[Federal Register Volume 69, Number 60 (Monday, March 29, 2004)]
[Rules and Regulations]
[Pages 16392-16399]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-6934]



[[Page 16391]]

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Part V





Department of Agriculture





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Commodity Credit Corporation



National Resources Conservation Service



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7 CFR Part 1466



Conservation Innovation Grants; Interim Final Rule and Notice

  Federal Register / Vol. 69, No. 60 / Monday, March 29, 2004 / Rules 
and Regulations  

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DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

7 CFR Part 1466


Conservation Innovation Grants

AGENCY: Natural Resources Conservation Service and Commodity Credit 
Corporation, USDA.

ACTION: Interim final rule with request for comments.

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SUMMARY: This interim final rule amends the Environmental Quality 
Incentives Program (EQIP) final rule, published in the Federal Register 
on May 30, 2003, to describe how the Natural Resources Conservation 
Service (NRCS) intends to implement Conservation Innovation Grants 
(CIG) for eligible governmental or non-governmental organizations or 
individuals on a competitive basis as authorized by the Farm Security 
and Rural Investment Act of 2002. CIG will be available to applicants 
who submit proposals for projects that involve EQIP-eligible farmers 
and ranchers. This interim final rule also solicits public comments for 
consideration in developing a final rule.

DATES: Effective date: March 29, 2004. Comments must be received by May 
28, 2004.

ADDRESSES: NRCS invites interested persons to submit comments on this 
interim final rule. Comments may be submitted by any of the following 
methods:
     Mail: Send comments to: Carl Lucero, Natural 
Resources Conservation Service, 5601 Sunnyside Avenue, Mail Stop 5473, 
Beltsville, MD 20705.
     E-Mail: Send comments to [email protected].
     Fax: Submit comments by facsimile transmission 
to: (301) 504-2264.
     Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the online instructions for submitting 
comments.
    You may access this interim final rule via the Internet through the 
NRCS home page at http://www.nrcs.gov. Select ``Farm Bill.''

FOR FURTHER INFORMATION CONTACT: Carl Lucero, Natural Resources 
Conservation Service, 5601 Sunnyside Avenue, Mail Stop 5473, 
Beltsville, MD 20705. Phone: (301) 504-2222; facsimile: (301) 504-2264. 
Send e-mail to: [email protected]. Persons with disabilities who require 
alternative means for communication (Braille, large print, audio tape, 
etc.) should contact the USDA TARGET Center at (202) 720-2600.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    The CIG program was authorized as part of EQIP, with an unspecified 
annual funding level from FY2003 through FY2007. This interim final 
rule has been reviewed under USDA procedures and Executive Order 12866 
on Regulatory Planning and Review. The Office of Management and Budget 
(OMB) has determined that this interim final rule is not a significant 
rule making action. Therefore, completion of a benefit-cost assessment 
of potential impacts is not necessary. An economic evaluation was 
completed, however, because of the aid that such an evaluation provides 
to the rulemaking process. A copy of this document is available upon 
request from: Carl Lucero, Natural Resources Conservation Service, 5601 
Sunnyside Avenue, Mail Stop 5473, Beltsville, MD 20705. Phone: (301) 
504-2222; facsimile: (301) 504-2264; or on the Internet at http://www.nrcs.usda.gov/programs/cig.

Regulatory Flexibility Act

    The Regulatory Flexibility Act is not applicable to this rule 
because NRCS is not required by 5 U.S.C. 533, or any other provision of 
law, to publish a notice of proposed rulemaking with respect to the 
subject matter of this rule. The 2002 Farm Bill states that a 
regulation may be promulgated as an interim final rule effective on 
publication with an opportunity for notice and comment if determined to 
be appropriate by the Secretary of Agriculture or the Commodity Credit 
Corporation. Since its inclusion as a discretionary provision under 
EQIP in the 2002 Farm Bill, CIG has generated a great deal of interest 
from both the agricultural and environmental communities. 
Implementation of CIG was delayed, however, while regulations for 
mandatory NRCS conservation programs were promulgated. With funds 
available for CIG in FY 2004, a determination was made to issue this 
interim final rule with request for public comments in order to 
implement CIG without further delay. The public comments, together with 
the experience gained from implementing CIG in this fiscal year, will 
be considered during the drafting of the final rule, which NRCS intends 
to issue prior to publication of a CIG request for proposals in FY 
2005.

Environmental Evaluation

    Promulgation of this rule does not authorize any activities that 
will affect the human environment. This rule establishes the policies 
and procedures that will be used to award Conservation Innovation 
Grants. The grants awarded under this regulation are for innovative 
projects; therefore, NRCS has a limited ability to predict the types of 
actions that may be carried out during a CIG project. Any attempt to 
analyze the effects of proposed actions would be speculative. 
Accordingly, neither an Environmental Assessment (EA) nor an 
Environmental Impact Statement (EIS) has been prepared at this time. 
Instead, the environmental effects of each CIG proposal will be 
evaluated on a case-by-case. As a part of the evaluation, CIG 
applicants are required to submit an environmental profile as part of 
their application. These profiles will be used to determine whether an 
EA or EIS is needed for any given project, prior to the awarding of 
grant funds.

Paperwork Reduction Act

    Section 2702(b)(1)(A) of the 2002 Act provides that the 
promulgation of regulations and the administration of title II of the 
Act shall be made without regard to chapter 35 of title 44 of the 
United States Code, the Paperwork Reduction Act. Accordingly, these 
regulations and the forms, and other information collection activities 
needed to administer the program authorized by these regulations, are 
not subject to provisions of the Paperwork Reduction Act, including 
review by the Office of Management and Budget.

