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Looking Backwards, Looking Forwards:
Economic Rationales for – and Implications of –
The 2001 Changes in U.S. Law Governing Brownfield Reclamation
Working Paper, 2003
Peter B. Meyer
Professor of Urban Policy and Economics
Director, EPA Region 4 Environmental Finance Center
Center for Environmental Policy and Management
University of Louisville
426 W. Bloom Streets
Louisville, KY 40208 USA
+ (01) 502 852 8032
<pbmeyer@louisville.edu>
The law governing reclamation and redevelopment of contaminated land in the United
States, the Comprehensive Environmental Response, Compensation and Remediation Act
(CERCLA or ‘Superfund’) was the first major legislation to address the legacy of
industrialization and remained in place with minor changes from 1980 through 2001 (Bartsch
and Collaton 1994 Bartsch 2002). The so-called ‘brownfield’ sites that are the focus of many
central city regeneration efforts in the US were finally removed from primary CERCLA
jurisdiction in a new law signed in January, 2002 (International Economic Development Council
2002).1
As a result of its early start in addressing contaminated sites as a matter of national
environmental policy, and of the relative stability of the policy over time, the US offers an
example of the economic incentives created by such principles as ‘polluter pays’ and assignment
of the long term liabilities associated with past contamination to different parties. The recent
legislative changes offer further lessons, both with respect to the broad unintended consequences
of what seemed at the outset economically and environmentally rational policies and with regard
to the specific market distortions associated with those laws, including both their impacts on
investment decision-making and on the market for risk transfers.
1
The term ‘brownfield’ needs specification at the outset, given its inconsistent meetings in different
English speaking countries – and its changing US meanings over time. The 2001 Annual report of the UK
Department of the Environment, Transport and the Regions, for example, clearly uses the term to apply to any
previously used sites. This usage used to be accepted in the US but, following Bartsch, et. al, in 1991, the term was
redefined as applying to sites with ‘real or perceived’ contamination. This paper uses the latter definition, employing
the term ‘brownfield’ narrowly, that is as equivalent to ‘contaminated land’ in most European usage.
1
The US experience thus offers some potentially valuable insights into approaches to
contaminated lands in particular, and, more generally, to sustainable development policy choices.
It would, however, be inappropriate to generalize directly from the US experience in light of the
extremely diverse contexts in which such policies are implemented in different countries. While
the US may offer a cautionary tale to guide environmentally motivated interventions in real
estate markets, the applicability of the lessons will vary from one nation-state to another. In
particular, the divergence between the broad context in which the US policy has been
experienced and that in Western Europe, especially in the European Union, has to be considered
in any generalizations.
In this paper, then, we begin with an overview of the contextual issues before turning to
an examination of the original US law, its institutional impacts and economic inefficiencies, and
the motivations for revisions. Next, we introduce the new legislation, its implementing
regulations, and their requirements, with commentary on not only the changes introduced but
also their apparent political and economic motivations. We conclude with discussion of the
relevance of the US experience for innovation and better brownfield policies in other countries.
The Divergent US and EU Planning and Land Use Contexts
It would be foolhardy to attempt a de novo exploration of these differences in this brief
discussion when the comparison has already been conducted. Without claiming that their effort
was definitive, we rely here on the distinctions developed by Meyer, Williams and Yount in their
book on contaminated land (1995). Table 1 summarizes key findings on differences and
provides the framework for this examination of policy change.
Europe has had more high publicity-high political impact events associated with current
economic activity and environmental consequences than has the US, where the problems are
more associated with unknown consequences of past activities. This difference in effect
summarizes the spatial context differences: industrial processes that are potentially hazardous
continue to exist near population centers in the EU nation-states while they are located in more
isolated settings in the US. Simultaneously, European nations, unlike those in North America, do
not lose track of the prior uses of land and the threats they may pose. Both these conditions
reflect the lower overall density of settlement in America, and thus the reduced concern for the
reuse and redevelopment of sites such as brownfields. If either side of the Atlantic is to provide a
lead in reusing brownfields for sustainable development, it is more likely to emerge from
Europe.
The other categories of differences in Table 1reflect the generally greater role the state
plays in economic affairs in the EU than in the US, the US reliance on a cap on land use intensity
rather than a specification of appropriate land use, as is common in EU practice, and the far
greater rights of private parties in the US context, both with respect to secrecy of operations (the
‘right to privacy’) and with regard to the power to decide what will be done on property
(reflecting the constitutional ‘takings’ doctrine that restricts the state’s right to impose controls).
These differences are notable for distorting the apparent ‘lessons’ that the US experience offers.
