[Federal Register Volume 63, Number 86 (Tuesday, May 5, 1998)]
[Notices]
[Pages 24784-24796]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-11799]


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ENVIRONMENTAL PROTECTION AGENCY


Joint EPA/State Agreement To Pursue Regulatory Innovation

[FRL-6008-7]
AGENCY: Environmental Protection Agency.

ACTION: Notice of Availability of Joint EPA/State Innovation Agreement.

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SUMMARY: The U.S. Environmental Protection Agency (EPA) and senior 
State environmental officials recently signed an agreement entitled 
Joint EPA/State Agreement to Pursue Regulatory Innovation (hereafter 
``Innovations Agreement''). The purpose of the Innovations Agreement is 
to improve environmental protection in the United States, improve EPA/
State environmental management practices, and provide timely decision-
making on good ideas. These goals will be achieved through innovation 
proposals by States, with the intent that many successful innovations 
will lead to system-wide improvements in environmental protection.
    The Innovations Agreement embodies a set of general principles and 
a process for EPA/State innovation activities that 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 Innovations 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 our 
environment and the people we serve.

ADDRESSES: An electronic version of the Innovations Agreement is 
available on EPA's Office of Reinvention internet home page at http://
www.epa.gov/reinvent. Interested parties can obtain a single copy of 
the report by contacting Louise McLaurin (phone 202-260-4261 or e-mail 
[email protected]).

FOR FURTHER INFORMATION CONTACT: For questions on the joint EPA/State 
Innovations Agreement, please contact John Glenn, U.S. Environmental 
Protection Agency, Office of Reinvention, (1803), 401 M Street, S.W., 
Washington, DC, 20460, phone 202-260-5029, e-mail 
[email protected]; or Bruce Brott, Minnesota Pollution Control 
Agency, phone 612-297-8380, e-mail [email protected].

SUPPLEMENTARY INFORMATION: To find new, better, and more efficient and

[[Page 24785]]

effective ways to improve environmental protection, the Environmental 
Council of the States (ECOS) and EPA Administrator Carol Browner formed 
a Task Group to develop a joint agreement on EPA/State regulatory 
innovation. The Task Group developed the draft Joint EPA/State 
Agreement to Pursue Regulatory Innovation (``Innovations Agreement''), 
which was published for public comment last fall in the Federal 
Register (62 FR 56182-89; October 29, 1997). A balanced set of eleven 
comments with 31 signatories representing industry, environmental 
interest groups, and government were submitted. All comments were 
considered in preparing the final draft of the Innovations Agreement. 
At the ECOS meeting on March 25, 1998, the State officials present 
voted unanimously to approve the Innovations Agreement. In late April, 
EPA and senior State environmental officials signed the joint 
Agreement. The full text of the Innovations Agreement and the EPA/State 
Response to Comments follow.

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 senior State 
environmental officials (hereafter referred to as ``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 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 purposes are to: 
improve environmental protection in the United States; to improve EPA/
State environmental management practices; and to provide timely 
decision-making on good ideas.
    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 should seek creative ways to remedy environmental problems 
and improve the environmental protection system, and be receptive to 
innovative, common sense approaches.
    Stakeholder Involvement: Effective stakeholder involvement produces 
better innovation projects and catalyzes public support for new 
approaches. 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 individual 
members of the public. 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 authority to enforce 
alternative regulatory requirements to ensure that public health and 
environmental protections are maintained, and must be willing to 
explore new approaches to establish 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.

[[Page 24786]]

    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.
Carol M. Browner,
Administrator, U.S. Environmental Protection Agency.
Robert C. Shinn, Jr.,
Commissioner, New Jersey Department of Environmental Protection, 
President of ECOS.
Fred Hansen,
Deputy Administrator, U.S. Environmental Protection Agency.
Robert W. Varney,
Commissioner, New Hampshire Department of Environmental Services, Vice 
President of ECOS.
J. Charles Fox,
Associate Administrator for Reinvention, U.S. Environmental Protection 
Agency.
Peder Larson,
Commissioner, Minnesota Pollution Control Agency, and Co-Chair, ECOS 
Regulatory Innovations Task Group.
Randall Mathis,
Commissioner, Arkansas Department of Pollution Control and Ecology, and 
Co-Chair, ECOS Regulatory Innovations Task Group.

