[Congressional Record Volume 142, Number 137 (Saturday, September 28, 1996)]
[Senate]
[Pages S11727-S11731]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. LIEBERMAN:
  S. 2160. A billto provide for alternative procedures for achieving 
superior environmental performance, and for other purposes; to the 
Committee on Environment and Public Works.


                     The Innovative Compliance Act

 Mr. LIEBERMAN. Mr. President, I am pleased to introduce today 
the Innovative Compliance Act of 1996. Title I of this legislation 
authorizes the Environmental Protection Agency to approve a 
demonstration program allowing companies who show superior 
environmental performance to use flexible methods of achieving 
environmental goals. Title II of the legislation requires the EPA, when 
developing a new program to control a pollutant to consider, where 
appropriate, basing the regulatory scheme on market-based trading 
programs. The legislation builds on President Clinton's project XL 
which stands for excellence and leadership, and on the successful 
market-based program for controlling acid rain established under the 
Clean Air Act Amendments of l990.
  Mr. President, I am introducing this bill at the end of this session 
in the hope that it will lead to a continued dialog among interested 
parties on the best way to implement these two programs. I view this 
bill as an initial draft, discussion draft and welcome all proposals 
and suggestions on how to alter and improve it. I hope to resubmit the 
bill reflecting suggestions made over the next few months early next 
session.
  This Congress has been marked by debate about the future of 
Government's role in environmental protection. At times, it appeared 
that the bipartisan support of environmental laws and regulation that 
has evolved over the past three decades was at serious risk. Efforts to 
undermine our environmental laws initially had support from some in 
this Congress, despite the absence of any public demand for 
retrenchment on the environmental

[[Page S11728]]

front. Those efforts have been stemmed.
  In fact, our laws and regulations have performed remarkably well in 
improving the quality of America's environment. As Gregg Easterbrook 
has pointed out, environmental protection is probably the single 
greatest success story of American Government in the period since World 
War II.
  In many cases, however, we need to do more to provide the level of 
environmental protection most Americans expect from Government. For 
example, 62 million Americans still live in neighborhoods where the air 
does not meet Federal health-based standards. Forty percent of our 
rivers and lakes still do not fully meet water quality standards. The 
number of people suffering from asthma has increased 40 percent in the 
past decade. In some communities, it has reached epidemic proportions, 
especially among children. Health advisories for eating fish increased 
by 14 percent between l994 and l995. In light of these serious 
problems, there is clearly a need to improve protection of our 
environment. But there is just as clearly a need to review our methods 
of environmental protection in order to find better, more efficient, 
more innovative and fairer ways to achieve greater progress toward 
meeting our environmental goals. In some cases, the traditional 
approaches to environmental protection have hindered companies from 
developing more innovative approaches, such as pollution prevention, 
that can result in larger benefits for the environment.

  While combining these two goals may appear illusive, a significant 
consensus has emerged that alternative compliance and market-based 
trading programs can form the basis for a new approach to environmental 
protection that will achieve superior results at less cost while 
encouraging innovation. This consensus can be seen, for example, in the 
work of the President's Council on Sustainable Development which 
brought together leaders from government, business, environmental, 
civil rights, labor and Native American organizations in an effort to 
achieve consensus national environmental, economic and social goals. 
The Council's report supports both these approaches. The Aspen 
Institute also undertook a 3-year effort to reach consensus among a 
wide group of divergent interests on an alternative path to achieving a 
cleaner, cheaper way to protect and enhance the environment. This 
legislation seeks to adopt many of the principles agreed to by the 
participants in the Aspen process.
  Title I of this bill establishes an alternative compliance program at 
EPA. The Administrator of EPA is authorized to consider up to 50 
petitions from companies seeking modifications or waivers from 
environmental rules and to grant petitions if certain criteria are met. 
The basic premise of this title is that superior environmental 
performance can be achieved by allowing environmental managers at 
companies, in partnership with an active group of community 
stakeholders, to devise their own means of reaching environmental 
goals. This approach recognizes that the regulated industry is now in 
an excellent position to experiment and decide what approaches will 
yield better environmental results than can be achieved under existing 
or reasonably foreseeable regulation. Allowing flexibility can 
substantially reduce compliance costs and make industries more 
competitive, provide for much greater community involvement in the 
decisions of their neighboring industrial plants, foster more 
cooperative partnerships, and encourage greater innovation in meeting 
environmental goals.
  Let me discuss a few important provisions of the bill.
  First, the Administrator may only grant flexibility if a company 
demonstrates that it will achieve better overall environmental results 
under the alternative compliance strategy than would be achieved under 
existing or reasonably anticipated rules. The bill establishes 
benchmarks from which to determine whether better environmental results 
will be achieved under the alternative compliance strategies. For 
example, for existing facilities, the benchmark generally will be 
either the level of releases into the environment actually being 
achieved by the facility or the level of releases allowed under the 
applicable regulatory requirements and reasonably foreseeable future 
requirements, whichever is lower. The bill also sets forth benchmarks 
for existing facilities being modified to significantly expand 
production and for new facilities, section 105(b). In addition to 
determining if the benchmark is met, the Administrator must find, based 
on a well-accepted, documented methodology, that the alternative 
compliance strategy will not result in a significant increase in the 
risk of adverse effects or shift any significant risks of adverse 
effects, to the health of an individual, population, or natural 
resource affected by the strategy.

