[Federal Register Volume 62, Number 78 (Wednesday, April 23, 1997)]
[Notices]
[Pages 19872-19882]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-10510]



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Part IV





Environmental Protection Agency





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Regulatory Reinvention (XL) Pilot Projects; Notice

  Federal Register / Vol. 62, No. 78 / Wednesday, April 23, 1997 / 
Notices  

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ENVIRONMENTAL PROTECTION AGENCY

[FRL-5811-7]


Regulatory Reinvention (XL) Pilot Projects

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice of modifications to project XL.

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SUMMARY: This notice modifies EPA's existing guidance on Project XL and 
solicits new XL proposals. This notice clarifies EPA's definition of 
the three key project elements: superior environmental performance, 
regulatory flexibility and stakeholder involvement. It also describes 
changes intended to bring greater efficiency to the process of 
developing XL projects.

EFFECTIVE DATE: April 23, 1997.

ADDRESSES: Proposals submitted to Project XL should be sent to 
Regulatory Reinvention Pilot Projects, FRL-5197-9, Water Docket, Mail 
Code 4101, US EPA, 401 M Street, SW., Washington, DC, 20460. The docket 
does not accept faxes.

FOR FURTHER INFORMATION CONTACT: Christopher Knopes, Office of Policy, 
Planning and Evaluation, United States Environmental Protection Agency, 
Mall 3202, Mail Code 2129, 401 M Street, SW., Washington, DC, 20460. 
The telephone number for the Office is (202) 260-2220. The facsimile 
number is (202) 401-6637.

SUPPLEMENTARY INFORMATION: On March 16, 1995, President Clinton 
announced a portfolio of reinvention initiatives to be implemented by 
the Environmental Protection Agency as a part of its efforts to achieve 
greater public health and environmental protection at more reasonable 
cost. One of these reinvention priorities, Project XL, is a national 
pilot program to test new approaches for meeting environmental goals 
and responsibilities. Through a series of site-specific agreements with 
project sponsors, EPA expects to gather data and experiences that will 
help the Agency make sound decisions as we look for ways to improve the 
current regulatory system.
    XL projects directly benefit the local environment, participating 
facilities and their communities. But those who do not participate in 
XL will also benefit from its lessons. EPA, working with state 
environmental agencies, intends to transfer successful approaches into 
the current system of environmental protection. Broader implementation 
of cleaner, cheaper and smarter ideas is the ultimate objective of 
Project XL.
    This objective distinguishes XL from other approaches to regulatory 
change discussed in environmental policy circles, with names such as 
``alternative compliance'' and ``alternative path.'' Like XL, these 
approaches seek to offer site-specific alternatives to the traditional 
system of environmental protection. But where XL tests ideas that, if 
successful, will change our national system of environmental 
protection, these approaches seek to customize the broader system to 
meet the needs of a specific location. Supporters of customization want 
their approach available to a large number of regulated facilities, and 
focus principally on the project's benefits to the local environment 
and participating facility itself. In contrast, the number of XL 
experiments is limited to 50, making it vital that each project creates 
lessons with broad application and potential benefits to the broader 
environment.
    In a May 23, 1995, Federal Register notice (60 FR 27282, May 23, 
1995), EPA describes Project XL as a program that offers a balanced set 
of benefits to the environment, the regulated community and the public. 
In that notice, the XL program was defined through eight criteria by 
which proposals are selected for participation. While all of these 
criteria are still important, the first three actually define Project 
XL: superior environmental performance, regulatory flexibility (termed 
Cost Savings and Paperwork Reduction in the original notice), and 
stakeholder involvement. These criteria are equal in stature and 
together provide the context for the experimental nature of the 
program.
    Since the inception of Project XL, there have been requests for 
clarification of EPA's definitions of these three essential program 
elements. EPA recognizes the critical need to ensure that environmental 
regulatory agencies, potential project sponsors, and other interested 
stakeholders have a clear understanding of the concepts, definitions, 
and boundaries of Project XL. Today's notice clarifies the concepts, 
definitions, and boundaries of superior environmental performance, 
regulatory flexibility, and stakeholder involvement, and provides 
guidance on future program management. With today's notice, the 
learning opportunity afforded by Project XL will proceed with greater 
certainty and efficiency.
    For projects that have already entered the program--where final 
project agreements (FPAs) are already being developed or have been 
approved--the guidance contained in this notice does not impose new 
requirements or procedures. While the guidance both on Superior 
Environmental Performance and on Flexibility present more fully 
developed definitions of these criteria, they build on approaches 
already being applied to projects in development and will generally be 
familiar to current XL participants. The Stakeholder guidance does 
recommend additional steps to ensure that projects garner broad 
community support. As these steps are based on considerable up-front 
decision-making within the stakeholder group, EPA does not expect that 
sponsors will be able to retroactively implement all of these steps 
into ongoing projects.
    EPA seeks comment on all aspects of this notice on an ongoing 
basis. The guidance as defined in this notice is the result of Agency 
experience to date and ongoing dialogue with states, industry and 
various stakeholders. As Project XL is a continuously evolving program, 
EPA intends to continue dialogue, to receive and to review comments on 
the various aspects of the program, and to update and to revise this 
guidance as necessary.
    Project XL conducts projects in four areas: facilities, sectors, 
federal facilities, and communities. Community-based projects differ 
substantially from the other types of XL projects. EPA recognized and 
addressed these distinctions by issuing a separate Federal Register 
notice to initiate the XL Communities program (60 FR 55569, November 
11, 1995). In keeping with the recognition of communities' need for 
different approaches, EPA will clarify in the near future the 
applicability of this guidance to community XL projects.
    This notice also includes a general solicitation for new proposals 
to Project XL. This solicitation lays out some areas that have been 
identified by the Agency or others in the environmental community as 
important to pursue in the quest for a more efficient and results-
oriented regulatory system. EPA intends to pursue the identification of 
more specific priority areas for regulatory reinvention and project 
ideas that should help guide potential project sponsors, and to publish 
a future notice with the results. Today's notice also solicits new 
ideas from parties outside of the regulated community. The Agency is 
working on a process that will facilitate the development of ideas that 
may originate from these individuals, and will describe that process in 
a future notice.
    EPA encourages facility, sector or federal facility project 
sponsors to utilize this opportunity to truly reinvent the way they 
conduct environmental management. While there are many

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proposals that may meet the criteria for inclusion in Project XL, EPA 
looks to develop in Project XL those ideas that introduce fundamentally 
different ways of providing environmental protection and achieving 
stronger environmental results. Project XL offers good actors--
environmental leaders and today's average performers alike--a 
tremendous opportunity to think ``outside the box'' of our current 
system and to find solutions to obstacles that limit environmental 
performance. EPA looks to leaders in the regulated and environmental 
communities to identify and develop dramatically different approaches 
to protecting the environment. For average performers, XL presents an 
opportunity to move into a position of environmental leadership and to 
create a path for others to do the same.
    This notice includes revisions to the process by which an idea 
becomes an XL project. New emphasis is placed on pre-proposal planning 
and communication with stakeholders, EPA's internal management of 
projects, and close partnership with states. Also outlined are definite 
points at which information will be made widely available to the public 
during the project development and negotiation processes.
    Evaluation is not covered in this notice, though it is an area that 
the Agency believes is critical to Project XL's success. Evaluation 
will occur at many levels--project specific (e.g., Did the project 
achieve its goals?), functional (e.g., Did the stakeholder process 
work?), process (e.g., How can we improve the process?), and 
programmatic (e.g., How do we take the lessons learned from these 
experiments and transfer the successes to improve our current system?). 
Each level of evaluation will involve collaborative efforts on the part 
of the Agency, states, other affected regulatory agencies, project 
sponsors and stakeholders. In some cases, outside groups may also be 
interested in evaluating aspects of projects or the program. At a 
minimum, project agreements will contain clear performance measures to 
help EPA and interested stakeholders verify progress with project 
goals, and then use the results to find better solutions to today's 
environmental management challenges.

