Environmental regulation in Texas is pervasive. Texas has been delegated authority to implement most major federal programmes, including the Clean Air Act, the Clean Water Act, and the Resource Construction and Recovery Act. In many instances, however, Texas’ regulatory programmes contain unique state-specific requirements. For example, Texas’ Solid Waste Disposal Act (SWDA) goes beyond the liability framework for hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and extends to other solid wastes. Thus, when doing business in Texas, compliance considerations must go beyond mere compliance with federal programmes. Texas’ regulatory programmes are prescriptive, and enforcement allows for assessment of per diem, per violation penalties. In addition to federal and state environmental programmes, certain larger local jurisdictions, including Harris County and the cities of Houston and Dallas, have enacted robust environmental ordinances and have strong independent enforcement arms.

Myriad agencies administer environmental regulation in Texas. The Texas Commission on Environmental Quality (TCEQ) has jurisdiction over most traditional environmental programmes. The Texas Railroad Commission (RRC), however, administers certain environmental regulatory programmes involving the oil and gas industry. Other Texas agencies have jurisdiction over specific programmes including the Texas General Land Office (GLO), the Texas Parks and Wildlife Department and the Texas Department of State Health Services (DSHS).

Texas’ regulatory programmes are generally prescriptive in nature, and its environmental agencies have active enforcement arms. Having said that, agency personnel are generally available, knowledgeable and open to discussing compliance issues on a blind or site-specific basis. Moreover, Texas has implemented effective programmes that foster compliance. For example, the TCEQ promulgated rules creating what is known as the Voluntary Clean-up Program (VCP). This programme allows parties to self-implement site clean-up under agency supervision, which – when complete – can afford immunity from clean-up liability to a landowner and even to a transferee.

A further example of co-operative compliance is the state’s Environmental, Health, and Safety Audit Privilege Act (“Audit Act”), pursuant to which a regulated entity can secure immunity for violations identified by an environmental audit conducted in accordance with the Audit Act. While certain exceptions exist, immunity can be conferred when disclosure and corrective actions are completed in a timely manner.

Texas protects the environment through detailed statutes and regulations. Important statutes include the Texas Clean Air Act, the Texas Water Code and the Texas SWDA, which respectively govern the environmental mediums of air, water and waste management. Texas has detailed air, water and waste permitting programmes, as well as detailed licensing programmes relating to naturally occurring radioactive materials and low-level radioactive waste. In addition to these programmes, Texas has state-specific endangered species and wetlands programmes.

Non-compliance in Texas can have significant consequences. Enforcement is layered. Each of state, federal and in some instances, local authorities may initiate enforcement. Texas statutory authority authorises civil, administrative and criminal enforcement. Per diem, per-violation penalties are authorised, and injunctive relief may be available. In addition to state authorities, Region 6 of the US Environmental Protection Agency (EPA) actively enforces environmental programmes in Texas. Many federal environmental statutes provide for direct “citizen suits” to enforce permit requirements in federal court.

Generally, Texas’ statutory authorities confer broad investigative authority. When potential violations are identified, typically there is prompt notice with an opportunity to confer before formal enforcement is initiated. In some instances, resolution may occur without formal enforcement. It is good practice for regulated entities to respond promptly in writing to any notice and document compliance efforts.

Texas has a wide and varied permitting programme. A memorandum of understanding (MOU) between the TCEQ and RRC outlines general divisions of jurisdiction over various oil and gas activities related to waste management, water quality, injection wells and incident reporting. Virtually all air emissions, as well as discharges to state waters and waste management activities, must be authorised. Texas has one of the most comprehensive air permitting programmes in the USA, and industrial companies should consult with technical consultants and counsel familiar with the state’s labyrinthine rules before and during facility planning.