  There are a number of different types of alternative compliance 
strategies. For example, in some cases, a facility may demonstrate 
better overall environmental results by showing a reduction in releases 
of all pollutants and, in exchange, seek a modification of reporting or 
other paperwork requirements. In other cases, a facility may 
demonstrate better overall environmental results by showing a reduction 
in releases of all pollutants, but seek modification of a rule to allow 
for flexibility with respect to emission levels at different sources 
within the facility. There may be some cases where the alternative 
compliance strategy would result in very large decreases in one 
pollutant while resulting in a very small increase in another 
pollutant. But it is particularly important that the Administrator only 
approve such a strategy upon a finding, based on a well-accepted, 
documented methodology, that there will be no significant increase in 
the risk of adverse effects resulting from the strategy.
  As I've described, before granting a petition, the Administrator must 
find that certain quantitative requirements for measuring better 
environmental performance have been met by the petitioner. After making 
this determination, the Administrator may also consider other 
significant environmental, economic and social benefits that the 
petitioner offers in the petition, section l05(b)(2).
  Under the bill, the alternative compliance strategy must provide 
accountability, monitoring, enforceability and public access to 
information at least equal to that provided by the rule that is being 
modified or waived. A related and very important requirement is that 
adequate information must be made accessible so that any member of the 
public can determine if a company is complying with an alternative 
compliance agreement, sections 105(b) (4), (5). Other requirements that 
must be met by the petitioner are set forth in section 105.

  Another critical provision of the bill, section 104 establishes that 
any company submitting a petition must undertake a stakeholder 
participation process and work to ensure that adequate resources exist 
to make the process effective. Involving citizens, particularly members 
of the local community, in the development of an alternative compliance 
strategy is absolutely critical. Companies that have formulated 
successful alternative compliance strategies have told me that without 
the support of the local community these strategies simply will not 
work. Empowerment of the local community through stakeholder processes 
will help build trust and make implementation of the agreement easier. 
It is also important that State and local regulators be part of the 
stakeholder process.
  Under the bill, a more structured stakeholder process is set out for 
more complex agreements--those involving more than one pollutant or one 
medium. The stakeholders have a greater decisional role in more complex 
agreements. Nevertheless, in all cases, stakeholder acceptance will be 
critical to success of the alternative compliance strategy.
  Title II of the legislation seeks to build on the successful acid 
rain program established under the Clean Air Act Amendments of l990. It 
requires that prior to promulgating a new program for controlling 
emissions or discharges of a pollutant, EPA consider, where 
appropriate, the adoption of a market-based trading program. The 
program would include a cap on total emissions or discharges of the 
pollutant. Each source of a pollutant would be required to meet an 
emission or discharge limit based on a share of the total limit on 
emissions or discharges