2
Table 1 (*)
KEY DIFFERENCES IN US AND EU CONTAMINATED LAND POLICY CONTEXTS
Past Environmental Experience: Accidents, Exposures and ‘Disasters’
United States European Union
Repeated problematic experience with building on or Repeated experience of industrial accidents and spills
using abandoned, but contaminated, sites at active facilities, resulting in human exposures
The State Politico-legal Context
United States European Union
Centralized standards and powers are increasingly Despite ‘subsidiarity’ EU is asserting more power to
delegated downward to states direct, set standards for members
Markets seen as central arbiters of all value and as State seen as responsible for mitigation and prevention
responsible for site mitigation despite ‘polluter pays’ doctrine
Planning focus is individual sites, ignores spillovers Planning for whole areas, recognizing externalities
The Locus of Control over the Use of Land
United States European Union
Exclusive property rights and strong trespass controls Extensive public access rights to privately owned land
Weak zoning controls, often non-existent; reliance on Strong zoning, typically with exclusionary controls
hierarchical land use controls limiting possible land uses
Presumption of private power to use land as desired Specific state planning permission generally required
Limited state powers to take lands for any purpose; Public power to take land at will for public purposes; in
payment due for limiting land uses some cases, state owns all land
Approaches to Liability for Damages and Cleanup
United States European Union
all damages, cleanups needed are private liabilities; state accepts prime responsibility, assuring needed
state acts only as last resort cleanups of past contamination
strict, joint and several private liability for pollution, liability only for identifiable past polluters, regardless
regardless of real responsibility of ownership or occupancy
future liabilities accrue to new landowners future liabilities are a state responsibility
little required disclosure of contamination extensive site condition disclosure required
minimal state non-military land ownership substantial public sector land ownership
Access to Capital and to Liability Insurance; Land Redevelopment Patterns
United States European Union
Increased banking concentration; central office review Longstanding concentration and central control over
of branch bank decisions on ‘environmental lending’ loan decision-making; little branch bank discretion
Risk capital available; constrained by losses on Conservative policies; low risk taking except by
Brownfield lending due to liability fears merchant banks for their ‘known’ named customers
Increasing demand for insurance on loans despite Loan insurance minimally available; although bank
legislated Federal Government bank liability relief liabilities limited by government role in contamination
Insurance available to cap cleanup costs over $2 Cost cap coverage minimally available; liability
million and to provide owners; liability protection coverage becoming more broadly available
Widespread sprawl including abandonment of older Abandonment of derelict industrial sites; sprawl
industrial areas and urban expansions in growth limited by nation size and high population density;
Centers; interstate competition for new firms, people international competition for new firms, people
(*) Adapted from Tables 7.1 - 7.4 in Meyer, P.B., R.H. Williams and K.R. Yount (1995) Contaminated Land:
Reclamation, Redevelopment and Reuse in the United States and the European Union. Cheltenham, UK:
Edward Elgar Publishing, Ltd.
3
These differences are notable for distorting the apparent ‘lessons’ that the US experience offers.
Observations on the possibilities and constraints for Europe cannot be taken simply from the
observed outcomes of policies and practices in the US. That said, let us now turn to the effects of
the original US contaminated land policy and the revisions that have been promulgated in light
of that experience.
CERCLA: Intents and Impacts ... the law and unintended consequences
The legal requirements for cleanup of past contamination and the imposition of liability
for both the cost of cleanups and for damage attributable to pollution derive from CERCLA and
its amendments and successors. The legislation was intended to promote cleanup and protect
human health and the environment from exposure to the toxics associated with production that,
prior to the emergence of a concern for the environment, were routinely disposed of on-site at
production facilities or at unregulated ‘dumps.’ Consistent with the US effort to minimize the
role of the state, CERCLA imposed the costs of cleanup on private parties owning or using
contaminated sites in order to avoid public expenditures.
The federal courts have found that CERCLA imposes ‘strict, joint and several liability’
for past pollution on all parties in a property's chain of title – the so-called ‘potentially
responsible parties’ (PRPs). The risk of inclusion in this chain, which includes all owners and
users of a property after the pollution was created, generates uncertain liabilities that discourage
the very investment in brownfield cleanup the law was intended to assure. The disincentives are
stark:
• ‘Strict’ liability means that parties in the chain of title may be held liable for environmental
cleanup without regard for negligence or fault (that is, even if they bought the property
after it was supposedly cleaned up).
• ‘Joint and several’ liability applies to situations where more than one PRP exists. Since it may
be difficult to determine each party's contribution to the pollution, the courts have held
that any one PRP may be held liable for the entire cost of site cleanup, unless it can be
shown that the harm is ‘divisible.’
In short, any new purchaser or occupant of a previously polluted site may be held legally
responsible for environmental harm caused before the party owned or occupied the property.
Court rulings created an ‘innocent landowner defense’ from CERCLA liability. To
successfully claim this protection, however, owners must prove that they (1) bought the property
after the pollution took place; (2) did not know and had no reason to know that the site was
contaminated when they bought it; and (3) exercised ‘due diligence’ in attempting to learn about
its environmental condition before they purchased the property. The availability of the exception
in effect depends on a prospective purchaser’s prior knowledge about the law and on the actions
of other possible PRPs, who might sue to undermine the defense. As a result, the market value of
a site may vary, depending on the strength of an available innocent landowner defense.
