Environmental Protection: Overcoming Obstacles to Innovative
State Regulatory Programs (31-JAN-02, GAO-02-268).
The Environmental Protection Agency (EPA) issues regulations that
states, localities, and private companies must comply with under
the existing federal approach to environmental protection. This
approach has been widely criticized for being costly, inflexible,
and ineffective in addressing some of the nation's most pressing
environmental problems. The states have used several methods to
obtain EPA approval for innovative approaches to environmental
protection. Among the primary approaches cited by the state
environmental officials GAO interviewed are EPA's Project XL and
the Joint EPA/State Agreement to Pursue Regulatory Innovation.
Officials in most states told GAO that they faced significant
challenges in submitting proposals to EPA, including resistance
from within the state environmental agency and a lack of adequate
resources to pursue innovative approaches. EPA recognizes that it
needs to do more to encourage innovative environmental approaches
by states and other entities. As a result, EPA has (1) issued a
broad-based draft strategy entitled "Innovating for Better
Environmental Results" and (2) adopted the recommendations of an
internal task force, which advocated the consideration of
innovative alternatives as new regulations are developed.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-02-268
ACCNO: A02711
TITLE: Environmental Protection: Overcoming Obstacles to
Innovative State Regulatory Programs
DATE: 01/31/2002
SUBJECT: Environment evaluation
Environmental monitoring
Federal/state relations
EPA National Environmental Performance
Partnership System
EPA Project XL
Massachusetts Environmental Results
Program
New Jersey Gold Truck Program
Oregon Green Permit Program
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GAO-02-268
United States General Accounting Office
GAO Report to Congressional Requesters
January 2002
ENVIRONMENTAL PROTECTION
Overcoming Obstacles to Innovative State Regulatory Programs
a
GAO-02-268
Contents
Letter
Results in Brief
Background
States Have Used Several Key Avenues to Promote Innovative
Environmental Approaches States' Innovative Proposals Face Obstacles at the
State and Federal Level Recent EPA Actions Are Intended to Facilitate State
Innovative
Approaches Conclusions Agency Comments Objectives, Scope, and Methodology
1 2 4
5
13
24 26 27 29
Appendixes
Appendix I: Key Innovations Identified by States 31
Appendix II: GAO Contact and Staff Acknowledgments 35
GAO Contact 35
Staff Acknowledgments 35
Tables Table 1: State-Proposed Project XL Initiatives 7
Table 2: States' Rankings of Key Federal Factors Impeding
Innovative Proposals 16
Appendix I 31
Figures Figure 1: Joint ECOS/EPA Innovations Agreement Projects as of
January 2002
A
United States General Accounting Office Washington, D.C. 20548
January 31, 2002
The Honorable Sherwood Boehlert The Honorable Cal Dooley The Honorable James
Greenwood House of Representatives
Under the existing federal approach to environmental protection, the
Environmental Protection Agency (EPA), pursuant to statutes such as the
Clean Air Act and Clean Water Act, prescribes regulations with which states,
localities, and private companies must comply. The approach has been widely
criticized in recent years for being costly, inflexible, and ineffective in
addressing some of the nation's most pressing environmental problems. For
example, the National Academy of Public Administration recently concluded
that although traditional regulatory approaches can keep most forms of
industrial pollution in check, they cannot reach many other sources of
pollution and environmental degradation, such as diffuse sources of water
pollution from urban and agricultural runoff. Even where existing approaches
have succeeded in curtailing pollution from major industrial sources, they
have often been costly or have provided regulated entities with little
incentive to reduce pollution below mandatory compliance levels.
EPA responded to such concerns during the 1990s with a variety of
initiatives intended to encourage innovative regulatory strategies that
could streamline environmental requirements while encouraging more effective
means of protecting the environment. Among the agency's "flagship" programs
was Project XL, which encouraged individual regulated facilities to propose
projects to EPA that would test whether alternative approaches could achieve
compliance at lower cost and produce greater environmental benefits.
Many sponsors of innovation, however, have expressed disappointment over the
effectiveness of Project XL and similar initiatives intended to encourage
creative improvements in environmental regulation. Some have also contended
that the states could be key to a more effective and efficient approach to
environmental policy. Citing states' closer proximity to environmental
problems and central role in enforcing federal regulation, they have
advocated that EPA show greater flexibility in allowing states to pursue
innovative environmental regulatory approaches. Others, however, have
cautioned that unless these alternative approaches are carefully designed,
they could impair EPA's ability to achieve protection of human
health and the environment-the ultimate purpose of the programs-and may not
be permissible under federal environmental statutes.
As agreed with your offices, this report identifies (1) the major avenues
that states have utilized to obtain EPA's approval of innovative approaches
to environmental protection and (2) the major obstacles that impede states
from pursuing innovative approaches needing EPA's concurrence. The report
also discusses EPA's recent efforts to facilitate innovative approaches to
environmental protection. To address these issues, we sought detailed
information from a diverse group of 15 states on their experiences in
pursuing innovation. In selecting these states, we sought variation in size,
location among EPA's 10 geographic regions, and the degree of their
participation in environmental regulatory innovation.1 Among other steps, we
conducted detailed, structured interviews with environmental officials from
these states, and analyzed in detail 20 initiatives they cited as being
among the key initiatives they have pursued.2 We also interviewed officials
in the corresponding eight EPA regional offices and at EPA's headquarters,
and obtained from them pertinent EPA-state agreements and guidance
documents. A more detailed explanation of our scope and methodology is
included at the end of this report.
Results in Brief The states have utilized several avenues to obtain approval
from EPA for innovative approaches to environmental protection. Among the
primary approaches cited by the state environmental officials we interviewed
are EPA's Project XL and the Joint EPA/State Agreement to Pursue Regulatory
Innovation. Although most proposals were submitted by private facilities,
EPA's Project XL has been used by several states to pursue state-led
initiatives. Seven of the 15 states we contacted either initiated XL
projects on their own or worked closely with other entities (e.g., private
companies or municipalities) that had formally proposed the project to EPA.
In 1998, in response to states' desire for a more timely and flexible
process, the Environmental Council of the States (the national, non-profit
association of state and territorial environmental commissioners) and EPA
entered into
1The 15 states are Georgia, Massachusetts, Michigan, Minnesota, Nebraska,
New Hampshire, New Jersey, New York, Oregon, Pennsylvania, Tennessee, Texas,
Virginia, Washington, and Wisconsin.
2Of the 15 states we contacted, 9 identified two initiatives each, 2
identified one initiative, and 4 did not identify any initiatives.
the Joint EPA/State Agreement to Pursue Regulatory Innovation. The agreement
established a framework under which states can submit proposals and gives
specific timelines for EPA to respond to them. As of January 2002, 15 states
had submitted 45 proposals. Of these, EPA accepted 20 proposals and is
considering 22, while the remaining 3 have been withdrawn or denied. States
have also used several other formal and informal avenues to pursue
innovation with EPA.
Officials in most of the states we contacted told us that they faced
significant challenges before they were in a position to submit proposals to
EPA, including resistance from within the state environmental agency and a
lack of adequate resources to pursue innovative approaches. But while
obstacles at the state level played an important role, environmental
officials from 12 of the 15 states said that federal obstacles-including the
need to comply with detailed EPA regulations, policies, and guidance, as
well as a perceived cultural resistance to change among EPA staff--were more
significant. Of particular note, state officials ranked the detailed federal
regulatory requirements governing implementation of specific programs as a
significant obstacle in 12 of 20 initiatives. This is largely because
regulations are legally binding and tend to be more detailed and
prescriptive than the statutes they are designed to implement. States also
cited as a significant obstacle a cultural resistance among many in EPA
toward alternative approaches-a resistance that, they maintained, often
manifested itself in a lengthy and costly EPA review of their proposals. EPA
officials noted, however, that this cultural resistance is often rooted in a
concern that strict application of regulations is needed to reduce the risk
of lawsuits filed by private interest groups.
EPA has recognized the need to improve its strategy to encourage innovative
environmental approaches by states and other entities. Toward this end, the
agency has (1) issued a broad-based draft strategy on Innovating for Better
Environmental Results and (2) adopted the recommendations of an internal
Task Force on Improving EPA Regulations which, among other things, advocates
the consideration of innovative alternatives as new regulations are
developed. Yet, however successful these efforts may be in alleviating the
impact of new regulations on innovation, they still do not resolve the key
problem we and other organizations have documented concerning the impact of
many existing prescriptive regulations. Current legislation does not contain
explicit language authorizing the use of innovative environmental approaches
in lieu of specific regulatory requirements, and the absence of this "safe
legal harbor" for EPA has been a significant obstacle to states and others
in their
efforts to test innovative proposals. It has also tended to reinforce the
cultural resistance to innovation that EPA is seeking to change.
Accordingly, in the absence of legislative changes providing EPA such
authority, the effectiveness of the agency's innovation efforts will warrant
monitoring by EPA and other stakeholders in the innovations process, and
will also warrant continued congressional attention.