    Dated: April 1998.

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 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 will be achieved 
through State proposals for innovation, with the intent that many 
successful innovations will lead to system-wide improvements in 
environmental protection.
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. 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.
    Innovation can support sustainable development and continuous 
environmental improvement by offering new approaches that harmonize our 
progress toward environmental, economic, and societal goals. Some 
innovations may address only one of these goals. Innovation proposals 
that address more than one of these goals are desirable. For example, 
innovations which facilitate a transition to pollution prevention and 
product stewardship as primary methods of achieving environmental goals 
can also have significant economic or societal benefits. To support 
sustainable development and continuous environmental improvement, 
innovations should utilize pollution prevention methods rather than 
pollution control whenever possible.
2. Improved EPA/State Environmental Management Practices
    Through this agreement, EPA and the States will test and implement 
innovative approaches that lead to improved environmental programs. 
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

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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.
    This agreement signals the commitment of EPA and State 
environmental agencies to work together on innovations. It does not 
create any legal obligations for EPA or the States, and does not alter 
EPA's or States' statutory responsibilities or the nature of authorized 
or delegated State programs. Any innovations under this agreement will 
be implemented within our existing legal authorities using appropriate 
procedures.

III. Principles for EPA/State Regulatory Innovation

    EPA and the States agree to a set of basic overarching principles 
that 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 through experiments designed to achieve improved results.
    2. The States and EPA should seek ways to make good ideas work, 
presuming that innovations to help meet 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 that likely 
can be corrected and that do not jeopardize environmental protection, 
project sponsors should be allowed to fix problems before the 
experiment is abandoned in favor of the traditional approach.
    5. Experimentation does not include relaxing health or 
environmental standards or reducing protection of public health or the 
environment.
    6. Experiments should be designed to test new approaches and as 
appropriate lessons learned should be used to improve the current 
system of environmental protection.

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 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. Innovations that facilitate a 
transition to pollution prevention and product stewardship as primary 
methods of achieving environmental goals are highly desirable and can 
have significant economic or societal benefits to support sustainable 
development.
    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, innovations 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 disproportionately 
high and adverse human health or environmental impacts as a result of 
the innovation.

C. Smarter Approaches

    To reinvent environmental regulation, regulators should seek 
creative ways to remedy environmental problems and improve 
environmental protection, and be receptive to innovative, common sense 
approaches.
    1. Regulators should work with industry and communities to solve 
environmental problems by identifying ways to remove barriers that 
prevent prudent, common sense solutions.
    2. Regulators should be professional, accountable and deserving of 
the public's trust.
    3. Regulators should seek to understand all perspectives, and help 
stakeholders find common ground.
    4. Regulators should act promptly to evaluate, and implement, 
proposals that are straightforward, technically achievable, and have 
clear advantages, while ensuring adequate opportunities for public 
involvement and review.

D. Stakeholder Involvement

    Effective stakeholder involvement produces better innovation 
projects and catalyzes public support for new approaches. 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 individual members of the public. Stakeholder 
involvement should be appropriate to the type and complexity of the 
innovation proposal.
    1. Innovations should include opportunities for early, open, and

[[Page 24788]]

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. When an innovation has the potential to result in 
significant policy changes, additional efforts, that could include 
incentives and assistance, should be made to provide additional 
opportunities so that affected and interested stakeholders can be 
meaningfully involved.
    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 procedural requirements are met or 
exceeded. EPA and States will identify national program issues and 
ensure opportunities for active involvement from national and regional 
stakeholder groups, especially where decisions on regional, state, or 
local issues have broader impacts.
    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.
    4. Because some stakeholder groups (e.g., small businesses, public 
interest groups) often have a limited capacity to participate in 
innovation projects, EPA and States will explore different approaches 
to facilitating stakeholder involvement.
    5. In circumstances where local governments share regulatory 
responsibility, they should participate as partners with the State in 
developing and implementing the innovation.

