For Whom The Bill Tolls

EPA's recent PFAS actions will be costly. Very costly. Who will pay the tab?

“The truth is never pure and rarely simple.” - Oscar Wilde

In early April, we had lunch with the President and CEO of an environmental engineering and consulting firm. He has decades of experience performing environmental site investigations and designing complex cleanups for industrial facilities. With our business purpose completed we asked him, “do you think we’ll get final drinking water standards and listing as “hazardous substances” under Superfund for PFAS (per-and polyfluoroalkyl substances) before the first Tuesday in November?”  He took the bait. Referring to Bill Clinton’s Environmental Protection Agency (EPA) lowering the arsenic limit under the Safe Drinking Water Act (SDWA) three days before he left office in early 2001, he smiled wryly and said, “yes, much earlier than Clinton’s arsenic rule.”

We then asked, “the new primary drinking water standard for the listed PFAS….. 20 parts per trillion (ppt) is the over/under……you want the over or the under?”   He thought for a moment, then took the under.

We knew these answers were coming soon. But we were both a bit surprised when they came within the next two weeks. Taking the under turned out to be the right call.

PFAS are a class of fluorinated chemical compounds with amazing properties including resistance to heat, oil, grease, chemicals, water and weather. DuPont invented the class in the 1930s, most famously trademarking Teflon a few years later. Because of their properties PFAS have become ubiquitous in consumer and industrial products.

Early consumer awareness focused on the risk of consuming food cooked in Teflon and similar coated non-stick pans. But PFAS have been used for years in everything from stain resistant carpet and fabric coatings to food packaging to Gore-Tex and similar waterproof materials, to foams used to fight jet fuel fires, and even (gasp!)  wind turbines, solar panels, and batteries for electric vehicles (EVs) and utility-scale storage.

Health concerns and litigation associated with PFAS releases from DuPont’s Washington Works plant near Parkersburg, West Virginia increased U.S. awareness and U.S. regulatory focus around 2000. DuPont would ultimately settle 3,500+ PFAS lawsuits associated with the Washington Works plant for over $670 million in 2017. Part of that settlement included funding the largest longitudinal health study of a chemical compound in history. Readers interested in the scientific findings of the C8 Science panel can find the details here.

In 2016, EPA issued its initial PFAS lifetime health advisory (a non-enforceable recommendation) with a limit of 70 ppt. The agency continued to consider regulation while studying PFAS as a chemical class.

In fall of 2021, the Biden administration EPA began a series of actions to aggressively regulate PFAS.  Key among these were efforts to regulate PFAS under the SDWA and to add them as “hazardous substances” under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), more commonly known as “Superfund”.  These two actions were finalized in the last three weeks.

On April 10^th, EPA set legally enforceable limits for five specific PFAS compounds in drinking water under the SDWA. At 4 to 10 ppt, the limits are the among the lowest ever for any contaminant.

On April 19^th, EPA listed two of the most common PFAS compounds - perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS) – as “hazardous substances” under Superfund. The listing will trigger very costly cleanup obligations, litigation between “responsible parties” (those who contributed to a release), and taxpayer obligations to pay for remediation of federal and “orphan” sites (where the responsible party is insolvent).

This post is not about whether PFAS are dangerous to human health and the environment, what toxicology and epidemiology tells us about PFAS, or whether EPA’s actions and limits are scientifically warranted. We are not qualified to answer these questions. But on the issue of carcinogenicity, the science is far from settled. EPA’s website announcing the Superfund listing for PFOA and PFOS notes (emphasis added):

Exposure to per-and polyfluoroalkyl substances (PFAS) has been linked to cancers, impacts to the liver and heart, and immune and developmental damage to infants and children.

PFAS are extremely costly to remove from impacted groundwater, and the lower the “maximum contaminant level” (mcl) the more expensive. They disperse in water, and the carbon-fluorine bond is one of the strongest in nature, requiring significant energy to break.

