Resolving the Paradox of Environmental Protection

The next big breakthrough in environmental management is likely to be a series of small breakthroughs. Capitol Hill may be paralyzed by a substantive and political impasse, but throughout the United States, state and local governments, businesses, community groups, private associations, and the Environmental Protection Agency (EPA) itself are experimenting with new ways to achieve their goals for the environment. These experiments are diverse and largely uncoordinated, yet they illustrate a convergence of ideas from practitioners, think tanks, and academia about ways to improve environmental management.

One hallmark of the management experiments is an increased emphasis on achieving measurable environmental results. A second hallmark is a shift away from the prescriptive regulatory approaches that allowed EPA or a state to tell a company or community how to manage major sources of pollution. The experimental approaches still hold companies and communities accountable for achieving specified results but encourage them to innovate to find their own best ways to meet society’s expectations for their total operations. The experiments share a third hallmark: They encourage citizens, companies, and government agencies to learn how to make better environmental decisions over time.

EPA is initiating some of those changes, as well as responding to initiatives taken by state and local governments, groups, and companies. A report published by the National Academy of Public Administration (NAPA) in September 1997, entitled Resolving the Paradox of Environmental Protection: An Agenda for Congress, EPA, and the States, identified and analyzed some of the most significant environmental initiatives under way in the United States, including EPA’s Project XL pilots, state efforts to encourage businesses to learn about and correct their environmental problems, and the implementation of the National Environmental Performance Partnership System (NEPPS) with the states. The report also focused on the challenge of developing performance indicators and an environmental information system that could support the new management approaches.

The increased emphasis on performance-based management responds to two social goals: increasing the cost-effectiveness of pollution controls and ensuring that the quality of the nation’s environment continues to improve. In the past, EPA and its state counterparts could exercise authority without much concern for the bluntness of their regulatory tools. Over time, the cost of many end-of-the-pipe pollution controls rose faster than the benefits they produced, so environmental improvement began to look too expensive. Now, however, the public expects agencies to strive for more cost-effective and less disruptive approaches.

EPA, state environmental agencies, and the regulated community need to accelerate the shift to performance-based protection, because several environmental problems are likely to become more serious and more expensive to manage in traditional ways. Chief among those problems are emissions of greenhouse gases, which may produce global climate change; polluted runoff from farms, urban streets, and lawns; the deposition of persistent organic pollutants and metals from the air into water bodies; and the destruction or degradation of critical natural habitats, including wetlands. Continued economic growth in the United States and in the developing world will also increase certain types of environmental stresses, particularly those caused by consumption of fossil energy.

EPA could not manage most of these problems through traditional means for three reasons. First, these problems arise from disparate sources that are so small and numerous that traditional end-of-the-pipe pollution controls often are neither technically feasible nor politically acceptable solutions. Second, the problems often require action by more than one EPA program, and this is difficult under EPA’s “stovepiped” statutes and organization. Third, many of the problem-causing activities are within the legal spheres of state and local governments or of federal agencies other than EPA.

One of the most serious threats to rivers, lakes, and estuaries, for example, is the nutrients flowing directly from huge new feeding operations for hogs, chickens, and turkeys, and indirectly from farm fields where animal wastes are spread as fertilizer. EPA recently proposed that it begin regulating the largest feeding operations on the same basis as factories and municipal sewage plants. This is an important step, but addressing runoff from smaller feedlots and from farm fields will require technical assistance, economic incentives, and coordinated action under agricultural and environmental statutes, as the states of Maryland and North Carolina discovered after their nutrient-rich waters spawned outbreaks of Pfiesteria, a toxic microorganism that killed fish and sickened humans.

Fortunately, many of the new approaches that will allow the nation to manage its remaining environmental problems will also help improve the cost-effectiveness of environmental protection overall.