Background Federal environmental policy is shaped by numerous federal
statutes, including The Clean Air Act, The Clean Water Act, and The Resource
Conservation and Recovery Act. These laws charge EPA with protecting the
environment through such activities as setting standards for air and water
quality, issuing permits, and taking enforcement actions. The laws also
allow states to assume many of these responsibilities. As states'
responsibilities have grown, they have applied for and received the lead
role in performing these activities. Consequently, the operational
responsibility for most of EPA's major programs currently lies with the
states, and EPA routinely relies on states to implement the full range of
environmental responsibilities associated with these programs.
In recent years, a number of organizations have emphasized the need to
supplement or significantly modify the existing prescriptive,
command-and-control approach toward environmental protection established
under current federal laws. For example, in 1998, Resources for the Future
(an environmental policy research organization) noted that while the current
federal approach has many noteworthy achievements, it is also flawed in
several respects.3 It noted in particular that federal laws and regulations
tend to prescribe the specific means by which environmental goals will be
reached, rather than establishing goals and allowing states and facilities
the flexibility to reach those goals. GAO has also reported on these matters
in recent years, focusing in particular on EPA's efforts to "reinvent"
environmental regulation.4 EPA has also recognized the need for new
approaches in numerous publications and in its interactions with state
governments and other parties.
3Pollution Control in the United States: Evaluating the System. Davies, J.
Clarence and Jan Mazurek, Resources for the Future, Washington, D.C.
4These reports include Environmental Protection: Challenges Facing EPA's
Efforts to Reinvent Environmental Regulation (GAO/RCED-97-155, July 2, 1997)
and Environmental Protection: Collaborative EPA-State Effort Needed to
Improve New Performance Partnership System (GAO/RCED-99-171, June 21, 1999).
The Congress has recently considered giving EPA explicit authority to allow
more flexible approaches by states and others. One such proposal, the Second
Generation of Environmental Improvement Act of 1999 (HR 3448), introduced in
the 106th Congress, would have allowed EPA to enter into innovative strategy
agreements with states, companies, or other interested parties in order to
experiment with ways to achieve environmental standards more efficiently and
effectively. Such agreements could have involved the modification or waiver
of existing agency regulations. The bill was not enacted and has thus far
not been reintroduced in the 107th Congress.
States Have Used Several Key Avenues to Promote Innovative Environmental
Approaches
In recent years, states have worked with EPA through several key avenues to
pursue innovative environmental approaches. Seven of the 15 states we
contacted have used EPA's Project XL as such a vehicle, even though the
projects in which they are involved were formally proposed to EPA by a
private company. Partly as a result of states' dissatisfaction with Project
XL, however, EPA and the Environmental Council of the States (ECOS) agreed
in 1998 to a process in which, among other things, states submit innovative
projects through their respective EPA regional offices and EPA is provided
timelines within which it must respond. In addition to these two major
avenues, states have also pursued alternative approaches to environmental
protection through the use of the National Environmental Performance
Partnership System (NEPPS), by participating in programs developed through
EPA's media offices and by negotiating relatively narrow changes in their
day-to-day working relationship with EPA.
EPA's Project XL Project XL, which stands for "excellence" and "leadership,"
was launched in 1995 as part of the previous administration's broad effort
to reinvent federal environmental protection policy. Based on recognition of
the need for new approaches to environmental regulation, Project XL was
designed to allow private businesses, as well as states and local
governments, to test innovative ideas to enhance environmental protection.5
In exchange for improved performance, participants would be given the
flexibility to explore new approaches to environmental protection.
To participate in Project XL, businesses, states, and other government
agencies submit proposals to EPA, which then evaluates proposals according
to specific criteria and other considerations. EPA requires that, among
other things, Project XL participants demonstrate that their
proposals will result in "superior environmental performance," and include a
system for monitoring and a process for stakeholder involvement. XL projects
should also be designed to test innovative approaches that are transferable
to other facilities.
Although most of the more than 50 XL projects approved to date were
submitted by private facilities, some federal and local government agencies
have submitted proposals as well. In addition, four states have submitted
proposals designed to apply to multiple facilities within the states.
Massachusetts' Environmental Results Program, for example, covers the dry
cleaning, photo processing, and printing sectors. Table 1 describes each of
the state-initiated projects that cover multiple facilities or entire
industry sectors.
5Project XL was in part inspired by the example of the Amoco Oil Company's
refinery in Yorktown, Virginia. At that facility, extensive emissions
testing revealed that the large majority of benzene emissions came from the
unregulated terminal loading facility, rather than the other sources for
which EPA had mandated specific and costly technological controls. Even
though all parties agreed that controlling emissions at the loading dock was
preferable to the more expensive controls mandated for other sources at the
refinery, the company could not substitute this preferred alternative for
the more expensive controls because specific federal regulations required
these controls.
Table 1: State-Proposed Project XL Initiatives
State's Project XL proposal Project's objectives
Massachusetts The goal of this program is to streamline permitting and
reporting processes and to
Environmental Results Program improve environmental performance for the dry
cleaning, photo processing, and printing industries. The program seeks to
eliminate the need to issue facility-specific permits to thousands of
facilities through the establishment of industry-wide performance standards.
The program further requires participating firms to document compliance
through annual self-certification. In addition, it offers flexibility and
compliance assistance to facilities. This, in turn, should improve
performance and result in resource savings for both the industry and the
Massachusetts Department of Environmental Protection.
New Jersey
Gold Track Program
The Gold Track Program is part of a tiered system designed to reward
companies that commit to higher levels of environmental performance than is
required by current regulations. While existing regulatory requirements may
not encourage facilities to go beyond baseline compliance, facilities under
the Gold Track program obtain recognition and regulatory flexibility in
exchange for a commitment to go beyond basic regulatory requirements. These
improvements are to be demonstrated in various ways, including adoption of
environmental management systems and the use of increasingly stringent
facility-wide air emission caps. Currently, Gold Track is limited to nine
facilities. Facilities may also participate in the Silver or Silver II
Tracks, which offer less flexibility for a less rigorous commitment to
environmental protection. However, these tracks are not included in Project
XL.
New York
Hazardous Waste Storage for Public Utilities
Under the Resource Conservation and Recovery Act, when generators of
hazardous waste move the waste from its source, they normally must transport
it only to permitted treatment, storage, and disposal facilities (TSDF).
Under this Project XL agreement, however, public utilities in New York State
will be able to consolidate the waste from various locations at a central
collection facility where they can store it for up to 90 days before
transporting it to a permitted TSDF. This proposal is intended to allow
facilities to make fewer trips to TSDFs; increase public safety by
facilitating removal of hazardous waste and decreasing the risk of
accidental release; increase efficiency of transportation of hazardous
wastes for public utilities; and save time and resources for public
utilities and the New York Department of Environmental Conservation.
Pennsylvania
Coal Remining and Reclamation Project
This project is designed to encourage coal operators to remine and reclaim
abandoned coal mine sites. Under current Clean Water Act regulations,
operators must meet numeric limits under a water discharge permit at
individual discharge points. Operators may be reluctant to engage in
remining activities because they may exceed these limits due to pre-existing
discharges from closed mines. In contrast, under this agreement, operators
do not have to meet the limits at each individual discharge point, but
instead can use "Best Management Practices" and monitor the overall
concentration of pollutants in-stream. This is expected to reduce risk and
expense to coal mine operators, improve overall water quality, and increase
the number of operators participating in remining and reclamation
activities.
While not initiating specific Project XL proposals, 7 of the 15 states we
contacted have participated by working on initiatives that were formally
proposed to EPA under Project XL by private companies. For example, even
before the establishment of Project XL, the Minnesota Pollution Control
Agency had been working with the 3M Company to develop alternative
compliance approaches, which it subsequently pursued under
the auspices of Project XL. More recently, Minnesota has actively worked
with the Andersen Windows Corporation on a proposal to reduce air emissions
from a facility in Bayport, Minnesota, in exchange for regulatory
flexibility. Similarly, Virginia played an active role in advocating an
innovative approach to controlling air emissions proposed by Merck
Pharmaceuticals for their facility in Stonewall, Virginia.
Joint EPA/State Agreement to Pursue Regulatory Innovation
In 1998, EPA and ECOS agreed to encourage experimentation by states with new
approaches to environmental protection through their Joint EPA/State
Agreement to Pursue Regulatory Innovation. In part, this agreement grew out
of the states' frustration with other avenues for pursuing innovation, such
as Project XL. Specifically, states were frustrated with Project XL's
requirement that sponsors document a proposal's ability to achieve "superior
environmental performance."6 Many believed that such a requirement was too
stringent and precluded worthwhile projects that would deliver environmental
results equivalent to existing regulations but more efficiently. States also
believed that the process of submitting a Project XL proposal and receiving
EPA's approval was too time-consuming.