[[Page S11729]]

allowed from all sources. Sources could meet their performance 
objective though a variety of methods, including by acquiring excess 
emission or discharge reductions from other sources that have achieved 
levels of performance beyond that required to meet their discharge or 
emission limits.
  The bill recognizes that trading programs are not appropriate in 
every case. Trading programs should only be implemented where they 
would result in levels of emissions or discharges greater than those 
that would be achieved under alternative programs. Additionally, there 
are circumstances where a trading program is not appropriate because 
the environmental or human health reasons for which the pollutant is 
regulated can only be addressed through source-specific emission 
controls.
  As I have mentioned, this title is intended to build on the success 
of the acid rain program of the Clean Air Act. That program set a cap 
on the total amount of emissions of sulfur dioxide that electric 
utilities can emit and allows flexibility for individual units to 
select their own method of compliance. The mechanism for allocating 
reductions is a comprehensive permit and emission allowance system. An 
allowance is a limited authorization to emit a ton of sulfur dioxide. 
Facilities receive allowance based on a specific formula contained in 
the law. Allowances may be traded or banked for future use or sale. 
Thirty days after the end of the year, each utility must have a number 
of allowances equal to the tonnage actually emitted during the previous 
year. Allowances may be purchased to cover each unit's emissions for 
the year. The system rewards utilities that go beyond the law's 
requirement by enabling them to earn profits from the sale of their 
extra allowances.

  The program is being implemented in two phases: Phase I began in l995 
and will last until 1999. It covers 445 utility units.
  In July, EPA issued a report on the compliance results of phase I. 
The results are extremely impressive and far exceed the expectations of 
those of us involved in the drafting of the legislation--both in terms 
of emission reductions achieved and cost of those reductions.
  First, EPA reports that the compliance level for all the units under 
Phase I was l00 percent. Second, EPA reports that the emissions for 
these units was 39 percent below what the law allowed for l995. Third, 
EPA and the U.S. Geological Survey report environmental success--
reductions in sulfur dioxide emissions have resulted in rainfall being 
less acidic in l995 as a result of the first year of the acid rain 
program. The U.S. Geological Survey study reports a 10-25 percent drop 
in rainfall acidity, particularly at some sites located in the mid-
west, northeast and mid-Atlantic regions. Fourth, the cost of reducing 
a ton of sulfur dioxide continues to decline. In just two years, 
allowance prices have dropped from $150 a ton to less than $80 a ton. 
At the time of enactment of the Clean Air Act Amendments, it was 
estimated that the cost of an allowance would be $500 to $600 a ton. 
The General Accounting Office has estimated that $2 to $3 billion will 
be saved with the implementation of the acid rain program through its 
allowance trading program.
  In other words, the acid rain program has achieved greater reductions 
than anticipated at far lower costs than anticipated. This is a win-
win--for the environment and the regulated community. The legislation I 
am introducing today would require EPA, where appropriate, to consider 
basing future environmental programs on the same type of successful 
program established for acid rain.
  Mr. President, I ask unanimous consent that the full text of the 
legislation be included in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2160

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Innovative Compliance Act of 
     1996''.

     SEC. 2. FINDINGS.

       Congress finds that--
       (1) superior environmental performance can be achieved in 
     some cases by granting regulated industries the flexibility 
     to develop alternative strategies for achieving environmental 
     results;
       (2) alternative strategies also have the potential to--
       (A) substantially reduce compliance costs;
       (B) foster cooperative partnerships among industry, 
     government, and local communities;
       (C) encourage greater innovation and greater pollution 
     prevention in meeting environmental goals; and
       (D) increase the involvement of members of the local 
     community and citizens in decisions relating to the approach 
     taken by a facility for achieving environmental goals; and
       (3) the acid deposition control program established under 
     title IV of the Clean Air Act (42 U.S.C. 7651 et seq.), the 
     stratospheric ozone protection program established under 
     title VI of the Act (42 U.S.C. 7671 et seq.), and other 
     initiatives demonstrate that properly designed market-based 
     approaches can achieve greater environmental performance and 
     encourage innovation while saving money for regulated 
     industries and government when compared with more traditional 
     control approaches.
 TITLE I--ALTERNATIVE STRATEGIES FOR ACHIEVING SUPERIOR ENVIRONMENTAL 
                              PERFORMANCE

     SEC. 101. DEFINITIONS.