A paradox and an imperative

EPA’s central challenge is to learn to maintain and improve a regulatory program that is both nationally consistent and individually responsive to the particular needs of each state, community, and company. That paradox can be resolved only if the agency and Congress continue to adopt performance-based tools. These include information management systems, market-based controls, compliance-assurance strategies, regulations that encourage firms to choose among compliance strategies, and new partnerships with states and businesses. Each of these approaches creates incentives for regulated parties to improve their overall environmental performance without specifying how they should do so. The tools are more flexible and more challenging than traditional command-and-control regulations, because they encourage innovation by rewarding those who find the least expensive ways to achieve public goals. Performance-based tools can either augment or replace traditional regulatory approaches. They encourage experimentation and learning, and they reward individuals, firms, and public managers who develop and use environmental and economic data. The most promising of the tools will foster an integrated approach to environmental protection, one that looks at air quality, water quality, ecosystem health, human health, and other social values as a whole.

Much has changed in the 30 years since the United States instituted national pollution-control programs. Americans have become more sophisticated about environmental problems and have supported the broad development and distribution of environmental professionals throughout federal agencies, state governments, local governments, and nongovernmental advocacy groups. Congress and EPA helped create that dispersed management capacity through their policies of delegating federal programs to the states. Indeed, the nation now relies on state and local agencies to do most of the work of writing permits, finding and prosecuting violators, and communicating with the public about environmental conditions. In addition, technological advances have made remote sensing and continuous emissions monitoring possible for certain types of factories and environmental conditions, effectively automating the role of the environmental inspector. The proper incentives could speed the further development and use of advanced monitoring technologies in coming years.

These changes make it possible for EPA and the states to expand their use of less prescriptive tools to achieve public goals. In a 1995 report, Setting Priorities, Getting Results: A New Direction for the Environmental Protection Agency, a NAPA panel stressed the importance of building more flexibility into the regulatory system to address problems more effectively and keep the costs of environmental protection from rising. The academy urged the administration to continue to develop its Common Sense Initiative, which aims to customize regulations and incentives for specific industries, and to seek legislative authorization for a program to grant firms and communities flexibility if they do more than just comply with existing requirements. The academy urged EPA to find ways to integrate its management of air pollution, water pollution, and waste management, thus allowing individual firms, communities, industrial sectors, or states the opportunity to find efficiencies by taking a holistic approach to problem solving.

EPA pursued many of the academy’s recommendations in the regulatory reinvention program it announced in the spring of 1995. The agency has not sought congressional authorization for most of these programs, however. Instead, EPA has attempted to maximize the flexibility within its statutes and to manage its interactions with the public and the regulated community more effectively.

Creating options and accountability

Three environmental innovations-EPA’s Project XL, Minnesota’s self-audit strategy, and NEPPS-illustrate how the new management approaches attempt to create new options for regulated entities while also ensuring accountability to the public.

The letters in XL are a loose acronym for environmental “excellence” and corporate “leadership,” the two qualities the project was designed to unite. As originally promoted, Project XL would allow responsible companies and communities to replace EPA’s administrative and regulatory requirements with their own alternatives. Through as many as 50 facility agreements, Project XL would help demonstrate which innovative approaches could produce superior environmental performance at lower costs.

Although few XL agreements have yet come to fruition, those that have suggest that the goals of the initiative are well founded. Individual facilities have been able to find smarter ways to reduce their environmental impact than they would have achieved by merely complying with all of the existing air, water, and waste regulations. Weyerhaeuser, for example, reached an agreement with the state of Georgia and EPA that removes a requirement that a company paper mill invest in a new piece of air pollution control equipment and adds a commitment by the company to reduce bleach-plant effluent to the Flint River by 50 percent, improve forest management practices on 300,000 acres to protect wildlife, and reduce nonpoint runoff into watersheds. The Intel Corporation reached an agreement allowing a manufacturing facility outside Phoenix, Arizona, to change its production processes without the customary prior approval, provided that the plant keeps its air pollutants below a capped level and provides a detailed, consolidated environmental report to the community every quarter. The XL agreement allows Intel to innovate more rapidly than it otherwise could, and that has considerable value in the computer industry.

