So-called "forever" chemicals are having a moment - EPA takes sweeping action on "PFAS" in April 2024

First, it issued final National Primary Drinking Water Regulations (NPDWR) for six PFAS primarily affecting public water systems (Public Water Systems) (the PFAS Drinking Water Standards).

And second, it announced a final rule designating two widely used PFAS chemicals, perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS), as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) (the CERCLA PFAS Rule).

These actions follow from the EPA’s “PFAS Strategic Roadmap,” which sets out EPA’s “whole-of-agency” approach to addressing PFAS. EPA intends the roadmap to serve as a blueprint for coordinated government action at all levels to accelerate PFAS cleanup, prevent new contamination, and advance scientific understanding of PFAS and the threats they may pose to human health and the environment.

These actions increase the potential scope of liability for companies that “manufacture” PFAS (which, under certain laws, includes the import of PFAS chemicals and articles), that include PFAS in their products, and that own, lease, or operate real property with historical PFAS contamination. At the end of this note, we provide key takeaways for companies assessing their own PFAS exposure.

1. What are PFAS?

As discussed in our previous publications,^[1]PFAS (which have been around since the 1940s) are a class of hundreds of different chemicals that contain a strong carbon-fluorine bond that gives them useful and unique properties, such as thermal and chemical stability and water and stain resistance. These substances, which do not occur in nature, perform critical functions across a variety of applications and industries, from waterproofing raincoats to improving thermal stability in semiconductor packaging materials. For example, PFAS are commonly found in, among other things:

• textiles;
• cosmetics;
• ski wax;
• food packaging; and
• fire-fighting foam.

^{2. New PFAs drinking water standards}

After the public comment elapsed, EPA finalized and set the following MCLGs and Maximum Contaminant Levels (MCLs) for the six PFAS:

The “MCLG” refers to the concentration of a contamination in drinking water below which there is no known or expected risk to health, whereas the “MCL” refers to the highest level of a contaminant that is allowed in drinking water and is an enforceable standard. As discussed below, the MCLs are thresholds that can trigger an obligation by a Public Water System to take corrective action (e.g., implementation of new technologies) to reduce the amount of covered PFAS in drinking water.

The “Hazard Index” is a metric EPA uses to assess health risks posed by a chemical mixture and is comprised of a sum of fractions comparing the level of each PFAS measured in drinking water to the relevant health-based water concentration. For PFAS, if the sum of fractional PFAS concentrations of more than one covered PFAS in drinking water exceed 1, then the concentrations would exceed the MCL under the PFAS Drinking Water Standards.^[2]

2.1 Compliance obligations for Public Water Systems

Under the PFAS Drinking Water Standards, Public Water Systems are required to come into compliance with monitoring requirements for covered PFAS within an initial three-year period (i.e., by 2027). From 2027 onward, Public Water Systems will be required to (i) conduct ongoing compliance monitoring for covered PFAS, and (ii) provide the public with information on the levels of these PFAS in their drinking water.

Additionally, Public Water Systems will have five years (i.e., by 2029) to (i) implement technological solutions to reduce levels of such PFAS if monitoring shows that PFAS are present in drinking water at levels exceeding the applicable MCLs, and (ii) notify the public if the level of PFAS exceed the applicable MCLs.

2.2 Impacts on industry

Although the PFAS Drinking Water Standards’ obligations generally apply to Public Water Systems, they will have broader implications for industries and businesses that have manufactured, stored, transported, processed, treated, or disposed of covered PFAS chemicals. In recent years, state and municipal governments have successfully brought claims against PFAS manufacturers for purportedly releasing various PFAS into the environment that ultimately impacted local drinking water.^[3]

The new PFAS Drinkng Water Standards now impose affirmative obligations on Public Water Systems to test for, monitor, and – under certain circumstances – remediate and mitigate covered PFAS detected in drinking water at levels above the applicable MCL. In turn, Public Water Systems may (and likely will) seek to recover costs they incur complying with the rule from corporates purportedly responsible for releasing these PFAS into the environment, potentially increasing avenues of liability for historic manufacturers, handlers, processors, or transporters of covered PFAS.

3. New PFAS designation under CERCLA

Shortly after issuing the PFAS Drinking Water Standards, EPA issued a final rule through pre-publication notice ^[4] designating two PFAS – PFOA and PFOS (and their salts and isomers) – as hazardous substances under CERCLA (also known as “Superfund”). CERCLA is the principal federal statute imposing liability on property owners, lessors, and operators for releases of covered “hazardous substances.”