In many instances, permitting will entail public notice, pursuant to which “affected persons” may object to the issuance of a permit. Such “protesters” may even have the right to a hearing before the State Office of Administrative Hearings to determine if a draft permit should be finalised and issued. This is tantamount to a mini-trial and may involve technical experts and legal counsel. Recent litigation has granted contested case hearing standing to protesters well beyond the TCEQ’s prior default threshold of a one-mile geographic radius from the facility.

Texas permitting often involves notice to affected parties and local officials, as well as site-specific postings and posting in local publications, including in alternative languages. The process has specific timelines. Certain permit actions require the applicant to prepare a public involvement plan, including disclosure of community and demographic information. If a permit is denied and administrative remedies are exhausted, a decision can be appealed to state court. The Texas legislature’s business courts initiative recently formed the Fifteenth Court of Appeals, which now has statewide exclusive jurisdiction over permitting challenges and enforcement actions involving industries regulated by the TCEQ and RRC, rather than Austin’s Third Court of Appeals. 

State agencies and the EPA each have detailed enforcement policies and/or matrices that can be reviewed to understand the basis for potential penalties. Generally, permitting liability is considered strict, meaning liability can be conferred without fault or intent to violate. Texas agencies, including the TCEQ, will typically share the basis for their penalty calculations. Texas penalty assessments will take into account the degree of environmental harm; however, the duration of the violation and other specific factors are also considered. Finally, in Texas, a regulated entity’s compliance history can be considered in penalty assessment and permit renewal applications, which may subject facilities to higher enforcement penalties and stricter permit conditions. Compliance scores are publicly available.

Whether an environmental permit is transferable is programme specific. In many instances, air permits may be transferred, while other permits may not. Each environmental permit should be reviewed for specific conditions that could affect transfer, and of course, statutory and regulatory provisions should be carefully reviewed. Sale or merger transactions involving changes in ownership, operation or identity often trigger permit transfer obligations. Permit transfers may have time restrictions related to agency approvals that are relevant to closing date requirements.

Breaching permit terms or operating without a permit can have significant consequences. Federal and state statutes authorise per diem fines and penalties, and the cost of challenging assessments that are not negotiated can be significant. In certain circumstances, criminal enforcement can be sought, as can injunctive relief.

Regarding liability, operators generally face strict liability for permit and other programmatic violations. In 2023, the Texas legislature approved penalties of up to USD40,000 per day for certain violations related to the release of pollutants. Fines and penalties vary based upon a violation’s nature, and criminal liability can generally be imposed for knowing violations. In some instances, the amount of a penalty can be affected by the violator’s size and profitability. Regarding clean-up, Texas generally imposes strict, joint and several liability as a starting point based upon “status”. That is, clean-up liability exists for owners and operators, based upon that status. As under federal law, arranger and transporter liability also exists. The Texas SWDA, however, specifically authorises liability apportionment. Regarding liability for environmental contamination, plaintiffs may also seek common law recovery of property damages by alleging private causes of action such as negligence, nuisance and trespass. Personal injury claims may also seek recovery based on alleged exposure to environmental contaminants. 

Texas generally follows federal law regarding mandating environmental disclosures. State-specific programmes should be considered for independent reporting requirements. For example, recent California laws require certain US-based companies (including those based in Texas) doing business in California at certain thresholds to publicly disclose their annual greenhouse gas (GHG) emissions and prepare climate-related financial risk reports.

In Texas, current landowners and operators can bear liability for historical contamination based upon their status as a current owner or operator. Prior owners and operators can bear liability if there was a release during their tenure at the facility. The Texas SWDA specifically recognises liability apportionment if a release is “divisible”. Divisibility generally assesses whether the waste released can be managed separately under a remedial action plan.

Clean-up liability can also exist under other Texas statutes depending on the nature of the substance or source of material released. Statutes to consider include the Texas Water Code, the Texas Natural Resources Code and the Oil Spill Prevention and Response Act, among others.

