Underground storage tanks (USTs) are containers, and any underground piping connected to them, where at least 10% of their combined volume is beneath the surface of the ground. These tanks are primarily used to store petroleum or hazardous substances and are a critical consideration in environmental finance due to the significant environmental liability and regulatory frameworks surrounding their operation. Businesses, particularly those in the petroleum and chemical industries, must manage these assets carefully, considering aspects of asset management and potential financial risks.
History and Origin
The widespread use of underground storage tanks began in the early 20th century, primarily for gasoline at service stations. For many years, these tanks were constructed predominantly from bare steel, which eventually corroded, leading to widespread leaks and significant soil and groundwater contamination. This environmental concern prompted a shift in focus from mere safety regulations, such as fire codes, to comprehensive environmental regulations aimed at public health protection9.
A pivotal moment occurred with the enactment of the Hazardous and Solid Waste Amendments (HSWA) to the Resource Conservation and Recovery Act (RCRA) in 1984. These amendments specifically provided for the regulation of underground storage tank systems. In 1985, the U.S. Environmental Protection Agency's (EPA) Office of Underground Storage Tanks (OUST) was established to develop and implement this new regulatory program8. The EPA issued its initial UST regulations in 1988, which included technical requirements, financial responsibility mandates, and objectives for state program approvals7. This legislation aimed to prevent contamination, detect leaks, and ensure prompt cleanup, creating a comprehensive regulatory framework for USTs6.
Key Takeaways
- Underground storage tanks are containers and associated piping with at least 10% of their volume underground, used for storing petroleum or hazardous substances.
- They are subject to stringent federal and state regulatory compliance to prevent environmental contamination.
- Leaks from USTs can lead to significant remediation costs, affecting property value and posing substantial financial risk.
- Owners and operators of USTs are generally required to demonstrate financial responsibility to cover potential cleanup costs.
- Proper management, including regular monitoring and timely upgrades or closure, is crucial for mitigating risks associated with underground storage tanks.
Interpreting Underground Storage Tanks
For financial professionals and businesses, the presence of underground storage tanks signifies unique considerations beyond typical asset valuation. Interpreting the implications of USTs involves understanding potential long-term liabilities that can impact a company's balance sheet and future profitability. It requires an assessment of the financial risk associated with environmental compliance, potential spills, and necessary upgrades or closures. The condition, age, and type of USTs (e.g., single-wall vs. double-wall) directly influence the level of risk. A newer, double-walled tank with modern monitoring systems poses significantly less risk than an older, bare steel tank. Therefore, a thorough due diligence process is essential when evaluating properties or businesses with USTs.
Hypothetical Example
Consider "Greenway Fuels Inc.," a small chain of gas stations. Greenway Fuels operates several stations, each with multiple underground storage tanks storing gasoline and diesel. The company's financial planning team is assessing the capital expenditure required for the next five years.
One of their stations, acquired 20 years ago, still uses single-walled steel USTs, which are approaching the end of their useful life and are not compliant with current federal and state secondary containment requirements. The company must decide whether to upgrade these tanks to double-walled systems, which involves significant upfront costs, or decommission them and potentially switch to a different fuel delivery model.
Scenario:
- Current Situation: The existing single-walled USTs at the older station are a potential source of environmental liability. While no leaks have been detected, the risk of contamination is high, and the tanks will soon require costly upgrades or removal.
- Option A: Upgrade: Upgrading the tanks would cost an estimated $300,000 per tank, including excavation, installation of new tanks, and associated piping. This cost would be a major capital expenditure, impacting cash flow. However, it would bring the station into full regulatory compliance, reducing future environmental risk and potentially increasing the long-term property value.
- Option B: Decommission: Decommissioning the tanks would involve professional removal and site assessment, costing an estimated $150,000 per tank. This eliminates the environmental liability of the USTs but requires a new plan for fuel storage or delivery, potentially reducing the station's operational efficiency.
The financial team uses this hypothetical to model the impact on their balance sheet, considering not only the direct costs but also potential long-term savings from reduced environmental risk and improved asset lifespan.
Practical Applications
Underground storage tanks have significant practical applications across various sectors, primarily due to their role in energy and chemical distribution. They are ubiquitous in the real estate industry, particularly for commercial properties like gas stations, industrial facilities, and even some residential properties that use heating oil.