Solicitation for New XL Project Proposals

    Today EPA is renewing its invitation, first issued in the Federal 
Register on May 23, 1995, (60 FR 27282, May 23, 1995), for regulated 
facilities, sectors, and regulated federal facilities, and interested 
stakeholders, to submit XL pilot project proposals. The goal of 
implementing a total of approximately 50 projects remains. To date, EPA 
has approved 3 XL projects for implementation, has proposed approval of 
a fourth, and is developing 10 additional XL projects with state and 
local governments, project sponsors and stakeholders.

Potential Project Themes

    EPA did not originally identify the specific types of proposals it 
hoped or expected to result from its May 23, 1995, solicitation, 
preferring instead to encourage others to respond with their own ideas. 
A September 11, 1996, Federal Register notice supplemented the general 
solicitation with an invitation for projects specifically aimed at 
creating innovative environmental technologies, and EPA retains a 
strong interest in proposals in this area. But the open invitation for 
all proposals still exists, and today's notice does not change EPA's 
general invitation for all kinds of ideas. Nevertheless, EPA does wish 
to describe several general themes that have been identified as 
important to pursue in the context of testing innovations for 21st 
century environmental protection. Many of these themes are based on the 
need to incorporate more incentives for pollution prevention in our 
system of environmental protection:
     Regulatory approaches that encourage source reduction and 
recycling of hazardous waste or materials produced or used during 
manufacturing or commercial operations, and the on-site reuse of wastes 
or by-products in production processes;
     Incentives for greater or continuous collection of 
emissions data, particularly for hazardous air pollutants, to enable 
performance-based approaches and to increase public understanding;
     Approaches that minimize the generation of wastes 
containing persistent, bio-accumulative, and toxic chemicals;
     Facility-wide emissions limits under the Clean Air Act 
that also incorporate continuous emissions reduction;
     Enhanced systems for data collection on employee health 
and exposure to environmental pollutants to aid company efforts to 
minimize work-related health problems;
     Regulatory mechanisms to encourage consideration of the 
environment throughout the entire life cycle of a product;
     Incorporation of environmental stewardship in the customer 
and supplier relationships of regulated facilities; and
     A multi-media closed-loop approach to environmental 
technology development.
    EPA and state environmental agencies intend to identify more 
specific priority areas and additional themes in the near future, in an 
effort to inform potential project sponsors. Efforts will be made to 
seek the input of a wide range of interested parties, including other 
regulators, environmental and environmental justice groups, trade 
associations, and academic institutions with an interest in 
environmental policy. The results of these efforts will be published in 
the Federal Register and made available through other media.

Stakeholder Initiated Projects

    Today's notice reaffirms EPA's interest in having stakeholders not 
directly connected with regulated facilities come forward with XL 
proposal ideas or to co-sponsor projects with companies. While the 
development of an XL proposal is more typically initiated by a 
regulated firm or co-sponsoring organization, it may also be initiated 
by EPA, by a state environmental agency, or by other non-regulated 
parties. EPA encourages stakeholders to bring their own ideas forward. 
Those stakeholders who wish to initiate projects may discuss the 
proposal concept with EPA or the state environmental agency; contact 
firms directly to discuss proposal concepts; or engage the assistance 
of EPA or the state environmental agency in identifying potential 
participants from among the regulated community. EPA will, upon the 
request of stakeholders who wish to initiate projects, consider using 
its own resources (e.g., the Federal Register and the Agency's Project 
XL Internet Web Site, www.epa.gov/ProjectXL) to identify potential 
participants from among regulated firms. Beyond its openness to 
stakeholder initiated proposals, EPA is developing a process to solicit 
themes and specific ideas from groups outside of the regulated 
community, and to turn those ideas into fruitful XL projects.

Superior Environmental Performance

    In order to test innovative approaches to reinvent environmental 
protection for the 21st Century, Project XL offers potential project 
sponsors and co-sponsors the opportunity to develop and implement 
alternative strategies that produce superior environmental performance, 
replace specific regulatory requirements, and promote greater 
accountability to stakeholders. The May

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23, 1995, Federal Register notice defining the XL program stated EPA's 
intent to approve only those projects that ``achieve superior 
environmental performance relative to what would have been achieved 
through compliance with otherwise applicable requirements.'' This 
notice further refines the definition of superior environmental 
performance to assist future applicants, stakeholders and those 
evaluating the program.
    EPA is establishing a two tiered assessment of superior 
environmental performance for Project XL proposals. Tier 1 is a 
quantitative benchmark of the project against the environmental 
performance that would have occurred absent the program. It establishes 
a baseline of equivalence from which superior environmental performance 
can be measured. A project that is not at least equivalent, based on 
the factors discussed in Tier 1, can not be considered superior 
overall. Tier 2 is an examination of factors, both quantitative and 
qualitative, that lead EPA to judge that a project will produce a 
superior level of environmental performance that merits testing the 
innovation being proposed. This two tiered approach should aid EPA and 
others in evaluating proposal merits and deciding what should or should 
not be tested. It is not EPA's intent to suggest a hierarchy. Tier 1 
and Tier 2 are both essential in determining whether a project is 
likely to achieve superior environmental performance.
    Parenthetical examples are included throughout this notice. These 
are meant to aid the reader in understanding the general discussion, 
but not to signal EPA's preferences or requirements for specific XL 
projects.
    These guidelines on superior environmental performance reflect 
EPA's experience with Project XL to date. Because the guidelines 
measure performance levels relative to today's system of environmental 
regulation, the results achieved through the use of these guidelines 
will be incremental improvements over the current system. EPA 
recognizes that these guidelines may be too limited in their definition 
of superior environmental performance in some cases, particularly where 
a project involves a radical departure from our current environmental 
regulatory system. In these cases, EPA encourages the sponsors to 
propose and provide a rationale for alternative definitions of superior 
environmental performance. EPA will consider these alternatives, as 
appropriate.

Tier 1: Is the Project Equivalent?