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 
stakeholders 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 
authority to enforce alternative regulatory requirements to ensure that 
public health and environmental protections are maintained, and must be 
willing to explore new approaches to establish accountability for 
beyond-compliance commitments.
    1. For persons or activities not covered by the innovation project, 
applicable statutory and regulatory requirements remain in effect and 
fully enforceable.
    2. If a promising innovation project encounters difficulties that 
likely can be corrected and that do not jeopardize environmental 
protection, regulatory agencies should evaluate the circumstances and 
use judgment in allowing project sponsors to correct 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 that 
provided by otherwise applicable environmental standards or 
requirements, and (b) other ``beyond-compliance commitments'' that seek 
to exceed otherwise applicable 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 consider the circumstances and use their judgment 
in choosing remedies when a facility fails to meet alternative 
regulatory requirements.
--Potential responses for failure to meet such alternative regulatory 
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: a series of interim 
accountability measures short of project termination, trying a 
different approach, modifying the innovative approach, or reverting to 
the traditional approach.

    5. Innovations should not undermine the state's, federal 
government's, or citizens' authority or capacity to enforce delegated 
or authorized state programs.

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 natural 
laboratories 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

[[Page 24789]]

regulations, and ensure fair and effective enforcement, thus ensuring 
that all states provide fundamental public health and environmental 
protection and a level playing field.
    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. 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 State 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 design and 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

[[Page 24790]]

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 broader 
stakeholder involvement is warranted, in accordance with the 
Stakeholder Involvement Principle, 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) Expected benefits of the innovation (including net improvements 
in environmental, ecosystem, and efficiency results);
    (6) 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. The written 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.
    d. Time frames for decision. EPA and the States are committed to 
working together to ensure timely responses to State proposals.
    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.
    Decision to proceed with proposal: EPA will make a preliminary 
decision to accept or reject a proposal within 3 months of the receipt 
of a proposal from the State. If, during the review, EPA determines 
that additional information is needed from the State, EPA will promptly 
notify the State, and EPA and the State will agree on an appropriate 
schedule for completing the review.
    Decisions on proposals may be reached more quickly for proposals 
that are straight-forward, with clear advantages, widely supported, 
technically achievable, and implementable in the short-term. A 
preliminary decision to accept a proposal will be accompanied by an 
explanation of subsequent actions needed before a final decision can be 
made or implementation can begin. For example, a proposal that involves 
amending an EPA regulation would require a notice and comment process 
in accordance with the Administrative Procedures Act.

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 robust 
stakeholder participation processes are utilized, 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 the innovations and the success of our decision-
making process. Performance measures that emphasize environmental 
results, including pollution prevention, are most desirable, although 
we may have to rely

[[Page 24791]]

more on process measures in the near term.

A. 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.

B. 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 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. The success of the process is enhanced by the development 
of effective partnerships across all interested and affected 
stakeholder groups to design innovations which will meet multiple 
objectives and to build broad support for their implementation. EPA and 
States will evaluate 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 the Environmental Council of the States (ECOS) 
will designate a central location.

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 
key to the success of this agreement, the States, through ECOS, will 
set up a regulatory innovation clearinghouse that serves to notify 
potentially affected States of innovation proposals and highlights the 
results of this agreement and other State/EPA innovations that EPA 
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 1999, States, EPA and other interested parties 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 2000.
Attachments
A. Proposed Core Performance Measures
B. Examples of Regulatory Innovations

Attachment A--EPA/State Environmental Regulatory Innovations, 
Proposed 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, work 
years, 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 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

[[Page 24792]]

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.