For businesses, the management of underground storage tanks is integrated into their overall operating costs, encompassing monitoring, maintenance, and compliance reporting. Financial institutions lending against properties with USTs often require environmental assessments due to the significant financial risk associated with potential contamination5. Furthermore, specific types of insurance policies exist to cover environmental liabilities arising from UST operations. Regulators, such as the U.S. Environmental Protection Agency (EPA), oversee UST programs to prevent and address releases of petroleum and hazardous substances into the environment, emphasizing the importance of their proper management for environmental protection4.
Limitations and Criticisms
Despite strict regulations, underground storage tanks still present limitations and criticisms, primarily concerning their potential for environmental harm and the associated financial burdens. One significant criticism is the ongoing risk of leaks, even from compliant systems, due to factors like aging infrastructure, improper installation, or unforeseen natural events. Such leaks can lead to costly and extensive remediation efforts, often exceeding initial estimates and creating substantial contingent liabilities for tank owners.
Another limitation is the difficulty in detecting small, slow leaks early, which can cause significant environmental damage before being discovered. The sheer volume of existing tanks, many of which predated modern regulations, also poses a challenge. Even with strict oversight, the cleanup of contaminated sites can be prolonged and expensive, potentially impacting property value and stalling redevelopment3. Litigation arising from UST leaks can also be complex and protracted, involving multiple parties and substantial legal costs2. These factors highlight the need for continuous vigilance and adaptive risk management strategies for entities operating or acquiring properties with underground storage tanks.
Underground Storage Tanks vs. Aboveground Storage Tanks
While both underground storage tanks (USTs) and aboveground storage tanks (ASTs) serve the purpose of containing liquids, primarily petroleum or hazardous substances, their characteristics, regulatory requirements, and associated risks differ significantly.
| Feature | Underground Storage Tanks (USTs) | Aboveground Storage Tanks (ASTs) |
|---|---|---|
| Visibility | Hidden from view, making visual inspections for leaks difficult. | Readily visible, allowing for easier visual inspection and maintenance. |
| Leak Detection | Relies heavily on electronic monitoring and inventory reconciliation. | Often utilizes secondary containment (e.g., dikes) and visual checks. |
| Environmental Impact | Leaks can go undetected longer, leading to severe soil and groundwater contamination. | Leaks are typically easier to contain and discover, reducing widespread environmental impact. |
| Regulatory Burden | Subject to stringent federal (e.g., EPA) and state UST regulations, often requiring financial responsibility. | Governed by Spill Prevention, Control, and Countermeasure (SPCC) plans and other state/local regulations. |
| Installation Cost | Generally higher initial installation costs due to excavation and specialized construction. | Generally lower initial installation costs. |
| Space Requirement | Requires less visible surface space once installed. | Requires more visible surface space and perimeter for containment. |
| Safety Concerns | Reduced risk of fire/explosion on the surface, but can accumulate vapors underground. | Higher visible fire/explosion risk, but easier to vent. |
| Depreciation | Subject to depreciation for tax and accounting purposes over their lifespan. | Also subject to depreciation over their lifespan. |
The primary point of confusion often arises from the differing environmental risks and the regulatory frameworks governing them. While USTs present a greater challenge for leak detection and potential for extensive subsurface contamination, ASTs have more immediate, visible safety concerns and different containment requirements. Businesses considering new storage solutions weigh these factors, including initial investment, long-term financial planning, and environmental compliance.
FAQs
What types of substances are typically stored in underground storage tanks?
Underground storage tanks primarily store petroleum products, such as gasoline, diesel, and heating oil. They can also be used for certain hazardous substances, as defined by environmental regulations. The specific substances determine the regulatory requirements and potential environmental liability associated with the tank.
Who regulates underground storage tanks?
In the United States, the U.S. Environmental Protection Agency (EPA) sets federal regulations for underground storage tanks under Subtitle I of the Resource Conservation and Recovery Act (RCRA). Many states have also developed their own programs that are approved by the EPA, meaning they enforce regulations that are at least as stringent as the federal requirements1. Local authorities may also have additional ordinances.
What are the main risks associated with underground storage tanks?
The primary risks include leaks or spills of stored substances into the surrounding soil and groundwater, which can lead to significant environmental contamination. This contamination can result in expensive remediation costs, legal liabilities, fines, and impacts on property value. There are also risks associated with fire and explosion, though these are typically more contained underground than with aboveground tanks.
How are leaks from underground storage tanks detected?
Leak detection for underground storage tanks typically involves a combination of methods, including automatic tank gauging systems, statistical inventory reconciliation, groundwater monitoring, vapor monitoring, and regular tightness testing of the tanks and associated piping. Effective regulatory compliance programs require a robust leak detection system to minimize environmental impact.