    Tier 1 establishes an environmental performance benchmark for an XL 
project. This benchmark provides a reasonable estimate of what would 
have happened to the environment absent Project XL. It quantifies 
current performance levels and sets a baseline against which the 
project's anticipated environmental performance can be compared.
    These benchmarks are expressed in terms of loadings to the 
environment. The term loadings is meant by EPA to incorporate a broad 
set of stressors to the environment, such as emissions of specific 
pollutants or generation of waste streams released to the environment 
by disposal.
     The project benchmark will be set at either the current 
actual environmental loadings or the future allowable environmental 
loadings, whichever is more protective.
     Where the project includes new facilities that have not 
yet been built or expansion of existing facilities for additional 
production of a current product or for new products that have not yet 
been produced, the benchmark will be set at the level of performance 
generally representative of industry practice, or the future allowable 
environmental loadings for such a facility or production process, 
whichever is more protective.
     These benchmarks may be on a per-unit of production basis 
or other comparable measure (e.g., volume of liquid hazardous waste 
generated per unit of product), as appropriate, to distinguish real 
environmental gains relative to what would happen absent XL from 
fluctuations in production.
     Except in outstanding site-specific circumstances, 
voluntary measures that are in place at the time the project is 
proposed and remain in place during the project (e.g., previous 
installation of on-site wastewater treatment not for compliance 
purposes) should be included in the benchmark. This distinction assumes 
that these voluntary measures would have been in place already and 
remained in place absent XL (e.g., include in the benchmark the effect 
of the pre-existing wastewater treatment system, as long as that system 
continues to operate).
    EPA will also seek to benchmark the project from a pollution 
prevention perspective. While other Tier 1 benchmarks are expressed in 
terms of loadings to the environment, this benchmark may be expressed 
in terms of inputs to production (e.g., use of toxic chemicals, fresh 
water, or other natural resources). EPA will be most interested in 
inputs of specific environmental and/or stakeholder concern. EPA will 
compare the project's use of those inputs against the volume of the 
inputs that would be used absent Project XL. This attention to 
pollution prevention is meant to encourage projects that reduce the use 
of materials of environmental or public health concern, as well as 
projects that reduce ultimate loadings to the environment.
    The project will be benchmarked against each environmental loading 
in each environmental medium (e.g., air, water, land). However, EPA 
will consider projects involving tradeoffs among loadings as part of a 
test of innovative environmental management. These projects may exceed 
the appropriate benchmark for one loading but fall short of it for 
another. To address the imprecision inherent in evaluating tradeoffs 
among environmental loadings and environmental media, projects of this 
type should demonstrate, with an adequate margin of safety, overall 
superior environmental performance over what would be achieved absent 
XL. Benefits should be measurable through an analytic methodology 
acceptable to regulatory agencies and to stakeholders. EPA will not 
approve projects that threaten ecological health or risk-based 
environmental standards (e.g., Water Quality Standards).
    Tradeoffs may be allowed among different loadings that contribute 
to a single environmental outcome (e.g., VOC and NOX 
emissions contributing to smog formation). In this case, project 
sponsors should evaluate the tradeoff using the best available analytic 
methodology. In these evaluations, however, project sponsors should 
consider the risk or benefits arising from situations in which one of 
these loadings might also contribute to other environmental outcomes 
(e.g., VOC emissions that also contain hazardous air pollutants).
    Tradeoffs may also be allowed among different loadings that produce 
different environmental outcomes (e.g., waste minimization technology 
that reduces hazardous waste incineration but increases waterborne 
pollutant discharge) where there is a demonstrable net benefit to 
public health and the environment. Project sponsors should clearly 
define the various environmental outcomes and the project's effect on 
them. A project involving such tradeoffs may pose challenges beyond 
analytics. EPA will not approve projects that create a shifting of risk 
burden (e.g., diversion of hazardous air pollutant emissions from 
stacks to the work area, or lower net

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level of remediation at a waste disposal site in a low income 
community). To the contrary, in entertaining projects that incorporate 
tradeoffs, it is EPA's intent to produce clear risk reduction.

Tier 2: Superior Environmental Performance

    Tier 2 is an examination of factors that lead EPA to judge that a 
project will produce truly superior environmental performance. Although 
the weighting of factors in Tier 2 is necessarily subjective, the 
factors themselves should be expressed in quantitative terms wherever 
possible. Tier 2 factors include, but are not limited to:
     The increment by which the project exceeds the appropriate 
Tier 1 benchmarks.
     Pollution prevention upstream from end-of-pipe releases 
(e.g., a project that alters production processes to eliminate the need 
for toxic ingredients, instead of just disposing of toxic waste 
created).
     Environmental performance more protective than the best 
performance practices of facilities with comparable products or 
processes (e.g., closed loop production at a steel mill).
     Incorporation of continuous improvement towards ambitious 
quantitative environmental aspirations (e.g., project with a zero 
emissions goal).
     The extent to which the project produces clear reduction 
of risk.
     Historic demonstration of leadership in environmental 
performance of the facility (e.g., through voluntary measures taken 
prior to XL).
     Improvement in environmental conditions that are 
priorities to stakeholders, including issues not governed by EPA rules 
(e.g., habitat preservation, green space, parks or other protected 
areas, odors, noise).
     The extent to which the project substantially addresses 
community and public health priorities of concern to stakeholders, 
including issues not governed by EPA rules (e.g., identification of 
community health patterns, employee safety issues beyond those 
regulated by EPA).
    Where projects involve areas regulated by agencies other than EPA 
or state environmental agencies, those other agencies should be brought 
into the process.

Accountability for Environmental Performance

    Project documents should clearly distinguish among the different 
ways in which facilities may be held accountable for commitments to 
superior environmental performance. There are two broad types of 
accountable commitments: enforceable commitments and voluntary 
commitments. These should not be confused with broader corporate 
aspirations, which may be ambitious and set without prior knowledge of 
the means to achieve them.
     Enforceable commitments are those levels of performance 
which can be compelled by government. Failure to achieve these 
commitments constitutes grounds for government or citizen enforcement 
action, with all of the remedies generally available absent Project XL. 
XL Projects redefine compliance on a site-specific basis, and EPA will 
ensure a level of enforceability that is, in its own judgment, at least 
equivalent to the level which would be achieved absent the project. 
Each project will have an enforceable component, described in the final 
project agreement (FPA), but also contained in a legally binding 
document, such as a permit, rule-making, or administrative order.
     Voluntary commitments are those for which a facility may 
be held accountable through means other than injunctive relief, penalty 
or other conventional legal enforcement action. Failure to achieve 
these commitments is an appropriate basis for termination or 
modification of the XL project. Voluntary commitments will be contained 
in the FPA, which is not itself legally binding on the parties. 
Accordingly, both the FPA and associated legal implementing mechanisms 
should reserve EPA's discretion to terminate a project and to return 
the facility to compliance with otherwise applicable requirements where 
voluntary commitments have not been met.
    Accountability for commitments--whether enforceable or voluntary--
is most effective where project goals and results are transparent. 
Projects should include mechanisms to provide government and 
stakeholders with access to data sufficient to verify whether 
commitments have been met. In making decisions related to Project XL 
and other matters, EPA relies upon the statements and representations 
made by project sponsors. Federal laws intended to ensure the accuracy 
and truth of such statements apply. Project sponsors should know that 
failure to meet commitments or failure to act in good faith in 
reporting related to these commitments, will draw a strong response 
from the Agency.
    The type of accountability appropriate for a particular commitment 
should be discussed within a project's stakeholder process and 
incorporated into the FPA. There may be cases, for example, where 
stakeholders believe that a particular commitment is critical to the 
success of a project and may wish accountability for that commitment to 
reflect this (e.g., by more detailed reporting of a voluntary 
commitment, or by incorporating that commitment into the enforceable 
component of the project).
    Project XL is intended for good actors. Those companies and 
facilities with a history of violations of enforceable commitments pose 
additional issues to be factored into consideration of XL proposals and 
projects. EPA generally will not approve XL projects for facilities 
that are the subject of an on-going enforcement action unless the 
facility resolves outstanding compliance issues (e.g., through payment 
of penalties and, where applicable, completion of all injunctive relief 
and obligations under an administrative order or judicial decree) 
before participating in Project XL. Occasionally, a past or ongoing 
violation may be discovered in the course of project development. Such 
violations, if discovered and reported by the project sponsor during 
the course of project development, will be handled in accordance with 
EPA's Audit Policy.
    Finally, enforceable and voluntary commitments should not be 
confused with corporate aspirations. Corporate aspirations are not 
commitments for which a facility should expect to be held accountable 
through government action or citizen enforcement. However, ambitious 
corporate aspirations (e.g., zero content of a priority pollutant in a 
facility's effluent, 100% reclamation of a raw material, or elimination 
of a potential toxic from use in production) are important drivers for 
superior environmental performance and will be assessed accordingly by 
EPA in the context of Tier 2, as discussed above. Corporate aspirations 
will be contained in the FPA as part of the project description and as 
elements that help to make up the project's superior environmental 
performance, but should be clearly distinguished from accountable 
commitments.