Texas law contains broad and complex reporting requirements for releases of regulated materials. Regarding releases to state waters, the Texas Water Code provides that if a release causes or may cause pollution, notice within 24 hours must be provided by the person in charge of the facility or activity.

Jurisdiction for release reporting is not limited to a single agency. The general reporting requirements are set forth in the following. Facilities should have a thorough understanding of agency jurisdiction. These reporting requirements are to the TCEQ and are within 24 hours, unless separately noted:

• petroleum/used oil products to state waters – existence of a sheen;
• petroleum products/used oil (not underground storage tanks (USTs)) – 25 gallons;
• crude oil to inland waters – existence of a sheen;
• crude oil to land – five barrels;
• hazardous substance to land – governed by federal reportable quantity (RQ);
• hazardous substance to state waters – the lesser of 100 pounds and the federal RQ;
• industrial solid waste to inland waters – 100 pounds;
• oil to coastal waters – actual or threatened discharge (immediate reporting, within one hour, to the Texas GLO);
• petroleum products from tanks onto the surface (USTs/aboveground storage tanks (ASTs)) – generally > 25 gallons; and
• petroleum products into the subsurface from underground tanks – generally any amount.

The RRC has additional reporting requirements for oil and gas facilities under its jurisdiction. Generally, immediate notice must be given of a fire, leak, spill or break. Notice is not required for releases of less than five barrels of crude oil. Notice is typically followed by a letter giving a full description of the event, including the volume of materials lost. General RRC reporting includes:

• crude oil to state waters – existence of a sheen;
• crude oil to land – five barrels;
• produced water to inland water – any amount; and
• hazardous substance – federal RQ.

The Texas GLO also requires reporting of certain releases:

• oil to coastal waters – actual or threatened discharge (immediate reporting, within one hour).

Additionally, TCEQ air emissions rules contain broad provisions requiring the reporting of specific air emission events.

Texas provides for clean-up and incident response liability, as well as potential civil liability for injured parties. Enforcement liability exists for non-compliance and releases. Defences are fact specific and may, among other things, focus on causation, the party with a duty to comply and the divisibility of the harm. The SWDA incorporates defences that are similar, but not identical, to those found in the federal CERCLA statute. The TCEQ has specific procedures for entities claiming affirmative defences to unauthorised air emission events.

Generally, statutory laws in Texas do not differentiate liability based upon corporate status. Regarding penalties, some differentiation exists under Texas statutory law, which is a factor that may be considered in agency penalty policies. For instance, corporations that are “repeat violators” with “unsatisfactory” compliance history scores may receive increased penalty adjustments.

Texas does not impose a specific environmental tax. By way of example, there is no carbon or GHG tax in Texas. While not specifically “taxes” per se, the state does collect significant fees associated with air emissions and air inspections. Annual air emission fees are applicable to major sources, based on tons of pollution emitted. Air investigation fees are based on the Standard Industrial Classification (SIC) code of a regulated entity. Other activity-specific environmental fees, which relate to other environmental programmes, are also assessed by the TCEQ.

While Texas does not impose material environmental taxes, it does offer broad incentives for the utilisation of property or equipment for pollution control. Under Texas law, a tax exemption may be obtained for real or personal property used wholly or partly as a facility, device or method for the control of air, water or land pollution, based upon a “positive use determination”. The nature of “qualifying property” is listed by rule. Other important tax incentives are available for certain renewable products.

Texas generally follows traditional corporate standards for piercing the corporate veil. Regarding statutory liability, the degree of control exercised by officers, directors, shareholders, parents or affiliates can affect their risk for being deemed an “operator”. The US Supreme Court case of U.S. v Best Foods provides sound legal guidance on this issue.

At this time, there is no mandatory ESG reporting in Texas. Rather, reporting is market driven. Many public and private companies, however, prepare and publish ESG or sustainability reports. Companies should not overstate, but rather should be specific, consistent and use data to substantiate assertions related to recycling, climate change, sustainability and similar issues to avoid the risk and potential uncertainty associated with defending greenwashing claims.