Joint EPA/State Agreement to Pursue Regulatory Innovation, Response 
to Comments

Purpose of the Agreement and Environmental Performance

    Summary of Comments: A number of commenters were concerned that the 
agreement did not emphasize the importance of innovation as means to 
move toward environmental sustainability. They suggested focusing the 
agreement on holistic pollution prevention and product stewardship 
approaches, because these approaches can help address the root causes 
of pollution and move toward a more

[[Page 24793]]

sustainable system. Also, these commenters felt that the agreement 
emphasized efficiency over environmental gains, rather than advocating 
innovations that can simultaneously achieve environmental, economic, 
and social goals. These commenters felt that environmental gain should 
be a key factor in prioritizing innovations. An opposing view was 
expressed by some commenters, that the agreement should put more 
emphasis on economic gains as incentives for innovation. A number of 
commenters expressed support for ``efficiency only'' projects that 
would achieve the same level of environmental quality. Conflicting 
comments were received about whether better environmental performance 
should be required in proportion to any regulatory flexibility granted.
    Response: EPA and the states agree that the concept of innovations 
leading to environmental sustainability should be emphasized (added 
language to Purpose section and Environmental Performance sub-principle 
on this concept). Innovations that simultaneously address 
environmental, economic and social objectives are highly desirable. 
However, the agreement recognizes that, in some cases, it will make 
sense to pursue innovations that are primarily targeted at efficiency 
improvement, as long as environmental protections are fully maintained. 
The agreement does not include a specific ``proportionality'' test that 
would require increased environmental performance in return for 
regulatory flexibility. However, innovations which have a greater 
uncertainty of the environmental outcome, or are more experimental in 
nature, will be expected to have the potential for improved 
environmental results. Also, as proposals are reviewed, the potential 
benefits of a proposal will be weighed against the resources needed to 
implement the proposal, and if resource limitations become an issue, 
priority will be given to proposals that appear to have a greater 
return on investment.
Specific Comments
    Comment: The agreement speaks several times of innovations that 
have the clear potential to provide environmental benefits. Other 
principles are not similarly qualified in the agreement. The italicized 
phrase should be replaced with a positive concept such as ``clearly.''
    Response: The phrase ``have the clear potential'' is appropriate 
for projects that have a greater uncertainty of the environmental 
outcome, or that involve experimental technologies or approaches. 
However, we agree that it is important that the intent of the project 
is to achieve better environmental results, even if those results 
cannot be guaranteed, and we expect that experimental projects will be 
designed to achieve increased environmental protection.
    Comment: A commenter said that the agreement will result in 
numerous waivers of EPA requirements, based only on ``equivalency,'' 
and will eliminate incentives to achieve superior environmental 
performance.
    Response: EPA and the states are not entering into this agreement 
simply in order to provide a pathway for obtaining waivers of 
regulatory requirements. The purposes of this agreement are clearly 
stated: to improve environmental protection, to improve EPA/State 
environmental management practices, and to provide timely decision-
making on good ideas. We believe that this agreement will foster 
cooperative exploration of innovative approaches that can potentially 
lead to substantial improvements in both our management system and in 
the level of human health and environmental protection. It is not our 
intent to undermine incentives for achieving superior environmental 
performance. For example, EPA's Project XL offers regulatory 
flexibility in return for superior environmental performance, 
stakeholder involvement, and several other criteria. If under this 
agreement, EPA receives proposals that are more appropriate for Project 
XL (e.g., proposals requesting significant regulatory flexibility for a 
single facility) then EPA will recommend that those proposals will be 
directed to the XL process.

