The environmental impact assessment (EIA) will address two types of contamination: first, those materials that need to be removed because of planned construction activities (for instance, because a foundation will be placed in contaminated soil, or waste heaps on the surface need to be cleared for landscaping or structures); and, second, those that need to be removed or remediated in situ due to their environmental impact or their hazard to public health and safety or for the common good. Examples include a contamination plume in the groundwater that could threaten the water supply; highly contaminated materials that lie under proposed foundations to be remediated with microbiological methods; and hazardous substances close to the surface that could pose a hazard through direct human contact or ingestion of dust.
The initial remediation and redevelopment plans are sharpened by performing an EIA. The EIA takes into account the environmental baseline of the site (investigated and characterized during site assessment and investigation). It also analyzes the environmental impact of the planned redevelopment on neighborhood and surrounding jurisdictions. New legislation in most countries is strict about avoiding potential negative impacts on people but is often less clear on how environmental impacts can be mitigated. The technical investigation activities related to an EIA are similar to the initial investigations for the environmental site audit. In fact, much of the information generated at the initial phase may subsequently be used for the EIA. Gaps may need to be closed, for example, due to new aspects of the development concept. However, these could be addressed through supplementary investigations. The information generated can in turn be used to encourage sustainable redevelopment practices.
Remediation Options
Choosing remediation technologies is contingent on availability and cost-effectiveness. Often, in projects with significant contamination, public entities finance much of the environmental investigation and remediation, especially if no other owner can be held responsible. These entities may also cover at least part of the site’s environmental, financial, or legal liabilities. This helps to lower the threshold for private enterprises to take on projects with potential environmental risks.
Financing Remediation
Historical models for contaminated site remediation place the financial burden upon the companies whose operations led to the contamination.6 This so-called “polluter pays” principle, although economically fair, does not take into account the lack of knowledge regarding environmental releases underlying earlier decades of the industrial age (Cordato 2001). In addition, many contaminated sites are products of companies that no longer exist or do not possess the capital to remediate the sites to legal standards. Some of these sites have been transferred to the ownership of a bank or a government entity, whereas others may remain in the ownership of an extant corporation. A site could still be operational, but the presence of contaminants in certain areas may require remediation to ensure compliance with government regulations. A variety of possible ownership and occupancy conditions may exist, and applying the polluter pays principle may not be entirely feasible. In such cases, the surrounding community often suffers from unfavorable economic and environmental conditions. In the absence of a clearly identifiable and financially capable polluter, the burden of financing industrial site remediation typically falls on the public sector.
Government entities frequently prioritize abandoned sites to receive public financing for remediation. Most targeted remediation programs are specific to abandoned industrial sites, and the bulk of resources referenced herein will necessarily be limited to the remediation and redevelopment of vacant contaminated sites. Table below summarizes a variety of financing mechanisms for remediation, providing some examples for further research. The mechanisms presented in this section overlap somewhat with the guidebook’s financing section in chapter 1. However, here the information is limited to remediation financing.
Definition | Example | Global Application |
Bond finance programs |
Bonds are one of the most prevalent financial mechanisms for addressing brownfield redevelopment through a variety of structures and schemes. The two types of bond issuing entities are governments and the private sector. In the United States, government bonds are exempt from federal income taxes. One of the key strengths of bond financing is the relative flexibility in using this tool. Bonds can be used for directly financing the cleanup of certain contaminated sites. However, bond proceeds are also frequently used by communities to seed brownfield-specific loan programs or in conjunction with other tools such as tax increment finance and tax credits. | In the United States, the city of Chicago established the Chicago Brownfields Initiative in 1993 to acquire, assemble, and rehabilitate properties, returning them to productive use. The Initiative links environmental restoration with economic development by cleaning up and redeveloping brownfields and improving policies to promote private redevelopment. The city funded the Brownfields Pilot Program with US$2 million in general obligation bonds, expecting it would pay for environmental testing on the five selected properties and remediation on two properties. In fact, the city was able to return all five sites to productive use for a total of about US$ 850,000. The city’s experience with these sites laid the groundwork for continued innovation with an aggressive large-scale cleanup program. | In countries that lack a well-established bond market, the effort required to first create one may not be practical for the purpose of brownfield redevelopment or site remediation alone. In addition, the cost savings associated with tax exemption may not be available in countries that lack taxation on interest income. Ultimately, bond finance works most efficiently in countries with existing bond markets and a sufficient density of contaminated sites and potential developers to make pooling projects worth the investment for the community. |
Loan fund programs |
A revolving loan fund (RLF) is a self-replenishing pool of money, utilizing interest and principal payments on active loans to issue new loans. An RLF provides access to a flexible source of capital that can be used in combination with more conventional lending sources. Often, the RLF fills a gap between the amount a borrower can obtain in the private market and the amount needed to start or sustain a business. Eligible uses for RLF loans can include: working capital, professional fees, acquisition of land and buildings, site remediation, new construction, facade and building renovation, landscape and property improvements, and machinery and equipment. | In the United States, the state of Washington’s Department of Commerce manages an RLF targeting urban and rural brownfields that present an immediate danger to human health and the environment. Eligible applicants include government entities, site owners, and developers—provided that private sector applicants are not responsible for the initial site contamination. Loan funds do not cover pre-remediation site assessments, as site assessments form an important piece of the underwriting for these projects. Washington’s interest rates are fixed “at or below the prevailing prime interest rate” and determined on a borrower-by-borrower basis. Loans range in size from US$10,000–450,000, with no listed minimum requirement for an equity contribution. | Revolving loan funds can be created and sustained through nearly any economic structure. Public funds may be required to capitalize an RLF, but thereafter the fund can be designed to provide a sustainable stream of revenue for the funding of future projects. Loan recipients can be public or private entities, provided that the ultimate borrower is capable of repayment. Individual project structures can be designed strategically—such as interest-only payments through construction, and either a lump sum due at the sale of the property or amortization upon occupancy of the site—to suit underlying economic conditions within a given region. |
