BEN in the United States

BEN in Environmental Law

A computer program used by the Environmental Protection Agency (EPA) to calculate the economic benefit of delayed compliance with environmental laws. The program was developed to provide standard variables, such as interest rate, inflation rate, discount rate, and investment tax credit. If available, specific information can be substituted for the standard variables.

Compliance with environmental laws is expensive. Often it involves installing and maintaining equipment or using control methods that may be costly. But the penalties for noncompliance can be even more expensive. A regulated entity faces a maximum penalty of $25,000 per day per violation for most federal violations. But even that is not always enough to encourage compliance. The reasoning is familiar: if you don’t get caught, you can put off the cost of compliance indefinitely. Meanwhile, other regulated entities are following the legal requirements. As a consequence, they have incurred expenses a violator has not, since money spent for compliance is money not available for other business uses. Thus, a violator could easily gain an economic advantage by spending its money elsewhere.

To address this problem, the EPA has issued penalty policies. Starting with the statutory maximum penalty, the EPA makes adjustments to the penalty based on factors such as ability to pay, gravity and duration of the violation, history of compliance, and economic benefit. The EPA has long taken the position that a penalty cannot be reduced below the economic benefit realized from noncompliance so that there is no incentive for violation.

The BEN model takes some of the pain out of calculating the economic benefit. The inputs cover the initial cost of installing the required equipment whether it is a onetime expenditure, whether it is tax deductible its operation and maintenance costs; noncompliance date and date of compliance; useful life of the equipment; the marginal tax rate for the business; the inflation, discount and interest rates.

With all these factors taken into consideration, it sounds as if a penalty calculated by BEN would be indisputable. It is not, though, because the result is wholly dependent on the input. Therefore, even the conclusion reached through BEN may be subject to negotiation, particularly when the violator could have achieved compliance through several methods and the EPA has used the cost of the most expensive one for the input. If the violator is in compliance at the time the penalty is calculated, determining the economic benefit is simpler. Actual costs can be used as the inputs for the program, along with the assumption that the regulated party should have implemented the modification earlier.

Economic benefit is sometimes a difficult concept for some regulated parties to grasp and hotly contested even by knowledgeable businesses. They contend, basically, that they did not realize an economic benefit from noncompliance. Often they bring out their books to prove that they did not divert compliance funds elsewhere. If they had already budgeted for environmental expenses then decided to use the money elsewhere, the benefit would be clear. Most of the time, though, the compliance delay will be the result of not borrowing the money, either from an outside source or another internal account. Rarely will a windfall be apparent because of delayed compliance. However, during the period when compliance was deferred, all associated costs were postponed. A penalty that does not recognize this component of compliance tends to reward those who delay and discourages law-abiding businesses.
Based on “Environment and the Law. A Dictionary”.