CERCLA, moreover, was promulgated to address major contamination and widespread
problems on large-sized sites, those on the National Priority List (NPL). The liability regime,
however, affected sites of 0.1 hectare or less, if any past uses might possibly have involved
contamination. EPA recognized this spreading impact, and promulgated a definition of a
‘brownfield’ site to distinguish those widespread and common properties from the NPL problem
4
cases for which CERCLA was intended originally. The agency thus defined brownfields through
regulation as, ‘abandoned, idled or underutilized industrial and commercial facilities where
expansion or redevelopment is complicated by real or perceived contamination’ (Kaiser 1998). It
attempted to modify requirements and provide legal reassurances to prospective redevelopers of
those brownfield sites and their financiers, but EPA did not have the power to completely cover
the broad legal exposures generated by CERCLA.
These features of CERCLA and its application have generated perverse impacts in real
estate market outcomes:
$ By adding massive transaction costs and uncertainties about returns on investment,
CERCLA discouraged private capital from reclaiming contaminated sites they might
otherwise have used for land development.
$ Available defenses from liability risks were such that buyers with more knowledge may
have found sites more valuable than those not eligible for the defense due to failure to
collect information, meaning that additional buyer information – by providing liability
relief – may actually have raised sale prices for sites in prime or otherwise desirable
locations, which is inconsistent with normal asymmetric information market processes.
$ EPA’s brownfield definition distorted the market and weakened the competitive position
of land in currently inefficient residential use by its focus on industrial and commercial
facilities despite the widespread use of lead in older homes, and the fact that residential
uses may have, unintentionally, been placed on previously contaminated land.
Not surprisingly, the impacts on the ground generated further economic inefficiencies.
CERCLA produced new pressures for land abandonment, not reuse, and produced an
additional stimulus to sprawl. It increased the fiscal and problems of older developed areas, most
especially urban cores, by undermining revenues from real estate taxation and by taking land off
the market and thus reducing levels of economic activity within cities. It contributed to the
expansion of the social and physical inequities associated with income inequality by retarding
site cleanups and leaving the very poor both the most likely to be exposed to contamination and
the furthest away from the new jobs emerging elsewhere.
The law needed to be changed. There was consensus on its inefficiency and perverse
impacts for brownfield sites, measured against the law’s expressed legislative intent. But
substantive legislative change in its liability provisions did not take place until the passage of the
Small Business Liability Relief and Brownfields Revitalization Act in late 2001.
The 2001 Small Business Liability Relief and Brownfields Revitalization Act
The lengthy name of the new law provides a clue to both its genesis and its scope. There
seem to be two issues involved – some specific liability relief and some support for
revitalization. The law is, in fact, a merger of two totally distinct bills that were passed by the
different houses of the US Congress in 2001 and eventually merged. This is evident in the major
sections of the Act, which encompasses two ‘titles,’ each of which may be legally referenced by
a different name as an Act in its own right. In other words, the Small Business Liability Relief
and Brownfields Revitalization Act consists of:
Title I – Small Business Liability Protection Act
Title II – Brownfields Revitalization and Environmental Restoration Act of 2001
• Subtitle A – Brownfields Revitalization Funding
5
• Subtitle B – Brownfields Liability Clarifications
• Subtitle C – State Response Programs
The three Subtitles under Title II address totally different matters and appear to arise in almost
random order.
While we will discuss motivations and impacts more in comparison of the old and new
conditions for brownfield redevelopment below, the experience prior to passage of this Act may
help explain its elements. The first brownfield-specific legislation intended to modify CERCLA
was introduced in 1994 and 1995, but it took the better part of a decade to get the changes. In the
interim, funds originally raised for one purpose were diverted to another, regulations were
promulgated in the absence of legal requirements, and the courts continued to attempt to infer the
implications for hundreds of thousands of small sites with unknown pollution scattered across
the nation of a series of laws and regulations originally promulgated to address heavy
contamination on major private industrial and government-owned properties that posed major
threats to human health and the environment. Moreover, flaws in the original legislation became
more and more obvious over time, as PRPs facing tens of millions in cleanup cost requirements
looked to find others to help cover their costs.
Many NPL sites were abandoned landfills that had accepted toxics as well as household
and other wastes. Under the joint and several liability provisions of CERCLA, these sites drew
into the scope of liability small businesses that disposed of tiny amounts of toxics, as well as
municipalities that were disposing of household and related trash. Title I addresses the
definitions of PRPs and provides safe havens and exits for these small contributors to a major
problem.
Brownfields have become an economic revitalization issue because their locations have
proven to be important in terms of urban redevelopment prospects and their underutilization has
been associated with waste of the infrastructure remaining in place that served them. Business
attraction by local and individual state governments is important in the US not merely for the
jobs new firms generate but for the taxes that emanate from their activity, payroll, sales and the
like, which are the dominant sources of public sector revenues that are not shared across the
nation. Title II responds to this difference between scattered small sites in urban centers and
isolated large parcels that may not have immediate substantial economic value in reuse.
o Subtitle A, Brownfields Revitalization Funding, frees the brownfields funding
support provided by the federal government from the limited ‘Superfund’ monies.