In response to these concerns, the ECOS/EPA agreement outlined a process by
which states could submit innovative projects through the EPA regional
offices and provided timelines during which EPA must provide a response.
Specifically, once a state submits a proposal to EPA, the agency has 4 weeks
to reply to the state with a list of questions and concerns. Within 90 days
of receipt of the initial proposal, EPA must issue a final response to the
state. According to the EPA regional officials we interviewed, states do not
often hold EPA strictly to these deadlines. Nonetheless, state officials
told us that the time limit is sometimes helpful in obtaining a timely EPA
response when necessary. In addition, the agreement omits Project XL's
requirement for "superior environmental performance." Instead, it only
requires that innovations seek more efficient and/or effective ways of
protecting the environment.
6In the first years of Project XL, EPA defined "superior environmental
performance" as "environmental performance that is superior to what would be
achieved through compliance with current and reasonably anticipated future
regulations". Because different Project XL participants often interpreted
this definition differently, EPA issued clarifying guidance in 1997.
Nonetheless, what constitutes "superior environmental performance" has
remained a point of contention in some Project XL initiatives.
The agreement also lays out a set of principles intended to guide the
development and implementation of innovations. Specifically, it states that
(1) innovation often involves experimentation that should not harm human
health or the environment but may include some chance of failure; (2)
innovations must seek more efficient or effective ways of meeting
environmental performance goals; (3) innovations should seek creative ways
to tackle environmental problems; (4) stakeholders should be involved in the
development and evaluation of innovations; (5) results of innovations must
be measured and analyzed; (6) innovations must be enforceable and
accountable; and (7) states and EPA must work as partners to promote
innovation.
State proposals submitted to EPA to date have covered a wide range of
innovations. Some agreements have targeted one specific problem at an
individual facility, while others have been designed to affect a large
number of stakeholders or to develop a framework through which a state and
EPA agree to handle innovative proposals. For example:
* The New Hampshire Department of Environmental Services sought flexibility
under federal regulations for a single pulp and paper mill to test an
innovative regulatory approach to pollution control and treatment. Under new
regulations, the mill would be required to install expensive technology to
control airborne methanol emissions. Under the proposal, however, the mill
would use an alternative technology that would result in a four-fold
reduction in methanol emissions over the current requirements while saving
the company approximately $825,000.
* In contrast, a proposal by Michigan's Department of Environmental Quality
covered a much larger group of stakeholders. The proposal seeks approval for
a new approach to meeting Total Maximum Daily Load (TMDL)7 requirements
under the Clean Water Act. In particular, it would facilitate ways that
point sources of pollution (e.g., an industrial facility discharging from
one or more pipes) could collaborate with diffuse, "nonpoint" sources in
controlling phosphorus pollution.
* Wisconsin proposed a broad framework through which the Wisconsin
Department of Natural Resources and EPA would deal with multiple
7The TMDL program covers bodies of water that do not meet a state's water
quality standards after pollution controls have been applied. Under the
program, a TMDL is set based on a calculation of the amount of pollution a
water body can receive and still meet the water quality standard set by the
state. TMDLs allocate waste loads among the contributing sources.
innovations. Under the agreement, Wisconsin may develop up to 10 pilot
projects with facilities that would test a facility-wide, "multi-media"
approach to regulation (i.e., an approach that comprehensively integrates
their air, water, and waste regulations) that is built around the use of an
environmental management system. Facilities that commit to achieving
superior environmental performance would be granted some degree of
regulatory flexibility.
The number of proposals under the ECOS/EPA agreement has been fairly low to
date, although participation has been growing recently. As of February 2001,
3 years after the agreement, 22 proposals had been proposed from six states
in three EPA regions. As indicated in figure 1 below, by January 2002,
participation had increased to 15 states, which together had proposed 45
initiatives. Of these proposals, EPA has accepted 20, another 22 are still
under consideration, and 3 proposals have been denied or withdrawn. In our
interviews with selected states, we discussed specific state experiences
under the agreement. Of the 15 states, 10 had proposed projects under the
ECOS/EPA agreement, while other states indicated that they are considering
proposing projects in the future.
Figure 1: Joint ECOS/EPA Innovations Agreement Projects as of January 2002
Source: Environmental Council of the States.
Note: These figures include both proposals that have been formally
submitted, as well as those in early consultation between EPA and the state.
Other Avenues In addition to Project XL and the ECOS/EPA agreement, state
and EPA officials identified several other avenues for negotiation that
states have used to obtain EPA's approval for innovative environmental
strategies. One is the National Environmental Performance Partnership System
(NEPPS), which was established in 1995 to give states greater flexibility in
setting their priorities and in the way they carry out their programs if
they demonstrate the capacity and willingness to achieve mutually
agreed-upon results. NEPPS provides a framework for the state's relationship
with EPA, laying out the state's environmental goals and priorities, and the
ways in which they will measure progress in meeting these goals. Under the
system, a state agency may enter into a Performance Partnership
Agreement with its EPA regional office that typically specifies the
signatories' respective roles and responsibilities in achieving specified
program objectives.
While not intended to focus solely on innovation, some states have used
NEPPS for this purpose. As our 1999 report8 on NEPPS noted, for example,
Minnesota's Pollution Control Agency reorganized its traditional
medium-by-medium (i.e., air, water, and waste) structure into a structure
the agency believed would more effectively address problems that cross media
lines. The agency used its Performance Partnership Agreement to provide the
flexibility it needed to report environmental results to EPA in line with
this new structure. Other states have also used their partnership agreements
to achieve and document agreements on specific initiatives.
EPA has also sought to promote innovation through its program offices. For
example, the Office of Solid Waste and Emergency Response has promoted
cleanup and redevelopment of contaminated industrial sites by encouraging
state voluntary cleanup programs. Unlike programs that rely on enforcement
alone to achieve cleanups by parties responsible for the contamination,
these voluntary "Brownfields" programs allow site owners and developers to
collaborate on bringing sites back to productive use. EPA has encouraged the
programs by providing funding to develop these programs, reviewing program
adequacy, and agreeing not to take further enforcement action at these sites
unless serious environmental contamination was overlooked.
Finally, EPA regional officials we interviewed mentioned that minor changes
are often adopted through informal discussions during the normal course of
work. They noted that more significant changes, such as those requiring a
change in regulations, would have to go through one of the avenues for
innovation or through the rulemaking process.
8Environmental Protection: Collaborative EPA-State Effort Needed to Improve
New Performance Partnership System (GAO/RCED-99-171, June 21, 1999).
States' Innovative Proposals Face Obstacles at the State and Federal Level
While states can face significant obstacles at the state level before
submitting an innovative proposal to EPA, officials in 12 of the 15 states
we contacted stated their most significant obstacles are at the federal
level. States cited prescriptive regulations as one of the most significant
obstacles, along with an EPA culture they viewed as being averse to risk and
resistant to change. EPA officials acknowledged that its culture has a
tendency to resist innovative proposals, but some noted that such resistance
is rooted in the agency's primary mission to ensure strict adherence to the
letter of statutes and agency regulations. They also noted that some states
have omitted key elements when they submit proposals, such as provisions to
measure whether the innovation to be tested will have its intended effect.
Resource Constraints Are Among the Key Obstacles at the State Level
Officials in all of the states we contacted indicated that they faced
significant obstacles-including lack of resources, cultural resistance in
the state agency, and opposition from environmental groups--even in advance
of proposing a project to EPA. In some cases, state officials cited these
obstacles as reasons why the state had not yet actively pursued innovations
requiring federal approval.
In discussing 20 separate initiatives, state officials cited a heavy ongoing
agency workload and concomitant limited resources as obstacles to innovative
approaches in 11 instances. In several instances, the state was nevertheless
actively pursuing innovative approaches despite this constraint. For
example, a Michigan official stated that finding sufficient resources was
one of the primary difficulties faced in pursuing initiatives under the
EPA/ECOS agreement. Although a considerable number of additional staff and
resources were needed, the effort was given high-priority status; and
therefore, agency resources were diverted to support it. Similarly, noting
that 80 percent of their resources are consumed in meeting federally
mandated requirements, officials from the Minnesota Pollution Control Agency
said the agency's management is reluctant to divert scarce resources to
innovative programs. Nonetheless, they said the agency has actively promoted
Project XL initiatives and is likely to propose future initiatives under the
EPA/ECOS agreement.
Officials from other states, however, said they were unable to pursue
innovative approaches because of the limited resources available to meet an
already-demanding workload. For example, an official of the Nebraska
Department of Environmental Quality said that developing an innovative
proposal would take a considerable investment in up-front staff time and
resources, and the agency's federally mandated workload exhausts all
resources. Largely for this reason, Nebraska has not yet pursued any major
innovative initiative requiring EPA approval. Similarly, an official of the
Georgia Department of Natural Resources cited the agency's heavy mandated
workload and related budget constraints as one of the two most significant
obstacles to pursuing innovative approaches.
