[Federal Register Volume 62, Number 209 (Wednesday, October 29, 1997)]
[Notices]
[Pages 56182-56189]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-28553]


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ENVIRONMENTAL PROTECTION AGENCY

[FRL-5914-7]


Joint EPA/State Agreement on Pursue Regulatory Innovation

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice.

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SUMMARY: The purpose of this notice is to solicit public comment on the 
draft Joint EPA/State Agreement to Pursue Regulatory Innovation. This 
draft was prepared jointly by the EPA and the Environmental Council of 
the States (ECOS). The agreement will provide a framework for how EPA 
and the States will promote and implement future regulatory innovation 
efforts. A copy of this notice is available on the Internet at http://
www.epa.gov/reinvent.

DATE: Comments are due by November 28, 1997.

ADDRESSES: Comments may be submitted to: Gail Robarge, Office of 
Reinvention (mailcode 1102), 401 M Street, SW., Washington, DC 20460; 
email address: [email protected]. ECOS members may submit 
comments to: Tina Parker, Environmental Council of the State, 444 N. 
Capitol Street, NW., Suite 305, Washington, DC 20001; email address 
[email protected].

FOR FURTHER INFORMATION CONTACT: Gail Robarge, EPA Office of 
Reinvention, phone 202/260-9101, email [email protected]; or 
Bruce Brott, Minnesota Pollution Control Agency, phone 612/297-8380, 
email [email protected].

SUPPLEMENTARY INFORMATION:

Background

    In order to find new, better and more efficient and effective ways 
to improve environmental protection, the ECOS and EPA Administrator 
formed a joint task group to develop an agreement on EPA-State 
regulatory innovation. The purposes of the agreement are to: improve 
environmental protection in the United States; improve EPA/State 
environmental management systems; and provide for timely decision-
making on innovation proposals.
    The agreement establishes guiding principles for innovation and an 
efficient process that is receptive to innovative proposals from the 
States for achieving shared environmental objectives. The agreement 
will encourage and facilitate the exploration of ideas which are 
potentially more cost-effective and/or have a better environmental 
impact. It will improve decision-making between the States and EPA on 
innovation proposals, emphasizing clear lines of communication, 
decision authority, accountability and timeliness. It will provide 
opportunities for stakeholder involvement at the state and national 
levels.
    An informal stakeholder meeting was held to discuss the draft 
agreement in September. Participants offered many thoughtful comments 
and constructive suggestions (a summary of this meeting is posted on 
the Web at http://www.epa.gov/reinvent). Comments from the meeting will 
be taken into consideration by EPA and ECOS as we review other comments 
received during the next 30 days.
    A public meeting to discuss the draft agreement will be held on 
Nov. 20, 1997, in Washington, D.C. Please contact Louise McLaurin (202/
260-4261 or [email protected]) to register for the 
meeting and to obtain details regarding time and location.

TEXT OF DRAFT AGREEMENT

Part 1

Joint EPA/State Agreement To Pursue Regulatory Innovation
``* * * We must encourage innovation by providing flexibility with 
an industry-by-industry, place-by-place approach to achieving 
standards,* * * But we will require accountability that such 
standards be met. Rather than focusing on pollutant-by-pollutant 
approaches, attention must shift to integrated strategies for whole 
facilities, whole economic sectors, and whole communities.'' 
[Excerpt from President Clinton's ``Reinventing Environmental 
Regulation,'' March 16, 1995]

    The U.S. Environmental Protection Agency and the states agree on 
the need to experiment with new approaches to improve our nation's 
environment. These new approaches can help us identify cleaner, 
cheaper, smarter ways

[[Page 56183]]

to ensure that all Americans enjoy a clean environment and healthy 
ecosystems. Through this joint commitment, EPA and the states agree to 
encourage, evaluate, implement, and disseminate ideas that seek better 
ways of achieving our environmental goals. This agreement presumes that 
EPA and the states will find ways to help good ideas succeed, and that 
joint EPA and state efforts to promote and test new ideas will result 
in the maximum benefit to the American people and their environment.
    Two years ago, EPA and the states entered into an historic 
agreement to establish the National Environmental Performance 
Partnership System (NEPPS). That agreement recognized that we have 
achieved significant progress since environmental protection programs 
were created more than 25 years ago. Yet to meet today's new 
challenges, we agreed that states and EPA must manage for environmental 
results, increase public involvement, and use environmental indicators 
to track our progress. We agreed that states and EPA must become true 
partners in implementing federal programs, and that different state 
programs need different levels of federal involvement.
    This new partnership creates an environment in which state and 
local regulatory innovations can, and should, flourish. As the primary, 
front-line delivery agent for environmental programs, states are a 
natural laboratory for testing new ideas. State and local environmental 
professionals are closest to environmental problems and communities, 
and can often develop the most practical solutions. These professionals 
should be encouraged to seek innovative solutions that may not fit 
within the traditional approaches. We agree that our efforts to promote 
innovation must, in the end, be directed toward achieving our public 
health and environmental goals in a more efficient or effective way.
    EPA also seeks to promote regulatory innovations at all levels. 
This agreement complements, but does not supplant, other national or 
state efforts to develop regulatory innovations. Its purpose is to 
establish a clear pathway and decision-making process for state 
innovations that have encountered federal barriers or need greater 
attention to help them succeed.
    States and EPA agree that the following principles should guide us 
as we develop, test and implement regulatory innovations:

Experimentation

    Innovation involves change, new ideas, experimentation and some 
risk of failure. Experiments that will help us achieve environmental 
goals in better ways are worth pursuing when success is clearly 
defined, costs are reasonable, and environmental and public health 
protections are maintained.