Prior to the passage of the new law, EPA had, for about five years, earmarked a
portion of the pool of funds collected from chemical companies to help pay for
cleanups at ‘orphaned’ sites of major contamination for use by local governments
and quasi-public bodies to stimulate cleanup and reuse of much smaller and often
less toxic brownfield sites. This use of the funds encountered legal challenges but,
more importantly, was about to end since the tax that generated the money in the
Superfund had not been renewed since the mid-1990s. This subtitle authorizes up
to $200 million annually for five years for support to local brownfield regeneration
efforts, more than doubling the $93 million actually spent by EPA in fiscal year
2002.
o Subtitle B, Brownfields Liability Clarifications, addresses a series of ambiguities in
legal liability that CERCLA and the court interpretations of the law had generated
and that were perceived as retarding brownfield regeneration. Small sites easily
contaminated adjacent lands, small buyers get poorer legal advice and are more
6
likely to unintentionally acquire contaminated properties, and these scattered
parcels are more likely to be inherited or otherwise acquired unintentionally, so
holding the owners liable for their contamination may be inappropriate. While Title
I addresses the problems of small entities involved in large scale contamination
conflicts, Subtitle B of Title II deals with the unintended consequences on smaller
sites, the brownfields, of the broad CERCLA liability imposition.
o Subtitle C, State Response Programs, represents a new initiative, not really a
response to a prior problem with CERCLA. Given the economic development
imperatives cited above, the US states had been writing their own brownfield
cleanup programs and offering some liability relief for a number of years before
2001, all without federal financial assistance. This subtitle provides up to $50
million annually to support those state efforts. The funds available thus are
dwarfed by those already being spent by the 50 states, so their only real rationale
appears to be the Republican ideological and political objective of further
enhancing states’ rights and powers by devolving enforcement authority to them.
o Federal funding in principle could have substantial impact on actual practice on
the ground, both in the behaviors of state and local governments and in private
investment decisions. The maximum authorized funding under this Act, however,
is a total of $1.25 billion, or $250 million annually for five years. That amount is
insignificant in any economy the size of that of the United States, amounting to
less than $1 per capita per year. Moreover, that is the funding authorized, and the
amount actually appropriated and spent could be less: for the 2003 fiscal year, the
budget permits $200 million in spending under the Act, not the full $250 million
authorized.
Our comparison of the changes in law in the US thus focus on the shifting liability
provisions: Title I and Subtitle B or Title II. Rather than introduce each element of the new law
and conduct a subsequent comparison, we short cut the process in the next section and present
the new provisions in direct contrast to what preceded them.
The Key Changes and their Impacts
A change in the definition of the problem to be addressed clearly underscores all shifts in
liability and legal responsibility. The prior brownfields definition was a matter of EPA
regulation; the Act substitutes a new, legally binding, legislated definition in Section 211:
‘Real property, the expansion, redevelopment, or reuse of which may be
complicated by the presence or potential presence of a hazardous substance,
pollutant, or contaminant.’
The new definition reflects both political pressures and economic realities:
o The ‘potential’ pollution provision remains, reflecting an accurate recognition that the
market impacts of expectations can be identical to those of experiences.
o Replacing ‘industrial and commercial facilities’ by ‘real property’ permits old residential
areas to be addressed, but more broadly means that the brownfields issue is focused more
on matters of site conditions, not specific prior uses.
o This same refocusing is evident in the elimination of the modifiers ‘abandoned, idled or
underutilized,’ which permits the federal resources to be used to mitigate conditions
and/or change uses even on sites that are in very active utilization at the present time.
7
o The addition of the term ‘reuse’ to ‘expansion’ and ‘redevelopment’ expands the future
uses to which the federal law might be applied, and permits non-production uses such as
housing or even parks, recreation areas or nature preserves to be considered on an equal
plane with new employment-creating activities.
o The new list, ‘hazardous substance, pollutant, or contaminant,’ responds to other laws
and regulations that distinguish between pollutants and contaminants but also, in adding
the hazardous substance language, broadens the definition to include such things as
explosives (including military ordnance), drugs, and other items that may affect property
values by their presence. (‘Hazardous’ may, after all be interpreted to mean capable of
doing economic or psychological, not just physical, harm.)
The expanded scope of sites for which EPA funds and procedures may be used is even broader
than the new brownfields definition indicates, since ‘mine scarred lands’ are added to the scope
of the new Act. Such lands, whether scarred by overburden from mining operations or the
detritus of extraction and distillation of ores on-site (cyanide used in gold mining, for example)
are not our concern in this paper.
We can turn now to the major innovations in the new law that affect risk, uncertainty and
liability overall. These are five in number, and we address them with reference to their placement
in the Act, noting the prior condition, the new provisions, and the intended impacts of the
change. Table 2 summarizes the new developments, as promulgated in the legislation and the
regulations that have been issued to date. The actual impacts of these changes, or the predicted
effects according to different observers, warrant somewhat more discussion, especially since the
regulations are still being completed, at least one technical error appears in the Act, and the
courts have yet to rule on any litigation under the new legislation.