Generally, there are no mandatory self-auditing requirements. Various environmental programmes, however, require inspection, reporting and corrective action. Similar provisions are also included within facility authorisations.

Regarding statutory liability, the degree of control exercised by officers, directors and shareholders can affect their risk for being deemed an operator. The US Supreme Court case of U.S. v Best Foods provides sound legal guidance on this issue.

In some instances, a well-designed environmental liability insurance programme can address D&O liability for pollution events, typically in those situations where corporate liability could exist. Environmental insurance coverage is not static, and policies may often be manuscripted.

Reasonable insurance products are generally available in Texas on a site-specific basis. Pollution legal liability (PLL) policies are offered by a number of underwriters. These policies, among other things, offer insurance protection against the discovery of pollution conditions. In some instances, coverage for pre-existing conditions may be available. Such PLL policies often have what is known as a “voluntary investigation exclusion”, which precludes coverage for sampling conducted outside of an agency directive. Furthermore, in a transactional context, in some instances representation and warranty insurance may be available. Each of these coverages will typically require diligence and disclosure to underwriters, usually with exclusions for known conditions. Other exclusions often include intentional acts, USTs, prior knowledge, assumed contractual liability of third parties, lead, asbestos, contamination from per- and poly-fluorinated substances (PFAS), failure to maintain controls and changed use, among others.

Lender liability for contaminated assets is governed by federal and state legislation. Under both federal and state law, a key touchstone is whether the lender constitutes an “owner” or “operator” of the secured collateral. The federal CERCLA statute has an established liability carve-out for lenders where the lender holds indications of ownership (eg, a mortgage) to protect a security interest, without participating in the management of the secured asset. Texas has adopted specific protections from liability arising under state clean-up regimes, which are largely consistent with the federal safe harbour. Texas has, however, certain criteria to define a safe harbour. First, the lender must sell, lease or undertake a government-approved clean-up within a “commercially reasonable time” after the foreclosure (or similar event). A presumption of divestiture exists if the asset is listed or advertised within 12 months after title acquisition. The Texas safe harbour can be lost if pollution conditions arise after foreclosure.

Touchstones exist to mitigate the potential for lender liability. First, there must be an awareness of the safe harbour. Second, due diligence of not only the asset to be taken as collateral, but also the borrower’s environmental management team, is critical. Third, it is important to maintain an ongoing understanding of the asset during the term of a loan, as well as ensuring that loan documentation provides protections and assurances appropriate for the asset. Finally, experienced post-foreclosure staffing should have operational experience in the relevant industry to avoid environmental liability that could arise post-foreclosure and avert the Texas safe harbour.

Civil claims may be brought under several Texas environmental statutes, depending on the relevant facts. In addition, claims at common law may be brought under traditional common law theories, such as nuisance, negligence and trespass. Suits may also be brought in a transactional context based upon common law or statutory fraud, as well as breach of applicable contractual provisions.

These damages can be waived by contract, but otherwise may be available in cases where the plaintiff seeks recovery for damages resulting from “fraud, malice, or gross negligence”. The basis for these damages must be proved by “clear and convincing evidence”. Under certain circumstances, these damages may be available in a statutory fraud case.

Class actions or multi-plaintiff cases may be brought in Texas, including for alleged environmental harms.

Texas has been home to several landmark environmental cases. For example, Cooper Industries, Inc. v Aviall Services, Inc. addressed when CERCLA claims for cost recovery may be available. Upon remand to federal district court in Texas, it addressed the relationship between certain Texas statutory and contractual claims. Furthermore, the Matter of Bell Petroleum, Inc. was a Fifth Circuit Court of Appeals holding and allowed for the apportionment of CERCLA liability, utilising theories derived from the Restatement (Second) of Torts. Certain recent cases decided outside of Texas courts will certainly affect business in Texas. For example, in Sackett v EPA, the US Supreme Court recently held that jurisdictional “waters of the United States” must generally be relatively permanent or continuously flowing bodies of water. Further, in 2024, the US Supreme Court overruled the Chevron deference doctrine in Loper Bright Enterprises v Raimondo, which had provided a judicial review framework for statutory interpretations by federal agencies for 40 years.