Experimentation

    Summary of Comments: A commenter said that the agreement should 
more clearly acknowledge that ``experimental'' efforts may at some 
future time be incorporated into the mainstream of environmental 
protection. Other commenters said that the agreement speaks of 
``maintaining'' or ``not jeopardizing'' environmental protections, 
rather than enhancing them, and doesn't address the value of interim 
incentives or enforcement responses.
    Response: EPA and the states agree that a main purpose of 
experimentation is to test approaches that may later be appropriate to 
be applied more broadly. A sub-principle has been added to the 
Experimentation principle which states ``Experiments should be designed 
to test new approaches and as appropriate lessons learned should be 
used to improve the current system of environmental protection.'' The 
idea of using interim accountability measures has been added to the 
Accountability/Enforcement principle.

Stakeholder Involvement

    Summary of Comments: Many commenters addressed the issue of 
stakeholder involvement in the development of innovation proposals. A 
number of commenters agreed that ``stakeholder involvement should be 
appropriate to the type and complexity of the innovation proposal.'' 
Some commenters raised concerns that stakeholder processes can become 
too elaborate or can delay a project for too long, and that consensus 
should not be required. Other commenters emphasized that the agreement 
did not convey a true partnership approach, lacking elements such as: 
firm requirements for inclusiveness, addressing the need for technical 
assistance, and success measures that evaluate the effectiveness of the 
stakeholder process. These commenters also felt that the linkage 
between stakeholder involvement and the process for different 
categories of projects should be addressed.
    Response: EPA and the states believe that stakeholder involvement 
is important to successful innovation projects, and we are adding a 
clear statement to the Stakeholder Involvement principle that 
stakeholder involvement is important because it produces better 
innovations. We believe that the stakeholder principle provides 
sufficient flexibility for EPA and States to design stakeholder 
processes that are appropriate for different types of innovations and 
as appropriate, allows states to use existing stakeholder participation 
processes. There is a range of opportunities for stakeholder 
involvement that may be appropriate, depending on the type and 
complexity of the innovation. For a straight-forward innovation 
designed to streamline an existing process, providing opportunity for 
participation and comment may be sufficient. For proposals with 
significant policy implications, the need for public involvement will 
likely be greater, and it is the responsibility of government agencies 
to take extra steps so that active involvement can occur. Some changes 
were made to the stakeholder principle and sub-principles to clarify 
this intent.
    EPA and the states realize that it is often difficult for some 
parties, such as small businesses and public interest groups, to 
actively participate in stakeholder processes. EPA and the states will 
try different approaches to

[[Page 24794]]

facilitating stakeholder involvement, such as: providing easily-
accessible information about new project proposals (e.g. via the 
Internet), providing assistance in understanding proposals to help 
focus on priority issues and projects, and pursuing other creative 
mechanisms that foster participation. Issues such as technical 
assistance for stakeholder participants will be addressed on a project-
by-project basis. Also, language was added to the section on 
``Measuring and Evaluating Success'' to emphasize the need to evaluate 
the effectiveness of the stakeholder process.
Specific Comments
    Comment: A commenter expressed the need for affirmative language on 
all levels of government working together and to more clearly recognize 
and define the role of local governments in the regulatory system and 
in innovation.
    Response: EPA and the States agree that local governments are 
essential partners in innovations that come under the jurisdiction of 
local regulatory authorities. A sub-principle has been added to the 
Stakeholder Involvement principle to recognize the importance of 
working cooperatively with local governments.
    Comment: Several commenters stated that the reference to involving 
national stakeholder groups to examine national issues should be 
broadened to recognize the important role of state groups, and the 
interest of national groups in important state and local issues. 
Criteria, and an accountability mechanism, are needed to help identify 
cases where national (or state) stakeholder involvement is needed.
    Response: EPA and the states agree that stakeholders should have 
the opportunity to be involved in design and development of proposals, 
and that both national and regional groups may be interested in 
important regional, state, and local issues that are likely to have 
broader impacts (added clarifying language to stakeholder sub-
principle). At this time, we do not think it appropriate to develop 
specific criteria for national stakeholder involvement. We will make 
every effort to make information available and to keep stakeholders 
informed about proposals under this agreement, so that stakeholders 
will have the opportunity to participate. As we gain experience with 
the process, we will consider whether it is possible and appropriate to 
develop criteria for national stakeholder involvement.
    Comment: Several commenters pointed to the need for special efforts 
to involve stakeholders such as small business and public interest 
groups in innovations, due to their limited resources.
    Response: EPA and the States agree that creative approaches to 
foster such involvement should be encouraged. A new sub-principle was 
added to Stakeholder Involvement to encourage these efforts.
    Comment: A commenter expressed concern that the EPA review process 
includes the active solicitation of comments after the stakeholder 
process has been completed.
    Response: EPA and the states agree that in cases where there has 
been a robust stakeholder process, that no additional input would be 
needed. However in some cases, such as a proposal that comes to EPA in 
a preliminary stage of development, EPA may need to consult with 
stakeholders to ensure that all points of view are considered, prior to 
making a decision. In cases where a federal or state regulation will be 
changed, public notice and comment may be part of the required legal 
process that would occur following the preliminary decision.
    Comment: A commenter asked for clarification about subprinciple D.2 
(the requirement that stakeholder processes meet or exceed applicable 
state and federal requirements) and whether this refers to procedural 
or environmental requirements.
    Response: The language has been added to indicate that this 
statement refers to procedural requirements.

