June 18, 2007

Ontario MOE finalizes environmental penalties regulations

The Ontario government has finalized regulations setting out the toughest penalty regime in Canada for industrial spills to land and water. These penalties, similar to those in New Jersey and California, apply to the companies in nine Municipal Industrial Strategy for Abatement (MISA) industrial sectors operating 148 facilities in Ontario that have been responsible for a significant number of spills to land and water each year.

The regulations, filed on June 6, make the Environmental Enforcement Statute Law Amendment Act (formerly Bill 133), passed in June 2005, effective. They give the Ministry of Environment (MOE) the power to impose monetary penalties on companies that spill to land and water. Previously, the ministry could only attempt to prosecute those responsible for serious spills.

The new rules detail the facilities and the types of violations that will be subject to environmental penalties, as well as how the penalties will be calculated. Penalties will be assessed for the violations specified in the regulations starting August 1, 2007.

The calculation of environmental penalties will be based on a number of factors related to the type of violation and the seriousness of the violation. Average penalties are expected to be about $1,000 for administrative violations and $10,000 to $20,000 for unlawful spills and spill-related violations.

The amount of an environmental penalty would be determined by an assessment of:

* the gravity, or the seriousness of the violation and its consequences;

* the monetary benefit, if any, that the facility gained from non-compliance with environmental laws; and

* the number of days the violation continues.

The presence of a toxic substance in an unlawful spill or discharge will increase the gravity portion of the penalty by 35%. Supplementing the regulations is a a list of 113 toxic substances that would result in such an increase.

The new regulatory regime provides for caps on certain penalties. While there is no cap on major violations such as unlawful spills, failing to report a spill is capped at a $100,000 for multi-day violations. All minor violations are capped at $60,000 or the calculation for a 180-day violation, whichever is less.

The gravity portion of the penalty can be reduced by up to 35% if it is determined that at the time of the violation, spill prevention and mitigation measures had been taken and an environmental management system was in place.

Entering into a settlement agreement can lead to a reduction in an environmental penalty amount through an investment in an environmental project. Such a project must be undertaken at the facility in violation, and must take the facility beyond compliance with the law while aiming to yield environmental and/or human health benefits.

Facilities would be eligible for reductions of up to 100% of penalty amounts for minor violations and up to 75% in reductions for major violations. Any amounts assessed as a monetary benefit the facility gained from the violation, are not included in any calculations of caps or reductions.

Penalties will be phased in, allowing industry 16 months to fully adapt to the penalty structure. In the first phase, starting August 1, 2007, penalties will apply only to major violations such as spills and discharge exceedences.

The second phase will come into effect December 1, 2008. At that point, other violations, such as failure to have or operate in accordance with any industrial sewage works approval, will become subject to penalties.

The regulations also outline how funds raised through penalties can be used. A community environment fund, created with the passage of the act, is intended to help communities affected by spills with environmental remediation and restoration projects. Projects considered for funding would represent projects over and above those directly related to spill cleanup, as industry is already required by law to pay all such costs.

"Industrials spills affect the quality of life in Ontario communities," said Environment Minister Laurel Broten, adding that the aim of the penalties is to encourage companies to comply with environmental laws. "Now it's the law of the land that if you spill, you pay.

"We're confident that environmental penalties will reduce the number and severity of spills and protect Ontarians' health and the environment," she said.

Additional regulations require facilities subject to environmental penalties to prepare spill prevention and contingency plans and codify spill reporting requirements already in practice.

The nine MISA industrial sectors include petroleum, iron and steel, industrial minerals, inorganic chemicals, organic chemicals and pulp and paper. They also include metal mining, metal casting, and electric power generation facilities.

Environmental penalties will not apply to municipalities, agricultural operations or food processing facilities and, for the time being, will apply only to land and water violations.

The facilities that are subject to environmental penalties account for a significant portion of reported industrial spills to land and water from year to year. In 2003, these operations accounted for 30% of reported industrial spills to land and 64% of reported industrial spills to water. In 2004, they accounted for 30% of reported industrial spills to water and 37% of reported industrial spills to land.

In developing the regulations, the MOE consulted extensively with industry representatives, environmental, community and health groups on the regulations.

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