The importance of limited state agency resources as an obstacle to
innovative approaches was also highlighted in an April 2000 ECOS survey.9
The survey asked state officials to indicate the degree to which each of 12
frequently cited impediments to innovative practices was an obstacle in
their case. Six of the 29 responding states said that state agency resource
limitations were the single largest obstacle they faced, while officials of
7 states indicated that this was a persistent obstacle that was difficult to
address. Among the factors not related to federal policy, this factor ranked
as the most significant obstacle in the survey.
A state agency's culture and working environment can also discourage
innovative approaches. For 5 of the 20 specific initiatives we discussed,
state officials said that an agency's culture and working environment to
some extent discouraged alternative approaches to environmental policy. One
state official said that obtaining EPA's permission to pursue an innovation
was an abstract problem because the state agency had not been able to reach
the point of submitting a proposal. He explained that internal staff
resistance was the biggest problem, noting in particular that many
rank-and-file managers had been with the agency for 25 to 30 years and had a
professional ethic that emphasized following long-standing approaches to
environmental protection. The official recalled that several years ago, the
agency had examined alternative approaches to permitting, including an
approach that would allow regulated facilities to certify their own
compliance, and thus allow the agency to shift resources from permitting
activities to enforcement activities. The division managers in the agency
almost unanimously opposed this approach, fearing that it would lead to loss
of control over regulated entities, a loss of funding for their own
programs, and less effective environmental protection. In part because of
such resistance, the agency had not recently tested EPA's receptiveness to
an innovative proposal.
9Perceived Barriers to Innovation in Environmental Protection; Roberts,
Robert E. and Timothy R. Titus; The Environmental Council of the States,
April 2000.
Opposition to innovative approaches from environmental groups and other
stakeholders has also impeded proposals. Officials in several states noted
that environmental and community groups generally perceive innovative
proposals as opening the door to rollback of environmental standards. A
Washington state official noted that the state has a very politically active
public, and some environmental and community groups perceive innovative
proposals as potentially compromising the goals of environmental statutes.
For example, such groups vigorously opposed the state's proposal to extend
discharge permits under the Clean Water Act from 5 to 10 years because they
feared the state was backing away from oversight of polluting facilities. A
representative of the Texas Natural Resource Conservation Commission made
similar comments, but noted that early involvement of such groups can go a
long way toward mitigating their opposition. He stated that if the concerns
of such groups are taken into account during the design of a proposal, their
opposition later in the process is far less likely.
Key Federal Obstacles Include Prescriptive Regulations and Cultural
Resistance
State officials identified factors at the federal level, including statutes,
regulations, and an EPA culture not conducive to innovation, as more
significant obstacles than the factors they encountered at the state level.
Specifically, officials in 12 of the 15 states we contacted said that these
federal obstacles were more significant in impeding innovation than
obstacles faced at the state level (such as the state agency's culture and
workload, and opposition from environmental groups). The three remaining
states said these two categories were about equal in their significance.
As summarized in table 2, of the federal obstacles we discussed with states,
federal regulations and an EPA culture viewed as resistant to innovative
approaches ranked as the two most significant obstacles affecting progress
among the 20 specific initiatives identified by state officials. Our
interviews, however, revealed an important relationship between the two
factors. Specifically, while EPA officials acknowledged the agency's culture
can be resistant to innovative proposals, some noted-and some state
officials agreed-that what is often construed as "cultural resistance" is
sometimes rooted in a sense of obligation among agency officials to ensure
that statutes and agency regulations are properly and fully implemented. EPA
officials also pointed out that in some cases state proposals lacked key
elements when they were submitted, such as provisions for public involvement
or a systematic means of measuring whether the innovation would have its
intended effect.
Table 2: States' Rankings of Key Federal Factors Impeding Innovative
Proposals
a In addition to
these key
factors, "EPA
Policies and
Guidance"
(generally,
supplemental
documents to
help interpret
or implement
regulations) was ranked first 3 times and was ranked second 5 times. The
officials also had the opportunity to identify federal factors other than
those specifically listed, but did not rank any as the most or second most
significant.
Statutes An extensive literature has documented that both existing
environmental statutes and environmental regulations can impede innovation.
However, the manner in which the two may have this effect differs, with the
more detailed, individual regulations generally having a more direct impact
on proposals than the more general statutes that authorize the regulations.
The major federal environmental statutes are generally less detailed and
specific, in terms of what they require or preclude, than the regulations
EPA develops to implement them. There tends to be a hierarchical
relationship between statutes and regulations-statutory requirements
establish the broad outlines of environmental policy while regulations
reflect EPA's effort to implement the statutes, and hence provide much more
specific requirements on how the regulated community is to control
pollution. Perhaps for this reason, the state officials we interviewed cited
comparatively few instances in which an environmental statute precluded a
particular innovation they were pursuing.10 Overall, environmental statutes
were ranked either first or second 6 times among the 20 state innovations we
examined.
10State officials cited several exceptions. A provision of the Clean Air Act
was a significant impediment to the Michigan Department of Environmental
Quality's effort to grant automobile parts manufacturers certain permitting
flexibilities. Other state and EPA officials noted that other sections of
the Clean Air Act, and various sections of the Resource Conservation and
Recovery Act, also contain requirements that leave states with little
flexibility and with no recourse to obtain flexibility from EPA.
However, environmental statutes have been linked with a broader, less direct
impact on state environmental innovations by directing regulators and their
resources toward specific, medium-by-medium activities- sometimes at the
expense of alternative strategies that might more effectively address the
highest environmental risks. For example, in our July 1997 report on EPA's
"reinvention" activities, we cited the difficulties in setting risk-based
priorities across environmental media because each statute prescribes
certain activities to deal with its own medium-specific problems.11 We also
cited an observation from an earlier GAO report that environmental statutes
"led to the creation of individual EPA program offices that have tended to
focus solely on reducing pollution within the particular environmental
medium for which they have responsibility, rather than on reducing overall
emissions."12 This "stovepipe" effect of the environmental statutory
framework was cited by an EPA headquarters air official, who noted that the
Clean Air Act would not recognize the value at a specific industrial site of
a large reduction in water emissions in exchange for even a slight increase
in air emissions--even though such a trade-off might have significant net
environmental benefits in certain situations. As others have noted, however,
EPA generally does consider the potential transfer of pollution from one
medium to another when it develops new regulations.
Several state officials told us that federal environmental statutes can
indirectly hinder innovative state approaches not only by what they include,
but also by what they omit. They noted that since environmental statutes
give EPA little or no explicit authority to grant regulatory flexibility to
the states, the agency is placed at a higher risk when it grants a state or
regulated entity permission to deviate from federal requirements. One state
official cited the absence of such a "safe legal harbor" for EPA as a key
impediment to state innovation.
Regulations State officials cited regulations as a significant factor more
often than statutes. In discussing 20 specific innovative proposals, state
officials ranked regulations either first or second 12 times among the
federal factors listed in table 2.
11 Environmental Protection: Challenges Facing EPA' s Efforts to Reinvent
Environmental Regulation (GAO/RCED-97-155, July 2, 1997) p. 50.
12 Environmental Protection: Meeting Public Expectations With Limited
Resources (GAO/RCED-91-97, June 18, 1991).
States cited a number of instances in which regulations prescribed an
approach for dealing with an environmental problem that a state believed it
could more effectively address in another way. Oregon officials cited such a
proposal, pursued under the state's Green Permit Program,13 in which the
state sought to provide flexibility to a regulated facility as an incentive
for improved environmental performance. The state's Department of
Environmental Quality proposed to grant a semiconductor manufacturing firm
expedited permit review and various other incentives in exchange for the
firm's commitment to future environmental improvements through its
environmental management system. As part of the application, the facility
sought the approval of its system of correcting and detecting leaks in its
hazardous waste piping from processes to storage tanks. According to a state
official, the system's overall performance matches or exceeds federal
regulatory requirements, though it does not meet certain technical
specifications of regulations under the Resource, Conservation, and Recovery
Act (RCRA). As a result, EPA determined that it was unable to approve that
particular aspect of the facility's application. EPA did not rule out
approval of this system, but stated that additional information would be
required to justify it. An EPA official said that, after site visits and
review of additional information provided by the facility, EPA Region 10 has
concluded preliminarily that the required justification has been
established. EPA and the state must now agree on a legally-enforceable
alternative to the relevant RCRA requirements. EPA officials noted that the
most likely approach, a site-specific rule, is a time-consuming approach
that could take over 6 months. An Oregon official added that EPA is
proceeding slowly on this issue both because it could set a precedent for
numerous similar facilities across the nation and because the process is
taxing limited regional staff resources.