Government Paperwork Elimination Act

    NRCS is committed to compliance with the Government Paperwork 
Elimination Act (GPEA) and with the Freedom to E-File Act, which 
require Government agencies in general and NRCS in particular to 
provide the public the option of submitting information or transacting 
business electronically to the maximum extent possible.

Executive Order 12998

    This interim final rule has been reviewed in accordance with 
Executive Order 12988, Civil Justice Reform. The provisions of this 
interim final rule are not retroactive. The provisions of this interim 
final rule preempt State and local laws to the extent that such laws 
are inconsistent with this interim final rule. Before an action may be 
brought in a Federal court of competent jurisdiction, the 
administrative appeal rights afforded persons at 7 CFR parts 614, 780, 
and 11 must be exhausted.

Federal Crop Insurance Reform and Department of Agriculture 
Reorganization Act of 1994

    Pursuant to Section 304 of the Federal Crop Insurance Reform and 
Department

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of Agriculture Reorganization Act of 1994 (Pub. L. 104-354), NRCS did 
not classify this interim final rule as major and, therefore, NRCS did 
not conduct a risk analysis. A risk analysis was completed on the EQIP 
program, establishing that EQIP will produce benefits and reduce risks 
to human health, human safety, and the environment in a cost-effective 
manner. A copy of the EQIP risk analysis is available on request from 
Jose Acevedo, Deputy Chief for Programs, Natural Resources Conservation 
Service, 14th and Independence Ave., SW., Room 5109-S, Washington, DC 
20250, and electronically at http://www.nrcs.usda.gov/programs/Env_Assess/EQIP/EQIP_RA_121002.pdf.

Unfunded Mandates Reform Act of 1995

    NRCS assessed the effects of this rulemaking action on local, 
State, and Tribal governments, and the public. This action does not 
compel the expenditure of $100 million or more by any local, State, or 
tribal governments, or anyone in the private sector; therefore, a 
statement under section 202 of the Unfunded Mandates Reform Act of 1995 
is not required.

Summary of Conservation Innovation Grants

    Of the nearly 1.4 billion acres of private land in the United 
States, 931 million acres, or roughly 70 percent, are in agricultural 
use. The activities on these lands have a direct effect on soil, water, 
air, plant, and animal resources, as well as the social, cultural, and 
economic condition of U.S. communities, towns, and counties. Regional 
and local differences in farm structure, farm practices, and farm 
products make delivering innovative agricultural conservation technical 
assistance a challenge. National agricultural research and development 
may not always have the capacity to develop, test, and transfer new or 
innovative conservation technologies and approaches rapidly or 
effectively to account for regional variances in the agricultural 
industry. Consequently, there is a need to expediently develop, test, 
implement, and transfer innovative farm and ranch conservation 
technologies and approaches for adoption in the largest applicable 
market available.
    To address this need, Section 1240H of the Food Security Act of 
1985 was added by section 2301 of the Farm Security and Rural 
Investment Act of 2002 (Pub. L. 107-171), and established CIG as part 
of the Environmental Quality Incentives Program (EQIP) [16 U.S.C. 
3839aa-8]. Through CIG, the Secretary of Agriculture may pay the costs 
of competitive grants to carry out projects that stimulate innovative 
approaches to leveraging the Federal investment in environmental 
enhancement and protection in conjunction with agricultural production. 
The Secretary of Agriculture delegated the authority for the 
administration of EQIP, including CIG, to the Chief of NRCS, who is a 
vice president of the Commodity Credit Corporation (CCC). EQIP is 
administered under the authorities of the CCC.
    The Chief may designate an amount of funds available for CIG. NRCS 
is proposing to award these funds on a competitive basis through a two-
tiered process. A nationwide grants competition will be announced in 
the Federal Register through a Request for Proposals (RFP). In 
addition, the Chief may provide each State Conservationist with the 
discretion to implement a separate State-level component of CIG. 
Funding availability for these distinct State-level competitions will 
be announced through public notices, separately from the national 
program.
    CIG funds for the national component will be designated from the 
national EQIP allocation. Applications will be requested from eligible 
governmental or non-governmental organizations or individuals for 
competitive consideration of grant awards for single or multi-year 
projects.
    Selection will be based on the proposal evaluation criteria 
published in the RFP. Selected applicants may receive grants of up to 
50 percent of the total project cost. Applicants must provide non-
Federal funding for at least 50 percent of the project cost, of which 
up to one-half (25 percent of total project cost) may be from in-kind 
contributions. An exception allows grantees who are either a Beginning 
or Limited Resource Farmer or Rancher, or Indian Tribe, or a community-
based organization comprised of or representing these entities, to 
derive up to 75 percent of their matching funds from in-kind 
contributions.