Given the perverse results of CERCLA, that scared capital away from investments in
remediation of contamination rather than attract it with the threat of harsh penalties through
federal liability for non-compliance, some skepticism about the new Act is warranted. The courts
played a major role in transforming the impacts of CERCLA, taking literally some vague
provisions that arguably required a different interpretation, given the expressed legislative
intents. Court decisions on the 2001 law have yet to emerge, but questions have been raised by
many speakers at the annual brownfields conference hosted by EPA, and an array of obvious
uncertainties and ambiguities can be enumerated.2 The factors that could affect actual impacts
include:
Sec 102 – Arbitrary cutoffs may be challenged: why 100 employees as a size standard and 110
gallons of liquid or 200 pounds of solid waste as a de minimis exclusion criterion? How
does the degree of toxicity or type of contaminant play into the exclusion, since it is
possible that a small amount of a pollutant left by no other party could massively affect
the cost of remedial responses?
Sec 221 – Questions about the degree of ‘cooperation’ with remedial responses abound: does
liability arise for a continuous property owner that attempts to avoid having to cease all
2
The volume of critical comment on the new law has only now started to emerge in writing and may be
expected to expand significantly in the coming months, now that the regulations, which describe how the language
of the law will be acted upon by the government, have begun to emerge. One good example of a legal assessment
poses the obvious question about the new law, in light of the compromises needed to bring it to life, ‘The Small
Business Liability Relief and Brownfields Revitalization Act: Real Relief or Prolonged Pain?’ (Guariglia, Ford and
DaRosa 2002). See also Brownfield Redevelopment (International Economic Development Council 2002) for an
EPA-funded manual on the new rules of the game under the 2001 Act.
8
on-site activity in order to accommodate a cleanup? To what extent must the response
procedures take into consideration economic impacts for the contiguous property owners
so that the cooperation requirement does not, in itself, constitute a major financial
burden?
Table 2 (*)
KEY PROVISIONS OF THE U.S. 2001 BROWNFIELDS LEGISLATION
Section & Issue Prior Condition New Language Intended Impacts
Section 102, on Small businesses and those Exemptions provided for Should simplify PRP
small contributors depositing tiny amounts of defined de micromis waste negotiations & relieve small
to joint & several toxic materials at sites contributors on superfund firms (under 100 employees)
liability on NPL polluted by many parties sites, and for small firms and municipalities from
sites shared fully in liability and and municipalities for solid liability exposures that
got sucked into lawsuits. wastes on multi-contributor otherwise hamper economic
disposal sites on the NPL. capacities and activities.
Section 221, on Even if the pollution on-site Exemption provided to Should limit the economic
Contiguous migrated from another contiguous property owners impacts on landowners of the
Properties property, full cleanup if they have 1) tried to stop presence of local
liability existed for the and prevent future ongoing contamination to those
contiguous owners, who releases, 2) cooperated with parties actually responsible;
had to sue to get polluter(s) others’ response actions, should reduce the downward
to pay for their remediation and 3) not violated price pressure on sites near
and compliance costs. applicable use restrictions. contaminated lands.
Section 222, on Caveat emptor prevailed: Liability exclusion for Should reduce liability risks
Prospective no disclosures required; buyers that don’t impede for buyers who know that
Purchasers buyers entered CERCLA response actions and whose contamination lowered their
liability chain as they inquiries about prior site price for a site, if they have
acquired title unless they conditions meet due done due diligence and
could show they did not & diligence standards; must checked site conditions
could not have known about meet 8-point check list for before purchase, which
site contamination. ‘reasonable steps’ to protect should attract new
users & the environment. brownfield investors.
Section 223, on Defense emerged from Sets a prima facie basis for Protects those who acquire
Innocent court rulings, but was conduct of ‘all appropriate sites in the belief they are not
Landowners difficult to claim and inquiry’ compliance with contaminated but who
demonstrate, with no set ‘ASTM’ standards for site would otherwise be in the
standards other than the inspections additional liability chain; may also
different court decisions. checklist applies.3 protect inheritors and others
Section 231, on Liability relief offered by Specifies that, when a Effectively gives virtually all
State Response the states’ voluntary cleanup is conducted under responsibility for brownfield
Programs cleanup programs did not the requirements of a state sites to the states, limiting
limit the redeveloper’s risk with an approved cleanup federal government powers
of EPA ‘overfiling’ that program, EPA will accept to enforce cleanups or take
would require additional the state regulatory cost recovery actions at sites
mitigation activity. decision. addressed by the states.
(*) Derived by author from U.S. Congress. 2001. Public Law 107-118 (H.R. 2869) - ‘Small Business Liability Relief
and Brownfields Revitalization Act,’ and commentary on the new law from speakers at Brownfields2002, the EPA-
sponsored annual meeting on brownfield issues, Charlotte, NC, US, November 13-15, 2002.
3
ASTM is the American Society for Testing and Materials, an organization of engineers and many
others concerned with engineering standards, that pursues agreement on appropriate standards as a means of
reducing litigation and uncertainty in situations involving potentially contentious scientific judgments.
