||The financial cost of private industry’s pollution is often unfairly transferred to
the public. Decades can pass between a pollution release and its discovery, making
it very difficult for regulators to hold responsible parties accountable. In North
Carolina, a prime example of the public shouldering this burden is the primarily publicly
financed State Trust Fund for cleaning up after leaking underground storage tanks.
One way to ensure polluters pay for remediation is to require financial assurances
prior to permitting. There are several mechanisms available that do this, including
surety bonds, environmental insurance, and cash accounts signed over to the regulator.
In this study, the most commonly used assurance mechanisms were evaluated using a
multi-criteria decision analysis and the criteria most important to regulators and
industry: contractual strength, verifiability, flexibility, ease of acquisition, and
availability/control of funds. These criteria were derived using each party’s core
objectives. For regulators, these are protecting the environment and the public and
doing so in the least costly way. For industry, these are making profit and meeting
the necessary environmental regulations in the least costly way, so that they are
allowed to do continuing business. Using North Carolina’s underground storage tank
issue as an example, the mechanisms were then ranked by their performance for each
criterion. Surety bonds ranked as the best instrument to meet both parties’ needs,
providing regulators with a high degree of contractual strength while allowing industry
freedom from needing to cover its entire environmental liability up front. Like surety
bonds, insurance and letters of credit provide adequate contractual strength and flexibility,
but they are not as easily verified by the regulator. Financial self-tests and corporate
guarantees were found to be insufficient because they performed at the least preferable
level for regulators in all criteria and provided industry with little flexibility.
This evaluative framework should prove useful to policymakers as they try to address
the unfair liability private industry’s pollution creates for the public. A statewide
assurance program is a feasible solution to this problem given the satisfactory performance
of several assurance instruments.