Summary of Provisions and Request for Comments

    The following discussion summarizes the provisions in each 
paragraph of the interim final rule, explains the alternatives that 
NRCS considered, describes NRCS's preferred approach, and requests 
public comment on specific issues. In addition, NRCS welcomes comments 
on all aspects of this interim final rule and the following broad 
issues:
     What type of innovative approaches and 
technologies should CIG address?
     What should the geographic scope be for 
innovative approaches and technologies addressed through CIG?
     What level of funding is appropriate to meet the 
objectives of CIG?
     Should NRCS provide special consideration for 
under-represented individuals or entities through CIG?
     Should CIG be driven by natural resource 
conservation concerns?
     What natural resource conservation concerns 
should CIG address, both initially and in future years?
     What criteria should be used to evaluate CIG 
proposals?
    (a) Definitions. This paragraph sets forth definitions for terms 
used throughout the CIG interim final rule that are additions to the 
EQIP rule. Most definitions are derived from the statute, NRCS 
technical guidance documents, or regulations for other programs 
administered by NRCS.
    (b) Purpose and Scope.
    (1) Purpose. This paragraph states the purpose of CIG.
    (2) Geographic scope. Listed in this paragraph are the locations 
from which NRCS will accept applications for CIG.
    (3) Program Scope. NRCS welcomes comments on the scope and program 
design of CIG. NRCS determined that CIG will be implemented using a 
two-tiered approach. A nationwide grants competition will be announced 
in the Federal Register. The national grants competition will emphasize 
projects that have a goal of providing benefits over a large geographic 
area. These projects may be watershed-based, regional, multi-State, or 
nationwide in scope.
    In addition, the Chief may provide each State Conservationist with 
the discretion to implement a separate State component of CIG. The 
Chief may decide, in any given year, to implement the national 
component only. The size of the EQIP application backlog and State 
staff workload are two examples of factors that may influence the 
Chief's decision.
    (4) Program Focus. Applications for CIG should demonstrate the use 
of innovative approaches to leverage Federal investment in 
environmental enhancement and protection, in conjunction with 
agricultural production. NRCS deliberated on two critical issues 
related to this statutory charge and program implementation. NRCS 
welcomes comments on both issues.
    First, NRCS considered what types of projects should be allowed 
under CIG. The statute provides the examples of ``market systems for 
pollution

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reduction'' and ``innovative conservation practices, including the 
storing of carbon in the soil.'' Further, the Conference Report for 
Public Law 107-171 encourages awarding CIG grants ``* * * for practices 
that foster markets for nutrient trading and for the continued 
implementation and acceleration of programs for demonstrating 
innovative nutrient management technology systems for animal feeding 
operations'' (House Report 107-424, page 496). Thus, NRCS has 
interpreted the statute as allowing two broad types of projects to be 
funded under CIG--approaches and technologies (either individually or 
used in combination). Following are two general examples of projects 
that would be eligible for funding under CIG. These examples do not 
represent any bias on the part of NRCS in soliciting for, or making 
awards to, any particular type of project:
     Market-based environmental credit trading 
projects addressing one or more natural resource concern; and,
     Community-based solutions to watershed-based or 
regional natural resource concerns that cannot be addressed by a single 
producer, or by a group of producers taking individual on-farm actions.
    Second, it was determined that CIG is not a research program. 
Instead, it is a vehicle to stimulate the adoption of conservation 
approaches or technologies that have been studied sufficiently to 
indicate a likelihood of success and to be candidates for eventual 
technology transfer. The statute indicates that the innovative 
approaches funded under CIG should be developed in conjunction with 
agricultural production. Thus, CIG will fund projects targeting 
innovative on-the-ground conservation, including pilot projects and 
field demonstrations. NRCS recognizes, however, that by targeting on-
the-ground conservation, there is a risk of attracting applications for 
projects that are not truly innovative or that qualify for funding 
through EQIP. Therefore, technologies and approaches that are eligible 
for funding in the project geographic area through EQIP are ineligible 
for CIG funding. Applicants should reference each State's EQIP Eligible 
Practices List by contacting the NRCS State office, or by visiting the 
EQIP web site: http://www.nrcs.usda.gov/programs/eqip/EQIP_signup/2004_EQIP/2004_EQIP.html.
    NRCS believes that the prospect for transfer of approaches or 
technologies developed under the program is a critical component of any 
CIG project; its importance is reflected in the proposal evaluation 
criteria described in paragraph (g) of this preamble. NRCS anticipates 
that, when appropriate, innovative approaches or technologies validated 
through the use of CIG funds will be incorporated into NRCS 
conservation practice standards, technical notes, field handbooks, or 
other references.
    (5) Innovative Conservation Projects and Activities. NRCS developed 
the description of innovative conservation projects and activities for 
use in CIG. Proposed CIG projects must adhere to this description, as 
it is a critical component of the proposal evaluation criteria. NRCS 
welcomes comments on this description.
    (c) Availability of Funding.
    (1) CIG funding will be available for single- or multi-year 
projects. Availability of CIG funds will be announced through a RFP. 
The CIG statute provides no guidance as to the level of funding that 
should be provided. NRCS has deliberated on the issue of setting the 
funding levels for CIG. NRCS considered three options:
     Have the Chief determine funding for CIG 
annually;
     Establish a permanent percentage of the total 
EQIP funding that would be made available for grants at the National or 
State level; and,
     Establish a minimum threshold for CIG funding 
(minimum for CIG to be a viable program).
    The first option (Chief determination) was chosen. A number of 
factors may influence the annual funding level of CIG. For example, in 
Fiscal Year 2003, CIG was not implemented because of the late passage 
of appropriations, an existing backlog in applications to the EQIP 
program, and the statutory direction to use EQIP dollars to fund the 
technical assistance for certain other Farm Bill conservation programs. 
Similar factors may influence CIG in any given future year. Determining 
the CIG funding level annually provides the Chief with maximum 
flexibility to adjust to changing levels of available funds and program 
conditions. Funds for CIG are designated by the Chief from funds made 
available for EQIP.
    NRCS welcomes comments on the issue of funding levels for CIG.
    NRCS is proposing to establish funding limits and ranges for CIG 
projects, to be published in the RFP. The Chief may revisit these 
funding limits and ranges and adjust them annually. A maximum funding 
limit for individual projects would ensure that a greater number of 
projects receive funding. Establishing anticipated funding ranges would 
provide potential applicants with reasonable funding expectations. NRCS 
is proposing to establish a maximum funding limit of $1 million per 
project for the national component. The anticipated range for most 
national awards is $75,000 to $500,000.
    (2) According to the statute, the cost-share rate for CIG shall not 
exceed 50 percent of the cost of the proposed project. Based on an 
informal survey of comparable federal grant programs, NRCS decided that 
in-kind contributions should be allowed to comprise a portion of the 
applicant's matching funds. Up to 50 percent of the applicant's match 
(up to 25 percent of the total project cost) may derive from in-kind 
contributions. NRCS established an exception regarding matching funds 
for grants that are awarded to either a Beginning or Limited Resource 
Farmer or Rancher, or Indian tribe, or a community-based organization 
comprised of or representing these entities. Up to 75 percent of the 
required matching funds for such projects may derive from in-kind 
contributions. This exception is intended to help these under-
represented groups meet the CIG statutory requirement of a minimum 50 
percent non-federal contribution. NRCS welcomes comments on this 
exception.
    (3) This paragraph describes the technical assistance and oversight 
responsibilities of NRCS and the grantee. While the grantee is 
responsible for the technical assistance for CIG projects, NRCS retains 
responsibility for technical oversight of grant projects, and will 
designate a Federal Grant Representative for each grant award. This 
NRCS employee will provide technical oversight to grantees. Technical 
oversight may include review of project designs or approaches, 
technical review, and on-site visits.
    (4) This paragraph describes CIG funding restrictions. NRCS 
established funding restrictions to ensure that CIG funds are used 
solely to advance program objectives. A detailed list of unallowable 
costs will be published in the RFP. NRCS welcomes comments on this 
issue.
    (d) Natural Resource Conservation Concerns.
    NRCS determined that grants should be awarded based on a set of 
natural resource conservation concerns. These natural resource concerns 
will be identified in the RFP that solicits grant applications, and 
applicants will be evaluated on how well their proposed projects 
address one or more of the concerns. The other alternative considered 
by NRCS was to solicit for grant applications based on specific 
technologies or approaches (e.g., market-based approaches, animal waste 
management technologies). This option