9
Sec 222 – Prospective purchasers’ obligation to conform to ‘accepted commercial standards’ ties
their liability relief to a moving target. Even greater ambiguity applies to the ‘reasonable
steps’ standard for the owners’ efforts to control the contamination and human exposure
on site. With both plausibly changing over time, due both to technological change and
judicial findings, what standards apply to a given purchase or purchaser, and how can that
be determined a priori by would-be investors and redevelopers?
Sec 223 – Reliance on the ASTM site assessment standards for determination of innocent
landowner status is inadequate: the Act requires conformance to the standards that were
in force in 1997, but they were modified in 2000. The error reflects the time it took to get
the law passed and can be corrected, but it reflects the ambiguity over what really
constitute the steps that satisfy the ‘all appropriate inquiries’ standard referenced in the
Act, and leaves the actual operation of these sections very much subject to future EPA
regulatory guidance and judicial findings by the courts.
Sec 231 – State response programs must meet certain criteria for this clause to apply, including
maintenance of a brownfields site inventory, adequate oversight and enforcement of
standards, and provisions for public participation in state agency decision-making. The
standards required, however, a not specified and the guidances issued by EPA thus far are
very vague, leaving the definition of an ‘acceptable’ state response program up to court
decisions in future litigation.
In other words, it is not at all clear whether or not the new law will correct the problems
uncovered by experience under CERCLA prior to these amendments. The prospect for the new
provisions to create new and different impediments to reclamation and reuse of brownfields is
high, given the ambiguities in the legislation and the ambiguous legislative histories of clauses
that have appeared in different bills introduced in the House and Senate in over a number of
years prior to their passage in the 2001 Act.4 The unwillingness of the Republican appointees at
the top of the Environmental Protection Agency to impose strict implementing regulations is
evident in the Agency’s issuance of less formal guidances on implementation rather than the
formal regulations generally envisioned by the drafters of legislative language. The courts will be
busy.
Conflicting Motives and Distorted Outcomes
Disregarding political actors pushing language that benefits their specific constituencies
(such as those that forced ‘mine scarred lands’ to be included as brownfields), the economic
motivations for the different elements of the 2001 Act can be examined for the disincentives to
be avoided or incentives to be generated. The objective functions of the different actors diverge
substantially, however, both between the public and private sectors and between levels of
government and types of private parties. Any legislation that emerges from negotiations over a
period of some eight years may be expected to include ambiguities and inconsistencies that result
in some failures to serve any one party’s objectives. In this case, the compromises before and
after passage of the bill may have left the US with little to show for the supposedly landmark act.
4
The legislative histories of these clauses are important because, in the case of ambiguous language in
the law itself, the courts turn to the hearings records and House and Senate reports on different bills and clauses to
determine the ‘legislative intent’ which is supposed to govern adjudication and judicial findings.
10
The condition of ‘real or perceived contamination’ imposes two broad sets of costs on
potential real estate development projects that would not be present on sites known to pose no
environmental risks (if such sites exist). Addressing the contamination risk requires information,
so the immediate transaction costs associated with investment decision-making are raised. At the
same time, the expected returns on reclamation and redevelopment investments may also be
reduced by uncertainties and other, more certain, regulatory requirements and constraints. These
classes of costs, however, are experienced and valued very differently by the public and private
sectors. Table 3 enumerates some key costs and their valuation by federal and sub-national
governments, brownfield specialist redevelopers, and run-of-the-mill real estate investors.
The Table, which shows the marked lack of consensus that may help explain the
ambiguities in the new legislation. Perspectives on the costs created by the existing CERCLA
regime vary for a number of different reasons, associated for the most part in the extreme
diversity of the interests and organizations affected by any legislation, regulation or practices that
affect the reuse of previously developed land and buildings:
o The difference between the federal and state/local public perceptions is
attributable in large part to the fact that the federal valuations have been dominated by an
environmental agency, the EPA, while brownfields policies and practices at the state and
local levels has tended to be dominated by economic development concerns, even if
actual regulatory actions are taken by environmental protection departments. Geographic
competition for business locations and tax revenues, more than long term environmental
considerations, thus dictate the cost perceptions at the sub-national governmental levels.
o The specialist brownfield redevelopers enjoyed superprofits in light of their
information about environmental risks and the barriers to entry posed by uncertainties.
These private actors may have achieved a degree of ‘regulatory capture’ of the Agency
akin to that often ascribed to more traditional regulated industries, and they do not want
the regulatory clarity that would reduce the barriers to entry for potential competitors.
o The generalist developers simply have avoided brownfield problems by building
on greenfields or doing infill development only in areas known to be pollution free. They
thus never formed a strong constituency for brownfields reform and regulatory clarity.
o Communities – and brownfield-contiguous property owners – did have an interest
in substantive reform of the regulations in ways that would attract new capital to
neighborhoods housing brownfields and in new liability standards that recognized the
innocence of occupants of properties adjacent to polluted sites. Their political power,
however, was limited: industrial and commercial property abandonment is most likely to
occur in neighborhoods that have myriad other economic and social problems (and thus
low property values), and those communities tend to be politically weak.