Environmental Performance

    Innovations must seek more efficient and/or effective ways to 
achieve our environmental and programmatic goals, with the objective of 
achieving a cleaner, healthier environment and promoting sustainable 
ecosystems.

Smarter Approaches

    To reinvent environmental regulation, regulators must be willing to 
change the way we traditionally look at environmental problems and be 
receptive to innovative, common sense approaches.

Stakeholder Involvement

    Stakeholders must have an opportunity for meaningful involvement in 
the design and evaluation of innovations. Stakeholders may include 
other state/local government agencies, the regulated community, citizen 
organizations, environmental groups, and others. The opportunities for 
stakeholder involvement should be appropriate to the type and 
complexity of the innovation proposal.

Measuring and Verifying Results

    Innovations must be based on agreed-upon goals and objectives with 
results that can be reliably measured in order to enable regulators and 
stakeholders to monitor progress, analyze results, and respond 
appropriately.

Accountability/Enforcement

    For innovations that can be implemented within the current 
regulatory framework, current systems of accountability and mechanisms 
of enforcement remain in place. For innovations that involve some 
degree of regulatory flexibility, innovators must be accountable to the 
public, both for alternative regulatory requirements that replace 
existing regulations and for meeting commitments that go beyond 
compliance with current requirements. Regulators will reserve full 
enforcement authority to ensure compliance with alternative regulatory 
requirements, and must be willing to explore new approaches to ensure 
accountability for beyond-compliance commitments.

State-EPA Partnership

    The states and EPA will promote innovations at all levels to 
increase the efficiency and effectiveness of environmental programs. We 
must work together in the design, testing, evaluation and 
implementation of innovative ideas and programs, utilizing each other's 
strengths to full advantage.
    EPA agrees to establish a process that ensures timely review and 
decision-making on state innovation proposals based on implementation 
of the above seven principles. The states agree to consult early with 
EPA, to develop proposals consistent with the above principles, and to 
involve stakeholders. EPA and the states agree on the need for a 
clearinghouse of regulatory innovations so that promising ideas can be 
shared across state lines and within EPA.
    We agree that the principles and process described in this 
agreement should be open to continual improvement. As part of ongoing 
review and evaluation, EPA and the states agree to evaluate the need to 
further institutionalize the broad principles and process to help 
future innovations succeed.
    Through this agreement, as detailed in Part 2, states and EPA are 
committed to work together and with all stakeholders to apply the 
lessons learned from successful innovations in creating the best 
possible system to achieve greater environmental protection at a 
reasonable cost. We agree to encourage innovation that will prepare us 
for meeting our environmental challenges well into the 21st century.

Part 2

I. Overview of This Agreement

    This agreement embodies a set of general principles and a process 
for EPA/State innovation activities. This agreement includes:
    --Statements of purpose and scope of the agreement;
    --Over-arching principles that will govern joint EPA/state 
regulatory innovation activities;
    --The process EPA and the states will use to identify good ideas, 
including both the continuation of existing State/EPA interactions to 
start innovation projects, and the establishment of a new mechanism for 
making decisions on innovative proposals that do not fit into ongoing 
reinvention programs; and
    --Guidelines for how EPA and the states will evaluate the success 
of innovation activities carried out under this agreement.
    This agreement builds on the many reinvention efforts that are 
underway in the states and EPA. It is intended to ensure joint 
decision-making, timely review, broad public involvement, and continued 
progress in fostering and implementing ideas that are good for

[[Page 56184]]

our environment and the people we serve.

II. Purpose and Scope of the Agreement

A. Purpose

    The Administrator of the U.S. Environmental Protection Agency (EPA) 
and senior State environmental officials agree to three purposes for 
this effort: to improve environmental protection in the United States; 
to improve EPA/State environmental management practices; and to provide 
timely decision-making on good ideas. These purposes are described 
below.
1. Improved Environmental Protection
    The Administrator of the U.S. Environmental Protection Agency (EPA) 
and senior State environmental officials agree that the states and EPA 
need to encourage, seek out, and try innovative approaches to improve 
our nation's environment. These innovative approaches can offer 
mechanisms that are more cost-effective, less adversarial and 
contentious, and have a better environmental impact. To support 
sustainable development and continuous environmental improvement, 
innovations should utilize pollution prevention methods rather than 
pollution control whenever possible. While we have made significant 
progress in environmental protection, much remains to be done and no 
backsliding can be permitted. Innovative approaches offer us tools to 
improve current environmental protection programs and to tackle the 
environmental problems of the future.
2. Improved EPA/State Environmental Management Practices
    Through this agreement, EPA and the states will develop improved 
management practices that promote collaboration and shared 
responsibility for innovations. This agreement is consistent with the 
concepts embodied in the National Environmental Performance Partnership 
System (NEPPS). In fact, NEPPS was established, in part, to encourage 
innovative approaches by states, consistent with agreed-upon 
environmental goals and indicators. The agreement recognizes that 
states and local governments are natural laboratories for testing new 
ideas and that EPA has an important role in promoting innovation at all 
levels, while continuing to ensure that the states provide fundamental 
public health and environmental protection. This agreement identifies 
how we will work together to identify and promote innovative ideas and 
better ways of doing business. It is intended to help us communicate 
and evaluate such ideas and to encourage joint decision-making on how 
such innovations can be fostered, designed and implemented.
3. Timely Decision-Making on Good Ideas
    Finding better ways to accomplish our environmental goals is part 
of the everyday practice of good government. Current processes through 
which many successful state innovations have been carried out should 
continue. We recognize that the most challenging regulatory innovation 
proposals have been difficult to address. This agreement establishes an 
optional avenue for prompt consideration and evaluation of innovation 
proposals.
    EPA and States may conclude that some successful regulatory 
innovation projects demonstrate that changes in EPA regulations, 
policies, guidance, or interpretations are needed to improve the 
nation's environmental protection system. Where such changes can be 
made under existing law, EPA will initiate the process for making the 
changes--following applicable procedures. EPA and States may also 
initiate policy discussions on potential statutory changes that may be 
needed to enable nation-wide adoption of innovative approaches.