Groundwater extraction and treatment systems (GETS) using filtration media like granular activated carbon or ionic exchange resins are effective, but very costly and time consuming. Systems commonly employ a train of (multiple) treatment vessels, absorption media must be changed regularly (at significant cost), and to achieve removal down to 4-10 ppt may require systems to run for 30, 50, or 100 (or more) years. The diagram below depicts a typical GETS designed to remove PFAS.

Source: U.S. Department of Defense/NAVFAC

Achieving cleanup standards as low as 4 – 10 ppt will be enormously expensive absent breakthroughs in remediation technologies. While these have been common (and continue to occur) for contaminants like metals, petroleum compounds and chlorinated solvents, because of the strength of the carbon-fluorine bond, they are much more difficult for PFAS.

How low is 4 – 10 ppt? The below graph from Politics Fear and Science helps visualize just how minute EPA’s new standards are. 4-10 ppt is the equivalent of 4-10 drops of water in twenty Olympic size swimming pools.

Source: Michigan Dept. of Environment, Great Lakes and Energy

It is impossible to accurately estimate the annual or long-term cost of EPA’s new PFAS drinking water limits and CERCLA hazardous substance listing. In addition to the cost of groundwater remediation, the aggregate cost of public drinking water system wellhead treatment or wellfield replacement, “toxic tort” litigation, natural resource damages and other claims will easily run into the tens and possibly hundreds of billions of dollars over the next 20-30 years.

Which companies will bear the brunt of the costs and liabilities for PFAS? Do they have the financial resources to shoulder what is coming their way? And how will costs hit American public water system consumers and taxpayers? EPA unleashed the hounds, let’s follow the trail.

The major global chemical manufacturers of PFAS compounds that have been put into a variety of consumer, commercial and industrial products for decades are well known. ChemSec, the International Chemical Secretariat, is an independent non-profit organization that advocates for substitution of toxic chemicals to safer alternatives. A May 2023 Chemsec article (claiming that “the global societal costs – remediation, health care etc. – of PFAS chemicals amount to €16 trillion per year”, an amount we find highly suspect) listed twelve major companies as “responsible for the majority of global PFAS production”. The list includes AGC, Arkema, Chemours, Daikin, 3M, Solvay, Dongyue, Archroma, Merck, Bayer, BASF, and Honeywell. In the U.S., the largest numbers of PFAS claims have been directed at 3M, maker of Scotchguard, and DuPont (and its spinoff Chemours) who invented the chemical class best known for giving the world Teflon.

In June 2023, facing an avalanche of PFAS-related litigation, 3M entered into a proposed settlement of a class action lawsuit with almost 700 public water system providers. Last month, the U.S. District Court in South Carolina approved the settlement. 3M will pay $10.5 billion - $12.5 billion to settle the claims for testing and treatment costs at public water systems across the country. The payouts are scheduled to occur between now and 2036.

The 3M settlement does not account for pending and future claims under Superfund (including cost recovery and contribution actions by other responsible parties), personal injury “toxic tort” litigation, natural resource damage claims and state environmental regulatory actions. These claims are likely to cost 3M billions more.

3M recorded charges of $10.5 billion in 2023 for settlement of the multidistrict litigation public water systems claims. The massive charge resulted in a swing from a 2022 net profit of $5.7 billion to a 2023 net loss of $6.9 billion.

DuPont is a more complicated story. In 2015, it spun off its fluorinated chemicals business (the division that manufactures PFAS compounds) into a newly created public company, Chemours. In August 2017, DuPont merged with The Dow Chemical Company (Dow), after which the company engaged in a series of reorganization steps and transactions. In 2019, Dow DuPont separated into three publicly traded companies along product lines, named Dow Inc., DuPont, and Corteva. Count us among those who believe that these machinations were implicitly preemptive actions to try to separate DuPont’s legacy PFAS liabilities from the “healthy” parts of the company before the poop hit the fan.