Historic Voluntary Controls

    These guidelines aim to ensure that XL projects will achieve a 
better environmental outcome in the future than would have occurred 
absent the program. EPA recognizes, however, that future progress is 
often built on a foundation of historic environmental leadership. Many 
of the facilities that will participate in XL have already taken 
voluntary measures to achieve a level of environmental performance far 
better than is required by applicable regulations. EPA wishes here to 
offer guidance on the treatment of these pre-

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 existing voluntary measures in the context of evaluating the 
environmental performance of an XL project.
    In the Tier 1 analysis discussed above, EPA seeks to benchmark the 
XL project against a reasonable estimate of what would have happened to 
the environment in its absence. In general, pre-existing voluntary 
measures should be included in this benchmark. EPA believes it 
reasonable to assume that voluntary measures that are in place at the 
time a project is proposed and remain in place during the project's 
life would also have remained in place without the project. The 
alternative assumption--that pre-existing voluntary measures are 
creditable to the XL project itself--could create a bank account from 
which a company could draw, potentially resulting in a lower level of 
environmental performance.
    However, in outstanding site-specific circumstances, the potential 
negative effects of crediting a pre-existing voluntary measure to the 
XL project may be outweighed by other positive elements of superior 
environmental performance contained in the XL project (e.g., where a 
credit provided for performance in one environmental area is more than 
outweighed by superior performance in another area). In these cases, 
EPA would consider crediting the pre-existing voluntary control to the 
XL project.
    In the Tier 2 analysis discussed above, EPA seeks to determine 
whether the net environmental performance achieved by the project 
beyond its benchmark is superior. Pre-existing voluntary measures play 
an important role in this determination. For example, facilities that 
have not implemented significant voluntary measures to control 
pollution prior to XL should be able to achieve a far greater 
environmental improvement via XL than those facilities that have 
implemented such measures. Facilities in the latter category may not be 
able to achieve additional improvements through end-of-pipe controls 
and may, thus, look to innovative, but untested, pollution prevention 
and technology strategies for additional environmental improvements. 
EPA recognizes the need to accommodate the uncertainties inherent in 
these strategies in project design.

Regulatory Flexibility

    In order to test innovative approaches to reinvent environmental 
protection for the 21st Century, Project XL offers project sponsors and 
co-sponsors the opportunity to develop and implement alternative 
strategies that produce superior environmental performance, replace 
specific regulatory requirements, and promote greater accountability to 
stakeholders. This notice discusses further the ways in which the 
regulatory flexibility available in XL can enhance operations at 
participating facilities, to assist future applicants, stakeholders and 
those evaluating the program.
    Regulatory flexibility and its potential to reduce costs and 
improve the operating efficiency of facilities is the principal reason 
for firms to voluntarily participate in Project XL. The success of 
Project XL depends on providing to participating regulated firms 
incentives that are significant and tangible. Projects that test truly 
innovative alternative strategies for environmental protection will in 
many cases require regulatory flexibility to overcome barriers to 
achieving objectives. Such flexibility will be necessary to create the 
opportunity for superior environmental performance, stakeholder 
accountability and other benefits. Where a project meets the other XL 
decision criteria, EPA will aggressively offer flexibility needed to 
produce superior environmental performance and promote greater 
accountability to stakeholders.
    Sponsors should articulate the link in their project between the 
flexibility sought, the superior environmental performance expected, 
and other benefits. Where that link is strong (i.e., where flexibility 
and other benefits are factually or legally linked) the project's ideas 
are more likely to be applicable at other sites. The closer the factual 
link between the requested flexibility and anticipated environmental 
benefits, the more likely EPA is to approve the project. Recognizing 
the experimental nature of Project XL, EPA will use tools that ensure 
project sponsors who operate in good faith a smooth transition back to 
the traditional regulatory system, where projects do not meet 
expectations.

Tools for Creating Flexibility

    EPA and state regulators have the tools under existing authority to 
provide appropriate flexibility from otherwise applicable regulatory 
requirements. These tools include alternative permits and existing 
waiver mechanisms, generally applicable interpretive statements, and 
site-specific rules that replace otherwise applicable requirements. 
Other tools may be identified as projects are developed. Ultimately, 
however, the selection and development of flexibility tools requires a 
case-by-case assessment.
    The tools noted above provide a firm legal foundation for XL 
projects in cases where project sponsors, government and stakeholders 
construct a project that produces superior environmental performance, 
promotes greater accountability to stakeholders, and meets the other XL 
decision criteria. These tools are strongest when tailored to be only 
as broad as needed for implementing the project terms.
    Flexibility provided in XL projects establishes new conditions that 
must be met by participating facilities. As discussed above, some, if 
not all, of these conditions will be legally binding and enforceable 
requirements. EPA and state environmental agencies will select tools 
that ensure that project sponsors, in exchange for meeting these new 
requirements, have protection from liability for non-compliance with 
previously and otherwise applicable requirements replaced by XL 
actions.
    Specific statutory provisions may limit the scope of flexibility 
available to certain XL projects. To date, however, this concern 
generally has not been a real barrier to implementation of projects 
that meet the XL decision criteria.

Selection of Flexibility Tools for Specific Projects

    The need to select tools to fit the conditions of a project is 
secondary to the creation of the project itself. Project sponsors and 
stakeholders, along with regulators, should first develop a project 
that incorporates superior environmental performance, flexibility and 
stakeholder accountability, and then seek tools that authorize the 
project they have created.
    EPA has developed a hierarchy for the selection of flexibility 
tools to fit the conditions of a project. Investigation of tools should 
begin with exploration of the full range of discretion and flexibility 
available under the combination of existing federal and state 
regulatory and statutory mechanisms. Options may include use of 
existing statutory and regulatory variance and waiver mechanisms, 
deviation from existing practices and policies to the extent permitted 
by statute and regulation, flexible interpretations of regulatory 
requirements, and other such regulatory and statutory mechanisms. Under 
these kinds of approaches, some projects may be implemented, in whole 
or in part, through permit modifications or the issuance of new permits 
incorporating the terms of the project.
    EPA expects that the flexibility tools needed for many projects 
will not be found within the range of discretion afforded by existing 
federal and state regulatory mechanisms. In these cases, site specific 
rule-making, which can authorize projects that do not fit within

[[Page 19877]]

existing regulatory requirements, should be explored. EPA wishes to 
emphasize that the creation of a site-specific rule need not delay a 
project or create additional resource burdens for project sponsors or 
stakeholders. The legal steps required in rule-making (e.g., public 
notice and comment) are already part of XL project development, whether 
or not a site-specific rule is used. The other formal steps typically 
encountered in national rule making (e.g., EPA's standard regulatory 
development process and review by the Office of Management and Budget) 
have been modified or tailored to fit the needs of Project XL.
    EPA recognizes the possibility that specific statutory provisions 
may limit the scope of flexibility available to certain XL projects by 
limiting the authority of EPA or the states to promulgate site-specific 
rules. These situations must be addressed on a case-by-case basis among 
project sponsors, stakeholders and regulators. Options include 
modification of the project to avoid these issues and the use of 
carefully tailored compliance mechanisms.

