Financial Responsibility

Financial Responsibility in the United States

Financial Responsibility in Environmental Law

Problems associated with hazardous wastes, oil spills, and leaking underground storage tanks can be expensive and difficult to remedy. For that reason, Congress placed provisions in the Resource Conservation and Recovery Act and the Oil Pollution Act requiring certain businesses and people who deal with them to demonstrate that they have the means to fix any problems they create. The term used to describe this demonstration is financial responsibility. This requirement is in addition to technical requirements for facilities engaged in hazardous waste operations.

Owners and operators of underground storage tanks and hazardous waste treatment/storage/disposal facilities can prove financial responsibility in a number of ways, including self-insurance, letter of guarantee, liability insurance, letters of credit, surety bonds, state required mechanisms, state trust funds, and other trust funds. The amount of financial responsibility required depends on a number of factors. In the case of hazardous waste facilities, the assurance must be sufficient to correct any problems, close the facility, and monitor it. If oil is being transported or an offshore facility is handling oil or hazardous material, the amount is determined by the number of gross tons of cargo handled. For underground storage tanks, the amount depends on the size and type of operation.

A few examples of the financial requirements demonstrate their impact. Under current law, every hazardous waste treatment/storage/disposal unit must be closed at some point, since each particular unit has a limited life. Therefore, the owner or operator must determine how much it will cost to close (that is, properly shut down) the facility and maintain the financial ability to pay for the closure when it occurs. The amount required is based on the current regulations and estimated costs at the time it is first calculated, but if the estimate goes up in a following year, it must be adjusted. The estimate is calculated annually. Whether money must be set aside depends on the type of financial assurance used to satisfy the requirement. If the company uses self-insurance, it must simply have the capability of paying out the amount required. The prior year’s financial reports must verify the company’s ability to do that.

The primary purpose of financial assurance for vessels, offshore facilities, and underground storage tanks is to ensure clean up of releases. Therefore, the owner or operator must employ some mechanism to cover onetime events and assume responsibility for cumulative events occurring over a year. Each year, the owner or operator must meet these conditions. Vessel owners must provide for $1,200 per gross ton if they handle hazardous materials and $600 per gross ton if petroleum is involved. For offshore facilities, the amount is $150 million; for deepwater facilities, $350 million, but the Department of Transportation can lower these amounts. Underground storage tank financial responsibility varies according to the type of owner or operator and the number of tanks. If an owner or operator is a petroleum marketer, the amount is $1 million per occurrence; others must provide $500,000 per occurrence. Projected occurrences are determined in the same manner as insurance companies determine risks when writing policies. Neither the statute nor the regulations provide guidance on this point. Annual aggregate amounts range between $1 million and $2 million.

Tank owners or operators and vessels must obtain insurance or use one of the other mechanisms to show financial capacity, but they are not required to submit information unless the government asks for it or a release occurs. Only hazardous waste facilities must automatically demonstrate financial responsibility to the federal government. States often assume responsibility for overseeing operators of hazardous waste treatment/storage/disposal facilities, and they, too, may require a demonstration of financial responsibility [see delegation]. However, states have different approaches. Some require submission of a form explaining how the owner or operator meets its financial responsibility. Others want a copy of the mechanism. Most simply follow the federal regulations.

Owners and operators of underground storage tanks and vessels, offshore facilities, and deepwater ports must keep financial mechanisms in effect while in operation. For a stationary site, closing the facility ends the need for the financial mechanism. Also, transfer of the facility or vessel moves the requirement to the new owner.
Based on “Environment and the Law. A Dictionary”.


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