At the time Chemours was spun out of DuPont, it was effectively saddled with all of DuPont’s legacy PFAS liabilities, including 3,500 PFAS personal injury claims. DuPont had estimated at the time of the spin-off these claims would cost ~$130 million. These were the cases DuPont/Chemours settled nineteen months later for $671 million.

In 2019, Chemours sued DuPont alleging it intentionally and grossly underestimated the PFAS liabilities Chemours would face when forced to reimburse DuPont for PFAS claims under the spin-off agreement. Chemours claimed the agreement to reimburse DuPont for PFAS claims was induced at the point of a gun, as DuPont had appointed three of its own employees to the Chemours Board of Directors at the time of the spin-off.

In March 2020, a Delaware Chancery court judge ruled he had no jurisdiction in the case because the separation agreement between the firms was subject to mandatory arbitration. In December of 2020, the Delaware Supreme Court affirmed the lower court ruling.

Chemours, DuPont and Corteva went to arbitration and settled the case in January 2021, with the parties entering into a complex cost sharing agreement and escrow account to address future PFAS liabilities. The entire saga could be the subject of two or three Substack posts. Chemours agreed to pay 50% of “qualified” PFAS liabilities, with DuPont and Corteva agreeing to pay the other 50%, for a period not to exceed twenty years and $4 billion of qualified expenses and escrow contributions in the aggregate.

In June 2023, Chemours, DuPont and Corteva reached a settlement with public water system providers similar to 3M’s. The companies’ agreement to pay $1.8 billion effectively burns half of the $4 billion cap from their 2021 settlement.

DuPont’s PFAS liabilities were badly underestimated at the time it spun off Chemours, and the ultimate liability is likely to be far greater than $4 billion. It is not clear who will fund DuPont’s legacy PFAS liabilities upon the exhaustion of the $4 billion limit, but things are sure to get interesting when (not if) the limit is reached.

We were interested to see how the massive potential PFAS liabilities faced by these U.S. companies compared to their financial condition. The following table lists 2023 revenues, profits (losses), earnings per share and reserves for environmental liabilities (PFAS and other) for Chemours, 3M, Dupont and Corteva. (Note: for 2022, the year prior to the multi-billion dollar charge for the public water system settlement, 3M reported $5.7 billion in net income on $34 billion in sales.)  

It is highly likely that the ultimate cost of resolving all their PFAS liabilities far exceeds the aggregate environmental reserves of ~$13 billion on the balance sheets of Chemours, 3M, DuPont and Corteva (a figure that includes all their environmental liabilities, not just PFAS). We have seen this movie before with other large industrial corporations.

How high is the ultimate cost to shareholders and could PFAS be an enterprise-threatening risk for one or more of these companies? Considering the volume and magnitude of litigation before EPA even finalized legally enforceable standards for PFAS in drinking water and listed the two most well known compounds as hazardous substances under Superfund, the question is not merely rhetorical.

What about costs to U.S. taxpayers and water consumers? The public owns many facilities impacted by PFAS. Settlements with companies like Chemours/DuPont/Corteva and 3M will only fund a portion of the thousands of U.S. public water systems that will require wellhead treatment for PFAS or relocating wellfields. EPA estimates the cost to U.S. public water systems at $1.5 billion per year. A 2023 study by U.S. engineering firm Black & Veatch for the American Water Works Association finds annual costs for ~7,500 (out of ~50,000) public water systems of $3.8 billion nationally.  Using the 4 ppt mcls that EPA codified into law last month, Black & Veatch finds total costs for public water systems of $47.4 billion to meet EPA’s new SDWA standards.

PFAS are commonly found in groundwater at landfills from years of disposing of carpet, furniture, food packaging and other consumer items containing PFAS compounds. We have seen data documenting PFAS levels in groundwater around landfills at more than 20,000 ppt. Many of these are municipally owned and operated.