The Oregon experience is comparable to experiences cited by officials in
other states in which a regulation either discouraged an innovation or
imposed significant costs in pursuing the innovation. It is also comparable
to the experiences documented in an extensive literature on the effect of
13Established in 1997, Oregon's Green Permits program is designed to
encourage facilities with strong environmental track records to achieve
better environmental performance than required by law. In exchange for
commitment to improved environmental performance through commitments such as
adoption of environmental management systems, the program offers
participating facilities cost savings and operational efficiencies through
more flexible application of environmental requirements. In a May 2000
memorandum of agreement, EPA and the Oregon Department of Environmental
Quality entered into a working partnership to proceed with the Green Permits
Program.
prescriptive regulations on efforts to innovate. In summarizing part of this
literature, the Environmental Law Institute (ELI) cited as a major problem
the design of most regulatory standards under the Clean Water Act and Clean
Air Act, which require EPA to establish technology-based discharge rate
limits based on "available" or "feasible" emission control technologies.14
ELI noted that while alternative solutions are not specifically prohibited,
such regulatory standards may preclude innovation in a number of ways, such
as limiting permit writers to conservative choices and eliminating
incentives for progress beyond established standards. ELI summarized the
effect of prescriptive regulatory standards by noting that they "may
severely limit innovation, creating higher costs than necessary."
Officials in EPA's regions and headquarters both cautioned that federal
regulations are critical in ensuring reasonable consistency in the level of
environmental protection afforded to individuals across the country. Several
officials also noted that there is a "natural tension" between this goal and
the goal of allowing states greater flexibility to address environmental
problems in the way they believe best meets their needs. Overall, however,
they generally concurred with the comments voiced by state officials
concerning the effects of detailed, prescriptive regulations on
environmental regulatory innovation. An official with EPA's Office of Air
and Radiation added that it is important to remember that the federal
environmental protection system is about 30 years old and that many
regulations in effect today were written before the relatively recent
emphasis on developing more flexible innovative approaches.
EPA's Culture State officials indicated that a long-standing EPA culture
that resists alternative approaches to environmental protection is viewed as
one of the most significant obstacles to state environmental innovation. The
importance of cultural factors was evident in our discussions of the factors
affecting progress on specific innovative proposals. Of the 20 individual
proposals that the states discussed, EPA culture was cited as either the
first or second most important factor in 14 cases.
14Environmental Law Institute, Innovation, Cost and Environmental
Regulation: Perspectives on Business, Policy, and Legal Factors Affecting
the Cost of Compliance, May 1999. The Environmental Law Institute is a
research and education center that seeks to develop effective solutions to
pressing environmental problems.
Some state officials noted that such cultural resistance often manifests
itself in a lengthy and time-consuming review and approval process. One EPA
regional official referred to the numerous levels of review, the large
number of EPA stakeholders, and the degree to which every detail of a
proposal is examined as a "death by 1,000 cuts," saying that after such a
review process, it is often hard to keep the original concept or retain what
is truly innovative.
Along these lines, an official in Massachusetts' Department of Environmental
Protection cited as an example the experience of a proposed addendum to its
Project XL Agreement that established the state's Environmental Results
Program. The official said that EPA's July 1999 response had included an
extensive set of questions and comments that went well beyond what the state
DEP had proposed, and was viewed by DEP staff as essentially asking the
agency to justify the entire Environmental Results Program all over again.
She added that DEP staff were frustrated not only by the volume of the
questions posed, but also by the appearance that no one at EPA had been
assigned to consolidate the numerous comments from various EPA offices.
DEP's reaction was to temporarily shelve the project, claiming that it did
not have the resources to enter into protracted negotiations to resolve
EPA's concerns. According to the Commissioner, the subsequent intervention
of the EPA Office of Enforcement and Compliance Assurance's Policy Director
helped to revive the proposal. Currently, DEP is awaiting EPA approval of a
draft state rule containing the changes the state desires.
New Jersey officials cited similar experiences during negotiations over the
state's Gold Track program, stating that some EPA program staff strongly
resisted requests for regulatory flexibility. One official noted that EPA
staff had exhibited a "what if" mentality when reviewing
proposals-developing a worst possible case scenario and holding that
scenario up as a reason to reject the proposal. This official added that the
EPA approach appeared to focus more on a search for reasons not to pursue
innovation, rather than on an examination as to whether the proposal was
fundamentally sound and how it could best be implemented.
EPA officials we interviewed also acknowledged the existence of an EPA
culture predisposed to view innovative proposals skeptically. For example,
an official of EPA's Office of Solid Waste and Emergency Response noted that
this cultural tendency is partly rooted in the fact that many EPA staff are
used to addressing environmental problems in a "tried and true" way and that
EPA's reward system does not encourage staff to pursue
innovative approaches. Similarly, an official of EPA's Office of Air and
Radiation noted that EPA has a culture somewhat resistant to new approaches,
in part, because of its reluctance to deviate from approaches that it
believes have proven effective over the last 30 years.
The agency recognized the challenge of promoting acceptance of new
approaches on the part of its rank-and-file in our July 1997 report on its
reinvention efforts, which documented widespread agreement among EPA
officials, state officials, and others that the agency has a long way to go
before reinvention becomes an integral part of its staff's every day
activities.15 It cited the view of the then-head of EPA reinvention
activities as noting that many staff are comfortable with traditional ways
of doing business and consider their program-specific job responsibilities
as their first priority and reinvention projects as secondary. Also
commenting on EPA staffs' comfort with traditional approaches, a senior ECOS
official noted that EPA was created in the early 1970s, and that many
current employees have spent their entire careers there. He noted that for
some of them, a familiarity and comfort with earlier norms and practices may
make it hard to embrace some of the agency's recent experiments with
alternative compliance strategies.
However, EPA officials indicated that what may be perceived as "cultural
resistance" among EPA staff may, in fact, reflect understandable concerns
that they properly implement the agency's core mission. An official with the
agency's Office of Policy, Economics, and Innovation added that in some
cases, EPA staff may feel that specific regulations were the culmination of
a good faith commitment made to stakeholders and members of the public who
participated in the regulatory development process. An official of EPA's New
York office noted that EPA is obligated to ensure a certain level of
environmental protection, and if proposed innovations could potentially
negatively affect the environment, the benefits of moving forward must be
carefully balanced against the risks. Another EPA official noted that close
scrutiny is warranted in situations where an alternative approach may be
viewed as setting a precedent for similar requests in situations where it
may not be appropriate. An official of EPA's Chicago office also noted that
to allow deviation from regulatory requirements, EPA must develop an
alternative legal mechanism to ensure accountability. Developing such legal
mechanisms can be very time
15 Environmental Protection: Challenges Facing EPA' s Efforts to Reinvent
Environmental Regulation (GAO/RCED-97-155, July 2, 1997), p. 41.
consuming. Perhaps most importantly, EPA staff are mindful of the potential
consequences when innovative proposals are at odds with laws or regulations.
A state official said that EPA has to be cautious in permitting innovative
approaches because the agency is often sued by environmental and community
groups if it does not follow laws and regulations to the letter.
On the other hand, EPA and some state officials indicated that EPA's
disinclination to consider alternative approaches may be slowly changing.
Officials of the state environmental agencies in Massachusetts and New
Hampshire indicated that EPA's Boston office has become a stronger advocate
for flexibility and new approaches. For example, a Massachusetts official
said the states in the region generally get a sympathetic hearing when they
make proposals. The official also said that EPA's Office of Enforcement and
Compliance Assurance has also become more willing to consider innovative
approaches. Similarly, the New Hampshire official stated that EPA is
gradually changing the mindset of its staff to be more open to innovative
proposals and that there is a healthy and respectful working relationship
between the state and the agency's Boston Office on these matters. Senior
ECOS staff also told us that while further progress is needed, the agency
has also sought to include state input earlier in its decision-making
process to resolve long-standing data reporting problems and other key
issues.
EPA Sometimes Determines That Proposals Are Missing Key Elements
While EPA officials acknowledged the key obstacles cited during our state
interviews, they also told us that state innovative proposals sometimes
encounter delays resulting from deficiencies in the form and content of the
proposals. Project XL, the ECOS/EPA agreement, and other avenues for
innovation each have certain ground rules on which participating parties
agree. The EPA officials noted, and some state officials agreed, that in
some cases a proposal's rejection or delay may have less to do with an
obstacle encountered at the federal level than with a problem in the
proposal's ability to meet these ground rules.
As noted earlier, for example, Project XL requires that proposed innovative
approaches result in "superior environmental performance," in comparison to
traditional approaches. According to EPA's Chicago office staff, the
difficulty in documenting compliance with this criterion was a primary point
of contention regarding the XL proposal made by the Andersen Windows
corporation with backing by the state of Minnesota. Among other things,
Andersen Windows desired to obtain flexibility to change
production processes without costly permit reviews under the Clean Air Act's
Prevention of Significant Deterioration regulations. In exchange, the firm
proposed to establish a per-unit volatile organic compounds emissions rate
of 0.763 pounds per unit of production (referred to as the performance
ratio). The performance ratio ensures that future capacity increases would
use less polluting processes, such as the substitution of water-based wood
finishes for the solvent-based wood finishes the facility had traditionally
used. Also, the project would adopt an overall emissions cap of 2,651 tons
of volatile organic compounds per year.