B. Scope of the Agreement

    As used in this agreement, ``regulatory innovation'' is a broad 
concept. It encompasses the process of proposing, testing, evaluating, 
refining and sharing innovative approaches to environmental regulation 
in order to achieve national, regional, state, tribal, and local 
environmental objectives. Regulatory innovations should be more 
efficient and/or provide greater environmental protection than current 
approaches, foster cooperation, and include opportunities for strong 
stakeholder involvement.
    Many types of innovations are possible, and potential innovations 
will vary in scope, complexity, ease of implementation, environmental 
benefits, and other characteristics. At this point in time, it is 
difficult to design a single system or process that is appropriate for 
all potential innovations. Innovations should be accomplished through 
the normal course of business whenever possible. This agreement 
provides a clear pathway for innovative proposals that need extra 
attention or are too complex to be handled through normal channels. 
Proposals that are less complex can be implemented more quickly, 
leading to early success, while more difficult projects will likely 
need more analysis and stakeholder participation. This agreement builds 
on and complements other innovation activities, but is not intended to 
replace them.

III. Principles for EPA/State Regulatory Innovation

    EPA and the States agree to a set of basic overarching principles 
which will guide our joint regulatory innovation activities. There are 
seven overarching principles relating to regulatory innovation 
activities--Experimentation, Environmental Performance, Smarter 
Approaches, Stakeholder Involvement, Measuring and Verifying Results, 
and Accountability/Enforcement, and State-EPA Partnership.

A. Experimentation

    Innovation involves change, new ideas, experimentation, and some 
risk of failure. Experiments that will help us achieve environmental 
goals in better ways are worth pursuing when success is clearly 
defined, costs are reasonable, and environmental and public health 
protections are maintained.
    1. The States and EPA should recognize the value of prudent risk-
taking and value-added experiments to achieve improved results.
    2. The States and EPA should seek ways to make good ideas work, 
presuming that change and innovations consistent with environmental 
goals are worth our investment.
    3. The States and EPA should carefully monitor and manage 
innovations to ensure that problems are immediately identified and 
remedied. Experimentation should be based on sound judgment, reasoning 
and common sense.
    4. If a promising experiment encounters difficulties, but 
environmental protection is not jeopardized, project sponsors should be 
allowed sufficient time to fix problems before the experiment is 
abandoned in favor of the traditional approach.
    5. Innovations with greater potential benefits may warrant some 
additional risk-taking.
    6. Experimentation does not include relaxing health or 
environmental standards or reducing protection of public health or the 
environment.

B. Environmental Performance

    Innovations must seek more efficient and/or effective ways to 
achieve our environmental and programmatic goals, with the objective of 
achieving a cleaner, healthier environment and promoting sustainable 
ecosystems.
    1. Protecting public health and the environment are the primary 
goals of

[[Page 56185]]

both EPA and State environmental agencies, and we agree that 
innovations can help us find cleaner, cheaper, smarter ways of 
improving our nation's environment.
    2. Many opportunities exist to improve environmental protection 
through innovations that have the clear potential to provide 
environmental and ecosystem benefits. In addition, innovations may be 
designed primarily to improve the cost effectiveness of achieving 
environmental goals; these projects must ensure that there is no 
adverse impact on: environmental protection, public access to 
information, and public access to the decision-making process.
    3. For projects that have a greater uncertainty of the 
environmental outcome, or that involve experimental technologies or 
approaches, alternative requirements should be expected to have the 
clear potential to provide increased environmental protection, promote 
ecosystem sustainability, or both. EPA and the state agency, in their 
best judgment and in consultation with stakeholders, will determine 
whether such proposals have the clear potential to produce appropriate 
gains in environmental protection, improved sustainability of the 
ecosystem, or both.
    4. Innovations may be designed to fit local and regional 
conditions, as long as local solutions do not create environmental 
problems for other localities, such as undesired downwind and 
downstream effects, or undermine national standards.
    5. No population group should be subjected to unjust or 
disproportionate environmental impacts as a result of the innovation.

C. Smarter Approaches

    To reinvent environmental regulation, regulators must be willing to 
change the way we traditionally look at environmental problems and be 
receptive to innovative, common sense approaches.
    1. Regulators should seek creative ways to remedy environmental 
problems or improve environmental protection in a community, facility, 
sector or place.
    2. Regulators should work with industry and communities to solve 
environmental problems by removing barriers that prevent prudent, 
common sense solutions.
    3. Regulators should be professional, accountable and deserving of 
the public's trust.
    4. Regulators should seek to understand all perspectives, and help 
stakeholders find common ground.
    5. Regulators should act promptly to evaluate, and implement, 
proposals that are straightforward, technically achievable, and have 
clear advantages, while ensuring adequate public review.