       In this title:
       (1) Administrator.--The term ``Administrator'' means the 
     Administrator of the Environmental Protection Agency.
       (2) Agency.--The term ``Agency'' means the Environmental 
     Protection Agency.
       (3) Agency rule.--The term ``Agency rule''--
       (A) means a rule (as defined in section 551 of title 5, 
     United States Code) issued by the Agency; but
       (B) does not include any emissions reduction requirement of 
     any rule under title IV of the Clean Air Act (relating to 
     acid deposition control) (42 U.S.C. 7651 et seq.) or any 
     other requirement pursuant to any other enforceable trading 
     program.

     SEC. 102. PETITION.

       A person that owns or operates a facility that is subject 
     to an Agency rule may petition the Administrator to modify or 
     waive the Agency rule with respect to the facility and to 
     enter into an enforceable compliance agreement with the 
     person establishing an alternative compliance strategy with 
     respect to the facility in accordance with this title.

     SEC. 103. CONTENTS OF PETITION.

       A petition under section 102 shall--
       (1) identify the Agency rule for which the modification or 
     waiver is sought and the alternative compliance strategy that 
     is proposed;
       (2) identify the facility to which the modification or 
     waiver would pertain; and
       (3) demonstrate that the alternative compliance strategy 
     meets the requirements of section 105.

     SEC. 104. STAKEHOLDER PARTICIPATION PROCESS.

       (a) In General.--A person that submits a petition under 
     section 102 shall--
       (1) undertake a stakeholder participation process in 
     accordance with this section; and
       (2) work to ensure that there is adequate technical support 
     for an effective process.
       (b) Requirements.--The stakeholder participation process 
     shall--
       (1) be balanced and representative of interests likely to 
     be affected by the proposed alternative compliance strategy;
       (2) ensure options for public access to the process and 
     make publicly available the proceedings of the stakeholder 
     participation process, except with respect to confidential 
     information of the petitioner;
       (3) establish procedures for conducting the stakeholder 
     participation process, including open meetings as 
     appropriate; and
       (4) if necessary, provide for appropriate agreements to 
     protect confidential information of the petitioner proposing 
     the alternative compliance strategy.
       (c) Public Notice of Petition.--A person that submits a 
     petition under section 102 shall provide effective public 
     notice of the intent of the petitioner to pursue the 
     alternative compliance strategy to--
       (1) community groups;
       (2) environmental groups;
       (3) potentially affected employees;
       (4) persons living near the facility; and
       (5) Federal, State, and local government agencies in areas 
     that may be affected by the alternative compliance strategy, 
     including areas that may be affected by transport of a 
     pollutant.
       (d) Participation.--
       (1) In general.--Any person may participate in the 
     stakeholder participation process, except that a person that 
     has a business interest in competition with that of the 
     petitioner may be excluded.
       (2) Government officials.--Federal, State, and local 
     government officials in areas that may be affected by the 
     proposed alternative compliance strategy may participate in 
     the stakeholder participation process.
       (3) Limitation on number of participants.--In order to 
     provide for a manageable stakeholder process, a petitioner 
     may propose a limit on the number of stakeholder participants 
     if the petitioner demonstrates to the satisfaction of the 
     Administrator that the stakeholder participants adequately 
     represent, in a balanced manner, the full range of interests 
     (excluding competitive business interests) that may be 
     affected by the alternative compliance strategy.
       (e) Modification or Waiver of Process.--

[[Page S11730]]

       (1) Request.--A petitioner may request that the 
     Administrator modify or waive 1 or more of the requirements 
     of this section.
       (2) Criteria.--The Administrator may grant a request under 
     paragraph (1) if, after notice and opportunity for public 
     comment, the Administrator determines that--
       (A) there is insufficient interest in convening stakeholder 
     participants; and
       (B) the stakeholder participation process would not be 
     useful in view of the routine or noncontroversial nature of 
     the proposal.

     SEC. 105. REQUIREMENTS FOR APPROVAL.