Value of Flexibility

    Firms participate in XL for many reasons. However, in general, 
firms that successfully develop and implement XL projects utilize the 
flexibility offered by the program to reap financial, competitive, and 
community benefits.
    The flexibility available to facilities in XL creates real cost 
savings and opportunities to use environmental budgets efficiently. By 
implementing performance standards in lieu of other requirements, for 
example, XL lowers the cost of pollution control by giving a facility 
the ability to choose the most cost effective means of achieving those 
standards. XL performance standards and other innovations can act in 
lieu of pre-construction or other permit reviews, speeding new products 
to market and giving participating firms a leg up in an increasingly 
time-driven business environment. XL projects that remove the barriers 
to recycling of metals or reuse of chemicals allow firms to recoup 
their value as useful products, avoid disposal costs and potential 
environmental liabilities. Streamlined reporting requirements reduce 
administrative overhead.
    XL also strengthens participating firms' competitive position in 
other ways. XL participants are helping to define a regulatory system 
for the 21st Century, a system designed to meet their needs as well as 
those of the environment and communities. These firms will be in a 
better position to respond as the innovations tested in XL are 
implemented more broadly, and to anticipate or suggest future changes.
    The regulatory innovations developed through XL support and 
encourage pollution prevention and technological innovation at 
participating facilities by giving firms greater flexibility to 
experiment and reducing barriers to trying new technology. New 
technologies may reduce compliance costs or create new market 
opportunities for their developers. XL may, for example, remove 
regulatory barriers to the marketing of goods created through pollution 
prevention or recycling.
    Participation in XL strengthens the community ties of participating 
firms, creating a basis in trust for resolution of other conflicts that 
may arise in or outside of the context of environmental regulation. XL 
firms typically enter the program with strong environmental reputations 
from which to build. However, the extensive interaction of community 
and facility representatives in the course of XL project development 
may help both groups forge real and informed trust. The regulatory 
flexibility offered in XL creates an opportunity to make community 
participation more meaningful, for example, by allowing firms to 
redesign reporting mechanisms in ways that enhance community 
understanding and trust, or by permitting a new kind of public 
involvement that is more substantive than conventional processes.
    Other incentives for participation in XL are case-specific. For 
example, firms may gain favorable tax treatment for certain 
environmental control or pollution prevention expenditures made in the 
context of Project XL. In other cases, firms may reduce their health 
care costs by creating an XL project that better identifies and 
eliminates environmentally connected work force health concerns.
    EPA encourages firms to view the flexibility afforded by XL as an 
opportunity to create real incentives for environmental improvement, 
whether they be financial, competitive, technological, community-
related, or otherwise.

Stakeholder Involvement

    In order to test innovative approaches to reinvent environmental 
protection for the 21st Century, Project XL offers potential project 
sponsors and co-sponsors the opportunity to develop and implement 
alternative strategies that produce superior environmental performance, 
replace specific regulatory requirements, and promote greater 
accountability to stakeholders. The May 23, 1995, Federal Register 
notice defining the XL program made clear that an important factor in 
EPA's approval of projects is ``the extent to which project proponents 
have sought and achieved the support of parties that have a stake in 
the environmental impacts of the project.'' Stakeholders were defined 
as including ``communities near the project, local or state 
governments, businesses, environmental and other public interest 
groups, or other similar entities.'' This definition includes both 
those stakeholders in the proximity of the project and those 
stakeholders interested in the broader implementation of the concepts 
being tested in the project, such as state, regional or national 
environmental groups. In today's notice, EPA offers guidelines on 
meeting the stakeholder involvement criterion to assist future 
applicants, stakeholders and those evaluating the program.
    Stakeholder involvement is critical to the success of each XL 
project. Stakeholders provide information about the preferences of the 
community. They may identify issues that have escaped the notice of 
project sponsors and regulators. And stakeholder support is essential 
if the knowledge gained in facility-based experiments is to be 
transferred to the generally applicable system of environmental 
protection. An effective process for stakeholder involvement is an 
acknowledgment that today's regulators and regulated community do not 
have a monopoly on the best ideas for tomorrow's system of 
environmental protection.
    In this notice, stakeholders are grouped into three categories, 
each with a distinct role in project development and implementation. 
Those stakeholders interested in the broader implementation of the 
concepts being tested in the project, as well as those stakeholders in 
the local community or directly affected by the project, should have 
the opportunity to place themselves in any one of these three 
categories. Direct participants in project development work intensively 
with project sponsors to build a project from the ground up. The views 
of direct participant stakeholders will strongly influence the details 
of the project as well as EPA's ultimate decision to approve or not to 
approve the project. Commentors have an interest in the project, but 
not the desire to participate as intensively in its development. The 
project development process should inform and be informed by commentors 
on a periodic basis. The views of informed commentors are a strong 
indicator of the broad potential for wider applicability of the 
innovation being tested in a project. Members of the

[[Page 19878]]

general public should have easy access both to the project development 
process and to information about the environmental results of the 
project once it is implemented, and should have the ability to 
participate more actively if they so choose. Actions for involvement of 
each of these three categories of stakeholders at each step in the 
process--from pre-proposal to implementation of an FPA--are discussed 
here.
    Over and above these three categories of stakeholder involvement, 
EPA strongly encourages firms and established non-governmental 
organizations to partner as co-sponsors of XL projects. For example, a 
firm and a state citizens group may join together and propose an XL 
project to EPA and the state environmental agency. Co-sponsors are 
distinct from the three categories of stakeholders described above and 
discussed in this notice, and co-sponsorship has many advantages over 
individually sponsored projects. The participation of the non-regulated 
partner lends credibility to the broader stakeholder involvement 
process discussed in this notice. It also builds the capacity of non-
governmental organizations and industry to work directly with each 
other. This notice does not discuss the relationship among project 
sponsors in a co-sponsorship situation, but rather details EPA's 
expectations with regard to the involvement of a broader group of 
stakeholders beyond the project sponsors themselves.

Pre-Proposal Activities

    Project sponsors should do as much groundwork as possible to engage 
appropriate stakeholders before formally proposing an XL project to 
EPA. There are four actions project sponsors should take at this step 
in the process:
     Gain from EPA, the relevant state, tribal, local, or other 
regulatory agencies their support of the proposal and their commitment 
to participate in project development;
     Develop as part of the proposal itself a stakeholder 
involvement plan consistent with the guidance contained in this 
document;
     Identify and contact potential direct participants to gain 
their commitment to participate early in potential project development; 
these direct participants may be stakeholders already known to the 
project sponsor or may be identified through referrals (e.g., through 
environmental interest group networks); and
     Identify and contact potential commentors on the proposal.