D. Stakeholder Involvement

    Stakeholders must have an opportunity for meaningful involvement in 
the design and evaluation of innovations. Stakeholders may include 
other state/local government agencies, the regulated community, citizen 
organizations, environmental groups, and others. The opportunities for 
stakeholder involvement should be appropriate to the type and 
complexity of the innovation proposal.
    1. Innovations should include opportunities for early, open, and 
inclusive stakeholder involvement in project development, specifically 
including those who may be affected by the decisions. Stakeholders 
should be provided adequate time to review proposals and participate in 
the process.
    2. Consistent with the principle of providing meaningful 
opportunity for stakeholder involvement, each State should have the 
flexibility to use its own stakeholder participation process, as long 
as applicable federal and state requirements are met or exceeded. EPA 
and States will identify national program issues and ensure 
opportunities for active involvement from national stakeholder groups.
    3. Project proposals and the process for their consideration should 
be made transparent to stakeholders so that the benefits of the 
proposed change can be fully evaluated. Information needed to 
understand the proposed innovation and to verify compliance and 
environmental performance should be publicly available in an 
understandable form. EPA and States commit to provide regular analysis 
of the types of innovations implemented and their environmental 
impacts.

E. Measuring and Verifying Results

    Innovations must be based on agreed-upon goals and objectives with 
results that can be reliably measured in order to enable regulators and 
stake-holders to monitor progress, analyze results and respond 
appropriately.
    1. The success of innovations should be judged by the results they 
achieve. Goals and objectives should be: established in advance, 
measurable, and based on the desired results.
    2. Results should be verifiable by reliable measurements and both 
process and results should be understandable to regulators and the 
public.
    3. Regulators should have access to high quality information 
sufficient to verify the environmental performance of an innovation.
    4. Regulators and the public should have a full understanding of 
the differences between the innovation and traditional approaches, 
including expectations for the project, accountability for performance, 
and any potential risks.

F. Accountability/Enforcement

    For innovations that can be implemented within the current 
regulatory framework, current systems of accountability and mechanisms 
of enforcement remain in place. For innovations that involve some 
degree of regulatory flexibility, innovators must be accountable to the 
public, both for alternative regulatory requirements that replace 
existing regulations and for meeting commitments that go beyond 
compliance with current requirements. Regulators will reserve full 
enforcement authority to ensure compliance with alternative regulatory 
requirements, and must be willing to explore new approaches to 
establish accountability for beyond-compliance commitments.
    1. During the project, existing statutory and regulatory 
requirements remain in effect and fully enforceable for persons or 
activities not covered by the innovation project.
    2. If a promising innovation project encounters difficulties, but 
environmental protection is not jeopardized, flexible enforcement 
responses should be used to allow project sponsors sufficient time to 
fix problems before a project is abandoned in favor of the traditional 
approach.
    3. Regulators must have authority to address such circumstances as 
imminent and substantial endangerment, actual harm, or criminal 
conduct.
    4. Innovations may include both: (a) Enforceable ``alternative 
regulatory requirements'' that provide protection equivalent to current 
environmental standards, and (b) other ``beyond-compliance 
commitments'' which seek to exceed current standards or requirements. 
Alternative regulatory requirements and beyond-compliance commitments 
should be clearly distinguished in advance.

Alternative Regulatory Requirements:

    --Alternative regulatory requirements should be enforceable with 
all the remedies available under current law.
    --Regulators should use enforcement discretion in choosing remedies 
when a facility fails to meet alternative regulatory requirements.
    --Potential responses for failure to meet such alternative 
regulatory

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requirements should be identified in advance.

Beyond-Compliance Commitments

    --As part of an innovation, facilities may agree to beyond-
compliance commitments in exchange for regulatory flexibility or some 
other incentive.
    --Potential responses for failure to meet such beyond-compliance 
commitments should be defined in advance.
    --Responses for failure to meet beyond-compliance commitments 
should fit the circumstances. They may include trying a different 
approach, modifying the innovative approach, or reverting to the 
traditional approach, but they should not include enforcement 
penalties.

G. State-EPA Partnership

    The States and EPA will promote innovations at all levels to 
increase the efficiency and effectiveness of environmental programs. We 
must work together in the design, testing, evaluation and 
implementation of innovative ideas and programs, utilizing each other's 
strengths to full advantage.
    1. As the primary front-line managers of many environmental 
protection programs, the States and local governments are a natural 
laboratory for innovations. The States should manage their own 
programs, adapt to local conditions, and test new approaches for 
delivering more environmental protection for less.
    2. The federal government should ensure good science, strong 
national health and environmental standards, and should work in 
partnership with the States by providing analysis, expertise, and 
facilitating learning among the States. EPA should promote innovation 
at all levels (national, regional, state, tribal, place-based, 
community, and in the private sector). EPA retains its role to set 
national standards and measures, implement programs not delegated to 
states or tribes, address interstate issues, apply and interpret 
national statutes and regulations, and ensure fair and effective 
enforcement, thus ensuring that all States provide fundamental public 
health and environmental protection.
    3. EPA and State roles in innovations must be clearly designed to 
utilize each party's unique strengths and avoid duplication. Decision 
makers should be clearly identified.
    4. Assigned roles and responsibilities should be honored and 
respected, and joint problem-solving should be encouraged.
    5. Communication must be open, honest, frank and frequent. The 
States and EPA should work to understand each other's perspectives, 
achieve consensus on major issues, make decisions in a timely manner, 
and resolve conflicts quickly and efficiently.