       (a) In General.--The Administrator may approve a petition 
     under section 107 if the Administrator determines that--
       (1) the facility is in compliance with all applicable 
     environmental and public health regulations and other 
     requirements;
       (2) the alternative compliance strategy will achieve better 
     overall environmental results than would be achieved under 
     the current regulatory requirements and any reasonably 
     anticipated future regulatory requirements;
       (3) the alternative compliance strategy will not result in 
     adverse cross-media impacts;
       (4) the alternative compliance strategy provides 
     accountability, monitoring, enforceability, and public and 
     Agency access to information at least equal to that provided 
     under the Agency rule that is modified or waived;
       (5) the alternative compliance strategy provides for access 
     to information adequate to enable verification of 
     environmental performance by any interested person;
       (6) the alternative compliance strategy ensures worker 
     health and safety;
       (7) no person or population would be subjected to unjust or 
     disproportionate environmental impacts as a result of 
     implementation of the alternative compliance strategy;
       (8) the alternative compliance strategy will not result in 
     transport of a pollutant to another area;
       (9) the alternative compliance strategy will not result in 
     a violation of a national environmental or health standard;
       (10) all State and local environmental agencies in areas 
     that may be affected by the alternative compliance strategy 
     support the petition;
       (11) the stakeholder participation process met the 
     requirements of section 104;
       (12) as determined on the basis of a well accepted, 
     documented methodology, the alternative compliance strategy 
     will not result in any significant increase in the risks of 
     adverse effects, or shift any significant risks of adverse 
     effects, to the health of an individual, population, or 
     natural resource affected by the alternative compliance 
     strategy;
       (13) the agreement is for a specified term not to exceed 10 
     years; and
       (14) in the case of a petition involving more than 1 
     pollutant or more than 1 medium, a broad consensus of the 
     stakeholder participants has approved the alternative 
     compliance strategy.
       (b) Better Overall Results.--
       (1) Criteria.--For the purposes of subsection (a)(2), the 
     achievement of better overall environmental results shall be 
     measured as follows:
       (A) For existing facilities, the benchmark shall be the 
     lesser of--
       (i) the level of releases of pollutants into the 
     environment being achieved prior to the date of submission of 
     the petition; or
       (ii) the level of releases of pollutants into the 
     environment allowed under the current regulatory requirements 
     and any reasonably anticipated future regulatory 
     requirements;

     except that the Administrator may modify the benchmark on a 
     case-by-case basis for a facility that has reduced releases 
     significantly below applicable regulatory requirements prior 
     to the date of submission of the petition.
       (B) For existing facilities being modified to significantly 
     expand production, the benchmark shall be the lesser of--
       (i) the level of releases of pollutants into the 
     environment being achieved (on a per unit of production 
     basis) prior to the date of submission of the petition; or
       (ii) the level of releases of pollutants into the 
     environment allowed under the current regulatory requirements 
     and any reasonably anticipated future regulatory requirements 
     on a per unit of production basis.
       (C) For new facilities, the benchmark shall be based on the 
     lesser of--
       (i) the level of releases of pollutants into the 
     environment allowed under the current regulatory requirements 
     and any reasonably anticipated future regulatory 
     requirements; or
       (ii) the level of releases of pollutants into the 
     environment being achieved by the best performance practices 
     of similarly situated facilities.
       (2) Other considerations.--In addition to determining that 
     the criteria of paragraph (1) are met, the Administrator may 
     consider other factors supporting superior environmental, 
     social, and economic benefits set forth in the petition.
       (c) Objection by Stakeholder.--Notwithstanding subsection 
     (a)(14), the Administrator shall deny a petition involving 
     more than 1 pollutant or more than 1 medium if--
       (1) 1 or more stakeholders object to the alternative 
     compliance strategy; and
       (2) the Administrator determines, based on the objection, 
     any response to the objection, and all other relevant facts, 
     that--
       (A) the objection relates to any of the criteria stated in 
     paragraphs (1) through (13) of subsection (a); and
       (B) the objection has a clear and reasonable foundation.

     SEC. 106. PRIORITY.

       The Administrator shall give priority to petitions with 
     alternative compliance strategies using pollution prevention 
     approaches and to petitions submitted by persons with a 
     strong record of outstanding environmental performance and 
     worker health and safety protection.