Smarter Approaches

    Comment: A commenter pointed out the need to ensure that proposed 
innovations do not undermine the original purpose of ``regulatory 
barriers.''
    Response: EPA and the states agree that the underlying regulatory 
objectives of a ``regulatory barrier'' need to be carefully considered 
in the development of innovations. The language in the ``Smarter 
Approaches'' subprinciple indicates that the purpose of removing 
``regulatory barriers'' is to solve environmental problems. In deciding 
whether a proposed innovation is helping to solve an environmental 
problem, regulators will need to ensure that the underlying 
environmental purpose of the ``regulatory barrier'' will still be 
achieved.

Accountability/Enforcement

    Summary of Comments: Some commenters raised concerns that all 
conditions that are integral to an innovation project should be 
enforceable, and that accountability could be strengthened by including 
a series of interim accountability measures as part of the project 
design. Another commenter suggested that EPA and the states should not 
pursue traditional enforcement mechanisms such as penalties if problems 
are encountered during implementation of an innovation project.
    Response: EPA and the States agree that accountability and 
enforcement remedies should be used that are appropriate to the 
circumstances of an innovation project, and the language of the 
Accountability/Enforcement section has been clarified to reflect this 
intent. For example, it may be appropriate for project participants to 
agree on a series of interim accountability measures that will be 
tracked as the project is implemented. In order to preserve enforcement 
authority for use in serious circumstances, we cannot rule out the use 
of penalties. The agreement indicates that ``alternative regulatory 
requirements'' will be enforceable with all the remedies available 
under current law. ``Beyond compliance commitments'' may also be part 
of some innovation agreements, and accountability measures for these 
commitments should be determined when the innovation is designed. In 
some cases, if innovations include a set of activities, it may 
difficult to distinguish between ``alternative regulatory 
requirements'' and ``beyond compliance commitments.'' In these cases, 
EPA and the state will carefully evaluate all proposed activities and 
determine an appropriate requirement category based on the projected 
net result of the proposed activities.
Specific Comments
    Comment: A commenter said that clarification was needed to convey 
that current requirements are enforceable only to the extent that they 
are not modified by an approved innovation project.
    Response: EPA and the States agree that the intent of the agreement 
is that all applicable statutory and regulatory requirements, other 
than those included in the innovation project, remain in effect for all 
entities and are fully enforceable.