Tax increment and special assessment finance programs |
Tax increment finance (TIF) is a financing tool that allows local governments to invest in infrastructure and other improvements. They pay for them by capturing the increase in property tax revenues (and in some areas, other types of incremental taxes) generated by the enhancements. Environmental remediation can be an explicitly approved improvement, making TIF particularly applicable to contaminated site cleanup. | In the United States, the city of Dearborn, Michigan, commonly uses TIF to finance brownfield projects. As one example, the city of Dearborn used TIF to finance the cleanup and renovation of an abandoned 150,000-square-foot building formerly occupied by Sharon Steel. In 1996, Dearborn commenced redevelopment of this large, abandoned parcel. First, the city formed a commission to perform several site tests. Test results revealed significant environmental problems with the property. | To use TIF for the remediation of site contamination, the country must already have a property tax, sales tax, or other reliable stream of municipal income in place. Without the proceeds from these taxes, there can be no revenue stream such as a TIF would require. As a country develops its TIF infrastructure, it must be cognizant of the total development to take place on the contaminated site. It must set into place security measures that protect against the development not taking place. Guarantees from developers, credit enhancements from state governments, reserve funds, or insurance must be sought to protect against potential losses. Legislative policy must be carefully crafted to govern the use of this tool and limit its applicability to projects which benefit the public sector. |
Special assessment financing. Often, special districts may be formed to finance certain project costs. In the United States, most special districts can impose by a vote of the residents or property owners within the district’s boundaries, one of the following types of taxes: sales tax, property tax, or special assessment. When new sales taxes and property taxes are imposed within a special district, 100 percent of those taxes, net of collection fees, can be contributed to paying the costs of project improvements. | To finance environmental remediation and the subsequent improvements, Dearborn established a TIF district. TIF proceeds reimbursed entities that were able to make the property a safe location. Once the site was clean, the city took steps to make it a family-oriented area. The city rezoned the property and built a school where the Sharon Steel facility once stood. | |
Tax credit and incentive programs |
A tax credit is a monetary reduction of a taxpayer’s tax liability. It is a governmental vehicle designed to encourage investment in certain socially or economically favored industries or activities. Tax credits accomplish important public policy objectives by encouraging the private sector to provide social benefits through projects that probably would not have been developed without such credits. | In the United States, the Brownfields Tax Incentive reduces an investor’s tax burden by lowering the investor’s taxable income. The incentive allows the investor to claim up to 100 percent of the eligible costs of cleaning up brownfields land as current expenses—rather than capitalizing these expenses as long-term assets. This is the only federal brownfield incentive targeted for private site owners. It has attracted new owners to abandoned and contaminated brownfield sites. The incentive program, which provides an immediate incentive to offset short-term project costs, encourages the cleanup and development of polluted land. The true value of the incentive is the ability to level the economic playing field between shovel-ready and brownfield sites through the favorable tax treatment of cleanup costs. | Tax credits are strictly performance-based, meaning developers and project partners receive virtually nothing if they do not perform. Since tax credits are awarded after cleanup, they encourage nearly flawless execution. If project developers do not perform, they do not benefit from the incentive. An existing corporate taxation regulatory framework is a prerequisite to the implementation of tax credit incentives for contaminated site remediation programs. |
Grant financing programs |
Grants are the distribution of funds to remediation projects generally without any requirement of repayment. They can fund 100 percent of project costs, but typically contribute a percentage, with the developer required to make up the difference through equity or debt financing. Historically, brownfield remediation has been typically heavily subsidized through grants. However, direct grants to private entities are increasingly rare in some countries, as government budgets strain under economic conditions and public officials increasingly demand a higher return on investment. Grants from higher levels of government to lower levels, such as the national government to the city, are common methods of seeding other contaminated site remediation financing programs, such as revolving loan programs, forgivable loan programs, or technical assistance services. | When the U.S. Environmental Protection Agency (EPA) issues grants from one level of government to a lower level of government, these grants are expected to leverage significant outside financing or funding. The EPA administers a robust and diverse set of grant funding programs, providing annual competitive subgrants to cities and counties for leveraged brownfield cleanup programming.a | Grant programs can be implemented at any level of government, regardless of economic structure or market conditions. Grant programs can also be combined with other financial mechanisms, such as revolving funds, to provide support for up front studies or other aspects. The only caveat to the implementation of a grant program would be the lack of sustainable capital to maintain fund operations. All grant funds and administrative costs must be contributed by the grantor entity and replenished periodically. Grant programs must be carefully structured to reduce opportunities for political influence and to ensure that funds have a reasonable opportunity to target only feasible site remediation projects with a legitimate financial need. The structure of a successful grant program will depend largely on the goals and economic climate of the government implementing it. |
Source: World Bank 2014.
aSee http://www.epa.gov/swerosps/bf/index.html