     SEC. 107. DETERMINATION OF PETITION.

       Not later than 180 days after receiving a petition under 
     section 102, the Administrator, subject to section 112, 
     shall--
       (1) propose to approve the petition and enter into an 
     enforceable compliance agreement; or
       (2) submit a written explanation to the petitioner of the 
     basis for determining that the requirements of section 105 
     are not met.

     SEC. 108. PUBLIC NOTICE OF INTENT TO APPROVE PETITION.

       The Administrator shall publish notice of the intent to 
     approve a petition in the Federal Register at least 60 days 
     prior to approving the petition.

     SEC. 109. ENFORCEABILITY.

       (a) In General.--If the Administrator and a person enter 
     into an enforceable compliance agreement under this title, 
     the person shall comply with the agreement in lieu of any 
     Agency rule modified or waived by the agreement, and 
     compliance with the agreement shall be considered to be 
     compliance with the Agency rule for all purposes.
       (b) Specification of Agency Rules to Which Agreement 
     Applies.--An agreement under subsection (a) shall specify 
     each Agency rule that is modified or waived.

     SEC. 110. PRELIMINARY COMMENT PROCESS.

       The Administrator shall establish a process for providing 
     preliminary comments by the Administrator on a petition.

     SEC. 111. JUDICIAL REVIEW.

       A decision by the Administrator to approve or disapprove a 
     petition under this title shall constitute final agency 
     action and shall be subject to judicial review.

     SEC. 112. LIMITATION ON PETITIONS CONSIDERED.

       The Administrator shall not consider more than 50 petitions 
     for alternative compliance strategies unless--
       (1) a petitioner demonstrates that, because the petitioner 
     is situated in a position that is virtually identical to that 
     of another person that has been granted approval of a 
     petition, the petitioner may be at a substantial competitive 
     disadvantage if the petition is not considered; or
       (2) at the sole discretion of the Administrator and taking 
     into account the full range of the Agency's obligations, the 
     Administrator determines that adequate resources exist to 
     evaluate a greater number of petitions and to oversee 
     implementation of a greater number of enforceable compliance 
     agreements.

     SEC. 113. SMALL BUSINESS PROPOSALS.

       The Administrator shall establish a program to facilitate 
     development of proposals for alternative means of compliance 
     from groups of small businesses and to provide expedited 
     review of proposals for alternative means of compliance from 
     groups of small businesses.
     SEC. 114. REPORT AND EVALUATION.
       Not later than 3 years after the date of enactment of this 
     Act, the Administrator shall submit a report to Congress on 
     the aggregate effect of the enforceable compliance agreements 
     entered into under this title, including--
       (1) the number and characteristics of the agreements;
       (2) estimates of the environmental and public health 
     benefits, including any reduction in quantities or types of 
     emissions and wastes generated;
       (3) estimates of the effect on compliance costs and jobs 
     creation;
       (4) the degree and nature of public participation and 
     accountability;
       (5) the incidence of noncompliance with the agreements 
     entered into under this title compared to the incidence of 
     noncompliance with relevant Agency rules by similarly 
     situated facilities;
       (6) conclusions on the functioning of stakeholder 
     participation processes; and
       (7) recommendations for legislative action.

     SEC. 115. SAVINGS CLAUSE.

       A decision by the Administrator to enter into an 
     enforceable compliance agreement under this title shall not 
     create any obligation of the Agency to modify any Agency rule 
     insofar as the rule applies to any facility other than the 
     facility subject to the enforceable compliance agreement. 
     Nothing in this title shall affect the ability of the 
     Administrator to enter into or carry out enforceable 
     alternative compliance agreements under other law.

     SEC. 116. COMPUTER ACCESS.

       The Administrator shall establish, and provide on-line 
     computer access to, a national repository of enforceable 
     compliance agreements entered into under this title.

     SEC. 117. FUNDING.