Stakeholder Initiated Proposals

    While the development of an XL proposal is more typically initiated 
by a regulated firm or co-sponsoring non-governmental organization, it 
may also be initiated by stakeholders themselves, by EPA, or by a state 
environmental agency. EPA encourages stakeholders to bring their ideas 
forward. Stakeholders who wish to initiate projects may:
     Discuss the proposal concept with EPA or the state 
environmental agency;
     Contact firms directly to discuss proposal concepts; or
     Engage the assistance of EPA or state environmental agency 
in broadly soliciting potential participants from among regulated 
firms.
    EPA will, upon the request of stakeholders who wish to initiate 
projects, consider using its own resources (e.g., the Web site and 
Federal Register) to broadly solicit potential participants from among 
regulated firms. However, to be considered by EPA, a formal XL proposal 
must ultimately include the voluntary participation of the owner or 
operator of facilities addressed in the proposal.

Proposal Development

    Once received by EPA, XL proposals enter the proposal development 
stage. During this stage, EPA and state environmental agencies 
determine whether a proposal should advance as an XL project, advance 
in some other forum, or not advance at all.
    The first step in proposal development is an intake process, in 
which EPA determines whether a proposal is within the scope of Project 
XL based on the eight XL proposal selection criteria as refined in this 
notice. If the answer is yes, EPA consults with the appropriate state 
environmental agency, forms an internal proposal review team consisting 
of regional and headquarters staff, and immediately places the 
following information on EPA's Project XL Web site to inform 
stakeholders of the proposal:
     The full proposal, including the stakeholder involvement 
plan; and
     The names and contact information for the EPA regional and 
headquarters project leads and project sponsor leads.
    The second step in proposal development is an effort by the EPA 
proposal team to analyze, in consultation with the state environmental 
agency, the merits of the proposal, including its stakeholder plan. 
During this step, EPA will generally provide feedback to the project 
sponsors. Stakeholders aware of the proposal at this early stage may:
     Contact the project sponsors directly, or contact EPA 
project leads via phone, electronic mail, or the Web site with 
pertinent questions or other feedback for the project sponsors; and
     Contact the project sponsors to express interest in 
becoming a direct participant or a commentor, should the proposal move 
forward and become a project.
    EPA will then transmit its own findings and questions, in addition 
to stakeholder feedback, to the project sponsors and make them 
available on the Web site. The project sponsors' response to feedback 
may be in the form of a revised proposal, answers to questions, or 
withdrawal of the proposal. In developing their response, the project 
sponsors should confer with the stakeholders whom they have identified, 
particularly direct participants. EPA will post the project sponsors' 
response to feedback on its Web site.
    Based on its assessment of the information provided up to this 
point by the project sponsors, with special attention given to the 
issues raised by stakeholders, and in consultation with the state 
environmental agency, EPA will decide whether a proposal should advance 
as an XL project. EPA will notify the project sponsor and post its 
decision on the Web site.

Project Development

    A proposal that advances is described as an XL project, and enters 
the project or FPA development stage. FPAs are developed through a 
sponsor-led process of dialogue and negotiation among states, sponsors, 
EPA, and stakeholders who are direct participants. That process is made 
visible and accessible so as to invite response from commentors while 
informing the general public.
Further Identification of Stakeholders
    The first step in the FPA development process is to notify the 
general public of the project and more formally invite stakeholders to 
become direct participants or commentors. The project sponsors should:
     Notify the general public via local media of their intent 
to develop an FPA and invite direct participants to identify themselves 
within a set time period (e.g., 30 days); (The public notice should 
include a brief description of the project, including the stakeholder 
plan, and the name and contact information for a person in the 
sponsors' organization, at the state environmental agency, and at EPA);
     Make special efforts to recruit:


[[Page 19879]]


--Potential direct participants and commentors from among economically 
disadvantaged stakeholders and among stakeholders most directly 
affected by the environmental and health impacts of the project;
--Potential direct participants and commentors who have specific 
interest or expertise in the issues addressed in the project from among 
the national environmental and environmental justice communities and 
the industry segment of which the facility is a part; and
--Potential direct participants and commentors from among participating 
facilities' non-managerial employees.

    Stakeholders should be aware that direct participation in an XL 
project involves a substantial personal commitment of time and energy, 
requiring consistent attendance at meetings, a willingness to abide by 
the agreed upon process, and intensive work over the project 
development period. EPA encourages direct participant stakeholders to 
seek input from others in their work on project development. However, 
stakeholders are not expected to represent larger social, economic or 
demographic groups except in cases where they are authorized to do so.
    In general, all stakeholders who express a timely desire to be 
direct participants and understand the commitment involved should be 
given the opportunity to do so. However, there may be a need for 
project sponsors to limit the number of direct participants (e.g., to 
maintain a balanced or workable process). EPA will not determine the 
membership of the group of direct participants, but may advise sponsors 
of whether it believes the group as assembled is consistent with the 
guidance contained in this document.
Team Training
    Once direct participants have been identified, EPA encourages 
project sponsors to discuss with them the need for team training at the 
outset of project development activities. Where training has been 
requested by direct participant stakeholder groups, the project 
sponsors should:
     Provide training to direct participants on the technical 
issues addressed in the project, including the overall environmental 
and health impacts of the test facility; and
     Provide training to sponsors' own representatives and to 
direct participants on meaningful participation in a collaborative 
process, such as XL project development, with special emphasis on 
addressing the issues of concern to the local community, to members of 
minority communities and to non-managerial employees; and
     Permit EPA and state environmental agency representatives 
to participate in these training opportunities.
    As added assurance that direct participants have an opportunity for 
meaningful participation, EPA will make its own expertise available for 
the purpose of team training in the technical issues addressed in the 
project and in participation in collaborative processes. EPA strongly 
encourages state environmental agencies to do the same.
Ground Rules
    Ground rules are the first order of business before proceeding with 
the project development process. The project sponsors may propose 
ground rules in the stakeholder plan. Before beginning, direct 
participant stakeholders and the project sponsors should agree on a set 
of ground rules to guide project development. All effort should be made 
to create ground rules that are generally acceptable to direct 
participant stakeholders.
    EPA encourages examination of the ``Model Plan for Public 
Participation'' developed by its National Environmental Justice 
Advisory Council, as ground rules are developed that:
     Define the relationship of direct participant 
stakeholders, as individuals and as a group, with respect to the 
project sponsors (e.g., advisory, consultative, or decision-making);
     Clarify how and whether direct participant stakeholders 
will decide on group views (e.g., by consensus, majority vote, or sub-
group consensus);
     Determine whether direct participant stakeholders, as 
individuals or groups, would sign the FPA;
     Agree on time lines for the development of the project as 
a whole and for appropriate short-term milestones;
     Contain a process for documenting proceedings and 
decisions, including dissenting opinions;
     Contain a process for changes in membership to the direct 
participant group as needed or desired;
     Determine how the project development process will be 
managed, including whether a third-party facilitator is desirable (EPA 
encourages the use of neutral, local third-party facilitators);
     Decide and document how the project development process 
will reach out to educate commentors and the general public beyond the 
means discussed in this notice (e.g., when and how to notify these 
groups of the significant milestones in project development, beyond the 
specific points for notification discussed in this document); and
     Establish procedures for participation and involvement of 
the general public in the process.
    Because XL projects and the circumstances that affect them (e.g., 
stakeholder, demographic, geographic, ecosystem, economic, community 
concerns) differ, there can be no single model stakeholder involvement 
process that is appropriate for all projects. Attention to the ground 
rules by all participants is vital to ensuring that the project 
development process is appropriate to the circumstances.