Roles of Project Proponents and Stakeholders

    Summary of Comments: Several commenters raised questions about 
whether sponsors other than a state could initiate projects. A 
commenter suggest that more incentives for industry to participate 
should be provided. Several commenters also raised the issue of 
appeals, and whether parties other than the state could appeal an EPA 
decision on a proposal.

[[Page 24795]]

    Response: We are committed to working with partners in the 
regulated community, and other stakeholders, to develop successful 
innovation projects and have a variety of mechanisms in place to do so. 
The focus of this agreement is to facilitate state proposals for 
innovative environmental management approaches. States are co-
regulators with EPA and are responsible for implementation of delegated 
or authorized environmental programs. We encourage non-state sponsors 
to partner with states in moving innovations forward under the 
agreement. Other pathways (such as Project XL) are available for other 
sponsors to work with directly with EPA on innovation projects. 
Similarly, because this agreement is designed for state proposals, 
states are the appropriate parties to appeal decisions. Input of 
interested stakeholders will be considered throughout the review and 
appeals processes.

Relationship of Categories of Projects and Application of Principles

    Summary of Comments: A number of commenters stated that the 
agreement should include objective criteria for deciding how projects 
should be classified and where certain principles may vary based on the 
category.
    Response: While the principles articulated in this agreement will 
set a standard for all innovation proposals, we expect some principles 
or sub-principles to be more relevant to certain types of projects. For 
example, while stakeholder input will be important for all innovations, 
we anticipate increasing levels of stakeholder involvement in 
Categories 2 and 3, as compared to Category 1. In terms of 
environmental performance, cost-effectiveness projects would generally 
be expected to fit in Category 1. More experimental proposals that fall 
in category 2 would generally be expected to have the potential to 
provide increased environmental protection. Other principles may also 
vary somewhat in their applicability across categories.

EPA Review and Decision on Proposals

Review Criteria
    Comments: A commenter stated that the agreement should further 
define the decisional criteria that EPA will use to approve or 
disapprove a proposal. Several commenters said that the criteria 
addressing resources should also include impact on stakeholders' 
resources and workloads.
    Response: The agreements lists several criteria EPA will use in 
reviewing proposals. We believe these criteria can only be refined 
through some direct experience in evaluating project proposals. The 
first criterion is ``consistency with the principles in the 
agreement.'' Evaluation of proposals against this criterion will 
include an evaluation of whether stakeholder involvement in design and 
development of the innovation is consistent with the Stakeholder 
Involvement principle.
Statutory Change
    Comments: A commenter said that where statutory impediments are 
identified, EPA should be willing to entertain statutory revisions and, 
together with states, advocate these revisions to Congress. Another 
commenter said that EPA should not indicate that it will reach 
agreement with all the states before pursuing any changes in 
interpretation or statutes.
    Response: EPA and the states believe that exploration of innovative 
approaches may, in some cases, point to the need for regulatory or 
statutory change. Where such changes will promote effective, common 
sense solutions to environmental problems, EPA is committed to pursuing 
change through appropriate mechanisms. In all cases, we believe there 
must be an open process and full public discussion and debate.
Handling Numerous Proposals and Setting Priorities
    Comments: A commenter pointed out that the management of numerous 
state innovation proposals may become an overwhelming task for EPA, the 
states, and interested stakeholders, and therefore, EPA and ECOS should 
focus first on those innovation proposals having the greatest potential 
for success.
    Response: EPA is concerned about the difficulty of managing 
appropriate participation and review for numerous proposals while 
upholding high standards of review and meeting ambitious time frames 
for decisions. EPA will strive to address all State innovative 
proposals promptly and carefully. It is difficult to anticipate how 
many projects may be proposed. If a large number of projects are 
submitted, EPA will likely need to use a screening and priority-setting 
process to ensure that available resources are used effectively.
Time Frames for Decision
    Comments: One commenter suggested that the agreement include a 
forcing function to ensure that deadlines are met, such as a default 
mechanism that the project is approved if time expires. Another 
commenter said that the agreement should clarify that the 3-month 
decision is a definitive decision by EPA to accept or reject the 
proposal.
    Response: EPA is committed to responding as promptly as possible to 
innovation proposals, as reflected in the ambitious 3-month target for 
decision-making. However, the 3-month deadline will not be met in all 
cases--a great deal will depend on the quality and completeness of the 
proposal, and, in a number of cases, more information will likely be 
needed to augment the initial proposal submission. EPA and the state 
will jointly agree on extending the deadline as appropriate to the 
circumstances. Additionally, the 3-month decision is a preliminary 
decision to go forward with a project. EPA must follow all legal 
requirements that are applicable in each situation in order to reach a 
final decision and begin implementation. Thus, ``default approval,'' in 
cases where EPA does not meet the target, is not possible. For example, 
a proposal that involves change to a regulation must be carried out 
through notice-and-comment rulemaking, and under the law, EPA cannot 
make a final decision until public comment has been considered.