IV. Process for Considering State Innovations Proposals

    EPA and the states are engaged in many successful efforts to 
reinvent environmental regulation. These efforts should continue 
unimpeded. EPA and the States agree that, where procedures currently 
exist, innovation proposals should be handled through normal EPA/state 
program activities or other ongoing reinvention activities. Proposals 
that do not fit into an existing pathway can be handled via the new 
process established under this agreement.
    The process of developing Performance Partnership Agreements (PPAs) 
under National Environmental Performance Partnership System offers one 
opportunity for States and EPA, working with stakeholders, to agree on 
innovative approaches to pursue. However, participation in a PPA is not 
the only avenue for States and EPA to work on innovative approaches. 
Memorandum of Agreements and/or Work Plans can serve the same function 
as a PPA. Inclusion of anticipated innovative approaches in the PPAs or 
other agreements will allow the states and EPA to allocate staff 
resources and establish priorities for innovative projects. For 
example, individual states may choose to place higher priority on 
innovation projects which promote clear cost or environmental benefits 
for the public. It is envisioned that States will include in the PPAs 
or other agreements a discussion of potential innovative activities, 
indicating how the innovations link to environmental goals and 
providing a picture of proposed changes.

A. Use Existing Pathways

    This agreement is designed to supplement, rather than replace, 
ongoing innovation activities underway in EPA and the States. Such 
innovation activities should continue. State innovations that do not 
require a change to Federal guidance, regulations or statutes can 
proceed without EPA review. EPA's role will consist of support and 
advice, if requested. EPA and States should continue to work together 
on innovations that may involve using existing flexibilities in current 
law and regulation, and on existing innovation programs such as Project 
XL.

B. New Process Established Under This Agreement

    The States and EPA agree to establish an optional process which 
States may use to get timely decisions on innovation proposals. This 
process includes senior-level management attention and specific time 
frames to ensure prompt decisions by EPA. The following process 
establishes a management framework so that actions and next steps, 
along with interested participants and decision-makers, can be clearly 
identified and taken into account. EPA's Regional Administrators are 
responsible for ensuring that the process moves forward; individual 
states are expected to establish similar senior-level points of contact 
to manage the State's role in the innovation process.
    This process is intended to be flexible. For example, EPA Regional 
Offices, EPA Headquarters Offices, and the States are encouraged to 
maintain open lines of communication at both staff and management 
levels beyond the formal process described below, and states are 
encouraged to invite EPA into the early discussion stages of any 
project. Early consultation between EPA and the States is important in 
identifying obstacles early and in determining who needs to be involved 
so that the project can move forward expeditiously.
    EPA will also work with individual States as needed to establish 
priorities in the review of proposals based on guidance developed in 
the Performance Partnership Agreement or other EPA/State agreed 
mechanism. EPA and the States recognize that the success of this 
process will be affected by the quality and clarity of proposals and 
the effectiveness of communication between EPA, the state, and 
stakeholders. The States and EPA are committed to working together to 
ensure that communications are frequent, open, honest, and directed to 
finding means to allow innovations to succeed.
    While one of the objectives of the innovation proposals is 
efficiency, the very act of designing an experiment, testing the 
hypothesis, and evaluating the results may be resource intensive for 
all parties. The optimum management of resources by EPA and the State 
will help ensure the success of the review process, the implementation 
of the projects, and adherence to time lines.
1. Stage One--Developing Quality Proposals
    States and EPA recognize that clear, well-developed proposals will 
facilitate review and speed decision-making.

[[Page 56187]]

States are encouraged to consult with EPA as early as possible in the 
development of a proposal. The States should be able to use this early 
consultation process to develop a clear understanding of their 
proposals with EPA and key stakeholders.
    During the early consultation, the State and EPA will identify 
issues that need attention, possible barriers to implementation, 
uncertainties regarding risks, and value added to all parties. These 
discussions will be open and candid and will provide the States with 
information that will be important and useful for the development of 
the proposal. While early consultation is encouraged, not all proposals 
will require the same degree of discussion and/or consultation.
    EPA and States will bring a positive, constructive approach to 
consideration of proposals and seek ways to help good ideas to succeed.
    States will prepare proposals that: (a) Are consistent with the 
principles described in this agreement, and (b) clearly present the 
objective of the proposal, the expected benefits, a description of the 
activities, and a determination as to whether the proposal: may require 
a change to Federal guidance, policy, past practices or rule 
interpretation, but not regulations or statutes; may require a change 
to or waiver from Federal regulations, but not statutes; or, may 
require a change to a Federal statute.
    EPA will: (a) Provide clear statements of its position, along with 
timely and authoritative answers to questions about what changes, 
variances, or associated approvals a particular proposal may require; 
and (b) work with the State to identify the most efficient path by 
which a particular proposal could be implemented.
    In addition, States will provide meaningful opportunities for 
stakeholder involvement in the development of regulatory innovation 
proposals. The degree of stakeholder involvement depends on the nature 
of the proposal. Where a proposal would involve a change in or variance 
from existing national guidance, regulations, or statutes, early 
consultation among EPA, states, and national stakeholder groups can 
help identify critical issues that need to be addressed. If EPA 
believes that national stakeholder involvement is warranted, EPA will 
contact the State and identify, in partnership with the State, an 
approach to obtain such involvement as early in the process as 
possible.
    The Senior State Environmental Official or their designee then 
submits a written description of the regulatory innovation proposal to 
the EPA Regional Administrator, who then initiates the review process 
described below. The State will designate a high-level official as the 
single point of contact for each project.
2. Stage Two--Review of Proposal and Decision
    a. EPA Review. The EPA Regional Office will have primary 
responsibility for review of the innovation proposal. This 
responsibility includes proposal distribution within the Region and to 
the affected EPA National Program Managers and the Office of 
Reinvention; review and response to the State; and appropriate 
stakeholder involvement. In cases where national policy or regulatory 
issues are involved, the Regional Administrator must ensure complete 
review by relevant national program offices.
    EPA will consider several factors in the review of the innovative 
proposals, including
    (1) Consistency with the principles in this agreement;
    (2) Comments from stakeholders;
    (3) Type of flexibility from federal guidance or regulation needed 
to implement the proposal;
    (4) Clear presentation and analysis of issues;
    (5) Potential benefits of the innovation as compared to the 
investment of time and resources required for implementation, and 
impact on agencies' resources and workloads.
    The review process is intended to be flexible. EPA and the State 
should maintain open lines of communication at all levels--staff and 
management--to ensure that questions and concerns are raised and 
discussed. During the review process, EPA may seek input from other 
States and stakeholders, including environmental groups and the 
regulated community, to fully identify the strengths and weaknesses of 
the proposal.
    b. EPA Decision. Upon completion of the consultation and review 
period, the Regional Administrator will make a decision to accept or 
reject a proposal. If a proposal involves a national policy or 
regulatory issue, the decision will be made jointly with relevant 
National Program Managers and the Office of Reinvention. This decision 
will be communicated verbally and in a written form to the designated 
Senior State Environmental Official. If the proposal is not accepted, 
the decision will include the rationale for the determination.
    EPA and the State will determine the category into which the 
proposal falls. The type of proposal will have an impact on the time 
frame for implementation. The categories are:

Category 1: Straight-forward, transparent proposal with clear 
advantages, few obstacles, technically achievable, and minimum 
environmental risk.
Category 2: Experimental proposal that has a greater uncertainty of 
environmental outcome; requires more attention to design, 
implementation, and evaluation; and may involve some risk of failure. 
The unpredictability of the experiment means that it will be more 
resource intensive and may require more time.
Category 3: Strategic proposal that involves broad-based, new 
approaches (e.g., statutory changes) and requires policy discussion to 
further develop concepts. Proposals may be assigned to an existing 
policy forum for discussion or a new forum could be established.

    If the proposal requires changes of interpretation or substance 
regarding national statutes, regulations or policies before proceeding 
with an innovation project, both EPA and the State will reach agreement 
on all proposed changes. These projects will be accomplished through 
mechanisms available under Federal law and regulation, which may 
include variances, site-specific rules, legal interpretations, or other 
means.
    c. Appeals. In the event that a dispute arises during this process 
or a State disagrees with a Region's decision, the State may appeal in 
writing to the EPA Deputy Administrator. The State may also request a 
review by a panel consisting of EPA Senior Managers and State 
Commissioners. The panel will review the proposal, the issues, and 
merits of the dispute, and submit recommendations to the EPA Deputy 
Administrator for a final decision.
4. Time Frames for Decision
    EPA and the States are committed to working together to ensure 
timely responses to State proposals.
    a. Initial response to proposal. EPA will respond to the State with 
follow-up questions, clarifications, and initial reactions including an 
initial identification of obstacles to approval within four weeks of 
its receipt of a written innovation proposal from the State.
    b. Decision to proceed with proposal: EPA will decide whether to 
make a favorable recommendation within 3 months of the receipt of a 
proposal from the State. Decisions on proposals may be reached more 
quickly for proposals that are straight-forward, with clear

[[Page 56188]]

advantages, widely supported, technically achievable, and implementable 
in the short-term.

V. Measuring and Evaluating Success

    Before an approved proposal is implemented, we must define success 
and how we will measure it. This can help eliminate misunderstandings 
about whether or not the process and innovation as a whole is 
progressing effectively, and if it is not, what steps need to be taken 
to correct any problems.
    Therefore, EPA and the States agree on the importance of evaluating 
the success of regulatory innovation activities that flow through the 
process outlined in Section IV. The challenge is to develop useful 
measures without choking the very creativity we seek to stimulate. We 
want to ensure that a variety of ideas are being proposed, that 
decisions are made in a timely fashion, and that the most promising 
innovations are being implemented successfully. To accomplish this, we 
must measure both the success of our decision-making process and the 
success of the innovations themselves.

A. Measuring the Process

    We must ensure that the decision making process is effective, or 
the process will not be used. The success of the process depends 
primarily on the effectiveness of the communications between EPA and 
the States and the timeliness of decisions. Measurements include: (1) 
the number and quality of innovation projects proposed, (2) the number 
and quality of innovations implemented, (3) the timeliness of the 
actions taken in the process, (4) the number of proposals appealed, and 
(5) the speed with which information about successful innovations are 
disseminated to other states. EPA and states will also evaluate other 
factors that are difficult to measure but are critically important to 
successful outcomes, including the degree of EPA-State cooperation and 
stakeholder participation. EPA should collect this information and make 
it available at a central location so it can be used by the States, 
EPA, and stakeholders. Within 60 days of signing this agreement, EPA 
and ECOS will designate a central location.