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was rejected for two primary reasons: (1) Soliciting for specific 
technologies or approaches would not provide enough flexibility to 
applicants, and would likely result in certain technologies or 
approaches being overlooked; and (2) soliciting through natural 
resource concerns is consistent with the approach used for EQIP, under 
which CIG was authorized. It is USDA's intention to provide flexibility 
to applicants in order to obtain the greatest degree of creativity and 
innovation possible in addressing natural resource concerns, consistent 
with the overall program objective. NRCS welcomes comments on this 
approach of using natural resource concerns to drive the CIG program.
    NRCS considered using EQIP national priorities to guide CIG (EQIP 
national priorities are listed in the EQIP rule, 7 CFR part 1466). 
Instead, NRCS designed a protocol for soliciting input on natural 
resource concerns. State Conservationists were asked to identify the 
top three natural resource concerns in their States. Briefings also 
were held in Washington, DC with other Federal agencies, conservation 
organizations, environmental stakeholder groups, and agricultural 
stakeholder groups. Each group was asked to submit its top three 
natural resource conservation concerns. This input from States, Federal 
agencies, and stakeholder groups was compiled and analyzed to identify 
the natural resource concerns that should appear in the CIG RFP. NRCS 
anticipates using this protocol, or a similar protocol, to identify 
natural resource concerns each year before developing the RFP. NRCS 
welcomes comments on this solicitation protocol.
    NRCS considered whether the concerns should be narrowly drawn into 
priorities or described more broadly. It was decided that the 
descriptions of the concerns in the RFP initially should be broad and 
inclusive, with potential for prioritizing a narrower set of natural 
resource concerns in future years. NRCS decided to group the natural 
resource concerns under five topic headings, with subtopics that 
provide more detailed guidance to applicants.
    Following are the five initial natural resource conservation 
concerns for CIG. The natural resource concerns may be reviewed and 
updated each year to ensure that CIG continues to address critical 
resource conservation needs. NRCS intends to receive input from State 
Conservationists, the Agricultural Research Service, the Cooperative 
State Research, Extension, and Education Service, and other federal 
agencies when reviewing and updating the natural resource concerns. 
NRCS welcomes comments on these natural resource concerns.
    (1) Water Resources. The objective of this natural resource concern 
is to implement new technologies and approaches to maintain, restore, 
or enhance water quality or quantity in watersheds with predominantly 
agricultural land uses while sustaining productivity. Subtopics 
include:
    (i) Nutrient, pesticide, and pathogen transport to surface water 
and groundwater;
    (ii) Sediment transport to surface water;
    (iii) Irrigation management for water conservation;
    (iv) Aquifer recharge/maintenance of groundwater supplies; and
    (v) Increased water supplies/availability through alternative 
treatment or reuse strategies.
    (2) Soil Resources. The objective of this natural resource concern 
is to implement new technologies or approaches to maintain, restore, or 
enhance soil resources associated with agricultural and forest land 
uses while sustaining productivity. Subtopics include:
    (i) Erosion reduction;
    (ii) Accumulation of harmful constituents in soils, including 
nutrients, metals, salts; and
    (iii) Overall soil quality and productivity.
    (3) Atmospheric Resources. The objective of this natural resource 
concern is to implement new technologies or approaches to maintain, 
restore, or enhance air quality and atmospheric resources through 
agricultural and forest practices while sustaining productivity. 
Subtopics include:
    (i) Agricultural emissions of particulates, odors, volatile organic 
compounds, and greenhouse gases;
    (ii) Carbon sequestration in soil and through other mechanisms; and
    (iii) Bio-based energy opportunities.
    (4) Grazing Land and Forest Health. The objective of this natural 
resource concern is to implement new technologies or approaches to 
maintain, restore, or enhance grazing land and forest health while 
sustaining productivity. Subtopics include:
    (i) Invasive species management on grazing and forest land;
    (ii) Effects of pests, diseases, and fragmentation on forest and 
grazing land quality/health; and
    (iii) Systems or practices to minimize overgrazing and restore 
lands suffering effects of overgrazing.
    (5) Wildlife Habitat. The objective of this natural resource 
concern is to implement new technologies or approaches for 
environmentally sound wildlife habitat management while sustaining 
agricultural productivity. Subtopics include:
    (i) Riparian area management and restoration;
    (ii) Invasive species management;
    (iii) Biodiversity; and
    (iv) Wetland function and health.
    (e) Eligibility Information.
    (1) Organization or Individual Eligibility. This paragraph 
describes the requirements for CIG eligibility. The CIG provision of 
the EQIP statute authorizes the Secretary to provide grants to 
governmental and nongovernmental organizations and persons, on a 
competitive basis, to carry out projects that involve producers that 
are eligible for payments or technical assistance under EQIP. NRCS has 
determined that the CIG statutory language warrants the exclusion of 
Federal agencies as grant recipients. This is because the statutory 
language calls for leveraging of the Federal investment, requiring that 
matching funds come from non-Federal sources. Note that while Federal 
agencies may not be a grant recipient, they are not barred from 
participating in a CIG project as a partner or cooperator, as long as 
their contribution is not counted as part of the CIG non-Federal match 
requirement.
    USDA wishes to inform potential applicants about the applicability 
of EQIP payment limitations to CIG grant funds. Section 1240G of the 
Food Security Act of 1985 (as amended by the Farm Security and Rural 
Investment Act of 2002), 16 U.S.C. 3839aa-7, imposes a $450,000 
limitation for all cost-share or incentive payments disbursed to 
individuals or entities under an EQIP contract between 2002 and 2007. 
Because CIG is a provision under EQIP, NRCS deliberated on whether the 
payment limitation also applies to CIG. NRCS determined that the 
limitation applies in the following manner:
     CIG funds are awarded through grant agreements 
and it was determined that these grant agreements are not EQIP 
contracts; thus, CIG awards are not limited by the payment limitation; 
and,
     Grant funds that are provided to a producer or 
entity to carry out structural, vegetative, or management practices 
count toward each producer's or entity's EQIP payment limitation. The 
procedures and policies of this part will be followed to implement this 
payment limitation for CIG. NRCS will work with CIG grantees to ensure 
that the payment limitation is followed for all CIG projects.
    Following are three examples of how the $450,000 EQIP payment 
limitation applies to CIG projects:

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     A $500,000 CIG grant is awarded to a State 
environmental agency to demonstrate an innovative, market-based, water 
quality trading program. The money is used to finance the development 
of the market infrastructure, and none of the funds are used to 
implement structural, vegetative, or management practices. Producers in 
the trading market demonstration area may indirectly benefit from their 
eventual participation in the market, but there is no direct or 
indirect transfer of CIG dollars. If, on the other hand, part of the 
CIG award were used to provide funds to producers who implement a 
conservation practice on their land as part of a trading program, those 
funds would count towards each producer's $450,000 EQIP payment 
limitation.
     A $1,000,000 CIG grant is awarded to a 
Conservation District to pilot a community-based animal waste treatment 
technology innovation. EQIP-eligible producers in the area transport 
their animal waste to a central treatment location. Because producers 
are not directly or indirectly receiving CIG funds, the payment 
limitation does not apply. If, however, the technology were to be 
installed on five producers' property for demonstration purposes, the 
CIG funds would count toward each producer's $450,000 EQIP payment 
limitation. Similarly, if the producers were paid for their waste, or 
for transporting their waste to the central treatment location, out of 
CIG funds, the payments would be subject to each producer's EQIP 
payment limitation.
     An individual producer applying for a $500,000 
CIG grant already has an EQIP contract for $100,000. The producer is 
awarded a grant to implement an innovative management practice, but the 
amount would be reduced to $350,000 in order to comply with the EQIP 
payment limitation.
    (2) Project Eligibility. The CIG statute mandates that projects 
involve producers eligible for payments or technical assistance under 
EQIP. While the statute does not elaborate on the nature or extent of 
EQIP eligible producer involvement, NRCS has determined that because 
CIG was authorized under EQIP, projects must substantially involve and 
benefit EQIP eligible producers. Applicants must describe how the 
proposed project will substantially involve and benefit EQIP eligible 
producers. Further, NRCS has determined that all producers involved in 
a CIG project must be EQIP eligible. This determination was based on 
the fact that CIG is a component of EQIP. To be EQIP eligible, an 
individual must meet the eligibility requirements of Sec.  
1466.8(b)(1)-(3) of the EQIP rule (7 CFR 1466). Producers participating 
in a CIG project are not required to have an EQIP contract. NRCS 
welcomes comments on these determinations.
    (3) Beginning and Limited Resource Farmers and Ranchers, and Indian 
Tribes. NRCS recognizes the need to provide special consideration to 
underrepresented or historically underserved producers or groups of 
producers. This interim final rule includes two programmatic exceptions 
for Beginning and Limited Resource Farmers and Ranchers, and Indian 
Tribes. These exceptions are designed to encourage the participation of 
Limited Resource and Beginning Farmers and Ranchers, and Indian Tribes 
in CIG.
    The first exception regarding matching funds and in-kind 
contributions is described in section (c) of this notice and applies to 
both the national and the State component of CIG. The second exception 
applies to the national component only. Two options were considered for 
this exception: (1) Set-aside up to 10 percent of the total funds 
available for CIG for applicants who are Beginning or Limited Resource 
Farmers or Ranchers, or Indian Tribes, or community-based organizations 
comprised of or representing these entities. Funds not used in the set-
aside pool would revert back into the general CIG funding pool; and, 
(2) include special consideration for these under-represented groups in 
the proposal evaluation criteria. NRCS chose the first option. A set-
aside sends a clear, explicit signal that NRCS supports the equitable 
distribution of grants. Moreover, a set-aside provides strong incentive 
for the inclusion of under-represented groups in CIG projects.
    NRCS welcomes comments on the special consideration provided to 
Beginning and Limited Resource Farmers and Ranchers, and Indian Tribes.
    (f) Application and Submission Information. This paragraph 
describes the application and submission procedures for CIG. Detailed 
instructions will be published in the RFP.
    NRCS will accept only paper application submissions for CIG until 
such time that NRCS elects to receive grant applications electronically 
through the Federal e-grants portal, grants.gov. When this internet 
portal becomes operational for CIG, information on submitting grant 
applications electronically will be provided in the RFP. This is 
consistent with the Grants.gov Initiative of the President's Management 
Agenda.
    (g) Application Review and Grant Awards. This paragraph describes 
the application review and grant award process for CIG. The statute 
explicitly states that CIG is a competitive grants program. NRCS 
analyzed comparable Federal grants programs to help identify an 
effective and objective process for awarding grants. The proposal 
review and award process for CIG consists of three steps:
     Peer Review Panels--groups of Federal and non-
Federal subject matter experts will evaluate proposals against the 
evaluation criteria described below. Proposals will be ranked and 
forwarded to a Grant Review Board.
     Grant Review Board--a five-member NRCS board 
consisting of the Deputy Chief for Programs, Deputy Chief for Science 
and Technology, Deputy Chief for Soil Survey and Resource Assessment, 
one Regional Assistant Chief, and one State Conservationist. The Grant 
Review Board will certify the rankings from the peer review panels, and 
ensure that the proposal evaluations are consistent with program 
objectives. The Board then makes recommendations for awards to the 
Chief.
     Chief--Final award selections will be made by 
the Chief.
    NRCS welcomes comments on this proposal review and award process.
    NRCS has developed proposal evaluation criteria for use by CIG peer 
review panels. Applications will be evaluated and ranked according to 
how well they adhere to the following four evaluation criteria:
    (1) Purpose and goals.
    (i) The purpose and goals of the project are clearly stated;
    (ii) The project adheres to the CIG natural resource conservation 
concerns identified in the RFP; and,
    (iii) There is clear and significant potential for a positive and 
measurable outcome.
    (2) Soundness of approach or design.
    (i) The project adheres to the description of innovative projects 
or activities found in paragraph (b)(5) of this section;
    (ii) Technical design and implementation strategy are based on 
sound science;
    (iii) There is a strong likelihood of project success;
    (iv) The project involves EQIP eligible producers in a substantive 
way; and,
    (v) The project promotes environmental enhancement and protection 
in conjunction with agricultural production.
    (3) Project management.
    (i) The proposal has clear milestones and timelines, designated 
staff as

