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02.21.2024 Legal News

What to Know About EPA’s Inflation Adjustments for Civil Penalties

EPA recently promulgated a final rule (the Rule) adjusting civil penalties issued by the agency for inflation. This action was performed pursuant to the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (2015 Act), which mandates EPA adjust maximum and minimum civil penalty amounts for inflation. Pursuant to the 2015 Act, notice and comment was not required for this rulemaking.

The 2015 Act provides a two-step formula which agencies must use to adjust civil penalties annually. First, the agency calculates the difference between the Consumer Price Index for Urban Consumers for the most recent October with that of the October one year prior. The difference is multiplied by the current penalty amount, resulting in a “raw adjusted penalty value.” Step two merely requires the agency to round the raw adjusted penalty value to the nearest $1. The result is the final penalty value for the year.

The Rule includes a Table listing code sections that provide for civil penalties and assigning adjusted penalty amounts which vary depending on when violations occurred and when penalties are assessed. The new penalty amounts apply to violations that occurred on or after November 2, 2015; those amounts vary depending on whether penalties are assessed after December 27, 2023, or between January 6, 2023, and December 27, 2023.

The 2015 Act and its 1990 predecessor statute have affected EPA policy in a manner likely unintended. Because the 2015 Act requires inflation adjustments from the time a statute providing for a penalty was enacted, penalties that started at the same amount are now vastly different. For example, take the Clean Air Act, enacted in 1963, and the Clean Water Act, enacted in 1972. Both statutes provide for a $25,000 penalty in certain instances. Yet, due to when the statutes were enacted, those same $25,000 penalties now cost a violator $121,275 under the Clean Air Act and $66,712 under the Clean Water Act. The mandatory inflation adjustment schedule prescribed by statute has inflated older penalties relative to newer penalties, resulting in a skewed policy at EPA.

Because EPA’s adjustments are mandated by a statute lending EPA no discretion, regulated entities seeking to challenge EPA’s adjustments are unlikely to succeed. Our research revealed no case in which a party challenged EPA’s authority to adjust civil penalties pursuant to the 2015 Act. Regulated entities should assume the new penalty amounts will apply to any potential violations and plan accordingly.      

88 Fed. Reg. 89309 (December 27, 2023) and 28 U.S.C.A. § 2461 note