By Rich Ostrov & Erika Gerstenberger | Posted on January 3, 2022
In November 2021, the American Society for Testing and Materials (“ASTM”) Committee on Environmental Assessment, Risk Management and Corrective Action issued a new standard for conducting a Phase I Environmental Site Assessments (“ESA”), “E1527-21 – Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process,” effective January 1, 2022. EPA is expected to approve and incorporate the rule into its regulations sometime in 2022.
ASTM E1527-21 replaces a prior standard, ASTM E-1527-13, outlining guidelines and best practices for identifying the confirmed presence, likely presence, historical presence, or material threat of the presence of hazardous substances and petroleum products on a given parcel of commercial real estate. When properly implemented, these standards and practices satisfy EPA’s “All Appropriate Inquiries” (“AAI”) conditions (codified at 40 CFR 312), which a party must meet in order to establish certain defenses under CERCLA (Comprehensive Environmental Response, Compensation, and Liability Act, aka “Superfund,” 42 U.S.C. § 9601 et seq).
When is this standard used in the field?
For renewable energy projects, lawyers typically review Phase 1 ESA Reports as part of the due diligence review process. The Reports are based on a contractual scope of work negotiated between the environmental professional and the developer. Currently, contracts most often require conformity to the standards and practices in ASTM E1527-13. However, the developer can limit or expand the scope of the ESA. For example, wetlands, asbestos containing material, lead-based paint, and other matters, including any type of sampling, are not within the ordinary scope of a Phase I ESA but can be added in the scope of work. Most of these sustainable energy project Reports identify no recognized environmental conditions (RECs), controlled recognized environmental conditions (CRECs) or historical recognized environmental conditions (HRECs).
A Phase I ESA is not required by law, but lenders/financial institutions generally require the Phase I ESA as a risk management tool because the findings may affect the property’s value. Financial institutions will require strict conformity to ASTM standards and practices unless explicitly expressed.
A Party who intends to claim protection from CERCLA liability as a bona fide prospective purchaser, contiguous property owner, or innocent landowner, must strictly adhere to the ASTM standards and practices to satisfy its burden under the AIA rule. A person conducting a site characterization or assessment on a property with a brownfields grant awarded under CERCLA must meet these conditions as well.
How does the new standard differ from its predecessor?
ASTM has reported the following significant changes, among others, in ASTM 1527-21 as compared to ASTM-1527-13:
- Shelf life: Current Phase 1 Reports prepared pursuant to ASTM 1527-13 will often include only the inspection date in the narrative, but the new standard requires reports to also identify the viability term start date. The 180-day viability term (i.e., the time for which the report is valid) of a Phase 1 Report begins to run from the date of the first ESA activity undertaken to prepare the Report (e.g., interviews, searches for environmental cleanup liens, reviews of governmental records, visual inspections);
- Definitions: The standard clarifies definitions of REC, CREC, and HREC and provides examples. De Minimis conditions (i.e., those “related to a release that generally does not present a threat to human health or the environment and that generally would not be the subject of an enforcement”) are excluded from the new definition of a REC;
- Good commercial and customary practice: More detail is provided on good commercial and customary practice in conducting acceptable site inspections;
- Significant Data Gap: The ASTM 1527-13 required reports to identify significant informational or observational-related data gaps, but environmental professionals were not always clear on when a hinderance to identifying RECs was “significant” enough to trigger the requirement. The new standard provides a formal definition of a “significant data gap” and requires a discussion of how the gap might prevent surveyors from identifying a REC;
- Emerging contaminants: The definition of “Federal, State and Local Environmental Laws” now has a footnote regarding the need to include per- and polyfluoroalkyl substance (PFAS) and other emerging contaminants (i.e., those not yet federally regulated as hazardous substances that are expected to be regulated in the future) in the scope of work for users who want to claim state liability defenses. The footnote suggests that users request for their environmental contractors to include these substances, even though an ASTM E1527-21 Phase I ESA does not yet require it. PFAS and emerging contaminants can be addressed under the Business Environmental Risk or Non-Scope Consideration sections of the Report; and
- Standard Historical Source review: Unlike the prior standard that offered environmental consultants leeway with respect to which historical records to survey, the new standard requires ESAs to include, at a minimum, Historical Aerial Photographs, Historical City Directories, Historical Topographic Maps, and Historical Fire Insurance (“Sanborn”) Maps.
What can we expect now?
The increased obligations for environmental professionals under ASTM 1527-21 may render environmental due diligence reviews more costly and time consuming. The changes may also make it more difficult for an ESA consultant to conduct a “rush” ESA (180-day update site inspection) because ASTM-1527-21 provides more detail on inspection requirements (e.g., time limitations and inaccessibility).
We recommend that you discuss with your ESA consultants how they plan to approach conducting ESAs and writing Phase 1 Reports as of January 1, 2022, and until EPA promulgates their anticipated rule change incorporating ASTM 1527-21. Financial institutions may also address which Phase 1 ESA standard and practice is to be used in the interim. If you have questions on the new standard or environmental due diligence in general, contact Dean Sommer, Rich Ostrov or Rob Panasci.