In Texas, liability for environmental matters may generally be allocated between a transaction’s parties. Allocation mechanisms may include indemnities, assumptions of liability and/or releases or covenants not to sue. The parties’ allocation framework is not binding upon the regulatory authorities. Regarding indemnities for strict liability and similar provisions, it is good practice for the language to be conspicuous and expressly state the scope of the risk allocated.

Limited insurance products are generally available in Texas. PLL policies are offered by a number of underwriters. These policies offer, among other things, insurance protection against the discovery of pollution conditions. In some instances, coverage for pre-existing conditions may be available. Such PLL policies often have a voluntary investigation exclusion, which precludes coverage for sampling conducted outside of a directive from a government authority. Furthermore, in some instances in a transactional context, representation and warranty insurance may be available.

The SWDA and its implementing regulations are the starting point in Texas to address site clean-up and responsibility. The Texas Natural Resources Code and its regulations apply to contamination caused by oil and gas operations. Texas rules allow risk-based closures based on site-specific factors and consider the actual risks caused by contaminants.

The persons responsible for clean-up generally mirror federal law:

• current owners and operators;
• prior owners and operators during periods where a release occurred;
• generators of waste; and
• persons transporting waste to the site in question.

Parties can contractually delegate these responsibilities, but contractual arrangements are not binding on regulatory authorities.

Statutory clean-up liability is generally strict and joint and several, but the Texas SWDA allows for apportionment. Liability apportionment is fact specific, and the party seeking apportionment bears the burden of proof.

Regarding contaminated properties, the state is authorised under statutory authority to assert claims for clean-up liability against the four general classes of responsible parties under federal law. Texas law also gives responsible parties the right of contribution. Other Texas statutes authorise causes of actions to address clean-up and are programme and/or fact-specific.

Releases of regulated materials are subject to detailed release reporting and response obligations. The TCEQ-RRC MOU provides notification and clean-up requirements for certain oil and gas activities. Under certain circumstances, Texas rules allow for the self-implementation of clean-ups. The state has a vibrant voluntary cleanup programme that allows parties to obtain a release upon site closure. Texas also has a state Superfund programme.

At this time, there are no specific laws addressing the issue of climate change. Local initiatives do exist, however, and many of Texas’ major cities have established initiatives that should be considered in legal and business analyses relating to facility development and operations.

Texas currently does not have mandatory GHG emission reduction targets. Policy and emission reduction targets are largely being set at the local level by larger cities.

While Texas has not enacted statutory carbon emission targets, effective from 1 September 2023, the Texas legislature amended the Natural Resources Code to prohibit a state agency from assisting with or enforcing a federal law that purports to regulate state oil and gas operations, where Texas has already legislated. The effect of this legislation on federal GHG reduction efforts is unclear. Texas entities operating in California should also be aware of a new California law with disclosure requirements for entities making claims regarding the achievement of “net zero emissions”, “carbon neutrality” or “significant reductions” in GHG emissions.

The Texas DSHS has responsibility to administer federal asbestos regulations and enforce the asbestos National Emission Standards for Hazardous Air Pollutants (NESHAP) in Texas. The DSHS also implements the Texas Asbestos Health Protection Rules, which require licensing and registration for asbestos abatement workers or workers engaged in any asbestos-related regulated activity:

• abatement practices and procedures;
• operations and maintenance requirements;
• notification and record-keeping standards; and
• training requirements.