[[Page 16397]]

applicable, and demonstrates collaboration;
    (ii) The project staff has the technical expertise needed to do the 
work;
    (iii) The budget is reasonable and adequately justified; and,
    (iv) The project leverages non-federal matching funds of at least 
50 percent of the total project cost, of which up to one-half (25 
percent of total project cost) may be in-kind contributions (except in 
the case of Beginning and Limited Resource Farmers and Ranchers, and 
Indian Tribes).
    (4) Transferability.
    (i) There is strong potential to transfer the approach or 
technology to others or to other geographical areas; and,
    (ii) The project will result in the development of technical or 
related materials(e.g., technical standards, technical notes, manuals, 
handbooks, software, etc.) that will help foster adoption of the 
innovative technology or approach by other producers, and in other 
geographic areas.
    Each of the four criterion carries an equal weight of 25 percent. 
In addition, NRCS considered increasing the score of projects that:
     Have a broader geographic scope;
     Address more than one natural resource concern;
     Include larger numbers of partners; or,
     Provide more than a 50 percent funding match, 
further leveraging Federal funds.
    NRCS rejected the first three additional criteria because the 
quality of a project may not necessarily be improved by meeting one or 
more of these criteria. For example, applicants should not be 
encouraged to recruit extraneous project partners for the sole purpose 
of trying to improve a proposal's evaluation. Likewise, a high-quality 
proposal should not be penalized because it is focused on only a single 
watershed. NRCS rejected the fourth additional criterion because it 
would run counter to our effort to promote an equitable distribution of 
grant awards. NRCS welcomes comments on these issues.
    (h) State Component. This paragraph describes the CIG State 
component. In addition to the national component, the Chief may provide 
discretion to each State Conservationist to implement a State component 
of CIG. For the most part, the State component will use the 
requirements and procedures established for the national component, 
except as noted in this paragraph. Funding availability and detailed 
application and submission information for these distinct State-level 
competitions will be announced through public notices, separately from 
the national program. The intent of the State component is to provide 
flexibility to State Conservationists to target CIG funds to individual 
producers and smaller organizations that may possess promising 
innovations, but could not compete well on the larger scale of the 
national grants competition. The State component will emphasize 
projects that have a goal of providing benefits within a limited 
geographic area. Projects may be farm-based, multi-county, small 
watershed, or State-wide in scope. For the purposes of soliciting 
applications, the State Conservationist may choose to adhere to the CIG 
national natural resource concerns, or may select a subset of those 
concerns that more closely match the natural resource concerns in his 
or her State.
    For the State component, grant awards must be less than $75,000. 
This limit is established to allow for streamlining of grants 
administration. It is anticipated that the range of funding for the 
State component will be between $5,000 and $50,000, largely because of 
the difficulty that producers and smaller organizations, who are most 
likely to apply for a State-level grant, may have in providing the 50 
percent cost-share match.
    Members of the State Technical Committee (or a subcommittee 
thereof) in each participating State will evaluate the proposals based 
on the Criteria for Proposal Evaluation identified in section g of this 
preamble. Proposal rankings will be forwarded to the State 
Conservationist, who will make the final award decisions.
    In addition to abiding by the in-kind contribution exception for 
Limited Resource and Beginning Farmers and Ranchers, and Indian Tribes, 
the State Conservationist in each participating State will determine if 
and how to provide additional special consideration to these 
underserved groups.
    NRCS intends to limit the opportunity for duplication of efforts 
between State competitions, or between the State and the national 
components. To do this, prior to making the final award decisions the 
State Conservationist in each participating State will submit a project 
description of the intended awards to the NRCS National Office for 
review. If this national review identifies a potential for a 
duplication of efforts, the respective State Conservationist will be 
informed.
    NRCS welcomes comments on the design of the CIG State component.
    (i) Grant Agreement. This paragraph describes the legal instrument 
that reflects the relationship between NRCS and the CIG grantee.
    (j) Patents and Inventions. This paragraph describes the allocation 
of rights to any patents and inventions developed using CIG funds.
    (k) Violations. This paragraph describes the result when a CIG 
grantee violates the terms of the grant agreement. For this paragraph, 
CIG follows the provisions contained in 7 CFR 3015 and related 
Departmental regulations.