This list of divergent interests could be extended, but it serves to illustrate the problems faced by
any proposed changes in legal or socially expected requirements. Since the legislative process
that brought about the new law involved extensive negotiation and compromise, the ambiguities
were inevitable.
11
Table 3 (*)
PUBLIC AND PRIVATE PERCEPTIONS OF BROWNFIELD COSTS
Perceived Cost Government Agencies and Offices Private Developers, Financiers
Type & Cause Federal State/Local Specialists Generalists
Transactions:
Site Environmental Not a problem, Disincentive to No problem; can do Source of risk &
Assessments and needs to be done to reinvestment in fast and cheap, and additional
Investigations protect people & the cities; incentive to need to know to plan uncertainty;
environment exurban sprawl investments disincentive
Project Delays due to Issue only if EPA Causes loss of tax Part of the process; Time is money;
Due Diligence cannot deal with revenues & jobs if minimized through major
Requirements immediate on site redevelopment is knowledge of the disincentive
endangerment delayed regulatory process
Loan Underwriting Not perceived as an Can be difficult to Not an issue since Raises cost of
Cost Increases due to issue or problem, get small lenders financing comes capital to
Information and mainly because not to support from brownfield risk borrowers - or
Processing Costs observed or brownfield takers makes capital
experienced redevelopments unavailable
Uncertain Expected Seen as caused by Problem for units Gives a competitive Major reason for
Cleanup Costs vague regulations, preparing sites for advantage over the avoiding
not a physical issue new investment non-specialists brownfields
Additional Legal Unfortunate reality; Public costs divert Reason to ‘cherry Another cost
Expenses excessive only for funds from I in real pick’ sites with very reducing the
Superfund-related brownfield high ROI; not to narrow margins
sites & projects redevelopment avoid brownfields on brownfields
Reducing Returns:
Liability Risks due to Major disincentive; Impedes even local Specialist risk takers Reason not to
Buying a Site court rulings on government-led benefit from risks invest in even
CERCLA created brownfield cleanup that reduce brownfields that
‘joint & several’ and competition for have been
liability risks redevelopment brownfield property mitigated
Total Cleanup Cost Reduction desirable Cleanups raise the Part of doing Could be a major
Incurred to extent consistent cost of remediation business; often a factor, especially
with protecting the & redevelopment; small % of total for smaller sites
environment will impede re-use project costs & infill projects
Cleanup Standards Undesirable but Must minimize all Risk is minimized by Reason to fear
Uncertainty unavoidable, if uncertainty to get staying on top of reopeners and
knowledge is used investment in areas changes in cleanup lower expected
to protect humans & with risks of and detection returns on
the environment contamination technologies investment
Risk of Reopening or EPA has never Risk of EPA action Risk is recognized as Generates fear of
EPA Overfiling overfiled on a state undermines the being so low that it is losses despite no
standard except at a value of state insignificant evidence it is a
state’s request covenants real risk
Required Monitoring Necessary to protect To be avoided as a Expected; not a Intrusion on
Over Time human health and disincentive to new major factor in long property rights,
the environment investment term Return on Inv. lowers site value
Deed and/or Land Needed if Risk Many see erosion To be expected; not a Market prices
Use Restrictions on Based Corrective of property values; major factor in long indicate limits
Future Activities on Actions (RBCA) to others say limits term Return on reduce prices only
Site mitigate are used pose no problem Investment minimally
(*) Cost categories based on, and modified from Table 3 in Meyer (2002). Cost statements based on transcripts of
interviews and related data collection over the period 1997-2002, described by Meyer and Lyons (1999) and Yount
and Meyer (2002).
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The implementing regulations promulgated by the Environmental Protection Agency
have added to the problems. Typically, when laws are written ambiguously in the US, the
legislative expectation and intent is that the requirements will be specified in greater detail by the
regulatory or implementing agency that has to carry out the law. The last few months of 2002
have seen the emergence of the EPA implementing Guidance on the new law, and the results are
further ambiguities. First, the regulations, which range beyond the scope of this paper, have been
addressed primarily to implementing the financial grants portion of the Act, Subtitles A and C pf
Title II. The regulatory requirement changes, however, are in Title I and Subtitle B of Title II.5
Second, to the extent that any of the other requirements, notably those associated with record
keeping and community involvement, that are part of grant eligibility are specified, they cater to
the lowest common denominator, demonstrating no concern for those processes that are likely to
reduce uncertainty, and thus litigation and court intervention, through provision of better
information to market participants or to the communities and people that experience the
externalities of brownfield market transactions and regulatory control processes.
Perverse and Productive Incentives: Does the US Offer Lessons for Other Countries?
Obviously, some of the lesson the US may offer is about what NOT to do. Compromise
does not always produce the best results, and that seems clear in the new revisions of the liability
and other provisions in the 2001 Act. However, that point on compromise is not new, and not
unique to the US or to approaches to contaminated land. The real lessons derive from the process
followed and the weaknesses it exhibits.