Relatively few companies have followed these leads, because XL proposals have often been mired in controversy and uncertainty. EPA insists that companies demonstrate that their proposals will achieve “environmental performance that is superior to what would be achieved through compliance with current and reasonably anticipated future regulation.” That test inevitably requires a degree of judgment that cannot be quantified. In the Weyerhaeuser case, for example, there is no way to prove that the improved land management practices will offset any environmental damage caused by the company’s break on installing air pollution control equipment. Because EPA lacks clear statutory authority to make such judgments, EPA managers have been very conservative about the proposals they accept. The fear of citizen suits has inhibited companies from proposing XL projects as well.

Intel’s executives decided to take a conservative approach in their proposal, avoiding any actions that would violate state or federal environmental standards or require any waiver from enforcement agencies. They feared that even if EPA blessed an XL package and promised not to enforce the letter of the law, they would be liable to lawsuits from citizens. One reason EPA stressed the importance of stakeholder participation in the original XL proposal was to reduce the likelihood of such suits. Presumably, participants in the negotiations would conclude that the final agreements were in the public interest and thus refrain from suing. To date, none of the agreements has been challenged in court.

At the time of this writing, EPA officials continue to assert that they can make Project XL work under existing statutory authority, but the legal underpinnings of the pilot projects have changed. Rather than promising to waive enforcement, EPA now adopts site-specific rules to cover the most complex projects. That is, the agency issues a rule under existing federal statutes that applies only to one site. Before issuing a rule, EPA determines that the statutes provide a legal justification for the rule. Although it eliminates the problem of firms being held liable for “breaking” laws, EPA’s solution creates another dilemma-setting precedents and raising questions of equity. If Intel’s emissions cap meets the requirements of the Clean Air Act, then why shouldn’t identical permits be legal for other minor sources of air pollution?

If EPA had clear statutory authority to approve more dramatic experiments, firms would be more likely to propose them. Certainty is important to firms if they are to put their reputations on the line while investing in a public negotiation.

Exploiting the power of information

The value that companies place on their reputations has created other opportunities for EPA and states to experiment with new approaches to achieving environmental protection. Companies’ response to the creation of the Toxic Release Inventory (TRI) demonstrated that merely publishing information about firms’ emissions rates could lead many firms to reduce those emissions. TRI seems to have worked because firms wanted to avoid being on the high end of the list and because it forcefully brought emissions rates to the attention of executives who previously had noted only that they were in compliance with regulations.

Various federal and state programs, including one managed by the Minnesota Pollution Control Agency, have begun to use similar information-based tools. In Minnesota, companies or municipalities that discover, report, and fix environmental violations are often able to avoid the fines or penalties that might have been imposed had a state inspector found the problems. A 1995 state law authorized this approach to encourage firms and municipalities to conduct self-inspections or third-party environmental audits. (Minnesota does not grant these firms a right to evidentiary privilege or immunity as some states, including Texas and Colorado, have. EPA has pushed those states and others to rescind privilege and immunity statutes because unscrupulous firms could use them to avoid penalties for deliberate violations of environmental regulations.) Participating Minnesota companies receive a “green star” from the state. Thus, the statute provides companies with a new management option that stresses accountability over penalties. Small businesses have been exercising that option rather than face inspections by state officials. The result appears to be broader compliance among businesses that had historically operated below the state’s radar.

On a grander scale, the International Standards Organization (ISO) has developed ISO 14001 standards for corporate environmental management systems. ISO-“certified” firms and organizations maintain that the voluntary process delivers real environmental improvements, usually as a byproduct of the attention it focuses on materials use and waste management. EPA’s Environmental Leadership Program, a reinvention initiative of the Office of Enforcement and Compliance Assurance, has been encouraging firms to adopt ISO 14001 or similar environmental management systems. Some EPA officials and industry experts have speculated that ISO-certified firms might qualify for expedited permitting, looser reporting standards, or other incentives that would encourage and reward voluntary commitment to careful environmental management. However, because ISO 14001 is neither an enforceable code nor suitable for most small businesses, it is not a panacea.