Ground Rules on Authority of Direct Participants With Respect to the 
Project Sponsors

    As discussed above, the authority of direct participant 
stakeholders should be determined at the outset by the stakeholders 
themselves, along with the project sponsors. In some cases, the 
authority of stakeholders will be consultative in nature. In others, 
there will be a desire to provide direct participant stakeholders with 
greater authority over project sponsor's decisions. Project sponsors 
and direct participant stakeholders should agree at the outset on 
whether stakeholders, individually or as a group, have the ultimate 
ability to veto project sponsors' plans.
Importance of Stakeholder Views in EPA's Decision to Approve or 
Disapprove a Project
    EPA maintains its authority to ultimately approve or disapprove an 
XL project. However, EPA wishes here to offer guidance on the influence 
that final stakeholder decisions on a project's desirability have on 
its own decisions to approve or disapprove an XL project.
    As stated in the May 23, 1995, Federal Register, an XL final 
project agreement must be approved by EPA, the state environmental 
agency, and the project sponsors in order to be implemented. EPA's own 
decisions are very directly affected by the views of direct participant 
stakeholder groups. These individuals, more so than other members of 
the general public or even commentors, will have examined the project 
in all its detail. The expression of support for a project by its 
direct participant stakeholder group is among the strongest possible 
indicators of broad community support for that

[[Page 19880]]

project. Where a direct participant stakeholder group has the ability 
to veto a project sponsor's plans, and exercises its veto, EPA will 
generally conclude that the project has not achieved broad community 
support, and thus will not approve the project. Even in cases where the 
ground rules vest a direct participant stakeholder group with strictly 
consultative authority over the project sponsor's plans, or where the 
views of the group are not expressed in terms of acceptance or 
rejection, EPA will give significant weight to the views of these 
direct participants in determining whether the project has broad 
community support.
    However, as stated above, EPA will not delegate its authority to 
approve or disapprove an XL FPA. That is to say, EPA will not approve 
or disapprove an FPA based solely on the support of a direct 
participant stakeholder group or other party.
Ground Rules for Communicating to Commentors and the General Public
    EPA encourages project sponsors and direct participant stakeholders 
to develop ground rules that promote an open and inclusive project 
development process. For example, EPA encourages an approach in which 
all meetings are accessible in some form to members of the general 
public who express an interest in observing the process. For its part, 
EPA will:
     Make available updated drafts of the FPA and related 
documents on its Web site and in the administrative record (the 
comprehensive record maintained by EPA to document the history of all 
input and decisions impacting the project since it was submitted as a 
proposal);
     Make available any other materials requested by the 
project sponsors, direct participants, or state environmental agency, 
except confidential business information, on its Web site and in the 
administrative record;
     Notify commentors directly of the availability of this 
material;
     Convey to the project sponsors, direct participants, and 
the state environmental agency any comments it receives during the 
project development process, and post pertinent comments on its Web 
site and in the administrative record; and
     Respond, on its own behalf and for the record, to 
significant comments (those comments specifically impacting EPA 
management or decision-making).

Access to Information

    All documents provided to EPA in the context of Project XL, with 
the exception of confidential business information, are in the domain 
of the general public. Readers should note in these guidelines EPA's 
intent to use its Project XL Web site on the Internet as the primary 
but not sole means of disseminating information for which it is 
responsible. The Web site is not only a repository of information, but 
has the capability to notify interested stakeholders electronically 
when new information of relevance to them is posted.
    These guidelines specifically identify points where use of local 
media and/or the Federal Register is appropriate. For those who do not 
have Internet access, the information maintained on the Web site is 
available in several other formats. As noted above, EPA maintains an 
administrative record that includes hard copies of all materials 
referenced in these guidelines. (The record can be accessed by 
contacting Lutithia Barbee of EPA at 202-260-2220). Most materials 
referenced in these guidelines are also available through the Project 
XL fax-on-demand line (202 260-8950). EPA will make every effort within 
the constraints of available resources to provide interested citizens 
with the easiest possible means of access to XL-related documents.

Closure

    The final stage in the project development process is closure. An 
FPA is not approved until signed by EPA, the state environmental agency 
and the project sponsor, and by direct participants where provided for 
in the ground rules.
    The first step in EPA's own closure process is an internal 
concurrence. To make commentors and the general public aware that the 
project has reached this stage, EPA will:
     Make the final draft available through its Web site and in 
the administrative record; and
     Indicate on the Web site that this draft is being 
circulated within EPA for formal concurrence; and
     Convene--at the request of a project sponsor, direct 
participant stakeholder, commentor, or the state environmental agency--
a meeting of these groups to discuss the project, hear views of 
individual direct participants or commentors, and provide feedback.
    As stated in the May 23, 1995, Federal Register notice, EPA will 
not approve a project that does not have the support of the relevant 
state environmental agency. EPA also recognizes the possibility that it 
might disapprove of a project that has the support of the state 
environmental agency. In either case, EPA and the state environmental 
agency will consult with each other prior to making their final 
decision, in an effort to reach consensus among regulators at all 
levels of government.
    Where formal concurrence within EPA has been achieved, and where 
the project has gained the support of the state environmental agency, 
project sponsors, and direct participants (as discussed above), the 
agreement is known as a ``proposed'' FPA. At this stage, EPA will:
     Make the proposed FPA available through its Web site and 
in the administrative record;
     Notify commentors of the availability of reviewable 
material;
     Issue the FPA for a thirty-day local notice and comment 
period for the general public;
     Publish in the Federal Register a notice of availability, 
briefly describing the project, and providing instructions for 
receiving a copy of the proposed FPA; and
     In appropriate situations, publish in the Federal Register 
for notice and comment any proposed site-specific rulemaking associated 
with an FPA, or conduct public notice as appropriate for any permitting 
action associated with an FPA.
    As part of its final decision to approve (or disapprove) an FPA, 
EPA will respond for the record to all significant comments received 
during the notice process. In developing its response to comments, EPA 
will:
     Share comments received with the project sponsor, state 
environmental agency, and direct participants;
     Discuss with those parties the changes made to the FPA, 
permit, site-specific rule, or other documents to address public 
comments;
     Consider fully the public comments and changes made to the 
FPA and other documents to address public comments in making its final 
decision to approve (or disapprove) an FPA; and
     Post on the Web site the changes made to the FPA and other 
documents to address public comments, its own response to comments, and 
any additional responses prepared by the project sponsors, state 
environmental agency, or direct participant stakeholders.

Implementation and Evaluation

    Once approved, a project enters its implementation stage. During 
this stage, the project is monitored for compliance with the terms of 
the FPA and associated documents, and evaluated for lessons that can be 
transferred to the more generally applicable system of environmental 
regulation and applied to improve the XL program itself. While

[[Page 19881]]

this notice does not provide substantial guidance on the role of 
stakeholders in project implementation and evaluation, EPA wishes to 
emphasize points that were made on this topic in the Federal Register 
notice that originally announced Project XL.
    As stated in the May, 23, 1995, Federal Register notice,

project proponents should identify [in the FPA] how to make 
information about the project, including performance data, available 
to stakeholders in a form that is easily understandable. Projects 
should have clear objectives and requirements that will be 
measurable in order to allow EPA and the public to evaluate the 
success of the project and enforce its terms. (60 FR 27282, May 23, 
1995)

EPA recommends that the FPA delineate the intended role of stakeholders 
during the implementation and evaluation of the project. The FPA may, 
for example, provide for re-examination or periodic evaluation of the 
project by direct participant stakeholders.