Although the proposed emission cap was above current actual emission levels,
Andersen Windows contended that because it was below current allowable
emissions, EPA should take into account the firm's past efforts to reduce
VOC emissions. EPA, on the other hand, wanted the project to commit to a
level of emissions no higher than current actual emissions. EPA contended
that there was no plausible scenario under which the facility would have
emitted at a level near the proposed cap, and thus the proposal did not
constitute a commitment to superior environmental performance. In response,
the facility made a number of concessions, including the performance ratio
limit, a lower overall emissions cap, and an explicit, enforceable
commitment that any new paint processes would use less polluting materials.
After extensive negotiations, EPA agreed to the proposal.
The ECOS/EPA agreement also includes a series of principles to which
signatories of proposals agree. Among them, proposals should include
provisions for stakeholder involvement in a project, provisions for the
enforcement of alternative regulatory requirements to ensure that public
health and environmental protections are maintained, and a process for
assessing the results of the innovative approach to test whether the desired
results are actually achieved. Representatives of the Office of Enforcement
and Compliance Assurance stated that state proposals do not always include
an evaluation component, while others have not identified how stakeholder
involvement would be assured. An official in EPA's Chicago office also noted
that some ECOS proposals did not meet the requirement that they be
sufficiently limited in scope that they may be considered "experimental," in
order to minimize any risks if the initiative does not work as anticipated.
For example, EPA initially resisted a Michigan proposal to take an
innovative approach to controlling phosphorous discharges into state
watersheds. Because the state initially proposed that this program be
adopted in at least three watersheds and possibly statewide, EPA felt that
its scope was not sufficiently limited to be
considered an experiment. The project was approved after Michigan agreed to
limit the proposal to a single watershed.
Finally, project submittals may be subject to EPA's "compliance screening
guidance." The guidance provides that participants in regulatory flexibility
programs, such as Project XL and the EPA/ECOS agreement, have good overall
compliance records. In particular, participation is deemed inappropriate if
an applicant has been the subject of a recent criminal conviction, an
ongoing criminal investigation, or ongoing EPA-initiated litigation.
Participation may also be deemed inappropriate if an applicant has been
involved in violations resulting in a serious threat to human health or the
environment, a pattern of significant noncompliance, or is the subject of a
citizen enforcement suit.
Such screening guidance became a central issue in a Project XL proposal
submitted by the Hopewell Regional Wastewater Treatment Facility in
Virginia. The facility receives industrial wastewater from a variety of
manufacturers, including makers of pulp and paper, organic chemicals, and
plastics. As a result of federal pretreatment regulations under the Clean
Water Act, the contributing manufacturers were faced with the requirement to
add redundant pretreatment technology. Adding the technology would have
adversely affected treatment performance at the Hopewell plant.
Consequently, the Hopewell Regional Wastewater Treatment Facility and
contributing sources proposed to move the application of pretreatment
standards from the industrial users to the Hopewell plant. An EPA Deputy
Regional Administrator expressed EPA's support for the project and its
desire to continue technical review of the proposal. However, the
participation of two of the contributing firms was temporarily deferred
pending the resolution of outstanding significant non-compliance at those
facilities. The state subsequently resubmitted the proposal under the
ECOS/EPA agreement. In July 2001, EPA indicated that the proposal could move
forward to fuller development, but that the two firms with noncompliance
issues could not participate until their enforcement cases were resolved.
Recent EPA Actions EPA has recently taken a number of measures to address at
least some of
the obstacles discussed in this report, and those changes may foster anAre
Intended to improved climate for pursuing innovative state approaches. In
June 2001, Facilitate State EPA adopted the recommendations of its Task
Force on Improving EPA Innovative Approaches Regulations. Subsequently, in
October 2001, the agency published a draft
strategy on Innovating for Better Environmental Results.
The EPA Task Force on Improving EPA regulations was created in April 2001 to
reexamine EPA's regulatory development process and identify ways to improve
supporting scientific, economic, and policy analysis. In addition, the task
force sought ways to enhance regulatory flexibility and to create strong
partnerships with states and businesses. Among other key findings, the task
force determined that in the process of developing regulations, EPA should
develop and consider a broader array of policy options, including innovative
alternatives and market-based approaches. Importantly, the task force report
recommended that the regulations development process consider the
possibility of innovative alternatives and that EPA strengthen the
involvement of states and local governments during the regulatory
development process. Should EPA follow through on this recommendation, it
would help the agency address one of the key obstacles identified in this
report-the effect of prescriptive EPA regulations in impeding innovative
regulatory strategies. By involving state officials early in the regulations
development process and identifying the potential effects of regulatory
proposals at this stage, there is a greater chance that regulations will be
developed in a manner that encourages, rather than inhibits, innovation.16
The strategy, however, applies to the development of new regulations rather
than the obstacles posed by existing regulations.
EPA's Draft Strategy on Innovating for Environmental Results maintains that
EPA's efforts to promote innovation over the course of the last decade have
made significant advances, but they have resulted in a disparate array of
projects that were not designed to achieve system-wide improvement.
Furthermore, it notes that the transaction costs have been high and that
there has not been a consistent process for expanding the application of
pilot programs. To address these issues, the strategy proposes a 4-pronged
strategic framework:
* Strengthening EPA's partnership with states, including a greater emphasis
on performance management and the NEPPS process.
16GAO recommended a similar approach in a report published earlier this year
entitled, Environmental Protection: EPA Should Strengthen Its Efforts to
Measure and Encourage Pollution Prevention (GAO-01-283, Feb. 2001).
Specifically, the report recommended that EPA ensure that, as required by
the Pollution Prevention Act of 1990, it reviews proposed regulations to
determine their effect on the use of pollution prevention techniques.
* Focusing on four priority issues: reducing greenhouse gases, reducing
smog, restoring and maintaining water quality, and reducing the cost of
water and water infrastructure.
* Diversifying environmental tools and approaches.
* Fostering a more innovative culture and organizational system at EPA and
states.
Among other things, the strategy emphasizes fostering an organizational
culture at EPA that is more friendly to innovative approaches. Following up
on EPA reinvention activities of the last 10 years, it states that EPA
should integrate support for innovation into its planning, budgeting, and
organizational systems. It also notes that a more innovative culture will
require EPA staff to view their jobs more broadly; that is, not just as
overseers of ongoing operations, but as problem solvers, partners, and
facilitators. It also proposes to hold senior managers accountable for
supporting innovative approaches and increasing their responsibilities for
scaling up successful innovations. According to EPA officials, the process
of diffusion and broader application of successful innovations may lead to
gradual revision of existing regulations that may be inhibiting better ways
of achieving environmental goals.
The details of both EPA initiatives still need to be fleshed out and a
number of issues resolved. For example, some state officials have questioned
the focus of the Draft Strategy on Innovating for Environmental Results on
four priority issues (greenhouse gases, smog, water quality, and water
infrastructure), fearing that this focus downplays other issues of greater
importance to individual states or localities. According to EPA, states will
play a role in refining the Draft Strategy as it undergoes further
development. How these and other issues are resolved will determine the
ultimate impact these efforts have on EPA's reinvention efforts in general
and on its efforts to collaborate with states on innovative environmental
proposals in particular.
Conclusions While states face a variety of obstacles when seeking to promote
innovative approaches to environmental protection, we found their most
significant obstacles to be at the federal level. Of these federal
obstacles, the detailed requirements of prescriptive federal environmental
regulations were cited as among the most significant, along with a cultural
resistance among many EPA staff toward alternative approaches. In some
cases, however, the underlying cause of this cultural resistance was traced
back to the
regulations. Specifically, many EPA staff believe that strict
interpretations must be applied to detailed regulations if they are to be
legally defensible.
The identification by state officials of prescriptive federal regulations as
a key obstacle to innovation is consistent with the findings of numerous
research organizations that have cited the need for environmental
regulations to focus more on the desired environmental results and, where
possible, to be less prescriptive concerning the specific means of achieving
these results. It is also consistent with EPA's recent adoption of the
recommendations of its own Task Force on Improving EPA Regulations which
advocates, among other things, that innovative alternatives should be
considered as new regulations are developed.
It remains to be seen if implementation of the EPA recommendations will have
the desired effect in reforming the regulations development process to
better accommodate innovative proposals. Yet, however successful these
efforts are in accounting for the impact of new regulations, they still do
not focus on the key problem (documented by this report and by those of
other organizations) concerning the impact of many existing prescriptive
regulations on innovation, nor do other EPA initiatives resolve the problem.