These information-based tools establish incentives for improved performance while also making the public and private environmental management system better informed and thus better able to make performance-enhancing decisions. They are dynamic in ways that traditional end-of-the-pipe technology standards generally are not.

New opportunities for states

In perhaps its boldest reinvention experiment, EPA signed an agreement with the states in 1995 that created NEPPS, which attempts to establish more effective, efficient, and flexible relationships between EPA and state environmental management agencies.

Before NEPPS, the air, water, and waste division managers in EPA’s regional offices would sign individual agreements with their state counterparts spelling out how much federal money the state programs would receive and specifying requirements such as how many inspections state employees would have to conduct and how many permits they would have to issue. Throughout the 1980s and early 1990s, state commissioners grew increasingly frustrated with these agreements, because they tended to focus on bureaucratic activities rather than environmental results and because they were the vehicles EPA used to allocate its numerous categorical grants to specific activities. NEPPS has begun to structure EPA-state agreements around efforts to address specific environmental problems. State commissioners now may negotiate a single comprehensive agreement with the agency and pool much of the federal grant money that used to be categorically defined. EPA and the states are attempting to develop sets of performance measures that will keep the agencies’ attention on the environment rather than on staff activities.

After almost three years of implementation, some 40 states are participating in the new system at some level. Some states are attempting to use the process of negotiating a performance partnership agreement as a vehicle for increasing public involvement in priority setting. The New Jersey Department of Environmental Quality, for example, is investing in developing indicators of environmental conditions and trends that will provide useful information to environmental professionals and the lay public. Nevertheless, NEPPS is still in its infancy. The real test of its effectiveness will come when states, EPA, and the public must decide what to do if the core performance measures show little progress. NEPPS will work only if the states and the public are interested enough and EPA is resolute enough to insist on better performance.

Meanwhile, the demands of EPA’s own enforcement office and inspector general have tended to reinforce the old ways of doing business and discourage risk taking, just as the threat of citizen suits has discouraged XL agreements. Some states are still not interested in NEPPS, perceiving it as a waste of energy as long as EPA still requires them to submit information on the old bureaucratic measures and as long as EPA holds onto its traditional oversight tools: the right to bring enforcement actions in states and to remove delegated programs from a state’s control.

If it can be successfully implemented, NEPPS will be the perfect complement to the ultimate reinvention experiment endorsed by Congress: the Government Performance and Results Act (GPRA) of 1993. GPRA requires EPA and all other federal agencies to supply Congress with a strategic plan, a set of measurable goals and objectives, and periodic reports on how well the agency is making progress toward those objectives. The NEPPS agreements could provide the foundation of such an effort.

Needed: Better data

The key to success for all the performance-based systems described above is for EPA, the states, and the public to have access to an extensive base of reliable authoritative information about environmental conditions and trends. EPA’s information systems are not yet adequate to meet that challenge.

Technological advances are beginning to make it possible for agencies to collect, manipulate, and display far richer and more extensive information about environmental conditions. It is becoming cheaper and easier to measure emissions and environmental conditions remotely as well as automatically. Increasingly, firms and states can submit reports electronically, making it possible for all environmental stakeholders to have quick and easy access to environmental information.

Even so, technology’s promise to dramatically improve decisionmakers’ access to information about environmental conditions and trends has not yet been realized. Despite large public and private investments in environmental monitoring and reporting, the nation does not have a comprehensive and credible environmental data system. That deficiency makes it difficult for decisionmakers and the public to answer basic questions about the effectiveness of environmental regulatory programs. The problem has several components: The data available to EPA are incomplete, fragmented among different program offices and their databases, and often unreliable. And there are more basic gaps in scientific understanding of environmental problems, their causes, and their consequences. EPA has struggled for years to address these information problems, and it is not yet clear that the agency or Congress has put in place a program that will soon produce objective, credible, and useful environmental statistics.

