Asbestos Liability: How Does a Company CEO Provide Financial Assurance?

By: Tony Nocito

The Environmental Protection Agency (EPA) has been sued by the environmental groups, Sierra Club, Great Basin Resource Watch, Amigos Bravos and Idaho Conservation League, to enforce Section 108(b) of the Comprehensive Environmental Response Compensation and Liability Act (CERCLA), i.e., companies must prove financial assurance requirements for hazardous releases. In short, prove to EPA that they can afford to pay the clean-up of hazardous release from today’s operations years in the future.

The first industry that must comply with the enforcement of 108 (b) is the Hard Rock Mining Industry, which is and has cost the EPA billions of dollars to clean-up Superfund sites. These clean-up costs are presently paid for with taxpayer dollars.

The Hard Rock Mining Industry compliance with 108 (b) will be followed, within a year, by Electric Power Generators, Power Transmission and Distribution Industry, and the Process Industries: Chemical, Petroleum Refineries, and Coal Producers.

EPA will require an acceptable financial vehicle to prove financial assurance such as guarantee, surety bond, stand by letter of credit, insurance, self or insurance company generated, all with terms and language incorporated and approved by the EPA.

The financial assurance instruments will protect the taxpayer against future costs in case of bankruptcy.

All of the aforementioned industries have asbestos in their facilities and all of the aforementioned industries have asbestos liabilities, whether they are in their facilities, in a landfill or have caused exposure to humans who have contracted asbestoses or mesothelioma.

Self-insurance against asbestos diminishes the stock value, because of the long latent period for the diseases asbestoses and mesothelioma, along with the perpetual liability asbestos carries when stored in a landfill. I say stored, because the generator of the asbestos still owns asbestos cradle-to-grave under CERCLA.

To add to these costs, public companies have to deal with the Security and Exchange Commission’s Accounting Board Standard’s: Fin 47 and Statement of Position 96.1, both require CERCLA enforcement.

The herculean efforts and funding required to clean-up these Superfund sites has driven congress to determine the reinstatement of the polluter pays tax; the reinstatement is strongly supported by EPA. This tax would quickly bring revenues into the Superfund clean-up efforts and quicken clean-up.
The implementation of CERCLA Section 108 and the reinstatement of the polluter pays tax will take a good deal of pressure off the taxpayer and put it where it belongs, on the polluter.

In my experience, when it comes to asbestos, the attitude is: if it is cheaper and easier to send to a landfill, although asbestos is a regulated waste --- it is still a hazard, which makes it a hazardous release.
The attitude: we will deal with it in the future, if and when it becomes a Superfund site.

It is not undeniable that sizeable environmental liabilities and risks cause a blunt blow to a company’s bottom line, shareholders equity and its stock price. Therefore many companies do not distinctly specify detailed environmental liability by delaying quantification, saying they can not accurately predict future environmental costs, hide information in the foot notes, do not amass liabilities at one time, or avert recognizing future costs.
The above tactics divert divulging future costs that should be in present financial statements. Consequently, the profit margin will be higher, the shareholder equity greater, and the stock price higher.

The enforcement of Section 108 and the strong possibility of an environmental tax reinstatement, will force future environmental liability costs to be carried on the books of a company today, leaving room for non of the above financial statement deterrents.

Appropriately, a CEO of the above mentioned companies will have to ask their environmental department heads to start looking for alternative solutions to permanently rid the company of hazard releases. Preferably ones that do not allow the hazard release to leave the premises.

When hazards are being released from a site, CEOs should require a constant vigilance by their environmental department heads to find technologies that will constructively support their environmental initiatives that will mitigate the financial responsibility of Section 108 (b), and if passed, the environmental tax.

Where asbestos is concerned, there is a non-thermal, EPA approved process, simple process that destroys the asbestos on-site as it is being removed: The ABCOV METHOD of asbestos destruction.

CEOs should always seek out technology for feasible environmental solutions, avoiding future liabilities. Once the aforementioned regulations are put into effect they will become extremely costly to manage with no way to financially disguise environmental cost of a hazard release.

Executive Order: What Does it Mean for Asbestos Contamination?

On October 5, 2009, the CEO of our Country, President Obama, signed an aggressive environmental Executive Order (EO) focused on Federal Leadership in Environmental, Energy, and Economic Performance, establishing a strategy of sustainability for Federal agencies.

The EO focuses on green house gas emissions, water management; waste elimination, recycling and pollution prevention, and to “leverage agency acquisitions to foster markets for sustainable and environmentally preferable materials, products and services.”

My focus on the EO is to support its strategy of pollution prevention by eliminating asbestos waste from our environment.

Asbestos was mandated for use in every branch of the military from shipyards, where over 300 asbestos products were utilized, to munitions and in multitudes of building materials. Examples: the Defense Logistic Agency stored thousands of tons of raw asbestos in silos around the country for emergency use, and when built, the Pentagon was infused with 140,000 tons of asbestos containing materials, only to be removed and sent to a landfill for storage during the recent Pentagon renovation project.

As a result of government asbestos use, statistics reveal that more than 30% of Americans with mesothelioma were exposed to asbestos during military service or while working on government facilities.

Under the Comprehensive Environmental Response and Compensation Act (CERCLA), revised to Superfund, prohibitions and requirements were set for closed and abandoned contaminated sites as well as the liability of individuals and businesses responsible for contamination. CERCLA directly addresses Federal Facilities, stating that each department, agency, and instrumentality of the United States is subject to, and must comply with, CERCLA in the same manner as any nongovernmental entity.

Private industry and government agencies designated as a personal responsible party (PRP) under CERCLA are subject to strict, joint and several perpetual liability and requires them to significantly reduce volume, mobility and toxicity of hazardous waste.

The EO takes CERCLA and Superfund to a higher level by specifically requiring Federal agencies to promote pollution prevention and eliminate waste by diverting at least 50 percent of construction and demolition materials and debris by the end of 2015.

The permeation of asbestos containing materials, when removed from a government or private facility, will cause perpetual liability for its owner when stored in a landfill.

The ABCOV® process is presently the only Federal EPA approved, non-thermal, simple chemical physical process that destroys all 6 asbestos forms in asbestos containing materials (ACM) on site,  preventing trucking through neighborhoods, and most importantly, preventing future asbestos liability.

Base Realignment and Closure (BRAC), Military base landfill clean-up mandated by EPA, and bases that are superfund sites, all contain asbestos.

Just think about who pays when industry is environmentally lax: stockholders, employees and customers. This liability is isolated to the related company, if the asbestos liability does not cause bankruptcy. Who pays for bankruptcy of the company – The Taxpayer!

Now just think about who pays when the government does not implement the EO as stated and at the same time enforce the CERCLA regulation? – The Taxpayer!

We would like you to share your thoughts on the above. 

We look forward to conversing with you.