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New Phase I Environmental Site Assessment Standards Highlight Transactional Risk in PFAS Treatment

New Phase I Environmental Site Assessment Standards Highlight Transactional Risk in PFAS Treatment

A revised standard emphasizes that parties must consider non-scope factors when conducting environmental assessments of transactions.

American Society for Testing and Materials’ (ASTM) Committee on Environmental Assessment, Risk Management and Corrective Action released a revised standard for Phase I Environmental Site Assessments (ESAs). The ASTM E1527-21 standard is the revised standard. It contains specific guidelines on how emerging contaminants, such as per- or polyfluoroalkyls (PFAS), can 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 of the fact that the new standard doesn’t require that Phase I ESAs address PFAS before EPA lists the specific PFAS in question as a CERCLA dangerous substance. There is a possibility that a Phase I ESA won’t cover a significant 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]These are the cases where a [Phase I ESA]it is performed to fulfill both federal-state requirements, or as directed and ordered by the user. 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. Parties should consider the standard when defining the scope of work before hiring a Phase 1 consultant, and when reading a Phase 1 ESA when assessing 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 can lead to a Phase I ESA missing a significant environmental concern for a transaction. This risk is compounded with the existence of thousands PFAS that could be subjected to different regulatory standards.

FirstCERCLA does not currently regulate PFAS as hazardous substances. Therefore, a Phase 1 ESA may not address emerging contaminants or PFAS if it is not specifically excluded from scope. A Phase I consultant may still certify that a Phase 1 ESA conforms to ASTM standards without mitigating any liabilities under applicable state laws or addressing any potential liabilities or business risk.

SecondOnly certain PFAS are being evaluated for listing as CERCLA dangerous substances. Federal attention has been mainly focused on perfluorooctanesulfonic and perfluorooctanoic acids (PFOA). The US Environmental Protection Agency (EPA) has recently released its PFAS Strategic Roadmap. It stated its intention to designate PFOA/PFOS and other PFAS as CERCLA-hazardous substances by 2023. To complete an ASTM-compliant Phase I ESA, PFOA, PFOS and any other PFAS that are CERCLA-listed as hazardous substances, these PFAS must be addressed. However, this Phase I ESA will not address any other types PFAS that are still subject to 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. Unless a PFAS has been identified as a “non-scope” item under CERCLA, it will not be included in a Phase I ESA.

FourthEven though a Phase I ESA is intended to address certain types PFAS, which a state considers hazardous substances under state law, additional PFAS may not be listed 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. Michigan has, for instance, established maximum contaminant limits (MCL) at 420 parts per trillion (ppt), 51 ppt (ppt), perfluorohexane sulfonate at 51 ppt, 400,000 ppt (ppt) perfluorohexanoic Acid, 6 ppt (perfluorononanoic Acid), 16 ppt (PFOS) and 8 ppt (PFOA). New York, however, has a stricter MCL of only 10 ppt for all PFOA and PFOS levels.

Takeaways

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ASTM E1527-21 clarifies the ways Phase I ESAs can address PFAS or other emerging contaminants. However, it does not require that such contaminants be addressed under Phase I ESAs unless and until EPA lists the specific PFAS in question as a CERCLA dangerous 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.

There are thousands of PFAS types, so buyers, sellers, lenders and creditors need to be aware that there are differences in PFAS regulations between states and federal levels. 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 be aware of what information is available for certain types of PFAS. They should not assume that a Phase I ESA will cover all relevant PFAS risks.

Latham & Watkins made this article available to you for educational purposes. The purpose of this article is to give you general knowledge and a general understanding about the law, and not to give specific legal advice. Latham & Watkins does not create an attorney-client relationship with you by the mere receipt of this communication. You should not use any content in this article to replace competent legal advice from a licensed attorney in your area.

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