List of Subjects in 7 CFR Part 1466

    Conservation, Grant Review Board, Grants, Innovation, Natural 
Resources, Peer Review Panel.

0
For the reasons stated in the preamble, the Commodity Credit 
Corporation amends part 1466 as set forth below:

PART 1466--ENVIRONMENTAL QUALITY INCENTIVES PROGRAM

0
1. The authority citation for Part 1466 continues to read as follows:

    Authority: 15 U.S.C. 714b and 714c; 16 U.S.C. 3839aa-3839aa-8.


0
2. A new Sec.  1466.27 is added to read as follows:


Sec.  1466.27  Conservation Innovation Grants (CIG).

    (a) Definitions. In addition to the terms defined in Sec.  1466.3 
of this part, the following definitions shall be applicable to this 
section:
    (1) EQIP eligible means any farming entity, land, and practice that 
meets the definitions of EQIP as defined in 7 CFR 1466.
    (2) Grant agreement means a document describing a relationship 
between NRCS and a State or local government, or other recipient 
whenever the principal purpose of the relationship is the transfer of a 
thing of value to a recipient in order to accomplish a public purpose 
of support or stimulation authorized by Federal law, and substantial 
Federal involvement is not anticipated.
    (3) Grant Review Board consists of the NRCS Deputy Chief for 
Programs, Deputy Chief for Science and Technology, Deputy Chief for 
Soil Survey and Resource Assessment, one Regional Assistant Chief, and 
one State Conservationist. The Review Board makes recommendations for 
grant awards to the Chief.
    (4) Peer Review Panel means a panel consisting of Federal and non-
Federal technical advisors who possess expertise in a discipline or 
disciplines deemed important to provide a technical evaluation of 
project proposals submitted under this notice.

[[Page 16398]]