Congress must play

Taken as a whole, EPA’s reinvention initiatives are moving the nation’s environmental management system in a positive direction. To date, however, those initiatives have operated only at the margins of EPA’s core programs and will continue to be of only marginal importance unless Congress and the agency strengthen their commitment to experimentation and change. The states’ actions are broadening the base for reinvention and making many of the tools of performance-based management familiar to business managers, regulators, and the general public. As that base broadens, the impasse at the federal level will probably dissolve.

EPA’s underlying structural problems, its authorizing statutes, and the fragmentation of congressional committees with a role in environmental issues all remain barriers to effective multimedia action and performance-based management. The agency’s media offices still do the bulk of the day-to-day business and still focus on chemical-by-chemical, source-by-source regulation. State agencies, professional networks, funding channels, advocacy groups, and congressional committees have replicated that structure, creating enormous structural inertia. One product of that inertia is inefficiency. Even if every one of EPA’s regulations made perfect sense by itself, they could not add up to the ideal environmental management regime for different kinds of facilities operating in different geographical settings with different population densities and weather conditions. The nation’s physical, economic, and political conditions are too varied for the old regulatory approaches to fit well across the nation. A focus on performance will improve the application of those approaches, but ultimately EPA needs a more effective way to address problems and facilities holistically, as Project XL is striving to do. Every EPA administrator has struggled with those problems. Eventually, Congress will need to help resolve them.

EPA has not acted on two of the major recommendations in Setting Priorities, Getting Results: producing a comprehensive reorganization plan to break down the walls between the media offices and developing a comprehensive integrating statute for congressional action. One reason for the lack of progress has been the fierce party partisanship on Capitol Hill. Although it is not clear when the political climate will be more conducive to progress on such a difficult task, the academy’s recommendations for changes will remain relevant and important. To better integrate policymaking across program lines, EPA should study the effects that reorganization has had on its regional offices and the states they serve as well as the reorganizations that several state environmental agencies have undertaken. The New Jersey Department of Environmental Protection, for example, has integrated its permitting systems, which may suggest lessons for EPA.

Another of the most politically challenging recommendations in the 1995 report remains untouched: Congress has not consolidated its committees that have roles in environmental oversight. That continued fragmentation of responsibility in Congress takes its toll on EPA-and on the environment itself-by reinforcing fragmented approaches in the agency. Until Congress reforms itself and its systems, the promise of a fully integrated environmental program will not be met.

EPA has tried numerous strategies in the past few years to overcome some of the challenges created by its patchwork of authorizing statutes. Significant progress, however, will require statutory reform. By beginning a gradual legislative process to integrate EPA’s authorities, Congress would encourage EPA to seek the most efficient ways possible to improve the nation’s environment. It is important to restate the obvious: The nation’s environmental statutes, and EPA’s implementation of them in partnership with the states, have accomplished great environmental gains that benefit all Americans and strengthen the nation’s future. It is also obvious that the nation needs to do more to improve the quality of the environment-domestically and globally-and to find better ways to do that work.

Congress should lead that change by working with EPA to develop an integrating statute-a bill that would leave existing statutes essentially intact while beginning a process to harmonize their inconsistencies and encourage integrated environmental management. The integrating statute should be more modest, less threatening, and hence more pragmatic than a truly unified statute. The bill should accomplish the following five objectives:

