A PPP can potentially raise, but must not be permitted to lower, environmental standards for highway operation. In late December 2006, the Sierra Club and other groups spoke out against a potential PPP in New Jersey because environmental standards might not have been sufficiently met by the private sector. In that case the organization was concerned that the operator would choose to use less expensive deicing products that damage the environment (Regional Plan Association 2007). Other environmental considerations included the effect of congestion and emissions on the environment. In his testimony to Congress in May 2007, Replogle, representing the Environmental Defense Fund, expressed support to PPPs and tolls, as long as these are used to better manage demand and promote alternative transportation modes and environmentally sound behavior. Performance-based contracts that compensate the concessionaire for providing free-flow service and meeting environmental goals, variable toll rates for traffic management, and the use of revenues to support public transportation are some of the strategies presented in his testimony.
PPP contracts can make environmental performance standards enforceable as part of the environmental approvals process, as well as through incentive-based methods such as performance bonds, funding set-asides, and enforceable contingency measures (Regional Plan Association 2007). Other strategies used to address environmental issues in PPPs include:
• Holding regular meetings with local community groups during both construction and implementation phases to identify and mitigate construction-related impacts and operational impacts once opened;
• Negotiating agreements with major opposition groups and including environmental mitigation conditions in the concession agreement, such as the use of noise-reducing asphalt;
• Conducting comprehensive environmental studies before plan development including extensive public outreach and stakeholder communications; and
• Integrating environmental mitigation and improvement mechanisms early in the preliminary design process (AECOM 2007a).
Oberstar and DeFazio (2007) warned that states should not turn to privately financed projects to avoid meeting environmental requirements that come with federal funding. Most states in our survey (98%) indicated that environmental safe-guards are very important in PPP contracting. Among other requirements, federal funding forces states to comply with the National Environmental Policy Act (NEPA). In addition to federal requirements, many states have their own environ-mental laws and requirements that should be met for any project. A respondent of the interested parties' survey suggested that PPP agreements should not be approved until after the completion of the NEPA process to ensure:
• A full, fair, and open planning process for transportation projects;
• Adequate consideration of all transportation alternatives; and
• Unbiased analysis of viable project alternatives and environmental impacts.
FHWA's Design-Build rule was amended in 2007, allowing states to release requests for proposals and award design-build contracts before the completion of NEPA, but neither final design nor construction can be initiated before the NEPA process is complete. The rule also requires that the design-build contract should include provisions ensuring that all environmental and mitigation measures identified through the NEPA process will be implemented, and precludes the design-builder from having any decision-making responsibilities in the NEPA process and from preparing the document. The provisions in the final rule appear to address the aforementioned concerns related to PPPs and the NEPA process.
Environmental risk is typically better managed by the public sector (GAO 2000b), and as such the public sector typically retains this risk in a PPP. In Texas, for example, concessionaires are not involved in the environmental assessment process, which remain under the responsibility of the Texas DOT; however, this is not always the case. The original investors for the South Bay Expressway (SR-125) in the San Diego area took on environmental risk and had to deal with an environmental planning process that took many more years and dollars than what the investors had anticipated, as discussed in the section on Roles of Public and private Sectors, Risk Allocation, and Rates of Return.