B. Measuring the Innovation's Impact

    The success of the innovation project's impact will depend on how 
well it was designed and the results achieved. Successful innovation 
project designs should be clearly described so successful projects can 
be used to improve the entire system, and/or adapted to other site 
specific situations. The quality of the projects implemented can be 
measured by: (1) Environmental impact, (2) efficiency, and (3) other 
relevant indicators. In addition to providing information about the 
success of an individual innovation project, these measurements also 
provide guidance on improving future innovation projects. States and 
EPA should agree in advance who is responsible for collecting and 
disseminating this information.
    The proposed measures in Appendix A provide a starting point for 
discussion in terms of a framework and some common criteria for 
innovations. Common criteria allow the states and EPA to evaluate the 
progress in innovations state-wide and nationally.

VI. Information Sharing

    Accepted state innovation proposals and completed projects are most 
valuable when widely available to state and local regulators, the 
regulated community, environmental organizations and the public at 
large. We agree on the need to share information, track commonalities 
and analyze barriers to promising state innovations. Knowledge of both 
successes and failures will help the states, EPA and stakeholders 
develop better approaches for achieving our environmental goals. 
Because sharing information and innovative ideas among the states is 
core to ECOS' mission, ECOS will set up a regulatory innovation 
clearinghouse that highlights the results of this agreement and other 
state/EPA innovations that EPA Regional Reinvention Ombudsmen or State 
Commissioners deem appropriate.

VII. Next Steps

    EPA and the States agree on the following steps to ensure prompt 
implementation of the agreement:

A. Joint Evaluation

    By October 1998, states and EPA will begin to evaluate the success 
of regulatory activities that have been reviewed under the new process. 
The evaluation will consider both the environmental and efficiency 
benefits derived from each innovation, and the efficiency of the new 
review process. The results of the evaluation will be shared with EPA, 
the states and stakeholders.

B. Modifications to the Agreement

    If the evaluation indicates a need to modify or amend this 
agreement, EPA and the states agree to discuss such modifications or 
amendments and make needed changes by January 1999.

Attachments:

A. Model for Core Performance Measures
B. Examples of Regulatory Innovations

Attachment A--EPA/State Environmental Regulatory Innovations Core 
Performance Measures

Environmental Goal

    A sustainable environment with healthy communities and 
ecosystems

Environmental Objectives

    --Air quality improvements
    --Water quality improvements
    --Land quality improvements

Program Objectives (Outcomes)

    --More effective and efficient environmental regulatory systems
    --Reductions in releases to the environment
    --Reductions in resources expended to implement the regulatory 
process, by regulators, regulated entities, other stakeholders: 
time, workyears, money
    --Increased stakeholder participation in the regulatory process
    --Large majority of high priority, high quality innovation 
projects are successfully implemented
    --Successful results of innovation projects are: clearly 
described, widely disseminated, adopted in other site specific 
situations, used to improve entire systems

Program Activities (Outputs)

    --Number of innovation projects proposed
    --Number of innovation projects implemented
    --Quality of projects implemented: environmental, efficiency, 
other indicators
    --Stakeholder participation
    --Timeliness of actions taken in process

Attachment B--Examples of Regulatory Innovations

    To encourage creative thinking and the development of good 
regulatory innovation proposals, EPA and the States have developed 
the attached examples of regulatory innovation projects. Four 
examples of potential regulatory innovations are provided. Examples 
1, 2 and 3 are suggestions of innovative ideas that states have 
developed--they are intended to illustrate the kinds of proposals 
that may be developed. These examples have not been reviewed or 
accepted by EPA as projects for this process. Example 4 describes an 
innovative proposal that was recently implemented in North Carolina.

Example 1: Mercury in Wastewater Effluent

    Objective: Substitute sludge testing and limit requirements for 
mercury in place of effluent limits and monitoring requirements in 
NPDES permits for municipalities.
    Description and expected benefits: Mercury cannot be detected 
accurately in municipal wastewater effluent. Dilution of mercury in 
effluent leads to non-detectable monitoring results. In addition, 
mercury test methods at the low levels seen in municipal effluent 
can easily pick up contamination of sampling and analysis and lead 
to false positives. As a result, most municipalities

[[Page 56189]]

can show compliance with mercury effluent limits and need take no 
steps to reduce mercury in their effluent.
    This proposal would eliminate effluent limits from NPDES permits 
for municipalities, and instead substitute sludge monitoring (where 
mercury concentrates in the wastewater treatment process). If 
mercury in sludge exceeds federal clean sludge levels, 
municipalities would be required to develop mercury source reduction 
programs. Since mercury can be more accurately detected in sludge, 
this would lead to better targeting of the municipalities that need 
to develop mercury source reduction programs.
    Federal obstacle halting or hindering progress: Requires changes 
in either federal statute or variance/change in federal regulations. 
Attorneys state that sludge requirements as proposed cannot be tied 
to surface water standards.
    Additional background information: This proposal was strongly 
supported by municipalities, environmental groups, Wisconsin DNR 
staff, and EPA staff. All saw that this proposal would lead to 
greater environmental benefits than the current NPDES system.
    State: Wisconsin Department of Natural Resources, Bureau of 
Watershed Management.