3.1 What is CERCLA?

Enacted in 1980, CERCLA: (i) established prohibitions and requirements concerning closed and abandoned hazardous waste sites; (ii) imposed liability on persons responsible for releases of hazardous substances at commercial and industrial sites; and (iii) established a trust fund (i.e., the “Superfund”) to provide funds for cleanup when no responsible party could be identified. CERCLA’s liability scheme is broad and incorporates the following principles:

• retroactivity: parties may be held liable for acts and contamination that occurred prior to CERCLA’s enactment;
• joint and several liability: any one potentially responsible party (PRP) may be held liable for the entire cleanup of a site (when the harm caused by multiple parties cannot be separated); and
• strict liability: assertions that activities that caused contamination comported with regulatory requirements and industry standards are not defenses to CERCLA liability.

Furthermore, CERCLA defines four categories of PRPs:

• current “owner[s] or operator[s]” of a facility;
• past “owner[s] and operator[s]” of a facility (i.e., at the time at which the hazardous wastes were disposed);
• generators and parties that arranged for the disposal or transport of the hazardous substances; and
• transporters of hazardous waste that selected the site to which the hazardous substances were brought.

A PRP that owns, operates, or leases a “facility” ^[5] at which there is CERCLA liability may be responsible for: (i) governmental cleanup costs; (ii) necessary costs of response incurred by other persons; (iii) natural resource damages; (iv) the costs of any health assessments or health effects studies carried out pursuant to the statute; and (v) injunctive relief where the facility may present an imminent and substantial endangerment.

3.2 How has the adoption of the PFAS Rule changed CERCLA?

CERCLA contains a broad definition of “hazardous substances” that includes a vast number of chemical compounds and substances (though this list generally excludes petroleum and petroleum products). However, prior to the CERCLA PFAS Rule, PFAS chemicals were not covered under the definition of “hazardous substances” under CERCLA. This meant that EPA could not take response actions under CERCLA for PFAS-related costs.^[6]  Following the CERCLA PFAS Rule, EPA now has authority to ensure that certain PFAS contamination is cleaned up and seek to impose those costs on PRPs. The CERCLA PFAS Rule also may trigger the applicability of release reporting requirements under CERCLA and the Emergency Planning and Community Right-to-Know Act. As a result, facilities must immediately report releases of one pound or more of PFOA and PFOS within a 24-hour period to the National Response Center, their community emergency coordinator for local emergency planning committee or Tribal emergency planning committee, and the State Emergency Response Commission (or Tribal Emergency Response Commission).

3.3 Impacts on industry and EPA guidance

As noted above, the CERCLA PFAS Rule may open manufacturers, processors, transporters, and other handlers of PFOA and PFOS to claims for significant monetary liability and remedial obligations under CERCLA. Additionally, owners, lessors, and operators of real property subject to significant soil and/or groundwater contamination from releases of PFOA or PFOS also may face claims (strictly, jointly, severally, and retroactively) for related remediation costs, natural resource damages, and other remedial or response obligations under CERCLA.

In connection with the CERCLA PFAS Rule, EPA published a “PFAS Enforcement Discretion and Settlement Policy Under CERCLA” (the Enforcement Policy). Among other things, the Enforcement Policy states that “EPA will focus on holding accountable those parties that have played a significant role in releasing or exacerbating the spread of PFAS into the environment, such as those who have manufactured PFAS or used PFAS in the manufacturing process, and other industrial parties.” ^[7] EPA also noted in the Enforcement Policy that, while Public Water Systems and similar entities would likely technically qualify as CERCLA PRPs, EPA generally does not intend to pursue them for PFAS costs. 

The CERCLA PFAS Rule, as well as the Enforcement Policy, indicate a paradigm shift with respect to the potential liability facing industrials that have engaged with, or that own, operate, or lease real property impacted by, PFAS.

4. Key takeaways 

EPA’s new activity on PFAS clearly heightens corporate risks and adds to the growing burden that companies face as they seek to assess, manage, and mitigate their PFAS-related exposure. We’ve written previously on the reporting, data collection, product redesign, supply chain management, and related obligations required to comply with evolving PFAS rules.^[8] The new EPA actions described above focus in on investigation and cleanup liabilities, and are likely to lead to increased PFAS cost recovery actions (by environmental authorities, private claimants, and Public Water Systems). Specifically:

• for historic manufacturers, importers, and users of PFAS: Public Water Systems are likely to bring claims to recover the costs of meeting their new PFAS-related obligations. Historic PFAS manufacturers, importers, and users should assess their potential exposure, defenses, and reserves, and explore whether and to what extent they may be able to pursue insurance or rely on indemnity protections from prior transactions.
• for current manufacturers, producers, and users of PFAS and PFAS-containing products or materials: confirm whether PFAS are present in their waste streams, including in particular their permitted (and unpermitted) wastewater discharges to Public Water Systems and other receptors and, if so, ensure they have adequate measures to comply with updated reporting obligations related to releases of PFOA and PFOS. It may also be advisable to test the water the facility acquires and uses in its industrial processes and compare these “incoming” water test results with discharge sampling results.  
• for companies with current or past potential cleanup liabilities at “Superfund” or other contaminated sites: PFAS-related contamination may now lead to the reopening of “closed” sites where parties believed their liabilities had been fully resolved. Current and future cleanups are now likely to require investigation and cleanup of PFAS-contaminated soil and groundwater. Any parties with past, current, or anticipated potential cleanup liabilities should assess the scope of those potential liabilities.
• for parties acquiring real property with historic activities involving PFAS, or entities that own, operate, or lease such real property: these new rules will require careful consideration of contractual risk-allocation associated with potential liabilities associated with prior activities by target entities or occurring at their real property and enhanced due diligence practices, including: (i) robust PFAS-related Q&A sets; (ii) updated or brought-down Phase I Environmental Site Assessments (which should now be routinely considering PFOA or PFOS when assessing environmental conditions of real property); and, where material risk is identified, (iii) engagement with external consultants or in-house technical experts to map and forecast potential remediation obligations and costs.
• for lenders: changes in the definition of “hazardous substances” to include PFAS may impact representations made in financing agreements pertaining to releases of hazardous substances and the existence or assumption of liabilities relating to such releases by borrowers.
• in the M&A context: environmental due diligence needs to address PFAS-related risk. This includes not only cleanup and litigation exposure that is heightened due to the new legal developments described above, but also financial and overall business impacts potentially arising from the need to identify and then remove PFAS from the supply chain. Product re-design can take years in some cases, and adjusting or redeveloping products to be PFAS-free can be costly, time-consuming, and impact competitiveness. Failure to understand and address PFAS risk can lead to violations of law in some jurisdictions and reduced markets for some products. 

The Environmental / ESG team at A&O Shearman has significant experience addressing PFAS risk and liability across the globe. If you have any questions about this bulletin or any other PFAS-related matter, please feel free to reach out to the authors or your usual contact at A&O Shearman.

Footnotes

1. See “The U.S. Environmental Protection Agency’s new PFAS reporting rule takes effect,” A&O Shearman (Nov. 14, 2023), available at https://www.aoshearman.com/en/insights/the-us-environmental-protection-agencys-new-pfas-reporting-rule-takes-effect. 

2. More information on the Hazard Index, and the PFAS Drinking Water Standards more generally, can be found on EPA’s “PFAS National Drinking Water Regulation” fact sheet, available at https://www.epa.gov/system/files/documents/2024-04/pfas-npdwr_fact-sheet_general_4.9.24v1.pdf.

3. See Clark Mindock, “‘Forever chemicals’ were everywhere in 2023. Expect more litigation in 2024,” Reuters (Dec. 28, 2023), https://www.reuters.com/legal/litigation/forever-chemicals-were-everywhere-2023-expect-more-litigation-2024-2023-12-28/.

4. “Designation of Perfluorooctanoic Acid (PFOA) and Perfluorooctanesulfonic Acid (PFOS) as CERCLA Hazardous Substances,” EPA (Apr. 17, 2024), https://www.epa.gov/system/files/documents/2024-04/pre-publication_final-rule-cercla-pfoa-pfos-haz-sub.pdf.

5. The term “facility” means: (i) any building, structure, installation, equipment, pipe or pipeline (including any pipe into a sewer or publicly owned treatment works), well, pit, pond, lagoon, impoundment, ditch, landfill, storage container, motor vehicle, rolling stock, or aircraft, or (ii) any site or area where a hazardous substance has been deposited, stored, disposed of, or placed, or otherwise come to be located; but does not include any consumer product in consumer use or any vessel. 42 U.S.C. § 9601(9).

6. “PFAS Enforcement Discretion and Settlement Policy Under CERCLA,” EPA (Apr. 19, 2024), https://www.epa.gov/system/files/documents/2024-04/pfas-enforcement-discretion-settlement-policy-cercla.pdf.

7. ID. 

8. See “The U.S. Environmental Protection Agency’s new PFAS reporting rule takes effect,” A&O Shearman (Nov. 14, 2023), available at https://www.aoshearman.com/en/insights/the-us-environmental-protection-agencys-new-pfas-reporting-rule-takes-effect.