Other Comments

Stakeholder Evaluation of Proposals and Results
    Comments: A commenter recommended establishing a national advisory 
committee, perhaps including stakeholder representatives from the 
local, state, and national level, that would evaluate proposals, 
analyze ongoing progress with innovations, and evaluate the 
transferability of successful results.
    Response: The Stakeholder Involvement principle provides for the 
participation of stakeholders in the evaluation of project proposals. 
EPA and the states agree that stakeholders also need to be involved in 
evaluating the success of innovations implemented under this agreement. 
The Next Steps section has been modified to say that EPA, states, and 
other interested parties will work jointly on evaluating both the 
results of innovations and the process for review and implementation of 
the projects.
Confidential Business Information
    Comments: A commenter said that information sharing is an important 
part of the process, however, the agreement lacks guidance regarding 
protection of confidential business information.
    Response: EPA and the states feel that there are adequate 
provisions in place, outside of this agreement, in federal and state 
law and regulation, to adequately

[[Page 24796]]

protect confidential business information. As we move forward with 
implementing the agreement, we will develop procedures to ensure that 
information shared in the development of proposals but designated as 
confidential business information remains confidential.
Measuring Success/Core Performance Measures
    Comments: A commenter said that core performance measures should 
emphasize environmental results (e.g., fewer diseases from pollution) 
over bean counting (i.e., number of projects). Another commenter said 
that the three environmental objectives (air, water, land quality 
improvements) are not inclusive of all ecosystem improvements, and that 
the measures should take a broader holistic approach towards improving 
environmental quality.
    Response: EPA and the states agree that success measures should 
look more broadly at improving human health and environmental quality. 
The set of measures in Attachment A of the agreement is provided as a 
starting point for discussion. As implementation of the agreement gets 
underway, EPA and the states, working with stakeholders, will further 
develop the set of performance measures that will be used for 
evaluating success.
Specific Comment
    Comment: A commenter said that the provisions under the Measuring/
Verifying Results principle do not require measurement and monitoring.
    Response: EPA and the states believe that the intent of this 
language is clear--that innovations must have results that are 
measurable and verifiable.
Legal Status of the Agreement
    Comment: A commenter stated that it is inappropriate for EPA to 
enter into an informal agreement with a non-profit organization (ECOS) 
that would subvert EPA's legal obligations.
    Response: A paragraph has been added to the agreement to clarify 
its legal status. The paragraph says, ``This agreement signals the 
commitment of EPA and state environmental agencies to work together on 
innovations. It does not create any legal obligations for EPA or the 
states, and does not alter EPA's or states' statutory responsibilities 
or the nature of authorized or delegated state programs. Any 
innovations under this agreement will be implemented within our 
existing legal authorities using appropriate procedures.''

    Dated: April 29, 1998.
J. Charles Fox,
Associate Administrator, Office of Reinvention.
[FR Doc. 98-11799 Filed 5-4-98; 8:45 am]
BILLING CODE 6560-50-P