Example 2: Continuous Emissions Monitoring for Air Pollutants

    Objective: Create a flexible approach to compliance 
demonstration for air emission limits that have been consistently 
achieved. In exchange, install continuous emissions monitoring for 
other toxic pollutants for which more data is needed. This approach 
would reward facilities which have demonstrated superior 
environmental performance with simplified compliance demonstration 
requirements.
    Description and expected benefits:
    --Federal guidance on practical enforceability requires that 
compliance demonstration schemes use available technology which 
produces verification of compliance data as frequently as 
practically possible.
    --A facility is required to use continuous emission monitors 
(CEMs) to show compliance with an air emission limit. Data has been 
gathered for several years and it shows consistent emission levels 
at or lower than 50% of the limit. In addition, other surrogate 
process parameters are continuously monitored.
    --The permittee wishes to show compliance by an alternative 
compliance method which requires periodic testing to assure 
continued compliance. The surrogate parameters will continue to be 
monitored and will be used to ensure that the operating conditions 
remain within the range under which compliance has been demonstrated 
by periodic testing.
    --In exchange, the facility agrees to install CEM for certain 
toxic organics from certain processes. The nature and levels of 
these toxics are not very well defined based on mass balance 
approaches. The information generated by these CEMs will be useful 
for an air toxics analysis being conducted in the area.
    Federal obstacle halting or hindering progress: Requires change 
or deviation from established EPA policies regarding federal 
enforceability as a practical matter on emission limits. However, 
the demonstrated level of confidence on compliance warrants a less 
rigorous approach, particularly because it includes a periodic 
verification process.
    Additional background information: The permittees believe that 
it is important to build a trust relationship with regulators to be 
able to re-direct resources to areas where the need is greater to 
realize further improvements or to generate new information on 
environmental matters.
    State: Minnesota Pollution Control Agency, Air Quality Division, 
Permits Section

Example 3: Tiered Permitting System for Hazardous Waste Facilities

    Objective: Create a permitting system for hazardous waste (HW) 
management facilities that are presently exempt from the existing 
RCRA Part B permitting system but still pose a potential threat to 
human health and the environment if improperly designed and 
operated.
    Description and expected benefits:
    --Current RCRA regulations exempt recycling facilities from any 
permitting requirements, but require a Part B permit if HW is stored 
prior to recycling.
    --Environmentally safe recycling is preferable to disposal and 
should be encouraged.
    --Recycling facilities can be as complicated as treatment and 
disposal facilities and require some oversight to ensure that they 
are protective of human health and the environment.
    --Requiring the standard Part B permit for recycling facilities 
creates a disincentive and may greatly limit the number of recycling 
facilities.
    --A less onerous tiered permit provides regulatory oversight and 
does not pose the same disincentive as a Part B permit for recycling 
facilities.
    --The tiered permit incorporates performance standards and 
financial assurance as appropriate and is custom tailored to the 
facility without requiring all of the elaborate features of a Part B 
permit.
    Federal obstacle halting or hindering progress: May require a 
variance from federal statutes and regulations that prescribe 
standards and require a Part B permit for storage of HW depending on 
what type of storage activities are covered under the tiered permit.
    Additional background information: State legislation required 
fluorescent lamp recyclers to be permitted. Rules are in the 
development stage with extensive regulated community involvement. 
The tiered permitting system will be extended to all types of HW 
facilities for which a Part B permit is not required or not 
appropriate, including recyclers and some types of storage 
facilities.
    State: Minnesota Pollution Control Agency, Hazardous Waste 
Division, Regulatory Compliance Section.

Example 4: River Basin-Based Planning and Permitting

    Objective: To coordinate stream modeling and permitting on a 
river-basin or sub-basin scale instead of in a piecemeal fashion.
    Description and expected benefits:
    River-basin based planning and permitting would:
    --Enable better planning and resource allocation
    --Increase consistency between permits
    --Increase consideration of basin-wide pollutant inputs (point 
and nonpoint) for better decision-making and planning
    --Improve efficiency of modeling, data collection for modeling, 
and permitting activities
    --Provide opportunity for greater stakeholder involvement in the 
planning process
    Federal statutes prohibit permits with a term greater than five 
years. To synchronize NPDES permit renewal for an entire river 
basin, the state had to issue five year permits followed by an 
additional short-term permit. The burden on permitting and modeling 
staff was further increased because EPA Region IV was also pressing 
NC to address its permit backlog. The state lacked sufficient 
modeling resources to address the existing backlog and also issue 
short term permits in selected basins. The state proposed to reissue 
the short-term permits with existing limits without modeling and to 
refocus its permitting staff away from the permit backlog and toward 
the basin-wide permitting approach. Region IV was hesitant to 
endorse the basin-wide concept.
    Contact with EPA Headquarters (Office of Water) convinced EPA to 
hire a facilitator to help the state develop an implementation 
strategy for the basin-wide planning and permitting approach. EPA 
Headquarters also sponsored a workshop to obtain input from 
surrounding states. This involvement allowed the state to develop a 
convincing strategy, and subsequently, Region IV agreed to the 
proposal. EPA also provided a 104(b)(3) grant to increase monitoring 
and modeling in the Tar-Pamlico River Basin to help pilot the 
approach.
    Federal obstacle halting or hindering progress: Required change 
in EPA past practice.
    Additional background information: At first, permittees reacted 
to the short-term permits due to the extra burden of completing 
permit applications and paying application fees. However, the 
concerns of permittees were quelled by pointing out the long-term 
improvements in consistency among permits in the river basin and in 
efficiency of issuing these permits. Environmental stakeholders were 
supportive of the approach from the start due to a greater 
opportunity for involvement in the planning process.
    State: North Carolina.

    Dated: October 16, 1997.
J. Charles Fox,
Associate Administrator, Office of Reinvention.
[FR Doc. 97-28553 Filed 10-28-97; 8:45 am]
BILLING CODE 6560-50-P