Some farms located within driving distance of municipal wastewater treatment plants – where PFAS have accumulated in sludges – have for years received “biosolids” as a fertilizer alternative. PFAS levels in groundwater at/emanating from many of these farms are now orders of magnitude beyond EPA’s new legally enforceable thresholds.

Some of the highest concentrations of PFAS have been found at airports with runways long enough to land jets. Aqueous film forming foams (AFFFs) used to put out jet fuel fires contain very high concentrations of PFAS. Until recently, the Federal Aviation Administration required either testing (including discharging AFFF) and/or live fire training with AFFFs for decades as part of its airport certification safety inspection process. In what may be the ultimate government irony, activity FAA required is now punishable by EPA.

Speaking of airports, PFAS from fire training and other AFFF discharges found at the nation’s military airports is a major source of groundwater contamination requiring future remediation (and likely personal injury claims). After spending hundreds of millions annually since 2018 to investigate and begin remediating PFAS at over 700 current and former Department of Defense installations, DoD noted in a June 2023 PFAS cleanup progress report:

Based on current information, DoD estimates obligations for beyond FY 2023 to exceed $4.71 billion, as reported here, for a total of $6.50 billion including Base Realignment and Closure locations.

A DoD website FAQ on PFAS notes (emphasis added):

DoD’s estimated cost to investigate and clean up per- and polyfluoroalkyl substances (PFAS) in Fiscal Year (FY) 2023 and beyond is $7.0 billion (estimate as of the end of FY2022). This is a preliminary estimate that DoD expects will increase significantly as the initial assessments are completed and more information is known about the extent of the cleanup required.

No one knows how much it will cost taxpayers and water consumers to address PFAS under EPA’s new SDWA and Superfund final rules. We believe the costs for DoD alone are likely 5-10 times their $7 billion future estimate. More broadly, we believe the total cost to U.S. taxpayers and water consumers will be in the range of $100 billion over the next twenty plus years.

On the same day EPA announced the listing of PFOA and PFOS as “hazardous substances” under Superfund, it issued an “enforcement discretion memo”. The good news for municipalities that own airports, landfills, water systems and wastewater treatment plants (as well as farm owners that received biosolids containing PFAS) is that EPA’s memo makes it clear the owners/operators of these facilities are not targets of the agency’s PFAS enforcement efforts. The bad news is, all of these facilities will incur significant costs, much of which will be funded by taxpayers and public water system customers.

Given the enormity of the potential PFAS-related liabilities facing Chemours, DuPont and Corteva, President Biden was faced with a dilemma: pleasing environmentalists who wanted strong action on PFAS would come at the expense of old corporate allies and monied interests he protected for decades in the state where he was senior senator.

Doomberg wryly refers to Joe Biden as the former Senator from Delaware; D – for DuPont, not Democrat. DuPont, Chemours and Corteva are all domiciled in Delaware. But, alas, nothing in politics lasts forever and, through EPA’s PFAS actions, last month President Biden pleased environmentalists and lost some friends in three boards rooms back in Wilmington.

We close by noting that, in the final analysis, it is possible EPA’s strict drinking water standards for five PFAS compounds, its listing of two as “hazardous substances” under Superfund, and tens of billions or more in costs to taxpayers and corporations could turn out to be scientifically warranted. If so, American taxpayers should consider something we noted in our last post, Costly Tradeoffs:

Even in the advanced world, the obsession with “climate change” leads to diversion of critical resources away from pressing, imminent and substantial endangerments to human health and the environment. Consider, for example, whether some of the West’s $5 trillion spent only to slightly reduce the growth of carbon-based energy sources might instead turn out to be much more useful today for addressing groundwater contamination from per- and perfluoroalkyl substances (PFAS).

There has always been an opportunity cost associated with making CO2 emissions reduction and “climate change” the top priority of environmental policy. PFAS may be the first issue that causes the public to consider whether theoretical future risks are worth prioritizing at the expense of more imminent and substantial risks today. Even for governments with the ability to print money, there is only so much of it to go around.

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