to fuel production. Plant operation sources could include gasoline, spent solvents, lab packs, various paint wastes, used oil, waste lamps and batteries. Hazardous waste must be properly disposed at a permitted treatment, storage or disposal facility, with detailed waste-handling records required by the act.

Compliance Strategy
Given the complexity and consequences of these regulatory requirements, sound management of biodiesel facilities requires careful attention to compliance assurance efforts. Facility owners and operators who wish to avoid the severe liability from environmental violations should pursue a strong environmental management program, starting with the employment of highly qualified internal and external environmental, technical and legal experts to help design, administer and troubleshoot their compliance efforts. However, maintaining compliance over time requires more.

First, periodic checkup audits are essential. Regular review of environmental compliance status is absolutely essential. There is no environmental compliance "finish line." Even under the best of circumstances, laws change, key people leave and regulated equipment breaks down. Without frequent, comprehensive, independent compliance assessments with the assistance of fresh, expert eyes, companies inevitably overlook certain duties and fall out of compliance.

Auditing efforts should not be undertaken lightly, though. Uncovering legal violations-obviously a prerequisite to fixing them-can nonetheless lead to significant and costly compliance obligations, evidence that might be used against you, and potentially damaging enforcement consequences.

Second, systematic management approaches provide direction. The principle of regular, consistent assessment that applies to financial compliance should also apply to environmental compliance. One of the most effective tools for assuring compliance is a formal "environmental management system," that begins with a strong statement by the board of directors or CEO supporting the need for compliance, followed by documenting and implementing a step-by-step compliance program. The key element of most environmental management systems include:

› Periodic evaluation of all the ways each facility or operation interacts with the environment

› Written, measurable objectives and performance criteria (including legal compliance) for each facility or operation documented

› Written plans and procedures for achieving objectives and evaluating performance, as measured against calendars to ensure timely completion

› Written assignment of all environmental responsibilities to specific positions and personnel

› Documented training of all employees on their responsibilities and procedures

› Periodic internal and independent auditing to confirm the effectiveness of the process

› Systems to track performance, and document and demonstrate correction and prevention, and

› Regular management review with updating of the environmental management system to reflect the feedback received.

Even companies that do not implement a full, formal environmental management system can benefit from evaluating their current environmental management efforts against the elements of an effective program.

Compliance Help, Cautions
Software tools help efficiently manage environmental management system implementation and maintenance tasks. These can include project scheduling and management, documentation of training efforts, audit report compilation, and scheduling of corrective and preventive actions. Environmental management system software shared on an enterprise-based system gives easy online access to route environmental and environmental management system documents and records. By centralizing all environmental compliance management documents, data and activities into a single shared network, the software can be invaluable for smaller companies that may otherwise lack the time and resources to address crucial environmental concerns. A systematic approach to compliance institutionalizes continuous improvement and has a much better chance of succeeding and earning regulatory favor than informal or ad hoc approaches.

Unfortunately, environmental management system approaches can raise many potential legal and liability concerns, from the legal issues associated with auditing to the establishment of written policies, procedures and statements about environmental duties that might become evidence to help establish company liability or even criminal responsibility. Consider these less-than-obvious compliance pitfalls:

› Periodic environmental compliance audits, if not properly and promptly acted upon, can give regulators more evidence to take harsher actions against a company.

› Thanks in part to the Sarbanes-Oxley Act, companies risk regulatory sanctions for failing to disclose the financial impact of environmental problems.

› Senior managers who have responsibility for the provision of resources for environmental compliance or who become aware of environmental problems without immediately addressing them can face personal criminal liability as "responsible corporate officers."

The environmental laws are constantly changing and each company's exposure to liability shifts accordingly. Companies should launch an environmental management system and auditing only after consulting legal professionals who are experienced in environmental auditing and compliance. Experienced counsel can also help identify the best strategies for correcting problems, documenting the solutions, working with the relevant agencies, and obtaining protections from federal and state programs that offer opportunities for leniency or immunity from liability.

Companies participating in the biodiesel industry should take pride in their efforts to make and distribute renewable fuels and to pursue the betterment of our environment.

Environmental compliance assurance requires vigorous management effort and the assistance of qualified technical and legal experts who can help design and implement an effective environmental program. Periodic, comprehensive auditing of environmental compliance status and strong systems for environmental management are potentially costly and can be both difficult and risky to implement, but done right these measures offer the best hope for maintaining and demonstrating ongoing compliance with the complex environmental laws and regulations that govern biofuels companies.

Timothy A. Wilkins heads the environmental practice of the international law firm of Bracewell & Giuliani LLP. Reach him at timothy.wilkins@bgllp.com. This information is provided for general educational purposes; it is not meant to offer, and is not a substitute for obtaining, specific legal advice. This article represents the personal comments of the author and does not constitute a legal position or opinion of Bracewell & Giuliani LLP.