Michigan faces environmental risks as companies dodge cleanup through bankruptcy

When a company that has caused environmental damage enters bankruptcy, the U.S. Environmental Protection Agency generally collects only about 23 percent of what the company owes for environmental cleanup, Bloomberg News reports.

This dynamic is creating a moral hazard in which companies may opt for bankruptcy in order to save money on cleanup.

Michigan, with its many abandoned industrial sites, faces a huge toxic burden.

It’s still unclear who, if anyone, will assume responsibility for cleanup at the many contaminated sites left behind by the former General Motors.

In Kalamazoo the bankruptcy of the Lyondell Chemical Co. has slowed cleanup of PCBs from the Kalamazoo River and local residents worry that this contamination could seep into the groundwater.

From Bloomberg:

“Congress should have created a priority for this kind of liability,” says Joel Gross, a former chief of environmental enforcement at the U.S. Department of Justice who now practices bankruptcy law at Arnold & Porter LLP in Washington. “You can’t get money from a stone.”

At least $13.2 billion in environmental costs were at stake at the end of February in just four cases in U.S. Bankruptcy Court in lower Manhattan: Lyondell, fellow chemical makers Chemtura Corp. and Tronox Inc., and General Motors Co.

These companies, sometimes along with others, are responsible for more than 200 sites polluted during the past century, according to EPA documents.

The companies say their bankruptcy filings entitled them to steer clear of cleanup costs at sites where a corporate predecessor or related company did the polluting.

The article continues:

GM Units

In October, those companies entered bankruptcy, with dozens of claims against them and scant money for a cleanup. The two GM units still in bankruptcy owe about $1.2 billion in cleanup costs for 52 locations, EPA documents show.

One of the sites is a former waste-oil refining operation in Dearborn, Michigan, where the automaker disposed of hazardous substances in the 1980s, according to the EPA. The agency found PCBs, lead, arsenic, chromium, cadmium and barium at the facility. Dearborn Refining Co., which ran the business from the 1940s to 2005, failed to pay taxes, making the city of Dearborn the owner.

Robert McCann, a spokesman for the Michigan Department of Environmental Quality, says he doesn’t know whether the GM divisions that remain in bankruptcy will cover their debts. The state hasn’t even completed studies to determine the extent of pollution.

If the bankrupt units and the Superfund can’t pay, McCann says Michigan will be stuck with a gigantic bill it has no way to cover.