Independent Technical Assistance to Direct Participant Stakeholder 
Groups

    EPA has recognized its responsibility to ensure meaningful 
participation in the stakeholder process, and, in some cases, has 
provided support (e.g., by making available facilitation services, and 
by distributing and making available information about project 
development).
    EPA wishes to offer here guidance on its ability to support 
technical assistance. Beyond making available its own technical 
expertise, EPA looks to project sponsors to provide assistance in 
understanding and evaluating technical issues surrounding a specific 
project. EPA recognizes that, in some cases, there will be a need for 
the Agency to offer some additional support for technical assistance to 
direct participant stakeholder groups. To that end, the Agency is 
committing to provide up to $25,000 per project in order to assure that 
necessary technical assistance is available to support meaningful 
stakeholder involvement. These funds will be made available on a task-
specific basis and will not be in the form of grants to direct 
stakeholder groups. These funds may be used in project development, 
implementation or evaluation.
    Technical assistance needs must be determined within the direct 
participant stakeholder process described in this notice. Stakeholder 
needs should be examined carefully and fully. The best means of meeting 
those needs should be identified by the direct participant stakeholder 
group as a whole. Project sponsors as well as regulators should 
participate in these discussions and have the chance to provide input 
on how the necessary technical services can be provided. Requests for 
technical assistance must come from the direct participant stakeholder 
group rather than from individuals. Technical assistance funds are not 
available to address strictly individual needs. In order to build trust 
and local capacity, local resources should always be explored as both 
the source of expertise and the financial means of obtaining technical 
services. These options should be explored before EPA funds are sought 
for the provision of technical assistance.
    When it is necessary to utilize EPA funds to obtain assistance, 
appropriate financial management controls must be in place to assure 
the most focused, cost effective and accountable use of taxpayer 
dollars. Resources for assistance will not be given directly to 
stakeholder groups, but will be made available to identified experts 
for a specific assistance activity. The Agency may choose to utilize a 
variety of approaches to access either local expertise or experts 
agreeable to the direct participant stakeholder group. These include 
cooperative agreements to local and state regulators or other 
procurement options available to the federal government.
    As an example of an innovative approach to providing technical 
assistance, EPA is exploring the creation of a public/private 
partnership to handle technical assistance requests from direct 
participant stakeholder groups. In this partnership, EPA, other 
regulatory agencies, potential project sponsors, trade associations, 
non-profit organizations and other interested parties would provide 
resources to a neutral third party which would in turn manage and 
fulfill technical assistance requests. This neutral third party would 
be guided by a partnership of EPA, state environmental agencies, 
national stakeholder groups, and other parties that provide resources 
to the partnership, in terms of what type of assistance should be 
available, who could provide assistance when no local experts are 
known, and at what cost.
    Regardless of the mechanism used by EPA to fund technical 
assistance requests, the goal will always be to ensure that specific, 
objective expertise is available, when necessary, and is provided in a 
credible fashion that preserves and fosters the integrity of a 
meaningful stakeholder involvement process.

Proposal and Project Development Process

    The May 23, 1995, Federal Register notice that announced Project XL 
included a brief description of the XL process. The notice described 
four stages: solicitation and selection of XL proposals, project (or 
FPA) development, project implementation, and evaluation. The notice 
contained additional information, including time frames, for the first 
two steps. In today's notice, EPA offers information on changes to the 
process of creating XL proposals and developing XL projects for 
implementation, to assist future applicants, stakeholders and those 
evaluating the program.

Pre-Proposal Activities

    Today's notice encourages project sponsors to do significantly more 
to improve proposal ideas prior to formal submission of an XL proposal 
to EPA. First, EPA and its state partners stand ready to discuss 
project ideas at any time. Second, EPA encourages project sponsors to 
have substantive discussion with stakeholders prior to submission of a 
formal proposal. The Agency encourages the development of co-
sponsorship relations among facilities and non-governmental 
organizations. Third, this notice envisions that proposals themselves 
will be much more substantive and detailed. While addressing the eight 
XL criteria, a proposal should include a more detailed analysis of 
superior environmental performance consistent with the principles 
included in this notice; a description of pre-proposal stakeholder 
activities and fully developed stakeholder plan; and a discussion of 
the specific regulatory flexibility sought and barriers to providing 
that flexibility in otherwise applicable requirements. In addition, EPA 
encourages all potential applicants to meet with EPA and the affected 
state prior to submission of any proposal to clarify the XL program, 
principles, expectations, and guidance provided in this notice.

Proposal Development

    After proposals submitted to the XL program are received in EPA's 
Regulatory Reinvention Docket, they will proceed through a proposal 
intake process. EPA will briefly evaluate the proposal with input from 
potentially affected offices and states in order to determine whether 
the proposal appears to consist of environmental and regulatory 
concepts worth testing in Project XL. If EPA determines that the 
proposal should continue through the proposal development process, a 
cross-

[[Page 19882]]

 agency proposal team will be established. The team--consisting of 
representatives from EPA headquarters XL Staff and each affected 
headquarters office, EPA region, and state--will review the proposal, 
discuss it throughout their respective offices as necessary, and 
together establish specific questions or outstanding items in the 
proposal that may hinder a thorough understanding of the proposal. 
Along with any feedback received from interested stakeholders, EPA will 
communicate its own feedback to the project sponsors.
    At this stage, responsibility for the timing of the proposal 
process shifts to the project sponsors. The sponsors may consider EPA's 
appraisal and determine the next step: to provide additional 
information requested by EPA, to submit a revised proposal, or to 
withdraw the proposal. In responding, the project sponsors are strongly 
encouraged to raise important issues to any stakeholders who have been 
identified at this point.
    With complete information, EPA will develop an assessment of the 
merits of the proposal relative to the Project XL decision criteria. 
The decision to advance or reject the proposal will be made by the 
Associate Administrator for Reinvention in consultation with other 
members of EPA's senior leadership team. Such decisions will be made in 
close consultation with the relevant state environmental agency, and no 
XL project will proceed without its approval.

Project Development Process

    Proposals that advance are at this point described as XL projects 
in development. This is the stage in which FPAs are developed. Once a 
project enters the project development phase, the Agency, in 
consultation with the state, will expand or modify its staff team as 
needed to ensure coordination and continuity throughout development of 
an FPA. Guidance on some of the details of the project development 
process is contained in the stakeholder involvement portion of this 
notice.

Closure

    Once a draft FPA has been developed, EPA will conduct a final 
internal review of the project and solicit formal notice and comment. 
The decision to approve or disapprove an FPA will be made by the 
Associate Administrator for Reinvention and the relevant EPA Regional 
Administrator, in consultation with other members of EPA's senior 
leadership team.

Paperwork Reduction Act

    The information collection provisions in this notice, including the 
request for proposals, have been approved by the Office of Management 
and Budget (OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et 
seq. An Information Collection Request document has been approved (ICR 
No. 1749.01). Additional copies may be obtained from Sandy Farmer, 
Information Policy Branch, US EPA, Mail Code 2136, 401 M Street, SW., 
Washington, DC 20460, or by calling (202) 260-2740.

    Dated: April 16, 1997.
Fred Hansen,
Deputy Administrator.
[FR Doc. 97-10510 Filed 4-22-97; 8:45 am]
BILLING CODE 6560-50-P