As noted in this report, current statutes are generally less prescriptive
than the more detailed regulations by which they are implemented. However,
the statutes contain no explicit language authorizing the use of innovative
environmental approaches in lieu of specific regulatory requirements and, as
noted in this report, this absence of a "safe legal harbor" for EPA has been
a significant obstacle to states and others in their efforts to test
innovative proposals. It has also tended to reinforce the cultural
resistance to innovation that EPA is seeking to change. Accordingly, in the
absence of legislative changes, the effectiveness of the agency's innovation
efforts will warrant monitoring by EPA and other stakeholders in the
innovations process, and will also warrant continued congressional
attention.
Agency Comments We provided a draft of this report for review and comment to
EPA and to ECOS' headquarters office in Washington, D.C. EPA did not submit
a formal letter but provided individual comments from several headquarters
and regional offices that have dealt with the issues discussed in the
report. From headquarters, we received comments from the Office of Air and
Radiation, Office of Enforcement and Compliance Assurance, the Office of
Solid Waste and Emergency Response, and the Office of Policy, Economics, and
Innovation. The Office of Air and Radiation indicated general
agreement with the report's findings as did the Office of Enforcement and
Compliance Assurance, which said that the report "reflects a balanced
approach to analyzing such a broad topic and recognition of EPA's recent
efforts to facilitate innovative approaches to environmental protection."
The Office of Solid Waste and Emergency Response provided minor technical
comments. Comments from all three offices were incorporated as appropriate.
The Office of Policy, Economics, and Innovation (OPEI) commented on our
conclusion that its initiatives to alleviate the impacts of EPA regulations
focused on new regulations rather than existing regulations. The Office said
that the report should recognize that a major thrust of its Draft Strategy
on Innovating for Environmental Results involves the "scaling up" or
"diffusion" of successful innovations to broader applications through the
revision of regulations, policies, or program practices. We added language
to reflect this as a key component of the EPA strategy. However, as OPEI
staff acknowledged in a subsequent discussion about this point, the agency
has yet to pursue this strategy in the type of systematic or large-scale
manner that would be needed to deal materially with the large number of EPA
regulations at issue, and has not evaluated the extent to which scaling up
has been practiced or has succeeded.
OPEI also observed that there may be some confusion in that the report
identified two different ways in which statutes could inhibit state
innovation: (1) by prescribing in detail how a program activity must be
carried out (or by precluding alternatives) and (2) by omitting explicit
language authorizing regulatory flexibility to proponents of innovation and
regulators in a manner that would provide the "safe legal harbor" needed to
assure the legality of their innovative proposals. The draft report
discussed each of these potential impacts individually, but we added
additional clarifying language in response to the OPEI comment. In addition
to these two issues, OPEI offered a number of more detailed comments and
suggestions, which we incorporated as appropriate.
We also received comments from EPA's Chicago, Dallas, New York, and Seattle
offices. In addition to their technical comments and corrections, the
Chicago, Dallas, and Seattle offices expressed general agreement with the
material presented. The Dallas Office noted, for example, that "most of the
views [identified in the report] have been expressed by state contacts or
facility representatives, but also have been shared by individual EPA
employees that have worked on one or more innovations programs." The New
York Office provided no overall opinion, but offered a number of
technical comments and corrections. These comments and corrections, and
those of the other three regional offices, were incorporated as appropriate.
ECOS's Executive Director and his staff said that the draft report was fair
and well documented. They noted in particular their agreement with the
report's findings that EPA regulations tend to be more of an obstacle to
innovation than their underlying environmental statutes, and that a
continued need exists for cultural change at both the state and EPA level.
They also proposed a number of technical revisions and clarifications, which
we incorporated in finalizing the report.
Objectives, Scope, and Methodology
To identify the major avenues through which states can achieve concurrence
with EPA on innovative approaches to environmental protection, we
interviewed officials with EPA's headquarters and regional offices,
officials from the Environmental Council of the States, and officials from
other interest groups and research organizations. We also reviewed recent
studies and other literature pertaining to states' experience with
innovative environmental regulatory strategies.
To obtain information on the obstacles that states face when adopting
innovative approaches to environmental protection, we interviewed cognizant
officials from 15 states-Georgia, Massachusetts, Michigan, Minnesota,
Nebraska, New Hampshire, New Jersey, New York, Oregon, Pennsylvania,
Tennessee, Texas, Virginia, Washington, and Wisconsin. We intentionally
selected a sample of states that was diverse in size, was representative of
different EPA regions, and had varying degrees of experience with
environmental regulatory innovation. To obtain further diversity in the
initiatives we examined, we asked the state officials to identify two of
their major innovative proposals-one that they pursued and EPA accepted and
one that was proposed and not accepted. For each, we first sought written
information in advance of our interviews with cognizant state officials.
Then, through our interviews with these officials, we sought to obtain a
fuller understanding of the circumstances surrounding each initiative, and
to identify the obstacles that may have inhibited or prevented progress. For
the states in which officials elected not to identify initiatives pursued
with EPA, we sought to identify the factors influencing their reasons for
not doing so.
In addition to these state interviews, we conducted a series of interviews
with the corresponding EPA regional offices to obtain their views about the
obstacles to state environmental innovation in general and to gather
information about their experiences with the specific initiatives identified
by states in their jurisdiction. We also interviewed officials with EPA
headquarters offices including the Office of Policy, Economics, and
Innovation; the Office of Enforcement and Compliance Assurance; and key
program offices that have had experiences with innovative state regulatory
proposals.
We conducted our work from March through December 2001 in accordance with
generally accepted government auditing standards.
As we agreed with your office, unless you publicly announce the contents of
this report earlier, we plan no further distribution of it until 30 days
from the date of this letter. We will then send copies to others who are
interested and make copies available to others who request them. If you or
your staff have any questions about this report, please call me or Steve
Elstein at (202) 512-3841. Key contributors to this report are listed in
appendix II.
David G. Wood Director, Natural Resources and Environment
Appendix I
Key Innovations Identified by States
Statea Description of innovations cited by state officials
Massachusetts
Cathode ray tube (CRT) recycling
Environmental Results Program
Cathode ray tubes in computer equipment are a growing waste problem because
of the high turnover rates for computer equipment. The Massachusetts
Department of Environmental Protection wanted to create a system for reusing
and recycling these parts, but ran into difficulties because the parts are
classified as hazardous waste under the Resource Conservation and Recovery
Act (RCRA) due to their high lead content. The state undertook a number of
actions, including exempting intact CRTs as hazardous waste, to increase
reuse and recycling efforts in the state.
The Environmental Results Program is a regulatory system established under
Project XL designed to streamline permitting and reporting requirements and
improve performance in the printing, photo processing, and dry cleaning
sectors. The state sets out to accomplish this through the use of
industry-wide performance standards and self-certification of compliance. In
the future, Massachusetts would like to expand this program to other
industrial sectors.
Michigan
TMDL for Lake Allegan Watershed
Development of a presumptive BACT for auto assembly plants Under this ECOS
agreement project, the Michigan Department of Environmental Quality (MDEQ)
adopted a new watershed approach to meet TMDL requirements for phosphorus in
the Lake Allegan Watershed. This new approach utilizes a cooperative
agreement between point source dischargers, non-point dischargers, and the
MDEQ to establish the necessary reduction allocations among the various
sources. The resulting allocation for the point source dischargers will then
be written into the next round of National Pollution Discharge Elimination
System permits.
The Clean Air Act requires a case-by-case Best Available Control Technology
(BACT) analysis for auto assembly plant painting and coating operations.
Whenever a facility makes any changes to its technology, it must go through
this time-consuming process, even though the BACT is typically the same in
each case. With this ECOS agreement, the Michigan Department of
Environmental Quality will test an innovative permitting approach under
which a 3 year BACT analysis will be developed for specific automotive
painting and coating sources. For a 3 year period, an auto assembly facility
will be able to use this 3 year BACT in lieu of performing a completely new
analysis. This new approach will save resources, which can then be used for
other activities with greater environmental benefits.
Minnesota
Andersen Windows
Project XL proposal for 3M
Under this Project XL agreement, the Andersen Window Corporation is testing
a new approach to reducing air emissions through the use of a performance
ratio. This ratio will measure the amount of volatile organic compound (VOC)
emissions per unit of production. The facility can make changes to its
processes as long as it stays below the performance ratio and the
facility-wide VOC cap. This performance-based system will give the facility
flexibility and provide an incentive for improved environmental performance.
The 3M Hutchinson plant was one of the original participants in Project XL.
The company's proposal sought to develop a multimedia permit that would
cover the facility's air emissions, storm water management, liquid storage
facility requirements, and hazardous waste generator requirements. In
exchange, 3M would commit to a number of requirements intended to enhance
the facility's environmental performance. Eventually, this proposal was
withdrawn from Project XL.