       (a) Authorization of Appropriations.--There are authorized 
     to be appropriated to the Agency to carry out this title such 
     sums as are necessary for fiscal years 1997 through 2000.
       (b) Authorization of Fees.--
       (1) In general.--The Administrator may assess reasonable 
     fees for consideration of petitions.
       (2) Offset.--Fees assessed under paragraph (1) shall offset 
     the expenses incurred by the

[[Page S11731]]

     Administrator and may be used only for processing, 
     administering, implementing, and enforcing enforceable 
     compliance agreements.
       (3) Other fees.--Fees assessed under this subsection shall 
     be collected in lieu of fees associated with otherwise 
     applicable rules or requirements modified by an enforceable 
     compliance agreement.
       (4) Waiver.--The Administrator may waive any fees under 
     this subsection for any proposal for an alternative means of 
     compliance from a small entity (as defined under section 601 
     of title 5, United States Code) or group of small entities.
            TITLE II--ENVIRONMENTAL MARKET-BASED STRATEGIES

     SEC. 201. CONSIDERATION OF MARKET-BASED MECHANISMS.

       Before issuing a rule establishing a new program intended 
     to limit the discharge or emission of a pollutant into the 
     environment, the Administrator of the Environmental 
     Protection Agency shall, in appropriate circumstances, 
     consider including market-based mechanisms in the design and 
     implementation of the program.

     SEC. 202. MARKET-BASED MECHANISMS.

       (a) In General.--Subject to subsection (b), a market-based 
     mechanism shall include--
       (1) the imposition, on each regulated person, of express 
     legal accountability for an explicit performance objective 
     expressed as a quantity of actual discharges or emissions 
     (and each such person's emissions or discharge limit shall 
     represent a share of a total limit on emissions or discharges 
     from all sources affected by the rule); and
       (2) the authorization of the regulated person to comply 
     with the requirements described in paragraph (1) by 
     transferring or acquiring increments of emissions or 
     discharge reductions, which shall represent reductions in 
     emissions or discharges in excess of those required to be 
     made by a regulated entity to meet its emissions or discharge 
     limits.
       (b) Other Appropriate Factors.--
       (1) In general.--If the Administrator of the Environmental 
     Protection Agency determines that a program with the elements 
     specified in subsection (a) is not appropriate, the 
     Administrator may include in a market-based mechanism a 
     method by which a regulated person subject to emissions or 
     discharge limits that are not expressed as a quantity of 
     total emissions or discharges may--
       (A) elect to meet the applicable emissions or discharge 
     limits by limiting the person's total emissions or discharges 
     to a specified quantity that corresponds to the regulated 
     person's initial emissions or discharge limits; and
       (B) achieve compliance with the emissions or discharge 
     limits established under subparagraph (A) by acquiring or 
     transferring increments of emissions or discharge reductions.
       (2) Incremental reductions.--Subject to paragraph (3), 
     increments described in paragraph (1)(B) shall--
       (A) represent reductions in emissions or discharges in 
     excess of reductions required to be made by a regulated 
     entity to meet its emissions or discharge limits; and
       (B) be permanent, enforceable, and nondiscrete.
       (3) Exclusion as part of mechanism.--A rule permitting 
     sources to acquire increments of emissions or discharge 
     reductions when increments represent reductions that are 
     discrete, nonpermanent, or discontinuous and are generated by 
     sources the total emissions or discharges of which are not 
     subject to a quantified emissions or discharge limitation 
     requirement shall not be part of a market-based mechanism.
       (c) Limitation.--Notwithstanding any other provision of 
     this title, the Administrator of the Environmental Protection 
     Agency may not consider market-based mechanisms for a program 
     if--
       (1) the program would result in levels of emissions or 
     discharges of the pollutant regulated by the rule in excess 
     of those that would be achieved under an alternative program, 
     taking into account any incentives for generating and 
     retaining excess reductions created by the opportunity to 
     acquire and transfer increments of emissions or discharge 
     reductions as a means of meeting the emissions or discharge 
     limitation requirement applicable to the source; or
       (2) the program pertains to a pollutant the properties of 
     which are such that the environmental or human health 
     purposes for which the pollutant is subject to regulation, 
     taking into account any disproportionate or unjust 
     environmental impacts to an individual, population, or 
     natural resource, and any transport of the pollutant that may 
     result, may be achieved only through the imposition of 
     nontransferable source-specific emissions or discharge 
     limitation requirements.

                          ____________________