    (5) Project means the activities as defined within the scope of the 
grant agreement.
    (6) Project Director means the individual responsible for the 
technical direction and management of the project as designated in the 
application.
    (b) Purpose and scope. (1) Purpose. The purpose of CIG is to 
stimulate the development and adoption of innovative conservation 
approaches and technologies while leveraging Federal investment in 
environmental enhancement and protection, in conjunction with 
agricultural production. Notwithstanding any limitation of this part, 
NRCS will administer CIG in accordance with this section. Unless 
otherwise provided for in this section, the provisions of 7 CFR 3015 
and related Departmental regulations will be used to administer grants 
under CIG.
    (2) Geographic scope. Applications for CIG are accepted from the 
fifty States, the District of Columbia, the Commonwealth of Puerto 
Rico, Guam, the Virgin Islands of the United States, American Samoa, 
and the Commonwealth of the Northern Mariana Islands.
    (3) Program scope. Grants will be awarded using a two-tiered 
process. A nationwide grants competition will be announced in the 
Federal Register. In addition, at the Chief's discretion, each State 
Conservationist may implement a separate State-level component of CIG.
    (4) Program focus. Applications for CIG should demonstrate the use 
of innovative approaches to leverage Federal investment in 
environmental enhancement and protection, in conjunction with 
agricultural production. CIG will fund projects that promote innovative 
on-the-ground conservation, including pilot projects and field 
demonstrations of promising approaches or technologies. CIG projects 
are expected to lead to the transfer of conservation technologies, 
management systems, and innovative approaches (such as market-based 
systems) into NRCS technical manuals and guides, or to the private 
sector. Technologies and approaches that are eligible for funding in 
the project's geographic area through EQIP are not eligible for CIG 
funding.
    (5) Innovative conservation projects or activities. For the 
purposes of CIG, the proposed innovative project or activity must 
encompass the development and field testing, evaluation, and 
implementation of:
    (i) Conservation adoption incentive systems, including market-based 
systems; or,
    (ii) Promising conservation technologies, practices, systems, 
procedures, and approaches.
    To be given priority consideration, the innovative project or 
activity:
    (iii) Will have been studied sufficiently to indicate a good 
probability for success;
    (iv) Demonstrates, tests, evaluates, or verifies environmental 
(soil, water, air, plants, and animal) effectiveness, utility, 
affordability, and usability in the field;
    (v) Adapts conservation technologies, practices, systems, 
procedures, approaches, and incentive systems to improve performance, 
and encourage adoption;
    (vi) Introduces conservation systems, approaches, and procedures 
from another geographic area or agricultural sector; and
    (vii) Adapts conservation technology, management, or incentive 
systems to improve performance.
    (c) Availability of funding. (1) CIG funding will be available for 
single-or multi-year projects. Funding for CIG will be announced in the 
Federal Register through a Request for Proposals (RFP). The Chief will 
determine the funding level for CIG on an annual basis. Funds for CIG 
are derived from funds made available for EQIP. The Chief may establish 
funding limits for individual grants.
    (2) Selected applicants may receive grants of up to 50 percent of 
the total project cost. Applicants must provide non-Federal funding for 
at least 50 percent of the project cost, of which up to one-half (25 
percent of total project cost) may be from in-kind contributions. An 
exception regarding matching funds may be made for grants that are 
awarded to either a Beginning or Limited Resource Farmer or Rancher, or 
Indian Tribe, or a community-based organization comprised of or 
representing these entities. Up to 75 percent of the required matching 
funds for these projects may derive from in-kind contributions.
    (3) CIG is designed to provide financial assistance to grantees. 
Procurement of any technical assistance required to carry out a project 
is the responsibility of the grantee. Technical oversight for grant 
projects will be provided by a Federal grant representative, who will 
be designated by NRCS.
    (4) There are some costs that grantees may not cover using CIG 
funds, such as costs incurred prior to the effective date of the grant, 
entertainment costs, or renovation or refurbishment of buildings or 
facilities. A detailed list of costs not allowed will be published in 
the RFP.
    (d) Natural resource conservation concerns. CIG applications must 
describe the use of innovative approaches or technologies to address a 
natural resource conservation concern or concerns. The natural resource 
concerns for CIG will be identified by the Chief, and may change each 
year. The natural resource concerns will be published in the RFP.
    (e) Eligibility information. (1) Organization or individual 
eligibility. To be eligible, CIG applicants must be an Indian Tribe; 
State or local unit of government; non-governmental organization; or 
individual.
    (2) Project eligibility. To be eligible, projects must involve 
landowners who meet the eligibility requirements of Sec.  1466.8(b)(1) 
through (3) of this part. Further, all agricultural producers 
participating in a CIG project must meet those eligibility 
requirements.
    (3) Beginning and Limited Resource Farmers and Ranchers, and Indian 
Tribes. Up to 10 percent of the total funds available for CIG may be 
set-aside for applications from either a Beginning or Limited Resource 
Farmer or Rancher, or Indian Tribe, or a community-based organization 
comprised of or representing these entities. Funds not awarded from the 
set-aside pool will revert back into the general CIG funding pool.
    (f) Application and submission information. The CIG RFP will 
contain guidance on how to apply for the grants competition. CIG will 
be advertised through the Federal Register, the NRCS Web site, and 
grants.gov. Grant applications will be available on the NRCS Web site, 
or by contacting NRCS at the address provided in the RFP. CIG grant 
applications will consist of standard cover sheet and budget forms, in 
addition to a narrative project description and required legal 
declarations and certifications.
    (g) Application review and grant awards. Complete applications will 
be evaluated by a peer review panel and scored based on the Criteria 
for Proposal Evaluation identified in the RFP. Scored applications will 
be forwarded to a Grant Review Board. The Grant Review Board will make 
recommendations for awards to the Chief. Final award selections will be 
made by the Chief. Grant awards will be made by the NRCS National 
Office after selection of the grantees is made and after the grantee 
agrees to the terms and conditions of the NRCS Grant document.
    (h) State component. (1) At the discretion of the Chief, each State 
Conservationist has the option of

[[Page 16399]]

implementing a State-level CIG component. A State program will follow 
the requirements of this section, except for those features described 
in this paragraph (h).
    (2) Funding availability, application, and submission information 
for State competitions will be announced through public notices (and on 
the State NRCS Web site), separately from the national program. The 
State component will emphasize projects that cover limited geographic 
areas, including individual farms, multi-county areas, or small 
watersheds.
    (3) The State Conservationist will determine the funding level for 
the grants competition, with individual grants not to exceed $75,000.
    (4) The State Conservationist may choose to adhere to the CIG 
national natural resource concerns, or may select a subset of those 
concerns that more closely match the natural resource concerns in his 
or her State.
    (5) Applications will be scored by the State Technical Committee, 
or a sub-committee thereof, based on the national Criteria for Proposal 
Evaluation published in the CIG RFP. Scored applications will be 
forwarded to the State Conservationist, who will make the award 
selections.
    (6) In addition to abiding by the in-kind contribution exception 
for Limited Resource and Beginning Farmers and Ranchers, and Indian 
Tribes in paragraph (c)(2) of this section, the State Conservationist 
in each participating State will determine if and how to provide 
additional special consideration to underserved groups.
    (i) Grant agreement. The CCC, through NRCS, will use a grant 
agreement with selected grantees to document participation in CIG.
    (j) Patents and inventions. Allocation of rights to patents and 
inventions shall be in accordance with USDA regulation 7 CFR 3019.36. 
This regulation provides that small businesses normally may retain the 
principal worldwide patent rights to any invention developed with USDA 
support. In accordance with 7 CFR 3019.2, this provision will also 
apply to commercial organizations for the purposes of CIG. USDA 
receives a royalty-free license for Federal Government use, reserves 
the right to require the patentee to license others in certain 
circumstances, and requires that anyone exclusively licensed to sell 
the invention in the United States must normally manufacture it 
domestically.
    (k) Violations. A person found in violation of this section is 
subject to the provisions contained in 7 CFR part 3015 and related 
Departmental regulations.

    Signed in Washington, DC, on March 19, 2004.
Bruce I. Knight,
Vice President, Commodity Credit Corporation, Chief, Natural Resources 
Conservation Service.
[FR Doc. 04-6934 Filed 3-26-04; 8:45 am]
BILLING CODE 3410-16-P