The TCEQ administers the industrial solid waste regulatory programme that governs polychlorinated biphenyls (PCB) waste generated by industrial activity in Texas. Further, the RRC governs PCB waste from oil and gas activities.

The SWDA and the Texas Water Code create a framework generally consistent with federal environmental statutes. Requirements do not precisely mirror federal waste regulations, however – for example, Texas classifies waste streams in a more detailed manner.

Waste generators are generally liable for their waste, even after it is legally disposed of or transferred to another party.

Texas requires television and computer equipment manufacturers to offer consumers a used equipment collection and recycling programme under the computer recycling and TV recycling programmes. Television and computer equipment retailers are also subject to these rules. Retailers may only sell labelled equipment and must order and sell equipment from manufacturers that are on the TCEQ’s list of manufacturers with an approved recycling programme.

Waste generators and waste facility operators generally bear responsibility consistent with federal law. Texas, however, has a detailed waste classification system, which expands regulation to wastes based on classifications that differ from merely hazardous or non-hazardous.

Texas law includes reporting requirements for spill release to numerous environmental media, including ambient air. Specific reporting requirements depend on the substance released and the nature of the source. In most instances, release reporting will be to the TCEQ. If, however, the source in question is an oil and gas facility, reporting will likely fall under RRC jurisdiction. Reporting requirements will vary depending on the media impacted as well as the nature of the material released (hazardous substance, crude oil, other petroleum product, etc).

Texas provides a litany of resources whereby the public can obtain environmental information on regulated operations. State environmental agencies maintain an online database of relevant permitting and other documentation, by site or operator. These databases are developing, however, and do not always include all the relevant documents. State environmental agencies are also subject to the Texas Public Information Act, which acts like a state version of the Freedom of Information Act (FOIA).

Publicly traded entities must disclose environmental information in accordance with the rules established by the federal Securities and Exchange Commission (SEC). Importantly, the SEC is currently considering reporting rules relating to climate change and GHG emissions.

Texas does not have traditional state-led “green financing”, but does have programmes such as the Clean Water State Revolving Fund (authorised by the Texas Clean Water Act), which seeks to provide lower-cost financial assistance for the planning, acquisition, design and construction of waste water, waste water reuse and storm water infrastructure.

Environmental due diligence has a heightened focus in Texas because the state is home to so many industrial concerns. Phase I and Phase II assessments are common. Moreover, because so many transactions involve industrial concerns and Texas has very detailed regulatory programmes, it is especially important to conduct additional diligence relating to permitting and regulatory compliance. Furthermore, Texas is home to myriad endangered species, as well as wetlands, and in some areas, there are coastal-specific issues. These issues are important to consider, particularly with regard to project development.

Texas law requires disclosure of certain environmental conditions depending on a transaction’s nature. Disclosures required by statute include (i) the presence of USTs as well as (ii) the presence of a current or prior municipal solid waste landfill. Other, broader disclosures may include asbestos, flood zone status, lead paint, soil stability and methamphetamine use, as well as other risks depending on the nature of the transaction. In addition to statutory obligations, disclosure obligations should be considered to avert potential fraud claims. Texas has a specific statutory provision authorising statutory fraud claims specifically in stock and real estate transactions. The statute is broad and allows for fraud to be alleged in situations where a failure to disclose exists, in addition to a misrepresentation.

The most common environmental legal issues arising in transactions in Texas involve (i) potential on-site liabilities associated with various pollution programmes and statutes, including the presence of hazardous substances, solid waste, petroleum contaminants, PFAS, asbestos, PCBs and USTs and (ii) issues relating to compliance with permits authorising air emissions, discharges to state water, and waste management activities. Texas has a robust oil and gas exploration and production industry, particularly in west Texas, and despite the division in authority between the RRC and TCEQ, some operators should put additional focus on TCEQ-related obligations for air emissions, recent EPA regulatory initiatives including the regulations known conversationally as Quad Ob and Quad Oc, and the federal waste emissions charge.