The U.S. Environmental Protection Agency’s recent decision to regulate the “forever chemcials” known as per- and polyfluoroalkyl substances (PFAS) under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) could create new opportunities for sustainable project developers.
The new regulations open new doors for project finance in terms of tax credit eligibility and funding opportunities from the federal government, but developers will need to tread carefully because of increased scrutiny from regulators, according to an analysis from the law firm, Norton Rose Fulbright.
Enhanced Eligibility for Tax Credits
With PFAS now listed as hazardous substances, many sites previously not considered as brownfields may now meet the criteria under CERCLA. This change significantly impacts the project finance market, as more sites could qualify for the 10% energy community bonus tax credit offered by the Inflation Reduction Act. Developers and financiers could reassess sites, especially those previously disqualified for tax incentives, to capitalize on potential financial benefits, as the .
Revised Environmental Due Diligence Processes
The regulation mandates that Phase I environmental site assessments now include potential PFAS contamination. This adjustment ensures that developers, along with lenders and investors, conduct thorough due diligence to gauge environmental liabilities accurately. The updated assessments aim to prevent future legal and financial surprises post-acquisition or development.
Increased CERCLA Liabilities
Property owners and operators now face heightened risks of liability. The EPA’s move to list PFAS chemicals such as PFOA and PFOS as hazardous broadens the scope of liability under CERCLA, which is both strict and retroactive. Stakeholders could find themselves disproportionately responsible for cleanup costs, regardless of their direct involvement in contamination.
M&A Transaction Considerations
For mergers and acquisitions, the PFAS regulation introduces potential reopener risks. Deals previously closed with environmental liabilities thought to be resolved could face new challenges if PFAS contamination is discovered. Legal advisors must meticulously review and possibly renegotiate the terms of any environmental liability settlements to address these new risks.
EPA’s Policy of Enforcement Discretion
Recognizing the potential for extensive disruptions, the EPA has outlined a policy of enforcement discretion aimed at reducing burdens on entities that passively contributed to PFAS contamination. This policy may protect certain sectors from aggressive regulatory actions but does not eliminate the risk of future legal challenges.
Future Regulatory Developments
The initial listing of PFOA and PFOS is likely just the beginning. As the EPA and other regulatory bodies increase their understanding of the hundreds of PFAS compounds, additional substances may soon find themselves under similar scrutiny. Stakeholders should stay informed and prepared for a possibly expanding regulatory framework.
Navigating New Regulations
The broadened regulation of PFAS poses complex challenges and opportunities in project finance. Stakeholders must navigate these changes strategically to mitigate risks and leverage new tax incentives. Engaging with knowledgeable environmental counsel and staying abreast of further regulatory updates will be crucial for success in this evolving landscape.
To learn how your company may benefit from these incentive programs and other federal financing options, reach out to Energy Transition Finance.