1. Congress should articulate its broad expectations for EPA in the form of a mission statement.
2. Congress should direct EPA to integrate its statutory and regulatory requirements for environmental reporting, monitoring, and record keeping. This effort should eliminate redundant or unnecessary reporting requirements, fill reporting or monitoring gaps where they exist, and establish consistent data standards. This would make the information more useful to public and private managers, regulators, and the public.
3. Congress should direct EPA to conduct a series of pilot projects to fully test the ideas that inspired Project XL. The statute should authorize EPA to use considerable discretion to develop model projects for multimedia regulation, pollution reduction, inspections, enforcement, and third-party certification of environmental management systems. The goals of such pilot projects should be to develop the most productive ways to achieve environmental improvements on a large scale. Thus, some of the pilots might test the potential for future multimedia regulation of specific sectors, or opportunities for interrelated businesses and communities to achieve their environmental and social goals through totally unconventional means requiring more freedom to innovate than the statutes currently permit.
4. The statute should affirm that Congress authorizes and encourages EPA to use market-based mechanisms such as trading systems to address pollutants, including nonpoint pollutants, when the agency believes they would be appropriate.
5. Congress should direct EPA to support a series of independent evaluations of the pilot projects and other activities that it authorizes under the statute. EPA should also provide biennial reports to Congress that include analysis of its accomplishments and barriers to accomplishment, as well as recommendations for congressional action.

Adopting such a statute would have substantive and symbolic value. Substantively, the statute would authorize changes that should enhance the nation’s ability to make new environmental improvements at the lowest possible cost. By authorizing experiments in multimedia management, for example, the statute should encourage innovations that would reduce nonpoint pollution or ecosystem damage. Symbolically, the statute would settle the debate within EPA and the regulated community about whether integrated performance-based protection is important, appropriate, or legal.

In the months that have elapsed since NAPA published its report, it has become clear that the passage of environmental legislation of almost any kind is highly unlikely within the next year or two. Two bills have sparked some interest, though neither is gaining much momentum. A bill sponsored by Sen. Joseph Lieberman (D-Conn.) would authorize XL-type projects. Though it resisted any such legislation for a time, EPA is giving it some support. However, detailed procedural requirements in the bill leave business unenthusiastic while failing to overcome the skepticism of environmental advocates who have resisted XL from the start. The “Regulatory Improvement Act of 1997,” also known as the Thompson-Levin Bill after its sponsors, Sens. Fred Thompson (R-Tenn.) and Carl Levin (D-Mich.), would require federal agencies, including EPA, to conduct regulatory analyses, including a cost-benefit analysis of major regulations when issuing them. Although it boasts bipartisan support, the bill appears to be mired in the stalemate that emerged around risk assessment and cost-benefit analysis in the 104th Congress in 1995.

Nevertheless, the concepts sketched out here are becoming widely accepted in the states and among pragmatic policy advocates. If Congress continues to take GPRA seriously and if EPA and the states continue to take NEPPS seriously, there will be a demand for more and better indicators of environmental performance and trends. That in turn should help government agencies adopt the most effective tools for managing environmental problems.

Making protection automatic

The 18th-century economist Adam Smith showed how the “invisible hand” of free markets could foster innovation, competitive pricing, and economic growth. Two hundred years later, Garrett Hardin showed how the invisible hand could also produce the “tragedy of the commons”-the depletion of shared resources in the absence of a collective decision to manage them for the public good. Paradoxically, a combination of market forces and public actions can help the nation achieve its environmental goals. The United States needs to keep making collective decisions to protect and restore the environment for the public good and the well-being of future generations. To the maximum extent possible, however, the nation should attempt to employ invisible hands-the creative energy of millions of decisionmakers pursuing their self-interest-to achieve the nation’s environmental goals.

EPA, states, localities, and the regulated community need to develop more comprehensive, comprehensible, and useful measures of environmental conditions and trends. The increase in public understanding of the environment and environmental risks over the past four decades has motivated the incredible progress the nation has made in reducing pollution levels and restoring environments. But the public will need a deeper understanding if it is to make the increasingly sophisticated judgments needed for continued improvements at reasonable costs. EPA’s efforts to develop performance-based management tools will help the public participate more fully in managing the environment. Credible information about environmental performance, public policies that harness market forces, and public pressure-the expectation of a private commitment to the public welfare-may ultimately be enough to keep most businesses and communities operating on a track of continuous environmental improvement.