Appendix I
Key Innovations Identified by States
(Continued From Previous Page)
Statea Description of innovations cited by state officials
New Hampshire
Groveton Paper Mill
Management of Inactive Asbestos Disposal Sites in Nashua and Hudson, New
Hampshire In April 2002, Groveton Paper Board, Inc. would have been required
to install a $1 million system to capture and incinerate emissions of
airborne methanol. The company found an alternative pollution control
technology that has the potential to cut methanol emissions by four times
what is required by law, while saving the company $825,000. In addition, the
new technology will reduce 20 tons per year of other hazardous air
pollutants.
Over 250 sites in Nashua and Hudson, New Hampshire were contaminated with
asbestos when a local asbestos manufacturing plant delivered asbestos to
landowners to use as fill. EPA determined that these sites qualified as
"inactive disposal sites" and "stationary sources" under the National
Emission Standards for Hazardous Waste Pollutants (NESHAPS). As a result,
the sites were subject to a number of requirements, many of which were
unreasonable for homeowners. The New Hampshire Department of Environmental
Services worked with EPA to find a reasonable solution. Eventually, they
used a mechanism in 40 CFR 63.93 that allows a state rule to be substituted
for the federal regulation. In September, they provided a draft proposal to
EPA, and currently they are working with EPA for a resolution.
New Jersey
Gold Track The Gold Track Program is a Project XL initiative. It is part of
a tiered system that is designed to reward companies that commit to higher
levels of environmental performance. The Gold Track is the highest tier in
the system and it provides recognition and regulatory flexibility for
facilities that commit to the highest standards of environmental
performance.
New York
Project XL proposal for IBM Fishkill facility
Project XL proposal for storage of hazardous waste by public utilities The
IBM Fishkill facility is a manufacturer of semiconductor and electronic
computing equipment. The facility's wastewater sludge is classified as
hazardous waste under the Resources Conservation and Recovery Act. The
facility would like to test an alternative approach that involves recycling
this waste for reuse in cement. Under Project XL, EPA has decided to grant
regulatory flexibility to the facility to recycle the sludge.
Under RCRA, generators of hazardous waste must transport their waste to
permitted treatment, storage, and disposal facilities. Under this agreement,
public utilities in New York State will be able to consolidate the waste
from remote locations at a central collection facility and store it there
for up to 90 days before transporting it to one of these facilities. This
project is intended to increase public safety by facilitating removal of
hazardous waste and decreasing the risk of accidental release; to increase
efficiency of transportation of hazardous wastes for public utilities; and
to save time and resources for public utilities and the New York Department
of Environmental Conservation.
Appendix I
Key Innovations Identified by States
(Continued From Previous Page)
Statea Description of innovations cited by state officials
Oregon
Green Permits
Green Permit for LSI Logic
Established by state legislation, the Green Permits Program is designed to
encourage facilities to achieve greater environmental performance than
required by law, and to adopt environmental management systems in exchange
for incentives such as regulatory flexibility, public recognition, and a
single point of contact with the agency. EPA's involvement is spelled out in
a memorandum of agreement (MOA) between the Oregon Department of
Environmental Quality, the Lane Regional Air Pollution Authority, and EPA.
The MOA is based on the principles of the Joint State/EPA Agreement to
Pursue Regulatory Innovation. Currently seven facilities are participating
in the program.
LSI Logic is a semiconductor facility in Gresham, Oregon, that participates
in the Green Permits Program. Among other things, the facility's Green
Permits Application requests equivalency under Subpart BB of the Resource
Conservation and Recovery Act, which is related to monitoring, detection,
and repair of leaks from equipment that handles hazardous waste. LSI Logic
contends that its equipment, while not meeting the exact requirements of the
regulations, performs in a manner that is equal or superior to the
technology that is required. EPA and the state have preliminarily determined
that the firm's approach is acceptable, and the parties are now in the
process of identifying a legally-enforceable alternative for the facility,
such as a site-specific rule.
Pennsylvania
Acid Mine Reclamation
Lucent Technologies Project XL
This Project XL program is designed to encourage coal miners to remine and
reclaim abandoned coal mine sites. Under current regulations, operators must
meet numeric limits under the National Pollutant Discharge Elimination
System (NPDES) at individual discharge points. Operators may be reluctant to
engage in remining activities because they may exceed these limits because
of pre-existing discharges from closed mines. Under this project, operators
can use Best Management Practices and monitor the concentration of
pollutants in-stream, which is expected to reduce risk and expense to coal
mine operators, improve water quality, and increase the number of operators
participating in remining and reclamation activities.
The Lucent Technologies Microelectronics Group entered into a Project XL
Agreement with EPA that is designed to test whether an environmental
management system (EMS) could be used to develop a single document to cover
all environmental aspects of a regulated entity that has demonstrated
superior environmental performance. It will also explore, among other
things, whether it is appropriate to use an EMS as a basis for granting
regulatory flexibility and if there are regulatory approaches that are
cheaper, cleaner, and smarter ways of protecting the environment.
Texas
Transportation Equipment Established under the Joint EPA/State Agreement to
Pursue Regulatory Innovation, this initiative
Cleaning Partnership seeks to allow "barge scale" (iron oxide) material
produced during the barge-cleaning process as a marketable product.
Currently classified as either industrial or hazardous waste, the material
is transported and treated at an off-site RCRA facility, with any remaining
residue placed in an authorized landfill. Under this agreement, the
participating facility would use its onsite thermal oxidizer to convert the
material for use as a product. This project is expected to result in reduced
risk for exposure to hazardous materials for employees, the public, and the
environment and in resource savings for the participant.
Appendix I
Key Innovations Identified by States
(Continued From Previous Page)
Statea Description of innovations cited by state officials
Virginia
Project XL for Merck Stonewall Plant
Hopewell Regional Wastewater Treatment Facility
The Merck Stonewall plant is located near the Shenandoah National Park in
Virginia-an area of special concern for air quality. Merck was one of the
first participants in Project XL and its proposal was designed to improve
air quality in the area. Under the agreement, Merck agreed to convert its
coal-burning powerhouse to burn natural gas, resulting in lower levels of
emissions. In exchange for this commitment, the facility would be allowed to
function under an emissions cap for criteria pollutants, allowing Merck to
make process changes without first obtaining EPA approval.
This proposal, submitted under the Joint State/EPA Agreement to Pursue
Regulatory Innovation, seeks EPA's approval for a modification of
pretreatment requirements for the Hopewell Regional Wastewater Treatment
Facility under the Clean Water Act. The facility treats wastewater from a
number of industrial facilities and current regulations require that
standards for water quality must be met at the industrial users'
end-of-pipe. The standards were designed for treatment facilities that treat
domestic wastewater and because the facility only treats industrial
wastewater, the Hopewell Wastewater Treatment Facility would like these
requirements modified to allow it to meet the standards at its own
end-of-pipe, thus eliminating redundant treatment processes and resulting in
improved quality in the receiving stream.
Wisconsin
Environmental Cooperative Agreement for the Wisconsin Electric Power Company
Project XL proposal for the Wisconsin Electric Power Company The
Environmental Cooperation Pilot Program (ECPP) was developed by the
Wisconsin Department of Natural Resources to allow facilities to test
innovative approaches to environmental protection in exchange for superior
environmental performance. Through the program, which is supported by the
Wisconsin statute, the DNR is authorized to enter into agreements with up to
10 different facilities in the state. The Pleasant Prairie Power Plant is
one of the participating facilities. Under the agreement, the facility
commits to a number of measures, including the use of pollution prevention
techniques and the adoption of an environmental management system. In
exchange, the facility will enjoy the benefits of alternative monitoring,
reduced reporting, permit streamlining and recovery and combustion of ash
stored in the company's landfills.
The Project XL proposal for Wisconsin Electric Power Company was designed to
create an integrated, multi-pollutant air quality approach for all six of
the company's coal burning power plants. Under the agreement, Wisconsin
Electric would meet certain limits for sulfur dioxide, nitrogen oxides, and
particulate matter that are more stringent than current requirements. In
exchange for this, Wisconsin Electric would be granted flexibility in making
certain changes at the facilities. Specifically, it would be exempt from
some of the requirements for New Source Review, Prevention of Significant
Deterioration and New Source Performance Standards if the changes meet
certain qualifications. This agreement was expected to give Wisconsin
Electric incentive to make improvements to the system and to result in lower
emissions, while resulting in cost savings due to paperwork reduction and
efficiency gains for Wisconsin Electric and Wisconsin Department of Natural
Resources. To date, EPA has not approved this proposal.
a Georgia, Nebraska, Tennessee, and Washington also participated in
interviews, but they did not identify an innovation that they proposed to
EPA.
Appendix II
GAO Contact and Staff Acknowledgments
GAO Contact Steve Elstein (202) 512-6515
Staff In addition to the individual named above, Mike Hartnett and Stephanie
Luehr contributed significantly to this report. Kimberly Clark, Karen
Acknowledgments Keegan, and Jonathan McMurray also made significant
contributions.
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