The issue is not the political weakness, but the failure to adequately examine economic
motivations and how they shape investment decisions. The limited distinctions made in this
paper really touch on only the surface of the motivational analysis need to consider how
brownfields may be used to promote smarter growth and more sustainable forms of human
settlement and urban development. A simple enumeration of the actors involved, and their
potential motivations, may serve to illustrate the analysis that should be undertaken in any
serious effort to consider the roles that the state and markets may play in stimulating greater use
of brownfields for sustainable urban development. The failure to consider even the four-way
distinctions made above in Table 3 are, of course the root cause of the weakness in the US
legislative and regulatory changes.
5
The Guidances are available as links from the main EPA Web page, comprise the key posted links
there and are all posted as “New”: <http://www.epa.gov/swerosps/bf/> (Last checked on 17 December, 2002). The
titles of the Guidances indicate their focus (and may be need to locate the versions on the web when hot links are not
readily available from the main brownfields page):
$ Proposal Guidelines for Brownfields Assessment, Revolving Loan Fund and Cleanup Grants
$ Transition Guidelines for existing BCRLF Pilots
$ Proposal Guidelines for Brownfields Job Training Grants
$ Grant Funding Guidance for State and Tribal Response Programs
13
Table 4
THE DIVERSITY OF PUBLIC AND PRIVATE BROWNFIELD ACTORS
Type of Actor
PUBLIC SECTOR
Central (EU or Federal) Environmental Agency
Central Economic Development Agency
Central Social Inclusion and/or Housing Agency
Central Spatial Planning Agency
Member-State or State Environmental Agency
Member-State or State Development Agency
Member-State or State Social Inclusion and/or Housing Agency
State or Regional Spatial Planning Agency
Local Commune or County Environmental Agency
Local Commune or County Economic Development Agency
Local Commune or County Social Inclusion and/or Housing Agency
Local Commune or County Spatial Planning Agency
PRIVATE SECTOR (whether for-profit or non-profit)
Specialist Brownfield and Inner City Redevelopment Firms
Urban Redevelopment/Conversion Firms no Experience on Brownfields
General Redevelopment Firms and Builders
Housing Specialist Builders (whether or not working with governments)
Specialist Brownfield and High Risk Real Estate Financiers
Merchant Bankers Taking High Risks, not just Real Estate
Commercial Financiers, including High Street Banks
Specialist Housing Lenders, including Building Societies
NON-DEVELOPER USERS, OCCUPIERS, AND NEIGHBORS
Owners of Properties Contiguous to Brownfields
Occupants of Properties Contiguous to Brownfields
Owners of Properties in Brownfield-Intensive Neighborhoods
Other Business Occupants in Brownfield-Intensive Neighborhoods
Community-Based Organizations in Brownfield-Intensive Neighborhoods
Residents in Brownfield-Intensive Neighborhoods
Farm and Other Non-Urban Property Owners
Natural Resource Management Agencies and Trusts (any geographic level)
The different actors identified in Table 4 respond very differently to the different
incentives that may be offered and to the changes in reporting requirements, timing, liability and
other facets of brownfield redevelopment controls. We have expanded the list of actors in this
table beyond the more limited set that appears in the United States as a means of illustrating the
complexity of the analysis of motivations and responses to incentives that new brownfield
approaches will need to consider.
The relative importance placed on transaction costs relative to longer term returns on
investment also vary tremendously, with some, such as the financiers, only willing to risk loan
processing transaction costs for developers that have already committed substantial resources
covering the costs of site assessments, the most fundamental – and often the largest – of the
14
transaction costs. The risk profiles of lending institutions at different points in time and in
different local economies can result in redevelopers with seemingly identical projects getting
funding in one case but not the other, depending on their location in time and space.
Each of the lines in Table 4 represents a type of interested party. Not all will exist in all
countries, but some may have more than one organization of the types that are present. Each
actor, whether organizational or individual, has some objective function that, in the ideal,
warrants examination. The specific function components, or the weights assigned to different
components of the functions, may vary from one or another actor within a particular type.
Analysis of this level of diversity in interests would be impossible. What is important, however,
is that the diversity of functional forms be recognized as well as the range of different
components contained in an envelope enclosing all the objective functions.
This is the lesson of the diverse actors enumerated in Table 4: Failure to even recognize
the array of different functional forms and variables that may play a role in motivating the
participants in the process of reusing brownfield sites will inevitably result in suboptimal laws
and policies. Overweighting he interests of any one subset of actors in Table 4, especially if they
share objective functions that differ substantial in variables, weights or form from those of other
actors will undermine any potential for sustainable development of brownfields. Yet this
tendency has to be considered to be extremely high: the US experience is evidence of its
occurrence and its consequences. More importantly, the unequal distribution of political access
and ability to argue for particular objectives needs to be taken as inevitable. The process of
devising more appropriate policies towards brownfields and towards attracting the private and
public capital needed to permit their transformation and reuse, must systematically adjust for this
bias in the political processes of democracies with unequal distributions of income and thus of
political ‘voice.’
15
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